Strategy Models

• Market Entry/Exit• Shared Experience• Portfolio Models

Strategy Process

Three elements of strategy process—

• Market opportunities/Business strength analyses

• Strategic marketing analyses

• Strategy generation and evaluation

A Marketing Oriented Approach to Strategy Formulation and Evaluation

b. Analysis of Business Strengths & Weaknesses

a. Analysis of Market & Environmental Opportunities and Threats

c. Segment by Positioning Analysis

d. Opportunities/Strengths of Each of the Segments/Positionings

e. Synergy Analysis

f. Functional Requirement Analysis

g. Portfolio Analysis

j. Planning the Implementation & Control Programs

i. Objectives & Strategy Evaluation—Including the Marketing Program

h. Objective & Strategy Generation— Including the Marketing Program

I. Market Opportunities—Business Strength Analysis

II. The Added Strategic Marketing Dimension

III. Objectives &Strategy Generation& Evaluation Process

No

Yes

No

No

No

No

No

No

Choosing a Forecasting MethodObjective data available?

New product situation?

Large changes in environment?

Good information on relationships?

Much data on causal variables?

Major data problems?

Yes

No

Yes

Yes

Yes

Yes

Judgmental method

New product methods (ch. 7)

Extrapolation/Time Series methods

Neural nets

Causal method

Segmentation/Classification methods (ch.

3)

Forecasting Methods

MarketJudgmental and Survey Time Causal

Analysis Series Analyses

Salesforce Buyer Naive methods Regression analysis composite intentions Moving averages Econometric modelsJury of executive Product tests Exponential Input-output opinion smoothing analysisDelphi methods Box-Jenkins MARMA

method Neural networksDecompositional methods

Product Life Cycle

Sales and Profits ($)

Time

Sales

Profit

Introduction Growth Maturity Decline

Technology Substitution

Mechanical Calculator Demand

Sales

Time

Demand for Computing

Abacus Demand

Hand-Held Calculator Demand

Possible Business Strategies Guiding New Product Development

InvestmentLevel

Source: Booz Allen & Hamilton Inc..

High

Low

Business Strategy

Preempt Market Segment

Establish Foothold in New

Market

Offset Seasonal Cycle

Combat Major Competitive

Entry

Increase Market Penetration

Utilize Excess Capacity

Utilize By-Product of

Existing Products

Capitalize on Existing Markets

Life Cycles and Product Generations

Sales

Time

Demand for Electronic Hand

Calculators

Successive Generationsof ProductsP1, P2, P3

(smaller, faster, cheaper forms)

P1 P2 P3

Federal Express—Product Life Cycle

“Take away our planes and we’d be just like

anyone else”

“When it absolutely, positively has to be

there overnight”

“Why fool around with anyone else?”

1972

• P-1• SAS

• System selling• Mail room• Account management• Push

• Panic purchase• Exec/secretary• Media advisor• Pull

• Market management• Back to the mail room• Adv. stress on reliability• High share of high volume accounts

• Courier-Pak• Overnight letter

• Up to 150 lbs.• 10:30 a.m. delivery• Saturday service

• Zapmail

• Special handling• Partsbank• Europe/Asia

• International

1989

The Life Cycles ofGillette Razor Blades

Cum.Sales

1900 1990

A

B

C

1930 1940

D

EF

GH

I

J

1960 1970 1980 1994

K

Blade Year Blade Year

A. Original Gillette blade 1903 G. Platinum-Plus blade 1969

B. Blue blade 1932 H. Trac II 1971 C. Thin blade 1938 I. ATRA 1977 D. Super Blue blade 1960 J. Sensor 1990E. Stainless Steel blade 1963 K. Sensor Excel 1994F. Super Stainless Steel blade 1965

The Learning Curveand Scale Economies

Repetition(as measured by an increase in

cumulative volume)

Growth(as measured by an increase in

volume)

CausesCauses Causes

An Increase in Experience,Manifested as Learning

1.Operator innovations2.Management innovations3.Process innovations

An Increase in Experience,Manifested as Economies of Scale

1.Reducation of excess capacity2.Off-the-shelf scale-dependent substitutions3.Procurement economies

Which in turn cause

Cost Reductions

A Price-Cost Relationship

Unit Price and Cost

Total Accumulated Volume

Cost

A B C D

Price

New Product Successvs Entry Time

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90

0

10

20

30

40

50

60

Entry Delay Time (in months)

First Year Market Share

Original

Reformulated

Decision Analysis• Structuring the problem

• Assigning probability

• Assigning payoff

• Analyzing the problem

New Product IntroductionDecision Tree

Consequences ($1,000s)

+84

–66

–16+84

–66

–16+84

–66

–16+100

–50

+10

+54 C

–16 C

–6 C

–16 C

–51 C

–16 C

–10 C

0C

10D

–16 D

–6 D

+54D

10C

8C

10D

Take Mark

et Survey

No Market Survey

Great Survey Results

(0.3)

Good Survey Results(0.3)

No Additional Information (1.0)

Poor Survey Results (0.4)

Make New Product

Don’t Make

Make New Product

Don’t Make

Make New Product

Don’t Make

Make New Product

Don’t Make

Sales High (0.8)

Sales Low (0.2)

No Sales (1.0)

Sales High (0.8)

Sales Low (0.2)

No Sales (1.0)

Sales High (0.8)

Sales Low (0.2)

No Sales (1.0)

Sales High (0.8)

Sales Low (0.2)

No Sales (1.0)

Time Sequence of Events

The Shared Experience Approach—PIMS

• The PIMS (profit impact of marketing strategy) project began in 1960 at the General Electric Company as an intra-firm analysis of the relative profitability of its businesses.

• Concept: Pooled experiences from a diversity of successful and unsuccessful businesses will provide useful insights and guidance about the determinants of business profitability.

• “Business” refers to a strategic business unit, which is an operating unit selling a distinct set of products to an identifiable group of customers in competition with a well defined set of competitors.

• By mid 1980s (when data collection ended) the database of 100 data items per business included about 3,000 businesses from 450 participating firms.

Relative Quality, Market Share and Profitability—PIMS

Superior67

33Inferior

Small

13%

28%

Large

Relative Quality (percentile)

Market Share

ROI (%)37

29

26

26

20

18

18

16

10

Some PIMS Principles• Some market

characteristics associated with high profitability:

– A growing market– Early life cycle– High inflation– Few suppliers– Small purchase levels– Low unionization– High exports/low imports

• Some strategic factors associated with high profitability:

– High market share

– Low relative costs

– High perceived quality

– Low capital intensity

– Intermediate level ofvertical integration

A PIMS LIM Report

ThisBusiness Losers Winners

(%) (%) (%)

Actual ROI 18.0 5.9 26.2

Cash flow/investment –3.0 –1.3 4.7

Total R&D/sales 6.2 4.8 2.8

Total marketing/sales 1.2 9.1 11.4

Relative % new products 0.0 3.7 –2.6

Fixed-capital intensity 44.0 57.0 33.1

McKinsey/GE Approach• Two key strategic dimensions:

– 1.Industry attractiveness

– 2.Business strength

• Decompose dimensions into key drivers

– Evaluate SBUs by driver

• Use “map” to drive strategy

The McKinsey/GE Business-Assessment Array

Medium

Selective Growth

(G)

Selectivity(Y)

Harvest(R)

Industry AttractivenessHigh

Investment & Growth

(C)

Selective Growth

(G)

Selectivity(Y)

Low

Selectivity(Y)

Harvest(R)

Harvest(R)

Low

Medium

High

BusinessStrengths

McKinsey/GE andCountry Entry for Ford Tractors

Industry (Country)

Attractiveness

Business Strength

Increasing Attractiveness

High

High

Low

Low

• Argentina • Kenya• Pakistan

• Brazil

• Spain

Australia • • New Zealand