Strategic Marketing Lecture 2: Internal Company Analysis PDF

STRATEGIC MARKETING MK42009E - MK42025E Lecture 2: Internal Company Analysis ASST. PROF. ISMAIL ERZURUMLU AGENDA 1. The corporate mission 2. Strategies at the corporate and business unit levels 3. Portfolio and situation analyses 4. Marketing strategy as a functional strategy 2 Corporate Strategy Hi...

STRATEGIC MARKETING MK42009E - MK42025E Lecture 2: Internal Company Analysis ASST. PROF. ISMAIL ERZURUMLU AGENDA 1. The corporate mission 2. Strategies at the corporate and business unit levels 3. Portfolio and situation analyses 4. Marketing strategy as a functional strategy 2 Corporate Strategy Hierarchical Nature of Strategy I. Corporate Strategy II. Business Unit III. Functional Decisions about the organization’s scope and resource deployments Strategy across its divisions or businesses Provides direction on the company’s mission, the kinds of businesses it Strategy should be in, and its growth policies 4 MARKETING STRATEGY - MK42082E IERZURUMLU I. Corporate Strategies Level of Strategy (1) Frameworks Content a. Business Domain Choice Growth Opportunity Matrix What is our business? What will be our business? What should be our business? What can be our business? b. Objectives Performance dimension Target Time frame c. Resource Allocation SBU 5 Corporate strategies 1. Mission 2. Goals and Objectives 3. Business Portfolio 4. Functional (Marketing & other) Planning 6 1. Mission Statement of the organization’s purpose Serves as a guide for what the organization wants to accomplish: what’s our business? who are our customers? what do customers value? A good mission statement is:  Market-oriented rather than product-oriented  Realistic and specific  Fits the environment, based on company competencies  Motivating for employees Core Business Definition (Product vs. Market Oriented)  Old: Industry / Product: Newspaper / Textile  New: Customer / Benefit: _______ / ______ 7 Examples We help people experience the emotion of competition, winning, and crushing competitors. We create fantasies – a place where America still works the way it’s supposed to” Google’s mission is to organize the world‘s information and make it universally accessible and useful. 8 MARKETING STRATEGY - MK42082E IERZURUMLU Example: Southwest Airlines http://www.youtube.com/watch ?v=DYA_ivyj3kE http://www.youtube.com/watch ?v=3ccinu-bY3s http://www.youtube.com/watch ?NR=1&v=Jy0Yf1CAsuQ&feat ure=endscreen 9 MARKETING STRATEGY - MK42082E IERZURUMLU Example: Southwest Airlines 10 2. Goals and objectives Components of an objective: o o o o A performance dimension A measure or index for evaluating progress A target level to be achieved A time frame within which the target is to be accomplished 11 2. Goals & Objectives MARKETING STRATEGY - MK42082 IERZURUMLU 12 Examples Performance Criteria Growth Competitive Strength Innovativeness Possible Measures or Indexes $ sales Unit sales % change in sales Market share Brand awareness Brand preference $ sales from new products % sales from new products introduced in last 5 years % cost savings from new processes 13 3. Business Portfolio The collection of businesses and products that make up the company. The best business portfolio is the one that best fits the company’s strengths and weaknesses to the opportunities in the environment.  Analyze current business portfolio or Strategic Business Units (SBU’s)  Decide which SBU’s should receive more, less, or no investment  Decide which SBU’s to drop  Develop growth strategies for adding new products or businesses. 14 A: Portfolio Models: Analyze Current Business Portfolio A portfolio analysis is an evaluation of a business, product, or market with respect to market attractiveness and competitive position as an aid in identifying strategic plans.  Boston Consulting Group Matrix (BCG)  Directional Policy Matrix (DPM) 15 The BCG Matrix MS of your business MS of biggest player Strategies that can be followed for each SBU: Build: Invest more Hold: Invest enough to hold current position Harvest: Milking short-term cash flow Divest: Phasing out 16 The BCG Matrix Market leader in a high-growth industry Products in markets experiencing high growth rates with a high or increasing share of the market Potential for high revenue growth Businesses with a high relative share of low-growth markets – maturity stage of PLC Low cost support High cash revenue – positive cash flows Businesses in high-growth industries with low relative market shares Need money spent to develop them May produce negative cash flow Potential for the future? Low-share businesses in lowgrowth markets Have low or declining market share (decline stage of PLC) Associated with negative cash flow May require large sums of money to support MS of your business MS of biggest player Strategies that can be followed for each SBU: Build: Invest more Hold: Invest enough to hold current position Harvest: Milking short-term cash flow Divest: Phasing out 17 A “healthy” portfolio? GROWTH-SHARE MATRIX - FIRM A 120.0% VAZY-Ad VAZA-Ad VAZA-Fo VAZY-Fo 50.0% VAZF-Fo VAZY-In VAZA-In SAND-Hi SAND-Ot SASI-Si SACK-Ot SAND-Si SAND-Pr - 20.0% 5.0 1.0 0.1 Relative market share MARKETING STRATEGY - MK42082E IERZURUMLU 18 A “sick” portfolio? GROWTH-SHARE MATRIX - FIRM O 120.0% 50.0% SOAP-Hi SOLO-Hi SOAP-Si SONG-Bu SOAP-Pr SOAP-Bu - 20.0% 5.0 1.0 0.1 Relative market share 19 EXAMPLE: Unilever MS of your business MS of biggest player MARKETING STRATEGY - MK42082E IERZURUMLU 20 EXAMPLE: Unilever MS of your business MS of biggest player Strategies that can be followed for each SBU: Build: Invest more; Lipton and Dove Hold: Invest enough to hold current position; Marmite and Hellmann’s Harvest: Milking short-term cash flow; Marmite and Hellmann’s Divest: Phasing out Ragu and/or Slim-Fast (unless one generates enough cash to maintain itself MARKETING STRATEGY - MK42082E https://themarketingagenda.com/2014/09/20/unilever-bcg-matrix/ 21 Limitations of the BCG Matrix  Difficult to implement – sometimes it is difficult to define SBUs and measure market share and growth  Classifies current businesses but provides little advice for future planning.  BCG is too simplistic. More complex approaches exist  May be risky to take immediate decisions / actions  The model implicitly assumes that all business units are independent of one another except for the flow of cash. 22 B: The Product / Market Growth Opportunities Growth Opportunity Matrix 23 Growth Opportunity Matrix New markets Current markets Current products Market penetration strategies Increase market share Increase product usage Increase frequency of use Increase quantity used New applications Market development strategies Expand markets for existing products Geographic expansion Target new segments New products Product development strategies Product improvements Product-line extensions New products for same market Diversification strategies Vertical integration Forward/backward integration Diversification into related businesses (concentric diversification) Diversification into unrelated businesses (conglomerate diversification) MARKETING STRATEGY - MK42082E IERZURUMLU 24 Market penetration Grow by penetrating existing markets with existing products. (1) Penetrate current customers with more products (2) Recruit more of the same customers The most obvious way to grow -- low risk & low return. Increase access, lower cost Improve and customize features Packaging innovations Social media to link current customer to more of the target market Rearrange product or service attributes to increase value 25 Market penetration Grow by penetrating existing markets with existing products. (1) Penetrate current customers with more products (2) Recruit more of the same customers The most obvious way to grow -- low risk & low return. Increase access, lower cost Improve and customize features Packaging innovations Social media to link current customer to more of the target market Rearrange product or service attributes to increase value 26 Product development Grow business by extending current offerings to serve current markets better Create a map of the entire chain of events your customer experiences. Where can you improve? Offer complementary products & services to increase performance with current markets. Offer experience-based interactions that deepen your target market’s interaction with the firm. 27 Product development Grow business by extending current offerings to serve current markets better Create a map of the entire chain of events your customer experiences. Where can you improve? Offer complementary products & services to increase performance with current markets. Offer experience-based interactions that deepen your target market’s interaction with the firm. 28 Market development Grow by leveraging existing offerings to target adjacent or new markets The best set of examples occur in international markets when firms take their offerings abroad to target similar markets 29 Diversification Target new customers with new offerings Firms grow by identifying open spaces that exist within and between existing industries. Growth at the intersection of substitute industries. Growth at the intersection of strategic groups within industries. 30 Business Unit Strategy Hierarchical Nature of Strategy I. Corporate Strategy II. Business Unit Strategy III. Decisions about how a business competes and attains SCA in its industry Provides direction on how many and which Functional Strategy segments to compete in, overall breadth of the product offerings and marketing programs to appeal to these segments. 32 MARKETING STRATEGY - MK42082E IERZURUMLU II. Business Unit Strategies Level of Strategy Content (2) a. Competitive Advantage How do we compete in our chosen domain? How will we compete in our chosen domain? Frameworks Generic Strategies Value Chain How should we compete in our chosen domain? How can we compete in our chosen domain? b. Objectives Performance dimension Target Time frame c. Resource Allocation 33 Characteristics of SBUs It is a single business or collection of related businesses It has its own set of competitors It has leaders responsible for: Strategic planning, Profitability and Efficiency Ideally, SBUs have:  A homogeneous set of markets to serve with limited number of related technologies  A unique set of product-markets  Responsibility for their own profitability 34 Exercise Which SBUs would you identify? Why? What mission would you write? 35 Henkel’s mission Serving our customers and consumers worldwide as the most trusted partner with leading positions in all relevant markets and categories – as a passionate team united by shared values.  How would you evaluate this mission? What are its strengths? Weaknesses? 36 II. Business Unit Strategies Resources & Capabilities Unique Distinctive Advantage Superior Value Meaningful Sustainable Advantage Inimitable Superior Performance Customer and Competitor Sustainability Porter’s Generic Strategies MARKETING STRATEGY - MK42082E IERZURUMLU 37 Generic Strategies: Porter’s Competitive Strategies Target Market Strategic Advantage Industrywide Particular Segment Only Uniqueness Perceived by Customer Low Cost Position DIFFERENTIATION OVERALL COST LEADERSHIP FOCUS DIFFERENTIATION FOCUS COST LEADERSHIP 38 Cost Leadership Strategy …aims to open up a sustainable cost advantage over competitors and then use the company’s lower cost edge as a basis for either:  Under-pricing competitors and gaining market share  Selling at the “going rate” and earning a higher profit margin Price competition is very vigorous There are few ways to achieve meaningful product differentiation Technological breakthroughs open up cost reductions for competitors Cost reduction strategy can easily be copied- hence, short-lived advantage Fixation on costs can cause failure to react to market changes Buyers are only sensitive to price differences Buyers incur low or no switching costs Buyers are large, and powerful enough to drive down prices 39 Differentiation Strategy Its essence is to be unique in ways that are valuable to the buyer, and that can be sustained. A premium price could be charged for the product Differentiation clearly develops brand power and generates repeat purchase There are many ways valuable as perceived by the buyer to differentiate a product or service Buyers needs and uses for your product are diverse Few rival firms are following a similar differentiation approach “Point” of differentiation cannot easily be copied by competitors Trying to differentiate on something that does not lower a buyer’s cost or enhance a buyer’s well-being Over-differentiating so that the price is too high relative to competitors, or product quality exceed buyer needs Charging too high a price premium ignoring the need to signal value Not understanding what buyers value 40 Focus Strategy The industry has many different segments, allowing the focuser to pick the one most suited to its capabilities The segment is… – big enough to be profitable and has good growth potential – not crucial to the success of major competitors The focusing firm… – has the skills and resources necessary to serve the segment – doesn’t have the resources to go after a wider part of the total market – can defend against challengers based on loyalty and the goodwill it has built Large competitor may set its sights on your niche market Preferences of niche market may change to match those of broad market 41 Types of differentiation 42 The Typology of Generic Strategies 43 Example: IKEA, Sweden Value Proposition Young, first time, or price-sensitive buyers who want stylish, space efficient and scalable furniture and accessories at very low price points. Distinctive Activities Modular, ready-to-assemble, easy to package designs In-house design of all products Wide range of styles in huge warehouse stores with large on-site inventories Self-selection Extensive customer information in the form of catalogs, explanatory ticketing, do-it-yourself videos, and assembly instructions Use Ikea designer names on products to inform coordinated purchases Child care provided in the store On-site, low-cost, restaurants Long hours of operation Suburban locations with large parking lots Principally self-delivery by customers 44 Value chain Support / Secondary Activities Firm Infrastructure $ Human Resource Management Technology Development Procurement Inbound Logistics Operations Outbound Logistics Marketing and Sales Service $ Primary Activities 45 Functional Strategy Hierarchical Nature of Strategy I. Corporate Strategy II. Business Unit Strategy III. Functional Strategy Decisions about the effective allocation and coordination of marketing resources and activities to accomplish the firm’s objectives within a specific product-market. 47 III. Functional Strategy Functional strategies are a subset of company strategy  Part of building a company is shaping functional strategies to serve the overall strategy But functional strategies also shape company strategy by testing the corporate strategy  Marketing strategy is especially important because it ties the company to its customers.  Other functional strategies: R&D, HR, and Operations. “Marketing isn’t somebody’s responsibility; marketing is everybody’s responsibility.” Jack Welch, Chairman and CEO of GE 48 MARKETING STRATEGY - MK42082E IERZURUMLU The Marketing Strategy Process Marketing Analysis (The 5 C’s) Input: Analysis & Planning Customers Company Competitors Market Segmentation Collaborators Target Market Selection Context Positioning Marketing Mix (The 4P’s) Implementation: Marketing Mix Product & Services Place Promotion Pricing Output Acquiring Customers + Retaining Customers Profits and ROI Control & Evaluation 49 Situation analyses 5 C’s Customers Company (Internal) Competitors Collaborators Context (Environmental) SWOT Analysis: Understanding strengths Analyzing weaknesses Finding opportunities Avoiding threats Strategic SWOT analysis: SO, ST,WO, WT 50 ? HOW DO MARKETERS FIND THE DATA/INFORMATION TO CONDUCT THESE ANALYSES (I.E. BCG, DPM, SWOT?). LIST THE MOST IMPORTANT SOURCES AND THEIR ADVANTAGES/DISADVANTAGES. 51 Why marketing metrics matter? 52 How effective is our strategy? Leading performance metrics. An indicator whose value changes prior to a change in the larger system of which it is a component. Used to predict trends. “In-process metrics” Lagging performance metrics. An economic or other indicator that changes value after the underlying conditions it measures have begun to exhibit a trend. Occur simultaneously with financial performance metrics. Used to confirm the existence of a condition or trend. “End-result metrics” 53 Some examples of performance metrics Time of Measurement Perspective In-Process Internal External End-Result Product Defects Late Deliveries Billing Errors Accounts Receivable Inventory Turnover Net Profit/Earnings/Income Return on Sales (net profit ÷ net sales) Margin per Unit Asset Turnover/Utilization (net sales ÷ total assets) Return on Assets (net profit ÷ total assets; ROS * AT) Customer Satisfaction Relative Product Quality Relative Service Quality Market Share Customer Retention Relative New Product Sales Revenue per Customer 54 Net Marketing Contribution Net marketing contribution (NMC) Grow current market demand NMC = [ Market Demand Enter or exit markets x Increase market share Grow customer revenue Market ( Revenue per _ Variable Cost ) ] _ Marketing x Expenses Share per Customer Customer Lower variable costs Increase marketing efficiency 55 NMC: Jewelry Store Exercise As an owner of custom-designed jewelry store, you need to determine your current marketing strategy is enough to cover the cost associated with this strategy. Please calculate the net marketing contribution (NMC) to show whether it is worth pursuing such marketing strategy by using the information below. Your store is generated 9000 euros by selling 300 jewelries since you employed the specific marketing strategy, which costs you 3000 euros. The cost of material and labor to produce one jewelry is 10 euros. The number of sales is made by my competitors as follows: Firm A= 100 and Firm B= 200. NMC = [ Market Demand x Market ( Revenue per _ Variable Cost ) ] _ Marketing x Expenses Share per Customer Customer 56