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strategic marketing planning 3 steps planning = systematic approach 1. Vision and Mission What business are we in? 2. strategic objectivesWhere do we want to go? 3. How get there? estimation of the planning gap and problem diagnosis search for strategic alternativesAnsoff's growth matrixPorter's three generic stagesThe BCG modelThe GE model strategy evaluation and selection estimating financial consequences/How can progress be measured?
vision and mission statement vision= mental image of the successful accomplishment of the mission where do we wish to go? what we wish to become? short idealistic and imaginative inspires enthusiasm ambitious Mission= statement of organizations purpose - 'invisible guiding hand' who are we and what is the overall purpose of our business? states what the organization wants to accomplish in the larger environment reflects the unique qualities of the programme
mission statement questions (4) 3 drivers Questions: what is our business? who are our constituencies? what values do we provide to our stakeholders? what should our business be in the future? 3 drivers: heritagerealistic image of the company's history (successes and failures) resourcesset a path that is compatible with realistic resources environmentintern & extern happenings that currently affect the company (long-term)
vision statement BHAG assets needs Collins and Porras (2002) = envisioned future 10-30-year big hairy audacious goal (BHAG) + vivid description unifying focal point to effort catalyst for team spirit clear finish line energizing, engaging vision needs clear - takes little or no explanation focus on customer needs give value to shareholders create a picture - vivid descriptionI will build a motorcar ...
strategic objectives definition specified in terms of (4) conflicts turn broad mission into detailed supporting objectives for each level of management clear defined measurable performance standards specify broad mission goal must be imaginable - pure financial goals give too little guidance eg: euro sales, market share, ROI must be specified in terms of: Performance dimensionthe performance dimension being measured Measuresmeasures most appropriate for the performance dimension target valuetarget value for each measure timetime by which the target should be achieved conflicts within different objectives level- higher level: providing opportunities for employees- lower lever: emphasizing teamwork senior management job: keep the objectives compatible with mission statement!
estimation of the planning gap 2 technical terms reference projection = future with absence of planned change target projection = future with planned change gap = planning gap actions:- revise objectives in downward direction- move company off the projection curve towards desired curve planning gap at all levels! corporate level:cash flow, economic value added, ROI, earnings per share, sales and market share, etc. marketing level:sales, market share, costs, market penetration, buyer attitudes, etc.
planning gap - problem diagnosis large planning gap = only the symptom find the problem!!! only then you can find an actual solution example of Starbucks entering the Indian market
close the planning gap search for strategic alternatives 5 guides for reflective planning 4 approaches companies need growth!compete more effectively, satisfy stakeholders, attract talent objectives manage 'profitable growth' reflective planning guided by: situation as revealed by the performance gap perceived problem SWOT (historical/situational analysis) current strategies and policies existing capabilities or competencies 4 approaches: Ansoff's generic strategies for growth Porter's three generic strategies BCG Portfolio Matrix Model GE Multifactor Portfolio Matrix
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Ansoff's generic stages for growth generic strategies = recurring strategy patterns within al organizations planning gap can be filled with Ansoff's 4 expansion-strategies current products new products current markets market penetration s. product development s. new markets market development s. diversification strategies
Ansoff - market penetration two options MEB methods up-left = current product + current market penetration strategy!- can be very successful when technological or production advantage- can be very costly if no real cost advantage two options: increase market share most basic - win new or competitors customers - enhance marketing mixcreate MEB (market entry barriers for new competitors) increase product share - frequency of use- quantity of use- new applications Market entry barriers (MEB) by: cost advantage high switching costs high marketing expenditures tendencies to retaliate eg: Under Armour
Ansoff's - Product development strategies 3 alternatives 3 dangers up-right = new product + current market also called technology development strategy 3 alternatives product improvements product-line extensions new products dangers: cannibalization if new products are cheaper! easy to copy (even cheaper maybe) products are not different enough
Ansoff's - market development strategies 2 options down-left = current product + new market 2 options: geographic expansion new segments/customer groups eg Under Armour - new: Woman
Ansoff's - diversification strategies down-right = new product + new market = diversification! 3 options vertical integrationforward or backward (supplier/retailer) diversification into related businesses(concentric diversification) diversification into unrelated businesses(conglomerate diversification- offset cyclical downturns in one area with cyclical upturns in another area- no synergy, or mutual benefits- no risk (split risk)- eg Generic Electric Conglomerate
calculate: - market share - degree of market penetration market share = firm sales / total (served) market) x 100% degree of market penetration =total (served) market / market potential x 100%
diversification vs differentiation diversification = going into different businesses differentiation = differentiate your same products from competitors ones
Ansoff's - diversification strategies (1957) down-right = new product + new market = diversification! 3 options vertical integrationforward or backward (supplier/retailer) diversification into related businesses(concentric diversification) diversification into unrelated businesses(conglomerate diversification- offset cyclical downturns in one area with cyclical upturns in another area- no synergy, or mutual benefits- no risk (split risk)- eg Generic Electric Conglomerate
Porters 3 (4) generic stages 4 positions in the industry 5 forces from the industry Porter 1985 understand the market - which available competitive niche should you attempt to dominate? distinctive advantage low cost high cost business scope broad cost leadership differential advantage narrow focused cost advantage focused differentiation result = defensible competitive position porters 5 forces that drive industries: rival companies bargaining power of suppliers bargaining power of buyers threat of substitute products or services threat of new entrants
Porters 3 (4) generic strategies 4 positions in the industry 5 forces from the industry Porter 1985 understand the market - which available competitive niche should you attempt to dominate? distinctive advantage low cost high cost business scope broad cost leadership differential advantage narrow focused cost advantage focused differentiation result = defensible competitive position porters 5 forces that drive industries: rival companies bargaining power of suppliers bargaining power of buyers threat of substitute products or services threat of new entrants
porters generic strategies - explained + examples! cost leadership: up left = low cost + broad market eg: Amazon, Dell, Walmart similar products but cheap differential advantage: up-right = high cost + broad market different products thus expensive eg: Apple, harley davindson focused cost advantage: donw-left = low costs + focused/narrow market Aldi - serves only price sensitives focused differentiation: down-right = high cost + focused/narrow market Ducati, Ferrari
porters generic strategies - explained + examples! cost leadership:cost leadership strategy up left = low cost + broad market eg: Amazon, Dell, Walmart similar products but cheap differential advantage:differentiation strategy up-right = high cost + broad market different products thus expensive eg: Apple, harley davindson focused cost advantage:cost focused strategy donw-left = low costs + focused/narrow market Aldi - serves only price sensitives focused differentiation:focused diffenentiation strategy down-right = high cost + focused/narrow market Ducati, Ferrari
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the BCG portfolio matrix model 2 steps 2 issues of potential value the matrix two steps 1. identify key SBUs2. Portfolio analysis for each SBU -> corresponding resource allocation decisions addressing two issues of potential value now: relative market share future: market growth rate market growth rate high star question mark low cow dog high low relative market share
Classification of the BCG Boxes star: up-left = high growth + high share needs heavy investment negative cash flow will generate cash in the (distant) future eg General Electrics kept investing in plastic cash cow: down-left = low growth + high share needs little investment produces a lot of cash - positive cash flow foundation on what everything depends question mark: up-right = high growth + low share intense initial capacity expenditures high R&D costs negative to low earnings negative cash flow dogs: down-right = low growth + low share increasingly deplete capacity high to low earnings neutral/positive cash flow
implied strategies for BCG boxes star:continue to increase market share cash cow:maintain share and leadership question mark: assess chances of controlling segment+ go after share- redefine business or withdrawal dog:if not required in portfolio plan withdrawal so as to maximize cashflow
potential mistakes BCG Matrix (3) 1. overinvesting in low-growth segments (lack of objectivity and hard analysis) 2. underinvesting in high-growth segments 3. misjudging the segment growth rate (poor market research
advantages BCG Matrix approach (5) evaluate each SBU - tailored objectives for each business stimulates to search for externally focused empirical data raises issue of cash flow balancing -> expansion and growth potent tool for analyzing competitor and predicting their behavior strategic context also for acquisitions and divestitures
calculate - relative market share - market growth rate BCG Matrix relative market share=focal company market share / largest competitors market share logharithmic scale share relative to largest competitor horizontal market growth rate % linear scale vertical
advantages (5) and disadvantages (4) BCG Matrix approach pros evaluate each SBU - tailored objectives for each business stimulates to search for externally focused empirical data raises issue of cash flow balancing -> expansion and growth potent tool for analyzing competitor and predicting their behavior strategic context also for acquisitions and divestitures cons outcome varies on definition oversimplification (only two variables) assumes all SBUs are independent cash flow is not allways the most important
The GE Multifactor Portfolio Analysis how does it look strategy/zones better than BCG model - multifactor analysis! business strength strong medium weak high invest/grow invest/grow selectivity/earnings market attractiveness medium invest/grow selectivity/earnings harvest/divest low selectivity/earnings harvest/divest harvest/divest Zone 1: top-left - strong, interesting market- Invest/grow- BUILD, equivalent to stars in BCG Zone 2: diagonal/ center- uncertain how the market will develop- selectivity/earnings- HOLD strategy, equivalent to cash cows Zone 3: bottom-right- harvest/sell strategy - markets are not attractive anymore- stay or not?- be careful - sometimes business can be complementary for other products
GE Multifactor portfolio matrix: Determinant factors business strength (12) market share share growth product quality brand reputation distribution network promotional effectiveness productive capacity productive efficiency unit costs material supplies R&D performance managerial personnel
GE Multifactor portfolio matrix: Determinant factors business strength (12) market share share growth product quality brand reputation distribution network promotional effectiveness productive capacity productive efficiency unit costs material supplies R&D performance managerial personnel
GE Multifactor portfolio matrix: Determinant factors market attractiveness (8) overall market size annual market growth rate historical profit margin competitive intensity technological requirements inflationary vulnerability energy requirements environmental impact
The GE Multifactor Portfolio Analysis how does it look strategy/zones better than BCG model - multifactor analysis! from Mc Kinsey for General Electrics business strength strong medium weak high invest/grow invest/grow selectivity/earnings market attractiveness medium invest/grow selectivity/earnings harvest/divest low selectivity/earnings harvest/divest harvest/divest Zone 1: top-left - strong, interesting market- Invest/grow- BUILD, equivalent to stars in BCG Zone 2: diagonal/ center- uncertain how the market will develop- selectivity/earnings- HOLD strategy, equivalent to cash cows Zone 3: bottom-right- harvest/sell strategy - markets are not attractive anymore- stay or not?- be careful - sometimes business can be complementary for other products
The GE Multifactor Portfolio Analysis how does it look strategy/zones better than BCG model - multifactor analysis! from Mc Kinsey for General Electrics applicable to product, markets, SBU or higher level! business strength strong medium weak high invest/grow invest/grow selectivity/earnings market attractiveness medium invest/grow selectivity/earnings harvest/divest low selectivity/earnings harvest/divest harvest/divest Zone 1: top-left - strong, interesting market- Invest/grow- BUILD, equivalent to stars in BCG Zone 2: diagonal/ center- uncertain how the market will develop- selectivity/earnings- HOLD strategy, equivalent to cash cows Zone 3: bottom-right- harvest/sell strategy - markets are not attractive anymore- stay or not?- be careful - sometimes business can be complementary for other products
advise to successful introduction of a chosen portfolio analysis to your company introduced move quickly to establish legitimacy educate line managers redefine SBUs (basis for analysis) use it pragmatically, don't haggle over fancy descriptions make top management acknowledge the use seek top management time for reviewing different business using the framework rely on a flexible informal management process tie resources allocation to the business plan consider strategic expenses and human resources as explicitly as capital investment plan explicitly for new business development make clear strategic commitments to few selected technologies or markets early
strategy evaluation criteria (7) sustainability is there a sustainable advantage? validity are the external assumptions realistic? feasibility do we have the skills, resources, and commitment? Internal consistency does the strategy hang together?policies, mission, product portfolio etc vulnerability what are the risks and contingencies?will the resource be available? workabilitycan we retain our flexibility? appropriate time horizon do we allow enough time for implementation?too short = missing implementationtoo long = competitors threat
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Strategy selection Treacy and Wiersema (1993) new and contemporary classification of competitive strategies that a company may use (3) operational excellenceeg Walmart = good and cheap customer intimacyeg Ritz-Carlton = premium, expensive, long relationships product leadershipeg Intel, Microsoft = state of the art, innovative and new, no price limits Core strategy = main strategysupporting strategies = marketing mix
strategy - estimate financial consequences 2 main issues of costs interpreting financial data -> 2 fundamental conceptual issues opportunity costs = every choice has a valuethe opportunity cost of a choice is what you gave up to get ityou choose the apple and pay with the opportunity cost that you loose the orange= value of the opportunity lostvalue (benefits and costs) fixed & variable costs =fixed: short runvariable: long-run
segmentation - overview 5 steps large divers markets ↓smaller homogenous segments how? identify the best ways to segment profiling = pin down characteristics of each group evaluate attractiveness of each segment select most appropriate target segment(s) position your product relative to competitors
Benefits of segmentation (5) niche - smaller companiesparticularly helpful - target smaller niche market find market gapsit helps to identify market gaps (unserved, underserved segments) find growth segments in declining marketshelps also identifying those stronger competitive positionbetter match to the needs and wants of the target market danger of not doing iteg mass-market strategy in clearly segmented market
premises of segmentation (5) underlying requirements for every segment to be valuableHooley 2004 measurablesize, purchasing power, profilesestimate potential value and attractiveness for the focal company accessiblesegments can be effectively reached and servedeg single man and woman who stay out late are difficult to reach substantiallarge and profitable enough?largest possible homogenous group worth to pursue differentiableconceptually distinguishable, segments respond differently to diverse marketing mixsegments must differ from one another actionableenough resources?eg: small company cannot serve all profitable segments
the STP approach segmentationaggregation of customers into groups choose variable for segmenting market build a profile of segments authenticate rising segments targetingmaximize homogeneity within deciding on targeting strategy identify wich and how many segments should be targeted positioningmaximize heterogeneity within understand consumer perceptions position products in the hearts and minds of the customer tailor appropriate marketing mix to satisfy customer needs
STP goal benefits (7) Goal = improved market performance Benefits + customer satisfaction+ competitive differentiation+ profitabitility+ thorough understanding of market+ quicker response to changing patterns+ effectiveness+ better marketing mix
STP goal benefits (7) Goal = improved market performance Benefits + customer satisfaction+ competitive differentiation+ profitabitility+ thorough understanding of market+ quicker response to changing patterns+ effectiveness+ better marketing mix
segmentation - overview how what to do before large divers markets ↓smaller homogenous segments how? identify the best ways to segment profiling = pin down characteristics of each group evaluate attractiveness of each segment select most appropriate target segment(s) position your product relative to competitors what to do before? define purpose and scope of segmentation including their marketing objectives explore new segments or better server existing ones? use existing data or invest in new data?
2 problems with segmentation 1) no real segments business that believes it is segmenting is not really segmenting no real segments chosen just 'labeled customer groups' that are not really homogenous 2) no usable segmentation solution segments are chosen good but no results achieved fail to generate a usable segmentation solution
segmenting consumer market B2C 3 top groups socio-demographic segmentation geographic segmentation gender age family life cycle occupation/social class subculture personality characteristics lifestyle characteristics (psychographics) occasions for purchase usage segmentation benefit segmentation behavioural segmentation
socio-demographic segmentation (6) geographic segmentationeg: nations, regions, states, cities, neighborhoods genderfirst step = gendernext step = gender preference (gay etc) age more traditional but still important for holiday market! family life cycleeg: Amazon is marketing tablets for small kidsthe stages of life cycle can often be a poor predictor because of over stigmatizing occupation/social classwhat does the head of the household (education/money) -> social classpoor predictor because of changing patterns in pay and education subculturetypically based on racial, religious or geographic similaritiessubculture has to be important enough!eg young hip-hop culture
occupation/social class (6) social class grading occupation A Higher managerial B Middle management C1 Supervisor / lower management C2 skilled manual D semi-skilled / unskilled E lowest level of subsistence Problem skilled manual nowadays often earns more than manager
personal characteristics (segmentation) 3 main elements difficult to measure!create background atmosphere for:- advertising- packaging- design- branding Lifestyle Characteristics or Psychographicseg ' homely lifestyle' vs. 'sophisticated lifestyle' 3 main elements: activities leisure, sports, hobbies, entertainment, work, shopping, travel, holidays, education ... interaction with othersself-perception, personality and self-ideal, role perception (mother, wife, husband, daughter) opinionspolitics, social and moral, economic, business, technological, environment
2 main approaches to segment consumer market traditional approach: associative we chose a characteristic that we believe will influence the response to the marketing mix direct approach: behavioral actual customer behavior as the starting point for identifying different segments eg soft drinks target to different customer personalities- the rebellious, the youthful, the adventurous, the go your own way- diet coke = woman coca-cola zero = man