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CHAPTER 6
BUSINESS STRATEGIES
BUSINESS STRATEGIES
Strategic Planning
Strategic Options
Global Market-driven
Strategies
Major Marketing
Strategies
STRATEGIC PLANNING
Core Competency
Strategic Alliances
Outsourcing
Sustainable Competitive Advantage
CORE COMPETENCY
The activities that an organization has expertise in and performing very well
• WalMart
•IBM
•Pappas
IBM STRATEGIC ACTIONS
Bought PricewaterhouseCoopers consulting division in 2002
Sold IBM personal computer division in 2005
Reorganized service group in 2005 a) Technical computer services b) Traditional consulting
STRATEGIC ALLIANCES
A win-win strategy where all parties benefit from the relationship
•UH Bauer School and Methodist Hospital
•Toyota and Nissan
•Busch and Tsingtao Beer
OUTSOURCING
Corporate Outsourcing
Global Outsourcing
Microbusiness Outsourcing
CORPORATE OUTSOURCING INTHE UNITED STATES 2005
Manufacturing 170 Billion
Logistics and
Procurement 179 Billion
Information/
Technology 90 Billion
GLOBAL OUTSOURCING
India Dominates
Eastern Europe
Asia
Latin America
SUSTAINABLE COMPETITIVE ADVANTAGE
Obtaining a competitive advantage over a long period of time
•Patents/copyrights
•Brand equity
•Location
PATENTS/COPYRIGHTS
Patents and copyrights are monopoly awards given by the government for new technology and innovations
• Microsoft Windows
•Valium Drugs
•Dead Moneymakers
LOSS OF DRUG PATENT PROTECTION
Company Drug Sales Results
Eli Lilly Prozac Yearly sales
fell 61%
Roche Valium Yearly sales
fell 67%
DEAD MONEYMAKERS2003
Celebrity Millions
Elvis Presley 40
Charles Schulz 32
J. R. R. Tolkien 22
John Lennon 19
BRAND EQUITY
Brand equity is the goodwill of a brand.
•Coca Cola
•Intel
•Toyota
LOCATION
Location is used as a sustainable advantage, particularly in retailing
•Specs Liquor Store
•UH Bookstore
•Flying J Truck Stops
STRATEGIC OPTIONS
Contrasting Business Models
Strategic Decision Choices
SWOT Analysis
Changing Business Models
CONTRASTING BUSINESS MODELS
Traditional Business Model Many Levels of Management Rules are Very Important Focus on Command and Control
Entrepreneurial Model Few Levels of Management Rules are Guidelines Focus on Recognition and Response
ENTREPRENEUR RULES FOR SUCCESS
Focus on the Customer
Keep a Short Turnaround Time
Always Add Value to the Customer
STRATEGIC DECISION CHOICES
Maximizing
Maximizing is where you are trying to get the one best answer.
Satisficing
Satisficing is where you are trying to get a satisfactory (best) answer.
SATISFICING CONTINGENCIES IN MARKETING
Should I introduce a new banking service for immigrants?
Should I introduce Blue Bell Ice Cream nationwide?
Should “Mattress Mac” change his advertising message on TV?
SWOT ANALYSIS
Controllable by Management
Strengths of the Business
Weaknesses of the Business
Not Controllable by Management
Opportunities
Threats
CHANGING BUSINESS MODELS
Southwest Airline
Toyota
Dell
SOUTHWEST AIRLINE BUSINESS MODEL
Use one type of plane - Boeing 737 Avoid hub airports in favor or secondary
airports Concentrate on short-haul flights Use low-fare pricing Emphasize no frill service
DELL BUSINESS MODEL
Minimal R & D
No intermediaries
Minimize inventory
Low operating cost
TOYOTA BUSINESS MODEL
Faster turnaround time for new cars
Outsource manufacturing and assembly
Close high cost manufacturing plants
Revolutionize traditional inventory and supply chain systems
STRATEGIC WEAKNESSES OF GM AND FORD
High Labor, Health, and Retirement Costs
Obsolete Plants in Detroit
High Supply Chain Costs
Weak Customer Focus
OPERATING COST FORPERSONAL COMPUTERS
Dell 10%
H-P 21%
Gateway 25%
THREATENED BUSINESS MODELS
Department Stores Lots of Services
Telephone Companies Physical Phone
Lines
Brokerage Firms Execute Orders
Financial Advice
GLOBAL MARKET-DRIVEN STRATEGIES
Push for Healthy Competition
Meaningful Incentives
Rules for the System
Move To Common Standards
PUSH FOR HEALTHY COMPETITION
Protect small Japanese retailers from international competition
Moscow blocks new Ikea retail store
Rewarding family members in Indonesia
MEANINGFUL INCENTIVES
Reduce the cost of starting a new business in Mexico
Change the incentives in U.S. to inflate short-term profits
Cheaper labor costs encourages outsourcing overseas
RULES FOR THE SYSTEM
Russia Mafia influences
Japan Banking off-book
losses
U.S. CPA auditing rules
MOVE TO COMMON STANDARDS
English as international business language
Common physical measurements
Euro monetary system
Standard container in global shipping
INTERNATIONAL DIFFERENCES
Concept U.S. Other Countries
Time 1-12 am 1:00 - 24:00 1-12 pm
Measurements Feet Meter
Temperature Fahrenheit Centigrade
Driving On Right On Left
MAJOR MARKETING STRATEGIES
Intensive Growth - growth within the organization
Concentrated Niche – one target segment
Multiple Niches – more than one target segment
Market Positioning
Multiple Revenue Streams
INTENSIVE GROWTH
Market Penetration – existing products in existing markets
Product Development – new products in existing markets
Market Development – existing products in new markets
MARKET PENETRATION
Use more of the product
Cross-sell products/services
•Green ketchup
•Arm & Hammerbaking soda
PRODUCT DEVELOPMENT
New products
New services
MARKET DEVELOPMENT
Expand from Houston to all major U.S. cities
Expand overseas
Develop new market for existing products
INTENSIVE GROWTH OF BLUE BELL ICE CREAM
Market Penetration
Increasing share of market for existing products in Houston
Product Development
Introducing a new line of Diet Blue Bell ice cream
Market Development
Enter Oklahoma and Kansas with Blue Bell
CONCENTRATED NICHE
Marketing to one market segment rather than the whole market for a product/service
•Cliff Notes
•Jolt Soda
•Long haul blue jeans
MULTIPLE NICHES
Marketing to more than one market segment rather than the whole market for a product/service
•Procter & Gamble
•General Motors
•Anheuser – Busch
GENERAL MOTORSAUTOMOBILES
Chevrolet Cadillac Buick Pontiac Saturn
MARKET POSITIONING
The perception that a potential buyer has about your product/service versus your competitor’s product/service
•Lite beer
•Gerber
•Barbie doll
MULTIPLE REVENUE STREAMS
Sterling McCall
Wells Fargo Bank
Harry Potter
STERLING MCCALL TOYOTA MULTIPLE REVENUE STREAMS
New automobiles
Used automobiles
Finance contracts
Service department
THREATS TO MULTIPLE REVENUE STREAMS
Car Max vs. New Car dealers
Cartridge World vs. HP cartridge refills
Ditech mortgage vs. local home mortgages
MARKETING MIX
Target Market(s)
Product/ServiceStrategy
DistributionStrategy
PricingStrategy
PromotionStrategy
MARKETING MIX STRATEGIES
Girl Scout Cookies
Prescription Drugs
Long Haul Blue Jeans
GIRL SCOUT COOKIES
Target Market
Product Strategy
Distribution Strategy
Promotion Strategy
Pricing Strategy
DRUG COMPANIES MARKETING MIX
Product
Distribution
Promotion
Pricing
DRUG PRODUCTS
Patent Drugs
Generic Drugs
Over-the-counter Drugs
U.S. HEARTBURN DRUGS
Purchase CostDrugs Pattern per pill Sales
Prilosec Over-the-Counter $.80 304 Million
Prevacid Prescription Only $4.00 2,190 Million
Nexium Prescription Only $4.00 2,100 Million
LOSS OF DRUG PATENTS
Company Drug Sales Results
Eli Lilly Prozac Yearly sales
fell 61%
Roche Valium Yearly sales
fell 67%
U.S. GENERIC DRUG GROWTH(Share of Market)
1984 19%
2002 47%
DRUG DISTRIBUTION
Retail Pharmacies
Employer Buying Group
Medical Insurance Companies
Medicare/Medicaid
Supermarkets
DRUG PROMOTIONS
Advertising
Personal Selling
Sales Promotion
ADVERTISING OF PRESCRIPTION DRUGS IN 2003 (Millions)
Drug Treatment Advertising
Nexium Heartburn 257
Clarinex Allergy 129
Allegra Allergy 125
Viagra Impotency 112
Lipitor Cholesterol 109
PRESCRIPTION DRUG ADVERTISING
1996 .8 Billion
2000 2.5 Billion
PRESCRIPTION DRUG SALES FORCE
1993 35,000
2003 82,000
PRESCRIPTION DRUG SALES PROMOTIONS
Consumers
Doctors
•Drug Coupons•Rebates•Free Samples
•Gifts•Honorarium•Educational Programs
DRUG PRICING
Antibiotics
Claritin tablets
Online in Canada
PRICING OF PRESCRIPTION DRUGSANTIBIOTICS (100 Tablets)
Branded Generic
Product Product
(Abbot) (Mylan)
Price to Retailer $13.27 $4.75
Price to Consumer $18.93 $10.99
Retail Markup 42% 131%
PRICES FOR CLARITIN TABLETS
Availability Time Period Price Range
Prescription Dec. 1997 - $2.50 - $3.00Only Dec. 2002
Over the Jan. 2003 - $0.90 – $1.35Counter May 2003
Generics Enter July 2003 $0.40 – $0.50The Market
ONLINE DRUG PRICES
Drug and Purpose U.S. Price Canada Price
Lipitor $269 $184(Cholesterol)
Tamoxifen $287 $47(Breast Cancer)
Celebrex $133 $68