Strategic Choice - General Questions Flashcards
DEFINE MARKET SEGMENTATION
The division of the market into homogeneous groups of potential customers who may be treated similarly for marketing purposes.
WHAT IS FIELD RESEARCH?
WHAT IS THE FOCUS OF IT, TECHNIQUES USED AND WHAT ARE THE PROS/ CONS OF IT?
FOUCUS
(i) Opinion research - determine people’s opinions
(ii) Motivation research - determines why people do what they do
(iii) Measurement research - quantifies factors
TECHNIQUES
- questionnaires
- internet surveys
- interviews
- observation
- test marketing
- experimentation
- trial testing
PROS/ CONS
- cost
- historic vs. future
- reliability of responses
- adaptability to new products
DEFINE UNDIFFERENTIATED MARKETING
a.k.a Mass marketing
Treats all customers and potential customers as identical, the whole market is a target for the firm, served with a single variety of products served in a single way (e.g Coca Cola)
DEFINE CONCENTRATED MARKET
Business specialises in targeting single segments of the market, and do not attempt to market in others (e.g. Career fair at a university)
DEFINE MICRO MARKETING
Manufacturing goods/ services to customer specification (e.g. Dell computers/ Build a Bear)
WHAT ARE THE 5 CATEGORIES OF CONSUMER SEGMENTATION?
BUSINESS TO CONSUMER (B2C)
GEOGRAPHIC
Markets split into regions for sales/ distribution
DEMOGRAPHIC
Customers defined in terms of age, sex, socio-economic class, country of region, family life cycle or family status.
PSYCHOLOGICAL
Consumers split into groups sharing common psychological characteristics (e.g. Security orientated, ego-centred or consideration of life cycle position)
PURCHASING CHARACTERISTICS
Customers segmented by the volume they buy.
BENEFIT
Customers may have different expectations of a product (e.g. Consumers who seek whiteness from their laundry detergent may opt for Daz whilst consumers who seek stain removal may buy Ariel).
WHAT ARE THE 6 CATEGORIES OF INDUSTRIAL SEGMENTATION?
BUSINESS TO BUSINESS (B2B)
GEOGRAPHIC
The basis for sales-force organisation.
PURCHASING CHARACTERISTICS
Classification of customer companies by their average order size.
BENEFIT
Different benefit expectations from customers.
COMPANY TYPE
Type of business.
COMPANY SIZE
INTERNET
Are people willing to but online, this could give the industry a new segment.
WHAT ARE THE ELEMENTS OF PROMOTION (AIDA)
Awareness
Interest
Desire
Action
WHAT IS PUSH PROMOTION?
Ensuring the the products or services are available for purchase where and when the ultimate customer requires them.
E.g available at a supermarket.
WHAT IS PULL PROMOTION?
Marketing variable set to persuade ultimate customers to purchase.
E.g advert on TV, trade journal, BOGOF
WHAT ARE THE 4 MAIN FORMS OF PROMOTION?
1) ADVERTISING - decide the types of media, published or visual
2) SALES PROMOTION - point of sale promotion, e.g money off coupons, free trail pack, buying shelf space in a shop
3) PUBLIC RELATIONS - PR departments, press releases, sponsoring local events
4) PERSONAL SELLING - v. important in industrial selling as well as consumer marketing, e.g sales reps, call centre staff, after sales care
WHAT ARE THE 3 COST BASED METHODS OF PRICING?
1) full cost plus = long term total absorption cost of making a unit plus a mark up
2) target return base = price based on amount required to generate a % return on the assets invested in the project
3) marginal cost plus = contribution mark up on variable/ relevant costs
WHAT ARE THE ADVANTAGES OF COST-BASED MEASURES FOR PRICING?
- allows pricing decision to be delegates/ calculated
easily - price stability of costs kept under control
- communicate how’s much margin is lost of goods are
discounted
WHAT ARE THE DISADVANTAGES OF COST-BASED MEASURES FOR PRICING?
- may ignore what customers are willing to pay
- ignores effect of prices on volume
- may ignore what competitors are charging
- difficulty in assessing cost/ unit
HOW DO YOU CALCULATE THE PRICE ELASTICITY OF DEMAND?
% change in quantity demanded
PED = _________________________
% change in sales price
If PED > 1 then demand is price elastic
i.e price rises should lead to revenue increases for inelastic products and price reductions should lead to revenue increases for price elastic products.
GIVE EXAMPLES OF CUSTOMER FOCUSED PRICING METHODS
PRICE ELASTICITY OF DEMAND
PRICE DISCRIMINATION
Different prices charged for same product to different customer groups
PERCEIVED QUALITY
Price reflects value placed by customer
GOING RATE
Match competition to meet market conditions
PRICE SKIMMING
High prices initially to skim off customers willing to get product sooner
PENETRATION
Low price initially to increase market share
WHAT IS THE ENTREPRENEURIAL STRUCTURE?
Structure is built around the owner manager.
It is totally centralised with all key decisions being made by the strategic leader.
Manager
|
Subordinates
WHAT ARE THE ADVANTAGES OF THE ENTREPRENEURIAL STRUCTURE?
- fast decision making
- more responsive to markets
- good control
- close bond to workforce
WHAT ARE THE DISADVANTAGES OF THE ENTREPRENEURIAL STRUCTURE?
- lack of career structure
- may be too centralised
- cannot cope with diversification/ growth
WHAT IS THE FUNCTIONAL STRUCTURE?
Common in companies which have outgrown the entrepreneurial structure, organises the business on a functional basis.
Most appropriate to smaller companies with fewer products.
Director
\_\_\_\_\_\_\_\_\_\_\_\_|\_\_\_\_\_\_\_\_\_\_\_\_
| | |
Marketing Production Finance
|
Production manager
\_\_\_\_\_\_\_\_\_\_\_\_\_|\_\_\_\_\_\_\_\_\_\_\_\_\_
| | | Machine Finishing Polishing supervisor supervisor supervisor
WHAT ARE THE ADVANTAGES OF THE FUNCTIONAL STRUCTURE?
- economies of scale
- standardisation/ efficiency
- specialists more comfortable
WHAT ARE THE DISADVANTAGES OF THE FUNCTIONAL STRUCTURE?
- empire building
- slow to adapt to market change
- conflicts between functions
- cannot cope with diversification
WHAT IS THE DIVSIONALISED STRUCTURE?
It can be either product/ brand/ division based or geographically based.
PRODUCT/ BRAND/ DIVISION BASED
Organisation is structured in accordance with product lines/ brands or divisions. Divisions are likely to be seen as profit centres. Headed by general managers who enjoy responsibility.
GEOGRAPHICALLY STRUCTURED
Divisions grouped by location. Common in organisations that operate over a large area.
WHAT ARE THE ADVANTAGES OF A DIVISIONALISED STRUCTURE?
- enable product/ geographic growth
- clear responsibility for areas
- training of general managers
WHAT ARE THE DISADVANTAGES OF A DIVISIONALISED STRUCTURE?
- potential loss of control
- lack of goal congruence
- duplication
- specialists may feel isolated
WHAT IS THE MATRIX STRUCTURE?
Aims to combine the benefits of decentralisation and coordination.
Requires dual reporting for managers. It is usually found in multi-product and multi-functional organisations.
WHAT ARE THE ADVANTAGES OF THE MATRIX STRUCTURE?
- advantages of both the functional and divsionalised structure
- improves cross functional communication
- particularly useful for project and temporary teams
- flexibility
- dual command
WHAT ARE THE DISADVANTAGES OF THE MATRIX STRUCTURE?
- dual command (conflicts between managers)
- dilution of functional authority
- time consuming meetings
WHAT FACTORS AFFECT THE DEGREE OF DECENTRALISATION?
- management style/ ability
- size of organisation
- range of products/ services/ brands
- geographic location
- extent of local market knowledge
- effectiveness of communication/ systems
WHAT ARE THE PROS OF DECENTRALISATION?
- senior management free to concentrate on strategy
- better local decisions due to local expertise
- better motivations
- quicker responses/ flexibility
- training/ career path
WHAT ARE THE CONS OF DECENTRALISATION?
- loss of control by senior management
- dysfunctional decisions due to lack of goal congruence
- poor decisions made by inexperienced managers
- training costs
- duplications of roles and resources
- extra costs re information
WHAT FACTORS INFLUENCE THE SPAN OF CONTROL?
- complexity of work
- degree of change
- managements ability
- assistance received by managers
- amount of non-supervisory work undertaken by supervisors
- level of knowledge and experience of staff
- level of costs associated with mistakes
- level of danger
- physical proximity of subordinates
- IT
WHAT ARE THE 6 COORDINATING MECHANISMS IN MINTZBERG’S STRUCTURAL CONFIGURATIONS?
1) mutual adjustment - coordination through informal contact
2) direct supervision - formal hierarchy
3) standardisation of work processes - specified procedures
4) standardisation of outputs - design and delivery of products to specifications
5) standardisation of skills and knowledge - identifies training needed to do work
6) standardisation of norms - importance of culture and collective belief
WHAT ARE THE 3 RULES FOR EFFECTIVE DECENTRALISATION?
1) Autonomy - for local level manager to effectively run the division
2) Control - divisional managers are held accountable for factors
they can control
3) Goal congruence - important for divisionalised managers to feel
they are fulfilling personal objectives as well as achieving
corporate aims
WHAT 2 FORMULAE CAN BE USED TO MEASURE PERFORMANCE OM A DIVISIONAL BUSINESS?
1) Return on Investment (ROI)
2) Residual Income (RI)
HOW DO YOU CALCULATE THE RETURN ON INVESTMENT AND WHAT ARE THE PROS/ CONS OF THIS METHOD?
Annual profit controlled by manager (controllable profit)
__________________________________________ x 100%
Capital employed in division (CE)
PROS:
- % measure used by external analysts
- easy to understand and calculate
- facilitates comparisons across divisions
CONS:
- leads to lack of goal congruence
- hard compare across different industries
- may discourage investment in assets
HOW DO YOU CALCULATE THE RESIDUAL INCOME AND WHAT ARE THE PROS/ CONS OF THIS METHOD?
RI = Controllable profit - (CE x target rate of return %)
PROS:
- absolute measure (+ive = good return)
- less likely to lead to dysfunctional decisions
CONS:
- hard compare across different industries
- may discourage investment in assets
WHAT ARE THE PROS OF TRANSFER PRICING?
- signalling mechanism
- looks at tax implications and profits
- the right transfer price should achieve goal congruence
- encourages selling between divisions/ efficiency
- makes all divisions profit centres = comparable
WHAT ARE THE CONS OF TRANSFER PRICING?
- determines the profit of divisions, so inappropriate transfer pricing
can demotivated division manager - determines the tax paid by subsidiaries, so inappropriate transfer
pricing could trigger tax investigation - should encourage managers to act in a goal congruent manner, so
inappropriate transfer pricing could lead to dysfunctional decisions
WHAT IS THE OPTIMAL TRANSFER PRICE?
The higher of standard variable cost or opportunity cost.
BRIEFLY OUTLINE THE CORPORATE GOVERNANCE CODE
It is the system by which business corporations are detected and controlled.
It codifies best practise:
- appropriate balance of power on board of exec directors
- chairman can’t be the chief exec
- balance between independent non-exec panda exec directors
- audit committee consists of non-exec directors, liaise with external audit
- renumneration committed to oversee director rem
WHAT CHARACTERISES AN EXECUTIVE DIRECTOR?
- accountability, to share shoulders/ employees
- direction, formulating long term strategy
- supervision, oversees performance of managers
- executive action, implementation of strategy
WHAT CHARACTERISES A NON-EXECUTIVE DIRECTOR?
- independent viewpoint, constructively challenge development of
strategy - independent of executive management, impartial judgement
- formally selected
- scrutinise management performance, ensures robust
management procedures exist
WHAT ARE THE 5 SPECIFIC ISSUES OF GOVERNANCE OF NOT FOR PROFIT ORGANISATIONS?
1) Accountability - proper stewardship of donated funds
2) Stakeholders - accountable to wide range of stakeholders
3) Openness and transparency
4) Board structures - often elected and volunteer based
5) Monitoring performance - difficult to measure
IDENTIFY THE SIX TYPES OF RISK
1) Business risk
2) Finance risk
3) Political risk
4) Legal risk
5) Technological risk
6) Economic risk
MANAGEMENT ATTITUDE TO RISK - MILES AND SNOW
REACTORS
Typical characteristics
-inconsistent
- fail to link technology, structure and procedures to strategies
Approach to risk
- risk averse
- only change if forced to do so
- strategies often out of date
DEFENDERS Typical characteristics - specialist provider of specialist product - narrow area of operations - management expertise - stable, efficient
Approach to risk
- maintain share of current market
- ignore developments outside expertise
- grow incrementally
ANALYSERS
Typical characteristics
- two business areas, one stable and one innovative
Approach to risk
- wait and see market reaction to new developments before committing
- establish formal structure to ensure efficiency
PROSPECTORS Typical characteristics - continually changing structure and technology - broach approach to planning - results orientated - wide portfolio
Approach to risk
- entrepreneurial
- responsive to new trends
- seek new markets/ products
BREAK EVEN ANALYSIS
Total fixed costs
Output = _________________
Contribution per unit
SENSITIVITY ANALYSIS
Outcome
= __________________________
Total affected by variable changed
WHAT IS ORGANIC GROWTH AND WHAT ARE THE ADVANTAGES AND DISADVANTAGES OF IT?
It is achieved through internally generated projects whether funded with retained earnings or new finance.
ADVANTAGES
- spreads costs, easier to finance
- no disruption
- control over change management
- control over which products to develop
- reputation of target company
DISADVANTAGES
- risk
- slower
- barriers, may intensify competition
WHAT IS ACQUISITION GROWTH AND WHAT ARE THE ADVANTAGES AND DISADVANTAGES OF IT?
A bidder company acquires a target company either entirely or by buying enough shares to exercise control.
ADVANTAGES
- synergy
- risk reduction
- reduced competition
- vertical protection
- may increase shareholder wealth
- quicker than organic
DISADVANTAGES
- synergy is not automatic, it must be pursued
- restructuring costs may be significant
- busting company may end up paying more in terms if both price and fees than it
gains in synergistic benefits
- failure to retain key staff
- lack of understanding of business acquired
WHAT ARE THE ADVANTAGES AND DISADVANTAGES OF JOINT VENTURES AND ALLIANCES?
ADVANTAGES
- access to local resources/ expertise/ brands
- reduction in nationalist sentiment
- shared risk
- shared finance
- learning experience for both parties
- attractive to smaller/ risk averse businesses
DISADVANTAGES
- share profits
- disagreements
- may have to share trade secrets
WHAT ARE THE ADVANTAGES AND DISADVANTAGES OF FRANCHISING AND LICENSING?
ADVANTAGES
- increase in number of distribution outlets without extensive
capital investment
- local expertise and access to enthusiastic entrepreneurs
- economies of scale from franchisee (e.g marketing)
- rapid expansion
DISADVANTAGES
- shared profit
- successful franchisees may set up their own direct competition
- conflicts over operating decisions
- quality control
