MF Strategic Marketing 1 strategy n strategic planning process

StrategyStrategic Planning Process

Session 2

Jan 21, 2010 Salma Rahman

Strategy

Strategy means making clear-cut choices about how to compete. – Jack Welch

A strategy is a commitment to undertake one set of actions rather than another – Sharon Oster

Strategy

A company’s strategy is all about HOW… How to grow the business, how it will build a loyal

clientele and outcompete rivals, how each functional piece of the business will be operated, how performance will be boosted.

Strategy – ‘hows of the strategy’

Sustainable competitive advantage A company achieves SCA when an attractive

number of buyers prefer its products or services over offerings of competitors and when the basis for this preference is durable.

Strategy – ‘hows of the strategy’

Low cost leadership e.g. Wal-Mart, Southwest Airlines

Differentiation e.g. Harley-Davidson, Rolex, Amazon

Focusing on a narrow market niche e.g. Starbucks, e-bay

Developing expertise and resource strengths FedEx – next day delivery, Walt Disney – theme park

management and family entertainment

What is Strategic Planning

Managing Investment Portfolio of businesses

Analysis of each business and establishing fit

A game plan or Business Model

AIMED AT

Good business performance

Marketing Productivity chain Company View Point Level Who cares?

We do stuff Marketing actions Customers

Customers do stuff Customers Reaction Advertising and Promotion specialist

Stuff Happens Product MarketImpact

Product Managers and CMO

Accounting happensFinancial outcomes CMO and CFO*

Wealth is affected Firms Value CFO and the CEO*

*Chief Marketing, financial and executive officer

Adapted from : Bolton, R.N. (2004), “Making Marketing Matter” JM Vol 68, pp 73-75

1. What is Strategy?1. What is Strategy?

Strategy Performance

Competitive Advantage

ShareholderValue

Firm

• Strategy: goal and set of policies designed to achieve competitive advantage in a particular marketplace

• Competitive Advantage: ability to transform inputs into goods and services at a maximum profit on a sustained basis, better than competitors

Strategic Planning Process

Environmental

Conditions &Trends

Opportunities

and Threats

External Analysis

Inventory of Distinctive

Competencies

Strengthsand

Weaknesses

Internal Analysis

Identify& Evaluate

Options

ChooseStrateg

y

Strategy Formulation

Strategy Implementation

Basic Concept

StrategyFormulation

StrategyFormulation

Set of processes involved in creating or determining the

strategies of org. Focus is on contents of strategy.

Set of processes involved in creating or determining the

strategies of org. Focus is on contents of strategy.

StrategyImplementation

StrategyImplementation

Methods by which strategies are operationalized or executed with in org. Focus is on processes which

achieve strategies.

Methods by which strategies are operationalized or executed with in org. Focus is on processes which

achieve strategies.

assessenvironmental

factors

assessorganizational

factors

IdentifyCurrent Mission

and Strategic

Goals

ConductCompetitive

Analysis:* Strengths

* Weaknesses* Opportunities

* Threats

DevelopSpecific

Strategies:* Corporate* Business

* Functional

CarryOut

StrategicPlans

Maintain Strategic Control

STRATEGYIMPLEMENTATION

STRATEGYFORMULATION

TM 7-2

Environmental Analysis

Marketing Environment Macroenvironment

PEST ANALYSIS Political

Legislation regulating business Growth of public interest groups Increased emphasis on ethics and

socially responsible actions

Economical Income distribution and changes in

purchasing power Changing consumer spending

patterns

Marketing Environment Macroenvironment

PEST ANALYSIS Social

Changing age structure of a population Changing family structure Rising number of educated people Increasing diversity

Technological Fast pace of technological change High R&D budgets Concentration on minor improvements Increased regulation

External EnvironmentPorter’s five forces modelTo evaluate the attractiveness of your industryPower of

Buyers

Power of Substitutes

Power of new entrants

Power of Sellers

Power of Rivals

External EnvironmentPorter’s five forces modelTo evaluate the attractiveness of your industry

STEPS Outline your key buyers, suppliers,

rivals, new entrants and substitutes. Determine the strength of the threat

that each group poses to your company’s potential profitability.

Porter’s five forces modelPower of Buyers

Buyers are the customers who demand and purchase your products and services.

STEPS Make a list of your buyers. Name

the major players and describe them by type (e.g. P&G – consumer goods manufacturer)

Assess the strength of buyer power by rating the features given in table 1.


Determinants Defining Question Assess the power of buyersCircle one of the following:1=low, 5=high or NA if it doesn’t apply to your industry

Concentration Are the buyers fragmented or highly concentrated (i.e. do a few monopolize the market)? If they are few and concentrated, then buyer bargaining power is typically high

1 2 3 4 5 NA

Product cost vs. total purchases

Does your product buyer’s purchase represent a significant fraction of the buyer’s costs? If so, buyer bargaining power is typically high.

1 2 3 4 5 NA

Product Differentiation

Is the buyer’s product or service a commodity? Is branding critical for success? Is there an actual vs. a perceived difference? If the products are standard or undifferentiated, buyers typically have high bargaining power.

1 2 3 4 5 NA

Switching Costs Are switching costs high or low? If buyers face few switching costs, their bargaining power is typically high.

1 2 3 4 5 NA

Profits Do buyers earn low profits? If so, they are typically more likely to bargain hard.

1 2 3 4 5 NA



Backward integration

Can they make what you make themselves? Is there a threat of backward integration? If so, the threat is typically high.

1 2 3 4 5 NA

Impact on Quality/ Performance

Is the product you offer important to the quality of the buyer’s products or services? If not, buyer power is typically high.

1 2 3 4 5 NA

Buyer Information

Does the buyer have complete information on the product he may purchase? If so, buyer power is typically high.

1 2 3 4 5 NA

(Harvard Business School, 2005)

Porter’s five forces modelPower of Suppliers

Suppliers provide labor, materials, financial capital, or equipment to your firm.

STEPS Make a list of your suppliers. Name

the major players and describe them by type.

Assess the strength of supplier power by rating the features given in table 2.



Concentration Are your suppliers fragmented or highly concentrated (i.e. do a few monopolize the market)? If an industry is dominated by a few companies, the suppliers are typically high powerful.

1 2 3 4 5 NA

Presence of substitute inputs

Are there any substitutes for your suppliers’ products? If not, suppliers are typically powerful.

1 2 3 4 5 NA

Importance relative to customer

Is your industry an important customer of the supplier group? If not, suppliers are typically powerful.

1 2 3 4 5 NA

Impact on Quality/ performance

Is your supplier’s product essential to the quality or performance of your business? If so, suppliers are typically powerful.

1 2 3 4 5 NA

Product Differentiation

Is the supplier’s product or service a commodity? Is branding critical for success? Is there an actual vs. a perceived difference? Suppliers with differentiated products typically have more bargaining power than suppliers selling commodities.

1 2 3 4 5 NA


Determinants

Defining Question Assess the power of buyersCircle one of the following:1=low, 5=high or NA if it doesn’t apply to your industry

Switching costs

How costly is it for you to switch from the supplier’s product? If switching costs are high, suppliers are typically more powerful.

1 2 3 4 5 NA

Forward Integration

Can the supplier produce the product you make? Is there a threat of forward integration? If so, suppliers are typically powerful.

1 2 3 4 5 NA


Porter’s five forces modelPower of Rivals

Rivals are firms that make similar products to yours and are in direct competition with you.

STEPS Make a list of your rivals. Name the

major players and describe them by type.

Assess the threat of rivalry by rating the features given in table 3.



Industry Growth

How slowly or quickly is the industry growing? If it is a slow growth industry, there is likely to be a more intense fight among rivals for market share.

1 2 3 4 5 NA

Fixed costs Does your business have high fixed costs? If so, rivals will typically be tempted to cut prices to ensure sales, thus posing a significant threat.

1 2 3 4 5 NA

Intermittent Overcapacity

How frequently is there a problem of excess capacity in your industry? Are there periods when there is excess capacity? Overcapacity often leads to price cutting. If so, there is typically a threat.

1 2 3 4 5 NA

Product differentiation

Is your product a service or commodity? Typically, the closer a product is to being a commodity, the fiercer the intensity of rivalry.

1 2 3 4 5 NA

Brand Identity Is branding critical for your rival’s success? Is there an actual vs. a perceived difference? Brand identification by buyers reduces the threat of rivals.

1 2 3 4 5 NA



Switching costs How costly is it for your buyers to switch between providers? Low switching costs typically increase rivalry. When a customer can freely switch from one product to another, companies must struggle to capture and retain customers.

1 2 3 4 5 NA

Concentration and balance

Are there a large number of firms of equal size and power, all chasing after the same customers? If so, rivalry is typically intense.

1 2 3 4 5 NA

Diversity of competitors

Are there competitors with different strategies and frames of reference? When competitors are diverse, it’s more difficult to establish the rules of the game, so the threat from competitors is greater.

1 2 3 4 5 NA

Corporate Stakes

How high are the rivals’ corporate stakes? What do rivals stand to lose (e.g. profits, decision making power)? Strategic stakes are high when several firms in an industry take great risks to expand, diversify, and gain market position. The intensity and volatility of the rivalry increases when firms select alternative strategies that may sacrifice short-term profitability

1 2 3 4 5 NA



Exit Barriers Are exit barriers low or high? High exit barriers make it costly to abandon a product; for example, when an organization has specialized assets that cannot be easily sold off.

1 2 3 4 5 NA


Porter’s five forces modelPower of New Entrants

New entrants in an industry are today’s new players who may become tomorrow’s rivals. The threat of new entrants is directly related to whether the barrier to entry into an industry is high or low.

STEPS Assess the threat of new entrants

by rating the features in Table 4 and following the given criteria: If a barrier to entry is high, the threat from new

entrants is weak; if a barrier is low, the threat of new entrants is strong.



Economies of Scale and Experience

Does successful entry require that companies have significant economies of scale or experience? Barriers to entry are typically high when an aspiring company must cut costs in order to compete in a large-scale and/ or experienced market.

1 2 3 4 5 NA

Product Differences Do new entrants need to differentiate by spending heavily on advertising , customer service, or product differences to overcome existing customer loyalty? Product differentiation is typically a barrier to entry.

1 2 3 4 5 NA

Brand Identity Do new companies need to spend heavily on brand identification to gain customer loyalty? Brand identification is typically a barrier to entry.

1 2 3 4 5 NA

Switching costs Does the buyer have to pay to switch from one supplier’s product to another? High switching costs are typically a barrier to entry.

1 2 3 4 5 NA



Capital Requirements

Does the new company need to invest large financial resources (relative to market size) in order to compete? Huge capital requirements are typically a barrier to entry.

1 2 3 4 5 NA

Access to distribution

Do newcomers have access to distribution channels for products or services? Difficult access can typically be a high barrier to entry.

1 2 3 4 5 NA

Cost Advantages

Established companies have cost advantages over new rivals because they may have already obtained proprietary product technology, access to raw materials, favorable locations and government subsidies. In addition, established companies may have passed a learning or experience curve. Such cost advantages are typically a barrier to entry for new entrants.

1 2 3 4 5 NA

Government Policy

Govt policies such as antitrust regulations, can help to preserve or limit competition. Such policies can typically create a barrier to entry

1 2 3 4 5 NA



Expected Retaliation

New entrants may decide not to enter a new market if existing firms may have a history of retaliating, resources to fight back, a strong commitment to the industry, and illiquid assets employed in the industry. Also, if the industry is growing slowly, they may retaliate against new players who would threaten sales growth.

1 2 3 4 5 NA

Porter’s five forces modelPower of Substitutes

A substitute is a different product or service from the one you make that competes for the same customers.


Price Performance

Does the substitute offer a better price or performance? A substitute product or service is a threat to competition when it offers a higher performance at a given price or the same performance at a lower price

1 2 3 4 5 NA

Switching costs Is it costly for buyers to switch to the substitute product or service? When buyers must pay more to switch to a substitute, the threat of substitutes is low.

1 2 3 4 5 NA

MF Strategic Marketing 1 strategy n strategic planning process

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