Strategy

• Lecture #8

“Strategy”

• Greek word origin (~400 B.C.)

• Pertained to the art and science of directing military forces

Six Basic Strategies

• Stability

• Product Development

• Market Development

• Vertical Integration

• Merger

• Retreat

Stability

• No new products, markets, acquisitions

• For example: Retain current market share.

• For example: 11% of market; 110,000 unit sales

Product Development

• New products for an existing market.

• Same customers will buy continuing line of products.

• Products aimed at same customer base.

Product Development

• RCA TV, Video Recorders, Video Discs

• Cereals: Plain, sugared, frosted, colors, shapes, characters, etc.

Chocolate Frosted Sugar Bombs

Market Development

• New markets for existing products

• New uses for existing products

• New geographic markets for existing products

Market Development

Market Development

• Japanese sports car to the U.S.

• Tried to get car renamed, because the translated name was “Fairy Princess”

• Automaker agreed to market the car using the internal production number

Market Development

• 8 oz. Servings

U.S. per capita: 310 / year

Russia per capita: / year

China per capita: / year

Vertical Integration

• Firm incorporates pre- or post- operation enterprise into its business

Tire Manufacturer Example

Tire Manufacturer

• Rubber Tree Plantation

• Rubber Processing Plant

• Tire Manufacturer

• Retail Store

• Consumer

Tire Manufacturer

• If buys out Rubber Processing Plant, this is known as Backward Vertical Integration

• Rubber Tree Plantation• Rubber Processing Plant• Tire Manufacturer• Retail Store• Consumer

Tire Manufacturer

• If buys out Retail Store chain, this is known as Forward Vertical Integration

• Rubber Tree Plantation• Rubber Processing Plant• Tire Manufacturer• Retail Store• Consumer

Vertical Integration

• Eliminates Middleman

• Which results in more profit potential for the firm

• ALSO…

Vertical Integration

• Reduces uncertainty

• For example, what happens if your supplier dries up?

• Or, your retail outlet no longer chooses to carry your product?

Merger

• A type of diversification.

• Firm enters a related business area. Examples: Mattel buys Tyco, Hershey buys Peter Paul.

• Firm enters unrelated business area. Example: Ralston Purina buys the Blues

Merger

Merger

• PepsiCo owns Pepsi Cola

• PepsiCo owns Frito Lay

PepsiCo

Retreat

• Firm gets out of businesses it once thought were good opportunities.

• Example: Ralston Purina

Ralston used to own:

• St. Louis Blues hockey team

• Tuna fishing operation

• Mushroom growing business

Retreat at Ralston

• Sold off these divisions

• Got back to basics