W4 Lecture 3 marketing Strategy Decisions and Choices Flashcards
Strategic Planning procedure and Strategic Management
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Hierarchy of Strategic Decisions
- Strategic decisions at the corporate level involve developing a mission statement, choosing a directional strategy and allocating resources among SBUs.
- At the SBU level marketing manager have to make decision regarding the choice of a generic competitive strategy (cost leadership, differentiation, focus)
- At the functional level, strategic choices and decisions are related to the various practical areas within the organization (e.g. marketing, HR, R&D)
Strategic Direction
Normally directional strategy is chosen from 3 general orientations:
-Growth strategy: expand the corporation’s activities
+Concentration (Vertical growth (Merger n Acquisition) & Horizontal growth (Buying out competitors))
+Diversification (Concentric and Conglomerate)
-Stability strategy: Make no change to the existing activities
-Retrenchment (Defensive) strategy: reduce the corporation’s level of activities
Allocating Resources between SBUs or Product
BCG & GE (General Electric model)
Generic Competitive Strategies (Porter)
- Cost leadership: low-cost competitive strategy aiming at the broad mass market
- Differentiation: involves the creation of a significantly differentiated offering, for which the company charge a premium
- Cost focus: low-cost strategy that concentrates on a particular buyer group or geographic market and attempt to serve only this niche.
- Focused differentiation: concentrate on a particular buyer group, product line segment or geographic market. The target segments must have buyers with unusual needs, or else the production and delivery system that best serve the target segments must differ from that of other industry segments
- Stuck in the middle: any company that fail to pursue 1 generic strategy.
Difference between Cost focus and Focused differentiation
Cost focus exploits differences in cost behavior in some segments, differentiation focus exploits the special needs of buyers in certain segments.
Alternatives to generic Strategies (Bowman)
Low Price and Low Value Added (Position 1)
Not a very competitive position for a business. The product is not differentiated and the customer perceives very little value, despite a low price. This is a bargain basement strategy. The only way to remain competitive is to be as “cheap as chips” and hope that no-one else is able to undercut you.
Low Price (Position 2) Businesses positioning themselves here look to be the low-cost leaders in a market. A strategy of cost minimisation is required for this to be successful, often associated with economies of scale. Profit margins on each product are low, but the high volume of output can still generate high overall profits. Competition amongst businesses with a low price position is usually intense – often involving price wars.
Hybrid (Position 3)
As the name implies, a hybrid position involves some element of low price (relative to the competition), but also some product differentiation. The aim is to persuade consumers that there is good added value through the combination of a reasonable price and acceptable product differentiation. This can be a very effective positioning strategy, particularly if the added value involved is offered consistently.
Differentiation (Position 4)
The aim of a differentiation strategy is to offer customers the highest level of perceived added value. Branding plays a key role in this strategy, as does product quality. A high quality product with strong brand awareness and loyalty is perhaps best-placed to achieve the relatively prices and added-value that a differentiation strategy requires.
Focused Differentiation (Position 5) This strategy aims to position a product at the highest price levels, where customers buy the product because of the high perceived value. This the positioning strategy adopted by luxury brands, who aim to achieve premium prices by highly targeted segmentation, promotion and distribution. Done successfully, this strategy can lead to very high profit margins, but only the very best products and brands can sustain the strategy in the long-term.
Risky High Margins (Position 6)
This is a high risk positioning strategy that you might argue is doomed to failure – eventually. With this strategy, the business sets high prices without offering anything extra in terms of perceived value. If customers continue to buy at these high prices, the profits can be high. But, eventually customers will find a better-positioned product that offers more perceived value for the same or lower price. Other than in the short-term, this is an uncompetitive strategy. Being able to sell for a price premium without justification is tough in any normal competitive market.
Monopoly Pricing (Position 7) Where there is a monopoly in a market, there is only one business offering the product. The monopolist doesn’t need to be too concerned about what value the customer perceives in the product – the only choice they have is to buy or not. There are no alternatives. In theory the monopolist can set whatever price they wish. Fortunately, in most countries, monopolies are tightly regulated to prevent them from setting prices as they wish.
Loss of Market Share (Position 8)
This position is a recipe for disaster in any competitive market. Setting a middle-range or standard price for a product with low perceived value is unlikely to win over many consumers who will have much better options (e.g. higher value for the same price from other competitors).
Marketing Function Strategies (From Abstract
strategies to functional objectives to particular tactics: Ansoff Leaders, Challengers, Followers)
Market penetration
In market penetration strategy, the organization tries to grow using its existing offerings (products and services) in existing markets. In other words, it tries to increase its market share in current market scenario.This involves increasing market share within existing market segments. This can be achieved by selling more products or services to established customers or by finding new customers within existing markets. Here, the company seeks increased sales for its present products in its present markets through more aggressive promotion and distribution.
This can be accomplished by: (i) Price decrease; (ii) Increase in promotion and distribution support; (iii) Acquisition of a rival in the same market; (iv) Modest product refinements
Market development[edit]
In market development strategy, a firm tries to expand into new markets (geographies, countries etc.) using its existing offerings.
This can be accomplished by (i) Different customer segments (ii) Industrial buyers for a good that was previously sold only to the households; (iii) New areas or regions about of the country (iv) Foreign markets. This strategy is more likely to be successful where:- (i) The firm has a unique product technology it can leverage in the new market; (ii) It benefits from economies of scale if it increases output; (iii) The new market is not too different from the one it has experience of; (iv) The buyers in the market are intrinsically profitable.
Product development[edit]
In product development strategy, a company tries to create new products and services targeted at its existing markets to achieve growth.
This involves extending the product range available to the firm’s existing markets. These products may be obtained by: (i) Investment in research and development of additional products; (ii) Acquisition of rights to produce someone else’s product; (iii) Buying in the product and “branding” it; (iv) Joint development with ownership of another company who need access to the firm’s distribution channels or brands.
Diversification[edit]
In diversification an organization tries to grow its market share by introducing new offerings in new markets. It is the most risky strategy because both product and market development is required. (i) Related Diversification - Here there is relationship and, therefore, potential synergy, between the firms in existing business and the new product/market space. (a) Concentric diversification, and (b) Vertical integration. (ii) Unrelated Diversification: This is otherwise termed conglomerate growth because the resulting corporation is a conglomerate, i.e. a collection of businesses without any relationship to one another.A strategy for company growth through starting up or acquiring businesses outside the company’s current products and markets
Marketing Plan the document
A marketing plan is simply a set of detailed actions that should be based on a solid strategic foundation and a well-designed marketing strategy. A typical marketing plan include:
- Executive summary
- Situation Analysis (Customer n Competitor analysis)
- Marketing Objectives
- Marketing Strategy (targeting and positioning)
- Action Programmes (4Ps/&Ps operational marketing plans)
- Budgeting and Financial Forecast
- Evaluation and Controls
The 4Ps and their relationship to Marketing Strategy
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How does the Digital Economy Influence the aforementioned Decisions
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Objectives, Tactics, Core Competencies
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Tasks of marketing managers
- Segmentation, targeting and positioning
- What product to offer and which market
- Competitive Stance
Leaders
Challengers
Nicher
Followers
Leaders:
+ Offensive tactics: Expanding the total market ot expanding market share
+ Defensive tactics: protect the current market share
Challengers: Offensive tactics
Nichers: get smart by specializing in serving
Followers:
+Following a leaders
+ defending against challenger
