Strategic Management and Marketing

By, Prof. P.K.
Sikdar -1-
Website: www.pksal.com Mobile: 98301 65501

STRATEGIC MANAGEMENT AND MARKETING
What is Strategic Planning?

Strategic Planning: Strategic Planning is a process to provide direction & meaning to day-to-day activities. It
examines an organization’s values and current status, environments and relates those factors to the organisation’s
desired future state, usually expressed in 5 to 10 yrs.
If the organization existed in a static environment in which no change was necessary or desired, there would be no
need for strategic planning. But, our environment is changing, demographically, economically and culturally. Thus,
strategic planning is, both a reaction to & a tool for adapting to those changes and creating an organisation’s future
within the content of change.
Why Strategic Planning?

In the simple terms, a strategic plan can help to improve performance. Vision, planning and goal setting have
consistently proven to be positive influences on organizational performances.
What does it involve ?

As a process, strategic planning involves an orderly sequence of activities, each vital to the success of the whole
organization.
Strategic Planning activities include:
i. assessing the external environment
ii. assessing internal capacity
iii. Developing a vision/ mission for the future
iv. Developing goal & objectives to reach that future
v. Implementing the plan
vi. Measuring progress & revising the plan
How is it done?
The most basic question to ask before starting a strategic planning process is whether to develop a strategic plan.
The question whether or not to develop a strategic plan may be based on the answers to the following questions :
i. what purpose will the strategic plan serve ?
ii. how will it help the organization ?
iii. will it be better than the system we use now ?
iv. are those in leadership positions committed to strategic plan ?
v. how much will it cost in terms of time & personnel effort ?
vi. does anyone have experienced with strategic plan ?
vii. do we think we can do it ?
viii. are we willing to make decisions about our future ?
ix. will we actually use the plan ?
x. what overriding crises would inhibit our ability to plan ?
It is important to stay focused on the critical issues.
 Strategic Planning :
i. Strategic planning flows from mission and values
ii. Implementation follows strategy
iii. Monitors and control follow implementation
 The process of developing and maintaining a fit (match) between a company’s goals and
capabilities and it’s changing marketing opportunities.
 It involves :
 Defining company’s vision / mission
 Specifying objectives
 Designing portfolio of products / businesses
 Coordinating functional strategies
Rational planning by top management?
Yes, basic strategic planning model
Define vision/ mission and set top level goals
External analysis of opportunities and threats
Internal analysis of strength and weaknesses
Selection of appropriate strategies
Implementation of chosen strategies
Strategic planning in practice :
Planning under uncertainty :
Scenario planning for dynamic environmental change
 Ivory Tower Planning :
o Lack of control with operational realities
o The importance of involving operating managers
o Procedural justice in the decision making process
- Engagement, explanation and expectations
Planning for the present – Strategic Intent
Recognition of the static nature of the strategic fit model
o Strategic intent in focusing the organization on winning by
achieving stretch goals
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By, Prof. P.K. Sikdar -2-
 Strategic planning :
 Planning – Planning is “the establishment of objectives and the formulation, evaluation and selection of
the policies, strategies, tactics and actions required to achieve these objectives. Planning comprises long
term/ strategy planning and short term operational planning. The later usually is for a period of one year.
 Few Concepts :
Strategy Plan: It is a document or statement indicating in some detail the time scale for the strategy, and
the resources available for it’s achievements.
Strategy planning - Strategy planning is ‘the formulation, evaluation and selection of strategies for the
purpose of preparing a long term of action to attain objectives.’
Strategy Planning is a complex process, which involves taking a view of both the organization, and the
future that it is likely to encounter, and then attempting to organize the structure and resources of the
organization accordingly.
 Characteristics of strategic decisions for an organization :
i. It will be concerned with the scope of the organisation’s activities ;
ii. Involved the matching of an organisaton’s activities to the environment in which it operates ;
iii. Also involved with the matching of an organisation’s activities to it’s resource capability ;
iv. Involved with major decision about the allocation or reallocation of resources ;
v. Will affect operational decision ;
vi. Are likely to affect the long term direction that the organization takes ;
vii. Have implications for change in the organization, and so are likely to be complex in nature
Steps in strategic planning :
i. Setting corporate / strategic objectives. This should be expressed in quantitative terms, with
any constraints identified.
ii. From step (i), establishing targets for corporate performance in terms of return, EPS, sales
turnover etc., over the planning period.
iii. Internal appraisal, by means of assessing the organisation’s current state in terms of resources
and performance
iv. External appraisal, by means of a survey and analysis of the organisation’s environment
v. Forecasting future performance based on the information obtained from step (iii) and (iv).
vi. Analyzing the gap between results of steps (ii) and (v)
vii. Identifying and evaluating various strategies to reduce this “performance gap” in order to
meet strategic objectives.
viii. Preparing the final corporate plan, with divisions between short term and long term as
appropriate
ix. Implementing the chosen strategies
x. Evaluating actual performance against the corporate plan.
 Necessity of Strategic Planning : (Advantage)
i. As company increases in size, the risk also increases (risks would be defined as the potential
losses from the inefficient or ineffective use of resources). Strategic planning helps in
managing these risks.
ii. Strategic planning can give a sense of purpose to the personnel in the company, leading to the
improved quality of management, and it can encourage creativity and initiative by tapping the
ideas of the management team.
iii. Company can not remain static – they have to cope with changes in the environment. As
strategic plan helps to chart the future possible areas where the company may be involve and
draws attention to the needs to keep on changing and adapting, not just to ‘stand static’ and
survive.
iv. Strategic plans are merely stating on papers the departmental objective which has always
existed. They help to make them more effective and workable.
v. A well prepared plan drawn up after analysis of internal and external factors – risks and
uncertainties – is in the long term based interests of the company because better quality
decisions will be made ‘on the whole’ and management control can be better exercised.
vi. Long term/ medium term and short term objectives, plans and controls can be made consistent
with one another.
 Why Strategic Planning Fails? (Disadvantage)
i. It fails to provide a coordinative framework for the organization as a whole, so that there
would be a tendency for large organization to break up into many fragments.
ii. It can not guarantee that all opportunities are identified and appraised. Strategic planning
relies heavily on the creative thinking of it’s managers to design strategies, and a formal
system should be more thorough in exploiting this creativity to the full.
iii. It emphasizes the profit motive to the exclusion of all other considerations.
 Flexibility in Strategic Planning :
The essence of good strategy planning is flexibility. The plan should be a guideline which is constantly
monitored in order to retain it’s viability. Events never turn out as expected, and in many cases they force
organization to reconsider there plans and activities e.g. continuing uncertainties in the Middle East would
have a significant effect on the plans of a company dealing in this area.
All companies must make allowances for the possible need to make changes. Hence, strategic planning
must therefore have the following characteristics :
i. It must be flexible enough to give recognition to change.
ii. It must establish recognizable control benchmarks for measuring performance.
iii. It must establish objectives that encourage initiative, allow for flexibility in planning decision
and also allow measurable control benchmarks to be established.
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 Strategic Flexibility – A set of capabilities used to respond to various demands and
opportunities existing in a dynamic and uncertain competitive environment.
Definition of Strategy.
A strategy is defined as “a unified, comprehensive & integrated plan that relates the strategic advantages of
the firm to the challenges of the environment. It is defined to ensure that the basic objectives of the enterprise
are achieved through proper execution by the organization.”
James Brain Quinm defines the term strategy as “the pattern of plan that integrates an organisation’s major
goals, policies & actions, sequences into a cohesive whole.”
Alfred D Chandler defines strategy as “the determination of the basic long term goal & objectives of an
enterprise & the adoption of the courses of actions & the allocation of resources necessary for carrying out
these goals.”
Analysis of the definition of strategy.

i. Strategy is central understanding of the strategic management process.
ii. Strategy is the determination of basic long term goal & objectives of an organization
iii. Determining the courses of action to attain the pre-determined goals & objectives
iv. Allocating the necessary resources for implementing the course of action
v. Developing the company from it’s present position to the desired future position.
vi. Set a clear direction identifying factors in the political & social environment that requires careful
monitoring
vii. Recognize which competitor’s action need critical attention
The competitive firm should have a rational, clear cut mission etc.
 Strategy can mean many things :

Plan
Process Strategic Management
___________________________________________________________________
Position
Pattern Strategic Positioning
_________________________________________________________________________________
Perspective (purpose)
Procedure Strategic Navigation
_________________________________________________________________________________
Play (role)
Ploy (deployment) Strategic Tactics
___________________________________________________________________________________
 What is Strategy ?
 Hierarchical definition
 What is it ?
o Part of a four stage model
o Defines how you achieve mission/ objectives
o Plan – write it down/ implement/ achieve objectives
Strengths
Specific goals
Less abstract
Provides structure
Context to take great ideas to action
o Pushes you towards implementation – alteration to resource allocation
Weaknesses
Excludes external environment
More static than dynamic
Less flexibility
 Strategy is often loosely used in the discourse about competition in the business world. There is
unfortunately no universally endorsed definition.
 A good definition (based on Porter) : an integrated set of actions a company designs to produce a
sustainable competitive advantage & thus attain superior performance. Strategy is about making
choices, namely choosing to perform different activities from rivals or perform similar activities in
different ways.
Purpose of strategy
 What is the ultimate goal of strategy for a firm ?
o Maximize shareholders value
o “monopoly” power
o Bigger can be better (economies of scale)
o Profits – above average
o Success - but what is success ?
- Staying in business/ survival
o Does strategy imply or require exploitation of others?
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o Tactics
o Definition: How do we position ourselves to achieve sustainable above average profits in
the long run.
 Key points about strategy

 Strategy attempts to build a bridge between the present situation and the desired future
 Strategy is inherently intellectual aiming at out-thinking competition to gain advantage
 The strategies at different levels must be harmonized (proper coordination among all
levels)
 The sustainable superior performance on the market is the ultimate measure of strategic
success (e.g. by product differentiation)
 Strategic Management - It covers the entire cycle of planning and control, at a strategic level. It includes :
i. Strategic analysis
ii. Strategy planning – choice of strategies
iii. Implementation of strategies
iv. Review and control
Strategic management is a detailed pattern of decisions that describes in some detail what a company will
do
1. In light of what it might do ?
2. What it can do ?
3. What it’s leaders want to do ?
4. What it should do ?
ENVIRONMENTAL SCANNING
Disciplined
iterative
EVALUATION
process – of STRATEGY
&
pursuing a MISSION FORMULATION
CONTROL
mission, while
managing the
relationship of
the firm to its
environment
STRATEGY
IMPLEMENTATIO
N
Strategic Management starts with the situation

Industry
External Other
Social, political, attractiveness,
Factors opportunities &
regulatory, & industry
threats …….
community dynamics, &
Like new
considerations competitive
technologies
conditions
Company’s Strategic Situation
Firm’s Ambitions,
Internal strengths, philosophies, & Shared vision,
Factors weaknesses & ethical values &
competitive principles of key company culture
market position executives
 Key issues of strategic management :

 Why do some firms succeed while others fail?
A central objective of strategic management is to learn why this happens.
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 Strategic managers for all levels

Corporate level
CEO, BOD & Head Office
Corporate staff
Business Level
Division Managers
& staff
Divn. A Divn. B Divn. C
Functional level
Functional managers
Business Business Business
function function function
Mkt. A Mkt. B Mkt. C
The hierarchical business plan
Vision statement
Mission statement
Long term goal/ objectives
Annual objectives
Action plan
Vision Statement – e.g. Microsoft vision statement - “a computer on every desktop & in every home” – Bill Gates.
Vision into Mission

e.g. Microsoft :- Microsoft’s vision is to empower people to get through great software, any time, any place & on
any device. As the world wide leader in software, for personal & business computing, Microsoft strives to produce
innovative products & services that meet out customer’s evolving needs. At the same time, we can understand that
long term success is about more than just making great products. Find out what we mean when we talk about.
Vision in Mission
Mission statement – documents the purpose of organizational existence & often contents a code of corporate
conduct to guide the management in implementing the mission.
Mission & goals

Mission – sets out why the organization exists & what it should be doing ?
Major goals – specify what the organization hopes to fulfill in the medium to long term.
Secondary goals – are objectives to be attained that lead to superior performance ?
Objective
1. statement of measurable results
2. tied to goals, provide the basis for operational planning & budgeting
3. four general characteristics –
a. start with the word “to”
b. specifies a single measurable result
c. specifies a target date or a time span for computation
d. must be realistic & attainable, but represents a significant challenge
Goals
1. define the key areas in which to expect strategic results & what is expected
2. not measurable as stated but contain factors that will be measurable as objectives.
 Vision/ mission & goals :

 Vision/ mission – sets out why the organization exists & what it should be doing
 A hierarchy of goals (stages of goals)
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 Specify what the organization hopes to fulfill in the medium to long terms & what
objectives needs to be attained.
Vision &
External analysis – Strategic Choice - Internal Analysis –

opportunities & SWOT strengths &
threats weaknesses
Business Strategy
Strategy Implementation / Tactics
Organisational Succession Planning Designing Control

Structure System
Feedback
Strategic Management Process

Strategic management is a process or series of steps. The basic steps of the strategic management process are:
1. identifying or defining business mission (something which is visualized or written), purpose & objective
(e.g. to increase production)
2. environmental (including global) analysis to identify present & future opportunity & threats
Types of environment :- a. internal (land, labour, m/c.), b. international, c. external (competitors)
3. operational analysis to access the strength & weaknesses of the firm.
Opportunity & threat works in opposite direction. Others opportunity may become one’s threat.
4. developing alternative strategy & choosing the best
5. strategy implementation
6. strategy evaluation & control. (after implementation there should be control & evaluation)
Points in brief :
1. identifying or defining business mission, purpose & objective :- is the logical starting point as they lay
foundation for strategic management. Every organization have a mission, purpose & objectives. Those
elements relate the organization with the society & states that it has achieved for himself & to the society.
2. environmental analysis – environmental factors – both internal environment & external environment are
analysed to
a. identify the changes in the environment
b. identify present & future threats & opportunities
c. assess critically it’s own strength & weaknesses
Organizational environment encompasses all factors both inside & outside the organization that can
influence the organization positively & negatively. Environmental factors may help in building a
sustainable competitive advantage.
3. to revise organizational direction – a thorough analysis of organizational environments pinpoints it’s
strengths & weaknesses, opportunities & threats (SWOT). This can often help management to revise it’s
organizational direction.
4. strategic alternative & choice – many alternative strategies are formulated based on possible options & in
the light of organizational analysis and environmental appraisal. Alternative strategies will be ranked based
on the SWOT analysis. The best strategy out of the alternatives will be chosen.
The steps from identification of business mission, purpose & objectives of alternative strategies & choice
can be grouped into the broad step of strategy formulation.
5. Strategy Implementation – the 5th step of strategy management process is the implementation of strategy.
The logically developed strategy is to put into action. The organization can’t reap the benefits of strategic
management unless the strategy is effectively implemented.
The managers should have clear mission, an idea about the competitor’s strategy, organizational culture,
handling change etc.
6. Strategic evaluation & control –the final step of strategic management process is strategic evaluation &
control. It focuses on monitoring & evaluating the strategic management process in order to improve it &
ensure that it functions properly. The managers must understand the process of strategic control & the role
of strategic audit to perform the task of control successfully.
Strategic audit means to see the different choice have been properly implemented or not & the control is proper
or not.
Sustainable → prolonged through competition.
 Strategic Management Process – Steps

i. Develop a vision and translate it into a mission statement
ii. Define core competencies and target market and identify desired market position
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iii. Assess strengths and weaknesses
iv. Scan environment for opportunities and threats
v. Identify key success factors
vi. Analyse competition
vii. Create goals and objectives
viii. Formulate strategies
ix. Translate plans into actions
x. Establish accurate controls
 Step – I : Develop a vision and translate it into a mission statement

Vision – An expression of what an entrepreneur / organization stands for and believes in.
A clearly defined vision –
provides direction
determines decisions
motivates people
The mission statement addresses questions : “What business are we in ?”
The mission is a written expression of how the company will reflect the owner’s values, beliefs and vision.
The company’s mission depicts it’s character and identity scope of operation in enough
detail to distinguish the company in the market place.
Vision and Mission (Review – Different View)

Vision – An overall picture of where the entire organization would like to be in the future.
Mission – A statement of what the various organizational units do and what they hope to accomplish in alignment
with the organizational vision.
 Step – II : Define core competencies and target market and identify desired market position
Company must define it’s set of core competencies that enable it to serve customers better than rivals.
Core Competencies - A unique set of capabilities a company develops in key operational areas that allow it to
vault pass competitors.
that are what a company does best
- best to rely on a natural advantage (often linked to the company’s size)
Market Segmentation – Carving up the mass market into smaller, more homogenous units and then attacking
certain segments with a specific marketing strategy.
Proper Positioning – Creating the desired image for the business in the customers mind.
 Step – III : Assess strengths and weaknesses

Strengths – Positive internal factors that contribute to accomplishing the mission, goals and objectives.
Weaknesses - Negative internal factors that inhibit the accomplishment of the mission, goals and objectives.
 Step – IV : Scan environment for opportunities and threats
Opportunities - Positive external factors the company can employ to accomplish it’s mission, goals and objectives.
Threats - Negative external factors that inhibit the firm’s ability to accomplish it’s mission, goals and objectives.
 Step – V : Identify key success factors

Key Success Factors – Relationship between a controllable variable and a critical factor that influence a company’s
ability to compete in the market.
The keys to unlocking the secrets of competing successfully in a particular market segment.
 Step – VI : Analyse competition

Analysing key competitors allows an entrepreneur/ organistaion to :
Avoid surprises from existing competitor’s new strategies and tactics.
ii. Identify potential new competitors and the threats they pose
iii. Improve reaction time to competitors action
iv. Anticipate rival’s next strategic moves
Techniques that do not required unethical behaviour :
i. monitor industry and trade publications
ii. talk to customers and suppliers
iii. listen to employees, especially sales representatives and purchasing agents
iv. attend trade shows and conferences
v. study competitor’s literature and “benchmark” their products and services
vi. get competitors’ credit reports
vii. check out the local library
viii. use the world wide web to learn more about competitors
ix. visit competing business to observe their operations
 Step – VII : Create goals and objectives

Goals – broad, long-range attributes to be accomplished
Objectives - more detailed, specific targets of performance that are S.M.A.R.T.
- specific
- measurable
- attainable
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- realistic (yet challenging)
- timely
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 Step – VIII : Formulate strategies

Three basic strategies :
Cost Leadership
Strategy
Differentiation
Focus
Cost Leadership : Goal – To be the low-cost producer in the industry (or market segment)
Low-cost leaders have an advantage in reaching buyers who buy on the basis of price and they have the power to set
the industry’s price floor.
Works well when :

i. buyers are sensitive to price changes
ii. competing firms sell the same commodity / products
iii. a company can benefit from economies of scale
Differentiation – Company seeks to build customer loyalty by positioning its goods or services in a unique or
different fashion.
Idea is to be special at something customers value.
Key – Build basis for differentiation on a distinctive competency, something that the small company is uniquely
good at doing in comparison to its competitors.
Focus – Company select one or more customer segments in a market, identifies customer’s special needs, wants or
interests and then targets them with a product or service designed specifically for them.
Strategy builds on difference among market segments.
Rather than try to serve the total market, the company focuses on serving a niche (or several niches) within that
market.
 Step –IX : Translate plans into actions

Create projects by defining
purpose
scope
contribution
resource requirements
timing
 Step –X : Establish accurate controls

- The plan establishes the standards against which actual performance is measured
Entrepreneur/ organization/ company must :
Identify and track key performance indicators
Take corrective actions
Environmental Analysis
Companies undertake environmental analysis to gather information that they use in every step of the strategic
management process. The different levels of environment are general, operating & internal environment that
organization try to understand & analyse.
The organizational environment may be defined generally as the set of forces both outside & inside the organization
that can affect performance. In an organization where a closed system (nothing to adapt from outside) with no input
from outside, its environment would be in consequential : as an open system, subject to a broad range of outside
inputs & influences, the organization depends for its survival on effective evaluation of it’s environment. An
organisation’s success or failure depends upon how accurately it’s top management team reads the environment, &
how effectively they respond to it.
Accordingly, managers & various levels of the organization & in various functional department spend a great deal of
time & effort gathering & analyzing data related to what they see as important environmental factors.
General Environment
The general environment is that level of an organisation’s external environment with components, that are broad in
scope & have long term implication for managers, firms etc.
Various components of general environment

1. Economic Component – the economic component of the general environment indicates the distribution &
uses of resources within an entire society. Examples of factors within the economic component – gross
national product growth, employment rates, balance of payment issues, interest rates, tax rates & consumer
income etc.
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By, Prof. P.K. Sikdar - 10 -

2. Social Component – the social component of general environment describes characteristics of the society in
which the organization exists. Literacy rates, education levels, customs, values, life style, the age
distribution etc. are the social components of the general environment.
3. Political Component – the political component of the general environment relates to Govt. attitudes
towards various industries, platforms of political parties etc.
4. Technological Component – the technological component of the general environment includes new
approaches to produce goods & services. New producers & new equipment e.g. the trend towards using
Robots to increase productivity is closely monitored by many of today’s managers. The technological
component of today’s general environment also relates to the concepts & techniques of total quality
management & continuous quality improvement.
Various components of operational environment
The operational environment sometimes termed as the Competitive environment is that level of the organisation’s
external environment with components, that normally have relatively specific & immediate implication for
managing the organization.
Components :
1. Customer Component – the customer component of the operating environment reflects the characteristics &
behaviour of those who buy the organisation’s goods & services, describing in detail those who buy the
firms products is a common business practice. Such profile help management to generate ideas about how
to improve customer satisfaction.
2. Competitor Component – the competitor component of the operational environment consists of rivals that
an organization must overcome in order to reach it’s objectives.
3. Labour Component – the labour component of an organizational environment is made up of influences on
the supply of workers available to perform needed organizational task.
4. Supplier Component – the supplier component of operational environment includes the influence of
providers of non-labour (matl., spare parts etc.) resources to the organization.
5. Global/ International Component – the global/ international component of the operational environment
comprises of all factors related to global issues. Significant aspects of the international components
includes laws, political practices/ cultures, an economic climate that prevail in the country in which the
firm does business.
Internal environment
The organization’s internal environment includes forces that operates inside the organization with specific
implications for managing organizational performance. Unlike components of the general & operational
environment which act from outside the organisationa’s, components of the internal environment come from the
organization itself.
 Environmental Analysis :-
 Definition & Rationale – Environmental analysis is the process of monitoring an organisation’s environments
to identify strengths, weaknesses, opportunities & threats that may influence the firm’s ability to reach it’s
goals. The organizational environment may be defined generally as the set of forces, both outside & inside the
organization, which can affect performance. If an organization were a close system with no input from
outside, it’s environment would be in consequential; as an open system, subject to a broad range of outside
input & influences, the organization depends for it’s survival on effective evaluation of it’s environment. An
organisation’s success or failure depends on how accurately it’s top management team reads the environment,
& how effectively they respond to it. Accordingly, managers at various levels of the organization & in the
various functional department spend a great deal of time & effort gathering & analyzing data related to what
they see as important environment factors. The CEO, with the help from internal functional experts from
marketing, research, new product development or production, must develop a solid grasp on the strategic
issues at work in the competitive environment of the firm’s industry. Clearly, many people spread throughout
an organization contribute to environmental analysis.
 Basic Structures of Environment – Analysis commonly divide the environment of an organization into three
distinct levels :
i. The general environment
ii. The operating environment
iii. The internal environment
The following diagram illustrates the relationship of each of these levels with the others & with the organization at
large. The diagram also shows the various components that make up each level. Managers must be aware of these
three environmental levels, know what factors they include, & try to understand how each factor & the relationship
among the factors affect organizational performance. They can then manage organizational operations in light of this
understanding.
General Environment – The general environment is that level of an organisation’s external environment with
components that are broad in scope & have long-term implications for managers, firms, & strategies.
What are these components?
i. Economic Component – The economic component of the general environment indicates the
distribution & uses of the resources within an entire society, examples of factors within the economic
component are Gross National Productivity Growth, Employment Rates, Balance of Payment Issues,
Interest Rates, Tax Rates & Consumer Income, Debt & Spending Patterns.
ii. Social Component – The social component of the general environment describes characteristics of the
society in which the organization exists. Literacy rates, Education levels, Customs, Beliefs, Values,
Life Styles, The Age distribution, the Geographic distribution & the Mobility of the population all
contribute to the social component of the general environment.
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iii. Political Component – The political component of the general environment relates to govt. attitudes
toward various industries, platforms of political parties etc.
iv. Legal Component – The legal component of the general environment consists of laws, that members
of society are expected to follow, e.g. air pollution act, water pollution act etc.
Figure: The organization, the levels of it’s environment, & the component of those levels.
General Environment
Social
Component Economic
Operating Environment Component
International
Component Supplier
Component
Internal Environment
Organisational Component
Mktg. Component
Financial Component
Personal Component
Labour Production Component Competitive
Component Component
Political/ Legal
Component
Technological
Customer Component Component
Ethical Component
iv. Technological Component – The technological component of the general environment includes new
approaches to producing goods & services, e.g. the trend toward using Robots to increase productivity
is closely monitored by many organizations in the world. The technological component of today’s
general environment also relates to the concepts & techniques of total quality management &
continuous quality improvement.
v. Ethical Component – Ethical norms of a society are elements of it’s culture that specify in more
general ways the behaviour that individuals & organizations expect of one another, but that are not
prescribed by law.
Operating Environment – The operating environment, sometimes termed the competitive environment, is that
level of the organisation’s external environment with components that normally have relatively specific &
immediate implications for managing the organization.
As the above diagram indicates, the major components of the operating environment, are customers, competitors,
labour, suppliers & global / international issues.
i. Customer Component – The Customer component of the operating environment reflects the
characteristics & behaviour of those who buy the organisation’s goods & services. Describing in detail
who buy the firm’s products is a common business practice. Such practices help management to
generate ideas about how to improve customer satisfaction.
ii. Competitor Component – The Competitor component of the operating environment consists of rivals
that an organization must overcome in order to reach it’s objectives. Understanding competitors is a
key factor in developing an effective strategy, so analyzing the competition is a fundamental challenge
to management. Basically, competitor analysis is intended to help management appreciate the
strengths, weaknesses & capabilities of existing & potential competitors & predict their responses to
strategic initiatives.
iii. Labour Component - The labour component of the operating environment is made up of influences
on the supply of worker’s available to perform needed organizational tasks.
iv. Supplier Component - The supplier component of the operating environment includes the influence
of providers of non-labour resources to the organization. The firm purchases & transforms these
resources during the production process into final goods & services. How many vendors offered
specified resources for sale, the relative quality of materials they offer, the reliability of their
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deliveries, the credit term they offer, & the potential for strategic linkages – all such issues affect
managing this element of the operating environment.
v. The Global/ International Component - The global/ international component of the operating
environment comprises all factors related to global issues. Though not all organizations must deal.
vi. directly with international issues, the no. that do is increasing dramatically. Significant aspects of the
international component includes the laws, political practices, cultures & economic climates that
prevail in the countries in which the firm does business.
Internal Environment – The organisaton’s internal environment includes forces that operate inside the organization
with specific implications for managing organizational performance. Unlike components of the general & operating
environments, which act from outside the organization, components of the internal environment come from the
organization itself. The following table lists a no. of important components of the internal environment.
Components of the internal environment:-
Organisational Component Personal Component

Communication network Labour relations
Organisation structure Recruitment practices
Record of success Training programmes
Hierarchy of objectives Performance appraisal system
Policies, procedures, rules Incentive system
Ability of management team Turnover & absenteeism
Marketing Component Production Component
Market segmentation Plant facility layout
Product strategy Research & development
Pricing strategy Use of technology
Promotion strategy Purchasing of raw material
Distribution strategy Inventory control
Use of subcontracting
Financial Component
Liquidity
Profitability
Activity
Investment opportunity
Analysis of External Environment –

A continuous process which includes
- Scanning – Identifying early signals of environmental changes & trends of
significance to the industry.
- Monitoring – Detecting meaning through ongoing observations of these
environmental changes & trends.
- Forecasting – Developing projections of anticipated outcomes based on
monitored changes & trends.
- Assessing – Determining the effect of environment changes & trends for firm’s
strategies.
Analysis of general environment

Analysis of industry environment
Analysis of competitor environment
The External
Environment
Strategic Intent
Strategic
Industry Environment – mission
- Porter’s five forces model, the influence on a company & it’s competitive
actions.
- Interaction among these forces determine an industry’s profit potential
- Threat of new entrants
- Power of suppliers
- Power of buyers
- Substitute products
- Intensity of rivalry
Competitor Environment – Competitor intelligence is the ethical gathering of needed information & data about
competitor’s objectives, strategies, assumptions & capabilities.
what drives the competitor as shown by it’s future objectives
- what the competitor is doing & can do as revealed by it’s current strategy
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- what the competitors believes about itself & the industry, as shown by it’s
assumptions
- what the competitor may be able to do, as shown by it’s capabilities.
Porter’s Generic Value Chain :-

Inbound Logistics  Operations  Out bound Logistics  Marketing & Sales  Services  Margin
Firm Infrastructure – HR Management – Technology Dept. – Procurement
The Value ChainTo better understand the activities through which a firm develops a competitive advantage and
create shareholders value, it is useful to separate the business system into a series of value generating activities
referred to as a value chain.
In his 1985 book “Competitive Advantage” Michael Porter introduced a generic value chain model that comprises a
sequence of activities found to be common to a wide range of firms. Porter identified primary & supportive activity
as shown in the above diagram.
The goal of these activities is to offer the customer a level of value that exceeds the cost of the activities, thereby
resulting in a profit margin.
The primary value chain activities are:
1. Inbound Logistics – The receiving & warehousing of raw materials, & their distribution to
manufacturing, as they are required.
2. Operation – The process of transforming inputs into finished product and service.
3. Outbound Logistics – The warehousing & distribution of Finished Goods.
4. Marketing & Sales – The identification of customer needs and the generation of sales.
5. Services – The support to customers after the products & services are sold to them.
These primary activities are supported by:
1. The infrastructure of the firm – organizational structure, control system, company culture etc.
2. HR Management – employees recruiting, hiring, training, development & compensation.
3. Technology Dept. – technologies to support value creating activities.
4. Procurement – purchasing inputs such as materials, supplies & equipment.
The firm’s margin/ profit then depends on its effectively performing these activities efficiently, so that the amount
that the customer is willing to pay for the products exceeds the cost of the activities in the value chain. It is in these
activities that the firm has the opportunity to generate superior value. A competitive advantage may be achieved by
reconfiguring the value chain to provide lower cost or better differentiation.
The value chain model is a useful analysis tool for defining a firm’s core competencies & the activities in which it
can pursue a competitive advantage as follows :
Cost Advantage – by better understanding cost
2. Differentiation – by focusing on the activities associated with core
competencies & capabilities in order to perform them better than do the competitors.
 Value Chain Analysis
The term value chain describes a way of looking at a business as a chain of activities that transforms inputs into
outputs that customers value.
Customer value derives from three basic sources :-
- Activities that differentiate the product
- Activities that lowers its cost
- Activities that meet the customers need quickly
Value Chain Analysis views the organization as a sequential process of value creating activities & attempts to
understand how a business creates customer value by examining the contribution of different activities within the
business to that value.
 Porter describes two different categories of activities
- Primary Activities (sometimes called line functions) are those involved in the
physical creation of the product, marketing & transfer to the buyer & after sale support.
- Secondary Activities (sometimes called staff or overhead functions) assist the
firm as a whole by providing infrastructure or inputs that allow the primary activities to take place on
an ongoing basis.
- The value chain includes a profit margin since a makeup above the cost of
providing a firm’s value-adding activities is normally part of the price paid by the buyer – creating
value that exceeds cost so as to generate a return for the effort.
Primary Activities – Inbound Logistics – The primary activities of inbound logistics are associated with receiving,
storing & distributing inputs to the product. Inbound logistics include : activities, cost & assets associated with
obtaining fuel, energy, raw material, parts, components, merchandise & consumable items from vendors : receiving,
storing & disseminating inputs from suppliers, inspection & inventory management.
Operation – Operation include all activities associated with transforming inputs into the final product form, such as
production, assembly, packing, equipment maintenance, facilities, operations, quality assurance & environment
protection.
Outbound Logistics – These activities are associated with collecting, storing & physically distributing the product
or service to buyers (finished goods warehousing, order processing, order picking & packing, shipping, delivery
vehicle operations).
Marketing & Sales – The marketing & sales activities are associated with purchases of products & services by end
users & the inducements used to get them to make purchases. These activities include advertising & promotion,
market research & planning & dealer/ distributor support.
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Service – This primary activity includes all activities associated with providing service to enhance or maintain the
value of the product, such as installation, repair, training, parts supply, maintenance & repair, technical assistance,
buyer inquiries, product adjustment & complaints.
Support Activities – General Administration – These activities sometimes called “firm infrastructure”, are the
activities, costs & assets relating to general management, accounting & finance, legal & regulatory affairs, safety &
security, management information systems & other “overhead” functions. Unlike the other support activities general
administration activities generally support the entire value chain & not individual activities.
Human Resource Management – Human resource management consists of activities involved in the recruiting,
hiring, training, development & compensation of all types of personnel, labour relations activities & development of
knowledge based skills.
Research, Technology & System Development – The activities, costs & assets relating to product R&D, process
design improvement, equipment design, computer software development, telecommunication systems, computer
assisted design & engineering, new database capabilities & development of computerized support systems.
Procurement – Procurement refers to the function of purchasing inputs used in the firm’s value chain, not to the
purchased inputs themselves. Purchased inputs include raw material, supplies of other consumable items as well as
assets such as machinery, laboratory equipment, office equipment & buildings.
The value chain concept can be presented by the following diagram:-
The Value Chain
General Administration
Human Resource Management Margin
Secondary Activities
Research, technology & system development

Procurement
Inbound Ope Margin
Logistics ration Outbound Marketing & Service
Logistics Sales
Primary Activities
 Conducting a Value Chain Analysis –

 Step 1 – Divide the firm’s operations into activities or business processes, usually grouping them according to
primary & support activities. Within each category, a firm typically performs a no. of discrete activities that
may represent key strengths or weaknesses.
 Step 2 – Next, attach costs to each discrete activity.
 Step 3 – Recognise the difficulty in activity based accounting.
 Step 4 – Identify the activities that differentiate the firm from their competitors.
 Step 5 – After documenting the value chain, managers need to identify the activities that are critical to buyer
satisfaction & market success. These are the activities that deserve major scrutiny in an internal analysis.
The mission should influence manager’s choice of the activities they examine in detail.
The nature of value chains & the relative importance of the activities within them vary by industry.
o The relative importance of value activities can vary by a company’s position in a broader value system that
includes the value chains of its upstream suppliers & downstream customers or partners involved in providing
products or services.
 Step 6 - Compare to competitors.
Structural Analysis of Industries :-

F.E. Porter, the renowned author of “Competitive Strategy”, “Competitive Advantage” etc. has provided a
structural analysis of industries. According to his analysis, which has gained great popularity, the state of
competition in an industry depends on five basic competitive forces, are as under :
1. rivalry among existing firms
2. threat of new entrants
3. threat of substitute
4. bargaining power of suppliers
5. bargaining power of buyers
 Rivalry Among Existing Competitors :-

There are a no. of factors, which influence the intensity of rivalry. This include :
i. no. of firms & their relative market share, strength etc.
i. exit barriers
ii. switching costs (costs incurred to divert the attention of the customers)
iii. strategic stake – rivalry in an industry becomes more volatile if a no. of firms have high stakes
in achieving success there, e.g. a firm which regards a particular industry as it’s core business will give great
importance to success in that industry.
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 Threat of New Entrants :-

A prospective industry often faces threat of new entrants, which can alter the competitive environment. There may,
however, be a no. of barriers to entry.
Following are some of the important common entry barriers :-
i. government policy
ii. economies of scale
iii. product differentiation – uniqueness
iv. monopoly elements
v. capital requirements
 Threat of Substitutes :-
An important force of competition is the power of substitutes. Firms in many industries face competition from
those marketing close or distant substitutes.
 Bargaining Power of Buyer :-
For several industries buyers are potential competitors. Buyers compete with the industry by forcing down the
prices, bargaining for higher quality or more services, & playing competition against each other – all at the
expense of industry profitability.
 Bargaining Power of Suppliers :-
The important determinants of suppliers are the following:
i. extent of concentration & domination in the supplier industry
ii. importance of the product to the buyer
iii. importance of the buyer to the supplier
iv. switching costs
v. extent of differentiation or standardization of the product
 Porter’s five forces model :

Porter has identified five forces that shape competition in an industry as shown in the following diagram :
Porter’s five forces model of competition :
Threat of
New
Entrants
Bargainin Rivalry
among Bargainin
g Power g Power
of Competing
Firms in of Buyers
Suppliers
Industry
Products
Substitute
Threat of
The five forces shaping competition are as under :

i. Threats of entry
ii. Bargaining power of buyers
iii. Bargaining power of suppliers
iv. Substitute products
v. Rivalry among competitors
The five forces are explained below:

a. Threats of new entry – It is a famous saying that no business remains more attractive
than others over the long run. This happens because if the industry is very profitable, there will be entry of
many organizations in the field and position will become normal like any other industry. New entrants to an
industry bring new capacity, the desire to gain market share, and have substantial resources. However, there
are different kinds of barrier for newcomers in a field. If these barriers to the entry are high and a
newcomer can expect sharp competition from the existing competitors, obviously he will not pose a serious
threat of entry. There are six sources of barriers to entry, as under :
i. Economies of scale – The economies of scale deter entry by forcing the new comer either to
come on a large scale or to accept a cost disadvantage. Such economies of scale may be in the area
of production, research, marketing and distribution, financing and other part of the business.
ii. Product differentiation – Brand identification creates a barrier by forcing entrants to spend
heavily to overcome loyalty. Advertising, customer service being the first in the industry and
product differences are among the factors fostering brand identification. Product differentiation
may act as powerful barriers where brand loyalty is quite high such as toilet soaps, soft drinks,
cosmetics and other personal products.
iii. Capital requirements – The need to invest large financial resources in order to compete
creates a barrier to entry, particularly if the capital requirement is high for projects with long
gestation period. Capital is required not only for fixed assets but also for working capital and
absorbing start-up losses.
iv. Cost disadvantages independent of size – The existing organizations have cost advantages
not available to potential rivals, no matter what their size and attainable economies of scale are.
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v. Access to distribution channels – The new entrants may not have access to distribution
channels enjoyed by the established organizations. The new entrants may enjoy all these only at
higher costs. Therefore, they may not remain competitive.
vi. Govt. policy – Govt. policy plays a major role as entry barriers. The govt. can limit entry to
industries with such control as licencing policy of the govt. is to ban entry when it feels that there
is balance demand and supply of a particular product. The govt. can also play a major role by
effecting barriers through controls such as raw material supply, price regulation, air and water
pollution standards and safety regulations.
b. Bargaining power of buyers – Bargaining power of buyers exerts an influence over

the organisations to shape their prices, quality of products and services offered, distribution channels used
etc. If there is a powerful buyer group, there will be buyer’s market and the producer’s profit will suffer.
Buyer group is powerful in the following circumstances :-
i. If purchases in large volume
ii. If the products it purchases from the industry are undifferentiated. The buyers, when they are
sure that they can find alternative suppliers may play one organization against another. This
may happen with industrial products.
iii. If the buyers earn low profit, they will be more price sensitive.
iv. If the buyers pose a problem of backward integration, they will dominate in dealing with the
industry in such a case. Such possibility is more in the case of textiles, automobiles etc.
c. Bargaining power of suppliers – Suppliers can exert bargaining power on participants
in an industry by raising prices of goods and services, thereby they, can affect the profitability of the
incumbents of the industries. The bargaining position of supplier group depends on a no. of characteristics
of it’s market situations and on the relative importance of sales to the industry as compared with overall
business. A supplier group is powerful in the following situations :
i. If supplier group is dominated by few organizations and is more concentrated than the
industry it sales to, it’s bargaining position is better, e.g., in case of polyester yarn industry,
supplier group is dominated by Reliance Industries while buyer group is more fragmented in
the form of numerous power loom organization; the company enjoys better power to fix it’s
products price and other terms and conditions.
ii. If supplier group has in-built switching cost, it has considerable bargaining power. Switching
costs are fixed costs that buyers face in switching from one supplier to another, e.g., Munjal
Showa (Hero Group co.) manufactures shock absorbers for new generation four wheelers and
two wheelers; many auto companies have tied their requirements with it.
iii. If supplier group supplies a product which doesn’t have any substitute, it enjoys considerable
bargaining power, e.g., most of the state electricity boards fall in this category.
iv. If supplier group poses a threat of forward integration, it has considerable bargaining power,
e.g., a TV picture tube manufacturer can pose the threat of forward integration by extending
its production chain to include manufacturing of TV.
d. Substitute products – The amount of competition in an industry depends on the

substitute products which are available in an industry. By placing a ceiling on prices it can charges,
substitute products or services limit the potential of an industry. A very classic example can be taken of
Jute industry which has been outstripped by Petro-Chemical based products as packing materials.
e. Rivalry among competitors – Various factors, as explained under the above four
heads are mostly external form of competition. Competition from within i.e. among different players, is the
most crucial factor which every strategist should take into account. Intense rivalry is related to a no. of
factors in an industry which are as under :
i. There are numerous competitors in an industry and all of them are trying for the same end-
result, i.e., increasing their sales and capturing higher market share.
ii. Often industry growth is slower as compared to the rate of growth in product supply offered
by numerous competitors. With the result, rivalry becomes keen among competitors.
iii. The product may lack differentiation from one brand to another brand based on price-
performance relationship.
iv. In the case of perishable products there is urgency to sale as quickly as possible in order to
avoid product obsolescence. This brings intense rivalry among competitors.
v. When exit barrier is high because of investment locked up in specialized assets, the
companies have to keep their operation on even if they are incurring losses. In order to reduce
these losses, companies may go for intense marketing and obviously intense rivalry among
competitors.
ve Strategies :-
Competitive strategies refer to business strategies to succeed in the chosen business. The essence of it is “taking
offensive or defensive action to create a defendable position in an industry, to cope successfully with the five
competitive forces & thereby yield a superior return on investment for the firm”.
 Generic Competitive Strategies :-
Michel Porter in his book “Competitive Strategy” has defined, at the broadest level, three internally consistent
generic strategies (which can be used singly or in combination) for creating such a defendable position in the long
run & outperforming competitors in an industry.
i. Overall cost leadership – the strategy of cost leadership is to become the lowest cost producer in the industry
through a set of functional policies aimed at this basic objective.
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Porter points out that cost leadership requires :-
i. aggressive construction of efficient scale facilities
ii. vigorous pursuit of cost reduction from experience
iii. tight cost & overhead control
iv. cost minimization in areas like R & D, services, sales forces, advertising & so on.
Low cost position yields the firm above average return in industry. Low cost acts as an entry barrier.
ii. Differentiation – in differentiation strategy “a firm seeks to be unique in its industry along some directions that
are widely valued by key buyers. It selects one or more attributes that many buyers in an industry perceive as
important, & uniquely positions itself to meet those needs. It is rewarded for it’s uniqueness with a premium price.
There are some common requirements for successfully carrying out the differentiation strategy. They include:
i. creative flair
ii. engineering skills
iii. R&D capabilities
iv. Innovative bargaining capabilities
v. Motivation for innovation
iii. Focus – the focus strategy rests on the choice of a narrow competitive scope within an industry, which the
focuser can serve better than the company. Focus can take any forms. The focus may be on a particular consumer
segment, a geographical area etc.
The focus strategy has two variants –
cost focus- where a firm seeks a cost advance in its target segment
differentiation focus – where a firm seeks differentiation in its target segment.
 Generic Competitive Strategies Developed by Michael Porter :

The word ‘generic’ is defined as ‘pertaining to a class or related things’. In the context of strategic marketing
planning, this means that we can distinguish between alternative classes of strategic options for developing a
sustainable competitive advantage. Each of these alternatives constitutes a generic strategy which the marketer may
pursue in an attempt to built a sustainable competitive advantage.
Each of these represents a very different strategic thrust on the part of the organization. These three major alternative
strategies are as under:
i. Cost leadership
ii. Differentiation
iii. Market segment focus
Cost Leadership - This first generic strategy is based, as the term implies, on developing a competitive advantage
around the company, which has the ‘lowest costs’ compare to it’s competitors in the industry. Clearly, such a
strategy suggests that only one company in the industry can achieve a sustainable competitive advantage in this way.
Through the achievement of low costs, it is intended that the company will achieve high levels of profits; indeed, all
things being equal, the cost leader should be the most profitable company in the market. It is important to stress that
pursuing a cost leadership strategy doesn’t mean that the company is competing through lower prices. Rather, the
idea is that the cost leader will charge industry average prices but obviously, with lower costs, will enjoy higher
profits. This is a feature of cost leadership strategy, which is often misunderstood by some marketers. Obviously,
given this notion of charging the same or similar prices to an organisation’s competition, a cost leadership strategy
can only be effective where the cost leader’s products or services are perceived by customers as being on at par with
it’s competitors offerings. Similarly, a cost leadership strategy is only really effective in markets where there is little
or no differentiation between competitor’s offerings.
Attempts to achieve cost leadership can be done in the following ways :
i. A company may secure access to cheaper sources of supply – e.g., raw material, component & so on.
ii. Company may invest in new manufacturing plant or processes in order to reduce costs.
iii. A company may seek to achieve economies of scale through take-over & mergers.
iv. A company may seek cost advantages through linkages between different elements of the company’s
own & supplier value chain.
v. Cost leadership can be achieved by being the first to market &/ or patent activities.
vi. Cost leadership can be achieved through the effective integration & synergy between different parts of
the business.
There is a danger that the pursuit of cost leadership will lead to a tendency to ignore the needs of customer and the
activities of competitiors. In other words, it is tends to be an inward-looking strategy rather than a customer oriented
one.
Differentiation - This approach in developing a sustainable competitive advantage is an unique concept.

Differentiation is based on attempting to create something which is different & unique compare to the competitor’s
products and which at the same time is valued by the customer. The idea of differentiation is that by building
uniqueness to a company’s products or service offerings the company will be able to secure higher price and/ or a
greater market share.
Differentiation can be achieved in the following ways :-
i. through quality engineering etc. –e.g., Mercedes.
ii. through brand and/ or corporate image – e.g., IBM, Coco-Cola etc.
iii. through innovative and distinctive distribution channels – e.g., Avon
iv. through innovative and distinctive designs – e.g., Sony Home Theatre, Videocon Home Theatre etc.
It is important to stress that the basis for the differentiation strategy must be one which is valued by customers. The
risks of differentiation are essentially that competitors will imitate the strategy, thereby removing the basis of
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customer choice. It is also important to recognize that differentiation can be expensive – again, it is important to
compare the potential cost of such differentiation with the value placed on it by the market place.
Market Segment Focus :

In one sense this is not a completely different generic strategies from either cost leadership or differentiation, as it
involves pursuit of either a cost leadership strategy or a differentiation strategy in selected parts of the market. In
other words, it is based on the application in a particular segment.
Small companies in particular can achieve a competitive advantage by focusing on a segment of the market and
differentiating themselves from the competitors.
In recent years, many companies have been successful with this approach in developing a competitive advantage. It
may also be called ‘niche marketing’. The focused specialization itself is the source of differentiation.
The main danger of the market segment focus as a generic strategy is that it leads a company very vulnerable to
changes in the market segments on which they have focused, e.g., if customer tastes change and the product
therefore becomes unfashionable in the target market segment, this can leave a company with no where to go.
Similarly, larger competitors often attack smaller companies which have developed successful market niches for
themselves.
PRODUCT POLICIES
The Product – Product is a bundle of utilities consisting of various product features & accompanying services. The
bundle of activities consists of those physical & psychological satisfaction which the buyer receipts when he buys
the product which the seller provides by selling a particular combination of product features & associated services,
e.g. when the manufacturer produces a toothpaste, the consumer expects from it whiter & cleaner teeth, pleasant
taste, fewer cavities, stronger gums, sweet smelling breath etc.
Product Planning – It is a starting point for the entire marketing programme in a firm. There are three important
dimensions of product planning :-
i. the development & introduction of new products.
ii. The modification of existing lines to suit the changing customer needs & preferences.
iii. The discontinuance or elimination of unprofitable products.
Broadly speaking, the scope of planning and development activities covers decision making and programming in the
following areas :
i. what product or products the firm should make or buy ?
ii. what should be the width and depth of the product line ?
iii. should the company expand or simplify the product line ?
iv. should existing product be altered ?
v. how each item of the product line may be made more profitable ?
vi. what should be the product mix for different market segment ?
vii. what brand, package and cable should be used for each product ?
viii. how should the product be styled and designed ?
ix. in what quantities should each item be produced ?
x. how should the product be priced ?
New Product Development Strategy - Any product that a customer considers in addition to the existing product
may be considered as a new product. It includes a modified product, duplication of the competitors product, product
acquisition etc.
While planning for a new product, the company must consider the following questions :
i. what is the profit contribution picture ?
ii. will the present channel of distribution be compatible ?
iii. will the present product line be complemented by the addition of this product ?
iv. will it stimulate or adversely affect the scene of current product ?
v. does the product possess distinctive characteristics ?
vi. what is the expected life cycle of the product ?
vii. what is the size of the potential market of this product ? will it be effected by cyclical as seasonal
variations ?
viii. can it be produced by using existing plant facility ?
New Product Planning Process:

New product objectives - Before develop a new product, product objective should be determined. Since it is the
market, which accepts or rejects the product, product objectives serve as guidelines for product innovation. A firm’s
product objectives are usually oriented towards the satisfaction of the customers needs, and as the market or it’s
needs change the company adjusts it’s products accordingly. All product objectives must be consistent with the other
components of marketing strategy, such as company’s objective of marketing channels of distribution, promotional
price etc.
The planning process : New product planning process consists of the creation of the new ideas, their evaluation in
terms of sales potential and profitability, production facility, resources available, designing and production testing
and the marketing of the product. The main task of product planners is to identify specific customer need and
expectation and align the growth possibilities of the company with the changing market demand. In each of these
stages the management decides whether –
i. to move on to the next stage;
ii. to abandon the product ; or
iii. to seek additional information
Page 18 of 43

Product planning is the function of the top management personnel and specialists drawn from various functional
areas. This group considers and plans for new and improved products in different phases such as :
i. idea formulation
ii. evaluation or screening of ideas
iii. business analysis
iv. taste marketing
v. commercialization or market introduction
 New Product Planning :-
In a growing economy like in India, to be successful in the field of marketing, new consumer / customer needs must
be discovered and satisfied. A new product must be suitable to meet the changing needs of the customer. The life of
the firm is closely related to the development of new products through technological innovation. The technological
innovations are important to the growth of established business. Businessmen must make a detailed study of the
market in relation to the products. New products mean new profits. For instance a readymade garment dealer has to
plan the garments to be in line with the changing fashions.
Product plan is the first step for an entire marketing programme. It is a wider term and includes product
development also. Product plan has been defined as “the act of making out and supervising the research, screening,
development and commercialization of new products; the modification of existing lines and the discontinuance of
marginal or unprofitable items”. The top management including specialists takes decisions on product planning. It
involves the following steps :
a. idea generation
b. screening
c. business analysis
d. product development
e. test marketing
f. commercialization
The above steps can be presented in the following diagram :
Idea Generation
Business Analysis
Product Development
Test Marketing
Commercialization
NEW PRODUCT PLANNING

Sources of new product ideas :
Ideas for new products can come from many sources, e.g.,
from R&D personnel
from marketing
from customers
from employees suggestions
from outside technological scientific discoveries
from brain storming sessions of executives
from competitors etc.
The above steps of new product development can be summarized briefly as under :
Idea Generation – Product planning starts with the creation of product ideas. The continuous search for new
scientific knowledge provides the clues for meaningful idea formation. Idea may also originate from consumers,
sales men, scientists, technologists, consultants etc.
Screening – It means critical evaluation of product ideas generated. The main objective of screening is to abandon
further consideration of those ideas which are inconsistent with the product policy of the firm. The product ideas are
expected to be favourable and will give room for consumer satisfaction, profitability, a good market share, firm’s
image etc. Only promising and profitable ideas are picked up for further investigation.
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Business Analysis - This stage is an evaluation of product idea in depth to determine it’s financial, competitive
marketing situation etc. Financial specialists analyse the situation by applying the break even analysis etc. Business
analysis will prove the economic prospect of the new product.
Product Development - The idea on paper is converted into product. The product is shaped corresponding to the
needs and desire of the buyers. Product development is the introduction of new products in the present market. New
or improved products are offered by the firm, to the present market so as to satisfy better the present customer.
Laboratory tests, technological evaluation etc. are made strictly on pilot models.
Test Marketing – By test marketing, we mean what is likely to happen, by trial and error method, when a product is
introduced commercially into the market. These tests are planned and conducted in selected geographical areas, by
marketing the new products. The reactions of customers are watched. This type of pre-testing is essential for a
product before it is mass produced and marketed.
Commercialisation - This is the final stage of product planning. At this stage, production starts, marketing
programme begins to operate and products flow to the market for sale. It has to compete with the existing products
to secure maximum market share, sales and profits. When a product is born, it enters into the market ; and like
human beings, has a life span – product life cycle.
Framework & management of marketing mix :

The marketing department is to decide the allocation of the marketing budget of a product to different marketing
elements depending on the market condition. Machine carrying in its conceptual model has reduced the variables to
four Ps.
Product – a product has three meanings viz. core product, formal product, augmented product. A company is to
decide & develop the right product matching with technological development, customized tastes & the need for
product differentiation to capture the market. The marketing manager has to decide product line length, line
featuring etc.
Place – to evolve an efficient frame work for market needs the marketing manager has to choose channels of
distribution, types of intermediaries channel, physical distribution, transportation, warehousing, inventory levels,
order processing etc. For better efficiency & effectiveness, the marketing manager has to choose the best channel
system & determine which markets are to be covered & through what means.
Promotion – it is a most vital ingredients of market needs & refers to advertising & sales promotion, personal
selling, publicity & public relation.
Price – pricing strategy & price variables refer to the levels of prices, level of margins, discounts & rebates,
payment terms, credit terms, installment facility etc. There are three major approaches to the pricing – cost oriented,
competition oriented & demand oriented pricing.
Marketing Needs :
When the marketing functions are assigned relative importance in terms of allocation of business resources in the
context of a given market situation & are interlocked in a planned & systematic manner to attain a given objective,
they merge their identity in what is called the “marketing needs”. The marketing executives then assumes the role of
a mixture of ingredients. However, an optimal marketing need evolves from a creative lending of ingredients or
elements, so that the product or service is offered to the market under the conditions most favourable to the
attainment of marketing objective.
The entire managerial effort is aimed at attaining the marketing objective of satisfying the needs of customer’s
business & society. It means that the consumer must get value satisfaction out of the products/ services delivered to
him by company, & which in the process, must earn profits sufficient to ensure survival, growth & stability.
Linkage between Strategic Planning & Marketing Strategy :

In today’s competitive global market planning is always strategic in character. A business organization is to first
analyse the business environment to score over competitors. It must have a direction to proceed with the support of
all the consumers, suppliers & the society. Strategic planning provides such proper direction for advancement.
Strategic planning is a stream of decisions & actions which enables the organization to achieve it’s desired
objective. With proper functioning of all it’s means it helps an organization to anticipate trends & thereby avail
opportunities of all its decisions & actions.
It is the acute competition in the business world that calls for strategy & strategic planning to organize & manage the
affairs of the business. It serves as a corporate defense to avoid any likely adverse consequences. The internal
strengths & weaknesses of the organization in relation to the competition & the opportunities & threats in the
external environment of business are required to be thoroughly studied, analysed & evaluated so that any decision &
action plan could be effective & favourable to the organization. The tasks involve in strategic planning are to
defining the business of the organization.
i. scanning & analysis of business environment
ii. assessment of internal strength & weakness
iii. setting corporate level objectives – deciding the relative priorities of the various business of the
organization & the allocation of the resources
iv. forging corporate level strategies]
 Marketing Mix :
Page 20 of 43

Marketing mix is a policy adopted by the manufacturers to get success in the field of marketing. The modern
marketing concept emphasizes the importance of the consumer’s preference. Manufacturers take various policies to
get success in the market and the marketing mix is one of the important policy.
Definition - According to Borden, “the marketing mix refers to the appointments of efforts, the combination, the
designing and the integration of the elements of marketing into a programme or mix which, on the basis of an
appraisal of the market forces will best achieve by an enterprise in a given time.”
According to Stanton, “ marketing mix is the term used to describe the combination of the four inputs which
constitutes the core of the company’s marketing system – the product, the price structure, the promotional activities
and the distribution system.”
The term marketing mix is sued to describe a combination of four elements – the product, price, physical
distribution and promotion. These are popularly known as “four Ps”. These four elements or sub mixes should be
taken as instruments, by the management, when formulating the marketing plan. As such, marketing manager should
have a thorough knowledge about the four Ps. The marketing mix will have to be changed at the change of
marketing conditions like economical, political, social etc. Marketing mix is developed to satisfy the anticipated
needs of the identified market. A brief description of the four elements of the marketing mix are as under :-
i. Product – The product itself is the first element. Products must satisfy consumer needs. The management
must, first decide the products to be produced, by knowing the needs of the consumers. The product mix
combines the physical product, services, brand and packages. The marketing authority has to decide the
quality, type of goods or services which are offered for sale. A firm may offer a single product or several
products. Not only the production of right goods, but also their shape, design, style, brand, package etc. are of
importance. The marketing authority has to take a no. of decisions, modifications on the basis of marketing
information.
ii. Price – The second element to effect the volume of sales is the price. The marketed or announced amount of
money asked from a buyer is known as basic price – value placed on a product. Basic – price alterations may
be made by the manufacturers in order to attract the buyers. This may be in the form of discount, allowances
etc. Apart from this, the terms of credit, liberal dealings will also boosts sales.
iii. Promotion – The product may be made known to the customer. Firms must undertake promotional work,
advertising, publicity, personal selling etc. which are the major activities. Promotion is the persuasive
communication about the product, by the manufacturer to the public.
iv. Distribution (Place) – Physical distribution is the delivery of the product at the right time and at the right
place. The distribution mix is the combination of decisions relating to marketing channels, storage facility,
inventory control, location, transportation and also warehousing etc.
The marketing mix can be depicted in the following figure including sub components of the four Ps.
MARKETING MIX
Promotion Distribution
Product Price (Place)
i. features i. credit terms i. advertising i. channels

ii. design ii. Payment period ii. Sales promotion ii. location
iii. brand iii. Discount iii. Publicity iii. stock
iv. package iv. Commission iv. Selling iv. delivery
v. service v. price v. communicating v. transport
vi. warranty vi. Whole selling
Company should view the four Ps in terms of the customer four Cs.
Four Ps Four Cs
Product Customer needs
Price Cost to the customer
Place Convenience
Promotion Communication
A firm’s marketing efforts should start and end with the customer. A share in the market and the goodwill depends
upon the marketing plans. The customer’s need and desire may often change, because of the changes that take place
in the market. The decision on each element of four Ps are aimed to give greater consumer satisfaction. The
elements of four Ps are interrelated, complementary and mutually supporting ingredients. Thus marketing mix is
used as tool towards the customers in order to ascertain their needs, tastes, preferences etc. Marketing mix must face
competition. It must satisfy the demands of the society. Then firms can attain the objectives – profit, market share,
return on investment, sales volume etc.
Problems – Each element of marketing mix is under the control of a separate personnel. Therefore, it is necessary to
the marketing manager to co-ordinate all the elements in marketing mix in order to achieve the aim. There arise
problems in the process of co-ordination.
Controllable factors –
i) Product Planning - A wise product policy is essential to meet the market
demand. A good policy is a guide for decision making. Consumers must be satisfied in a better way,
through design, quality, size, market segmentation etc. The plan includes introduction of products and
modification of products to suit the demands and elimination of unprofitable lines.
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ii) Price – It deals with price competition. It also deals with policies of prices,
discounts, allowances, terms of credit etc. A reasonable profit is aimed at by the offerer, and the price of the
product is fixed to suit the market.
iii) Branding – It must create a particular image in the minds of the consumers.
Decisions of the trade mark is important in developing a product. In a similar manner, packaging is also
decided by considering its objective and economies in attractive style.
iv) Personal Selling – Personal selling is good to increase the sale and at the
same time to know the consumer’s needs and desire.
v) Sales Promotion – The marketing manager makes out programmes to
increase the sales through exhibitions, displays, advertising etc. The process must inform and persuade the
customers of company’ products.
vi) Physical Distribution – It includes the channels of distribution,
transportation, warehousing, inventory control etc. Distribution is the delivery of the product at the right
time and at the right place.
vii) Market Research – It is a system by which one can analyse the market
conditions. It helps a marketer in formulating the policies by which the product reaches in an efficient way
in the hands of the consumers.
viii) Internal Competition – A firm may have many departments headed by
specialists. There must be co-ordination among the departmental heads to achieve a good result.
Uncontrollable Factors : Uncontrollable factors are also known as external factors, which are :
i) Consumer’s buying behaviour – It is affected by buying habits, buying powers,
motivation in buying, living standard, social environment, technological changes etc.
ii) Trader’s behaviour – The behaviour of intermediaries – wholesalers or retailers, and their motivation,
practices, attitudes etc. affect the marketing of the product and the sales volume.
iii) Competitor’s behaviour – New business firms come up. This attitudes invite competition among the
industrialists. The competition may be of supply and demand of the product, choice offered by the
consumers, technological changes, new inventions etc.
iv) Governmental behaviour – The marketing manager should consider the rules and regulations of the govt.
in respect of products, pricing, competitive practices, advertising etc. Firm’s have no control over the laws.
 Marketing Planning – According to American Marketing Association, “marketing planning is the work of
setting up objectives for marketing activity and of determining and scheduling the steps necessary to achieve
such objectives.” Marketing planning involves the preparation of policies, programmes, budgets etc. in
advance for carrying out the various activities and functions of marketing to attain the marketing goals.
Every company must look ahead and determine where it wants to go and how to get there. To meet this need,
companies use two systems- a. strategic planning system and b. marketing planning system.
Strategic planning provides the route- map for the firm. Strategic planning serves as the hedge against risk
and uncertainty. Strategic planning is a stream of decisions and actions which lead to effective strategies and
which in turn help the firm to achieve its objective.
Benefits of Marketing Planning:-

promotes successful market operations
ii) it helps to co-ordinate activities which can facilitates the attainment of objectives over time
it forces management to reflect upon the future in a systematic way
iv) resources can be better balanced in relation to identified market opportunities
v) it helps to appraise performance, capitalized on strength, minimize weaknesses and threats and finally
open up new opportunities
vi) it promotes a comprehensive view of the business firm and acts as a process of communication and co-
ordination between marketing and other departments.
vii) Marketing planning can be advocated to minimize the risk of failure
viii) A greater preparedness to accommodate change can be stimulated
Marketing strategy = the marketing logic by which the business unit hopes to achieve its marketing objectives.
Marketing Planning Process :- Steps involved –

i) Scanning the marketing environment :- first a firm scans its marketing environment. The purpose is to
find out –
a) the favourable and unfavourable factors prevailing in the environment.
b) the specific business opportunities available to the business units and their relative
attractiveness.
Study of marketing environment analysis helps to locate marketing opportunities and discover unsatisfied
consumer demand.
ii) Internal scanning – Internal scanning is the process of assessing the firm’s strength and weaknesses and
identifies it’s core competencies and competitive advantages.
iii) Setting marketing objectives – The very purpose of setting objectives is to provide clear cut direction to
the business regarding it’s future course of action. Objectives are set in all the key areas of marketing such
as sales volume, market share, market standing, innovation, productivity, profit etc. The business unit has
to develop its marketing objective after weighing the opportunities available in the environment, the
threats, the forces of competition, the resources and capabilities of the unit and its marketing organization,
e.g., marketing objectives may be set as follows :
a. the distribution costs per unit of the product will be reduced by 10% in
the current financial year
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b. market share of the product will be increased by 10% during the next
financial year
c. the sales volume of the product will be increased by 15% during the
coming financial year
iv) Formulating marketing strategy - Marketing strategy formulation is the core of marketing planning.
Marketing strategy is the complete and unbeatable plan designs specifically for attaining the marketing
objectives of the firm. The marketing objective indicates what the firm wants to achieve, the marketing
strategy provides the design for achieving them.
v) Developing functional plans – Once the marketing strategy is formulated, the next step is elaborating the
marketing strategy into detailed plans and programmes. A plan may have to be developed for each
marketing function.
 Portfolio Strategy :
One of the most important major long term corporate decision pertains to the scope of the business is the portfolio
strategy. Portfolio strategy answers the question : in which business shall we be ? ; while competitive strategy
answers the question : how shall we succeed in it?
Business Portfolio Analysis – Portfolio analysis is the analysis of a company as a portfolio or collection of different
businesses with a view to identifying the status and potentials of various businesses with regard to resource used and
resource generation. The objective is to help the company to formulate appropriate portfolio strategy which involves
such issues as : should there be a change in the current portfolio ? which businesses should we develop further ?
which are the businesses to be harvested ? The portfolio analysis, thus, is an important tool assisting the formulation
of corporate strategy which is concerned with generation and allocation of corporate resources.
Several models have been developed for the evaluation of business portfolio. These include Boston Consulting
Group (BCG) Matrix, GE Multifactor Portfolio Matrix, Shell’s Directional Policy Matrix and Hofer’s Product/
Market Evaluation Matrix.
 BCG MATRIX :
The Boston Consulting Group (BCG) Model, popularly known as the BCG Matrix or Growth – Share Matrix, is
based on two variables, viz., the rate of growth of the product market and the market share in that market held by the
firm relative to it’s competitors.
The market growth rate is an indicator of the attractiveness of the industry and the relative market share is an
indicator of the strength of the firm in that industry relative to it’s competitors.
The BCG Matrix can be depicted in the following figure :
RELATIVE MARKET SHARE

HIGH LOW
MARKET GROWTH RATE
HIGH
STARS STARS QUSETION MARKS
LOW CASH COWS DOGS
In the figure, the vertical axis measures the annual growth rate of the market and the horizontal axis shows the
relative market share of the firm. Each of these dimensions is divided into two categories of high and low, making
up a matrix of four cells. These four cells are described below:
High Growth – Low Market Share : Products in this cell are in fast growing markets but their relative market
shares are low. They are, therefore, aptly described as question marks – the company confronts the critical question
of whether to make further investment in these businesses to build up market share or to divest and get out.
A question mark may call for heavy investment and other capabilities to increase it’s market share and becomes a
star. If the company has the strength to increase it’s market share, the right strategy would be to build i.e. to build up
the market share so that the question mark becomes a star.
If the company doesn’t have the strength to build up a question mark to a star or if the resources can be put to better
use elsewhere, divestment may be an appropriate strategy.
A company which is in a no. of businesses may have several question marks. Some of these may be right for
building up and some of them may be blocked. In some cases where a company has a no. of question marks, it may
face resource crunch to build up all these businesses.
If a company has a no. of question marks, it doesn’t necessarily mean that it will have to build up some and drop
others. In some cases the right strategy could be to build all.
High Growth – High Market Share : Products in this cell are called stars. They are promising products because
they have a relatively high market share and the market is growing fast. Stars are usually profitable and would be the
Page 23 of 43

future cash cow. Many stars call for substantial investment to maintain their market share in the fast growing
market. This may requires investment of internal accruals and sourcing external funds. Several stars therefore, may
not produce cash flow for the company until the market matures and the stars become cash cows.
The appropriate strategy for stars often is to hold, i.e., to maintain the market share, which usually requires large
investments to increase supply and fight competition.
Low Growth – High Market Share : As the market matures or when the market growth rate becomes low the stars
would become cash cows. Cash cows are, thus, high market share businesses in slow growth industries. Being in
slow growth industries, they don’t normally require significant re-investment. Cash cows generate lot of cash, which
may be used to finance the development of other businesses of the company like stars and question marks. A
company which doesn’t have cash cows would find it difficult to develop businesses.
The strategy often employed in respect of weak cash cows (i.e., those, which don’t have a long term prospects) is to
harvest i.e. to increase the short term cash flow regardless of the long term effects. In case of strong cash cows (i.e.,
those with long term prospects) some re-investment may be required to keep them in good instead for harvesting, for
long time.
Low Growth – Low Market Share: Businesses with low market share in low growth industries are described as
dogs. Dogs may produce low profits or loss.
If a dog doesn’t generate satisfactory return and if there is no chance of improving it, one may be tempted to
advocate divestment. However, in several cases dogs may be retained in the portfolio due to several reasons. In
some cases dogs may be providing crucial inputs to stars, question marks or cash cows. Some dog product may have
to be retained to compete the product range, and provide a goodwill in the market. They may be held for defensive
reasons to keep competitors out. Sometimes dogs may be retained due to reasons like sentimental factors, goodwill
etc. A dog may be harvested before liquidation.
As time passes SBUs may change their position in the growth – share matrix. Successful SBUs have a life cycle.
They start as question marks, becomes stars, then cash cows and finally dogs towards the end of their life cycle.
Each business should be reviewed as to where it was in past years, and where it will probably move in future years.
Thus, the growth share matrix becomes a planning framework for the strategic planners at corporate headquarters.
They use it to try to access each business and assign the most reasonable objective.
Limitation of BCG Matrix :

The BCG Model may not always be practically meaningful in view of it’s certain premises. For instance, four - cell
matrix is based on the classification of business into high – low. In real world, growth rate and market share of
business units may vary between the two. It would, therefore, have been more meaningful if business were classified
into high, medium and low. Further, the matrix gives consideration to only two factors viz., market share and growth
rate of sales and thus, ignores equally important factors such as product life cycle, market evaluation, strategic fit
among different businesses, presence of competitive advantages, size of the market, capital requirement etc. Another
important limitation of a firm is the function of growth and market shares. In many industries, firms with low shares
in a large and growing market are able to earn high earnings, likewise, business with high market share in low
growth market may not generate high cash surplus in view of severe competition.
 GE Nine Cell Planning Grid :

In order to overcome the weaknesses of BCG Matrix, General Electric Co. (GEC) of USA has developed a nine cell
grid with the help of McKinsey & Co. of USA, a leading consultancy firm. GE grid differs from BCG model in two
respects which are as follows :
a. The GE grid has considered a no. of factors in assessing the industry attractiveness and business
strength instead of the single measure for each of two dimensions – market share and market growth.
b. The GE grid considers the three degrees of a dimension – high, medium and low – as compared to
two degrees high and low – employed by BCG model.
Business Strength Factors and Measurement

GE considers market share, profit margin, ability to compete, customer and market knowledge, competitive position,
technology and management caliber to measure business strength. These factors may be quantified on the basis of
assessing the strength and importance of different factors for being successful in an industry. The degrees of strength
and importance may be assign rating and weight subjectively based on personal experience. Business strength
measurement can be presented in the following table:
Table showing measurement of business strength:

Business Strength Factors Weight Rating Score
Market share 15 0.8 12.0
Profit margin 10 0.6 6.0
Ability to compete 20 0.8 16.0
Customer and market knowledge 15 0.5 7.5
Competitive position 15 0.7 10.5
Technology 10 0.8 8.0
Management caliber 15 0.7 10.5
--------- ---------
TOTAL 100 70.5
--------- ---------
Rating – varying between 0-1 (lowest – highest)
Business strength – strong, average, weak (50 representing average)
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Industry Attractiveness Factors and Measurement
Industry attractiveness factors include market size and growth rate, industry profit margin, competition, economies
of scale, seasonality and social, environmental, legal and human factors. These factors can be quantified in the same
way as has been done in the case of business strength factor. Industry attractiveness measurement can be presented
in the following table:
Table showing measurement of industry attractiveness :

Business Strength Factors Weight Rating Score
Market size 15 0.8 12.0
Growth rate 25 1.0 25.0
Profit margin 20 0.7 14.0
Competition 20 0.8 16.0
Economies of scale 10 0.5 5.0
Technology 10 0.6 6.0
Other environmental factors non-restrictive - -
--------- ---------
TOTAL 100 78.0
--------- ---------
Various industry factors vary from industry to industry depending on it’s nature. Combination of business strength
and industry attractiveness gives nine cells as presented in the following figure:
Page 25 of 43
BUSINESS STRENGTH
STRONG AVERAGE WEAK Zone Strategic
Signal
HIGH Green Invest/

Expand
ATTARCTIVENESS
MEDIUM Yellow Select/

Earn
INDUSTRY
LOW Red Harvest/

Divest
GE Nine Cell Planning Grid

Nine cells of GE grid are divided into three zones and depicted by different colours : Green, Yellow and Red.
This is analogous to traffic signal – Green for Go, Yellow for wait and Red for Stop. For this reason, GE grid is also
termed as Spotlight Strategy Matrix. Each zone of the grid presents a specific type of strategy or set of strategies
which are as follows :
Invest/ Expand : In the first zone, a business has opportunity to grow through further investment and expansion.
This zone is characterized by the presence of both : business strength and industry attractiveness though each cell
represents different combinations of these. In the extreme left hand corner, both are high which is ideal situation for
growth ; however, a business doesn’t remain in this situation for a long. This attract other players, unless there are
some strong entry barrier, e.g., information technology, being the most attractive industry at one point of time has
not remain as attractive because of entry of all sorts of players, almost, having hard mentality.
The other two cells are more realistic description of business situations. In high attractiveness and average strength,
an organization can grow though, in the long run, it may become dangerous for it if it doesn’t build strength in it’s
business, e.g., at the initial stage of economic liberalization process, many company enters light commercial vehicle
segment even with foreign technical collaboration. At that time, the industry was considered one of the most
attractive. At present, none of them is performing well.
The third situation, perhaps, most realistic situation for growth. Though industry attractiveness is medium, the
organization have strong strength on the basis of which, it can generate competitive advantage for itself which may
act as entry barrier for many aspiring entrants. When Reliance entered Polyester and Polymer businesses, these were
not considered highly attractive on the above grid but the company had strength on the basis of which it created
enormous capacity to compete.
Select/ Earn – The zone presents a mix situation in which much growth possibility doesn’t exist. However, it
presents the opportunity for selective earning. The opportunity for selective earning exists because either one of the
two determinants – business strength and industry attractiveness is high – or both stand in the middle. While two
cells – average strength with medium attractiveness and strong strength with low attractiveness indicate held
position, i.e., to earn profit with the present level of capacity. The third cell provides flexible situation. On the one
hand, it represents continued earning because of high industry attractiveness ; on the other, it suggests the scope for
improving strength and if that is not possible, the business may be put in the category of question mark which
require it’s re-assessment and a possible candidate for divesting. In the case of strong strength and low industry
attractiveness, either the organization can go for vertical integration. Either forward or backward depending on the
nature of industry or may seek diversification where present strength can be utilized.
Harvest/ Divest – In the case of Red cell, the organization has to stop. In this case, harvesting or divesting strategy
is suitable. Harvesting involves a decision to withdraw from a business but withdrawal is not immediate. At the
initial stage, focus must be on cost cutting particularly on those items which have long term impact such as Research
and Development, advertising etc. The objective is to earn, short term profit as business is not attractive in long run.
Cells having average strength with low attractiveness and weak strength with medium attractiveness are fit for
harvesting. In the case of extreme both dimensions are not positive, immediate divestment is required as any delay
may result into lower attractiveness to a prospective buyer.
PRODUCT/ MARKET EVOLUTION MATRIX :

A weakness in GE approach has been identified by Hofer and Schendel. They suggest that this approach doesn’t
depict the position of businesses that are about to emerge as winners because the product is entering the take off
stage. In order to overcome this problem, they have constructed a 15 cell matrix taking competitive position and
stages of product/ market evolution dimensions. This matrix is presented in the following diagram :
Competitive Position
Strong Average Weak
Development
A
Growth
B C
Evaluation
Stages of
Shakeout D
Product/
Market
Maturity/ Saturation E
Decline
F
Page 26 of 43
Various businesses of an organization can be shown on this matrix taking into account their competitive position and
stages of product / market evolution and the future of this businesses can be determined. Accordingly, business ‘A’
would appear to be a developing winner, business ‘B’ may be classified as a potential winner, business ‘C’ can be
developed into future winner by improving it’s competitiveness, business ‘D’ may be labeled as established winner,
business ‘E’ may be cash cow, business ‘F’ may be called a loser or dog, and so on. Thus, the following conclusions
can be drawn :
a. business falling in strong competitive position and in development and growth market may be
future winner.
b. Business falling in average competitive position and in development and growth market may be
converted into future winner by increasing their competitive position.
c. Business falling in weak competitive position in any market, particularly more so immature and
declining market are potential losers. Therefore, they can be considered for divestment.
d. Business falling in strong competitive position and in mature and shakeout markets may be termed
as cash cows because of their ample cash generating capacity.
e. Business falling in average competitive position and in saturated and declining future divestment.
 Product Life Cycle Model :

Although the product life cycle model is used widely, it has been subjected to a no. of criticism. Discuss the
problems that have been identified.
The Product Life Cycle (PLC) provides a useful start to the development of a strategy as it predicts the changes
which are likely to occur in the industry, by providing a framework of introduction, growth, maturity and
decline. The PLC model focuses attention on these aspects with the development of an organisation’s strategy,
e.g. it is possible that the nature of competition will alter as the industry moves through the PLC.
It is important that the limitations of the model are understand if it is to be effectively incorporated into the
strategic planning process. The more important criticism are:
1. The model applies to the industry and can’t be use to predict the demand for the products of the
individual firms;
2. Each stage of the PLC can vary considerably and products more through the stages at significantly
different speed;
3. It is difficult to establish a product’s position in the PLC and changes can occur relatively quickly.
4. Companies can affect the shape of the growth curve through innovation and promotional activities.
The relevance of the PLC to strategic planning :

A company selling a range of products must try to look into the longer term, beyond the immediate budget period,
and estimate how much each of its products is likely to contribute towards sales revenue and profitability. It is
therefore necessary to make an assessment of the following :
the stage of its life cycle that any product has reached.
b. Allowing for the price changes, other marketing strategies, cost control and
product modification, for how much longer the product will be able to contribute significantly to profit and
sales.
Another aspect of PLC analysis is new product development and strategic planners must consider the following :
a. How urgent is the need to innovate and how much will have to be spent on R&D to
develop new products in time?
b. Capital expenditure and cash flow. New products cost money to introduce. Not only
there are R&D costs, but there is also capital expenditure on plant and equipment etc. and probably heavy
expense of advertising and sales promotion. A new product will use up substantial amounts of cash in its
early life, & it will not be until it’s growth phase is well underway, or even the maturity phase reached, that
a product will pay back the initial outlays of capital and marketing expenses.
What factors affects the length of the life cycle :

The length of a life cycle is determined by factors influencing either demand or supply :
a. the demand for a product is influenced by price, the emergence of new substitute products and their price,
the income of customer and fashion. Household income is an important factor in the demand for certain
products.
b. The supply of a product is influenced by innovation. New products, which satisfy customer needs better
and cheaply should take over the market entirely from the existing product. New methods of working
(e.g., the introduction of capital intensive methods of working such as with Robotics or continuous
process production methods) might mean that existing products can no longer be made in the same way.
Higher production costs will make suppliers put-up their prices and when demand falls at the new price
levels, they will then cut back on production.
It is perhaps easy enough to accept that products have a life cycle, but it is not so easy to sort out how far through its
life a product is, and what its expected future life might be.
PRODUCT LIFE CYCLE:

The profitability and sales of a product can be expected to change over a time. The “Product Life Cycle” is an
attempt to recognize distinct stages in a product’s history. According to CIM (Chartered Institute of Marketing,
London) PLC is ‘the pattern of demand for a product or service over time.’
The PLC has a differing degree of applicability. The PLC having the following stages :
a. Introduction (or immaturity) – a new product takes time to find acceptance by the customer/
purchasers, and there is a slow growth in sales. Only a few firms sell the product, unit costs are high
because of low output and expensive sales promotion; there may be early teething trouble with production
Page 27 of 43

technology and prices may be high to cover costs as much as possible e.g., pocket calculator, colour TV &
VCDs were all very expensive when first launched.)
b. Growth or Development – If the new product gains the market acceptance, sales will eventually
rise more sharply and the product will start to make profits. As sales & production rise, unit costs fall.
Since demand is strong, prices tend to remain fairly stable for a time. However, the prospect of cheap mass
production & a strong market will attract competitors so that the no. of producers will increase. With the
increase of competition, manufacturers spend money on product improvement, sales promotion,
distribution to obtain a dominant or strong position in the market.
c. Maturity – The rate of sales growth slows down and the product reaches a period of maturity
which is probably the longest period of a successful product’s life. Profits are also good.
d. Decline (or fall off) – Some products reach a stage of decline which may be slow or fast.
Eventually, sales will begin to decline so that there is over-capacity of production in the industry. Severe
competition occurs, profits fall and some producers leave the market. The remaining producers seek means
of prolonging the product life by modifying it and searching for new market segments. Many producers are
reluctant to leave the market, although some inevitably do because of falling profits. If a product remains
on the market too long, it will become unprofitable and the decline stage in its life cycle then gives way in a
‘senility’ stage.
Sales &
Profit
Sales
Time
Introduction Growth Maturity

Profit Decline Profit Senility
The strategic
implication of the PLC :
Introduction Growth Maturity Decline
---------------------------- Phases of PLC --------------------
Products Initially, poor quality. Competitors product Products become more Product even less
Product design & have marked quality standardized & differentiated.
development are a key differences & technical differences between Quality becomes
to success. differences. competiting products more variable.
No Std. Product & Quality improves. less distinct.
frequent design Product reliability may
changes. be important.
Customers Initially customers Customers increase in Mass market. Customers are
willing to pay high nos. Mass saturation. ‘sophisticated’
prices. Repeat buying of buyers of a product
Customers need to be products becomes they understand
convinced about significant. well.
buying. Brand image also
important.
Introduction Growth Maturity Decline
---------------------------- Phases of PLC --------------------
Marketing High advertising & High advertising costs Markets become Less money spent
sales promotion cost. still but as a % of sales. segmented. on advertising &
High prices. Costs are falling. Segmentation & sales promotion.
Price is falling. extending the maturity
phase of the life cycle
can be key strategies.
Competition Few or no More competitors enter Competition at it’s Competitors
competitors. the market. Barriers to keenest : gradually exit from
entry can be important. On prices Branding the market.
Servicing customers Exit barriers can be
Packing etc. important.
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Profit Margin High prices but losses High prices, high Falling prices but good Still low prices but
contribution margin & profit margin due to falling profits as
increasing profit high sales volume. sales volume falls,
margin. Higher prices in some since total
market segments. contribution falls
towards the level of
fixed cost.
Some increase in
prices may occur in
the late decline
stage.
Manufacture Over capacity, Under capacity move Optimum capacity, Over capacity
& distribution high production cost, towards mass low labour skills, because mass
few distribution production & less distribution channels production
channels, high labour reliance on skilled fully developed. techniques still
skill content the labour. used.
manufacture. Distribution channels Distribution
flourished & getting channels
adequate distribution dwindling/
channels is a key to reduced.
manufacturing success.
Q. Describe how the following could be used by an organization wishing to generate strategies :
a. Porter’s model of generic strategies
b. Ansof’s (product – market expansion) matrix
Explain the limitations of the two models.
Ans. – Competitive Advantage

Cost Differentiation
Cost Leadership Differentiation
Competitive scope
Focus
Porter divided business strategy into 3 main categories. The relationship between the strategic target and the method
of achieving competitive advantage is shown in the above diagram.
It is possible for an organization to decide to adopt a ‘focus’ strategy & concentrate on only a segment of the market.
Alternatively it is possible to target the whole industry by adopting either an ‘overall cost leadership’ or a
‘differentiation’ strategy.
a. ‘focus’ strategy involves the identification of a niche in the market. Customer needs within the
niche should be identified & satisfied by the organization.
b. ‘overall’ cost leadership implies that the organization can produce the product at the lowest cost
through either economies of the scale or superior technology.
c. ‘differentiation’ means that the organization identified & introduces unique features to their
products. The differences may either be real in terms of quality & additional product features or perceived
differences which are created through advertising.
Marketing Warfare :
The expression ‘a war like analogy for marketing in competitive environment’ refers to the different types of
marketing strategies to be followed in different competitive situation.
According to A I Ries & Tack Trout the marketing strategies are basically of four types as given below :
1. Offensive Strategy - This strategy of marketing is pursued by the firms which are leaders in a market. The
leading firms are usually possessed of strong managerial acumen and flexibility, creative & perceptive science, latest
technology based & above all, capabilities to explore the market. Even such firms, having strong finance base, can
make heavy investment on R&D, to invent & to introduce new products/ services as the ‘first to market’ strategy. By
following this strategy, the market leaders even challenge their own product market postures for creating innovative
designs with a view to:
a. strengthening their leadership positions ; &
b. keeping the competitor (who pursue a follow the leader strategy) at a distance .
The companies like TISCO, TELCO, Bajaj Auto, Hindustan Lever follow this strategy.
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2. Defensive Strategy - This strategy of marketing is pursuit by the firm which hold a strong position but not the
leaders in the market. The firms occupying the position next to the leading firm in the market make efforts to locate
a particular weakness in the leader’s strength & attack at that point. They attack the leader either by making
improvements or introducing secondary characteristics in their product designs or by increasing their marketing
skills etc. Such firms usually have good finance base & possesses good knowledge about competitors including the
leaders & due to this they choose one or two fronts to launch their attacks, e.g., leading firm’s products are highly
priced on quality considerations & in such case, the firms following this strategy cut their prices because of low cost
advantage & capture a sizeable portion of market share. To illustrate the strategy further, many electrical cable
producing firms in India could increase their market share & retain it by offering lower prices against the higher
prices charged by the firms like INCAB, NICCO & Gloster Cables.
3. Flanking Strategy – The word ‘flanking’ means attacking sideways – a part of war tactics. In this sense flanking
strategy of marketing refers to gain market positioning of products in any manner – with high or low prices, small or
big size, bulk or retail distribution, small or large packing etc. In other words, this strategy involves seeking
marketing opportunities in new or existing markets through innovative means, that will meet customer choices of
different classes, yet competing with large firms & capturing a market share. Small & even medium sized firms with
limited resources can pursue this strategy for survival, without holding any position which are in no way nearer to
the leading firms. Babool Toothpaste, OK or Nirma Detergent Soap Powder, Sonali Glycerine Soaps are example
whereby these firms could market their own markets even in the face of competition posed by Close-Up Toothpaste,
Ariel Detergent Soap or Pears Glycerine Soap.
4. Guerrilla Strategy – This strategy of marketing is pursuit mostly by small firms as they operate mostly in local
markets. They choose a particular segment of the market & fewer no. of products to avail, of the marketing
opportunities like the Guerrillas. This way they reduce the size of the battle ground & attain marketing success.
Locally made stainless steel utensils (similar to SAIL’s dinner set), chappals made of rubber or plastics (similar to
BATA variety), suitcases & luggage items (similar to VIP brands), etc. available at lower prices in the local markets
in all states of India are the examples – which fight like guerrillas in the market.
Conclusion : Whatever strategy is chosen, a firm has to understand the real characteristics of a particular market &
of particular class of buyers while implementing the four Ps of marketing (i.e. Product, Price, Promotion & Place).
 Globalisation as an important strategic global business trend :

‘Globalisation’ refers to the process for going global in respect of a business firm profit oriented or not, of any
country. It is a mode of entry abroad in business terms and thus, a strategy itself. The term global is sometimes
synonymously used for multinational, international etc. e.g., multinational enterprises with tight centralization of
controls & high co-ordination among different parts of the chain are called Global Enterprises.
The concept of ‘globalisation’ views the entire world as a single market & doesn’t differentiate between domestic
market & foreign market. A firm to become ‘global’ must posses these characteristics & pursue a strategy based on
the dynamics of the global business environment. While formulating the globalisation strategy, a firm must consider
four basic factors as under:
a. the global business environment & its opportunities and threats
b. the competitive advantage as a nation
c. the competitive advantage provider possessed by it
d. the consideration as if it views all key customers equidistant from its corporate center
For global business, there are different strategic options available. A firm can enter into global markets through any
of the routes like:
a. export route
b. licensing of technology & knowhow
c. joint venture
d. multinational trading ; &
e. full-fledged global operation with production/ supply bases across countries
For a decision in favour of globalisation the choice of a firm typically comes down to one of the following three
approaches:
a. producing at home & export abroad
b. entering into a contractual agreement such as licensing a technology or management
contract without actually owning substantial assets abroad ; &
c. owning & controlling assets abroad , by having joint ventures or through majority
ownership.
According to Porter, globalisation strategy for a firm should possess the characteristics presents of three elements as
under:
a. international sales with international brand name & international marketing channels
b. activities in other nations in order to capture local advantages & to make local market penetration
c. coordination & integration of activities on a world wide basis to gain economies of scale & serve
international buyers
Porter further suggests that a firm should move towards a global strategy when its resources & competitive position
allow it. He argues that advantages derived from the global network will add to home-based advantages & make
them sustainable.
In the context of globalisation, there have been some significant developments over the years. These are :
a. Many multinational corporations have transforms into global corporations. They invest,
train people, build up infrastructure & provide value added benefits to the customers in different countries
where they do business.
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b. Many countries, particularly Asian countries have made economic reforms to the
promotion of joint ventures.
c. The cross border mergers & acquisition in respect of many companies, apart from
diversification benefits, have contributed to certain advantages like instant access to market & distribution
networks & access to new technology.
d. Strategic alliance, in the form of coalition etc. have enabled many firms to increase
their resource base, productivity & profitability.
e. Lastly, the emergence of the International Chamber of Commerce (ICC) located in
Paris & the International Centre for Settlement of Investment Disputes located in Washington can dissolve
international trade disputes arbitration.
Meaning of the terms :-
i. Joint Venture, ii Merger, iii. Take over, iv. Acquisition
Identify the reasons underlying them. State the advantages of ‘take overs’ & ‘mergers’ to the national
economy.
Terms Explained:
i. Joint Venture – Joint venture is a kind of business venture usually on the basis of an agreement, where two firms
or companies pool their resources to form a business association but one firm or company doesn’t acquire the other
& they don’t form actual merger. In a joint venture, two firms together produce, warehouse, transport & market
products. The profits & losses from these operations are shared in some pre determined proportion. A collection
agreement with specific terms & conditions with respect to areas of operations & others is important in case of joint
venture to avoid any future competitions.
Joint venture is a management proposition & creates a synergistic condition – the addition of two parts is greater
than the whole. It doesn’t require basic structural changes in business & management but provides strategic posture
to obtain synergistic effects in many areas like sales, operation, investment & management.
ii. Merger - Merger is a combination of two companies wherein one company losses it’s corporate existence. The
surviving company (which is also called the amalgamating company) acquires both the assets & liabilities of the
merged company (which is also called the amalgamated company). That is why, mergers are called amalgamations
in legal parlance. When two companies differ significantly in size, merger is the most appropriate term.
There may be three categories of merger :
Horizontal
Vertical
Conglomerate
In fact, merger like acquisition is a part of diversification strategy. Merger forces structural changes in business &
management & creates a synergistic effect in many areas to achieve growth prospects.
Distinction between merger & consolidation:

Consolidation is a combination of two companies whereby an entirely new company is formed. Both the old
companies ceases to exist & shares of their common stock are exchanged for shares in the new company. When two
companies of approximately the same size combined, the term consolidation applies. The term merger &
consolidation tend to be used interchangeably, in commercial parlance, to describe the combination of two
companies.
iii. Take – Over - ‘Take Over’ means acquisition of a certain block of equity capital of a company which enables
the acquirer to exercise control over the affairs of a company. In theory, the acquirer must buy more than 50% of the
paid up equity of the acquired company to enjoy complete control. In practice, however, effective control may be
exercised with a smaller share holding, usually ranging between 10% & 40% because the remaining shareholders,
scattered & ill organized, are not likely to challenge the control of the acquirer. The company taken over remains in
existence as a separate entity unless a merger takes place. Thus, a ‘take-over’ is different ‘from a merger’. Under a
take over, the company taken over maintains it’s separate existence, but in a merger, both companies merged to form
a single corporate entity & at least one of the companies losses it’s identity.
Again, a ‘take-over’ must be distinguished from ‘acquisition’. An element of willingness on the part of the buyer &
the seller distinguishes between the two. If there exists willingness of the company being acquired, it is known as
acquisition. If the willingness is absent, it is known as take over.
Classification of take over (also mergers) :

Take-over (also mergers) may be broadly classified into three categories as under :
i. Horizontal – A horizontal take-over or merger is one that takes place between two companies which are
essentially operating in the same market. Their products may or may not be identical, e.g., if Tata Oil Mill is merged
with Hindustan Lever, it is a case of horizontal merger as both the companies have similar products.
Similarly, a TV manufacturing company taking over a company manufacturing Washing M/c. also is a horizontal
take over because both the companies are in the market for consumer durables.
ii. Vertical - A vertical take over or merger is one in which the company expands backwards by taking over of or
merger with a company supplying raw material or expands forward in the direction of ultimate consumer. Thus, in a
vertical merger, there is a merging of companies engaged at different stages of the production cycle within the same
industry, e.g., the merger of Reliance Petrochemicals with Reliance Industries is an example of vertical merger with
a backward linkage as far as Reliance Industries is concerned.
Similarly, if a cement manufacturing company acquires a company engaged in Civil construction it will be a case of
vertical take over with a forward linkage.
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iii. Conglomerate - In a conglomerate take over or merger, the concerned companies are in totally unrelated lines
of business, e.g., a Steel Cos. merger with a Spinning Co.
Conglomerate merger/take-over may bring about stability of income & profits since the two units belong to the
different industries.
iv. Acquisition – Acquisition may be defined as “a purchase of the company or a part of it so that the acquired
company is completely absorbed by the acquiring company & thereby ‘no longer exists as a business entity’.
Reasons of general nature –

The following are the reasons of general nature that can be attributed to the schemes of joint venture, merger, take-
over or acquisition :
i. Economies of scale – Combination of two or more companies offer scope for larger volume of operation including
R&D efforts.
ii. Synergistic efforts - The sales & profitability of the combined company are likely to be much higher than the
sum of their individual sales & profits.
iii. Tax savings – A healthy company acquiring a seek company, under certain conditions, can avail of I.T.
exemptions.
iv. Growth & diversification – Any of the schemes, if followed or adapted, may help in achieving these corporate
objectives.
v. Surplus funds utilization- Companies having surplus funds, through any of the schemes cited above, can invest
in another company.
Advantage of take over & merger : To the concerned companies :

In addition to the benefits outlined under (i) to (v) above the following advantages accrued :
a. Merger or take over route may enable companies to avoid unhealthy competition
b. Patent rights, technical know-how, established brand names etc. can be easily acquired
through this process.
c. A merged entity enjoys higher debt capacity as its earnings are more stable than that
possessed of by individual units. A higher debt capacity gives greater tax advantage & thus higher value of
the firm.
To the national economy :

Disciplining the capital market
2. Consolidation on capacities so as to reach minimum economic size that can
prevent losses ; &
3. Concerning on core competencies & this way, large business groups may like to
rationalize their portfolio of industrial units in the light or recent liberalisation policy of the Govt. of India.
MARKETING MANAGEMENT – MARKET SEGMENTATION :

Definition of market segmentation – Market segmentation is one of the most interesting & useful tool in the
marketing management. In modern economics, no company sells it’s products to individual customers because of
mass production techniques. Goods & services are mass marketed. But the problem is that the tastes & wants of the
consumers vary region to region & even from person to person. There is no homogeneity, on the other hand, there is
a great deal of diversity in regard to income, consumer psycho graphics, demography, family life style, social class
& cultural factor.
The following diagrams explain the concept of market segmentation :
No Market Segmentation Complete Market Segmentation
2
A
3
B
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Market Segmentation of Income Classes 1,2,3 Market Segmentation by Age Classes A & B
Some definitions on market segmentation are given below:

According to Philip Kotler “market segmentation is the act of dividing a market into distinct groups of buyers who
might require separate products &/or marketing mixes. The company identifies different ways to segment the
market, develops profiles of the resulting market segments & evaluate each segment’s attractiveness”.
According to Still “market segments are grouping of customers according to such characteristics as income, age,
race, geographic location or education”.
Thus, we can state that whenever a market for a product or service consists of two or more buyers, the market is
capable of being segmented, i.e., divisible into meaningful buyer groups. The grouping of buyers or segmenting
the market is described as market segmentation. It is to be noted in this context that, a market represents a group
of customers having common characteristics but two customers are seldom common in their income, tastes,
preferences & buying decisions. The customers having similar attributes are grouped in segments & so one
segment is different from other segments.
As a part of the segregation or segmentation, target market for each group of customers is determined i.e. market
targeting is necessary to aim at the needs & desires of a particular group or groups of customers e.g., ‘North Star’
shoes of Bata Co. aimed at young men, college students & executives who exhibit a life style & tastes different
from others. These shoes are available in different price range & different colours to suit different personality,
purpose & income.
Let us take the case of ‘Vimal Textiles’, which are of different shades, designs, smoothness, appearances, prices
etc. These varieties are necessary to meet the tastes, life style & personality of the customer of different but
common type.
Conclusion - It can therefore, be stated that unless the market segmentation is undertaken & a target market is
determined, the marketing managers doesn’t attain success & sales can’t be maximum.
The main reasons for market segmentation are :
to maximize sales & profits
to attain the goals of marketing planning
to meet consumer satisfaction better
to counter competition
to respond to technological changes effectively
Types of market segments :
There are different types of market segments. Broadly speaking, we can have five classifications, these are depicted
in the following diagram & discussed in brief :
MARKET SEGMENT
Territory Demography Volume Product Living

Rural 1. Age 1. High 1. Varieties 1. Standard
Urban 2. Sex 2. Medium 2. Qualities 2. Interest
State 3. Income 3. Low 3. Attitude
District 4. Education (user basis) 4. Life cycle
Domestic 5. Social Class
Foreign
a. The national & international markets comprise the territorial segmentations. The sales
efforts of a company are usually directed on a territory basis & the sales personnel are allocated on this basis.
b. The classification of customers into different homogeneous group for market
segmentation, is done on the basis of demographic similarities like age, income etc.
c. Sometimes the market is segmented on the basis of high, medium & low users.
Demographic characteristics also influence such segmentation.
d. Market segmentation is, at times, resorted to based on the product differences &
specialities. Colder countries require more winter garments whereas industrial towns & cities with hot &
temperate climate require air conditioners & refrigerators.
e. Mode of living greatly influences market segmentation. The standards, attitudes,
interests, education etc. are the major determinants of a life style – which affect the segmentation of a market.
Bases of market segmentation / criteria of market segmentation :
Socio-economy criteria - Age, income, education, religion, race, family etc.
Geographical criteria – Area, climate, population density etc.
3. Personality criteria – Style of plane or high living, craziness for novelty with younger
generation, uniform dresses for a particular class, viz. school going students, nurses, police officials etc.
4. Consumer behaviour criteria – Usage habits, motives, brand loyalty dictate the patterns
of consumer behaviour & thereby the market. To cite few examples, the cloth market is segmented mostly on
the basis of age ; VCR, Radio, TV, VCD & Refrigerators on income basis ; books on target students,
specialty dresses according to race or religion, cooking –range on the basis of family size, lipstick or beauty
aids & shaving cream on the basis of sex etc.
Hence, consumer products & their market segments are to be addressed & determined in the light of the consumer’s
needs, behaviour, habits, customs & preferences.
Distinction between market segmentation & product positioning :
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One direct consequence of the market segmentation is ‘target market’ & it’s related concept of ‘product positioning’.
Product positioning is the art of ‘designing the company’s product & market mix to fit a given place in the
consumer’s mind’. For product positioning, the ‘product differentiation’ (a new term coined by Prof. Chamberlain)
is important & necessary. Product differentiation means differentiating products in regard to physical characteristics,
quality, design, colour, durability, packaging & advertising theme & so on, so that the consumer will have different
choices of the product. Product differentiation off course, has no relation to market segmentation; but it assists in
product positioning in the market segments. Unless the task of product positioning is done well, the purpose of
market segmentation will be defeated because the needs & wants of the consumers will not be fulfilled. For instance,
how should new TV sets be positioned ? how should VCD be positioned ? how should computers be positioned?
The Maruti Car is quite compact & has an elegant look but it’s design & spacing are not very satisfactory. If
competition becomes stiff, Maruti car will face declining sales & profits.
As Kotler says, product positioning is very important. It must be based on :
specific product features
positioning on benefits or needs
positioning on specific usage occasions
positioning for user’s category
positioning against other products etc.
On the other hand, market segmentation must take into consideration the factors like –
a. Production costs
b. Administrative costs
c. Promotion costs
d. Inventory costs etc.
EXPANSION STRATEGY – EXPANSION THROUGH INTENSIFICATION :

Intensification means product-market expansion in existing business. When a firm selects the intensification
strategy, it means that the firm is opting to go deeper in it’s existing business. In intensification the firm is
intensifying i.e. deepening & strengthening it’s involvement & position in it’s existing business. In the first place, it
finds additional opportunities in that business & secondly, it is consciously commits itself to exploiting these
opportunities. It is ready to put in more investment in the existing business, seeking a new position therein.
Intensification basically means product – market expansion in existing businesses.
 Ansoff Product – Market Expansion Grid :

Igor Ansoff has propounded a framework known as the Ansoff Product – Market expansion grid which clarifies best
the intensification options available to a firm. Intensification option simply mean growth choices within the existing
business. The Ansoff Grid explains these options in a simple way, using the two vectors, products & markets.
According to the grid, three distinct strategies are possible for achieving growth through the intensification route.
The following diagram shows the Ansoff Grid.
MARKET
EXISTING NEW
EXISTING Market Penetration Market Development

PRODUCT
NEW Product Development (Diversification)
Ansoff Product – Market Expansion Grid

It can be seen from the above diagram that there are three routes to intensification viz., Market Penetration, Market
Development & Product Development. The 4th option in the grid is outside of intensification ; it involves new
products & new markets which constitutes diversification.
Market Penetration Strategy : Under market penetration strategy the firm tries to achieve growth through existing
products in existing markets. The firm opts to penetrate the existing markets deeper, using the existing products. In
other words, it tries to increase it’s market share through penetrating the market further, staying with the same
products & same markets.
Example of market penetration- Greaves Ltd. of the L M Thapar Gr. Invested Rs. 250 Cr. in a series of capacity
expansions in it’s business of earnings. Much of the expansion was in light weight diesel engines. Capacity in this
segment was progressively increased to 1,20,000 L units p.a. over 3 years from the earlier level of 65,000 p.a. A part
of this expended capacity went for captive consumption in the company’s 3 wheeler production. The major part of
the expanded capacity was meant for intensification of the existing engine business of Greaves through the market
penetration route.
Market Development Strategy - Market development strategy tries to achieve growth through existing products in
new markets. There might be limits of penetrating the existing markets; so the firm decides to locate & tap new
markets &/or new market segments. As in market penetration strategy, here too, the firm stays with the same
products, but move onto new markets/ market segments/ new uses. Actually, there are two methods by which firms
implement market development strategy.
a. They expand the marketing territory & acquire a larger market in terms of no. of customers.
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b. They find some new uses for the products & find some new customer on that basis. In fact, finding new
uses for the existing product is often the key components of market development strategy. The idea is to
increase the sale of the product by appealing to a wider cross-section of consumers. The product is
associated with some new uses & is offered to new as well as existing consumers.
Example of market development – Ford Motor’s recent entry into the Asian Markets is a good example of
intensification through market development (same product – new market).
Product Development Strategy - Product development strategy tries to achieve growth through new products in
existing markets. The new products in this context are not intrinsically new products, but improved products or
substitutes serving the same need & carrying the same product mission. The firm develops improved products for
marketing in the same markets; distinct from the existing products.
Whereas in the market penetration & market development strategy the firm remains with it’s current products, in the
product development strategy, the firm develops improved products which will satisfy the same product mission &
cater to the same market as at present. The strategy doesn’t take the firm to new businesses’ it brings out improved
or substitutable products to satisfy the same need of the market.
Example of product development – Air Command the air conditioning company came with the portable room AC.
So far, it was having only wall mounted or window mounted room AC. The new AC was on wheel, it could be
pulled to different locations & plugged on. It was also cheaper. Air Command is the first company to launch a
portable AC.
Combination of Market Penetration & Market Development - Philips Carbon of the R P Goenka Gr. is a
dominant player in the Carbon Black industry with a market share of about 55%. The company adopted the
intensification strategy & grew bigger in it’s existing business. It trebled the manufacturing capacity & became the
dominant player in this business. The expansion of it’s Durgapur unit added 30,000 tons to it’s capacity. The
acquisition of a Carbon Black unit in Gujrat for Rs. 22 Cr. provided an additional capacity of 25,000 tons. The
strategic alliance with Carbon & Chemicals India, a sick unit at Cochin, helped it to achieve control of another
45,000 tons. As a result of this intensification, Philips Carbon was emerging as a world size operation in Carbon
Black. The capacity expansion mentioned above came up as a part of the deliberate choice of the intensification
strategy by the Goenkas. It is in tune with the group’s new philosophy of achieving dominance in it’s existing
business. It’s approach to intensification was in fact two fold. It employed the market penetration as well as market
development routes. In pricing, too, Philips enjoyed a significant advantage which proved handy in it’s market
penetration strategy. As a part of it’s market development strategy, Philips Carbon also strengthening its exports. It
doubled exports to 50,000 tons from the earlier level of 25,000 tons. It plans to penetrate these markets further &
simultaneously seek new export markets.
Combination of Market Penetration, Market Development & Product Development - With annual capacity of
50,000 tons of detergents’ Nirma Chemicals is already ranked as one of the largest detergent firms. It wanted to
intensify still further in it’s existing business through market penetration, market development & product
development.
Nirma embarked upon a Rs. 70 Cr. Expansion programme in it’s existing business of soaps & detergent. The
expansion added a capacity of 30,000 tons p.a. in soaps & 1,00,000 tons p.a. in detergents. With this capacity
additions Nirma tried more intensive penetration of it’s existing market & also sought new markets. The West zone
use to dominate in Nirma’s sale, accounting for over 45% of the total sales of the company. The North, South &
East zones accounted for 10-25 % only. Nirma employed the market penetration strategy in these three zones. And,
it also employed market development strategy in these 3 zones by going into new marketing territories in each of
these zones.
Nirma didn’t stop with market penetration & market development. It employed the product development strategy as
well. Employing more modern technologies & manufacturing methods it put improved products on the market &
thereby captured different segments of the market. In the bathing soaps business in particular Nirma strongly
employed product development. Nirma entered the premium segment, with brands like Nirma Beauty & nibbled at
the market dominated by brands like Lux. In fact, quite soon it captured a 9% share of this market & became no. 3 in
this segment. In detergents, Nirma introduced a higher priced detergent – Nirma Super. Thus, Nirma provides a
three-in-one example of intensification route in it’s existing business, market penetration, market development &
product development.
 A set of criteria for testing & evaluating corporate strategies is given below :
a. the strategy should be consistent with environment
b. the strategy should be consistent with a company’s internal policies, styles of management,
philosophy & operating procedures.
c. The strategy should be appropriate in the light of company’s resources.
d. The risk should be accepted in pursuing the strategies.
e. The strategy should fit product life cycle & market strength / market attractiveness situation
f. The strategy should be capable of being implemented effectively & efficiently
Briefly explain them separately & prepare short questionnaire for each of the criteria.
Strategy & Environment : A firm, if it has to perform well, must adapt to its external environment (viz. economic,
social, political, technological etc.) The strategies of a firm must reflect not only the current but the evolving
elements in the environment which open up major opportunities & pose potential threats.
Questionnaire:
Is the strategy acceptable to the major constituents of the company ?
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Is the strategy in consonance with the company’s competitive environment ?
Does the strategy leave the firm vulnerable to the power of one major customer ?
Does the strategy give the firm a dominant competitive edge ?
5. Is the firm’s strategy vulnerable to a successful strategic counter attack by competitor ?
6. Are the forecast upon which the strategy is based is really creditable ?
7. Does the strategy follow that of a strong competitor ?
8. Does the strategy guard the firm against a powerful competitor ?
9. Is the market share (present or prospective) sufficient to be competitive & make an
acceptable profit ?
10. If the strategy seeks an enlarge market share, is it likely to be questioned by the MRTP
Act ?
11. Is the strategy in conformance with moral & ethical codes of conduct applicable to the
firm ?
Strategy & Company Policies etc. : A living business entity is a composite of policies, procedures, values, work
habits, communications & so on. No strategy will succeed for instance if it is contrary to the strongly held values of
top management.
Questionnaire :
1. Does the strategy really fit management’s values,
philosophy, knowhow, personality & sense of social responsibility?
2. Is the strategy identifiable & understood by all those in the
firm with a need to know ?
3. Is the strategy consistent with the firm’s internal strength,
objective & policies ?
4. Does the strategy under review conflict with other strategies
of the firm ?
5. Does the strategy under review exploit the firm’s strengths
& avoid it’s major weaknesses ?
6. Is the organisational structure consistent with the firm’s
strategy ?
7. Does the strategy make the greatest overall contribution to
the firm’s performance ?
8. Is the strategy likely to produce a minimum of new
administrative problems for the firm?
Strategy & Firm’s Resources : Resources are those tangible & intangible assets a firm has that are important
contributions to it’s viability & success. This, offcourse, includes a wide range of assets; men, money, managerial
competence & physical facilities.
Questionnaire :
Money – aspect
1. Does the firm have sufficient capital or can the firm get capital from other authorised
sources to see the strategy through to successful implementation ?
2. What will be the financial consequences associated with the allocation of capital to this
strategy ?
3. What other projects may be denied funding ?
Physical Facilities Aspect

1. Is the strategy appropriate with respect to existing & prospective physical plant ?
2. Will the strategy utilize plant capacity ?
3. Is equipment obsolete for the proper implementation of the strategy ?
Managerial & Employee Resources Aspects

1. Are there identifiable & committed managers to implement the strategy ?
2. Do the managers & employees have the necessary schemes to make the strategy successful ?
Strategy & Risks : Risks of all types are associated with most strategic decisions – be it product introduction or
market development or diversification apart from a situation where the very survival of the firm may be at stake.
Broadly speaking, a strategy has a higher risk where amounts of capital involved are great, the pay out period is
long, & the uncertainty of outcome is significant. There are other risks also, e.g., a risk that skilled & competent
managers & workers may not be available in time to perform as require to make the strategy successful.
Questionnaire :
1. Has the strategy been tested with appropriate analysis, such as ROI, sensitivity analysis, the firm’s ability &
willingness to bear specific risks etc. ?
2. Does the strategy balance the acceptance of minimum risk with the maximum profit potential consistent
with the firm’s resources & prospects ?
3. Does the firm have too much & too large a proportion of capital & management tied into this strategy ?
4. In the pay back period acceptable in the light of potential environmental changes ?
5. Does the strategy take the firm too far from it’s current products & market ?
Page 36 of 43
Strategy & PLC : Refer previous note.

Questionnaire :
1. Is the strategy appropriate for the present & prospective position in the market strength/ attractiveness are
concern ?
2. Has the firm considered all the important considerations that are pertinent for evaluating its marketing
strategy properly ?
3. Is the strategy is in consonance with the firm’s PLC as it exists &/or as it would be in the foreseeable future
?
4. Is the firm rushing a competitive product & implementation of the same to the market ?
5. If the firm’s strategy is to fill a ‘niche’ not now filled in the market, has is enquired about the ‘niche’
remaining open to it long enough to return it’s capital investment plus a required profit ?
Strategy & Firm’s Efficiency : The ability of a firm to implement a strategy involve a great may conditions. A
strategy is not implementable if insufficient capital is available to make it worth, or if managers & employees are
indifferent to its success. Organizational co-ordination & control mechanisms are all the more necessary to assure
that strategic plans are indeed fulfilled.
Questionnaire :
1. Can the strategy, on an overall basis, be implemented in an efficient & effective fashion?
2. Is there a commitment, a system of communication & control, a managerial & employees capability that
will help to assure the proper implementation of the strategy ?
3. Is the timing of implementation of strategy appropriate in the light of what is known about market
condition, competition etc.?
Pricing policy - Prices and pricing policies are probably the most tricky aspects of marketing management. The
competitors pricing strategy and legal restrictions on pricing also determine the overall pricing policy of an industry.
In determining prices the company must concentrate on the following questions :
i. what are the objectives of pricing ?
ii. what will be the relationship of prices with those of competing products ?
iii. what will be the relation of prices to the cost of production and distribution ?
iv. how will different items of product lines be priced ?
v. how frequently and under what circumstances will the prices be charged ?
vi. what will be the pricing policy over the product life cycle ?
Objective of pricing :
ii. to achieve a target return on investment
iii. to stabilize prices
iv. to maintain or improve a target share of the market
v. to meet or prevent competition
vi. to maximize profit
vii. to ensure survival ; and
viii. to maintain an image
Factors which determine pricing

 Internal factors - These are the factors which can be controlled by firms to an certain extent. These are :
organizational consideration, marketing means, product differentiation, cost and objectives.
 Orgnisational factors – it is the top management which generally have full authority over pricing.
The marketing manager’s role is to administer the pricing programme within the guidelines let
down by the top management.
 Marketing means – price is one of the marketing means and therefore must be coordinated with
the other three elements viz. production, promotion and distribution. In some industries, a firm
may use price reduction as a marketing technique; & others may use prices as a deliberate strategy
to build a high prestige product line.
 Product differentiation – generally speaking, the more differentiated, a product is from
competitive products, the greater the leadership the firm has in setting prices. When it’s product is
basically of the same quality as that of its competitors, it may differentiate it’s own image by
building a solid reputation among customers by charging different prices.
 Costs - often, cost play an important part in influencing the marketer in it’s decision on what
prices are realistic in view of the demand and competition in the markets.
 Objectives – the objectives set for pricing will determine what prices should be fixed for a
particular product.
 External factors – These are factors over which the firm has no control. These factors are :
 Demand
 Competition – a knowledge of what prices the competitors are charging for a similar product and
what possibilities lie ahead for raising or lowering prices also affects pricing.
 Suppliers – the price of a finished product is intimately linked with the price of raw material etc.
Shortage or abundance of the raw material, therefore, determines pricing.
 Buyers – the nature and behaviour of consumers and users for a particular product or service or
brand do affect pricing, particular if their number is large.
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 Economic conditions – this is a very important factor, for prosperating or depression influences
demand to a very great extent. Inflation or deflationary tendency also affects pricing.
 Govt. regulations
 THE PRICE MIX & THE PRICING STRTATEGIES :

Yet another crucial element on the marketing mix is pricing the product. It is simultaneously a strategic element
as it is related to the perception of quality & a major tactical variable, as it can be changed quickly for
competitive purposes. Changes in price can be made much faster than changes in any other marketing mix
variables. To a buyer, price is the value placed on what is exchanged.
Importance of price to marketing :

Price is a key element in the marketing mix because it relates directly to the generation of total revenue. The price
affects an organisation’s profits, which are it’s life-blood for long term survival. The price has a psychological
impact on consumers & hence marketers can use it symbolically. There is a belief that high price is positively co-
related to superior quality & buying high priced article is a status symboli. On the contrary, low prices emphasis a
burgain to many consumers. In both the ways prices can have a strong effect on sales. The question of a ‘correct
price’ to a product is still a complicated problem before the marketing managers. This is practically so because
marketing objectives could only be realized through proper pricing policies & perhaps, this may be the reason why
strategic importance of pricing has increased during the last decade. It is through effective pricing technique that
external forces are brought under some control.
Factors affecting pricing decisions :

There are mainly two groups of factors that can influence price decisions.
Internal factors – Internal factors are generally well within the control of the organization. They are sometimes
refer to as ‘built-in factors’ that affect the price. These factors include costs & objectives.
Costs – The most decisive factor is the cost of production. Adding necessary profits with the cost of production
would give the price at which the products are generally sold. The main defect with this approach is that it
disregards the external factors, particularly demand & the value placed on goods by the ultimate consumer.
Objectives - Many companies have established marketing goals or objectives & pricing contributes its share in
achieving such goals. This is particularly through a case of large manufacturing concerns. These goals may together
be termed as ‘pricing policies’. Such Pricing Policing may be classified into :
a. Target rate of return (rate of ROI or on net sales)
b. Stability in prices
c. Maintenance or increase of the share of the market
d. Meeting or preventing competition
e. Maximizing profits
Note - Any one or more of the policies listed above would be considered before the price of a product fixed.
External Factors – External factors are generally beyond the perfect control of an organization, but they have to be
considered in deciding the price. These factors include demand, competition, the influence of distribution channels,
political consequences, legal aspects etc.
Pricing objectives: As in other areas on marketing planning, pricing strategy begins with the determination of
objectives, long-range goals that managers wish to pursue in their pricing decisions are often stated as pricing
strategies. The relative importance of pricing objectives in the corporate objectives may be seen in the following
chart:
CORPORATE OBJECTIVES
MARKETING OBJECTIVES
MARKETING PROGRAMME
PRICING OBJECTIVE
PRICING POLICIES
PRICING TACTICS
IMPLEMENTATION
Pricing objectives are overall goals that describes what the firm wants to achieve through its pricing efforts. The
following may be listed as pricing objectives :
1. ROI – From the point of view of investors,
principal pricing goal is to achieve the expected profit. The profit must compensate the investment made.
Page 38 of 43

2. Market Share – Increase in market share is
the best method of evaluation as far as efficiency of pricing is concern. Market share & ROI are closely related,
e.g., a larger market share might increase profitability because of greater economies of scale, market power &
ability to compensate top quality management.
3. Meeting competition – This is also a most
important objective of pricing, specially when a product is introduced in a competitive market. Price cutting
may have to be adopted without incurring huge losses. The pricing method adopted in this regard is referred to
as ‘extinction pricing’. It is viewed as along run strategy & is used as a way of eliminating competition.
4. Profit – Usually profit objectives are set in
terms of percentage change or in terms of actual Rs. in relation to profits earned during the previous period.
Although maximizing profits could be stated as an objective of pricing, it can’t be made operational because its
achievement is difficult to measure.
Factors that affect price decision :

1. Consumers situation :
a. Utility to the buyer
b. Return to the buyer
c. Comparable & substitute products –actual & brand
d. Prestige position of the product & brand
e. Presence of buying habits, motives
f. Psychological aspects
2. Cost consideration :
a. Cost of production – historical
b. Cost of production – future & volume
3. Other factors :
a. Stages in the PLC :
i. Usually high price in introduction stage
xi. Stable price in growth stage
xii. Price decline in maturity stage
b. Competition
c. Distribution strategy
d. Promotion strategy
e. Price consciousness
Pricing Policies :
a. Cost oriented pricing policy – It is also referred to as ‘cost-plus’ pricing. This pricing method assures that no
product is sold at a loss, since the price covers the full cost incurred.
Another common method used under cost-oriented pricing is known as ‘Target Pricing’. This is invariably adopted
by manufacturers who fix a target return on its total cost.
b. Demand oriented pricing policy- Under this method of pricing, the demand is the pivotal factor. Price is fixed
by simply adjusting it to the market condition.
c. Competition oriented pricing policy – Most companies set prices after a careful consideration of the competitive
price structure. Deliberate policies may be formulated to sale above, below or generally in line, with competition.
Kinds of pricing:
a. Psychological Pricing – The price under this method is fixed at a full no. The price-setters feel that such a
price has an apparent psychological significance from the view point of buyers, e.g., it is stated that there
are certain critical points at prices such as 1,5 & 10. The experiments conducted proved that change of
price over a certain range has little effect until some critical point is reached
b. Price Lining – This policy of pricing is usually found among retailers. Under this policy the pricing
decisions are made are only initially & such fixed prices remain constant over long period of time. Any
change in the market conditions are made by adjustments in the quality of merchandise. In other words, the
decision is made with reference to the prices paid for merchandise rather than the prices at which it will be
sold.
c. Skimming Pricing – This is also termed as “skim-the-cream-pricing”. It involves setting a very high price
for a new product initially & to reduce the price gradually as competitors enter the market. It is remarked
“launching a new product with high price is an efficient device for breaking up the market into segments
that differ in price elasticity in demand”.
The initial high price serves to skim the cream of the market, i.e., relatively insensitive to price. In the case
of text books this method is followed by having a high price for the first edition & lesser prices for
subsequent editions. When an item is clearly different & the right price is not apparent, this method may be
used.
d. Penetration Pricing : This method is opposite to the skimming method. the skimming price policy is most
convenient & profitable in the case of new products, especially in the initial years.
Penetrating pricing on the other hand, is intended to help the product penetrate into the market to hold a
position. This can be done only by adapting a lower price in the initial period or till such time the product is
finally accepted by customers. This method of pricing is most common & desirable under the following
conditions :
a. When sales volume of the product is very sensitive to price
b. When a large volume of sales is to be effected
c. When the product faces a threat from competitors
d. When stability of price is required.
Brand & Branding :
Page 39 of 43

What is a brand ?
According to the American Marketing Association a brand is a “name, term, sign, symbol or design or combination
of them intended to identify the goods & services of one seller or a group of seller & to differentiate them from
those of the competitors.”
Brand Equity
Keller defines customer-based brand equity as “the differential effect that brand knowledge has on customer
response to the marketing of that brand.” The benefits that accrue from strong brand equity include :
i. greater loyalty (i.e. propensity to repurchase the brand)
ii. higher margins
iii. more inelastic consumer response to price increase
iv. increased effectiveness of marketing communication
Customer based brand equity is created when the consumer has a high level of awareness of the brand & holds in
memory some strong, favourable & unique association with the brand.
Brand Image :
Brand image can be defined as the perception of a brand reflected by the brand associations held in the consumer’s
memory. These associations fall into three categories : attributes, benefits & attitudes.
Attributes can be either product related (mainly ingredients, product features etc.) or non-product related.
Benefits describes the utility & personal satisfaction the consumer receives from using the brand.
Attitudes are defined in terms of consumer’s overall evaluation of a brand. Brand attitudes are important because
they often form the basis for the actions consumers take with respect to the brand (mainly purchase).
Choice criteria for branding elements :

The following guidelines are helpful in choosing brand elements :
i. memorable (easily recognize, easily recalled)
ii. meaningful
iii. protect able ( legally, competitively)
iv. adaptable (flexible, up datable)
Page 40 of 43
 BRAND STRATEGIES :
Description of a Brand – A brand has three elements :
a. A name & logo, viz. Windows, Coca Cola, Nike, McDonalds
b. A colour scheme, packaging, ‘get-up’, viz.
Coca-Cola – White on Red
McDonalds – Yellow (Gold) on Red & will have the ‘arches’ in view
c. Kotler identifies several levels of meaning in a brand :
- Attributes : These are things like quality, speed, flavour, originality, e.g., Coke
is ‘the real thing’ & ‘always’, where as Pepsi is ‘for the new generation’.
- Benefits : That is what the customers will get from being associated with the
brand.
- Values : Brands say something about the producer’s value, e.g., IBM provides
‘solutions for a small planet’ while Volvo is associated with safety & body soap with softer sensation
etc.
- Culture : Brands emphasize the engineering & technical efficiency.
- Personality : Good brands are like people whom a person like or dislike.
- User : The brand integrates the kind of person who should buy the product. They
will be the people who respect, or wish to associate themselves with, it’s connotations.
Importance of brands to strategy :
a. Brands may be a better unit of financial analysis :
i. Brands often act as an umbrella for several products or product forms.
ii. Promotion of one product inevitably promotes the rest of the range.
iii. Having one product in the portfolio is essential to sales of the rest.
b. Brands have longer life cycle than products. A product declines due to technical obsolescence. However,
careful brand management can replace obsolete products with new ones to prolong the brand’s life.
c. Brands are essential for determining the value of a product range, brands allow a premium price to be
charged for a product because the association provides benefits to the customer for which they are prepare
to pay.
d. Brands dilute buyer’s power because they strengthen the differentiation of the product over that of the
retailer.
Five brand strategies :

Kotler (1997) identifies the following strategies :
a. Line Extensions – Existing brand name applied to new sizes or flavours of the product, sometimes called
branded variants.
b. Brand Extensions – To use existing brand to launch a product in a new category.
c. Multi Brands – Additional brands in the same product category, e.g., Kellogg’s have many different
breakfast, cereals each with their own brand image (e.g., Corn flex, Frosties etc.)
d. New Brands – A new product category is launched with a new brand because none of the existing brands
is suitable. The main issues here are :
i. The establishment of a new brand is very expensive & may take considerable time
ii. The brand must be capable of extending if it is to be worthwhile, otherwise it is simply a product.
e. Co-Brands – Two brands are combined in an offer.
A brand enables the companies customers to identify products or services & it is therefore possible for the
management to differentiate their products from those of their competitors. It is important that branding strategy
that is compatible with the strategy that is being adopted for the company as a whole & the choice will be clear
when considered in terms of the firm’s product strategy.
Financial Management of Brands :

Putting a financial value on brands has three potentials benefits for a firm :
i. To include on the balance sheet as a part of net asset – Brands can provide a continuing source of earnings.
They also represent a use of shareholders fund. Putting them on the balance sheet will bring a no. of benefits :
a. It will demonstrate to investors to true worth of the firm.
b. It will reduce capital gearing levels (i.e., including brands as an asset would necessitate a
corresponding adjustment to increase shareholders equity).
ii. To enable firm to use investment appraisal technique to evaluate brand support
expenditure. Allen argues that if a brand is seen as an income generating asset this means
that expenses upon its development & support should be treated as an investment & we
require to show a positive NPV. Management should compare the present value of the
income strips from the brand to the present value of the initial development cost & subsequent
support cost.
iii. To provide a performance indicator for brand management decision- Brands are significant at several stages
of the PLC.
a. Introductory stage – Applying an established brand through a new product will
reduce the risks of its failure. In markets where it is important to gain a dominant share quickly, this is
critical.
b. Growth stage – Brands are a significant barrier to entry to the market against
‘me-too’ competitors. They are also crucial as the market shifts from product awareness to brand awareness
& will have an impact on the long term market share of a firm.
Page 41 of 43

c. Mature stage- Brands are part of a differentiation strategy to off set the
competitive forces & boost short term margins & long term survival. They are also the basis for spinning off
new products.
d. Decline stage – Brands are one of the assets which has an opportunity cost. An
accurate valuation can help the firm decide whether to continue making the product or sale off the brand
rights to recoup shareholders value.
One way of deciding the strength of brands & their likelihood of success is to value them in comparison with rival
brands.
BOARD OF DIRECTORS (BOD):

Role of BOD –
BOD has authority to manage a company subject to the limitations imposed by the Memorandum of Association &
Article of Association of the company concerned as well as the provision of the Companies Act 1956. Some
companies emphasise only on legal aspects of board functions while in many cases, the board really participates in
the major decision making. The total view of the role of BOD may be presented briefly as under :
i. Trusteeship – The relationship between the board & the company is a fiduciary one. It is a relationship of trust &
confidence in which the share holders entrust the welfare of the company for the long term gain of the company &
not for their own personal benefits. In performing this function, the directors are expected to discharge their duties
with utmost care & with due honesty.
ii. Determination of basic objectives & policies – This is a basic & important function of effective board. The
board must provide the long term planning & establish the overall goals of the company within the overall legal
framework & the companies documents. Since the board delegates day to day problems to the chief executive, it is
in a better position to take a long term view of the organizational functioning. The policy decisions are the
continuous function of the board through which it can direct the entire functioning of the company.
iii. Selection of top executives & determination of organization structure – It is the function of the board to
decide the organization structure of the company & to fill the various key positions, particularly at higher level. It
appoints the chief executive & other top level managers. In fact, the selection of the chief executive itself is a policy
decision because it is the chief executive who transforms most policies into actions.
iv. Approval of financial matters – The board approves financial matters, particularly the approval of budget &
distribution of the corporate earnings. Approval of corporate budget is an important function through which the
board maintains control over the management of the company.
Truly speaking, the board has three alternatives in the appropriation of the corporate earnings
a. They may be distributed to the share holders in the form of dividends
b. They may be retained in the business for further expansions; &
c. They may be used to repay loans
The board has to strike a balance in the appropriation of earnings in these alternatives.
v. Checks & controls – Since the board is ultimately responsible for the successful affairs of the company, it is
interested in maintaining adequate check & control over the functioning of the company through the chief executive.
vi. Legal functions – There are certain legal functions of every board of directors as provided in the Companies Act
1956. The Companies Act prescribes the responsibilities of the directors towards outsiders, towards the company &
criminal liabilities. If the directors failed to comply with any of these, they are liable to penalty.
The analysis of various functions of board suggests that all of these functions are not quite related with the strategic
functions, e.g., legal functions, checks & controls & trusteeship functions though necessary, are quite routine in
nature. Other functions are of strategic nature but many boards don’t take these effectively & concentrate more on
legal & routine functions. The nature of functions that the board will play depends on the commitment of its
members to the company & their involvement in strategic affairs. As per Whellan & Hunger, the role of a board
member depend on his degree of involvement in strategic process which may be as low as phantom or as high as
catalyst.
However, the degree of involvement of board members in strategic management is determined largely on the
companies management philosophy.
There are many boards which really performs strategic functions & take more interest in this aspect of companies
operations, e.g., boards of TISCO, TELCO, HLL, L&T, ITC etc. are quite effective & takes such decisions &
actions like review of corporate objectives & strategic actions, formulation & supervision of long term strategies,
approval of policies in various functional areas, appointment of chief executive & other key personnel & their
performance review, examination of proposals of new investment etc.
ROLE OF CHIEF EXECUTIVES –

The role of chief executive is the most important in the strategic management process. Often, he is considered as
follows :
i. Chief Architect of organizational purpose, strategist or planner.
ii. Organistaion leader, organizer or organistaion builder
iii. Chief Administrator, implementor or co-ordinator
iv. Communicator of organizational purpose, motivator, personnel leader etc.
Thus, Chief Executive is a person whose responsibility is to make major decisions for the organistaion as a whole. In
discharging these responsibilities properly, it performs the following functions :
i. Formulation of long term plans – Chief Executive is responsible for formulation of long term plans & making
strategic decisions. He is involved in formulating long term plans by making decisions about these plans & also
by taking initiative & providing relevant information to the board in order to arrive at such decisions. In
formulating long term plans, he can take help of planning staff & other personnel of the organization.
ii.Guidance & direction – Chief Executive provides guidance & direction to various functionaries in the
organization which include the following :
a. Explaining & interpreting policies, programmes formulated by BOD
Page 42 of 43

b. Executing plans by giving appropriate orders to his subordinates
c. Rectifying or modifying programmes set up by department managers to achieve organizational goals
iii. Integration - Chief Executive integrates the efforts of various department heads reporting to him. He performs
the following integrating functions
a. Integrating various department head by prescribing organisational relationship
b. Prescribing & defining authority
c. Providing effective leadership in the organistaion
iv. Staffing – Chief executive performs staffing function by appointing senior personnel in the organization.
v. Review & control – Chief Executive being responsible for overall performance of the organisation, tries to
ensure that actual work is going on according to plans. If there is any discrepancy, he takes immediate
actions to overcome the problem.
vi. External relation – Chief Executive is responsible to integrate his organization with the external environment.
He has to maintain relation with various agencies in the society. These may be govt., trade associations,
trade unions, financial institutions etc.
Conclusion – Strategic & non strategic function of chief executive can be shown under the following table :
Basic Functions Selected Activities
Identification of opportunities Strategic – nil
Non-strategic – Environmental diagnosis, analyzing
opportunities & threats, finding new markets &
customers etc.
Setting direction & goals Strategic – Deciding major organizational objectives
& mission, defining market for the organization,
setting major policies etc.
Non-strategic – nil
Assigning basic work & allocation of major Strategic – Determining & allocating major
resources resources to various functions & projects.
Non-strategic – Designing organizational structure,
developing formal plans & budget.
Developing resources Strategic – nil
Non-strategic – Developing human & physical
resources, implementing projects, developing
control criteria, building & leading organizational
team, monitoring deviations.
Committing resources Strategic – Committing new projects or resources.
Non-strategic – Operating committed lines of
functions, exercising controls.
Evaluating result Strategic – nil
Non-strategic – Measurement of performance
against plans, evaluation of development of WIP,
measuring organizational effectiveness &
managerial effectiveness.
Page 43 of 43

Strategic Management and Marketing

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Strategic Management and Marketing

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By, Prof. P.K.

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What is Strategic Planning?

Why Strategic Planning?

What does it involve ?

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Analysis of the definition of strategy.

 Strategy can mean many things :

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 Key points about strategy

Strategic Management starts with the situation

Company’s Strategic Situation

 Key issues of strategic management :

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 Strategic managers for all levels

Mkt. A Mkt. B Mkt. C

The hierarchical business plan

Long term goal/ objectives

Vision into Mission

Mission & goals

 Vision/ mission & goals :

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External analysis – Strategic Choice - Internal Analysis –

Strategy Implementation / Tactics

Organisational Succession Planning Designing Control

Strategic Management Process

 Strategic Management Process – Steps

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 Step – I : Develop a vision and translate it into a mission statement

Vision and Mission (Review – Different View)

 Step – III : Assess strengths and weaknesses

 Step – V : Identify key success factors

 Step – VI : Analyse competition

 Step – VII : Create goals and objectives

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 Step – VIII : Formulate strategies

Works well when :

 Step –IX : Translate plans into actions

 Step –X : Establish accurate controls

Various components of general environment

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Components of the internal environment:-

Organisational Component Personal Component

Analysis of External Environment –

Analysis of general environment

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Porter’s Generic Value Chain :-

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The value chain concept can be presented by the following diagram:-

The Value Chain

Research, technology & system development

 Conducting a Value Chain Analysis –

Structural Analysis of Industries :-

 Rivalry Among Existing Competitors :-

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 Threat of New Entrants :-

 Porter’s five forces model :

The five forces shaping competition are as under :