2014-02-25
Strategic Marketing Management
Agnieszka Wilczak, PhD Faculty of Management Warsaw University
[email protected]
Course Outline - 1
Strategic Marketing vs. Marketing Planning – Introduction
Mission & Objectives
establishing the corporate mission influences on objectives and strategy guidelines for establishing objectives and setting goals
Analysing the Product Portfolio
models of portfolio analysis market attractiveness and business position assessment criticism of portfolio analysis
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Course Outline - 2
Strategic Gap Analysis and Growth&Consolidation Strategies
types of the strategic gap growth strategies consolidation strategies
Allocation Strategies
growth fast growth selective growth aliance optimalization market position defence market exit strategies
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Course Outline - 3
Demand Growth Strategies
strategies based on the number of buyers strategies based on the level of consumption selective demand growth strategies
Strategies for Market Leaders
position defence flanking defence preemptive defence counteroffensive defence mobile defence contraction defence
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Course Outline - 4
Strategies for Market-Challengers
Strategies for Market-Followers& Nichers
frontal attack flank attack encirclement attack bypass attack guerilla attack following closely following at a distance following selectively
Strategies for different PLC stages
strategies strategies strategies strategies
in in in in
the the the the
introduction stage growth stage maturity stage decline stage
5
Assignment
70% final exam (test with open-ended questions)
30% case study/ies: (written preparation: 2-5 pages; case is to be done in groups: 2-3 persons)
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Lesson 1. Designing Marketing Strategies
Lesson 1. Designing Marketing Strategies Outline
Strategic Marketing vs. Marketing Planning – Introduction
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Strategic Marketing vs. Marketing Planning. An Introduction
Levels of strategy (1/2)
Corporate strategy
Business strategies
Operational & functional strategies
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Levels of strategy (2/2) Corporate strategy
Business strategy (SBU 1)
Business strategy (SBU 3)
Business strategy (SBU 3)
Functional strategies
R&D
Operations
Marketing
HRM
Finance
‘Corporate’ or ‘Marketing’? Vision Mission
Operations Objectives
Corporate Objectives Corporate Strategy Marketing Objectives HRM Objectives Marketing Strategy Logistics Objectives Marketing Tactics
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Source: Weitz & Wensley,1998
Strategy / Tactics Strategy
Tactics
Importance
More importance
Less importance
Conducted by
Senior managers
Junior managers
Timeframe
Long term
Short term
Frequency
Continuous
Periodic
Problem
Unstructured / unique high risk / low certainty
Structured repetitive
Information
External, subjective futuristic
Accounting & marketing research
Detail
Broad
Specific
Ease of evaluation
Difficult
Easy (relative)
Corporate versus Marketing Corporate strategy
Marketing
Concerned with overall, long term organisational direction
Concerned with day-to-day performance and results
Provides the long-term framework for the organisation
Represents only one stage in the organisation’s development
Overall orientation needed to match the organisation to its environment
Functional and professional orientation tends to predominate.
Goals and strategies are evaluated from an overall perspective.
Goals are subdivided into specific targets
Relevance of goals and strategies is only evident in the long-term
Relevance of goals and strategies is immediately evident
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Corporate Strategic Planning
defining the corporate mission (vision)
establishing SBU
assigning resources to each SBU
planning new business, downsizing & terminating older businesses
Marketing Planning
Analysis Planning Implementation Control
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Analysis
Analysis External Macroenvironment
Internal
Microenvironment
SWOT
The Organisation’s Marketing Environment The economy Demography
Cultural forces
Suppliers Distributors & dealers
Market demands The organisation
Social factors
Competitors
Customers Legal structures
Political structures Technology
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References
Armstrong G., P. Kotler: Marketing. Wprowadzenie, Wolters Kluwer, Warszawa 2012 Gilian C., R. Wilson, Strategic Marketing Management. Planning, impementatiom and control, Butterworth Heinemann, 1999 Kotler P. Marketing Management. Eleventh Ed., Prentice-Hall, Englewood Cliffs, 2003 Porter M., Competitive Advantage, 1998 Strategic Marketing Management: Planning and Control, BPP Professional Education, 2003
Lesson 2. Designing Marketing Strategies
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Lesson 2. Designing Marketing Strategies Outline
Mission & Objectives
establishing the corporate mission influences on objectives and strategy guidelines for establishing objectives and setting goals
Mission & Objectives
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Mission
describes the organisation’s basic function in society explains why the company exists provides the commercial logic for the company needs to be converted into everyday performance is a cultural glue that enables the organisation to function as a unity
Corporate Mission - Fundamental Questions
What is our business?
Who is the customer?
What is of value to our customer?
What will our business be?
What should our business be?
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Infuences on the mission statement
company’s history
preferences, values and expectations of managers & owners
environmental factors
available resources
distinctive competences
Workable mission
brief – easy to understand and remember
flexible – to accomodate change
distinctive – to make the firm stand out
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Mission or/and vision
vision gives general sense of direction to the company, is the orientation point that guides the company vision ignores real. practical problems, vision can degenerate to wishful thinking mission is about here and now, vision refers to the future, mission is designed to motivate, vision – not!
Objectives S Specific - descriptive, succinct and provide clarity throughout the organization as to what is to be achieved M Measurable - clearly state tangible targets that can be measured in the future A Aspirational - challenging but achievable, motivational R Realistic - based on sound market analysis, financial, human & physical resources should underpin the objectives T Timebound - a timescale should be set against the achievment of each objective in order for performance measurement to be undertaken
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Objectives hierarchy Corporate objectives – increase profits Production objectives – cut costs
Personnel objectives – reduce headcount
Marketing obejctives – increase revenue
Objectives for the mix
Product (10% of revenue )
Price (skimming)
Promotion (recall)
Place (coverage)
Marketing Objectives e.g.
rate of return on investment net profits cash flow total sales revenue sales volume market share consumer awareness number of distribution outlets average realized price
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Eight strategic trade-offs facing firms (1/2)
short term profits vs. long term growth
profit margins vs. competitive position
direct sales effort development effort
penetration of existing markets vs. the development of new markets
vs.
market
Eight strategic trade-offs facing firms (2/2)
related vs. non-related new opportunities as a source of long-term growth
profit vs. non-profit goals
growth vs. stability
‘riskless’ environment vs. high-risk environment
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References
Armstrong G., P. Kotler: Marketing. Wprowadzenie, Wolters Kluwer, Warszawa 2012 Gilian C., R. Wilson, Strategic Marketing Management. Planning, impementatiom and control, Butterworth Heinemann, 1999 Kotler P. Marketing Management. Eleventh Ed., Prentice-Hall, Englewood Cliffs, 2003 Porter M., Competitive Advantage, 1998 Strategic Marketing Management: Planning and Control, BPP Professional Education, 2003
Lesson 3 & 4 Designing Marketing Strategies
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Lesson 3 & 4 Designing Marketing Strategies Outline Analysing the Product Portfolio - models of portfolio analysis - market attractiveness and business position assessment - criticism of portfolio analysis
Corporate Strategic Planning defining the corporate mission (vision) ---------------------------------------- establishing SBU
assigning resources to each SBU
planning new business, downsizing & terminating older businesses
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SBU Defining
SBU - Main Characteristics
SBU is a pasrt of the company that for all intents and purposes has its own distinct products, markets and assets
single business (or collection of related businesses) that can be planned separately from the rest of company
has its own competitors
has its own manager.......
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Analysing the Product Portfolio
Portfolio Evaluation Frameworks
BCG’s Growth Share Matrix
GE Multifactor Matrix
Shell Directional Policy Matrix
----------------------------------------------------
Abell & Hammond’s Investment Opportunity Matrix
Arthur D. Little Strategic Condition Matrix
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BCG’s Growth Share Matrix (traditional approach) 100 % Question marks
Stars
Market growth 10 % rate Cash cows 0% 1x
Dogs
O,5 x
0x
Relative market share
Taking a Portfolio Approach
analysis based around evaluating SBU activities
models help you think strategically about the business and its resources and provide analytical frameworks. But:
they are over-simplified cannot incorporate ‘risk’ often offer misleading representations of strategic options use over generous measures assume market leadership = benefit ignores competitive strategic factors
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BCG Matrix & PLC introduction
growth
Stars High share, high growth, still needs support
Infants Neg. Cash flow
Question marks Low share, high growth, large neg. Cash flow(
maturity
decline
Cash Cows
War horses
high share, low growth, large positive Cash flow
high share, negative growth, positive Cash flow
Dogs Low share, Low growth, +/- Cash flow
Dodos Low share, negative growth, negative Cash flow
time
Determinants of market attractiveness
Market factors (eg size, growth)
Competitors
Investment factors
Technological change
Other PEST factors
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Determinants of business strenght
Product quality
Distribution
Brand reputation
Production capacity
Management skill
GE Multifactor Matrix
High
Medium Product attractiveness
Low
Invest for growth
Invest selectively for growth
? Strong
Invest selectively for growth
? Harvesting
Average
? Harvesting
Divest
Weak
Competitive position
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Shell Directional Policy Matrix Disinvest
Phased withdrawal
Double or quit
Phased withdrawal
Custodial Growth
Try harder
Cash generation
Growth Leader
Leader
Unattractive
Average
Attractive
Weak
Average Enterprise’s competitive capabilities Strong
Prospects for sector profitability
More Pros & Cons of taking a Portfolio Approach
BCG at individual SBUs, other matrices look at company’c competences in market sectors, without references to individual products They ignore opportunities of creative segmentation or identifying new niches They assume market is given rather than can be created Markets can be unattractive because has not been analysed sufficiently Marketers must come up with relavant data (decide if the industry is attractive or not)
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BCG’s Growth Share Matrix (practical approach) 100 Question marks
Stars
Dogs
Cash cows
Market 50 attractiveness
0 0
50
100
Competitive position
References
Armstrong G., P. Kotler: Marketing. Wprowadzenie, Wolters Kluwer, Warszawa 2012 Gilian C., R. Wilson, Strategic Marketing Management. Planning, impementatiom and control, Butterworth Heinemann, 1999 Kotler P. Marketing Management. Eleventh Ed., Prentice-Hall, Englewood Cliffs, 2003 Porter M., Competitive Advantage, 1998 Strategic Marketing Management: Planning and Control, BPP Professional Education, 2003
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Lesson 5, 6 & 7. Strategic Gap Analysis and Growth & Consolidation Strategies
Lesson 5, 6 & 7. Strategic Gap Analysis and Growth & Consolidation Strategies Outline
types of the strategic gap
growth strategies
consolidation strategies
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Gap Analysis
Diagrammatical approach to viewing the difference between:
Where we are going? (in the current way)
Where we want to be? (targets for achievement)
Gap Analysis Desired sales Diversification growth Integrative growth Sales
The planning gap
Intensive growth
Current portfolio
Time
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Intensive Growth Ansoff’s Product - Market Matrix Product Current
Current
Market penetration strategy
New
Product development strategy
Market
Market development strategy
New
Intensive Growth Strategies
market penetration strategy
market development strategy
product development strategy
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Market penetration strategy
more purchasing and usage form existing customers
gain customers form competitors
convert non-users into users
Market penetration tools
Loyalty programs, Commercial claims New opportunities to use Suggesting additional benefits Price cuts Distribution intensifying Establishing or joining new distribution channels
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Market penetration strategy goals
to increase market share through competitive pricing, advertising and sales promotion To secure dominance of growth markets To restructure a mature market by driving out competitors To increase usage by exusting custromers
Market penetration strategy Advantages: Synergy effect (marketing synergy, operating synergy, management synergy) Total Cost Time needed Disadvantages: Scale of incerase Predictibility Customer & technology dependance
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Market development strategy
new market segments
new distribution chanells
new geographic areas
Market development tools
New targeting New positioning of the product and/or brand Commercial claims New distribution channels International expansion Price adapted to new clients’ requirements
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Market development strategy Advantages: Use of existing resources Capacity utilization Know-how and experience utilization Disadvantages: Level of risk (new customers, new business context) Lack of management knowlegde
Product development strategy
product modifications via new features
different quality levels
‘new’ product
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Product development strategy Advantages: Forces competitors to innovate Creates bariers for new entrants Capacity utilization More options for customers Stronger barganing position towards distributors
Product development strategy Disadvantages: Additional costs Limitations based on Pareto rule Time needed
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Integrative Growth Strategies
Factors stimulating the need for integration:
Scarce resources Increased competition Higher customer expectations Pressures form strog distributors Internationalization of markets Changing markets and technologies Turbulent and upredictable markets
Source: Hooley, et al. 1998
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Integrative Growth Strategies
Development beyond the present product market, but still within the same market system
Integrative Growth Strategies
Horizontal integration (HMS)
Vertical integration (VMS) - backward - forward
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Horizontal integration S
S
M W R
W R
R
R
M
M
W
W R
R
R
M W R
R
W R
R
Customers
S – supplier, M – manufacturer, W – wholesaler, R - retailer
Horizontal integration
Refers to development into activities which are competitive or directly complimentary to company’s present activities
Horizontal = the same level of marketing system!
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Horizontal integration - advantages
Acces to competitors clients, distributors, markets, brands…. Cooperation instead of competition on markets Reduction of R&D costs Strenghtening barganing power
Horizontal integration - disadvantages
Corporate culture maladjustment, Strategy redefinition Schizophrenic corporate identity
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Vertical integration S
S
M W R
W R
R
R
M
M
W
W R
R
R
M W R
R
W R
R
Customers
S – supplier, M – manufacturer, W – wholesaler, R - retailer
Vertical integration Company becomes its own:
supplier of raw materials, components or services (backward vertical integration)
distributor or sales agent (forward vertical integration)
Vertical = between different levels of MS!
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Vertical integration advantages
Secure supply of components or raw materials with more control Reduction of supplier barganing power Strenghten the relationships and contacts of the manufacturer with the final consumer of the product Raise barriers to entry New business opportunities
Vertical integration disadvantages
Overconcentration (‘more eggs in the same basket’) Inflexible policy, more sensitive to instabilities Increases the firm’s dependence on particular aspect of economic demand Lack of know-how and experience High risk
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Diversification Growth Strategies
Diversification Growth Strategies
Development beyond the present industry (marketing system)
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Diversification Growth Strategies
concentric diversification
horizontal diversification
conglomerate (lateral) diversification
Concentric diversification
New client
New product
Technological consistency
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Concentric diversification - advantages
Knowledge & experience Well established cooperation with suppliers & distributors Increasing potential demand thanks to new customers Better adjustment to customer needs&preferences
Concentric diversification disadvantages
Technological overconcentration Level of risk as a consequence of ‘unknown’ customer New market reality - new competitors
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Horizontal diversification
The same customer
Completely new (unrelated) product
Horizontal diversification advantages
Well recognized customer’s needs, wants & preferencess
High level of customer satisfaction and loyalty
Can use company’s image and reputation
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Horizontal diversification disadvantages
High risk in case of customer unsatisfaction Need to invest into new technology or konw-how Necessity of establishing new business relations Time & costs
Lateral diversification
New clients New products Completely unrelated businesses
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Lateral diversification - advantages
Risk spreading (protects against the failure of current products& markets) Creates additional souces of profits Helps escape from present business Offer the chance of growth without creating a monopoly Exploit under-utilised resources Can use company’s image and reputation
Lateral diversification - disadvantages
Dilution of shareholders’ earnings Lack of the common identity and purpose Lack of management experience Costs & risk & time
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Methods of growth
Organic growth (achived through the development of internal resources)
Corporate:
Acquisition Merger Joint venture
Contracual:
Cooperation Licencing Franchising
Acqusitions/ mergers
Acquiring already existing businesses from their current owners via the purchase of a controlling interest in another company
Joining of two or more separate companies to form a single one
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Acqusitions – advantages (1/2)
Buy new product range Buy a market presence Rationalisation of distribution and promotion Eliminate competition Current market protection Higher ulitisation of production facilities ‘buy in’ technologies and skills Obtaining greater production capacity
Acqusitions – advantages (2/2)
‘buy in’ technologies and skills Obtaining greater production capacity Improve purchasing by buying in bulk Safeguard future supplies of raw materials Accesing high quality management Obtain cach resources Obtain tax advantages Overcome barriers of entry
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Joint-venture Is a separate business unit created by two or more firms Share funding, cut risk, synergies, technology, learning But also… Conficts of interests, disagreements over profit shares, money invested, management & strategy
Cooperation
Firms share data, resource and activities to achieve mutually beneficial objectives
Agreements to co-operate on variuos issues, shared research & development, supply chain rationalisation, synergy effects
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Licensing
A commercial contract whereby the licenser gives something of value to the licensee in exchange for certain performances and payments
The royalty for:rights to produce patented product, manufacturing konwhow, technical & marketing advice & assistance, right to use brand…
Franchising
A method of expanding the business on less capital then would otherwise be possible
The franchiser offers: name, googwill, systems & business method, support services The franchisee: provides capital, personal involvement & local market knowledge, takes risk
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Consolidation/limitation strategies
Deinwestment
De(z)integration
Prunning
Reduction
Harvesting
References
Armstrong G., P. Kotler: Marketing. Wprowadzenie, Wolters Kluwer, Warszawa 2012 Kotler P. Marketing Management. Eleventh Ed., Prentice-Hall, Englewood Cliffs, 2003 Strategic Marketing Management: Planning and Control, BPP Professional Education, 2003
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Case study
Lesson 8
Allocation strategies
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Allocation strategies
To assign company’s resources (money!) to each SBU
To settle objectives for each SBU due to company’s strategic goals in accordance with growth or consolidation strategies
Portfolio Analysis – Allocation Strategies Competitive position Weak
Market High Attractiveness
Low
Strong
Alliance Fast growth Growth Selective growth
Fast growth Growth Selective growth Market position defence
Optimization Market exit (gradual) Market exit
Market position defence Optimization Selective growth Growth
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Allocation Strategies - 1 Type of strategy
Main objectives
Investments
Growth & Consollidation Strategies
Fast growth
Increase market share (offensively) and negative profitabilty
Increase marketing as well as R&D investments
Diversification Intensive growth Integrative growth
Growth
Increase market share and decrease of profitability
Increase marketing as well as R&D investments
Intensive growth Integrative growth
Selective growth
Increase market share and maintain profitability
Increase marketing and R&D investments (for selected market segments and products)
Intensive growth Integrative growth
Alliance
Parter for alliance search and increase market share
Redused marketing and R& D investments through alliance
HMS Diversification VMS Intensive growth
Allocation strategies - 2 Type of strategy
Main objectives
Investments
Growth & Consollidation Strategies
Market position defence
increase profitability & maintain market share
Maintain marketing investments and limit R&D investments
Market penetration Harvesting
Optimization
Increase profitability & reduction of the market share
Decrease of total marketing and R&D investments
Harvesting Reduction Pruning Disintegration
Market exit (gradual)
Increase profitability & considerable reduction of the market share (sales)
Decrease of marketing investments, no R&D financial support
Reduction Pruning Disintegration Deinvstment
Market exit
Withdrawal
Minimal marketing and R&D investments to maintain the value of the business
Dezinvestment
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Allocation strategies – an example Competitive position Weak
Strong
Selective growth Growth
Market High attractiveness
SBU3
SBU4
SBU2 SBU1
Low Optimization
Market position defence
Lesson 9
Demand Growth Strategies
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Process of marketing strategy creation (product level) Corporate strategy general findings (SBU)
Determinants of product marketing strategy
Analysis of the market situation Marketing goals
Marketing strategies (level of product)
Expanding the total market
Selective demand growth strategies
Strategies based on the company’s competitive position
Marketing budget Strategies for different PLC stages
Analysis of market situation
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Analysis of market situation – typical components Analysis of market 1. customer analysis situation - external 2. demand analysis 3. competitors analysis 4. distribution analysis 5. suppliers analysis 6. macroenvironment analysis Analysis of market 1. former marketing activities analysis situation - internal 2. company’s market position assesment 3. sales analysis 4. marketing costs analysis 5. profitability analysis 6. marketing effectiveness & efficiency analysis 7.customer satisfaction analysis Analysis of situation - outputs
market 1. SWOT analysis 2. market segments attractiveness assesment 3.perceptual map 4. PLC assesment 5. sales forecasts
Marketing Objectives
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Marketing Budget
Marketing Budget - dimensions
Value (total value of financial support in a specific period of time)
Percent of the value of sales (it shows the level of intensity of marketing activities)
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What costs are included in the marketing budget?
Product innovations
Marketing communication
Distribution (logistics)
Market research
Sales
Additional services Price discounts Intermediary margins
Factors influencing the marketing budget for the product
Financial position of the company Scope of common marketing activities Marketing objectives and programs Former marketing budgets Sales forecasts Competitors marketing spendings Average expenditure of the industry
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Marketing budget and strategy for the product High budget: Market development product differentiation Offensive strategies First or second phase of the PLC Product development
Low budget: Cost leader Defensive strategies Neutral strategies Third or fourth phase of the PLC Reduction as well as pruning strategy
Process of marketing strategy creation (product level) Corporate strategy general findings (SBU)
Determinants of product marketing strategy
Analysis of the market situation Marketing goals
Marketing strategies (level of product)
Expanding the total market
Selective demand growth strategies
Strategies based on the company’s competitive position
Marketing budget Strategies for different PLC stages
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Expanding the total market
All activities and marketing tools which leads to total market expansion Typically initiated by market leaders and pretenders Effective and efficient in the first and second phase of PLC
Expanding the total market
Expanding the total market
Expanding the number of customers Increasing the scale of usage
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Expanding the number of customers
Awareness Availability Expanding the number of customers
Ability to Use Benefit Deficiency Affordability
Increasing the scale of usage Average usage /consumption New opportunities Increasing the scale of usage
Increasing the value of the product (and price) Faster product replacement New applications
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Sea food and fish consumption in Poland
Total market worth 6.6 billion PLN
Average consumption 12 kg per person in the year, 60% fresh warter fish, 40% salt water,
Codfish, herring, plaice, trout, salmon, tuna, mackerel
Sea food and fish consumption in Poland
Average for UE: 21.4 kg,
3.9 kg Romania, 5kg Bulgaria, 6 kg Slovakia, 17kg Germany, 25kg Italy, 46kg Norway, 37kg Lithuania, 39kg Spain, 56.9kg Portugal
As a leading producer suggest different marketing activities and tools increasing total market.
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Expanding the number of customers Awareness
Additional potential customers would buy the product if they knew it was available and accurately understood its benefits
Availability
Lack of availability of products that may be in short supply, or difficult to make available, or lack services to support their use
Ability to Use
These customers lack the knowledge, lack other resources (electricity), and /or requirement to make the product or service workable
Benefit Deficiency
The key benefits of product or service are not important (or even unattractive) to a subset of potential customer.
Affordability
The cost of products is too high for some consumers
Expanding the number of customers Awareness
• Collaborative efford of entire industry • Intensive marketing communication •Training addressed to customers
Availability
• New distribution channels • Vending machines • More intensive distribution • Special events
Ability to Use
• training addressed to potential customers • simpler products • additional support
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Expanding the number of customers Benefit Deficiency
• New positioning • New RTB • New marketing communication
Affordability
• Cheap, basic versions of the product • New financing solutions and programs • Alternative methods of access
Increasing the scale of usage Increasing the average usage Encouraging customers to use more of the product at every opportunity
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Increasing the scale of usage New opportunities
use after every meal (chewing gum) new opportunities to celebrate (Valentine’s Day)
Increasing the scale of usage
Increasing the value of the product (as well as the price) Product ‘upgrading’ New additional benefits
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Increasing the scale of usage Faster product replacement
Shortening of PLC (new versions of the product, product modifications), New product offered at lower price, Aternative options of financing the purchase (leasing, favorable credit), Promotion facused on creating the NEED of using latest, better version of the product
Increasing the scale of usage New usage of the product This strategy leads to the new market creation!
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Selective demand growth strategies
Selective demand growth strategies Selective demand growth strategies are creating and sustaining competitive advantage There are two main strategic options:
Cost leadership
Offer differentiation
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Cost leadership strategy
A cost leadership strategy seeks to achieve the position of lowest-cost producer in the industry.
By producing at the lowest cost, the manufacturer can compete on price with any other producer in the industry.
Cost leadership strategy
Economy of scale Internal focus Learning curve effect Improving productivity Only one firm Low margins
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Cost leadership strategy
Mass marketing Avoiding niches and small market segments Product standarization Limited augmented product Intensive distribution Effective logistics Limited promotional spendings Low prices Standarization of marketing strategies and efforts
Differentiation strategy
Brand image and reputation Market segmentation Targeting Focus on customers (needs, preferences, etc.) Product differentiation Intensive marketing efforts including marketing communication Prices higher than avarage Augmented products High costs R&D investments
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Lesson 10, 11 &12
Strategies based on the company’s competitive position
The influence of market position on strategy
Market leader – has the largest market share, it determines the nature, pace and bases of competition, typically is the benchmark for other companies in the industry
Market challengers & followers – firms with slightly smaller market share can adopt one of two stances.
they may choose to adopt aggressive stance and attack other firms, including the market leader, to gain share are dominance (challengers) or adopt less aggressive stance in order to maintain the status quo (followers).
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The influence of market position on strategy
Market nichers – small firms which survive and prosper by choosing to specialize in parts of the market which are too limited in size and potential to be of real interest to larger firms; nichers are able to build up specialist market knowledge and avoid expensive fights with larger companies
The influence of market position on strategy •Expand the market •Protect the current share •Expand share
Leaders
Challengers
Nichers
Get smart!
Followers
•Dicsount or cut prices •Cheap goods •Innovative products and distribution •Improve services •Advertise heavily •Proliferate the range •Reduce costs •Segment carefully •Use R&D cleverely •Challenge conventional wisdoms
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Strategies for market leaders
How best to expand the total market? How to protect the organization’s current share of the market? How to increase market share?
Market leadership Guarding the existing market
Expansion of the current market share
Strong market positioning
Heavy advertising
Development and refinement of meaninful competitive advantage
Improved distribution
Continuous product and process innovation
New product development
Proactive stance
Takeovers
Heavy advertising
Geographic expansion
Strong customer and ditributionrelations
Distributor expansion
Price incentives Mergers
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Marketing strategy and military analogies
Offensive warfare – first of all for market challengers Defensive warfare – for market leaders guarding the market position Neutral strategies – for market nichers and followers
Strategies based on the company’s competitive position Offensive strategies
Frontal attack
Defensive strategies
Neutral strategies
Position defence
Following
Flanking attack
Flank position defence
Specialization
Encirlement attack
Mobile defence
Byepass attack
Counteroffensive defence
Guerrilla warfare
Pre-emptive defence Cantratiction defence Strategic withdrawal
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Defensive warefare Strategy
Comment
Position defence
Static defence of a current position, retaining current product-market by consolodating resources within existing areas. Exclusive raliance on a position defence effectively means that a business is a sitting target for competition.
Mobile defence
A high degree of mobility prevents the attacker’s chances of lacalising defence and accumulating its forces for a decisive battle. A business should seek market development, product development and diversification to create a stronger base.
Pre-emptive defence
Attack is the best form of defence. Pre-emptive defence is launched in a segment where an attack is anticipated instead of a move into related or new segments.
Defensive warefare Strategy
Comment
Flanking defence
This is used to occupy a position of potential future importance in order to deny that position to the opponent. Leaders need to develop and hold secondary markets to prevent competitors using them as a spring board into the primary market.
Contraction defence
Company has little hope of defending itself fully. It concentrates its resources in areas considered to be less vulnerable.
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Defensive warefare Strategy
Comment
Counter-offensive defence
This is attacking where one is being attacked. This required immediate response to any competitor entering a segment or initiating new moves. Examples are price wars, where firms try to undercut each other.
Strategic withdrawal
May be a last resort, but ‘cutting your losses’ can be the best option in the long run. Management resistance to what it seen as a drastic step is likely to be the biggest barrier.
Position defence (fortress)
One of the last successful methods of defence Relies on the apparent impregnability of a fixed position To overcome a position defence the attacker adopts on indirect approach rather than head-on attack that the defender expects
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Position defence (fortress)
Company attempting fortress defence will find retreating form line after line of fortification into shrinking product markets Even a dominant leader cannot afford to maintain static defence, it must continually engage in product improvement, line extensions and product proliferations
Mobile defence
Rather than becoming preoccupied with the defence of current products and markets firms concentrates upon market broadening and diversification Companies cover new territories that might in the future serve as focal points both for offence and defence The need for management to define and redefine the business it’s in Involves diversification into unrelated industries
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Mobile defence
Market broadening and market diversification To major principles for market broadening: principle of the objective – clearly defined and realistic objective) & principle of mass (focus efforts upon the enemy’s point of weakness)
Pre-emptive defence
Involves gathering information on potential attacks and then capitalizing upon competitive advantages, striking first Two broad forms: the company behaves aggressively or uses psychological warfare by letting it be known how it will behave if a competitors acts in a specific way (FUD marketing – fear uncertainty and despair)
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FUD marketing
Guerilla actions – hitting one competitor here, another there to keep everyone off balance Dissuade competitors form attacking (bluff) Companies with strong assets may prefere to entice the opponents into expensive and costly attacks that will not pay off in long run
Pre-emptive defence
Company should never rest even after it has achieved domination
Should replace products frequently and support them aggressively
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Flanking defence
Flank is often less protected than other parts of the organization (market)
Secondary markets shouldn’t be ignored
Contraction defence
Company has little hope of defending itself fully. Opts for withdrawal from segments and geographical areas with higher threat It concentrates its resources in areas considered to be less vulnerable. Planned contraction – giving up the weaker territories and reassigning forces to stronger territories, to consolidate competitive strenght
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Counter-offensive defence
Market leader needs to respond competitor’s attacks in order to minimize the threat
This response can take one of three forms:
Meet the attack head-on Attack the attacker’s flank Develop a pincer movement in an attempt to cut off attacker’s operational base
Strategic withdrawal
May be a last resort, but ‘cutting your losses’ can be the best option in the long run.
Management resistance to what it seen as a drastic step is likely to be the biggest barrier.
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Strategies for market pretenders
Basic conditions:
Challenger must have a sustainable advantage either in terms of cost or differentiation Challenger must be able to partly or wholly neutralize the leader’s advantages, typically by doing almost as well as the leader which the leader does best
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Who to attack?
Attacking the market leader
Attacking firms of similiar size to itself but which are either underfinanced or reactive
Attacking smaller regional firms
Frontal attack
Outcome depends on who has the greater strenght and endurance
For a pure frontal attack to succeed the aggresor needs a strenght advantage over competitor (at least 3:1)
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Frontal attack
Modified frontal attack can take two forms:
To match the leader’s offer on other counts and beat it on price (it works when the leader does not retaliate by cutting price, when competitor convinces the market that its product is equal to competitot’s or at a lower price it is a real value)
To invest heavily in research to achive lower production costs and then attacks competitors on a price basis
Flankinng attack
The strategy of ‘indirect approach’ The agresor will act as if it will attack the strong side to tie up the defender’s troops but will launch the real attack at the side or rear Attack on those areas where the leader is geographically weak and in market segments or areas of technology which have been neglected
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Flankinng attack
Direct flan attack: geografpical (spotting areas in the country or the world in which the opponent is not performing at high levels) or segmental (spotting uncovered market needs not being served by the leaders) Higher probability of being successful than frontal attacks!
Encirclement attack
An attempt to capture a wide slice of the enemy’s territory through a ‘blitzkrieg’ attack It’s a grand offensive on several fronts, enemy must protect its front, sides and rear simultanously!
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Bypass attack
The most indirect offensive strategy. It means bypassing the enemy and attacking easier markets to broaden resources base Three lines of approach:
Diversification into unrelated products Geographical diversification Leapfrogging into new technologies
Guerilla attack
Available also to smaller undercapitalized aggressors. Making small attacks on different territories of the oponent, with the aim of harassing and demoralizing the oponent. The key is to focus the attack on a narrow territory
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Guerilla attack
Typically short promotional and price attacks in random corners of the larger oponent calculated to gradually weaken the oponent’s market power. A continual stream of minor attack creates cumulative impact, disorganization and confusion
Neutral strategies
For market followers
Following closely Following at a distance Following selectively
Three broad followership strategies:
Cloner Imitator Adapter
For market nichers
Specialization
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Following
Closely – by emulating the leaders in as many market segments and marketing mix areas as possible
At a distance – following the leader in terms of major markets and product innovations, price level & distribution with more differentiating factors
Selectively – to avoid direct competition, often grows into the future challenger
Broad followership strategies
Cloner
Imitator
Adapter
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Cloner
Is a parasite that lives off the investment made by the leader in the marketing mix (such as in product or distribution).
An extreme version of the cloner is counterfeiter, who produces fakes of the original.
Imitator
Copies some elements but differentiates on others
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Adapter
Takes leader’s products and adapts or even improves them regarding market requirements. The adapter may grow to challenge the leader.
Market nicher strategies
Ideal niche:
Sufficient size and purchasing power Growth potential Negligible interest of major competotors Firm has skills and resources to serve the niche effectively Firm’s godwill can help to defend the market position in case of major competitor attack
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Market nicher strategies
End-user specialist – specialising in one type of customer
Vertical-level specialist – specialising at one particular point of the production/distribution chain
Customer-size specialist – mostly to small customers who are neglected by the majors
Specific-customer specialist – to one or a few major customers only
Market nicher strategies
Geographic specialist – selling to one locality
Product or service specialist – offerning specialised services not available form other firms
Quality/price specialist – operating at low or high end of the market
Channel specialist – concentrating on just one channel of distribuion
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Lesson 13 &14
Strategies for different PLC stages
The Product Life Cycle ALL products have a finite life-cycle and will eventually die During this cycle they will move through distinct phases, requiring different strategies to exploit Profit potential from each stage will vary
emphasises continual need to review objectives and strategies highlights need for balanced portfolio of products keeps focus on short term potential of innovation
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Common Curves Cycle - recycle sales
sales
fashion
time
time scallop sales
sales
growth-slump-maturity
time
time
Cycle - Profit Relationship introduction
growth
maturity
decline
time profit
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Source: Wilson & Gilligan, 2001
Product Life Cycle - Implications Introduction
Growth
Maturity
Decline
Sales
low
rapid increase
peaking
declining
Costs
high
average
low
low
Profit
negative
increasing
high
declining
Competition
few
increasing
high
shake-out
Goal
creating product awarness & trial
market share maximization
profit maximization
expenditure reduction
Product
basic
developing
modify
phase out weak
Price
low….
penetration
competition
reducing
Place
selective
intensive
heavy discount selective
Promotion
heavy spend
moderate/mass
brand differentiation
Are we innovators or followers?
focussed to retain loyalty
Stage Considerations Segment?
Competitive strategy?
Manage costs Differentiation
Modify? Enhance? Rejuvenate?
Rejuvenate?
Kill?
Market penetration or Market skimming?
Intensity of marketing support?
Manage decline / resources
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Strategies for introduction phase
Promotion
Are we pioneers (innovators) or followers (copying competitors)?
intensive
weak
high
Rapid skimming strategy
Slow skimming strategy
low
Rapid market penetration
Slow market penetration
Price
How to expand the total market?
How to grow selective demand?
Innovators - Followers Question
Answer
Decision
How long is probabale product category life time?
Long PLC Short PLC
Follower Innovator
What is predicted market penetration level?
Low High
Follower Innovator
What are estimated costs of imitation?
Low high
Follower Innovator
What are company’s resources?
Big Small
Follower Innovator
What are costs of deliverer change?
Low High
Follower Innovator
How important is a brand as a purchase decision factor?
Less important Very important
Follower Innovator
What is the level of clients education costs?
High Low
Follower Innovator
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Rapid skimming strategy
Firm charges high price in order to recover as much gross profit per unit as possible Intensive promotion to convince the market of the product’s merits & to accelerate the rate of market penetration Reasonable when:
A large part of the market is unaware of the product Aware people are eager to get the product & are able to pay for it Firm wants to build up brand preference
Slow skimming strategy
Firm charges high price in order to recover as much gross profit per unit as possible Low level of promotion keeps marketing expenses down Reasonable when:
Market is limited in size Most of the market id aware of product Buyers are willing to pay high price Potential competition is not imminent
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Rapid penetration strategy
Promises to bring about the fastest market penetration and the largest market share Resonable when:
Market is large Market is unaware of the product Most buyers are price sensitive There is strong potential competition Company’s costs fall with the scale of production and accumulated manufacturing experience
Slow penetration strategy
Company believes that market demand is highly price elastic but minimally promotion elastic Reasonable when:
The market is large The market id highly aware of the product The market is price sensitive There is some potential competition
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Strategies for growth phase How to grow selective demand?
Which strategies based on the company’s competitive position?
How to expand the total market?
Growth stage strategies
Improve product quality, add new product features, improve the style of the product Add new models Enter new market segments Enter new distribution channels Shifts advertisinig from creating product awarness to bring product conviction and purchase Lower price to attract the nest layer of price-sensitive buyers
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Strategies for maturity phase How to grow selective demand? Market modification
Product modification
Which strategies based on the company’s competitive position?
Marketing-mix modification
How to expand the total market?
Market modification
Convert nonusers Enter new market segments Win competitors’ customers More frequent use More usage per occasion New and more varied uses
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Product modification – new features
Bulid a company image of progressiveness and leadership Can be adapted quickly, dropped quickly and made optional at little expence Can win the loyalty of customers Can bring free publicity Generate sales-force and dictributors’ enthusiasm
Marketing mix modification
Prices Distribution Advertising Sales promotion Personal selling Services
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Strategies for decline phase Leadership
Niche
Harvesting
Which strategies based on the company’s competitive position?
Drop decision
Readings
P. Kotler, Marketing Management. Analysis, Planning, Implementation and Control, Chapter 11, p. 318-365 Strategic Marketing Management: Planning & Control, Professional Education, 2003 R. M. S. Wilson, C. Gilligan, Strategic Marketing Management: Planning, Implementation and Control, Butterworth Heinemann , Chapter 10, p. 326 - 388
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