Module 2 - Corporate Strategies and Their Marketing Implications

Question 1

What are the more important characteristics of a market-oriented company?

Answer 1

Marketing oriented organisations tend to operate according to the business philosophy known as the marketing concept, from General Electric

Marketing Concept holds that the planning of all company activities around the primary goal of satisfying customer needs is the most effective means to attain and sustain a competitive advantage and achieve company objectives over time

Guidelines for market oriented management

• Create customer focus throughout the business
• Listen to the customer
• Design and nurture your distinctive competence
• Define marketing as market intelligence
• Mange for profitability, not sales volume
• Make customer value the guiding star

Let the customer define quality

• Measure and manage customer expectations
• Build customer relationships and loyalty
• Design the business as a service business
• Commit to continuous improvement and innovation
• Manage culture along with strategy and structure
• Grow with partners and alliances
• Destroy marketing bureaucracy

Question 2

Define strategy.

Answer 2

A strategy is a fundamental pattern of present and planned objectives, resource deployments, and interactions of an organisation with markets, competition and other environmental factors – i.e. what [objectives], where [which market segments] and how [resource and activities needed]

Question 3

What are the five components of strategy?

Answer 3

• Scope – the breath of its strategic domain e.g. number and type of industries, product lines, This should reflect managements mission [the essential nature of what its business is and what is should be]
• Goals and objectives - measurements of performance over specified time period
• Resource deployments – deciding how scarce resources should be obtained and allocated across the business
• Identification of a sustainable competitive advantage – how the organisation will compete in each business and product-market in its domain and how it will position itself
• Synergy – the firm’s business, product-markets, resource deployments, and competencies complement each other so that the whole business is greater than the sum of its parts

Question 4

How do the three levels of strategy differ in terms of the issues on which they focus?

Answer 4

See Exhibit 2.6.

Question 5

What questions should a company’s mission statement answer?

Answer 5

What is our business
Who are our customers
What value do we provide
What should our business be in the future

Question 6

What criteria should be used to define an organisation’s strategic mission?

Answer 6

• Physical terms – focusing on products or technology e.g. we’re in railroad business
• What Customer needs to be satisfied and what functions to be preformed to do so
• Can be broad or specific

Question 7

What is the value to the corporation of ethical guidelines?

Answer 7

• Unethical practices can damage the trust between a firm and its suppliers, customers and employees resulting in losses in profit and sales
• Becomes difficult to maintain them in global markets with different cultures

Question 8

What are the four components of a corporate objective?

Answer 8

A performance dimension
A measure or index for evaluating progress
A target to be achieved
A time frame

Question 9

What are the two major directions a corporation can go in seeking growth? What are the major options within each?

Answer 9

Two directions for growth:

Expansion of current business or activities

• Making product improvements, cutting costs and prices, increased advertisin
• same products new markets

Diversification into new businesses

• forward vertical integration – moves downstream e.g. buy a wholesaler
• backward: moves upstream
• related or concentric diversification : acquires another firm that has doesn’t have products in common but has synergy with (e.g. R&D)
• Unrelated diversification is usually financial – no commonalities between them: this is the riskiest

Close relationships between companies can give the benefits of diverisification e.g. colalitions in Japanese industries

Question 10

What is a portfolio model?

Answer 10

One of the most significant developments in strategic management during the 1970s and 1980s was the widespread adoption of portfolio models to help managers allocate corporate resources across multiple businesses. These models enable managers to classify and review their current and prospective businesses by viewing them as portfolios of investment opportunities and then evaluating each business’s competitive strength and the attractiveness of the markets it serves.

Question 11

What are the two dimensions in the BCG growth share matrix? What are the assumptions concerning each of these dimensions? Describe the type of business contained in each of the model’s four cells.

Answer 11

• Market growth is a proxy for maturity and attractiveness of an industry:
  
  • market growth rate is not an adequate descriptor of overall industry attractiveness – some high growth industries are not profitable due to high barriers of entry
• Relative market share is a proxy for competitive strength.- Market share is an inadequate description of overall competitive strength:
  
  • market share is related to past effort

1. It gives no guidance on how to implement investment strategy
2. Assumes all business are independent apart from flow of cash – e.g. investing in one business could have an effect on another which is not taken into account

Question 12

What are the major limitations of the BCG model?

Answer 12

• Market growth is a proxy for maturity and attractiveness of an industry:
  
  • market growth rate is not an adequate descriptor of overall industry attractiveness – some high growth industries are not profitable due to high barriers of entry
• Relative market share is a proxy for competitive strength.- Market share is an inadequate description of overall competitive strength:
  
  • market share is related to past effort

1. It gives no guidance on how to implement investment strategy
2. Assumes all business are independent apart from flow of cash – e.g. investing in one business could have an effect on another which is not taken into account

Question 13

What is value-based planning?

Answer 13

• Value based planning assesses the shareholder value a given strategy is likely to create
• It provides a basis for comparing the economic returns to be gained from investing in different businesses pursuing different strategies

Question 14

What are its limitations of value-based planning?

Answer 14

• Its not a replacement for strategic planning, just one tool for evaluating alternatives
• Good forecasts are critical
• It can evaluate alternatives, but not create them
• Assesses the shareholder value a particular strategy is likely to create.
• They Assess the economic value by examining cash flows it will generate
• Estimate shareholder value by discounting cash flows by the businesses risk adjusted cost of capital
• Evaluate strategies based on the likelihood that the investment required by a strategy will deliver returns greater than cost of capital
• This is referred to as Economic Value Added
• Could potentially over-estimate forecasts

Question 15

Components of a corporate strategy include:

A. scope.

B. goals and objectives.

C. resource allocation.

D. sources of synergy.

E. all of the above.

Answer 15

E

Question 16

Starting out in an unrelated industry best illustrates which component of strategy?

A. Scope.

B. Goals and objectives.

C. Resource deployment.

D. Identification of sustainable competitive advantage.

E. Synergy.

Answer 16

A

Question 17

All of the following are examples of goals and objectives within strategy development EXCEPT:

A. market share.
B. a competitor’s contribution margin.
C. cost of distribution.
D. customer satisfaction. E. unit sales.

Answer 17

B

Question 18

A fundamental pattern of present and planned objectives, resource deployments and interactions of an organisation with markets, competitors and other environmental factors refers to a:

A. market orientation.
B. mission.
C. goal.
D. strategic group.
E. strategy.

Answer 18

E

Question 19

The breadth of an organisation’s strategic domain, including the number and types of industries, product lines and market segments it competes in or plans to enter, refers to the organisation’s:

A. synergy.

B. goals and objectives.

C. resource deployments.

D. sustainable competitive advantage.

E. scope.

Answer 19

E

Question 20

The desired levels of accomplishment on one or more dimensions of performance such as volume growth, profit contribution, or return on investment over specified time periods for each business and product-market, and for the overall organisation, refers to the organisation’s:

A. synergy.
B. scope.
C. resource deployments.
D. sustainable competitive advantage.
E. goals and objectives.

Answer 20

E

Question 21

How people and funds are obtained and allocated across businesses, product-markets, functional departments, and activities within each business or product-market, refers to:

A. goals and objectives.
B. scope.
C. resource deployments.
D. sustainable competitive advantage.
E. synergy.

Answer 21

C

Question 22

A major issue in business strategy which deals with the company attempting to attain a distinctive competency is aimed at obtaining:

A. a sustainable competitive advantage.
B. low-cost leadership.
C. market-share leadership.
D. cash cow leadership.
E. market penetration leadership.

Answer 22

A

Question 23

The decisions of how many and which market segments to compete in are important aspects of which aspect of business-level strategy?

A. Scope.

B. Synergy.

C. Multi-segmentation strategy.

D. Marketing matrix.

E. Cross-functional selling.

Answer 23

A

Question 24

The five components of strategy are operative at the:

A. corporate level.
B. business-unit level.
C. product-market level.
D. all of the above.
E. only A and B above are correct.

Answer 24

D

Question 25

The questions: ‘What businesses are we in?’ and ‘What businesses should we be in?’ are essentially focused at the:

A. horizontal level.
B. SBU level.
C. business level.
D. functional level.
E. corporate level.

Answer 25

E

Question 26

A primary focus of marketing strategy is to effectively allocate and coordinate marketing
resources and activities to accomplish the firm’s objectives within a specific:

A. BCG quadrant.
B. SBU.
C. business.
D. product-market.
E. competitive arena.

Answer 26

D

Question 27

An issue related to decisions concerning the scope of a division’s marketing strategy is:
A. the changes in related production technologies.
B. the variety of marketing communications options open to the division.
C. the number of target markets the division can pursue.
D. the location of the strategic business unit on a BCG growth-share matrix.
E. the change in the demand function for a particular product, when caused by product advertising.

Answer 27

C

Question 28

What type of decision is reflected in an organisation’s business-level strategy?

A. Choosing suppliers.
B. Picking an advertising slogan.
C. Deciding how to compete in its industry.
D. Deciding which products to sell.
E. Defining its overall purpose.

Answer 28

C

Question 29

When PepsiCo attempts to define which products, promotions, prices and distribution arrangements to include in its snacks food line, what type of strategy is it pursuing?

A. Marketing strategy.
B. Functional-level strategy.
C. Corporate strategy.
D. Operational strategy.
E. Market segmentation strategy.

Answer 29

A

Question 30

‘What customer needs are to be satisfied and what functions the firm must perform to satisfy them’ are Levitt’s definition of firm’s:

A. mission.
B. culture.
C. synergy.
D. orientation.
E. marketing mix.

Answer 30

A

Question 31

Components of an organisational objective include:

A. product position, market segment and cost strategies.
B. performance dimensions, measures, target levels and time frames.
C. corporate, business and functional components.
D. who, what, when, where, why and how.
E. market served, product characteristics and usage situations.

Answer 31

B

Question 32

Market share is a measure of which performance criterion?
A. Growth.
B. Competitive strength.
C. Profitability.
D. Innovativeness.
E. Utilisation of resources.

Answer 32

B

Question 33

$ sales from new products can be used as a measure of ____ in a company.
A. growth.
B. competitive strength.
C. profitability.
D. innovativeness.
E. utilisation of resources.

Answer 33

D

Question 34

Product line extensions are part of:
A. cost leadership strategies.
B. market development strategies.
C. product development strategies.
D. diversification strategies.
E. market penetration strategies.

Answer 34

C

Question 35

Making product improvements, cutting prices and outspending competitors on such things as advertising and consumer or trade promotions are tactics associated with:

A. synergy.
B. diversification.
C. expansion of existing markets.
D. demand function modification.
E. cost leadership.

Answer 35

C

Question 36

When McDonald’s opened a restaurant in Moscow, which of the alternative corporate growth strategies was it emphasising?

A. Diversification.
B. Product development.
C. Market penetration.
D. Market development.
E. Vertical development.

Answer 36

D

Question 37

The riskiest growth strategy in terms of financial outcomes is:
A. horizontal integration.
B. backward integration.
C. forward vertical integration.
D. unrelated diversification.
E. differentiation.

Answer 37

D

Question 38

When RJR Nabisco acquired General Foods Corporation, this was an example of which of the alternative corporate diversification strategies?

A. Forward integration.
B. Backward integration.
C. Unrelated diversification.
D. Related diversification.
E. Coalition building.

Answer 38

D

Question 39

When Compaq Computer and Xerox joined their strengths to develop a new line of high-speed printers for computers, this was an example of:

A. market development.
B. conglomerate diversification.
C. unrelated diversification.
D. concentric diversification.
E. market penetration.

Answer 39

D

Question 40

An example of forward integration is when:

A. a company that produces lumber moves into the manufacture of wood furniture.

B. a company that produces wood furniture moves into the production of lumber.

C. a company that produces wood furniture moves into the production of metal furniture products.

D. a company producing a high-technology computer starts to produce sophisticated software.

E. a company that produces baby food moves into production of other baby products, such as clothing and cribs.

Answer 40

A

Question 41

An example of conglomerate diversification is when:

A. a company that produces lumber moves into the manufacture of wood furniture.

B. a company that produces wood furniture moves into the production of lumber.

C. a company that produces wood furniture moves into the production of metal furniture products.

D. a company producing a high-technology computer starts to produce sophisticated software.

E. a company producing a high-technology computer starts to produce wood furniture.

Answer 41

E

Question 42

When a retailer acquires a wholesaler this is practising:

A. horizontal integration.
B. backward integration.
C. forward vertical integration.
D. unrelated diversification.
E. differentiation.

Answer 42

B

Question 43

In the BCG growth share matrix, ____ is a proxy for the maturity and attractiveness of an industry.
A. relative market share.
B. growth rate.
C. market cluster.
D. absolute market share.
E. market segment.

Answer 43

B

Question 44

Using the BCG portfolio model’s terminology, how would Ford’s Crown Victoria and Chevrolet’s Caprice be classified?
A. Dogs.
B. Cash cows.
C. Stars.
D. Question marks.
E. The BCG model is used to classify businesses not products.

Answer 44

E

Question 45

In terms of the BCG growth share matrix, businesses in high-growth industries with low market shares are termed:
A. stars.
B. cash cows.
C. question marks.
D. wolves.
E. dogs.

Answer 45

C

Question 46

In the portfolio model developed by the Boston Consulting Group, the vertical axis indicates the ____ and the horizontal axis indicates the ____.
A. industry’s growth rate; units’ relative market share.
B. units’ relative market share; industry’s growth rate.
C. industry’s relative market share; units’ absolute market share.
D. units’ absolute market share; industry’s growth rate.
E. industry’s absolute market share; industry’s relative market share.

Answer 46

A

Question 47

Which of the following businesses is most likely to be a ‘question mark’ in terms of the BCG growth share matrix?

A. A large firm, in the fast-growing pharmaceutical business, that has had erratic earnings for the past ten years.

B. A firm in a slow-growing segment of the car parts fabrication industry that is twice as big as its largest competitor, but that faces uncertain profitability during the next few years.

C. A small firm in a fast-growing segment of the car parts fabrication industry that is half the size of its largest competitor, but has a solid history of revenue performance.

D. A firm in the fast-growing pharmaceutical business that is twice the size of its largest competitor and yet faces uncertain profitability. E. Any firm about which management has serious questions or reservations.

Answer 47

C

Question 48

Which of the following businesses is most likely to be a ‘cash cow’ in terms of the BCG growth share matrix?

A. A small firm in the fast-growing pharmaceutical business that has had solid profitability for the past ten years.

B. A firm in a slow-growing segment of the car parts fabrication industry that is twice as big as its largest competitor, but that faces uncertain profitability during the next few years.

C. A small firm in a slow-growing segment of the car parts fabrication industry that is half the size of its largest competitor but that faces uncertain revenue performance.

D. A firm in the fast-growing pharmaceutical business that is twice the size of its largest competitor and yet faces uncertain profitability.

E. Really, any firm about which management has serious questions or reservations.

Answer 48

B

Question 49

Divestiture and harvesting are strategies considered primarily for:
A. dogs.
B. question marks.
C. stars.
D. cash cows.
E. decliners.

Answer 49

A

Question 50

In the BCG growth share matrix, ____ is a proxy for an SBU’s competitive strength within its industry.
A. relative market share.
B. industry attractiveness.
C. market cluster.
D. absolute market share.
E. market segment.

Answer 50

A

Question 51

In the Discounted Cash Flow model, shareholder value created by a strategy is determined by:
A. the cash flow it generates.
B. the business’s cost of operations.
C. the market value of the debt assigned to the business.
D. all of the above.
E. none of the above.

Answer 51

D

Question 52

A well-known international chemical company developed a corporate responsibility code that proclaimed that the giving of gifts, loans, favours, or other services by any employee on behalf of the corporation is absolutely forbidden. Almost immediately the
company’s international vice president received a protest from the manager of a southwest Pacific country stating in effect that if the new code were rigorously enforced, it would put the company at a serious competitive disadvantage since some European, Japanese and American companies were more lenient in the way they handled ‘local commissions.’ The manager went on to say that the code was inconsistent with the company’s objective of gaining market share locally. How should the international vice president answer this protest?

Answer 52

This is obviously a difficult question to answer – one which poses a dilemma for the company. While most countries have laws which forbid bribery, there is considera- ble difference in the way anti-bribery laws are enforced across countries. One problem is the way bribery is defined since it can range from the payment of a few dollars to a minor government official or business manager to facilitate the processing of papers or the unloading of a truck, to the payment of thousands – even millions – of dollars to obtain a lucrative contract. In the case at hand, the company policy forbidding ‘gifts, loans, favours, or other services’ needs further definition. In the US it is legal to entertain business clients (sporting events), give relatively inexpensive gifts, and pay for meals (including tips). Surely, such forms of ‘bribery’ are acceptable in other countries provided modera- tion is practised. But bribery in the form of payments for preferential treatment in securing a contract of substance should, of course, be prohibited. Still, the answer to the question of bribery is not a straightforward one. Given the variety of ethical standards existing in different countries as well as the varying morality level, the dilemma of ethics versus practicality will not be resolved any time in the near future.

Question 53

The Kelly Bottling Company, located in a large metropolitan area of some five million people, produced and marketed a line of carbonated beverages consisting mainly of flavoured soft drinks (not including colas), soda water and tonics. They were sold in different types of packages and sizes to a wide variety of retail accounts. How might such a company expand its revenues by pursuing each of the different expansion strategies discussed in Exhibit 2.10?

Answer 53

Kelly might expand its revenues via each of the following expansion strategies:

(a) Market penetration in present markets – increasing market share by taking share from competitors, increasing product usage among present customers (increasing home inventories).

(b) Market development by expanding into new markets with the same product line
– entering proximate metropolitan areas, selling essentially the same product under private label (store brand), selling concentrate to bottlers in other areas.

(c) Product development via becoming the franchisee for an existing soft drink brand (Dr. Pepper, 7UP, Canada Dry Ginger Ale), mixer (Sweppes), or bottled water; adding new beverage products under own name; improve the taste of present products and/or reduce calories; and add new package types and size(s).
(d) Diversification in the form of forward integration (vending machines), backward integration (flavour company), purchase of a competitor, and investment in real estate.

Question 54

Which diversification strategy is illustrated by each of the following acquisitions? What synergies or benefits might each purchase produce?

a. A packaged food company’s acquisition of a fast-food company that features hamburgers and French fries.
b. A large retailer’s purchase of an interest in a company producing small appliances.
c. A tobacco company’s acquisition of a beer company.
d. An oil company’s acquisition of an insurance company.

Answer 54

(a) Packaged food company’s acquisition of a fast-food company which features hamburgers and French fries.
(b) A large retailer’s purchase of an interest in a company producing small appliances.
(c) A tobacco company’s acquisition of a beer company.
(d) An oil company’s acquisition of an insurance company.

The packaged food company’s acquisition could be considered forward integration
in that the company produces ingredients used by the fast-food company. Benefits would involve cost reductions.

The second case illustrates backward integration. Benefits would derive from scale
economies and control over quality. The third case illustrates a related (concentric) diversification. Thus, its marketing
skills – primarily in the areas of promotion and development of new products –
should benefit the acquisition as well as its economic resources. The last case illustrates unrelated (conglomerate) diversification with few, if any,
synergies or benefits deriving from such an acquisition. At the corporate level such diversification is sometimes instituted to level revenue flows and investment risks.

Question 55

A manufacturer of electrical components for industrial applications has five strategic business units (SBUs), shown in the following table. Using the Boston Consulting Group portfolio model, evaluate the strength of the company’s current and potential future condition. What strategies should it consider to improve its future position?

Answer 55

An approximation of the BCG growth-share matrix in this situation is shown below.

Note that relative market share is determined by dividing company SBU market share by average of top three competitors.

The implication is that funds from the ‘cash cows’ D and C might be used to fund the ‘question mark’ business A, and the borderline ‘question mark’/‘star’ business B.

Because the remaining business (E) is a ‘dog,’ it might be considered for divestment or harvesting. However, this analysis should be supplemented with additional analyses, including perhaps another portfolio and other analyses specific to the situations inherent in each business.

Question 56

Critics argue that the BCG portfolio model sometimes provides misleading advice concerning how resources should be allocated across SBUs or product-markets. What are some of the possible limitations of the model? What might a manager do to reap the
benefits of portfolio analysis while avoiding at least some shortcomings you have identified?

Answer 56

Limitations of the BCG growth share matrix include:

(a) The inadequacy of growth as a measure of overall industry attractiveness.
(b) The inadequacy of relative share as a measure of overall competitive strength.
(c) The level of aggregation may include too many products and markets.
(d) The sensitivity of the growth share matrix to variations in how ‘growth’ and ‘share’ are defined.
(e) The lack of guidance about how appropriate investment strategies might be implemented.

Managers might avoid some of those problems by making definitions more explicit and by utilising the BCG growth share matrix as only one part of the corporate planning process.
With regard to definitions, it would be useful for managers to require more explicit statements about the product-market relationship (and competitors) and their use in deriving relative share. With regard to instruments used in the planning process, the growth share matrix might be used as one among other planning tools (which might also include the use of another portfolio type and other situation-specific analyses). If multiple methods are used, the implications of the growth share matrix can be reconciled with those of other methods. Also the model should be used on a trend basis; for example, at two-year intervals. It should also be used to show the portfolios of major competitors.

Question 57

How are the basic business philosophies or orientations of a major consumer products firm such as General Mills and a small entrepreneurial start-up in a fast-growing, hightech industry likely to differ? What are the implications of such philosophical differences for the role of marketers in the strategic planning processes of the two firms?

Answer 57

General Mills is likely to have a strong market orientation. This orientation would be characterised by:

(1) the emphasis placed on high-quality, new products;
(2) using consumer research in new-product development;
(3) adapting its marketing mix to specific market segments;
(4) cross-functional involvement in marketing.

A small entrepreneurial start-up in a fast-growing high-tech industry is likely to have a production orientation. This orientation would result from threats posed by production problems.

Question 58

As the small entrepreneurial firm described in Question 2.57 grows larger, its market matures and its industry becomes more competitive, how should its business philosophy or orientation change? Why?

Answer 58

The firm is likely to move from a production to a sales and, perhaps, finally to a market orientation. The first movement results from competitors attracted into the market by growing volume and profits. This is likely to increase competition for product innovation and production process efficiency. At some point, as production capacity is added to the industry and demand increases decline, excess capacity will probably result. The existence of excess capacity will probably focus company attention on moving available stocks (i.e. a sales orientation). If the firm survives the shakeout phase of industry growth, it is likely to move towards a market orientation.

Question 59

State the critical issues that should be addressed at each of the following levels:

a. Corporate strategy.
b. Business-level strategy.
c. Marketing strategy.

Answer 59

Question 60

Which role should marketing managers play in helping to formulate business-level (SBU) strategies in a large diversified firm such as General Motors? What kinds of information are marketers best able to provide as a basis for planning? Which issues or elements of business-level strategy can such information help to resolve?

Answer 60

At the corporate level, the marketing manager can be: (1) a key participant (along with the SBU general manager) in determining the SBU’s objectives and scope (both in terms of products and markets); (2) a strong contributor to environmental, competitive, and situation assessments; (3) a key participant in defining objectives and goals; and (4) a major contributor to development of strategies. Useful planning information includes that about the environment, focusing on customers, and economic, political, and regulatory trends; competition, both actual and potential; and specific information about industry and market attractiveness,
including profitability and segment growth rates. At the business level, the marketing manager should have a primary role in discus-
sions pertaining to product-market development, product quality, and product line, and may have an additional role (depending on specific circumstances) in technology, human resources, business development, and manufacturing facilities.

Question 61

What additional businesses might a watch company consider if its mission statement was changed from ‘the production and sale of high-quality wristwatches’ to the satisfaction of the need to measure time? In answering this question, do not attempt to evaluate the feasibility of the various businesses you list.

Answer 61

By changing the mission statement from being product oriented, the firm opens up the possibility of considering servicing those industries needing timers, ranging from the simple to the highly complex, for controlling their machines such as major appliances, television sets, CD players, cars and trucks, robots, computers, automated factory machinery, security systems and so on.