STRATEGIC MANAGEMENT AND MARKETING PROCESS

1. STRATEGIC MANAGEMENT AND MARKETING PROCESS Irvine Clarke III, Ph.D.

2. DEFINITIONS • Strategic Management Process-steps taken at corporate or divisional levels to develop long-run strategies for survival and growth. • Strategic Marketing Process-steps taken at product or market level to develop successful marketing positions and programs. • Both processes involve strategic analysis.

3. Strategic Analysis • Many companies have achieved success more by luck than good strategy. But one can be unlucky as well as lucky. • It is better to ‘back up’ your luck with sound strategy. • Most companies realize that not having a sound strategy can lead to disaster.

4. Extrapolative Planning(this is not strategic analysis!) • Early planning and strategy involved extrapolating what exists to today into the future. So, you plan by assuming that what works today will work tomorrow • It is very dangerous to assume that marketplace conditions will remain unchanged over the life of the marketplace

5. Strategic Analysis-Based on two concepts • Market evolution - market forces change over time • Strategic Fit - Basically, what works today may well not work tomorrow.

6. Market Evolution • Rules of the game (how one succeeds) changes over the life of a market because of changes in consumer needs, technologies, competitors, channels, laws, etc. • Success requires a constant monitoring of these changing market forces so that one can adapt the company to meet the changing requirements of the marketplace.

7. Strategic Fit • If the rules of the game (key success factors) change, than a company must change to remain successful over time. • When a company’s competencies match the key success factors, a condition of strategic fit exists.

8. STRATEGIC MANGEMENT PROCESS Company Mission Company Goals Growth Strategy Portfolio Plan

9. Goals - Traditional View • Top management set goals and assigns them to persons or units. Management monitors progress toward achieving goals. • Goals are to be • Specific -Reasonable • Measurable -Time-bounded • Achievable

10. Goals - Alternate View • Top management should only set very broad goals, sort of set the direction in which the organization should go. • Through a process of ‘muddling’ or logical incrementalism, the organization itself will arrive at more specific goals over time

11. Why not set specific goals at first? • It can centralize the company-says that some alternatives are irrelevant • Can cause company to become rigid in its behavior before all the facts are known • Can cause the company to reject alternative goals that may actually be better • It can focus the internal opposition • It can signal competitors

12. Why are very general goals better? • Can promote cohesion within the company • Can give company personnel something with which to identify-something to ‘get behind’-something with which everyone can agree and support.

13. Evolving specific goals from very general goals • Through the muddling process (a collection of formal and informal processes within the company), top management hopes that solid specific goals will emerge • It is top management’s job to see that this happens.

14. How does top management make this happen? • Provide a framework of broad goals-provide direction • Encourage proposals from within the company that specify how this direction (general goal) may best be achieved • Top management ‘tunes’ the proposals to make sure that the specific goals that emerge are the best possible

15. Making the process work • Top management (or someone) must sense the need for a change in direction and goals • Build awareness within the company for this need for change • Build support for change • Create commitment for change • Help the ‘best’ goals to crystallize • Find champions for the best goals

16. GROWTH STRATEGIES • Intensive-market penetration, market development, product development • Integrative-vertical (forward or backward) and horizontal • Diversification-concentric, horizontal, and conglomerate (pure)

17. PRODUCT/MARKET GRID Current products New Products Market Penetration Product Development Current Markets Market Development New Products

18. Intensive Growth • Market Penetration-grow by selling more current products in current markets-try to gain share of current product/market • Market Development-grow by taking current products into new markets-example: expand geographically • Product Development-grow by adding to line of current products for current markets

19. Product Development(Replace current model or add a new model) • Meet changing consumer needs • Match a competitor’s new product • Take advantage of a new technology • Attract another segment of the market or appeal to an emerging segment

20. Integrative Growth(grow by adding new channel functions) • A retailer decides to grow by adding wholesale functions to the company (backward vertical) • A distributor decides to also become a retailer (forward vertical) • A wholesaler adds wholesale functions for other lines of products (horizontal)

21. Diversification(New Products for New Markets) • Concentric-adding new product that is related to current products in technology, manufacturing process, and/or marketing methods • Horizontal-adding new product that might appeal to current customers. Firm hopes it might take advantage of reputation with current customers.

22. Conglomerate Diversification Growth • Add new products that are unrelated to current products or current market (customers) • How do you choose a new product? • Choose a product with the best profit/growth potential • Choose a product where you think you can have a competitive advantage

23. Company Portfolio Plan • We can look at a company as a portfolio (collection) of divisions, products, product lines, brands, or markets. • The management problem is to allocate money across the portfolio so as to best achieve the desired goals for the company

24. Boston Consulting Group (BCG)Underlying Concepts • Markets or other units in the portfolio vary in their attractiveness for investment • units vary in their competitive strengths in their respective markets • Units vary in their contribution to company sales and profits

25. BCG - We Like Growth Markets for Investment!! Why? • Market growth rate is a good indicator of where the market is in its life cycle • A share point gained in a growth market has more L-R value than a share point gained in a non or low growth market

26. BCG - We Like Growth Markets for Investment!! Why? • In a growth market, supply usually lags demand and competition therefore less intense allowing for higher margins. • Entering a market early in its cycle(growth market) can discourage potential competitors from entering

27. BCG - We Like Growth Markets for Investment!! Why? • Early entrants have a headstart down the experience curve. • The marketing challenge in a growth market is to attract first-time buyers; in a non-growth market, the challenge is to get buyer to switch brands. Most marketers believe it is easier to attract first-time buyers.

28. BCG-Greater relative market share is preferred Competitor with the largest relative share should have the lowest costs because of experience curve effects. That is, costs should decrease with cumulative experience in making and marketing the product.

29. BCG-Definition in the model • Market growth rate-annualized growth rate of total sales (not the sales of a single competitor) in a market. • Relative market share-illustrates the degree of market leadership. A ‘.4’ means that the SBU has 40% of the leader’s share. A ‘1.5’ means that the SBU’s share is 150% of the next largest market share

30. BCG-Definition in the model • The size of the circles represents the SBU’s sales revenue. • Generally, the higher the relative share, the higher the cash generating ability because of the positive relationship between share and margin. • The higher the market growth rate, the more cash investment required

31. Cash Flow and BCG High Modest Cash Flow- Positive or negative Large Negative Cash Flow Market Growth Rate Large Positive Cash Flow Modest Cash Flow- Positive or negative Low High Low Relative Market Share

32. BCG-Some Investment Strategies • BUILD - Invest to improve market share • HOLD - Invest to preserve market share • HARVEST - Do not invest. Get the S-R cash flow as long as possible • DIVEST - Sell SBU or liquidate its assets

33. Stars Question Marks Sprinker Systems Chain Saws Market Growth Rate Cash Cows (moo) Dogs (arf, arf) Blowers Lawn Mowers Relative Market Share

34. Segmentation • The identification of subsets of buyers within a market that share similar needs and demonstrate similar buyer behavior. • Segmentation aims to match groups of purchasers with the same set of needs and buyer behavior. • One organization may chose to offer different “bundles of benefits” to each segment. The most successful organizations coordinate these efforts.