STRATEGIC MARKET MANAGEMENT REVIEWER
By Archie Alvarez
Subject: Strategic Market Management
Book: Strategic Market Management 5th ed
Author: David A. Aaker
SECTION 1: INTRODUCTION AND OVERVIEW
CHAPTER 1: Business strategy: the concepts and trends in its management.
A Business Strategy:
Six Dimensions
1.The Product market in which the business is to compete
2.The level of investment
3.The functional area strategies needed to compete in the selected product market.
4.The strategic assets or competencies that underlie the strategy and provide the sustainable competitive advantage (SCA)
5.The allocation of resources over the business units
6.The development of synergistic effects across the business – the creation of value by having business units that support and complement each
other.
Three Core elements
1.The product market investment decision
2.The functional area strategies
3.The basis of a sustainable competitive advantage
Strategic Thrusts: the Search for SCA's
Two Common Strategies
1.Differentiation Strategy
2.Low Cost Strategy
Other Strategies
1.Focus Strategy
2.Preemptive Strategy
3.Synergy Strategy
A Strategic Business Unit: any organizational unit that has (or should have) a defined business strategy and a manager with sales and profit responsibility
?Group business that have a high degree of commonality
?An SBU needs to have a sufficient size to support its organization
Strategic Market Management
1.Budgeting
2.Long range Planning
3.Strategic Planning
4.Strategic market Management
Strategic Market Management: Characteristics and Trends
1.External, Market Orientations
2.Proactive strategies
3.Importance of the Information Systems
4.On-Line Analysis and Decision making
5.Entrepreneurial Thrust
6.Implementation
7.Global Realities
8.Longer Time Horizon
9.Empirical Research
Interdisciplinary Developments
1.Marketing
https://www.doczj.com/doc/e9394370.html,anizational Behavior
3.Finance and Accounting
4.Economics
5.Strategy
Why Strategic Market Management?
1.Precipitate the considerations of strategic choice
2.Force a long range view
3.Make visible the resource allocation decisions
4.Aid strategic analysis and decision making
5.Provide a strategic management and control systems
6.Provide both horizontal and vertical communications and coordination systems
7.Help a business cope with change
CHAPTER 2: Strategic market management: an overview
External Analysis
Customer Analysis
Competitor Analysis
Understand competitors ….
?Performance
?Image and personality
?Objectives
?Current and past strategy
?Culture
?Cost structure
?Strengths and weaknesses
Market Analysis
Examine the markets….
?Size
?Growth prospects
?Market profitability
?Cost structures
?Distribution channels
?Market trends
?Key success factors
Environmental Analysis
Analyze using the following components
?Technological
?Governmental
?Cultural
?Economic
?Demographic
Internal Analysis
Performance Analysis
?Product Portfolio Analysis
Determinants of Strategic Options
1.Strategy Review
2.Strategic Problems
https://www.doczj.com/doc/e9394370.html,anizational capabilities and Constraints
4.Financial Resources and Constraints
5.Strengths and Weaknesses
Creating a Vision for the business
1.Core Values
2.Core Purpose
3.Goals
Strategy Identifications and Selection
1.Product market Investment Strategies
?Product Definitions
?Market Definitions
?Vertical Integration
?Growth Directions
?Product Market Growth Directions
?Investment Strategies
2.Functional Area Strategies
3.Bases of Sustainable Competitive Advantage
Selecting Among Strategic Alternatives
1.Consider scenarios
2.Pursue a sustainable competitive advantage
3.Be Consistent with organizational vision and objectives
4.Be Feasible
5.Consider the relationship to other firms strategies
?Balancing the sources and uses of cash flows
?Enhancing flexibility
?Exploiting synergy
SECTION 2: STRATEGIC ANALYSIS
CHAPTER 3: External analysis: overview and customer analysis
External Analysis
Affect strategic decision
The investment decision
The selection of functional area strategy
The development of sustainable competitive advantage
Additional analysis objectives
Strategic Uncertainties
Analysis
External as a Creative Exercise
The level of Analysis – Defining the market
When should an external analysis be conducted
The Scope of Customer Analysis
Segmentation
1.How should Segments be Defined
?Customer Characteristics
?Product Related Approaches
2.Benefits
3.Price Sensitivity
4.Loyalty (the loyalty matrix)
5.Applications
6.Multiple Segments versus a Focus Strategy
Customer Motivations
1.Qualitative Research
2.Changing Customer Priorities
Unmet Needs
https://www.doczj.com/doc/e9394370.html,ing Customer to Identify Unmet Needs
2.From unmet needs to new Products
https://www.doczj.com/doc/e9394370.html,ing lead users
Competitor Analysis
?Identity
?Strategic groups
?Performance – sales, growth, profitability indicators about its health
?Image & personality – How is it positioned and perceived
?Objectives – Is the competitor committed to the business? Does it aim for growth?
?Strategies (current & future)-what implications for future strategic moves?
?Culture – What is most important to the organization?
?Cost structure – Does it have a cost advantage?
?Strengths - Is the brand name strong, distribution, R&D…etc?
?Weaknesses –same “
Market Analysis
Has two objectives:
?To determine the attractiveness of the market or sub-markets. (Profitable or not)
?To understand the dynamics of the market so that threats and opportunities can be detected and strategies adapted ?Size – Considers the market potential
?Projected growth – Analyses need to assess the trend and product life cycle stage
?Profitability of the market - Depends on “five factors”
1.Number and vigor of existing competitors
2.Threat of new competitors
3.Threat of substitute products
4.Profit impact of powerful suppliers
5.Power of customer to force price concessions
?Entry barriers
?Cost structure – One issue is what value-added stage represents the most important cost component. Another cost issue is whether the industry is appropriate for a low-cost strategy based on the experience curve model (chapter 10)
?Distribution channel systems – what channels and trend can be of strategic value. Ex. Self-service retail gasoline, AM PM Convenience shop ?Trends –As this affects the current and future strategies of the firm…direction
?Key success factors – competitive assets or competencies needed to win in the market place. Some are strong in some areas and weak in other areas.
Environmental Analysis– It is important to limit the analysis to what is manageable and relevant, because it gets easily bogged down by excessive scope and volume
?Technological – can change the industry creating difficult decisions for firms committed to profitability, old technology, tradition of the firm, etc.
?Governmental – Firms in politically sensitive countries must be adaptive to regulations
?Economic – Helps in projecting the industry sales overtime and identifying special risks and threats
?Cultural – What has been accustomed to
?Demographic –Patterns are crucial to those whose customers are in certain age groups, such as infants, students, baby boomers, or retirees.
Geographic patterns can affect the investment decisions of such service firms as hotels
?Scenarios – Strategic uncertainties can create scenarios.
Optimistic
Pessimistic
In-between
Now each scenario should have a corresponding strategy
?Information-needs areas - Strategic uncertainties stimulated by external analysis component can generate an information-need area. So special studies and ongoing information gathering might be justified
Internal Analysis
Performance Analyses
?Profitability
?Sales
?Shareholder Value analysis – is based on generating a discounted present value of the cash flow associated with a strategy. Look forward and not results of past experiences
?Customer satisfaction – How are we doing relative to our competitors at attracting customers and building loyalty
?Product quality – Is the product delivering value to the customers and is it performing as intended.
?Brand association –What do customers associate with our business in terms of perceived quality, innovativeness, product class expertise, customer orientation value, …etc
?Relative cost – Are we at a cost disadvantage with respect to materials, assembly, product design, or wages
?New products – Do we have a stream of new products or product improvements that can have an impact
?Employee capability and performance – Assets and competencies
?Product portfolio analysis – Level of investment and resource allocation strategies
Determinants of strategic Options
?Strategy review-Milk? Maintenance? Or Growth? Has it involved differentiation or low-cost, What target segments, What is the SCA?
?Past and current strategies
?Strategic problems – Must be solved
?Organizational capabilities and constraints – Assets and competencies
?Financial resources and constraints – Financial resources available for investment
?Strengths and weaknesses – Future strategies to build on strengths and neutralize weaknesses.
Identification of Strategic Alternatives
Product-market investment strategies
Product-market scope
Growth direction – focus on what is dynamic and not static. The concept of PRODUCT-MARKET MATRIX with 4 growth options
Investment strategies
Functional Area strategies
Bases of competitive advantage – Assets, competencies, synergies
Market Definition– Businesses need to select markets in which they will have a competitive advantage
CRITERIA FOR STRATEGY SELECTION
?Consider scenarios suggested by strategic uncertainties and environmental opportunities / threats
?Pursue SCA
?Be consistent with co vision-mission – achieve long-term ROI which should be compatible with vision / objectives
?Be feasible – Must need only available resources and be compatible with the internal organization
?Consider the relationship to other strategies within the firm – Foster product portfolio balance, consider flexibility, exploit synergy Examples of Market Definitions
a.CUSTOMER CHARACTERISTICS
-Geographic–small communities as market for discount stores
-Type of organization– Computer needs of restaurants versus manufacturing firms versus banks versus retailers
-Size of firms– Large hospital versus medium versus small
-Lifestyle– Jaguar buyers tend to be more adventurous, less conservative than buyers of Mercedes Benz
-Sex– Mother of young children
-Age – Cereals for children versus adults
-Occupation– Paper copier needs of lawyers versus bankers versus dentists
b.PRODUCT RELATED APPROACHES
-User type– Appliance buyer, home builder, homeowner
-Usage– Heavy potato user – the fast food outlets
-Benefit sought– Dessert eaters – those who are calorie conscious versus those concerned with convenience
-Price-sensitivity –price sensitive Honda buyers versus the luxury Mercedes Benz
-Competitor – User of competing products
-Application – Professional users of chain saws versus homeowners
-Brand Loyalty – Those committed to Heinz versus price buyers
LOYALTY MATRIX
CHAPTER 4- Competitor Analysis
Questions to Structure Competitor Analysis
Who are the customers?
?Against whom do we usually compete?
?Who are our most intense competitors? Less intense but still serious competitors? Makers of substitute products?
?Can these competitors be grouped into strategic groups on the basis of their assets, competencies, and or strategies?
?Who are the potential competitive entrants? What are their barriers to entry? Is there anything that can be done to discourage them? Evaluating the Competitor
?What are their objectives and strategies? Their level of commitment? Their exit barriers?
?Cost structure? Advantage or disadvantage?
?Which is the most successful / unsuccessful competitor overtime? Why?
?What are the strengths and weaknesses of each competitor or strategic group?
?What leverage points (our strategic weaknesses or customer problems or unmet needs) could competitors exploit to enter the market or become more serious competitors?
?Evaluate the competitors with respect to their assets and competencies. Generate a competitor strength grid.
In addition to current competitors, it is most important to consider potential market entrants, such as firm that might engage in the following:
1.Market expansion – ex are firms operating in other geographical locations
2.Product expansion – firms takes advantage of technological and distribution overlaps. Ex. Leading ski firm, moving into tennis equipment also.
3.Backward integration – Customers are potential source of competition. Firm goes into own production
4.Forward integration – Suppliers are also potential competitors
5.Export of assets and competencies – a current small competitor with critical strategic weaknesses can turn into a major entrant if it is purchased
by a firm that can reduce or eliminate those weaknesses.
6.Retaliatory or defensive strategies – Ex. Microsoft moved into networking when networking leader Novel made a move into word processing,
graphics, and excel
Pointers in Understanding the competitors: (must analyze the following that might have an impact on the firm)
1.Size, growth, profitability – Indicators of the vitality of the business strategy
2.Image and positioning –A competitor’s image and positioning can be deduced in part by studying a firm’s products, advertising, packaging, and
actions.
3.Objectives and commitment –Provides the potential to predict whether or not a competitor’s present performance is satisfactory or strategic changes
are likely
4.Current and past strategies –a knowledge of a competitor pattern of new product or new market moves can help anticipate its future growth
directions
https://www.doczj.com/doc/e9394370.html,anization and culture
?Knowledge about the background and experience of competitor can provide insights into future actions
6.Cost structure
?Competitors especially those relying on low-cost strategy can provide future indication of its likely future pricing and staying power. The following can provide insights into cost structure:
a.# of employees and rough breakdown of direct labor (variable cost) and overhead (which will be part of fixed cost)
b.Relative raw materials cost and purchased components
c.Investment inventory, plant and equipment (also fixed cost)
7.Exit barriers –Crucial to firm’s ability to withdraw from a business area
8.Strength and weaknesses – Provides insights to pursue various strategy
COMPETITOR STRENGTHS AND WEAKNESSES
?To analyze the Strengths and Weaknesses, it is important to:
Assess what are the relevant Assets and Competencies
1)Why are successful businesses successful? And why unsuccessful businesses not successful?
?By definition, assets and competencies that provide SCA should affect performance overtime, thus businesses that differ with respect to performance overtime should also differ with respect to assets and competencies
2)What are the key customer motivations?
?What drives buying decisions
?Analysis of customer motivation can also identify assets and competencies that a business will need to deliver
3)What are the large cost components of the product or services?
?Can reveal which value-added stage represents the largest percentage of total cost
4)What are the industry mobility barriers?
?Mobility barriers include both entry barriers and barriers to movements from one strategic group or competitive arena to another
5)Which component of the “VALUE CHAIN” can provide create competitive advantage
Michael Porter conceptualized the value chain of competitors as one way to expose differences that determine competitive advantage:
A business value chain consist of two types of value-creating activities:
1. PRIMARY VALUE ACTIVITIES
?Inbound Logistics –materials
handling and warehousing
?Operations –transforming inputs
into the final product
?Outbound logistics –order
processing and distribution
?Marketing and Sales –
communication, pricing, and
channel management
?Service –installations, repairs,
parts
2. SECONDARY VALUE ACTIVITIES
?Procurement - procedures and information systems
?Technology development – improving the product and processing systems
?Human Resource development – hiring, training, and compensation
?Firm infrastructure – general management, finance, accounting, government relations, and quality management
ANALYSIS OF STRENGTHS AND WEAKNESSES
Innovation
?Technical product or service superiority
?New product capability
?R&D
?Technologies
?Parents
Manufacturing
?Cost structure
?Flexible production operations
?Equipment
?Access to raw materials
?Vertical integration
?Workforce attitude and motivation
?Capacity
Finance – Access to capital
?From operations
?From net-short term assets
?Ability to use debt and equity financing
?Parent’s willingness to finance
Management
?Quality of top and middle management
?Knowledge of business
?Culture
?Strategic goals and plans
?Entrepreneurial thrust
?Planning / operation system
?Loyalty – turnover
?Quality of strategic decision-making
Marketing
?Product quality reputation
?Product characteristics / differentiation
?Brand name recognition
?Breadth of product line – systems capability
?Customer orientation
?Segmentation / focus
?Distribution
?Retailer relationship
?Advertising / promotions skills
?Sales force
?Customer service / product support
Customer base
?Size and loyalty
?Market share
?Growth of segments served
CHAPTER 5: Market analysis
Dimensions of Market Analysis
The nature and content of an analysis of a market and its relevant product markets will depend on context, but will often include the following dimensions: ?Actual and potential market
?Size and Market growth – How big? Potential?
?Market profitability – what are the important sub-markets? How intense is competition existing among firms? What is the bargaining power of suppliers and customers? How attractive the /profitable are the markets and sub markets both now and future?
?Cost structure – what are the major costs and value added components for various types of competitors?
?Distribution system – what are the alternative channels of distribution?
?Trends and developments – What are the trends in the market?
?Key success factors – What are the key success factors, assets, competencies needed to compete successfully?
Market Profitability Analysis(Porter’s 5-Factor Model of Market Profitability)
Existing competitor analysis
1.Number of competitors
2.Their relative size
3.Whether their product offerings and strategies are similar
4.Existence of high fixed cost
https://www.doczj.com/doc/e9394370.html,mitment of competitor to defend turf
6.Size and nature of exit barriers
Potential Competitors:
1.Capital investment required - as in mining, or automobiles require large investments
2.Economies of scale – exists in production, advertising, distribution, etc.
3.Distribution channels – gaining distribution channels in some markets can be difficult and costly. Ex. Even large firms have hard time to get
shelf space in supermarket
4.Product differentiation –Established firms may have levels of customer loyalty caused and maintained by protected product features, brand
name and image, advertising, and customers service
Substitute Products
?Substitute products compete with less intensity than do the primary competitors. They are still relevant. However, they can influence the profitability of the market and can be a major problem.
Customer Power
?Can force prices down or demand more services, affecting profitability
Supplier Power
?When the supplier industry is concentrated and sells to a variety of customers in a diverse market, it will have a relative power influencing the price
COST STRUCTURE
Value Added and Key Success factors
Production stage
?Raw material procurement
?Raw materials processing
?Production fabricating
?Assembly
?Physical Distribution
?Marketing
?Service back-up
?Technology development
DISTRIBUTION SYSTEM
1.Find out what are the alternative distribution channels
2.What are the distribution trends?
3.What channels are growing in importance?
4.What channels have emerged or are likely to emerge?
5.Who has the power in the channel, and how is that likely to shift?
RISKS IN HIGH GROWTH MARKET
https://www.doczj.com/doc/e9394370.html,petitive Risk
?Overcrowding
?Superior competitive entry
2.Market Changes
?Changing Key success factors
?New technology
?Disappointing growth
?Price instability
3.Firm Limitation
?Resource constraints
?Distribution available
CHAPTER 6: Environmental analysis
Dimensions of environmental Analysis
1.Technology
? Trends or technological events occurring outside the market or industry that have potential impact on strategies
https://www.doczj.com/doc/e9394370.html,ernment
? Addition or removal of legislative or regulatory constraints
3. Economics
?Evaluation of some strategies will be affected by judgments made about the economy, particularly about inflation and economic health as measured by unemployment and economic growth. Others are currency fluctuations, balance of payments, etc.
4. Information Technology
?Adaptability to modern technological advancement in systems
5. Culture
?Trends
6. Demographics
?Variables such as age, income, education, and geographical location
FORECASTING ENVIRONMENTAL TRENDS
1.Asking the right questions.
?What trends or events in the environment will affect the industry size, our strategies or those of our competitors
2.Trend Extrapolation
?Such as slow moving are usually predictable
3. Asking Experts
4. Decomposing Task
?Prediction can be better done by decomposing. Ex. First time buyers, second hand units, and those buying a replacement
5. Cross-impact analysis
?Set of methods designed to forecast an interrelated group of events
DEALING WITH STRATEGIC UNCERTAINTY
IMPACT ANALYSIS – ASSESSING THE IMPACT OF STRATEGIC UNCERTAINTIES
1.Impact of Strategic Uncertainty
2.Immediacy of Strategic Uncertainties
3.Managing strategic Uncertainties
SCENARIO ANALYSIS
1.Identify Scenarios
2.Develop Scenario Strategies
3.Estimate Scenario Probabilities
4.Perform Regret Analysis
CHAPTER 7: Internal analysis
S.V.A. – Shareholder Value Analysis
-A business is evaluated with respect to the value it creates for shareholders
Sales and Market share– a sensitive measure of how customers regard a product or service. Increase sales can mean expansion of customer base and an enlarged customer base, if we assume that new ones will become loyal translate to future sales and profit
Profits –Provide the basis for the internal or externally generated capital needed to pursue growth strategies, to replace obsolete plants and equipments, and to absorb market risk.
One profitability measure is ROA or return on asset
What is good performance measurement?
?Each business should earn an ROA that meets or exceeds the cost of capital, weighted average of cost of equity and cost of debt
Economic Value Added (E.V.A.)
-Provides an S.V.A. perspective to the evaluation of business performance that takes into account profit, cost of capital, and capital employed.
Formula:
E.V.A. = net operating profit – (Cost of capital x capital employed)
Where net operating profit = operating profit – taxes
PERFORMANCE MEASURES REFLECTING LONG TERM PROFITABILITY
1.Customer satisfaction and Brand Loyalty
2.Product / Service quality
3.Brand / Firm Association
4.Relative Cost
5.New Product activity
6.Manager / Employee Capability and Performance
RELATIVE COST VS RELATIVE PERFORMANCE
BENCHMARKING
?Comparing the performance with others
DETERMINANTS OF STRATEGIC OPTIONS
1.Past and Current strategies
2.Strategic Problems
https://www.doczj.com/doc/e9394370.html,anizational Capabilities / Constraints
4.Financial Capabilities / Constraints
5.Strengths and Weaknesses
BUSINESS PORTFOLIO ANALYSIS
BCG Matrix
SECTION 3: ALTERNATIVE BUSINESS STRATEGIES
CHAPTER 8: Obtaining a sustainable competitive advantage
OBTAINING A SUSTAINABLE COMPETITIVE ADVANTAGE Strategy – involves a variety of functional area strategies:
1.Positioning
2.Pricing
3.Distribution
4.Global strategies, etc.
The way to compete
?Product Strategy
?Positioning Strategy
?Manufacturing Strategy
?Distribution Strategy
Basis of Competition
?Assets and Competencies
Whom you compete against
?Competitor selection
How to compete is not the only thing… at least 3 factors are requisite for the creation of a S.C.A.:
1)Basis of competition – strategy should be based on a set of ASSETS & COMPETENCIES (w/o the support of assets or competencies, it is
unlikely that the SCA will be enduring
?No use pursuing quality strategy without the design and manufacturing competencies needed to deliver quality products
? A department store premium-service positioning strategy will not succeed unless the right people and culture are in place
? Activities of a business such as positioning a brand as one of high quality are usually imitated. What is less easy to imitate, however is the actual delivery of high quality that can require specialized assets and competencies.
2)Where you compete
?Choice of target product market
? A well-defined strategy supported by assets and competencies can fail if it does not work in the market place.
?It should involve something valued by the market
?Ex. Distribution of potato chips… it should have consistent product shelf life, crush proof container, and nutritional value,and national distribution in scope
3)Whom you compete against
?Identity of competitors
?Sometimes an asset or competency will form SCA only given the right sets of competitors
?So important to identify the weaknesses, strength, adequacy of the competitor with respect to the asset and competencies
?Goal is to engage in a strategy that will help match up with competitors’ lack of strength in relevant assets and competencies
?Ex. Flight safety is important to passengers, so if the strategic group such as economy class is perceived to be weak on safety, then SCA on your end should exist
Other Characteristics of SCAs
1.Substantial enough to make a difference.
a.Ex. If your advantage is producing marginally superior against competitor, it may not be perceived as adequate value in the market
place
2.Sustainable
a.Ex. Technological advantage can easily be replicated or countered. Pricing by Toyota was overturned by Korean cars.
b.If a strategy design confronts competitors who can neutralize or overcome the assets and competencies, there will not be a
sustainable advantage
3.Leveraged influences)
a.When possible, into visible business attributes that will influence customers
b.The key is to link an SCA with the positioning of a business
c.Assets and competencies that relate to ensuring reliability in products may not be apparent to customers
d.If they can be made visible through advertising or product design, then they can support a reliability positioning strategy. Examples of Sustainable Competitive Advantage
1.Quality Reputation
2.Customer Service / Product support
https://www.doczj.com/doc/e9394370.html, recognition / high profile
4.Retain good management and engineering staff
5.Low Cost production
6.Financial resources
7.Customer orientation / feedback / market research
8.Product line breadth
9.Technical superiority
10.Installed base customers
11.Segmentation focus
12.Product differentiation
13.Continuing product innovation
14.Market share
15.Size and location of distribution
16.Low-price / high value offering
17.Knowledge of business
18.Pioneer / early entrant
19.Efficient, flexible production
20.Effective sales force
21.Overall marketing skills
22.Shared vision and culture
23.Strategic goals
24.Location
25.Effective advertising image
26.Good coordination
27.Good distributor relation
28.Etc…
STRATEGIC THRUST– route to an SCA
?Means –generic business strategy; theme; or strategic orientation
?An umbrella concept that classifies the business approaches towards
obtaining an SCA into groups with a common theme
?Two of the most common thrusts are:
1.Differentiation - uniqueness
2.Low Cost
?Others:
3.Focus Strategy – focus on a market segment or part of a product line
4.Preemptive Strategy employs “first-mover advantages” to inhibit or
prevent competitors from duplicating or countering
5.Synergy Strategy –rely on synergy between a business and other
businesses in the same firm. Ex. GE and they called “ integrated diversity” – Their CT scanner (X-ray machine) also involved in a large installed base service network and it also operates other business involving technologies used in CT scanners
Results of Synergy:
?Increased number of customers
?Lower operating Cost
?Reduced investments
Generally-Synergy exploits some commonality in two operations such as:
?Customers and sometime applications (creating a system)
? A Sales force or channel of distribution
? A brand name and its image
?Facilities to use for manufacturing
?R&D staff
?Staff and operating systems
?Marketing and marketing research
ALLIANCES
?Obtaining instant synergy is the goal of alliances
Capabilities-Based Competition
?Suggests that the key building blocks of business strategy are not product and markets but rather “BUSINESS PROCESS”
?Investments made in building and managing a process that outperforms competition and can be applied across business can lead to a SCA ?Ex. New product development and introduction process like Japanese automobiles reducing process of production from 5 years to 3 years STRATEGIC VISION as a SCA
?S.V. provides a sense of purpose
?To manage a strategic vision successfully, a firm should have the ff
characteristics:
1.Clear future strategy-Core driving idea and a specific competitive arena
2.Buy-inn throughout the organization –belief in the correctness of the
strategy, an acceptance that the vision is achievable and worthwhile
3.Assets, competencies and resources to implement-plan should be made
and in place
4.Patience – Willingness to stick to the strategy
Strategic Opportunism
?Driven by focus on the present. The premise is that environment is so dynamic
and uncertain that it is not feasible to aim at a future target.
?Unless a firm is structured to have a strategic advantage in the present, it is unlikely to be strategically successful in the future
KEY LEARNINGS
1.To create SCA, a strategy needs to be valued by the market and supported by assets and competencies that are not easily copied or
neutralized by competition
2.The most common SCAs are:
?Quality reputation
?Customer support or service
?Brand Name
3.Synergy is often sustainable because it is based on the unique characteristics of an organization
4.Strategic opportunism focuses on the present and emphasizes current opportunities and strategic choices
5.Opportunism can lead to strategic drift, while a vision-based approach can lead to strategic stubbornness
6.Strategic flexibility provides a way for organization to exploit strategic opportunities and manage strategic problems
CHAPTER 9: Differentiation strategies
DIFFERENTIATION STRATEGIES
?Differentiation Strategy – different from 1 or more competitors in a way that is VALUED BY THE CUSTOMERS
Ways to differentiate
1.Something that can be done better than competitors
2.Extra product feature or service can be included
Example
?Ingredient or component – more expensive but better materials
?Product offering – IBM think pad weighs less than competing laptops
?Combining products – 3 in 1 coffee
?Value-Added service – Industrial rag business offers or provides laundries
?Breadth of product line – Amazon provides one-stop shopping experience
?Service back-up – Company provides high level of dealer service because of wide network of dealer
?Channel – Internet facility exposure
?Design – unique look
SUCCESSFUL DIFFERENTIATION STRATEGIES
1.Must generate customer value
?Must add value for the customer. A distinction should be made between APPARENT VALUE and ACTUAL VALUE
?Point of differentiation strategy is to develop differentiation from CUSTOMER’S PERSPECTIVE rather than from the PERSPECTIVE OF THE COMPANY
2.Provide perceived value
?Added value must be perceived by customer that is important to them
3.Be difficult to copy
?Like synergy and first-mover advantage, sustainability is likely
?When the point of differentiation involves a total organizational effort with a set of COMPLEX set of assets and competencies, it will be difficult to copy
TWO APPROACHES TO DIFFERENTIATION
1.Quality Option
?Perception that the product or service will be able to deliver service superior to
that of competitors. Ex. Reputation for Quality – UNILAB
?Perceive quality is dynamic and can change so it is important to change negative
perceived quality. Though difficult but can happen especially when customer
expectations are exceeded consistently
2.BUILDING STRONG BRANDS
?It creates a COMPETITIVE BARRIER
?Creating BRAND Equity–Set of assets and liabilities linked to brand’s name and
symbol that ADD to or SUBTRACT from the VALUE provided by a product or service to a firm and or that firm’s customers Brand Awareness
1.Serves to differentiate the brand along a RECALL and FAMILIARITY dimensions
Brand Association
2.Anything directly or indirec tly linked in the consumer’s memory to a brand
Brand Loyalty
3.Resistance to switching can be based on simple habit (there is no motivation to change from what has been familiar to)
4.Provides SCA since it reduces marketing cost of doing business since existing customers are relatively easy to hold than developing new
ones
KEY LEARNINGS
1.Successful differentiation strategy will provide customers with value (both perceived and actual) that is difficult for customers to copy
2.Differentiation can be based on a host of dimensions including design, ingredient or component, product line breadth, or service. Most of these
involve or emanate from a focus on quality and or a strong brand
3.Quality management and measurement have a variety of dimensions. The key is to determine what dimension will differentiate the product and
resonate with customers
CHAPTER 10: Obtaining an SCA: - Low Cost, Focus, and the Preemptive Move
COST FOCUS and PREEMPTIVE MOVE
LOW COST STRATEGIES
NO-FRILLS PRODUCT SERVICE
?Simply remove all frills and extras from the product or service
?Often without amenities
PRODUCT DESIGN
?Can create a cost advantage
? A variant is to augment a product with relatively high margin accessories or extra features and thus provide higher perceived value
PRODUCTION / OPERATIONS
?Enduring cost advantage can also be created through assets and competencies in operations.
?Can be based on access to raw materials, low cost distribution, cost of labor, government subsidies
SCALE ECONOMIES
?Scale reflects the natural efficiencies associated with size
?Fixed cost such as advertising, sales force overhead, R&D, staff work and facilities van spread over more units
EXPERIENCE CURVE
?Suggests that a firm accumulates experience in building a product, its cost in real dollars (net of inflation) will decline at a predictable rate.
?An 85% curve means that cost will be reduced by 15%
FOCUS STRATEGIES
AVOID STRATEGY DILUTION OR DISTRACTION
?To maintain a sustainable advantage against competition
COMPETE WITH LIMITED RESOURCES
? A business lacks resources to compete in a broad product market must focus to generate impact and to compete effectively
BYPASS COMPETITOR ASSETS / COMPETENCIES
?Try to avoid the competitor if cannot fight head-on
PROVIDE POSITIONING STRATEGY
? A focused strategy could lead to a good positioning different from competitors
REDUCE COMPETITIVE PRESSURES
?By staying focused because it will often have to compete with larger companies with economies of scale.
PREEMPTIVE MOVE
PRODUCT OPPORTUNITIES
?Key is to become the industry standard
?The best
?99.9% service level
?So nothing comes close!
PRODUCTION SYSTEMS
?Develop production process
?Expand Capacity
?Vertically integrate
CUSTOMERS
?Train customers in usage skills – become the familiar brands
?Get customers to make long term commitments
?Gain Specialized knowledge about customers set
DISTRIBUTION AND SERVICE SYSTEMS
?Occupy prime locations
?Dominate key distribution outlets
SUMMARY
ALTERNATIVE STRATEGIC THRUST
DIFFERENTIATION
?Ingredient
?Superior product offering
?Added Service
?Broad Product Line
?Quality
?Brand Name
FOCUS
?Product focus
?Segment focus
?Geography focus
SYNERGY
?Enhance customer value
?Reduce operational cost
?Reduce investment required
LOW COST
?No frills product
?Product design
?Production / operations
?Scale economies
?Experience curve
PREEMPTIVE MOVE
?Product
?Production System
?Gain customer loyalty / commitment
?Distribution / service
CHAPTER 11: Growth Strategies
Growth Strategies
Many forms have focused on improving performance by 1. downsizing restructuring;
2. redeploying assets; and
3. reducing costs. Most have or will soon come to the point of diminishing returns.
GROWTH IN EXISTING PRODUCT MARKETS
Increasing Market Share
Perhaps the most obvious way to grow is to improve market share. A program based on tactical actions (such as advertising, promotion, or price reductions) can be expensive and unprofitable, however, resulting in transitory share gains from attracting price-sensitive customers. Firms can generate a more permanent share gain by delivering solid value and there by creating customer’s satisfaction and loyalty. Developing the assets and competences that lead to this results, though often involves more heavy lifting than designing a price promotion. Another expensive and risky approach is to pursue increased market share by focusing on competitors and their customers.
Increasing Product Usage
When developing programs to increase usage, it is useful to begin by asking some fundamental questions about the user and the consumption system in which the product is embedd ed. Why isn’t the product or service used more? What are the barriers to increase used? Who are the light users and can they be influenced to use more? What about the heavy users? Heavy users are usually the most fruitful targets.
Provide Reminder Communications
For some use contexts, awareness, or recall of a brand, is the driving force. People who know about a brand and its use may not think to use it on particular occasions without reminders.
Reminder communication may be necessary.
Position for Regular or Frequent Use
Provide a reason for more frequent use.
Make the Use Easier
Packages that can be placed directly in a microwave make usage more convenient. A reservation service can help those who must select a hotel or similar service. Frozen waffles and Stove Top stuffing are examples of product modifications that increased consumption by making usage convenient.
Provide Incentives
Incentives can be provided to increase consumption frequency. Promotions such as double mileage trips offered by airlines with frequent-flyer plans can increase usage.
Reduce Undesirable Consequences of Frequent Use
Ex. Some people might believe that frequent hair washing may not be healthy. A product that is designed to be gentle enough for daily use might alleviate this worry and thereby stimulate increased usage. A low-calorie, low-sodium, or low-fat version of a food product may sharply increase the market.
Revitalize the Brand
The challenge is to revitalize the brand, to introduce some energy, vitality, and buzz into it. However, revitalization can occur often by simply acting young again within the same product-market application space.
New Applications for Existing Products Users
The detection and exploitation of a new functional use for a brand can rejuvenate a business that has been considered a has-been for years. New uses can best be identified by conducting market research to determine exactly how customers use a brand. Another tactics is to look at the applications of competing products. Sometimes a large payoff will result for a firm that can provide applications not currently in general use.
Consideration needs to e given to the possibility that a competitor will take over an application area by product improvement, heavy advertising, or other means, or will engage in price warfare.
PRODUCT DEVELOPMENT FOR THE EXISTING MARKET
1. Product Feature Addition
One type of product development is the addition of features to a firm’s current product. The right feature can dramatica lly change the competitive dynamics.
2. Developing New-Generation Products
Growth can also be obtained in an existing market by creating new-generation products. Federal Express, for example, is under attack from companies that are developing supply chain management systems designed to eliminate much of the unpredictability in their process (and thus the need for overnight shipments).
3. New Products for Existing Markets
A classic growth pattern is to exploit marketing or distribution strength by adding compatible products that share customer with but are different from
existing products. Synergy is usually obtained at least in part by the commonality in distribution, marketing, and brand-name recognition and identity.
H&R Block added legal services to its chain of income tax services, hoping to gain synergy by sharing office space and operations. A ski boot manufacturer added skis and then ski clothing. A major vehicle for product expansion is brand extension, exploiting a brand with strong awareness and associations by extending it into another product category. A rationale for product expansion is to achieve synergies.
MARKET DEVELOPMENT USING EXISTING PRODUCT
Expanding Geographically
?Geographic expansion may involve changing from a regional operation, moving into another region or expanding to another country.
Expanding into New Market Segments
Firm can also grow by reaching into new market segments.
?Usage: The nonuser can be an attractive target
?Distribution channel: A firm can reach new segments by opening up a second or third channel of distribution.
?Age: Johnson & Johnson’s baby shampoo was languishing until the company looked toward adu lts who wash their hair frequently.
?Attribute preference: An instrumentation firm might extend its line to include more precise equipment to serve a segment that requires greater accuracy.
?Application-defined market: American Airlines offered a door-to-door, same day package delivery service in conjunction with a shipping service.
Evaluating Market Expansion Alternatives
Is the market attractive?
Will customer value the product or service? Does it really offer meaningful and distinctive value? How formidable and committed are
competitors? Can their assets and competencies be neutralized by the right strategy? Are market and environmental trends supportive?
Do the resources and will exist to make the necessary commitment in the face of uncertainties?
Does the move make strategic sense? Compaq bailed out of the printer business despite having a superior product because the
prospects of catching HP and the other leader were too formidable. The commitment is lacking.
Can the business be adapted to the new market?
To the extent that conditions differ, is there a convincing plan to adapt the business?
Can the assets and competencies that are the heart of business success be transferred into the new business environment?
VERTICAL INTEGRATION STRATEGIES
Vertical integration represents another potential growth direction.
1.Forward integration occurs when a firm moves downstream with respect to product flow, such as a manufacturer buying a retail chain.
2.Backward integration is moving upstream such as when a manufacturer invests in a raw material source
3.The possible benefits and costs of vertical integration strategy.
Vertical Integration potentially provides:
?Access to supply or demand
?Control of the quality of the product or service
?Entry into an attractive business area
BUT introduces
?The risk of managing a very different business
? A reduction in strategy flexibility
CHAPTER 12: Diversification
DIVERSIFICATIONS
RELATED DIVERSIFICATIONS
A.Exporting Exchanging Assets and Competencies
B.Brand Name
Four types of associations
1.An image of high (or low) perceived quality
2.attribute associations with the brand or product class that are helpful in the new context
3.Attribute associations that would be negative in the new context
4.Associations with a product class.
The brand extension decision is largely based on three questions
1.Does the firm brand fit the new product class
2.Does the brand add value to the offering
3.Will the extension enhance the brand name and image
C.Marketing Skills
D.Capacity in Sales or Distributions
E.Manufacturing Skills
F.R & D Skills
G.Achieving Economies of scale
H.Risks of Related Diversifications
1.Similarities and potential synergy simply do not exists
2.Potential synergy may exist but it is never realized because of implementations problems
3.possible violations of antirust laws create an additional risk when an acquisition or merger is involved
4.an acquisition is overvalued
UNRELATED DIVERSIFICATION
A.Managing and Allocating cash flows
B.Entering business areas with high ROI Prospects
C.Obtaining a Bargain Price for a business
D.The Potential to Refocus a firm
1.Core Business
2.Successful diversifications
3.Unsuccessful diversification
4.Non-operating investment
E.Reducing Risk
1.Stockholder Risk versus Management Risk
F.Tax Implications
G.Obtaining liquid Assets
H.Vertical Integrations Motivations
I.Defending against a Takeover
J.Providing Executive Interest
K.Risks of Unrelated Diversifications.
L.Performance of Diversified Firms
ENTRY STRATEGIES
1.Internal Development
2.Internal Venture
3.Acquisitions
4.Joint venture or Alliance
5.Licensing from Others
https://www.doczj.com/doc/e9394370.html,cational Acquisition
7.Venture Capital and Nurturing
8.Licensing to Other
Selecting the right entry strategy
CHAPTER 13: Strategies in Declining and Hostile Markets
CREATING GROWTH IN DECLINING MARKETS
A.New Markets
B.New Products
C.New Applications
D.Revitalized Marketing
https://www.doczj.com/doc/e9394370.html,ernment-Stimulated Growth
F.Exploitations of Growth Submarkets
BE THE PROFITABLE SURVIVOR
MILK OR HARVEST
A.Conditions Favoring a Milking strategy
B.Implementation
C.When the premise are wrong
D.The Hold Strategy
DIVESTMENT OR LIQUIDATIONS
SELECTING THE RIGHT STRATEGY FOR THE DECLINING ENVIRONMENT
A.Market Prospects
https://www.doczj.com/doc/e9394370.html,petitive intensity
C.Performance / Strengths
D.Interrelationships with other businesses
E.Implementations Barriers
HOSTILE MARKETS
A. A hostile Industry
1.Phase 1 – Margin Pressure
2.Phase 2 – Share Shifts
3.Phase 3 – Product Proliferations
4.Phase 4 - Self Defeating Cost Reduction
5.Phase 5 – Consolidation and Shakeout
6.Phase 6 – Rescue
B.Strategies that win Hostile Markets
C.Focus on large customers
D.Differentiate on reliability
E.Turn Price into a Commodity
F.Have an effective cost structure
CHAPTER 14: Global Strategies
GLOBAL STRATEGIES
A global strategy in contrast is conceived and implemented in a worldwide setting and involves the following decisions.
1.In which countries should products be marketed and at what market share level in each?
2.To what extent should products and services be standardized across countries?
3.Where should the value-added activities such as, production and services, be located?
4.To what extent should the brand name and marketing activities, such as brand position, advertising, and pricing be standardized across
countries?
5.Should competitive moves in individual countries be part of a global strategy and, if so, what should that strategy be?
MOTIVATIONS UNDERLYING GLOBAL STRATEGIES
Obtaining Scale Economies
?Scale economies can occur from product standardization.
?Consider Coca –Cola, which since the 1950’s have employed a marketing strategy –the brand name, concentrate formula, positioning, and advertising theme – that has been virtually the same throughout the world.
?Several influential observers have suggested that the SCAs emerging from worldwide scale economies are becoming more important and that in many industries that they are becoming in necessary aspect of being competitive.
?In order to achieve maximum scale economies, a manufacturer would need to make all units in its home country. Yet, for many reasons, companies spread component production and final assembly throughout the world. Matsushita, which has 150 plants in 38 countries, has developed export centers as a way to gain the advantage of politically hospitable, low-cost host countries close to regional markets that will support substantial economies of scale.
Desirable Global Brand Associations
?Brand names linked to global strategies can have useful associations. For customers and competitors, a global presence automatically symbolizes strength, staying power, and the ability to generate competitive products. Such an image can be particularly important to buyers to expensive industrial products or consumer durable such as cars or computers because it can lessen concern that the products may be unreliable or rendered obsolete by technological advances.
Access to Low-Cost labor or Materials
?Another motivation for a global strategy is the cost reduction that results from access to the resources of many countries. Substantial cost differences can arise
Indicators That Strategies Should Be Global
?Major competitors in important markets are not domestic and have a presence in several countries.
?Standardization of some elements of the product or marketing strategy provides opportunities for scale economies.
?Cost can be reduced and effectiveness increased by locating value added activities in different countries.
?Trade barriers inhibit access to worthwhile markets.
? A global name can be advantage and the name is available worldwide.
? A brand position and its supporting advertising will work across countries and has not been preempted
?Local markets do not require products or services for which a local operation would have an advantage.
Access to national Investment Incentives
?Another way to obtain a cost advantage is to access national investment incentives that countries use to achieve economic objectives for target industries or depressed areas.
?Unlike other means to achieve change in trade such as tariffs and quotas, incentives are much invisible and objectionable to trading partners. Thus, the British government has offered Japanese car manufacturers a cash bonus to locate a plant to a United Kingdom.
Cross-Subsidization
? A global presence allows a firm to cross-subsidize to use the resources accumulated in one part of the world to fight a competitive battle in another.
?Consider the following: One firm uses the cash flow generated in its home market to attack a domestically oriented competitor.
?For example for the early 1970s, Michelin used its European home profit base to attack Goodyear’s U.S. market. The defensive competitors (i.e.
Goodyear) can reduce prices or increase advertising in the United States to counter, but by doing so it will sacrifice margins in its largest markets. Dodge Trade Barriers
?Strategic location of components and assembly plants can help gain access to markets by penetrating trade barriers and fostering goodwill.