MARKETING STRATEGY, PLANNING & DEVELOPMENT

(1)

1

MARKETING

STRATEGY,

PLANNING &

DEVELOPMENT

Prof. Paolo Roma – Marketing Class slides - Academic Year 2012-2013

DICGIM - DIPARTIMENTO DI INGEGNERIA CHIMICA, GESTIONALE, INFORMATICA, MECCANICA

2

Schumpeter:

“…the entrepreneur and his function are not difficult to

conceptualize: the defining characteristic is simply the doing of

new things that are already being done in a new way (innovation).

It is but natural, and in fact only an advantage, that such a

definition does not draw any sharp line between what is and what

is not 'enterprise'...It should be observed that the 'new thing' need

not be spectacular or of historical importance. It need not be

Bessemer Steel or the explosion motor. It can be Deerfoot

sausage." –

Chapter 10 of Joseph A. Schumpeter: The Economics and Sociology of

Capitalism, Richard Swedberg (ed)

.

DEFINITION OF ENTREPRENEUR (1)

(2)

3

From Schumpeter’s definition, it emerges that:

  The entrepreneur is an innovator;

  The entrepreneur creates something that has market

opportunities because it satisfies customers’ needs;

As supply exceeds demand, firms should focus on satisfying

customers to make profits in the long range.

  The entrepreneur should create wellness, not just make

money, i.e., the exchanges of products/services with

customers should not be a zero-sum game.

DEFINITION OF ENTREPRENEUR (2)

Alternatives at two different levels:

  Operate in markets where it is possible to obtain high

returns of capital (corporate strategy: select and develop

the market where a firm will compete);

  Pursue a competitive advantage in a given market in

order to obtain a higher returns of capital compared to the

average one in the market. (business strategy: determines

the way firm will compete in a given market);

(3)

5

SOURCES OF PROFITABILITY

CORPORATE

STRATEGY

BUSINESS

STRATEGY

CORPORATE

STRATEGY

Select markets

where to

compete

How to gain

a competitive

advantage

Industry

Attractiveness

Competitors’

_{Strategy analysis}

6

PROCESS OF STRATEGY DEFINITION

DEFINITION OF BUSINESS AND TARGETED MARKET ANALYSIS OF THE TARGETED MARKET SWOT ANALYSIS Mission definition; Needs identification; Customers identification; Purchase Behavior analysis; SBU identification. Macro-environment analysis; Needs identification; Demand estimation. Porter model In each SBU Competitors’ strategy analysis Weaknesses and strengths Analysis of the business idea. GOALS Position the firm in the

competitive context GOALS Assess market attractiveness GOALS Set up a competitive strategy

(4)

7 MISSION BUSINESS DEFINITION MAPPING PRODUCTS TO MARKETS ANALYSIS OF SUSTAINABLE BUSINESS DEVELOPMENT

FIRM

MARKETS

GOALS, STRATEGY, CHANGE PLANS

ANSOFF MATRIX DEFINTION

SWOT ANALYSIS

PORTFOLIO TECHNIQUES

A mission statement defines what an organization is, why it

exists, its reason for being. At a minimum, the mission

statement should define who your primary customers are,

identify the products and services you produce, and

describe the geographical location in which you operate.

The mission represents the guide for the long-term

strategy:

 Who are we?

 What do we do?

(5)

9

GOOGLE:

Google’s mission is to organize the world’s information and make

it universally accessible and useful.

UNILEVER:

We work to create a better future every day.

SKYPE:

Skype’s mission is to be the fabric of real-time communication on

the web.

INDESIT:

To be the European leader, producing technological solutions

compatible with the environment, to create quality of time for people day

after day" Indesit Company's mission can be summed up by its Brand

Essence: Simply better.

OPTISSIMO GRUPPO RANDAZZO:

La nostra missione è creare valore per il

Cliente e per il Gruppo fornendo le migliori soluzioni ai bisogni legati alla

vista, alla protezione degli occhi, al piacere ed al piacersi, grazie alla forza

della nostra professionalità ed esperienza, della nostra storia di

innovazione e della nostra straordinaria passione.

10

  SBU (STRATEGIC BUSINESS UNIT):

SBU is a profit making

area that focuses on a combination of product offer and market

segment, requiring its own marketing plan, competitor analysis,

and marketing campaign.

  As SBUs are profit centers, the profit performances of a

multi-SBUs company depends on the sum of the outcomes achieved

in every single SBU and the ability of the firm to aggregate such

outcomes.

  SBU definition:

 Identifies the targeted market;

 Identifies the competitors;

 Identifies new opportunities;

 Allows to develop specific strategies.

Example: SBUs of companies such as Unilever, P&G, Reliance

Industries Limited (this one, from textile to chemicals, oil, retail

banking, telecom)

STRATEGIC BUSINESS UNIT

(6)

11

SBU definition is strategic:

  A too restrictive definition can lead to myopic

strategies, not fully exploiting market opportunities.

  On the other hand, a too wide definition does not

allow a focused strategy, with the risk of

underrating competitors.

  Porfolio analysis and management techniques

requires to measure the SBU attractiveness and

the competitive position of the firm in the SBU.

According to Abell the SBU is identified by three

dimensions:

  The customer groups the business unit serves.

  The functions the business unit fulfills for these

customer groups.

  The technologies (as perceived by customers)

deployed to realize these functions.

(7)

13 Prof. Paolo Roma – Marketing Class slides - Academic Year 2012-2013

Clothing cleaning Through washing machine

Clothing hand-washing Home cleaning Kitchenware cleaning by washing machine Kitchenware hand washing

Families Individuals Communities

Liquid Powder

(8)

15

Alternative

Technologies

Customer

groups

Functions

Business

Wine

Producers

Milk

Producers

Cleaner

Producers

Paper

Glass

Plastics

Image/

Status

Protection

Preservation

 Firm A produces wood-based furniture for offices, banks,

residential apartments;

 Firm B produces metal-based furniture for offices;

 Firm C produces plastics-based furniture for schools.

  The projection of the SBU on the diagram Functions – Segments (i.e.

Product-Market Matrix) defines the market macro-segmentation.

  If in the same projection the products realized with different

technologies are reported, it means that substitutes are also

considered.

(9)

17

INTERSECTIONS IN THE SBU (1)

what

who

Firms offering products that satisfy the same needs/wants

and adopting the same technology are the restricted

competitive arena

how

18

INTERSECTIONS IN THE SBU (2)

what

who

Firms offering products that satisfy the same needs/wants and

adopting different technologies are the enlarged competitive arena

(10)

19

INTERSECTIONS IN THE SBU (3)

what

who

MARKET MACRO-SEGMENTATION: THE

PRODUCT-MARKET MATRIX

how

A starting point for definition of business development strategies is relared

to the strategy firm aims at pursuing in the H. J. Ansoff matrix

(product-market matrix).

(11)

21

The market penetration strategy aims at increasing sales more rapidly

that industry sales. Firms can leverage on marketing mix to reach this

purpose.

The market development strategy can be viewed as a strategy aimed at

extending the business to further geographical markets or extending to

further market segments. In the latter case, firms should consider

modifying or introducing a new marketing mix for a new or further

positioning.

The product development strategy focuses on R&D activities to

introduce new products based on new technologies.

22

The diversification strategy integrates both market and product

perspectives, representing the highest level of innovation in terms of both

product technical features and marketing strategic and operational

decisions.

The diversification strategy can be distinguished in two different

approaches:

- Horizontal or vertical, i.e. firms integrate business activities which are

complementary, similar or belonging to the same value-chain to the

current business activity in order to exploit internally existing

competences and know-how (e.g. IBM, Siemens, Barilla, Apple, etc…)

-  Conglomerate, i.e. firms integrate business activities which unrelated to

their current business activities (e.g., some tobacco industries (Altria

Group) which have purchased food/beverage companies, Virgin FIAT,

Reliance Ltd, etc…). Require managerial capabilities for financial

resources allocation among businesses and there is lack of focus, but

business risk is scattered among different businesses.

(12)

23

SWOT ANALYSIS

Strength - Weakness - Opportunities -Threats

PORTER’S MODEL

PESTLE Analysis

Internal Analysis

STRATEGY

SWOT ANALYSIS – Examples (1)

(13)

25

SWOT ANALYSIS – Examples (2)

26

  Should the company be in a given business?

  Should the company dismiss a given business unit?

  Should the company develop a given business unit?

  Should the company buy a certain business unit?

Portfolio techniques for corporate strategy planning provide

a support for answering to questions such as the following:

Therefore, such techniques aim at supporting the financial

resources allocation process among different business

units in order to develop those that appear to be more

promising in terms of profitability.

(14)

27

It had been created by Bruce Henderson for the Boston

Consulting Group in 1968 to help corporations with analyzing

their business units or product lines. This helps the company

allocate resources and is used as an analytical tool in brand

marketing, product management, strategic management, and

portfolio analysis.

X-axis: relative market share;

Y-axis: market growth rate.

In such a chart different businesses/products are visualized by

circles centered at (x,y) and with size proportional to revenue it

generates. A development of the matrix is to reflect the relative

profit contribution of each division and this is shown as a pie-

segment within the circle.

(15)

29

Let:

be the market share and the unit production cost

of firm A with respect to its own main competitor

B, respectively.

The value of the market share is equal to the

ration of the cumulative volumes, if for both firms

the annual growth rate of the sales is the same.

30

From the experience curve equation we obtain:

So an equal increment of the relative market

share (in log expression) corresponds to an

equal decrement in the production cost (in log

expression).

(16)

31

  High market growth rates requires high level of

investments (both fixed assets and working

capital) in order to increase or maintain the

relative market share.

 When market growth rate decreases, there is

less need to financial resources and therefore,

the sales of the products will generate a cash

flow which will be higher, the higher the

cumulative market share.

 The X-axis represents also the ability of the

given business unit to generate liquidity.

 The higher the relative market share, the

lower the production cost and, all else being

equal, the margin will be higher.

(17)

33

 When market growth rate decreases, there is

less need to financial resources and therefore,

the sales of the products will generate a cash

flow which will be higher, the higher the

cumulative market share.

 Y-axis represents the extent of liquidity

absorption.

(18)

35

Question marks are products that grow

rapidly and as a result consume large

amounts of cash, but because they have

low market shares they don’t generate

much cash.

The result is a large net cash

consumption. A question mark has the

potential to gain market share and

become a star, and eventually a cash

cow when the market growth slows. If it

doesn’t become a market leader it will

become a dog when market growth

declines.

Question marks need to be analysed

carefully to determine if they are worth

the investment required to grow market

share.

Stars generate large sums of

cash because of their strong

relative market share, but also

consume large amounts of cash

because of their high growth

rate. So the cash being spent

and brought in approximately

nets out. If a star can maintain

its large market share it will

become a cash cow when the

(19)

As leaders in a mature market,

cash cows exhibit a return on

assets that is greater than the

market growth rate – so they

generate much more cash

than they consume. These

units should be ‘milked’

extracting the profits and

investing as little as possible.

They provide the cash

required to turn question

marks into market leaders.

Dogs have a low market

share and a low growth

rate and neither generate

nor consume a large

amount of cash. However,

dogs are cash traps

because of the money tied

up in a business that has

little potential. Such

businesses are candidates

for divestiture. Strategic

price reduction to damage

the leader company.

(20)

(21)

41

Market

Competitors

Technology

Social/Political

42

Industry attractiveness

Weights

_{Evaluation Score}

INDUSTRY REVENUE

MARKET GROWTH

PROFIT MARGIN

COMPETITION LEVEL

TECHNOLOGY REQUIREMENTS

INFLATION

ENERGY REQUIREMENTS

ENVIRONMENTAL IMPACT

(22)

43

MARKET SHARE

MARKET PENETRATION

CUSTOMER LOYALTY

PRODUCT QUALITY

BRAND REPUTATION

DISTRIBUTION CHANNELS

PROMOTIONAL EFFECTIVENESS

PRODUCTION CAPACITY

PRODUCTION EFFICIENCY

UNIT PRODUCTION COSTS

SUPPLY SOURCES

R&D

MANAGEMENT STYLE

Competitive strength

Weights

Evaluation Score

(23)

45

•  BCG:

It is not always true that by increasing the

relative market share the cash flow increases

(i.e., experience curves might not always be

in place). There are studies showing that

companies using BCG matrix for corporate

strategy have low profitability (e.g. Slater and

Zwirlein, 1992).

•  GE:

Multifactorial

matrix

with

subjective

evaluation.

46 MARKET SHARE % FIRM CRITICAL FACTORS OF SUCCESS TECHNICAL PRODUCT FEATURES BRAND IMAGE DISTRIBUTION CHANNELS EXPERIENCE FINANCIAL RESOURCES TOTAL score

SCF score

weight

SCF average

score

Average score

(24)

47

Map of competitive position considering the SCF of companies

SC

F

sco

re

SCF average score

Prof. Paolo Roma – Marketing Class slides - Academic Year 2011-2012 Prof. Paolo Roma – Marketing Class slides - Academic Year 2012-2013

(25)

Product

50 Market Share Variation Product

Dynamic competitive analysis

Product growth Ma rke t g ro w th

Win market share Lose market

share _{Maintain market share}

Prof. Paolo Roma – Marketing Class slides - Academic Year 2011-2012 Prof. Paolo Roma – Marketing Class slides - Academic Year 2012-2013

MARKETING STRATEGY, PLANNING & DEVELOPMENT

MARKETING

STRATEGY,

PLANNING &

DEVELOPMENT

Schumpeter:

“…the entrepreneur and his function are not difficult to

conceptualize: the defining characteristic is simply the doing of

new things that are already being done in a new way (innovation).

It is but natural, and in fact only an advantage, that such a

definition does not draw any sharp line between what is and what

is not 'enterprise'...It should be observed that the 'new thing' need

not be spectacular or of historical importance. It need not be

Bessemer Steel or the explosion motor. It can be Deerfoot

sausage." –

Chapter 10 of Joseph A. Schumpeter: The Economics and Sociology of

Capitalism, Richard Swedberg (ed)

.

DEFINITION OF ENTREPRENEUR (1)

From Schumpeter’s definition, it emerges that:

 The entrepreneur is an innovator;

 The entrepreneur creates something that has market

opportunities because it satisfies customers’ needs;

As supply exceeds demand, firms should focus on satisfying

customers to make profits in the long range.

 The entrepreneur should create wellness, not just make

money, i.e., the exchanges of products/services with

customers should not be a zero-sum game.

DEFINITION OF ENTREPRENEUR (2)

Alternatives at two different levels:

 Operate in markets where it is possible to obtain high

returns of capital (corporate strategy: select and develop

the market where a firm will compete);

 Pursue a competitive advantage in a given market in

order to obtain a higher returns of capital compared to the

average one in the market. (business strategy: determines

the way firm will compete in a given market);

SOURCES OF PROFITABILITY

CORPORATE

STRATEGY

BUSINESS

STRATEGY

CORPORATE

STRATEGY

Select markets

where to

compete

How to gain

a competitive

advantage

Industry

Attractiveness

Competitors’

Strategy analysis

PROCESS OF STRATEGY DEFINITION

FIRM

MARKETS

A mission statement defines what an organization is, why it

exists, its reason for being. At a minimum, the mission

statement should define who your primary customers are,

identify the products and services you produce, and

describe the geographical location in which you operate.

The mission represents the guide for the long-term

strategy:

 Who are we?

 What do we do?

GOOGLE:

Google’s mission is to organize the world’s information and make

it universally accessible and useful.

UNILEVER:

We work to create a better future every day.

SKYPE:

Skype’s mission is to be the fabric of real-time communication on

the web.

INDESIT:

To be the European leader, producing technological solutions

compatible with the environment, to create quality of time for people day

after day" Indesit Company's mission can be summed up by its Brand

Essence: Simply better.

OPTISSIMO GRUPPO RANDAZZO:

  The entrepreneur is an innovator;

  The entrepreneur creates something that has market

  The entrepreneur should create wellness, not just make

  Operate in markets where it is possible to obtain high

  Pursue a competitive advantage in a given market in

_{Strategy analysis}

 Who are we?

 What do we do?

  SBU (STRATEGIC BUSINESS UNIT):

  As SBUs are profit centers, the profit performances of a

  SBU definition:

 Identifies the targeted market;

 Identifies the competitors;

 Identifies new opportunities;

 Allows to develop specific strategies.

  A too restrictive definition can lead to myopic

  On the other hand, a too wide definition does not

  Porfolio analysis and management techniques

  The customer groups the business unit serves.

  The functions the business unit fulfills for these

  The technologies (as perceived by customers)

 Firm A produces wood-based furniture for offices, banks,

 Firm B produces metal-based furniture for offices;

 Firm C produces plastics-based furniture for schools.

  The projection of the SBU on the diagram Functions – Segments (i.e.

  If in the same projection the products realized with different