Chapter-1

Imperatives for market driven Strategy

Market driven Strategy: The underlying logic of market-driven strategy is that
the market & the customers that form the market should be the starting point in business
strategy. Market driven strategy provides a company wide perspective, which mandates
more effective integration of activities & processes that impact customer value.
The characteristics of market driven strategy is projected here:

 Becoming Market-Oriented
 Determining Distinctive Capabilities
 Matching Customer value Requirements to Capabilities
 Achieving Superior Performance

Becoming Market-Oriented: A business is market-oriented when its culture is

systematically & entirely committed to the continuous creation of superior customer
value.
A market-oriented organization performs the following functions:

 Continuously gathers information about customers, competitors, & markets;

 Views information from a total business perspective;
 Decides how to deliver superior customer value; &
 Takes actions to provide value to customers

Market orientation requires –

 Customer focus,
 Competitor intelligence, &
 Cross-functional coordination

Determining Distinctive Capabilities: Identifying distinctive capabilities of an

organization is a vital part of market-driven strategy.
“Capabilities are complex bundles of skills & accumulated knowledge, exercised through
organizational processes, that enables firms to coordinate activities & make use of their
assets.”
 Classifying capabilities:

EXTERNAL EMPHASIS INTERNAL EMPHASIS

Outside-in process Inside-Out process

Spanning Process

Market sensing Customer order fulfillment Financial Management

Customer linking Pricing Cost control
Channel bonding purchasing Technology development
Technology monitoring Customer service delivery Integrated logistics
New product/service development Manufacturing
Strategy development HRM
Environmental health &
safety
The outside-in process connects the organization to the external environment, providing market feedback &
forging external relationships. The inside-out processes are activities necessary to satisfy customer value
requirements. The outside-in processes play a key role in offering direction for the spanning & inside-out
capabilities. Market sensing, customer linking, channel bonding, & technology monitoring provide vital
information for new product opportunities, service requirements, & competitive threats.

Creating & Providing Value for customers: Customer value can be defined as the difference between what
the customer gets from owning & using a product & the costs of obtaining the product. The organization’s
distinctive capabilities are used to deliver value by differentiating the product offer, offering lower prices
relative to competing brands, or a combination of lower cost & differentiation.

Achieving Superior Performance: The supporting logic for becoming market oriented, leveraging
distinctive capabilities, & finding good match between customer’s value requirements is that they are
expected to lead to superior customer value & organizational performance. Market-driven organizations
display higher performance than their counterparts that are not market-driven.
Corporate Strategy:
Corporate strategy consists of deciding the scope & purpose of the business, its objectives, & the initiatives &
resources necessary to achieve the objectives. Corporate strategies are concerned with how the company can
achieve its growth objectives in current or new business areas.

Components of corporate strategy:

1. Corporate vision: Vision is an almost “impossible dream” that provides a direction for the company.
Management’s vision defines what the corporation is & what it does & provides important guidelines
for managing & improving the corporation.

2. Objectives: Objectives need to be set so that the performance of the enterprise can be gauged.
Corporate objectives may be established in the following areas: marketing, innovation, resources,
productivity, social responsibility, & finance.

3. Business composition: Defining the composition of business provides direction for both corporate &
marketing strategy design. A business segment, group, or division is often too large in terms of product
& market composition to use in strategic analysis & planning, so it is divided into more specific
strategic units. A popular name for these units is the Strategic Business Unit (SBU). Strategic Business
Unit is a unit of the company that has a separate mission & objectives & that can be planned
independently from other company businesses. It can be a company division, a product line within the
division, or sometimes a single product or brand

4. Resources: It is important to place a company’s strategic focus on its resources- assets, skills, &
capabilities. These resources may offer the organization the potential to compete in different markets,
provide significant value to end-user customers, & create barriers to competitor duplication.

5. Structure, Systems, & processes: Structure determines the composition of the corporation. Systems are
the formal policies & procedures that enable the organization to operate. Processes consider the
informal aspects of the organization’s activities.

All corporate headquarters undertake four planning activities:

1. Defining the corporate mission
2. Establishing strategic business units (SBUs)
3. Assigning resources to each SBU
4. Planning new business, downsizing or terminating older business.

1. Defining the corporate mission: Mission is a statement of the organization’s purposes what it wants to
accomplish in the larger environment. To define the mission, the company should address the following
questions:
 What is our business?
 Who is the customer?
  What is of value to the customer?
 What will our business be?
 What should our business be?

Mission statements are at their best when they are guided by a vision, an almost “impossible dream” that
provides a direction for the company for the next 10 to 20 years.

Good mission statement has three characteristics:

 First, they focus on a limited number of goals.

 Second, mission statements stress the major policies & values the company wants to honor.
 Third, they define the major competitive scopes within which the company will operate. For example,
industry scope, products & application scope, competence scope, market segment scope, Vertical
scope, geographical scope.

2. Establishing Strategic Business Units: Strategic Business Unit is a unit of the company that has a separate
mission & objectives & that can be planned independently from other company businesses. It can be a
company division, a product line within the division, or sometimes a single product or brand.
An SBU has three characteristics:
1. It is a single business or collection of related businesses that can be planned separately from the rest of
the company
2. It has its own set of competitors
3. It has a manager who is responsible for strategic planning & profit performance & who controls most
of the factors affecting profit.

3. Assigning resources to each SBU: The purpose of identifying the company’s strategic business units is to
develop separate strategies & assign appropriate funding. Two of the best-known business portfolio evaluation
models are:
 Boston Consulting Group (BCG) Approach
 General Electric (GE) Approach

Boston Consulting Group (BCG) Approach:

Boston Consulting Group analysis is a chart that had been created by Bruce Henderson for the Boston
Consulting Group in 1968 to help corporations with analyzing their business units or product lines. This helps
the company allocate resources and is used as an analytical tool in brand marketing, product management,
strategic management, and portfolio analysis.
Figure: BCG Growth-Share Matrix

The growth-share matrix has two controlling aspect namely relative market share and market
growth rate. It is divided into four cells, each indicating different types of business.

Question Marks: These are products with a low share of a high growth market. They consume
resources and generate little in return. They absorb most money as the company attempt to
increase market share.

Stars: These are products that are in high growth markets with a relatively high share of that
market. Stars tend to generate high amounts of income. The company must spend substantial
funds to keep up with the high market growth, & to fight off competitors attack.

Cash Cows: These are products with a high share of a low growth market. Cash Cows generate
more than is invested in them. So the company should keep them in its portfolio of products for
the time being.

Dogs: These are products with a low share of a low growth market. These are the canine
version of 'real turkeys!’ They do not generate cash for the company, they tend to absorb it. The
company should get rid of these products.

General Electric (GE) Approach:

The General Electric Business Screen was originally developed to help marketing managers
overcome the problems that are commonly associated with the Boston Matrix (BCG), such as
the problems with the lack of credible business information, the fact that BCG deals primarily
with commodities not brands or Strategic Business Units (SBU's), and that cash flow if often a
more reliable indicator of position as opposed to market growth/share.
 The GE approach introduces a three by three matrix, which now includes a medium
category. It utilizes industry attractiveness as a more inclusive measure than BCG's market
growth and substitute’s competitive position for the original's market share.

Market attractiveness depends on:

 Size of market.
 Market rate of growth.
 The nature of competition and its diversity.
 Profit margin.
 Impact of technology, the law, and energy efficiency.
 Environmental impact.

Competitive position depends on:

 Market share.
 Management profile.
 R & D.
 Quality of products and services.
 Branding and promotions success.
 Place (or distribution).
 Efficiency.
 Cost reduction.

The GE matrix is divided into nine cells, which in turn fall into three zones. The three
cells in the upper left corner indicate strong SBUs in which the company should invest or
grow. The diagonal cells stretching from the lower left to upper right indicate SBUs that
are medium in overall attractiveness. The company should pursue selectivity & manage
for earnings in these SBUs. The three cells in the lower right corner indicate SBUs that
are low in overall attractiveness. The company should give serious thought to harvesting
or divesting these SBUs.

4. Planning new business, Downsizing or terminating older business: The company

plans for its existing businesses allow it to project total sales & profits. If there is a gap
between future desired sales and projected sales corporate management will have to
develop or acquire new business to fill it.

Strategic planning gap:

Three options are available to fill up the strategic planning gap:

I. The first is to identify opportunities to achieve further growth within current businesses
(Intensive growth opportunities)
II. The second is to identify opportunities to build or acquire businesses that are related to
current businesses (Integrative growth opportunities)

III. The third is to identify opportunities to add attractive businesses tat are unrelated to
current businesses (Diversification growth opportunities)
 Intensive Growth Strategies:

Integrative Growth strategies: there are three types of integrative growth strategies:

1. Backward integration (integration with the suppliers)

2. Forward integration (integration with the distributors)

3. Horizontal integration (integration with one or more of the competitors)

Diversification Growth Strategies: Diversification growth makes sense when good

opportunities can be found outside the present businesses. Three types of diversification are
possible:

1. Concentric diversification strategy ( new products, new market, technology or

marketing may be related)
2. Horizontal diversification strategy (new products, new/current market, technology
unrelated)

3. Conglomerate diversification strategy (new products, new market, new technology)

Downsizing or terminating older business: Companies must not only develop new
businesses, but must also carefully prune, harvest, or divest tired old businesses in order to release
needed resources & reduce costs.
 Business Unit Strategy: The business unit strategic planning consists of eight steps:

Business SWOT Goal Strategy Program Implementation 1. Feedback

mission Analysis formulation formulation formulation
2. & Control

Many strategy guidelines are offered by consultants, executives, & academics to guide
business strategy formulation. These strategy paradigms propose a range of actions including
re-engineering, TQM, overall cost leadership, building distinctive capabilities, supply chain
strategy, differentiation, focus, strategic partnering, etc.

The Marketing Strategy Process: There are four stages of marketing strategy
process. They are:

1. Markets, Segments, & Customer Value

2. Designing market driven strategy

3. Market-driven program development

4. Implementing & managing market-driven strategies

Markets, Segments, and Customer value: Markets, segments, & customer value
consider-

 Market & competitor analysis: Markets need to be defined so that buyers and
competition can be analyzed. Identifying the product-market, evaluation of
competitor’s strategies, strengths, limitations, and plans is a key aspect of this
analysis.
 Strategic market segmentation: Market segmentation offers an opportunity for
an organization to focus its business capabilities on the requirements of one or
more groups of buyers. The objective of market segmentation is to examine the
differences in needs and wants to identify the segments (subgroups) in the
product-market of interest.

 Strategic customer relationship management: A strategic perspective on

Customer Relationship Management (CRM) emphasizes delivering superior
customer value by personalizing the interaction between the customers and the
 company and achieving the coordination of complex organizational capabilities
around the customer.

 Capabilities for continuous learning about markets: Understanding markets

and competition has become a necessity in modern business. Sensing what is
happening and is likely to occur in the future is complicated by competitive
threats that may exist beyond the traditional industry boundaries. Manager and
professionals in market-driven firms are able to sense what is happening in their
markets, develop business and marketing strategies to seize the opportunities and
counter the threats, and anticipate what the market will be like in the future.

Designing Market-driven Strategy: Designing market-driven strategies examines-

 Market targeting & strategic positioning: The purpose of market targeting

strategy is to select the people (or organizations) that the management wishes to
serve in the product-market. The objective is to find the best match between the
value requirements of each segment and the organization’s distinctive capabilities.

Positioning strategy is the combination of the product, value chain, price, and
promotional strategies a firm uses to position itself against its key competitors in
meeting the needs and wants of the market target.

 Strategic relationships: Marketing relationship partner may include end-user

customers, marketing channel members, suppliers, competitor alliances, and
internal teams. The driving force underlying these relationships is that a company
may enhance its ability to satisfy customers and cope with a rapidly changing
business environment through collaboration of the parties involved.
 Innovation & new product strategy: New products are needed to replace the old
products when sales and profit growth decline. New product decisions include
finding and evaluation ideas, selecting the most promising for development,
designing the products, developing marketing programs, market testing the
products, and introducing them to the market.

Market-Driven Program Development: Market-driven program development consists

of-

 Strategic brand management: Strategic brand management consists of building

brand value and managing the organization’s system of brands for overall
performance.
 Value-chain ( Distribution channel) strategy: decision that need to be made
include the type of channel organization to use, the extent of channel
management, and the intensity of distribution appropriate for the product or
service.

 Pricing strategy: Price strategy involves choosing the role of price in the
positioning strategy, including the desired positioning of the product or brand as
 well as the margins necessary to satisfy and motivate distribution channel
participants.

 Promotion strategy: advertising, sales promotion, the sales force, direct

marketing, and public relation help the organization to communicate with the
customers, value-chain partners, the public and other target audiences. Promotion
informs, reminds, and persuades buyers and others who influence the purchasing
process.

Implementing & Managing Market-Driven Strategy: Implementing & managing

market-driven strategies considers the following things:

 Designing market-driven organization: An effective organization design

matches people and work responsibilities in a way that is best for accomplishing
the firm’s marketing strategy. Organizational structures and processes must be
matched to the business and marketing strategies that are developed and
implemented.
 Marketing strategy implementation & control: Marketing strategy
implementation and control consists of: (1) Preparing the marketing plan and
budget; (2) implementing the plan and (3) Using the plan in managing and
controlling the strategy on an ongoing basis.