Module 17 - Marketing Strategies for Mature and Declining Markets

Question 1

11 When total industry sales volume is stagnant, a share leader might precipitate a renewed spurt of growth by implementing:
A.an increased-penetration strategy.
B.an extended-use strategy.
C.a market-expansion strategy.
D.any of the above strategies.
E.none of the above strategies.

Answer 1

D

Question 2

12 A market-expansion growth-extension strategy seeks to:
A.expand the number of potential customers by targeting underdeveloped geographic areas.
B.maximise short-term cash flow.
C.increase the amount of product used by the average customer by increasing frequency of use or developing new and more varied ways to use the product.
D.maintain share in the short term as the market declines.
E.increase the proportion of users by converting current non-users in one or more major market categories

Answer 2

A

Question 3

13 Converting current non-users in target segments to users may be accomplished by:
A.moving storage of the product closer to the point of end use by offering additional package sizes.
B.encouraging larger volume purchases.
C.enhancing the product’s value by adding features or by including it in the design of integrated systems.
D.developing a differentiated flanker brand or product line with unique features.
E.developing multiple line extensions or brand offerings with features targeted to unique needs of small segments.

Answer 3

C

Question 4

14 A differentiated product positioning focused on untapped or underdeveloped segments might be pursued by:
A.encouraging larger volume purchases.
B.develop line extensions.
C.developing a differentiated flanker brand.
D.including the product in the design of integrated systems.
E.moving storage of the product closer to the point of end use.

Answer 4

C

Question 5

15 At which stage of a product’s life cycle is there likely to be the greatest heterogeneity in customers’ wants resulting in market fragmentation?
A.Growth.
B.Shake-out.
C.Maturity.
D.Decline.
E.Both C and D above

Answer 5

C

Question 6

16 Which type of marketing strategy is a company using when it attempts to convert current non-users into users by including a tie-in for its product with a product which is currently frequently purchased by the non-users of its product?
A.Increased-penetration.
B.Extended-use.
C.Harvesting.
D.Analyser.
E.Market-expansion.

Answer 6

A

Question 7

17 Which of the following can help a firm maintain a differentiated position in a mature market?
A.Innovative production processes.
B.Lower overhead.
C.Innovative product features.
D.Low-cost distribution methods.
E.Low-cost sources of supply.

Answer 7

C

Question 8

18 Each of the following is an exit barrier EXCEPT:
A.high reinvestment requirements.
B.substantial excess capacity.
C.sizeable new assets.
D.product differentiation.
E.lack of resale markets for assets

Answer 8

D

Question 9

19 In a declining market, a niche strategy is indicated when:
A.one or more segments will remain or will decay slowly in an overall market that is rapidly declining.
B.future market decline is certain but likely to occur at a slow and steady rate.
C.the future direction of market decline is difficult to predict.
D.future decline is certain.
E.none of the above conditions exist.

Answer 9

A

Question 10

20 The marketing actions most consistent with a harvesting strategy include:
A.eliminating R&D expenditures and reducing the marketing budget.
B.continuing maintenance levels of advertising and R&D.
C.signalling to competitors that the firm intends to remain in the industry.
D.considering introducing line extensions to appeal to remaining demand segments.
E.considering production of private labels in order to maintain volume.

Answer 10

A

Question 11

1 Analyser strategies work best for ____ industries that are still experiencing ____ technological change and offer growth opportunities.
A.growing; rapid.
B.growing; some.
C.stable; rapid.
D.stable; some.
E.shrinking; minor

Answer 11

D

Question 12

2 Defender strategies work best in industries where the technology is ____ or is ____ to change in the short term.
A.complex; unlikely.
B.simple; unlikely.
C.complex; likely.
D.simple; likely.
E.old; unlikely

Answer 12

B

Question 13

3 A low-cost strategy and a differentiation strategy represent:
A.a superior strategy when combined.
B.a generally unattainable strategy when combined.
C.the worst of both worlds from a profit perspective.
D.highly compatible strategies.
E.none of the above.

Answer 13

B

Question 14

4 According to one study which examined the competitive strategies in eight mature industries:
A.all leading firms in each industry offered the lowest relative cost.
B.all leading firms in each industry offered high relative product differentiation.
C.the leading firms in each industry offered neither the lowest relative cost nor high relative product differentiation.
D.the two leading firms in each industry offered either the lowest relative cost or the highest relative product differentiation.
E.there was no discernible pattern in the strategies of leading firms.

Answer 14

D

Question 15

5 The perceived value customers associate with a particular brand name and its logo or symbol, refers to what?
A.Brand equity.
B.Brand quality.
C.Brand durability.
D.Brand value.
E.Brand loyalty.

Answer 15

A

Question 16

6 Research has shown that the critical success factor when competing in mature markets is:
A.lowering costs.
B.improving quality.
C.improving value.
D improving satisfaction.
E.improving perceived benefit levels.

Answer 16

C

Question 17

7 Measures of customer satisfaction should capture:
A.expectations.
B.perceptions.
C.preferences.
D.all of the above.
E.only A and B above.

Answer 17

D

Question 18

8 The critical success factor for maintaining profitability in mature and declining markets is:
A.maintaining margins.
B.increasing margins.
C.winning new customers.
D.stealing competitors’ customers.
E.keeping current customers.

Answer 18

E

Question 19

9 A market characteristic favouring the use of an increased penetration strategy is:
A.a relatively low frequency of use in one or more major segments.
B.a relatively heterogeneous market with a variety of segments.
C.some geographic areas with low penetration.
D.relatively small penetration of users.
E.some product applications being underdeveloped

Answer 19

D

Question 20

10 Developing a differentiated flanker brand is a marketing action designed to accomplish:
A.extended use by encouraging a wider variety of uses among current users.
B.market expansion.
C.extended use by increasing frequency of use among current users.
D.increased penetration.
E.none of the above.

Answer 20

B

Question 21

Success in mature markets requires two sets of strategic actions. What are they?

Answer 21

success in mature markets requires two sets of strategic actions

• development of well implemented business strategy to sustain a competitive advantage, customer satisfaction and loyalty
• flexible and creative marketing programmes geared to pursue growth or profit opportunities as conditions change in specific product-markets

Question 22

What strategy options are available to both analysers and defenders in their attempt to sustain a competitive advantage in mature markets?

Answer 22

• analyzer and defender strategies may be appropriate for market share leaders
• analysers may develop the product further to avoid being leapfrogged – most appropriate to developed industries that are still experience technology change
• defenders may extend the product line or introduce product modifications – but spend little on new r&d – good when basic technology is not complex e.g. food industry
• ability to differentiate either through price, quality or service remains critical
• market leaders tend to pursue one of the following strategies
  
  • stress operation excellence which results in low costs
  • differentiate through product leadership
  • differentiate through customer intimacy or superior service
• usually firms pursue either low cost or differentiation strategy but not both – however firms cannot chose to ignore either

Question 23

What dimensions do customers use to perceive underlying differences across products in a given category?

Answer 23

to maintain a competitive advantage in product quality, a firm must understand what dimensions customers perceive to underlie differences across products in a given category

dimensions of product quality:

• performance – e.g. german car makers
• durability - Volvo
• conformance with specifications – japanese cars
• features – american car makers
• reliability – consistency of performance
• serviceability – e.g. spare parts

fit and finish – visually appealing
brand name – perception of quality, brand equity built up by promotion

Question 24

What dimensions do customers use to judge the quality of the services they receive?

Answer 24

customers also judge quality of the service they receive on multiple dimensions:

• tangibles – appearance of physical facilities
• reliability – this is the most important one
• responsiveness
• assurance – ability of employees to convey trust and confidence
• empathy – caring, individualized attention the firm provides its customers

firm needs to communicate what level of service they deliver

Question 25

What are the more important ways in which a company can improve customer perceptions of service quality?

Answer 25

• gap between customers perception and marketers perception – need to collect information about what service attributes customers consider important
• gap between management perceptions and service quality specifications – policies may be unclear or poorly communicated to employees
• gap between service quality specifications and service delivery – must be backed by programmes and resources, must be measured and evaluated and rewarded
• gap between service delivery and external communications – unrealistically high demands of the customers
• gap between perceived service and expected service

Question 26

Discuss briefly the various ways a firm can maintain a low-cost position.

Answer 26

firm does not necessarily need a large market share (economies of scale) to implement a low cost strategy

other means of doing so are:

• no frills product – pare costs down to the bone, could cause a price war
• innovative product design – e.g. canon designed simpler copiers with less parts
• cheaper raw materials –
• innovative production processes – especially in labor intensive industries

low cost distribution –
reductions in overhead

Question 27

What should a firm strive to achieve during the early years of market maturity?

Answer 27

• businesses should strive to maximize the flow of profits over the remaining life of the product market
• thus, the main objective is to maintain and protect market share
• most obvious strategy is fortress strategy –
  
  • increase customer satisfaction and loyalty - e.g. improve quality
  • encourage repeat purchasing – e.g. just in time delivery
• add flanker brands as markets fragment
• firms with a small share of market should focus on niche strategy

Question 28

Discuss the strategies that can be used to extend the volume growth of products.

Answer 28

strategies that could be used to squeeze additional volume out of mature market are:

• increased penetration strategy
• extended use strategy
• market expansion strategy

Question 29

Discuss briefly how a firm can use sequential strategies to expand a global market.

Answer 29

for firms with dominance in mature domestic markets, less developed foreign markets are often the best bet

expansion paths can be:

• move from domestic market to developing countries to more developed countries - this is what the Japanese do, learning as they go
• with high tech products, go from domestic to developed countries

Question 30

What are the three sets of factors that help determine the strategic attractiveness of declining product-markets?

Answer 30

three sets of factors help determine the strategic attractiveness of declining product markets

• conditions of demand – rate and certainty of declines in volume – if its slow, capacity will be reduced slowly and competitors will be slower to leave - could be pockets of demand
• exit barriers – ease which weaker competitors can leave the market e.g. lots of specialized assets or shared facilities – harder to leave means more price cutting
• intensity of future competitive rivalry in market – price & profit pressures

Question 31

Discuss briefly the strategic options possible in declining markets.

Answer 31

Harvesting strategy - Maximise short-term cash flow; maintain or increase margins even at the expense of market-share decline.

• Eliminate R&D expenditures and capital investments related to the business.
• Reduce marketing and sales budgets.
  
  • Greatly reduce or eliminate advertising and sales promotion expenditures, with the possible exception of periodic reminder advertising targeted at current customers.
  • Reduce trade promotions to minimum level necessary to prevent rapid loss of distribution coverage.
  • Focus salesforce efforts on attaining repeat purchases from current customers.
• Seek ways to reduce production costs, even at the expense of slow erosion in product quality.
• Raise price if necessary to maintain margins.

Maintenance strategy - Maintain market share for the short term, even at the expense of margins.

• Continue product and process R&D expenditures in short term aimed at maintaining or improving product quality.
• Continue maintenance levels of advertising and sales promotion targeted at current users.
• Continue trade promotion at levels sufficient to avoid any reduction in distribution coverage.
• Focus salesforce efforts on attaining repeat purchases from current users.
• Lower prices if necessary to maintain share, even at the expense of reduced margins.

Profitable survivor strategy - Increase share of the declining market; encourage weaker competitors to leave.

• Signal competitors that firm intends to remain in industry and pursue an increased share.
  
  • Maintain or increase advertising and sales promotion budgets.
  • Maintain or increase distribution coverage through aggressive trade promotion.
  • Focus some salesforce effort on winning away competitors customers
  • Continue product and process R&D to seek product improvements or cost reductions
• Consider introducing line extensions to appeal to remaining demand segments.
• Lower prices if necessary to increase share, even at the expense of short-term margins.
• Consider agreements to produce replacement parts or private labels for smaller competitors considering getting out of production.

Niche strategy - Strengthen share position in one or a few segments with potential for continued profit.

• Continue product and process R&D aimed at product improvements or modifications that will appeal to target segment(s).
• Consider producing for private labels in order to maintain volume and hold down unit costs.
• Focus advertising, sales promotion and personal selling campaigns on customers in target segment(s); stress appeals of greatest importance to those customers.
• Maintain distribution channels appropriate for reaching target segment; seek unique channel arrangements to more effectively reach customers in target segment(s).
• Design service programmes that address unique concerns/problems of customers in the target segment(s).

Question 32

When the growth rate in a product-market declines and weaker businesses fail, withdraw from the industry or are acquired by other companies, this phenomenon is called:
A. harvesting.
B. shakeout.
C. market penetration.
D. a niche strategy.
E. low-cost efficiency.

Answer 32

B

Question 33

When the product-market growth rate declines and companies acquire weaker brands, this is called:
A. consolidation.
B. niching.
C. harvesting.
D. defending.
E. a fortress strategy.

Answer 33

A

Question 34

Firms following a low-cost strategy in mature markets should:
A. focus exclusively on enhancing their operational efficiency.
B. raise their prices to increase profitability.
C. expand by acquiring less efficient brands.
D. focus on differentiating their offerings within the constraints of their strategy.
E. introduce a superior, high-priced flanker brand.

Answer 34

D

Question 35

Understanding the differences consumers perceive across competitive product offerings is primary to developing:
A. product reliability.
B. product differentiation.
C. an analyser strategy.
D. R&D conformance and specifications.
E. a product quality based competitive advantage.

Answer 35

E

Question 36

Asking the questions, ‘How well does this clothes dryer dry wet clothes?’ or ‘Does this flight show a movie?’ are examples of:
A. durability and features, respectively.
B. serviceability and performance, respectively.
C. reliability and features, respectively.
D. performance and features, respectively.
E. features and performance, respectively

Answer 36

D

Question 37

Asking the questions, ‘Will the answering machine record my calls this time?’ and ‘How long will this refrigerator last?’ are examples of:
A. durability and features, respectively.
B. performance and reliability, respectively.
C. reliability and features, respectively.
D. reliability and durability, respectively.
E. durability and performance, respectively.

Answer 37

D

Question 38

Which dimension of product quality attempts to answer the question: ‘Does this new Ford Escort car look and feel like a high-quality product?’
A. Reliability.
B. Performance.
C. Brand name.
D. Fit and finish.
E. Features

Answer 38

D

Question 39

The tag line of an airline’s television advertisements was, ‘We love to fly and it shows’, which followed scenes of caring stewardesses and pilots attending to customers’ needs. This illustrates what service-quality dimension?
A. Responsiveness.
B. Reliability.
C. Empathy.
D. Assurance.
E. Performance.

Answer 39

C

Question 40

When Pizza Hut promised to provide its lunch time customers with a small pizza in 5 minutes or it would be free, it was trying to enforce which service quality dimension?
A. Responsiveness.
B. Reliability.
C. Empathy.
D. Assurance.
E. Performance

Answer 40

A

Question 41

An advertisement for a car repair shop that features a mechanic who claims to inspect your car’s brakes carefully and to do the repairs ‘just right’, is trying to illustrate which service quality dimension?
A. Responsiveness.
B. Reliability.
C. Empathy.
D. Assurance.
E. Performance

Answer 41

D

Question 42

A restaurant advertisement that promises ‘the same great meals every time you come’ is trying to illustrate which service quality dimension?
A. Responsiveness.
B. Reliability.
C. Empathy.
D. Assurance.
E. Performance

Answer 42

B

Question 43

As a dimension of service quality, empathy is defined by:
A. the believability and honesty of employees.
B. the friendliness of customer contact.
C. keeping the customers informed in language they can understand.
D. the amount of caring, individualised attention the firm provides to its customers.
E. the ability to perform the promised service properly the first time

Answer 43

D

Question 44

Responding to research that suggests consumers want brighter lobbies, Citibank doubles the wattage of the bulbs in its banks’ lobbies, but now customers say the lobbies are glaringly harsh. This illustrates which service quality gap?
A. Customer’s expectations and marketers perceptions.
B. Management’s perceptions and service quality specifications.
C. Service quality specifications and service delivery.
D. Service delivery and external communications.
E. Perceived and expected service

Answer 44

B

Question 45

Responding to complaints about the time it took to get served, the management of a local restaurant developed a policy that customers must be approached by their server within three minutes of being seated. The fact that the problem remains probably illustrates which service-quality gap?
A. Customer’s expectations and marketer’s perceptions.
B. Management’s perceptions and service-quality specifications.
C. Service-quality specifications and service delivery.
D. Service delivery and external communications.
E. Perceived and expected service.

Answer 45

C

Question 46

The gap between service delivery and external communications is best illustrated by a situation where:
A. a bank advertises friendly tellers and, in fact, tellers are regularly discourteous.
B. bank executives think customers want friendly tellers when, in fact, they value convenience more.
C. managers fail to specify actions tellers should take to appear friendly.
D. bank tellers know what is expected of them in terms of friendliness, but lack incentives to comply.
E. bank tellers are not as friendly as customers hoped they would be.

Answer 46

A

Question 47

Management has diligently attended to all of its customers’ service-quality complaints, but its customers are still dissatisfied. This illustrates which service-quality gap?
A. Customers’ expectations and marketer’s perceptions.
B. Management’s perceptions and service-quality specifications.
C. Service-quality specifications and service delivery.
D. Service delivery and external communications.
E. Perceived and expected service.

Answer 47

E

Question 48

Consumers develop their expectations of service quality from:
A. past experiences.
B. word-of-mouth communications.
C. personal needs.
D. all of the above.
E. only A and B above.

Answer 48

D

Question 49

In terms of the service-quality model, which of the following is an example of an external communication?
A. Past experiences.
B. Word-of-mouth communications.
C. A newspaper coupon.
D. A billboard claiming ‘fastest service in town’.
E. All of the above.

Answer 49

D

Question 50

All of the following are ways to maintain a low-cost position EXCEPT:
A. shorter production runs.
B. lower overhead.
C. innovative product features.
D. low-cost distribution methods.
E. low-cost sources of supply

Answer 50

A

Question 51

A strategy designed to increase the proportion of users by converting current nonusers in one or more major market segments is a(n) ____ growth-extension strategy.
A. increased-penetration.
B. profitable-survivor.
C. extended-use.
D. maintenance.
E. market-expansion

Answer 51

A

Question 52

Increasing the amount of product used by the average customer by increasing the frequency of use or developing new and more varied ways to use the product is a(n)____ growth-extension strategy.
A. increased-penetration.
B. profitable-survivor.
C. market-expansion.
D. maintenance.
E. extended-use.

Answer 52

E

Question 53

An appliance manufacturer that advertises its microwave ovens to laggards (who have not previously purchased a microwave) is attempting a(n) ____ growth-extension strategy.
A. maintenance.
B. extended-use.
C. increased-penetration.
D. niche.
E. market-expansion

Answer 53

C

Question 54

A hair shampoo maker who tries, through his advertising, to encourage users to shampoo twice instead of only once per day is pursuing a(n) ____ growth-extension strategy:
A. maintenance.
B. niche.
C. extended use.
D. market expansion.
E. increased penetration.

Answer 54

C

Question 55

A market-expansion growth-extension strategy is exemplified by the baby food manufacturing firm that:
A. attempts to convince parents in the domestic market who prepare their own baby’s food to purchase commercial food.
B. attempts to persuade parents to increase the amount of commercially prepared baby food they feed their children.
C. focuses on a niche in the baby food market.
D. selectively withdraws from several areas of the commercial baby food market.
E. attempts to export to countries that do not presently use commercial baby food.

Answer 55

E

Question 56

Offering larger package sizes:
A. moves product inventories closer to the point of use because customers are less likely to be out of stock when a usage opportunity arises.
B. moves product inventories closer to the point of use because customers are more likely to buy multiple packages.
C. moves product inventories farther away from point of use because customers are likely to come into retail outlets that carry the merchandise less often.
D. moves product inventories farther away from the point of use because large containers are less convenient.
E. does not affect the distance of inventories from the point of use.

Answer 56

A

Question 57

The most common global expansion route was the one followed by such firms as Toyota and Seiko. The path is: home market then markets in ____ and ____.
A. the same continent; markets in other continents.
B. developing nations; markets in developed nations.
C. developed nations; markets in developing nations.
D. Western cultures; markets in Eastern cultures.
E. Eastern cultures; markets in Western cultures

Answer 57

B

Question 58

Market expansion through private-label production is a particularly attractive option for firms:
A. whose own brands hold a relatively weak position and which have excess production capacity.
B. whose own brands hold a relatively strong position and which have excess production capacity.
C. whose own brands hold a relatively weak position and which are operating at near-full capacity.
D. whose own brands hold a relatively strong brand and which have excess production capacity.
E. regardless of brand or production situation

Answer 58

A

Question 59

Maximising short-term cash flow is the primary objective of a ____ strategy.
A. harvesting.
B. maintenance.
C. profitable survivor.
D. niche.
E. differentiation.

Answer 59

A

Question 60

A ____ strategy seeks to maintain share in the short term as the market declines, even if margins must be sacrificed.
A. harvesting.
B. profitable survivor.
C. maintenance.
D. niche.
E. differentiation

Answer 60

C

Question 61

When following a niche strategy in a rapidly declining market, a firm tends to focus on strengthening its position in one or a few relatively substantial segments. This often entails:
A. increasing advertising levels to make customers aware of all possible benefits.
B. raising prices to maintain profits.
C. lowering prices to increase share.
D. increasing R&D spending to keep the offerings current.
E. increasing R&D spending to keep costs down.

Answer 61

D

Question 62

A leading European airline has asked you, a consultant, to suggest areas the company should emphasise to differentiate itself from competing airlines. In so doing, you are told to assume that the airline would continue to be price competitive

Answer 62

Question 63

After completing your assignment from the European airline, you are asked to develop a procedure by which the company can measure customer loyalty and customer satisfaction. Outline your plan for measuring each of these two areas

Answer 63

A measure of customer loyalty (repeat patronage) could be obtained by surveying a sample of the airline’s passengers (while en route) asking for information concerning the last five or so flights – month, cities involved (from/to), day of week, time of day and airline. This would provide an overall measure of loyalty as well as loyalty by geographical area and demographics and loyalty to other carriers. A measure of customer satisfaction is derived from an expectancy measure based on the weight (relative importance) given to all airlines, coupled with customers’ rating of the image of the airlines, as mentioned in the loyalty answer above. These questions would be included in the survey of customer loyalty. Thus, the satisfac- tions measured/obtained can be tied directly into the loyalty data.

Question 64

A Japanese company is one of the lowest-cost producers in the office copier industry, even though its market share and production volume is smaller than those of the industry leader, Xerox. How is it possible for a relatively small-volume producer to achieve a low-delivered-cost position?

Answer 64

The company may have achieved this position by: (1) producing a no-frills copier; (2) designing its product in an innovative, low-cost way; (3) obtaining less-expensive sources of component parts; (4) developing an innovative, lower-cost production process; (5) developing low-cost distribution channels; and (6) reducing overhead.

Question 65

During the 1980s and into the 1990s, McDonald’s – which had attained several decades of outstanding growth by selling burgers and fries to American families with young children – aggressively sought franchisees in foreign countries, including Russia and China. The firm also introduced a wide variety of new product lines and line extensions (breakfast items like Egg McMuffin and hash brown potatoes, salads, Chicken McNuggets, McChicken sandwiches, etc.). What was the strategic rationale for these moves?

Answer 65

McDonald’s employed a market-expansion strategy to strengthen its domestic position by introducing new product lines and line extensions to its established clientele. These new menu items probably also attracted some new customers. Further, since the new products used essentially the same production and distribu- tion facilities, there was considerable synergy with the other products. Also, by being first in its industry to do so, the company was able to appropriate the benefits which derive from being a pioneer. It also expanded overseas – to countries that included Russia and China. It did so largely via the use of franchisees, which reduced the cost of doing so. Again, the company was a pioneer in this expansion move.

Question 66

As McDonald’s growth in the US market slowed, the firm first sought expansion into other North American and Western European countries. Subsequently, the firm has begun to expand into Latin America, Eastern Europe and Asia. How would you describe this route or sequence of global expansion? What demographic, economic and/or cultural factors might help explain such a pattern of market expansion?

Answer 66

McDonald’s followed a home market, developed markets and developing markets expansion strategy route. Note that it first exploited its home market and then proximate North American markets before moving to Europe, even though Mexico would not – at that time – be considered an industrialised nation. Even so, the synergy of expanding into Canada and Mexico was substantial – especially Canada. European consumers are more similar to American consumers than are those in the developing countries. And it would be easier to establish and manage franchisees in Europe. Even so, McDonald’s longer-term future growth may well lie in the developing countries where disposable incomes and discretionary expenditures are expected to grow substantially over the years.

Question 67

The J. B. Kunz corporation, the leading manufacturer of passbooks for financial institutions, saw its market gradually decline during the 1970s and 1980s because the switch to electronic banking was making its product superfluous. Nevertheless, the firm bought up the assets of a number of smaller competitors, greatly increased its market share within its industry and managed to earn a very high return on investment. What kind of strategy was the company pursuing? Why do you think the firm was able to achieve a high ROI in the face of industry decline?

Answer 67

Kunz was pursuing a ‘profitable survivor’ strategy. It held a leading share in a market certain to decline (but at a steady rate), with few strong competitors. It was probably able to acquire remaining firms at a favourable rate, streamline their product lines and improve production and distribution efficiency. There may have been purchasing economies as the firm increased its scale. Further, while advertising was probably necessary, marketing expenses were probably minimal (a reorder situation). With little price competition, and by reducing costs, margins could be maintained or increased.

Question 68

While we have seen that a business may have a number of other strategic options, the conventional wisdom suggests that a declining business should be either divested or harvested for maximum cash flow. Under what kinds of market and competitive conditions do each of these two conventional strategies make good sense? What kinds of marketing actions are typically involved in successfully implementing a harvesting strategy?

Answer 68

Harvesting makes sense when the market is expected to decline at a steady rate, there are few strong competitors, low exit barriers and the firm has a leading share position. When the decline is expected to be relatively rapid, divestment makes sense. Marketing actions consistent with harvesting include: (1) eliminating R&D expendi- tures; (2) reducing marketing expenditures; (3) seeking ways to reduce production costs; and (4) raising prices as needed to maintain margins.

Question 69

The SK Group is currently paying the price for making a number of acquisitions outside of its core business of grocery retailing. The group now owes Y1.2 trillion ($10 billion) or about 7000% of stockholders funds. Meanwhile the group’s new businesses have failed to prosper and retail sales have slumped as the Japanese economy has slid into recession.

The SK Group started as a private railway company. Now the group not only owns the railway network, but also property firms, cable television companies and retailers in the towns along the track. As Japanese consumers began to go on foreign holidays the SK Group set up travel agents, airlines and hotel chains to serve these new markets. According to the Economist reporter:

‘SK’s customers can buy their groceries, their clothes, their bento lunch boxes at SK Group companies, and support the SK-Lions baseball team at the weekend.’

However recent deregulation has brought new competition from specialist Japanese and foreign retailers. Conglomerates such as the SK Group cannot match these for price and quality. In addition to this the banks now want to see improvements in the performance of the SK Group. Recently Mr Nami was appointed president. His first task was to appoint Mr Wada, who had managed one of Japan’s most admired retailers, as vice-president.

What advice would you give to Mr Nami and Mr Wada concerning the options which the SK Group might consider in developing and implementing a strategic marketing plan?

Answer 69

A PEST analysis indicates that the economic outlook in Japan is poor. Another threat to the SK Group is provided by the new competition which has arisen as the result of de-regulation in Japan. No information is provided about the social or technological environments. What was once seen as the strength of the SK Group is revealed as a weakness in this new climate, as the size and scope of the group operations leave it vulnerable to attack in a number of its businesses. An even more difficult weakness is the financial situation which the group is in. As the banks will demand to be paid first, there is no room for investment. The situation is perilous. Mr Nami and Mr Wada must set a realistic objective and then seek to develop strategies which work to achieve this objective.

(20 marks)

Given the urgent need to generate cash and that some businesses appear to be in decline, the Boston Consultancy Group (BCG) matrix could be used to screen existing businesses. This would provide decision makers with the information required to re-balance the business portfolio by harvesting and divesting businesses which are not contributing adequate returns.

For those businesses which remain, it would be appropriate to consider strategies for mature/declining markets, discussed in Module 17. For those businesses which remain, the primary objective would be to retain all existing customers. The SK Group could adopt analyser or defender strategies as the basis for achieving this objective. Both analysers and differentiated defenders can attempt to sustain competitive advantage either through differentiation or through developing a low-cost position. It is difficult for any single business to do both.

In developing a differentiated position the SK Group would seek to improve customer perceptions of quality. On the other hand through developing a low-cost approach the group could consider:

no frills products

innovative product design

cheaper raw materials

low cost distribution

reductions in overhead

Question 70

In 200X it looked as if the United States would soon be in a position to open up the European market to bananas which are produced and marketed by US companies. Up until then, producers from Africa, the Caribbean and the Pacific (ACP) had been protected by European Union concessions while US production has been subject to stringent quota regulations. Recent action by the USA which has introduced tariffs on luxury European goods has greatly increased the possibility that the European Union will drop its quota restrictions and that cheap bananas produced by giants such as Chiquita (United Fruit Corporation), Del Monte and Dole will be freely available in Europe. These companies between them control two-thirds of the world’s banana market. Del Monte Foods is the largest US producer and distributor of branded canned vegetables and fruit and Chiquita has a turnover of $14 bn per year.

By contrast the ACP group, largely made up of former colonies of Britain and France, counts among its members some of the poorest countries in the world. For many of them bananas account for more than 70% of total export earnings. Among the countries which would be hit hardest is the Caribbean island of St Lucia, where banana production provides one third of all jobs. Producers on St Lucia are committed to ensure that their bananas which are regarded by many as smaller, sweeter and more curved than US produced bananas, survive and even prosper in the long term.

Discuss the options which producers from St Lucia might consider in seeking to market their bananas in competition with the low cost American giants?

Answer 70

Candidates are told that St. Lucia producers wish to continue to market their bananas to Europe and so answers which suggest that they should pull out should be discounted. This question seeks to address that most fundamental of all marketing issues which is in adding value to products to stop the slide to commodity status. In this case we are presented with a slide towards commodity status which is precipitated by US MNC’s. Competent answers will focus on different means for creating added value by means of segmentation and/or differentiation.

Relevant Modules are 1–5 which focus on strategic marketing issues; Modules 6, 9 and 10 which discuss consumer involvement, market segmentation and positioning issues, Module 11which discusses branding and Module 17 which discusses strategies for mature and declining markets. Given the scope of reading a range of equally ‘good’ answers is possible and so markers should have some scope for discretion. In particular markers should reward answers which:

Good answers might use the alternative corporate growth matrix in Exhibit 2.9 to discuss potential avenues for growth. However candidates should stick to the question here. This means that market penetration and product development strategies are acceptable but that market development and diversification strategies are not asked for.

Seek to relate the core of this problem to the creation of differential marketing advantage. Really competent answers might refer to Porter (reference modules 2–3 ) which might suggest that differentiation and focus strategies are available. Extra marks should be awarded to those who actually define these. Alternatively some may wish to refer to Miles & Snow typology which is discussed in Module 3, and in particular the possibilities for differentiated defenders. Those who point out that bananas are probably in the ‘mature’ phase of the industry life cycle.

Those who discuss the role of involvement with respect to bananas (generally this is a low involvement item and so a relevant question would be how to increase the level of involvement in this product? Suggested answers might be to link bananas to an involving issue (e.g. organic – lack of chemicals) or perhaps an involving person or lifestyle.

Those who suggest that characteristics (smaller, sweeter, more curved) should be researched to determine whether they are important choice characteristics.

Those who discuss options for segmenting the market. There may well be a ‘low-cost’ segment, but there may be other segments related to ‘taste’ or lifestyle characteristics such as ‘healthy eating’, ‘organic’ or life-cycle characteristics ‘children’s bananas’.

Those answers which discuss targeting and positioning issues and in particular which associate these with branding strategies which are discussed in Module 11.

Question 71

The J. B. Kunz corporation, the leading manufacturer of passbooks for financial institutions, saw its market gradually decline during the 1970s and 1980s because the switch to electronic banking was making its product superfluous. Nevertheless, the firm bought up the assets of a number of smaller competitors, greatly increased its market share within its industry, and managed to earn a very high return on investment. What kind of strategy was the company pursuing? Why do you think the firm was able to achieve a high ROI in the face of industry decline?

Answer 71

Kunz was pursuing a ‘profitable survivor’ strategy. It held a leading share in a market certain to decline (but at a steady rate), with few strong competitors.

It was probably able to acquire remaining firms at a favourable rate, streamline their product lines, and improve production and distribution efficiency. There may have been purchasing economies as the firm increased its scale. Further, while advertising was probably necessary, marketing expenses were probably minimal (a reorder situation). With little price competition, and by reducing costs, margins could be maintained or increased.

Question 72

Concerns about the impact of consolidation among already powerful retailers and a string of disappointing earnings announcements have caused US food company stocks to significantly under-perform on the stock market average in the six months to March 200X. Companies such as Heinz, Kraft and Nestle were all reported to be restructuring their activities.

A new chief executive was appointed at the multinational food brands company H.J. Heinz, which is a market leader in the production and marketing of grocery products. As he reviewed the company’s performance over the past years, the new Chief Executive realised that something would need to be done. Heinz’s share price had fallen from a high of $61 two years ago to a low of $51 and had only recently recovered to $56. Total sales across the group remained flat at almost $9 billion. Operating income had fallen sharply to just over $200 million two years ago but last year recovered to $800 million. A more detailed analysis showed that North American sales had stayed flat over the last year at just over £5bn By contrast European sales had shown a modest increase in the last year, from $2 billion to just over $2.2 billion. Sales to Asia/Pacific fell last year to around $1 billion.

Given current trading conditions what options can the new Chief Executive consider in developing a marketing strategy for Heinz?

Answer 72

The aim of the question is to encourage candidates to demonstrate their knowledge of the strategic marketing planning process. Competent candidates should draw on information presented in the case in order to help structure the answer.

Key points to note are that:

Sales and income have been flat recently due to a number of factors.

Heinz is market leader in its field.

The Heinz group have different positions within different markets.

The market is mature in North America and Europe.

Relevant modules are Module 2, which considers the strategic role of marketing, Module 3 Business Strategies and their Marketing Implications, Module 4 on Environmental Analysis, Module 5 on Industry Analysis, finally Module 17 which considers Marketing Strategies for Mature and Declining Markets.

Competent answers will indicate that the new Chief Executive’s first step would be to conduct a marketing audit, including a full external analysis, including PEST, customer and competitor analysis in each principal market. Opportunities and threats should be identified and matched with the firm’s strengths and weaknesses.

Secondly a gap analysis would reveal the difference between aspirations and performance.

Third, the new Chief Executive can now set overall group objectives.

The new Chief Executive’s fourth task is to formulate a strategy for the group which seeks to achieve these objectives. Alternative corporate growth strategies may be explored using Exhibit 2.9 from Module 2. Good candidates will seek to relate information provided in the case to this matrix.

With key markets in maturity and/or decline, the key strategic issue for the new Chief Executive is to sustain Heinz’s competitive position so that if and when there is a ‘shake out’, the group will be in a position to take advantage of this. In considering strategic options the new Chief Executive may opt to pursue an analyser or defender strategy in targeting those segments of the market that are still in growth while defending mature segments. He may opt to build upon a cost or product differentiation advantage and aim to increase volume by promoting new uses for old product. A portfolio model such as that used by the Boston Consultancy Group could be used to determine resource issues. Finally the new Chief Executive would expect that detailed marketing programmes were developed that shape the marketing mix to suit the needs of different target groups.

Question 73

A number of years ago General Foods’ Cool Whip frozen dessert topping held nearly a two-thirds share of the market, but it was gradually losing share to low-priced private label competitors in many regional markets. Describe two strategies that General Foods might have adopted to defend its leading share position and the marketing actions necessary to implement them. Which of the two would you recommend and why?

Answer 73

Fortress

Increase satisfaction, loyalty and repeat purchase by current customers; appeal to late adopters.

Continue quality control.

Continue product modification/improvement.

Use advertisements to stimulate selective demand.

Flanker

Develop a second entry (in this case, perhaps a budget topping).