Chapter 8

1. Chapter 8 Growth Strategies Objective: to determine the direction within the firm’s current products and markets or growth in related or unrelated businesses.

2. Grand or Growth Strategies • For a multi-business firm (both corporate and business level), the primary focus of strategic marketing is on grand (or growth) strategies which concern the products and services that will be offered, the market or markets for which the firm will compete, and the timing of new product/service introductions or market additions (both customer segment and geographic markets). These strategies are so important that they determine how the business will be known.

3. For a single business (business level strategies), the primary aims of strategic marketing are (1) to maximize the firm’s position (image in the mind’s of consumers relative to competitors), (2) to determine what factors are necessary for the firm to attain its strongest position, (3) to allow the firm to specialize in an area where it can either be the best of its competitive segment or one of the best, (4) to provide managers with a target on which their efforts can be focused, and (5) to continuously learn from experience and seek ways of improving the firm’s position.

4. There are normally very few changes in a firm’s grand strategies, but there may well be many minor ones. E.g. a midscale hotel would not consider to upgrade to a luxury one, but it would consider to add new customer or market segments, find new ways of promoting to existing customers, renovate the hotel, or add new products or services. Based on the firm’s grand strategies, marketing strategies and action plans are determined depending on their time frame. The time frame for the plan and its implementation will vary by need and importance. Some areas of the plan would be focused on the immediate future; others would be planned for several years in the future.

5. Steps Involved • When a firm decides to incorporate any form of grand strategies into the plan, the firm also needs to decide “what” specific marketing mix variables (product, price, place, promotion) will be used to accomplish them. The marketing mix variables in this context are referred to as “strategies” since they guide the strategic direction of the firm. However, then these strategies are required to be turned into “tactics”; “how” exactly they will be used, which are known as marketing action plans.

6. Intensive Strategies • Intensive strategies are concerned with improving the performance of existing businesses. Here, most activities relate to increasing the frequency of present customers, increasing their average amount spent, or attracting new customers (either competitors customers or those from a different market segment). • Concentration or penetration – focusing on the current market with the current product • Product and service development – focusing on the new products and services targeted at existing markets • Market development – focusing on new markets (customer segment or geographic markets with existing products)

7. Concentration or Penetration • For existing products and services in existing markets; selling more of present products or services (or slightly modified versions) to the existing customer base, or simply doing a better job of what is currently being done. • Advantage of concentration is that the company is doing what it does best. • Disadvantage; if a company becomes overconfident in its present product/service mix, it may lose touch with shifts in demand or the environment which may require improvements. This may cost the firm a lot.

8. Product and Service Development • This includes the development of new or modified products/services for “existing customers”. • Most often, product or service additions are modifications of existing offerings. If competition is strong or the product/service has reached the end of its life cycle, then an entirely new or innovative product/service may be needed. • However, when a company adds a new product/service, it may also add customers from other market segments as well.

9. When the goal of new products/services is specifically to bring in new market segments, it is called “diversification”, or more properly “intensive diversification” (diversifying the product offering). • When a fine dining restaurant or luxury hotel adds almost any product/service to its product/service mix, this could be considered a pure product development, since these firms generally have only one target market, and are not usually concerned about attracting new ones. • However, keep in mind that the primary goal of product development is that increasing brand loyalty of “existing customers” by developing new products/services. Attraction of new market segments would be a secondary purpose.

10. Market Development • This includes selling existing products to new customer segments. • This is done in two ways: the new customers would be new market segments (market segment development) or customers in new locations (geographic development). • When a firm opens new stores in new cities, the strategy is considered to be market development, however, when the firm opens new locations in the same city, in trade areas with similar target customers, the strategy would be considered penetration – trying to sell more to existing customers. The firm is trying to penetrate its market.

11. Market Segment Development: • Market targeting; the primary purpose of segmentation is to learn enough about the various segments of the market to be able to determine which will be have good potential. • Selecting target markets; the decision must be made on whether or not to target one market, a new markets, or several markets. • Single-market targeting: allows the firm to focus on just one market. The reason to focus on a single market is that the firm would decide to be the “best” alternative for the target group.

12. Another reason would be is to locate a niche which will probably increase in importance in the future. • Selective targeting: or targeting a limited number of markets, expands the business’s opportunities and limits its dependence on a single market (to fill rooms or seat at off-peak times). • Extensive targeting or full marketing coverage: is attempting to gain a large market share by targeting the majority of the potential users of one’s products/services. This mass-market targeting strategy can be approached in two ways. (1) differentiated market targeting: developing different concepts for each market segment within a product or service category. E.g. different concepts of chains.(2) undifferentiated market targeting: offering one product/service to all market segments. The objective in that is to reduce costs by focusing on larger markets.

13. Geographic Market Development • This concerns opening new locations of the same business in other areas – generally other cities. • The new geographic markets would normally be located and identified in the customer analysis, and occasionally in the competitor analysis. • Companies should be careful to expand too quickly out of one’s area of strength. For restaurants, it is generally better to focus on penetrating a single geographic area first and then to expand to nearby areas.

14. For hotels, the decision to expand to new geographic locations depends on whether the hotel gets the majority of its business from walk-ins or reservations. Chain hotels with excellent name recognition and reservation systems can open a hotel in almost any location that is in need of more or newer rooms. Small chains or independents should generally penetrate their current market first, then focus expansion on nearby markets.

15. Grand Strategy Selection Matrix • Grand strategy selection matrix can be used to graphically display grand strategy options or to inspire brainstorming. • With the grand strategies, the main objective is to increase sales. There are three primary ways to do this; • by raising average checks • by getting customers to come back more often • by attracting new customers

16. Diversification • This involves developing a new product for a new market. • It concerns adding businesses that will increase the firm’s competitive advantage. • There are two ways to diversify; • Extensive diversification: refers to opening a new business outside the current business of the firm. Here the categories include horizontal, concentric, and conglomerate diversification. • Intensive diversification: is either getting into a new business similar to the existing business of the firm, into one within the same industry but in a different segment, or into a new type of business altogether.

17. Horizontal Diversification: • This category includes opening another business that competes for the same customer, or purchasing a primary competitor; basically getting into a business in the same level of the marketing channel. E.g. a midscale hotel purchasing another midscale hotel, or a fast-food restaurant chain acquiring a competing fast-food chain.

18. Concentric Diversification: • This involves the acquisition of a business that is related to the hospitality business or that would use similar skills. E.g. a restaurant buying a specialty grocery store. Horizontaldiversification and vertical integration could be included in this category.

19. Conglomerate Diversification: • This category includes the purchase of unrelated businesses. This strategy rarely works successfully because of the lack of synergy of skills. E.g. a restaurant owner is better to stay away from printing business.

20. Vertical Integration: • This consists of opening or purchasing a supplier to one’s business – backward vertical integration – or purchasing an organization that is a customer to one’s business – forward vertical integration. The act of integration is counted as a type of diversification, since it involves acquisition of a new business or it involves combination of two or more components of the marketing channel. There are many ways of utilizing backward integration. E.g. a restaurant or hotel gets into the bakery, linen, or produce an equipment. Forward integration is not common in hospitality. E.g. a hotel purchasing a travel agency or reservation system.

21. Other Grand Strategies • Often, firms that want to pursue diversification or integration strategies do not have adequate funds or expertise. Common options include; • Joint venture; is the combining of resources with another company for mutual benefit • Strategic alliance; occurs when a smaller company, generally with expertise, time, and little money, joins with a larger company with money or available credit, business background or knowhow.

22. Franchising; is the licensing of others to operate a business using the firm’s operating system and brand name. • Management contracts; include a variety of agreements between those that have the expertise and reputation for successfully operating a particular type of business and those that own the business. • Acquisitions; are basically the outright purchase of another business that may continue to operate under its own name. • Mergers; occur when two or more firms are combined to create one firm.

23. However, when serious problems exist or there is an opportunity to sell the business at a profit, the following strategies should be considered. • Turnaround; when a major effort is required to correct the downward direction of sales, profits, or operational performance, a form of concentration strategy referred to as a turnaround should be implemented. • Divestment; selling the business as an ongoing concern. It is best for a business to be sold, while it is operating. • Liquidation; selling the business in parts.