strategic marketing(2)
TRANSCRIPT
STRATEGIC MARKETING
Strategy Formulation Strategy Implementation Strategy Evaluation
Ch 1 -2
ExternalAudit
2
InternalAudit
3
Long-TermObjectives
4
Generate,Evaluate,
SelectStrategies
5
ImplementStrategies:
Mgmt Issues
6
Measure &Evaluate
Performance
7
Vision &
Mission
1
Comprehensive Marketing-Plan Model
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Ch 1 -3
Vision & Mission
Strategy Formulation
External Opportunities & Threats
Internal Strengths & Weaknesses
Long-Term Objectives
Alternative Strategies
Strategy Selection
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Ch 1 -4
Issues in Strategy Formulation
New business opportunitiesBusinesses to abandonAllocation of resourcesExpansion or diversificationInternational marketsMergers or joint venturesAvoidance of hostile takeover
New business opportunitiesBusinesses to abandonAllocation of resourcesExpansion or diversificationInternational marketsMergers or joint venturesAvoidance of hostile takeover
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Ch 1 -5
Strategy Implementation
Annual Objectives
Policies
Employee Motivation
Resource Allocation
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Ch 1 -6
Strategy Implementation
Action Stage of Strategic Management
Most difficult stageMobilization of employees & managersInterpersonal skills criticalConsensus on goal pursuit
Action Stage of Strategic Management
Most difficult stageMobilization of employees & managersInterpersonal skills criticalConsensus on goal pursuit
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Ch 1 -7
Strategy Evaluation
Internal Review
External Review
Performance Metrics
Corrective Actions
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Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Ch 1 -8
Strategy
Evaluation Final Stage of Strategic Management
Subject to future modificationToday’s success no guarantee of future successNew & different problemsComplacency leads to demise
Final Stage of Strategic Management
Subject to future modificationToday’s success no guarantee of future successNew & different problemsComplacency leads to demise
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Ch 1 -9
“Anything that a firm does especially well compared to rival firms”
Strategic Marketing Plan is Gaining and Maintaining Competitive Advantage
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Ch 1 -10
1. Identify Existing
Strategic Marketing-Plan Model
• Vision
• Mission
• Objectives
• Strategies
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Ch 1 -11
2. Audit external environment3. Audit internal environment4. Establish long-term objectives5. Generate, evaluate, and select strategies6. Implement selected strategies7. Measure & evaluate performance
Strategic Marketing-Plan Model
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STRATEGIC MARKETINGChapter 1
MISSION & VISION STATEMENTS
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What Do We Want to Become? VISION
What Is Our Business? MISSION
Importance of Vision and Mission Statements
Components of a Mission Statement
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“The last thing IBM needs right now is a vision.” (July 1993)
Vision
“What IBM needs most right now is a vision.” (March 1996)
– Louis V. Gerstner, Jr., CEO, IBM Corporation
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“What do we want to become?”
Vision
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ComprehensiveMission Statement
Vision
Clear Business Vision
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Vision Statement Examples
Tyson Foods’ vision is to be the world’s first choice for protein solutions while maximizing shareholder value.
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General Motors’ vision is to be the world leader in transportation products and related services.
Vision Statement Examples
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PepsiCo’s responsibility is to continually improve all aspects of the world in which we operate – environment, social, economic – creating a better tomorrow than today.
Vision Statement Examples
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Dell’s vision is to create a company culture where environmental excellence is second nature.
Vision Statement Examples
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“What is our business?”
Mission Statements
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Mission Statements
•Enduring statement of purpose
•Distinguishes one firm from another
•Declares the firm’s reason for being
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Mission Statements
•Creed statement
•Statement of purpose
•Statement of philosophy
•Statement of business principles
Also referred to as:
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Reveal what an organization wants to be and whom it wants to serve.
Mission Statements
Essential for effectively establishing objectives and formulating strategies
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Developing Vision & Mission
Clear mission is needed before alternative strategies can be formulated and implemented
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Mission Components
1.Customers3.Markets
9.Employees
8.PublicImage
7.Self-Concept 6.Philosophy
5.Survival,Growth,Profits
2.Products orServices
4.Technology
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We aspire to make PepsiCo the world’s(3) premier consumer products company, focused on convenient foods and beverages(2). We seek to produce healthy financial rewards for investors(5) as we provide opportunities for growth and enrichment to our employees(9), our business partners and the communities(8) in which we operate. And in everything we do, we strive to act with honesty, openness, fairness and integrity(6).
Mission Statement Examples
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Dell’s mission is to be the most successful computer company(2) in the world(3) at delivering the best customer experience in markets we serve(1). In doing so, Dell will meet consumer expectations of highest quality; leading technology(4); competitive pricing; individual and company accountability(6); best-in-class service and support(7); flexible customization capability(7); superior corporate citizenship(8); financial stability(5).
Mission Statement Examples
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Proctor & Gamble will provide branded products and services of superior quality and value(7) that improve the lives of the world’s(3) consumers. As a result, consumers(1) will reward us with industry leadership in sales, profit(5), and value creation, allowing our people(9), our shareholders, and the communities(8) in which we live and work to prosper.
Mission Statement Examples
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STRATEGIC MARKETINGChapter 2
EXTERNAL ANALYSIS
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“It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change.” – Charles Darwin
External Assessment
Purpose of External Audit– Identify
• Opportunities• Threats
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Purpose of External Audit– Identify
• Opportunities• Threats
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External Audit – Sources of Information•Internet
•Libraries
•Suppliers
•Distributors
•Salespersons
•Customers
•Competition
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Performing External Audit – Variables
•Market share
•Breadth of competing products
•World economies
•Foreign affiliates
•Proprietary account advantages
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Performing External Audit – Variables
•Price competitiveness
•Technological advancements
•Interest rates
•Pollution abatement
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Performing External Audit
External Factors
Measurable
Long-term Orientation
Applicable to Competing Firms
Hierarchical
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Industrial Organization (I/O) View
– Industry factors more important than internal factors
Performance determined by industry forces
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Economies of Scale
Industry Properties
Barriers to Market Entry
Product Differentiation
Level of Competitiveness
I/O Perspective Firm Performance
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Social, Cultural, Demographic, and Environmental Forces
Major Impact –
• Products
• Services
• Markets
• Customers
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Social, Cultural, Demographic, and Environmental Forces
Facts
• World population approaching 7 billion
• World population = 8 billion by 2028
• World population = 9 billion by 2054
• U.S. population < 300 million
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• Trends– More American households with people living
alone– Aging Americans – affects all organizations– Population shift to the south and west– Decimation and degradation of the natural
environment
Social, Cultural, Demographic, and Environmental Forces
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Global trends
• China’s labor rates less than Mexico
• China provides more site location incentives than Mexico
Social, Cultural, Demographic, and Environmental Forces
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Social, Cultural, Demographic, and Environmental Forces
•More educated consumers
•Aging population
•Minorities more influential
•Local rather than federal solutions
21st Century Trends
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Key Social, Cultural, Demographic, and Environmental Variables
Number of marriages & divorces
Number of special interest groups
Number of births & deaths
Immigration & emigration rates
Childbearing rates
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Actuarial Rates
Monitor KeyVariables
Per Capita Income
Attitudes Toward Business
Avg. Disposable Income
Social, Cultural, Demographic, and Environmental Forces
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Consumer Behavior
Monitor KeyVariables
Ethical Concerns
Attitudes Toward Saving
Racial Equality
Social, Cultural, Demographic, and Environmental Forces
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Avg. Educational Level
Monitor KeyVariables
Governmental Regulation
Attitudes Toward Customer Service
Attitudes Toward Quality
Social, Cultural, Demographic, and Environmental Forces
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Waste Management
Monitor KeyVariables
Air & Water Pollution
Ozone Depletion
Endangered Species
Social, Cultural, Demographic, and Environmental Forces
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Political, Governmental, and Legal Forces
Key opportunities & threats Antitrust legislation Tax rates Lobbying efforts Patent laws
Government Regulation
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Key Political, Governmental, and Legal Variables
Special tariffs
Tax law changes
Voter participation rates
Regulation/deregulation
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Key Political, Governmental, and Legal Variables (cont’d)
Environmental protection laws
Changes in patent laws
Equal employment legislation
Government subsidies
Number of patents
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Key Political, Governmental, and Legal Variables (cont’d)
Import/export regulations
Global relationships
Political conditions
Location and severity of terrorist activity
Anti-trust enforcement
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Technological Forces
Major Impact –
• Internet
• Communication
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Competitive Forces
Collection & evaluation of data on competitors is essential for successful strategy formulation
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Competitive Forces
•Strengths
•Weaknesses
•Capabilities
•Opportunities
•Threats
•Objectives
•Strategies
Identifying Rival Firms
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Key Questions Concerning Competitors
Their objectives and strategies
Their weaknesses
Their responses to external variables
Their vulnerability to our alternative strategies
Their strengths
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Key Questions Concerning Competitors (cont’d)
Entry and exit of firms in the industry
Our product/service positioning
Key factors for our current position in industry
Sales/profit rankings of competitors over time
Our vulnerability to strategic counterattack
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Ch 3 -61Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall
Key Questions Concerning Competitors (cont’d)
The threat of substitute products/services
Nature of supplier & distributor relationships
Should we keep our strategies secret fromemployees and stakeholders?
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Competitive Forces
1. Market share matters
2. Understand what business you are in
3. Broke or not, fix it
4. Innovate or evaporate
7 Characteristics of Most Competitive U.S. Firms:
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Competitive Forces
5. Acquisition is essential to growth
6. People make a difference
7. No substitute for quality
7 Characteristics of Most Competitive U.S. Firms:
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The Five-Forces Model of Competition
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The Five-Forces Model
Most powerful of the five forces Focus on competitive advantage of
strategies
Rivalry Among Competing Firms
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The Five-Forces Model
Barriers to entry are important Quality, pricing, and marketing can
overcome barriers
Potential Entry of New Competitors
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The Five-Forces Model
Pressures increase when consumers’ switching costs decrease
Firm’s plans for increased capacity & market penetration
Potential Development of Substitute Products
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The Five-Forces Model
Large number of suppliers & few substitutes affects intensity of competition
Backward integration can gain control or ownership of suppliers
Bargaining Power of Suppliers
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The Five-Forces Model
Customers concentrated or buying in volume affects intensity of competition
Consumer power is higher where products are standard or undifferentiated
Bargaining Power of Consumers
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Conditions Where Consumers GainBargaining Power
• If they can inexpensively switch• If they are particularly important• If sellers are struggling in the face of falling
consumer demand• If they are informed about sellers’ products,
prices, and costs• If they have discretion in whether and when
they purchase the product
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Industry Analysis: The External Factor Evaluation (EFE) Matrix
CompetitivePoliticalCultural
Technological
EnvironmentalSocial
Governmental
DemographicEconomic
Summarize & Evaluate
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HOW TO DEVELOP AN EFE MATRIX
1. Identify a list of KEY external factors (critical success factors).
2. Assign a weight to each factor, ranging from 0 (not important) to 1.0 (very important).
3. Assign a 1-4 rating to each critical success factor to indicate how effectively the firm’s current strategies respond to the factor. (1 = response is poor, 4 = response is extremely good)
4. Multiply each factor’s weight by its rating to determine a weighted score.
5. Sum the weighted scores.
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Total weighted score of 4.0• Organization response is outstanding to threats and
weaknesses
Industry Analysis EFE
Total weighted score of 1.0 Firm’s strategies not capitalizing on opportunities or
avoiding threats
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Industry Analysis EFE
Understanding the factors used in the EFE Matrix is more important than the actual weights and ratings assigned.
Important –
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Industry Analysis: Competitive Profile Matrix (CPM)
Identifies firm’s major competitors and their strengths & weaknesses in relation to a sample firm’s strategic positions
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CPM
• Competitive profile matrix is an essential strategic management tool to compare the firm with the major players of the industry. • Competitive profile matrix show the clear picture to the firm about their strong points and weak points relative to their competitors.
• The CPM score is measured on basis of critical success factors, each factor is measured in same scale mean the weight remain same for every firm only rating varies. The best thing about CPM that it include your firm and also facilitate to add other competitors make easier the comparative analysis
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CPM (Conti…)
Critical Success FactorsCritical success factors are extracted after deep analysis of external and internal environment of the firm. Obviously there are some good and some bad for the company in the external environment and internal environment.The higher rating show that firm strategy is doing well to support this critical success factors and lower rating means firm strategy is lacking to support the factor.
RatingRating in CPM represent the response of firm toward the critical success factors. Highest the rating better the response of the firm towards the critical success factor ,rating range from 1.0 to 4.0 and can be applied to any factor. There are some important point related to rating in CPM.Rating is applied to each factor.•The response is poor represented by 1.0•The response is average is represented by 2.0•The response is above average represented by 3.0•The response is superior represented by 4.0
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CPM (Conti…)WeightWeight attribute in CPM indicates the relative importance of factor to being successful in the firm’s industry. The weight range from 0.0 means not important and 1.0 means important, sum of all assigned weight to factors must be equal to 1.0 otherwise the calculation would not be consider correct.
Weighted ScoreWeighted score value is the result achieved after multiplying each factor rating with the weight.
Total Weighted ScoreThe sum of all weighted score is equal to the total weighted score, final value of total weighted score should be between range 1.0 (low) to 4.0(high). The average weighted score for CPM matrix is 2.5 any company total weighted score fall below 2.5 consider as weak. The company total weighted score higher then 2.5 is consider as strong in position.The other dimension of CPM is the firm with higher total weighted score considered as the winner among the competitors
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Industry Analysis CPM
Just because one firm receives a 3.2 rating and another receives a 2.8 rating, it does not follow that the first firm is 20 percent better than the second.
Important –
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STRATEGIC MARKETINGChapter 3
INTERNAL ANALYSIS
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Chapter Outline
The Nature of an Internal Audit
The Resource-Based View (RBV)
Integrating Strategy & Culture
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Chapter Outline (cont’d)
Management
Marketing
Opportunity Analysis
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Chapter Outline (cont’d)
Finance/Accounting
Production/Operations
Research & Development
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Chapter Outline (cont’d)
Management Information Systems
The Internal Factor Evaluation (IFE) Matrix
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Key Internal Forces
Distinctive Competencies:
Firm’s strengths that cannot be easily matched or imitated by competitors
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Key Internal Forces
Distinctive Competencies:
Strategies designed to improve on a firm’s weaknesses and turn to strengths
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Internal Audit
•Information from:• Management
• Marketing
• Finance/accounting
• Production/operations
• Research & development
• Management information systems
Parallels process of external audit
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Internal Audit
Coordination & understanding among managers from all functional areas
Key to Organizational Success
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Resource Based View (RBV)
Three All-Encompassing Categories
1. Physical resources
2. Human resources
3. Organizational resources
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U.S. Versus Foreign Cultures
To successfully compete in world markets, U.S. managers must obtain a better knowledge of historical, cultural, and religious forces that motivate and drive people in other countries.
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Management
Functions of Management
1. Planning
2. Organizing
3. Motivating
4. Staffing
5. Controlling
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Management
Planning
Stage When Most ImportantFunction
Strategy Formulation
Organizing Strategy Implementation
Motivating Strategy Implementation
Staffing
Controlling
Strategy Implementation
Strategy Evaluation
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Management
Planning
Beginning of management process
Bridge between present & future
Improves likelihood of attaining desired results
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Planning
Forecasting
Establishing objectives
Devising strategies
Developing policies
Setting goals
Management
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Management
Organizing
Achieves coordinated effort
Defines task & authority relationships
Departmentalization
Delegation of authority
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Organizing
Organizational designJob specializationJob descriptions
Job specificationsSpan of control
Unity of commandCoordination
Job designJob analysis
Management
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Management
Motivating
Influencing to accomplish specific objectives
Communication – major component
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Motivating
LeadershipCommunication
Work groupsJob enrichmentJob satisfaction
Needs fulfillmentOrganizational change
Morale
Management
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Management
Staffing
Personnel management
Human resource management
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Staffing
Wage & salary admin.Employee benefits
InterviewingHiring
DischargingTraining
Management developmentAffirmative action
Labor relations
Management
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Management
Controlling
Establishing performance standards
Ensure actual operations conform to planned operations
Taking corrective actions
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Controlling
QualityFinancial
SalesInventoryExpenseRewardsSanctions
Management
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Marketing
Customer Needs/Wants for Products/Services
1. Defining
2. Anticipating
3. Creating
4. Fulfilling
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Marketing
Marketing Functions
1. Customer analysis
2. Selling products/services
3. Product & service planning
4. Pricing
5. Distribution
6. Marketing research
7. Opportunity analysis
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Customer Analysis
Customer surveys
Consumer information
Market positioning strategies
Customer profiles
Market segmentation strategies
Marketing
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AdvertisingSales
PromotionPublicity
Sales force managementCustomer relations
Dealer relations
Marketing
Selling Products/Services
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Test marketingBrand positioning
Devising warranteesPackaging
Product features/optionsProduct style
Quality
Marketing
Planning Product/Service
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Forward integrationDiscounts
Credit termsCosts
Marketing
Pricing
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WarehousingChannelsCoverage
Retail site locationsSales territoriesInventory levelsTransportation
Marketing
Distribution
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Data collectionData input
Data analysis
Marketing
Marketing Research
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Assessing costs
Assessing benefits
Assessing risks
Cost/benefit/risk analysis
Marketing
Opportunity Analysis
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Marketing
Opportunity Analysis
1. Are markets segmented effectively?
2. Is the organization positioned well among competitors?
3. Has the firm’s market share been increasing?
4. Are the distribution channels reliable & cost effective?
5. Is the sales force effective?
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Marketing
Opportunity Analysis
6. Does the firm conduct market research?
7. Are product quality & customer service good?
8. Are the firm’s products/services priced appropriately?
9. Does the firm have effective promotion, advertising, and publicity strategies?
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Marketing
Opportunity Analysis
10. Are the marketing, planning, and budgeting effective?
11. Do the firm’s marketing managers have adequate experience and training?
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Finance/Accounting
Determining financial strengths & weaknesses key to strategy formation
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Finance/Accounting
Finance/Accounting Functions
1. Investment decision (Capital budgeting)
2. Financing decision
3. Dividend decision
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Production/Operations
Production/Operations Functions
Process
Capacity
Inventory
Workforce
Quality
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Research & Development
Research & Development Functions
Development of new products before competitors
Improving product quality
Improving manufacturing processes to reduce costs
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Management Information Systems
Purpose
Improve performance of an enterprise by improving the quality of managerial decisions
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Internal Factor Evaluation (IFE) matrix
It is a strategic management tool for auditing or evaluating major strengths and weaknesses in functional areas of a business. IFE is use for internal audit of functional area of business such as finance, marketing, IT, operations, accounts and others depend upon the nature of business and its size.
Internal Factors
Internal factors are extracted after deep internal analysis of the company. Internal factors are divided into two categories namely strengths and weaknesses.
Strengths: Strengths are the strong areas or attribute of the company, which are used to overcome weakness and capitalize to take advantage of the external opportunities available in the industry.
Weakness: These are the weak factors which needs to be improved in future otherwise if they exposed to the competitors they can take the advantage of it.
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Rating
The range of rating starts from minimum 1.0 which is worst and maximum 4.0 which is the best factor of the company.Rating is applied to each factor.Major weakness is represented by 1.0Minor weakness is represented by 2.0Minor strength represented by 3.0Major Strength represented by 4.0
Weight
Weight attribute in IFE matrix indicates the relative importance of factor to being successful in the firm’s industry. The weight range from 0.0 means not important and 1.0 means important, sum of all assigned weight to factors must be equal to 1.0 otherwise the calculation would not be consider correct.
Weighted Score
Weighted score value is the result achieved after multiplying each factor rating with the weight.
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Total Weighted Score
The sum of all weighted score is equal to the total weighted score, final value of total weighted score should be between range 1.0 (low) to 4.0(high). The average weighted score for IFE matrix is 2.5, any company total weighted score fall below 2.5 consider as weak. The company total weighted score higher then 2.5 is consider as strong in position.
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Steps to develop IFE Matrix
1. List key internal factors as identified in the internal audit process. Use a total of from ten to twenty internal factors, including both strengths and weaknesses. List strengths first and then weaknesses. Be as specific as possible, using percentages, ratios, and comparative numbers.
2. Assign a weight that ranges from 0.0 (not important) to 1.0 (all important) to each factor. The weight assigned to a given factor indicates the relative importance of the factor to being
successful in the firm’s industry. The sum of all weights must equal 1.0.
3. Assign a 1 to 4 rating to each factor to indicate whether that factor represents a major weakness (rating = 1), a minor weakness (rating = 2), a minor strength (rating = 3), or a
major strength (rating = 4). Note that strengths must receive a 4 or 3 rating and weaknesses must receive a 1 or 2 rating. Ratings are thus company based, whereas the weights in Step 2 are industry based.
4. Multiply each factor’s weight by its rating to determine a weighted score for each variable.
5. Sum the weighted scores for each variable to determine the total weighted score for the organization.
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There are few examples of internal factors of the company.
Strengths
Strong marketing and promotionBest product quality
Strong Financial conditionHigh Market ShareHigh value assets
WeaknessHigh cost operations
Manufacturing cost is highHigh employee turnover rate
Expensive productsLoss in joint venture
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STRATEGIC MARKETINGChapter 4
STRATEGIES IN ACTION
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Types of Strategies
Vertical IntegrationStrategies
Forward Integration
BackwardIntegration
HorizontalIntegration
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ForwardIntegration
Southwest Airlines selling tickets through Galileo
BackwardIntegration
Hilton Hotels could acquire a large furniture manufacturer
HorizontalIntegration
Huntington Bancshares and Sky Financial Group merged
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Types of Strategies
IntensiveStrategies
MarketPenetration
MarketDevelopment
ProductDevelopment
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MarketPenetration
McDonald’s selling millions of “Shrek the Third” items to a healthier image
Market Development
Burger King opened its first restaurant in Japan
ProductDevelopment
Google introduced “Google Presents” to compete with PowerPoint
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Types of Strategies
DiversificationStrategies
Related Diversification
Unrelated Diversification
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Related Diversification
MGM Mirage is opening its first non-casino luxury hotel
Unrelated Diversification Ford Motor Company entered the
industrial bank business
Retrenchment Discovery Channel closed 103 mall-based and stand-alone stores
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Types of Strategies
DefensiveStrategies
Retrenchment
Divestiture
Liquidation
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Divestiture Whirlpool sold its struggling Hoover floor-care business to Techtronic Industries
Liquidation Follow Me Charters sold all of its assets and ceased doing business
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More Strategies.
There are five significant strategies to consider when planning your marketing approach. Position yourself as a;1. Market Leader,2. Challenger, 3. Follower,4. Niche marketer5. Form an alliance to attack the market with increased power.
1. Market Leader: Maintain your position as market leader in one of three ways. First; expand the total market by increasing the total number of users.
Second; defend your current share of the market. You can enhance your product offerings, as in as a supermarket adding banking services or video rental. Another option is to reduce weak products or services and build up the strongest ones.
Third; expand your market share by aggressively attacking your competitor through a variety of strategies. Offer coupons, promote sales and advertise benefits your competitor doesn't have, such as longer shop hours or more personalized service.
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2. Market Challenger: If you are the challenger in the market, look for a small, unmet need that your business can fill. (Daihatsu Cuore)
3. Market Follower: As a market follower, capitalize on a market already identified and researched by your competitors. Watch your competitors for weaknesses, and then provide better solutions such as longer store hours or free training. Good examples include full-service restaurants offering take-out or delivery, interior design service included with furniture purchase.
4. Market Niche: Becoming a niche marketer enables you to research and respond better to a smaller, fine-tuned segment. This works especially well for small companies who are nimble and able to make quick decisions in reaction to market trends. Serve the demographic of women ages 55 to 70. As a consultant, choose the niche of selling only to engineering consulting firms in the $3 to $5 million revenue range.
5. Alliance Marketing: Strengthen your marketing by partnering with a product, service or company that is compatible with, but not a competitor of, your business. Your child care center may partner with any number of after-school activities to offer an enriched experience. Talk with karate studios, dance studios and gyms.
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Emphasis on New Product-Market Growth
Prospector
Units primarily concerned with attaining growth
through aggressive pursuit of new product-market opportunities
Analyzer
Units with strong core business,
actively seeking to expand into related
product-markets with differentiated
offerings
Defender
Units primarily concerned with maintaining a differentiated
position in mature markets
Reactor
Units with no clearly defined product-
market development or competitive
strategy
Units with strong core business,
actively seeking to expand into related
product-markets with low-cost
offerings
Units primarily concerned with
maintaining a low-cost position in mature markets
Heavy Emphasis No Emphasis
Com
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BCG Growth - Share Matrix1.Star: Leader [i.e. high market share] of high growth market is called star.These SBUs are net user of cash, because they always require heavy investment to finance rapid growth and to sustain market share. When the product comes to mature stage, then the growth slow down and they turn to cash cow.
2. Cash Cow: Cash cows are low growth but high market share (Market leader) businesses or products.Their high earnings, coupled with their depreciation, represent high cash inflows and they need very little in the way of reinvestment. And thus, they are the net provider of cash. Surplus cash are used for Research and Development and to support other SBUs that need investment.
C. Question mark: Products in a growth market with low market share are categorized as Question Mark.Because of growth, these SBUs require a lot of cash to hold their market share and let alone to increase it. If nothing is done to increase the market share, a Question mark will simply absorb large amount of cash in the short run and later, as growth slow down, become a dog. Thus, unless something is done to change its perspective, it becomes a cash trap.
Management has to decide which question marks should try to build into stars and which should be phased out.
D. Dog: Dog are low growths, low market share SBUs. They may generate enough cash to maintain themselves, but do not promise to be large source of cash.Most often case, it should be liquidate and try with Question mark SBUs for investment.
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BCG Growth Share Matrix
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