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The strategic planning gap & growth strategies. The strategic planning gap.
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The strategic planning gap& growth strategies
The strategic planning gap • The strategic planning gap is really the differencebetween projected earnings, given future scenarios, if the business makes no changes to its marketing strategies, and the desired earnings over the same time period. • The time period should be medium to long-term, i.e., at least 2 to 5 years into the future. Dubai Lehman
Sales Owners and Risk of failure: profits investors’ expectations • capital • strategy Strategic Planning Gap Sales or profit position now Probable result if no growth strategies are used and no changes are Time made to marketing activities. The strategic planning gap
Sales Owners and Risk of failure: profits investors’ expectations • capital • strategy Sales or profit position now Probable result if no growth strategies are used and no changes are Time made to marketing activities. Elements of the strategicplanning gap model • The downward profit/sales indicator line; • The upward profit/sales indicator line; • The gap; • Three levels of growth: • intensive growth • integrative growth • diversification growth. • The risk indicator line.
Calculating the gap • Develop three future scenarios - best case, most likely and worst case. • Forecast projected earnings for each scenario over a reasonable time period - 2 to 5 years - if the business makes no real changes to its marketing strategies. Plot these on a graph. • Calculate the owners’ expectations for the same time periods, given the circumstances of each scenario. Plot these on the same graph. • The resulting difference between the lines is the Strategic planning gap, which is filled using various growth strategies.
Products Current New 1.Market 2. Product Current Penetration Development Markets 4. Related Diversification Growth 3. Market New Development New And Growth Ansoff’sproduct market growth matrix
Coca 1.Market penetration Growth in sales and/or profit achieved by maximising the possibilities within the scope of the business’s current products and markets, i.e., dig deeper (penetrate) into the existing market potential. Present products Growth in existing product markets by increasing market share increasing product usage increasing the frequency used increasing the quantity used finding new applications for current users Present markets
Limitations of market penetration • Label/packaging changes may not appeal to customers. • Customers may react adversely if they feel they are being ‘tricked’ - e.g., pack size changes. • Some strategy options can be easily copied by competitors, so the competitive advantage is lost. • Price reductions may increase sales a little, but mayadversely affect profits. • Price increases may alienate more price sensitive customers. • Advertising doesn’talways work and is costly and time consuming to change. • Competitors may react or copy any incentives aimed at distributors.
Nokia 2. Product development Develop new products for existing markets and customers within the current product category. New products Create new products by: adding new product features, product refinements expanding the product line develop a new generation products develop new products in the same product category for same market Present markets
Limitations of product development • The market may not accept the new product and this may be reduced by good marketing research, but no new product is 100 per cent guaranteed of success. • Competitors may easily copy or improve the new product, so competitive advantage is lost.
Flower 3. Market development Market development strategies are designed to target a business’s current products at new market segments. Present products Growth by targeting new markets geographic based customer descriptor based: demographic, psychographic or behavioural New markets
Limitations of market development • New geographic markets are costly to set up. • New geographic markets are likely to have different business and customer characteristics, which may be difficult to learn. • Existing competitors in the new market may react aggressively. • New customer segments may not respond.
Related diversification growth • Occurs when businesses have the opportunity to create new products to target new markets, either or both of which are related to existing product and markets. • The business’s existing products need to be adapted, or new versions created in order to attract a new market segment. This is generally a demographic, psychographic or behavioural segment. These adaptations or versions become new products for the business and the new segment’s new markets.
Tup Related diversification growth examples • Tupperware was traditionally bought by lower to middle-class suburban women, often mature age. It has been refocused towards middle-upper income women in the 25 – 39 age bracket, using bright colours and introducing a range of Disney-based children’s products. • Vanguard Publications created a new magazine, 11o targeted at a segment they call ‘flashpackers’.
Limitations of related diversification growth • The new market may not be attracted to the new product versions. • Temporary competitive advantages are likely to be rapidly lost as competitors also produce products to attract the new market. • If competitors are better resources, or can avoid ‘teething problems’ that may be experienced by the first business, they may out-compete the originator of the new product/market combination.
Future car Cars Market structure profile gaps
Integrative growth Increasing sales and or profitability through either establishing,acquiring or forming strategic alliances with complementary businesses within the current industry or industries connected at either side of the supply chain. • Backward - acquiring suppliers; • Forward- acquiring resellers (wholesalers or retailers); • Horizontal - acquiring competitors.
Benefits of forward or backward integration • Reduced costs of inputs or distribution, • Can reduce other costs such as transport, • Consistent quality and supply of important inputs, • Allows access to distribution channels, • Creates barriers to entry, • Allows specialisation and can lead to core competency competitive advantages, • Provides additional profit potential from integrated business’s other activities.
Limits of integrative growth • Considerable capital and other resources are required. • Additional capacity, infrastructure and staffing may be required throughout the rest of the business to allow absorption of the integrated business. • Loss of capital resources and credibility if the bid fails. • Difficulty in mastering the new business, spreading the company’s resources too thinly across the diverse operations. • Commitment to the integrated business may limit the flexibility to develop new products. • Loss of sales if customers react adversely to the takeover and remove their patronage. • Legal ramifications, possible ACCC intervention • Bankruptcy in the extreme instance, where the business being taken over is less than it appears.
Diversification growth Asimo Increasing sales and or profitability through either establishing or acquiring businesses outside the current industry • Concentric - new, related businesses that add technical or marketing synergy. • Horizontal - new, unrelated businesses that will appeal to existing customers. • Conglomerate - new, unrelated businesses attracting new customers i.e., something completely different.
Limitations of diversification growth • Capital risk - diversification requires considerable setup or purchase capital. If the new business fails, it may endanger the entire company. • Risk of failure - the company may not be able to cope with the added demands of the new business. As a result, the new business may fail, and at the same time lose market share and competitive effectiveness in the core business. • Customer reaction against the acquisition - depending on how well the acquisition is publicised, there may be a consumer backlash.
