Markt Strategy

7/31/2019 Markt Strategy

1/14

Developing Market Oriented Strategies

An Overview of Strategic Planning

WWiitthhoouutt aa ssttrraatteeggyy tthhee oorrggaanniissaattiioonn iiss lliikkee aa sshhiipp wwiitthhoouutt aa rruuddddeerr- Joel Ross and Michael Kami

MMaannaaggeemmeennttss jjoobb iiss nnoott ttoo sseeee tthhee ccoommppaannyy aass iitt iiss .. bbuutt aass iitt ccaann bbeeccoommee- John W. Teets, CEO, Greyhound Coorporation

In a hyper competitive marketplace, companies can operate successfully by creating anddelivering superior value to target customers and also learning how to adapt to acontinuously changing market place. So to meet changing conditions in their industries,companies need to be farsighted and visionary, and must develop long-term strategies.Strategic planning involves developing a strategy to meet competition and ensure long-term survival and growth. The marketing function plays an important role in this processand it provides information and other inputs to help in the preparation of theorganisations strategic plan.The overall objective of strategic planning is two fold : To guide the company successfully through all changes in the environment. To create competitive advantage, so that the company can outperform the

competitors in order to have dominance over the marketStrategic planning consists of developing a company mission (to give it direction),objectives and goals (to give it means and methods for accomplishing its mission),business portfolio (to allow management to utilise all facets of the organisation), andfunctional plans (plans to carry out daily operations from the different functionaldisciplines).No matter how well the strategic planning process has been designed and implemented,success depends on how well each department performs its customer-value-addingactivities and how well the departments work together to serve the customer. Valuechains and value delivery networks have become popular with organisations that aresensitive to the wants and needs of consumers. The marketing department (because ofits ability to stress the customers view) has become central in the implementation ofmost strategic plans.Ultimately the aim of strategic planning is to save the companys business products,services and communications so that they achieve targeted profits and growth.

Marketing Philosophy :It is more important to do what is strategically right than what is immediately

profitable.


2/14

6.1.1 The Framework

The basic framework of strategic planning process can be described as shown in thepicture below:

Figure 6.1: Basic Framework of Strategic Planning Processes

Stage One: This is the starting point of strategic planning and consists of doing asituational analysis of the firm in the environmental context. Here the firm must find outits relative market position, corporate image, its strength and weakness and alsoenvironmental threats and opportunities. This is also known as SWOT (Strength,Weakness, Opportunity, and Threat) analysis.Stage Two: This is a process of goal setting for the organisation after it has finalised itsvision and mission. A strategic vision is a road map of the companys future providingspecifics about technology and customer focus, the geographic and product markets to

be pursued, the capabilities it plans to develop, and the kind of company thatmanagement is trying to create.An organisations Mission states what customers it serves, what need it satisfies, andwhat type of product it offers.Stage Three : Here the organization deals with the various strategic alternatives it has.

Stage Four : Out of all the alternatives generated in the earlier stage the organizationselects the best suitable alternative in line with its SWOT analysis.

Stage OneWhere are we Now?

(Beginning)

Stage FourWhich Way is Best?

(Evaluation)

Stage FiveHow Can we Ensure Arrival?

(Control)

Stage TwoWhere are we Want to Be?

(Ends)

Stage ThreeHow Might we Get There?

(Means)

Introduction


3/14

Stage Five : This is a implementation and control stage of a suitable strategy. Hereagain the organization continuously does situational analysis and repeats the stagesagain.

The concept of business model

A companys business model deals with revenue-cost-profit economics of its strategy the actual and projected revenue streams generated by the companys product offeringsand competitive approaches, the associated cost structure and profit margins, and theresulting earnings stream and return on investment.Also to extract value from an innovation, a start-up (or any firm for that matter) needs anappropriate business model. Business models convert new technology to economicvalue.Given the complexities of products, markets, and the environment in which the firmoperates, very few individuals, if any, fully understand the organization's tasks in theirentirety. The technical experts know their domain and the business experts know theirs.The business model serves to connect these two domains as shown in the followingdiagram:

Figure 6.2:Role of

businessmodel

The fundamental issue surrounding a companys business model is whether a givenstrategy makes sense from a money-making perspective. A companys business modelis consequently more narrowly focused than the companys business strategy. Closelyrelated to the concept of strategy is the concept of a companys business model, a termnow widely applied to managements plan for making money in a particular business.

A business model draws on a multitude of business subjects, including economics,entrepreneurship, finance, marketing, operations, and strategy. The business modelitself is an important determinant of the profits to be made from an innovation. Amediocre innovation with a great business model may be more profitable than a greatinnovation with a mediocre business model.Components of a business modelAccording to some research findings a business model has six major components as

given below :

Value proposition - a description the customer problem, the product that addresses theproblem, and the value of the product from the customers perspective.Market segment - the group of customers to target, recognizing that different market

segments have different needs. Sometimes the potential of an innovation is unlockedonly when a different market segment is targeted.Value chain structure - the firm's position and activities in the value chain and how thefirm will capture part of the value that it creates in the chain.Revenue generation and margins - how revenue is generated (sales, leasing,subscription, support, etc.), the cost structure, and target profit margins.Position in value network - identification of competitors, complementors, and anynetwork effects that can be utilized to deliver more value to the customer.

TechnicalInnovation

Businessmodel

Economicoutput


4/14

Competitive strategy - how the company will attempt to develop a sustainablecompetitive advantage, for example, by means of a cost, differentiation, or nichestrategy.Business Model vs. StrategyThe concept of business model contrast to that of strategy in the following three areas :

1. Creating value vs. capturing value - the business model focus is on value

creation. While the business model also addresses how that value will becaptured by the firm, strategy goes further by focusing on building a sustainablecompetitive advantage.

2. Business value vs. shareholder value - the business model is architecture forconverting innovation to economic value for the business. However, the businessmodel does not focus on delivering that business value to the shareholder. Forexample, financing methods are not considered by the business model butnonetheless impact shareholder value.

3. Assumed knowledge levels - the business model assumes a limitedenvironmental knowledge, whereas strategy depends on a more complexanalysis that requires more certainty in the knowledge of the environment.

Also strategy relates to a companys competitive initiatives and business approaches,

while the term business model deals with whether the revenues and costs flowing fromthe strategy demonstrate business viability. Companies that have been business for awhile and are making acceptable profits have a proven business model there is clearevidence that their strategy is capable of profitability and that they have a viableenterprise. Companies that are losing money or are in a start-up mode (like many newdot-com companies) have a questionable business model; their strategies have yet toproduce good bottom-line result, putting their viability in doubt.Creating the strategy and business model of an organization is nothing else than design.The strategy is linked with design thinking through examples and concepts of strategicdesign, business models, environmental scanning and business innovations. This way ofthinking is a must in todays top performing organizations. Managers have to becomemasters in complex conceptual thinking, anthropologists of their business environments

and architects of innovative business design.

Some Basic Concepts

A companys strategy consists of the combination of competitive moves andbusiness approaches that managers employ to please customers, competesuccessfully, and achieve organisational objectives

A companys business model deals with whether the revenue cost profiteconomies of its strategy demonstrate the viability of the enterprise as a whole.

The term strategic management refers to the managerial process of forming astrategic vision, setting objectives, crafting a strategy, implementing and executingthe strategy, and then over time initiating whatever corrective adjustments in the

vision, objectives, strategy and execution are deemed appropriate. A strategic vision is a roadmap of a companys future providing specifics about

technology and customer focus, the geographic and product markets to be pursued,the capabilities it plans to develop, and the kind of company that management istrying to create.

A companys mission statement is typically focused on its present business scope who we are and what we do. Mission statements broadly describe anorganizations present capabilities, customer focus, activities, and business makeup.


5/14

A strategic plan consists of an organisations mission and future direction, near-term and long-term performance targets, and strategy.

Objectives are an organizations performance targets the results and outcomes itwants to achieve. They function as yardsticks for tracking an organisationsperformance and progress. Strategic objectives relate to outcomes that strengthenan organisations overall business position and competitive viability.

Strategy implementation concerns the managerial exercise of putting a freshlychosen strategy into place.

Dimensions of Strategic Decision

Strategic decisions are different in nature than all other decisions which are taken atvarious levels of the organization during day-to-day working of the organizations. Themajor dimensions of strategic decisions are given below: Strategic issues Require Top Management Decisions : as strategic planning

involves thinking in totality of the organizations and there is lot of risk involved. Strategic Issues Involve the Allocation of Large Amounts of Company Resources : it

may require huge financial investment to venture into a new area of business or the

organization may require huge number of man power with new set of skills in them.For example, Tatas expanding to TCS, Reliance expanding to Infocom etc.

Strategic Issues Are Likely to have a Significant Impact on the Long Term Prosperityof the Firm.:generally the results of strategic implementation are seen on a long termbasis not immediately.

Strategic Issues Are Future Oriented :strategic thinking involves predicting the futureenvironmental conditions and how to orient for the changed conditions..

Strategic Issues Usually Have Major Multifunctional or Multibusiness Consequences: as this involves organization in totality and also the concept of business policystarted in order to integrate all in business functions.

Strategic Issues Necessitate Considering Factors in the Firms External Environment: strategicplanning involves orienting the internal environment of the organization

with the change of the external environment.

Strategic Planning Control and Implementation Process

Management first should decide what it intends to accomplish as a total organization anddevelop a strategic plan to achieve these results. Based on this overall plan, eachdivision of the organization should determine what its own plans will be. Of course, therole of marketing in these plans needs to be considered. Planning is deciding now whatwe are going to do later, including how and when we are going to do it. Without a plan,we cannot get things done effectively and efficiently, because we don't know what needsto be done or how to do it.The organisational planning takes place at several levels of the organisation thecorporate level, the business level and operational level.The corporate level consisting of the top management, deals with long term majordecisions making such as allocation of resources, taking major risks for generating highprofits.The operational level decisions are short term and less risky in nature and leads toincremental change in organisational operation


6/14

Figure 6.4 : The Four Steps of the Strategic Planning Process

Defining the Companys Business and Mission

Analysis shows that in actual practice many business firms fail to conceptualise and

articulate the mission and business definition with the required clarity. And such firmsare seen to fumble in the selection of opportunities and the choice of strategies. Firmswedded to the idea of strategic management of their enterprise cannot afford to be lax inthe matter of mission and business definition, as the two ideas are absolutely central tostrategic planningA mission statement indicates in general terms the boundaries for an organization'sactivities. A mission statement should be neither too broad and vague nor too narrowand specific. To say that a firm's mission is "to benefit global consumers" is too vague; tostate that its purpose is "to make cricket balls" is too narrow. Neither statement outlinesmeaningful benefits for customers or provides much guidance to management. Unlessthe firm's purpose is clear to executives, strategic planning will likely result in dis-agreement and confusion.

The Mission Statement : the starting point for strategic planning The mission is not to make a profit One of the roles of a mission statement is to give the organization its own special

identity, business emphasis and path for development one that typically sets itapart form other similarly situated companies.

A companys business is defined by what needs it trying to satisfy, by whichcustomer groups it is targeting and by the technologies and competencies it usesand the activities it performs

Corporate planning

Division planning

Business planning

Product planning

Organizing

Implementing

Measuring results

Diagnosing results

Taking correctiveaction

Planning Implementing Controlling


7/14

Technology, competencies and activities are important in defining a company sbusiness because they indicate the boundaries on its operation

Good mission statements are highly personalized unique to the organization forwhich they are developed

The well-known management experts, Peter Drucker and Theodore Levitt were amongthe first to agitate this issue through their writings. They emphasised that as the first step

in the business planning endeavour every business firm must clarify the corporatemission and define accurately the business the firm is engaged in. They also explainedthat towards facilitating this task, the firm should raise and answer certain basicquestions concerning its business, such as: What is our mission? What is our ultimate purpose? What do we want to become? What kind of growth do we seek? What business are we in? Do we understand our business correctly and define it accurately in its broadest

connotation? Do we know our customer?

Whom do we intend to serve? What human need do we intend to serve through our offer? What brings us to this particular business? What would be the nature of this business in the future? In what business would we like to be in, in the future?At the time these two experts raised this issue, the business managers of the world didnot fully appreciate the import of these questions; those were days when businessmanagement was still a relatively simple process even in industrially advanced countrieslike the US. It was only in subsequent years that captains of industry all over the worldunderstood the significance of the seemingly simple questions raised by Drucker andLevitt.For example, Indian Railways will make a big mistake if they think they are in the

business of moving trains and wagons; whereas they are actually in the business oftransportation and material handling system.Thus, we can say that the first step in strategic planning process is defining thecompany mission. Mission statement is a statement of the organisations purpose what it wants to

accomplish in the larger environment. A clear mission statement acts as an invisible hand that guides people in the

organisation. Market definitions of a business are better than product or technological definitions.

Products and technologies can become outdated, but basic market needs may lastforever.

A market-oriented mission statement defines the business in terms of satisfying

basic customer needs.A strategicvision is a road map of the companys future providing specifics abouttechnology and customer focus, the geographic and product markets to be pursued, thecapabilities it plans to develop, and the kind of company that management is trying tocreate.An organisations Mission states what customers it serves, what need it satisfies, andwhat type of product it offers.


8/14

A companys mission statement is typically focused on its present business scope who we are and what we do ; mission statements boldly describe an organisationspresent capabilities, customer focus, activities and business makeup.Some Mission Statements UNILEVERThe mission of our company, as William Hasketh Lever saw it, is to make cleanliness

commonplace, to lessen work for women, to foster health, and to contribute to personalattractiveness that life may be more enjoyable for the people who use our products. MCKINSEY & CO.To help Business Corporation and governments to be more successful. CADBURY INDIATo attain leadership position in the confectionary market and achieve a strong presencein the food drinks sector. RELIANCE INDUSTRIESTo become a major player in the global chemicals business and simultaneously grow inother growth industries like infrastructure. RANBAXYSTo become a $1 billion research-based global pharmaceuticals company.

Designing the Business Portfolio

The third step in the strategic planning process is designing the business portfolio. The business portfoliois a collection of businesses and products that make up the

company. The best business portfolio is the one that best fits the companys strengths and

weaknesses to opportunities in the environment.In order to design the business portfolio, the business must: Analyse its current business portfolio and decide which business should receive

more, less, or no investment. Develop growth strategies for adding new products or businesses to the portfolio.

Analysing the Current Business PortfolioIn order to analyse the current business portfolio, the company must conduct portfolioanalysis(a tool by which management identifies and evaluates the various businessesthat make up the company). Two steps are important in this analysis: The First Step is to identify the key businesses (SBUs). The strategic business

unit (SBU) is a unit of the company that has a separate mission and objectives andwhich can be planned independently from other company businesses. The SBU canbe a company division, a product line within a division, or even a single product orbrand.

The Second Step is to assess the attractiveness of its various SBUs and decidehow much support each deserves.

The concept of SBU

Strategies exist at a number of levels in an organisation. First, there is the corporatelevel: the main issues here are about overall purpose and scope of the organization. Thesecond level can be thought of in terms of competitive or business unit strategy. Herestrategy is about how to compete successfully in a particular market: the concerns aretherefore about how advantage over competitors can be achieved; what new


9/14

opportunities can be identified Or created in markets; which products or services shouldbe developed in which markets; and the extent to which these meet customer needs insuch a way as to achieve the objectives of the organisation. The third level of strategy isat the operating end of the organisation. Here there are operational strategieswhich areconcerned with how the component parts of the organisation in terms of resources,processes, people and their skills, are pulled together to form a strategic architecture

which will effectively deliver the overall strategic directionAlso as the number, size, and diversity of divisions in an organization increase,controlling and evaluating divisional operations become increasingly difficult forstrategists. Increases in sales often are not accompanied by similar increases inprofitability. The span of control becomes too large at top levels of the firm. Theorganization then groups similar divisions into strategic business units (SBUs) and dele-gates authority and responsibility for each unit to a senior executive who reports directlyto the chief executive officer. This change in structure can facilitate strategy implemen-tation by improving coordination between similar divisions and channeling accountabilityto distinct business units. Two disadvantages of an SBU structure are that it requires anadditional layer of management, which increases salary expenses, and the role of thegroup vice president is often ambiguous. However, these limitations often do not

outweigh the advantages of improved coordination and accountability.An SBU is a unit within the overall organisation for which there is an external market forgoods or services distinct from another SBU. At this level of strategy, the basis ofstrategic decisions is how customer or client needs can best be met, usually to achievesome sort of competitive advantage for the organisation. It is therefore very importantthat there is a clarity about the needs of customers (or clients) and who competitors arefor a particular SBU. Confusion can often arise here because an SBU may not bedefined in terms of an organisational structure.The organization can have a related set of SBUs but then relatedness in turn has directimplications on decisions about diversification. Relatedness might exist in different ways:

SBUs might all build on similar technologies or all provide similar sorts ofproductsor services.

SBU s might be serving similar or different markets. Even if technology orproducts differ, it may be that the customers are similar. For example, thetechnologies underpinning frozen food, washing powders and margarineproduction may be very different; but all are sold through retail operations, andUnilever operates in all these product fields.

Or it may be that other competences on which the competitive advantage ofdifferent SBUs are built have similarities. Unilever would argue that the marketingskills associated with the three product markets are similar, for example.

Three characteristics of SBUs Single business or collection of related businesses that can be planned for

separately Has its own set of competitors

Has a manager who is responsible for strategic planning and profit

Portfolio planningThe best-known portfolio planning method is the Boston Consulting Group (BCG) matrix: Using the BCG approach, where a company classifies all its SBUs according to the

growth-share matrix. The vertical axis, market growth rate, provides a measure of market attractiveness.


10/14

The horizontal axis, relative market share, serves as a measure of company strengthin the market.

Using the matrix, four types of SBUs can be identified: Stars are high-growth, high-share businesses or products (they need heavy

investment to finance their rapid growth potential). Cash Cows are low-growth, high-share businesses or products (they are

established, successful, and need less investment to hold share). Question Marks are low-share business units in high-growth markets (they require a

lot of cash to hold their share). Dogs are low-growth, low-share businesses and products (they may generate

enough cash to maintain themselves, but do not have much future).Generally, a SBU introduces a new product into a high-growth market, which willobviously have a low market share. The SBU has to do substantial marketingexpenditure to increase the products market share so that it becomes a star product.When the industry growth rate again declines, the SBU generally stops all marketingexpenditure on this product which gives the SBU lot of cash as the expenditure issubstantially reduced while the revenue is still very high. This surplus fund generated bycash cows are utilised for development of new products and establishing these new

products into the market.

Competitive Positions (Ratios of Share of Largest Competitor)

Fig.:6.5 : BCG Growth Share MatrixOnce it has classified its SBUs, a company must determine what role each will play inthe future. The four strategies that can be pursued for each SBU are:1. Build: Here the objective is to increase market share, even forgoing short-term

earnings to achieve this objective if necessary.2. Hold: Here the objective is to preserve market share.3. Harvest: Here the objective is to increase short-term cash flow regardless of long-

term effect.

R & D

Question Marks

DogsCash Cows

Stars

10 High 1.0 Low 0.1Low

Mark

etGrowthRate

High

? ?

?


11/14

4. Divest: Here the objective is to sell or liquidate the business because resources canbe better used elsewhere.

As time passes, SBUs change their positions in the growth-share matrix. Each has itsown life-cycle.The growth-share matrix has done much to help strategic planning study; however, thereare problems and limitations with the method. They can be difficult, time-consuming, and costly to implement. Management may find it difficult to define SBUs and measure market share and

growth They focus on classifying current businesses but provide little advice for future

planning. They can lead the company to placing too much emphasis on market-share growth

or growth through entry into attractive new markets. This can cause unwiseexpansion into hot, new, risky ventures or giving up on established units too quickly.

In spite of the drawbacks, most firms are still committed to strategic planning.Developing Growth StrategiesCompanies should always be looking to the future. One useful device for identifyinggrowth opportunities for the future is the product/market expansion grid. The

product/market growth matrix (proposed by Igor Ansoff) is a portfolio-planning tool foridentifying company growth opportunities through: Market Penetrationmaking more sales to present customers without changing

products in any way. Supporting tactics might include greater spending onadvertising or personal selling.

Market Developmenta strategy for company growth by identifying and developingnew markets for current company products.

Product Developmenta strategy for company growth by offering modified or newproducts to current markets.

Diversificationa strategy for company growth by starting up or acquiringbusinesses outside the companys current products and markets. This strategy isrisky because it does not rely on either the companys successful product or its

position in established markets.

Fig.:6.5 Product / Market Growth MatrixAs market conditions change overtime, a company may shift product-market growthstrategies. For example, when its present market is fully saturated a company may haveno choice other than to pursue new market.

1. MarketPenetration2. Market

Development

3. ProductDevelopment

4. DiversificationExistingMarkets

NewMarkets

ExistingProducts NewProducts


12/14

Connecting with Consumers

To succeed in todays competitive marketplace, companies must be customer centered.They must win customers from competitors and keep them by delivering greater value.Since companies cannot satisfy all consumers in a given market, they must divide up thetotal market (market segmentation), choose the best segments (market targeting),

and design strategies for profitably serving chosen segments better than the competitors(market positioning).

Developing the Marketing Mix

Once the company has decided on its overall competitive marketing strategy, it is readyto begin planning the details of the marketing mix.The marketing mixis the set of controllable marketing variables that the firm blends toproduce the response it wants in the target market.The marketing mix consists of everything that the firm can do to influence the demandfor its product. These variables are often referred to as the four Ps. Product stands for the goods-and-service combination the company offers to the

target market. Strategies are needed for managing existing product over time, addingnew ones and dropping failed products. Strategic decisions must also be maderegarding branding, packaging and other product features such as warrantees.

Price stands for the amount of money customers have to pay to obtain the product.Necessary strategies pertain to the location of the customers, price flexibility, relateditems within a product line and terms of sale. Also, pricing strategies for entering amarket, specially with a new product, must be designed. Place stands for company activities that make the product available to target

consumers. Strategies should be taken for the management of channel(s) bywhich ownership of product is transferred from producers to customers and inmany cases, the system(s) by which goods are moved from where they areproduced from they are purchases by the final customers. Strategies applicable

to the middleman such as wholesellers and retails must be designed. Promotion stands for activities that communicate the merits of the product and

persuade target consumers to buy it. Strategies are needed to combineindividual methods such as advertising, personal selling, and sales promotioninto a coordinated campaign. In addition promotional strategies must beadjusted as a product move from an earlier stages from a later stage of its life.

An effective marketing program blends all of the marketing mix elements into acoordinated program designed to achieve the companys marketing objectives bydelivering value to consumers. The 4 Ps seems to take the sellers view rather than thebuyers view.Perhaps a better classification would be the 4 Cs:

Product = Customer Solution. Price = Customer Cost. Place = Convenience. Promotion = Communication.

4 Ps Product Price Place Promotion

4 Cs Customer Solution Customer Cost Convenience Communication


13/14

Fig.:6.7 The 4 Ps & 4 Cs of the Marketing

Expanded Marketing Mix

In addition to the traditional four Ps the new marketing mix (particularly for services)includes people, physical evidence and processPeople : all human actors who play a part in delivery of the market offering and thusinfluence the buyers perception, namely the firms personnel and the customer.Physical evidence : the environment in which the market offering is delivered andwhere the firm and customer interact.Process : the actual procedures, mechanisms and flow of activities by which the productor service is delivered.

The General Electric Model

The General Electric Model (developed by GE with the assistance of the consulting firm

McKinsey & Company) is similar to the BCG growth-share matrix. This also uses two

factors in a matrix / grid situation as shown below :

Business Position

High Medium Low

High Invest Invest Protect

Medium Invest Protect Harvest

Market

attra

ctiveness

Low Protect Harvest Divest

Table 6.3 The GE Matrix

Each of the above two factors is rated according to criteria such as the following :Evaluating the ability to compete :

Business positionEvaluating the Market Attractivemness

Size Growth Share by segment Customer loyalty

Margins Distribution Technology skills Patents Marketing Flexibility Organisation

Size Growth Customer satisfaction levels Competition: quality, types,

Effectiveness, commitment Price levels Profitability Technology Government regulations Sensitivity to economic trends

Table 6.4 Criteria for Rating Business Position & Market Attractiveness


14/14

The criteria used to rate market attractiveness and business position assigned differentways because some criteria are more important than others. Then each SBU is ratedwith respect to all criteria. Finally, overall rating for both factors are calculated for eachSBU. Based on these ratings, each SBU is labeled as high, medium or low with respectto (a) market attractiveness, and (b) business position.Every organisation has to make decisions about how to use its limited resources most

effectively. Thats where this planning models can help determining which SBU shouldbe stimulated for growth, which one maintained in their present market position andwhich one eliminated.

Documents

Markt Strategy