STRATEGIC MARKETING

Objectives
The basic objective of this course is to develop skills for analyzing market competition and design appropriate competitive marketing strategies for higher market share

Whats expected during this course ?

What we plan to do this term

Understand some of the Key Concepts of Strategic Marketing through examples Inputs in the form of Theory and Case Studies One Project that we will complete during the term that will help in comprehending what we have learnt Read references from what is taught in class with selected reading list

Course Content
1. Market Situation Analysis 2. Analysis of Competitors Strategies and Estimating their Reaction Pattern and Competitive Position 3. Market Leader Strategies Expanding the Total Market, Protecting Market Share, Expanding Market Share 4. Market Challenger Strategies Choosing and Attack Strategy for Emerging Industries, Declining Industries and Fragmented Industries 5. Balancing Customer and Competitor Orientation 6. Industry Segmentation and Competitive Advantage 7. Product Differentiation and Brand Positioning 8. Competitive Pricing 9. Competitive Advertising 10. Role of Sales Promotion in Competitive Marketing

Selected Reading Material

1. Strategic Marketing D W Cravens & Nigel F Piercy 2. Comparative Marketing Systems Kaynak E and Savitt R 3. Marketing Management Analysis, Planning, Implementation and Control Philip Kotler 4. Competitive Strategy : Techniques for Analyzing Industries, Competitors Michael Porter 5. Competitive Advantage : Creating and Sustaining Superior Performance Michael Porter

Any Questions ?
Please make suggestions at this stage before we proceed further Request : No mobile phones to be kept on during class hours Attendance is important if you want to learn this subject Will treat you as Managers in a Corporate Firm

Expectations from you

Read Observe Experience Apply Ask Questions

Lets discuss

More examples
Industry vs Corporation

Consumer vs Lifestyle Environment

Consumer vs Industry vs Mobility Environment

Another real life example

Background

Category Film Ghajini Brand Aamir Khan

Corporation
Consumer Indian and NRI Audiences

Consumer

Competition Film Industry/Entertainment/Leisure

Competition

Environment
Industry : Big opening weekends have become essential for the films' financial success, one needs to create an urgency in people to see the film in the first couple of weeks. Social : Style, Trends, Fashion, Lifestyle, Health Fitness 8 packs Youth : Style Icons and technologically savvy Brand Experience : At the site and thereafter : post sales of music CDs, VCDs DVDs and merchandise Cross Promotion : Telecom Service, Retail Outlets, Malls,

What was Ghajinis Marketing Strategy?

Ghajini producers conceptualized the film's marketing strategy in a way that it targets maximum number of people to spread awareness about the movie in an engaging manner, where each touch-point with the film is designed to occupy the mind-space of the audience. Flaunting his pumped up body, clothes and hairstyle that he sports in the movie, Khan has been out there to woo audience well in advance before the movie hits theatres. Speaking to Businessofcinema.com about the hype around Ghajini, producer Madhu Mantena said, "I think at a time Our marketing strategies are focused on creating this urgency."

What was Ghajinis Marketing Strategy?

Assuming that the product and brand are good Media spend : 14 crores to promote the film Brand Experience : Life-size statues at multiplexes, ushers at multiplexes sporting Ghajini hairstyles, a special 3-D PC game, amongst others. Brand Tie-Ups : Tata Indicom voicemail using Aamirs voice, Samsung Handsets L700 & M200 models preloaded with Ghajini songs, pictures and ringtones, Van Heusen formal wear based on Aamirs costumes in the film, Indiagames : Ghajini games Merchandise : Produced and imported from China Sold for Rs.90 crores, Returns in the first week : Rs.100 crores, till date Rs.200 crores !

Is Ghajini a success ??
Sold for Rs.80 crores Domestic : Rs.40 crores to Studio 18, Overseas : Rs. 10 crores to Big Pictures, Satellite Rights : Rs. 10 crores to Studio 18 Audio Rights : Rs.20 crores to T-Series Home Video Rights Not sold as yet Returns in the first week : Rs.100 crores Rs.30-32 crores alone on Christmas Day 2008

What is Strategic Marketing ?

What is Strategic Marketing ?

Strategy : Is the science and art of assessing your organization's situation, setting goals and using available resources to accomplish those goals Marketing : Is the aggregate of functions involved in differentiating (branding), selling and moving the goods from producer to consumer
Strategic Marketing : Is using your strategy to make your marketing totally effective

Strategic Marketing Helps

Realize Market Opportunities Leverage the Organizations Strengths Stay on Target Stay on Budget

Finally : Achieve the organizations goals

Keep in mind that Strategy does not have to be complicated as long as it is effective.

Building A Strategy
What to address in your planning ? Your Organization (Corporation): Strengths, Weaknesses, Opportunities and Threats Your Products/Services (Corporation) : Benefits, Features, Strengths and Weaknesses Your Markets : (Consumer) Size, Attitude, Consumers, Trends, Wants, Needs, Specifics Your Competition : Current, Possible, Future, SWOT, Probable Responses In Your Environment : Government, Economy, Technology, Others

Learning Objectives
Recognize the three strategic Cs. Understand the importance of Strategic Marketing Determine the characteristics of Strategic Marketing Visualize the future of Strategic Marketing Comprehend the process of Strategic Marketing

Concept of Strategic Marketing

Within a given environment, marketing strategy deals essentially with the interplay of three forces known as the strategic three Cs: the consumer, the competition, and the corporation. Marketing strategies focus on ways in which the corporation can differentiate itself effectively from its competitors, capitalizing on its distinctive strengths to deliver better value to its consumers.

Characteristics of Marketing Strategy

Having
A clear market definition; A good match between corporate strengths and the needs of the market; And superior performance, relative to the competition.

Importance of Strategic Marketing

Marketing plays a vital role in the strategic management process of the firm. The experience of companies well versed in strategic planning indicates that failure in marketing can block the way to goals established by strategic planning.

Characteristics of Strategic Marketing

Emphasis on Long-Term Implications.
Strategic marketing is a commitment, not an act. Varying Roles for Different Products /Markets.

Strategic marketing starts from the premise that different products have varying roles in the company.
Organizational Level. Strategic marketing is conducted primarily at the business unit level in the organization.

Characteristics of Strategic Marketing

Corporate Inputs: Corporate Culture ~ refers to the style, whims, traits, taboos, customs, and rituals of top management. Corporate Publics ~ are the various stakeholders with governments and society constitute and organizations stakeholders. Corporate Resources ~ include the human, financial, physical, and technological assets/experience of the company.

Characteristics of Strategic Marketing

Relationship to Finance. Strategic marketing decision making is closely related to the finance function. Its very important of maintaining a close relationship between marketing and finance, and, with other functional areas of a business. In recent years, frameworks have been developed that make it convenient to simultaneously relate marketing to finance in making strategic decisions.

Future of Strategic Marketing

The battle for marketing share is intensifying in many industries as a result of declining growth rates. Deregulation in many industries is mandating a move to strategic marketing. Many companies in hitherto non-marketing-oriented industries are attempting to gain market share through strategic marketing.

Future of Strategic Marketing

Shifts in the channel structure of many industries have posed new problems. More and more countries around the world are developing the capacity to compete aggressively in world markets. The fragmentation of markets - the result of higher per capita incomes and more sophisticated consumers.

Future of Strategic Marketing

In planning an early entry in the marketplace, strategic marketing achieves significance. To successfully develop corporate imagination, companies need strategic marketing.

The Process of Strategic Marketing

Market Situation Analysis

Market Vision, Structure and Analysis

Markets are becoming increasingly complex and interrelated, creating challenges for managers in regard to understanding market structure and identifying opportunities for growth. Consider the impact of digital technology on Computers Telecommunications Photography Office Equipment Entertainment : Film making

Market Vision
The importance of forming a vision about the future can be understood with the help of the following example Eastman Kodak : Conventional Film material manufacturer Electronic imaging vs conventional film Compete aggressively in the conventional film market Fuji New arena positions Kodak against Sony, HP, Sanyo, Olympus electronic imaging

Markets and Strategies

Market knowledge is essential in guiding businesses and market strategies. How do markets impact strategy ? What is the concept of value migration and how does it effect market opportunities ? What is a shared vision about how the market is expected to change in the future?

Strategies and Markets are Interlinked

Market changes often require altering business and marketing strategies Managers who do not understand their markets and how they will change in the future may find the strategies they are using for competing inadequate as buyers needs and wants change and alternative products are available in the market place. Forces that precipitate change Deregulation MNCs, imports etc., Excess Global capacity Polymer products from China Global competition - Nike M&As Steel Industry Changing customer expectations Convergence of technology Technological discontinuities - Photography Disintermediation Organised Retail Demographic and Changing Life styles Indian Middle class

Examples
EBI : Encyclopedia Britannia 200 old publishing company In 1990 the CD ROM technology impacted the traditional encyclopedia market and EBI did not respond to this challenge By 1994 - 16 million households had CD drives in US homes : Encarta, Wikipedia EBIs sales dropped and slaes force declined from 2300 to 1100 CD ROMS priced at $100-400 while EBI at $ 1500 In 1996 it eliminated its sales force and EBI was sold by Scottish publishing house to Swiss billionaire Jacqui Safra Where do you see the future of the print business going 20 years from now ?

Value Migration
Value Migration is the process of customers shifting their purchases away from products generated by outmoded business designs to new ones that offer superior value. Examples : Migration from Typewrites to Word processing to computers Official memos and mail from conventional print to electronic mailing via internet and email What will be the impact of environment & infrastructure on the auto industry ?

Shared Vision about the Market

Organizations ability to develop a vision about the future markets that they wish to be in and directions of change. Team work rather than an individual : Arcelor Mittal To develop a future vision one must Identify and analyse the forces of change that are expected to transform industry boundaries and create new competitive space eg : Nokia Health Form a vision about the future eg : Stress and Mortality and Health consciousness

Mapping Product Markets

Mapping the Product Market

Market Structure Analysis

Market Forecasts

Future Vision About the Market

Question 1
Who sells the largest number of cameras in India today ?
Sony, Canon or Nikon ?

The correct answer is Nokia whose main line of business in India is not cameras but cell phones. Reason being cameras bundled with cell phones are outselling stand alone cameras. Now, what prevents the cell phone from replacing the camera outright? Nothing at all. One can only hope the Nikons and Canons are taking note.

Question 2
Who is the biggest in the Music business in India today ?
HMV, SaReGaMa or Sony ?

The answer is Airtel. By selling caller tunes (that play for 30 seconds) Airtel makes more than what music companies make by selling music albums (that run for hours). Incidentally Airtel is not in music business. It is the mobile service provider with the largest subscriber base in India . That sort of competitor is difficult to detect, even more difficult to beat (by the time you have identified him he has already gone past you).

Question 3
What Apple did to Sony, Sony did to Kodak. Explain.
Sony earlier defined its market as audio (music from the walkman). They never expected an IT company like Apple to encroach into their audio domain. Come to think of it, is it really surprising? Apple as a computer maker has both audio and video capabilities. So what made Sony think he won't compete on pure audio? So also Kodak defined its business as film cameras, Sony defines its businesses as digital

Question 4
In 2008 who was the toughest competitor for British Airways in India? Singapore Airlines, Emirates or Air India ?

The answer is videoconferencing and tele-presence services of HP and Cisco. Travel dropped due to recession. Senior IT executives in India and abroad were compelled by their head quarters to use videoconferencing to shrink travel budget. So much so, that the mad scramble for American visas from Indian techies was nowhere in sight in 2008. Note : Prices of PCs/Mobile Communication/Digital Cameras etc., dropped.If tele-presence prices crash. Imagine the fate of airlines then.

Point to Note - 1
India has two passions. Films and cricket. The two markets were distinctly different. So were the icons. That was, when cricket was fundamentally test cricket or at best 50 over cricket. Then came IPL and the two markets collapsed into one. IPL brought cricket down to 20 overs. Suddenly an IPL match was reduced to the length of a 3 hour movie. Cricket became film's competitor. On the eve of IPL matches movie halls ran empty. Desperate multiplex owners requisitioned the rights for screening IPL matches at movie halls to hang on to the audience. If IPL were to become the mainstay of cricket, as it is likely to be, films have to sequence their releases so as not clash with IPL matches. As far as the audience is concerned both are what in India are called 3 hour "tamasha" (entertainment) . Cricket season might push films out of the market.

Point to Note - 2
One last illustration. 20 years back what were Indians using to wake them up in the morning? The answer is "alarm clock." The alarm clock was a monster made of mechanical springs. It had to be physically keyed every day to keep it running. It made so much noise by way of alarm, that it woke you up and the rest of the colony. Then came quartz clocks which were sleeker. They were much more gentle though still quaintly called "alarms." What do we use today for waking up in the morning? Cellphone! An entire industry of clocks disappeared without warning thanks to cell phones. Big watch companies like Ajanta were the losers. You never know in which bush your competitor is hiding!

Case Study Vivometrics California Life Shirt

Wants to manufacture shirts Not an ordinary shirt but embedded are 4 balck bands equipped with electrodes to monitor more than 40 vital signs in your body, fluid in the heart, oxygen consumption etc., Blazing R&D on e-health Bathroom scales, blood sugar of diabetics, portable BP machines, EKGs Future : Electronic Care will will save lives future of medicine and technology

Case Study Vivometrics California Life Shirt

Wants to manufacture shirts Not an ordinary shirt but embedded are 4 balck bands equipped with electrodes to monitor more than 40 vital signs in your body, fluid in the heart, oxygen consumption etc., Blazing R&D on e-health Bathroom scales, blood sugar of diabetics, portable BP machines, EKGs Future : Electronic Care will will save lives future of medicine and technology

Matching Needs with Product Benefits

Product Market markets exist only when there are buyuers with needs who have the ability to purchase products and those that satisfy their needs. Have the ability and willingness to buy as they have a need Needs that satisfies a benefit Benefit must satisfy otherwise only people with needs Alternatively they express a demand for that product and can be substituted by other competitive brands Positioning strategy, substitutability, Eg : Campbell Soup : Discuss : Share of Throat in Summer in India

Mapping Product Market Boundaries and Structures

Start with the Generic Need satisfied by the product category of interest to management Perform various kitchen functions - appliances Identify the product categories (types) that can Satisfy the generic need Heating, cooling, washing, drying, cooking Form the specific product-markets within the generic product market Cooling : refrigerators A Frost free B Double Door A PUF, Freshness

Guidelines for Definition

In mapping product markets it is helpful to determine The basis for identifying buyers in the product market (geographical area, buyer characteristics such as age etc.,) The market size and characteristics The brands/product categories that are competing for needs and wants of the buyer

Forming Product Markets

The factors that influence product market boundaries must be determined in addition to the rate of change in market composition over time and the extent of market complexity Example : If a company is deciding to exit from a business it will look at financial performance and competitive position If the company wants to enter a new product segment a much more detailed analysis is required

Changing Composition of Markets

Product market composition may change as new technologies become available, new competition emerges, new customer needs become evident due to change in lifestyle etc., For example : Single unit families, they may meet their needs for food from products from different industries and not just from brands of the same product category DISCUSS

Mapping Product Market Boundaries and Structures

Supermarket Spencer Delis Fast Food
Convenience Food Stores prepared food Traditional Restaurants Takeaways

Micro wave Ovens

KFC vs Mc Donalds

Extent of Market Complexity

Three characteristics of markets capture a large proportion of the variation of a markets complexity Customer function considers what the product or service does : Example : Desktop Computer at home DISCUSS Different technologies may satisfy the use situation of the customer : Example : Sending a letter DISCUSS Customer segment recognizes the diversity of the needs of customers for a particular product Example : Automobiles DISCUSS

Illustrative Product Market Structure

Personal Care Products Powder Lotions Creams Shampoos Soaps Product Type Generic Product Class

Paper Soaps

Liquid Soaps

Bar Soaps

Variant A

Hygiene

Freshness

Beauty

Variant B

Vivel

Nirma

Lux

Brands

Identifying and Describing Buyers

Demographics Family Size, Age, Income, Location Sex, Occupation Psychographics Attitude, Beliefs, Values,

Lifestyles How they holiday, where they eat, what types of clothes they buy, what cars they possess

Needs and Want Analysis Convergence of technology, Experimental, Traditional, Conservative

How Buyers Make Choices

Problem recognition : Doesnt like the sound of this conventional magnetic tape music system and desires a CD player Information Search : Uses past experience of friends, ads, to seek information and discover alternatives Alternative Evaluation : Alternative players are then decided based on attributes, price, availability Purchase Decision : Selected, bought and installed in his room Post Purchase Behaviour : May be satisfied and advocates or returns the same

Environmental Influences
Analysis of the identify the external factors that influence the buyers choice Government : Fuel prices Social Change : Big Bazaar Economic Shifts : PPP Technology : Convergence

Analyzing Competition
Define the competitive arena for generic, specific and variant product markets

Identify and describe key competitors

Evaluate Key Competitors

Anticipate Action by Competitors

Identify Potential Competitors

Example : Competition for Diet Colas

Bottled Water Diet Lemon Limes Ice Cream Wine Reg. Colas Fruit Flavoured Cola
Competition Soft Drinks Competition Beverages

Diet Coke
Competition Diet Cola

Diet Pepsi

Lemon Limes

Fast Food

Diet Rite

Product Form

Product Category Generic Product

Budget Competition

Competition Food & Ent

Coffee Video Film

Juices

Tea

Popcorn

Candy

Industry Analysis
Competitor analysis is conducted from the point of view of the firm. However, with the example shown earlier, it is necessary to now look at competition from the point of view of competing industries and thus a need for an industry analysis Profile of the industry Analysis of the value chain Horizontal analysis similar types of firms Vertical Analysis - Different industries reaching the same end user

Industry Analysis
The industry analysis includes Industry characteristics and trends such as sales, number of firms, growth rates Operating practices of firms in the industry, including product mix, services provided, barriers to entry and geographical scope Industry Size and Growth Marketing Practies Industry changes that are anitipated Strengths and Weaknesses Strategic Alliances amongst competitors

Industry Analysis
Analysis of the Value Added Chain : Supplier and Distribution channels is important to understanding and servicing product markets. Example : ITC vs Coca Cola Competitive Forces : Need to recognize the five competitive forces that affect industry performance Rivalry among existing firms Eg. Coke vs Pepsi Threat of New Entrants Eg. Kodak vs HP/Sony Threat of Substitute Products Eg. Ency. Brit vs CD Rom Bargaining Power of Suppliers Eg. Commercial Airlines Bargaining Power of Buyers Eg. Walmart with suppliers

Key Competitor Analysis

Competitor analysis is conducted for firms that compete directly with each other. Eg. Nike vs Reebok, Unilever vs P&G The aspects of competitor analysis that is important are Preparation of descriptive profile for each competitor Evaluating the competitors strengths and weaknesses

Describing the Competitor

A key competitor is any organization going after the same target market as the firm conducting the analysis. Jet, Kingfisher and Air India are key competitors on many Indian routes and certain international routes. Key competitors are often brands that compete in the same product market or in segments within the market. Surf Excel and Ariel Different product types that satisfy the same need or want may also actively compete with each other. Sony Walkman and Apple i-pod

Information needed to Describe Key Competitors

Business Scope and objectives Management experience, capabilities and weaknesses Market position and trends Market target and customer base Marketing programme and positioning strategy Financial, technical and operating capabilities Key competitive advantage Sources : Annual Reports, Industry reports, Articles, Interviews, etc.,

Evaluating the Competitor

Evaluation considers the strengths and weaknesses of each competitor in the areas shown below : Scope of Market Coverage Market Share Distinctive Capabilities Past Performance

Customers Value Proposition

Perceptual Maps
Perceptual Maps are useful in analyzing the competitive positioning of competing brands. Analgesics brand in the US Gentleness
Tylenol o o Extra Strength Tylenol Aspirin Free Excedrin o Bufferin o Bayer o Anacin o Ecotrin o o Extra Strength Bayer o Extra Strength Anacin Advil o Nuprin o
Area of Vulnerability

Efficacy

Anticipating Competitors Actions

Estimating Competitors Future Strategies May be in the same direction. Assuming this may not be wise as their current action may signal probable future threats. Eg. Swatch introduced the plastic lifestyle brands. Timex licensed Nautica, Timeberland, offered $40 Expedition range. Customers moved to metal watches. Surf vs Nirma, Maruti vs Tata Motors

Anticipating Competitors Actions

Identifying Potential Customers : May come from four major sources a) companies competing in a related market b) companies with related technologies c) companies targeting similar customer groups with other products d) companies competing in similar geographical regions with similar products Market entry by new players is under the following conditions a) High profit margins b) Future growth opportunities c) No high market entry barriers d) Few Players

Strategic Vision about the Future

Are industry boundaries clear and static ? Are customers and competitors identifiable? Or are industry boundaries blurring and evolving? Do firms compete as distinct entities or as families of suppliers and end product firms ? Is there competition for managing migration paths ? Is competition taking place at product line, business and corporate levels ? Do these levels influence each other? Can there be competition to influence industry standards and evolutions?

Phases of Competition
Phase 1 : Initial Stages : companies compete in identifying product concepts, making technology choices and building competencies. This phase involves experimentation with ideas and the path to market leadership is not clearly defined Phase 2 : Involves Partnering of companies to controlling industry standards Phase 3 : As markets become clearly defined the competitive process concentrates on market share for end products and profits

Anticipating the Future

Hamel and Prahalad Model What are the influences (discontinuities) present in the product market that have the potential to profoundly transform market/competitor structure ? Investigate each discontinuity in substantial depth Affect on customers Economic impact How fast, who is exploiting this trend Who gains, who loses New opportunities ??

Market Size Estimation

Market Potential : is the maximum amount of product sale that can be obtained from a defined product market during a specific time period. Sales Forecast : expected sales for a defined product market during a specified time period Market Share : Company sales divided by the total sales of all firms for a specified time period. Forecasting

Summary
See Handout

Internal Assignment
Read the Hindustan Motors Case Study List the reasons and explanations of what you thought the company did right and what they did wrong to end up in the situation as they did by the early 2000s In the current context of the Automobile Industry in India what would be your advice to them for a revival and why? To be submitted before class on 23rd March 2010 Marks 30 No copying from each other. Your own analysis. Please refer books/internet for any help that you require. Handwritten/typed assignments on A4 sheets with name and roll/registration number mentioned on top RHC

Assignment Any 1
Select an industry in India (Paint, Cement, Steel, Detergents Aerated Drinks, etc. )and describe its characteristics, participants and structure. OR Using the approach to product market definition and analysis, select a brand and describe the generic, product type and brand product markets of which the brand is a part.
Search the net, read but do not COPY directly !!! Submission by 23rd March 2010

Analysis of Competitors Strategies & Estimating their Reaction Pattern and Competitive Position

Identifying the Companys Competitors

In the words of Albert W. Emery

Marketing is merely a civilized form of warfare in which most battles are won with words, ideas and disciplined thinking

What do organizations need to know ?

Who are our competitors ? What are their strategies ? What are their objectives ? What are their strengths and weaknesses ? What are their reaction patterns ?

We will now examine how this information helps shape the organizations marketing strategy.

Competitor Myopia
Four levels of competitors based on the concept of product substitution : Broader levels as we move down the list Companies offering a similar product and service to the same customer at similar prices. Eg : Maruti Alto with Tata Indica and not Tata Indigo Companies making the same product or a class of products Eg : Maruti vs Tata Motors Companies manufacturing products that supply the same service. Eg : Maruti vs 2 wheelers/3 wheelers/cycles/trains/airlines etc., Companies that compete for the same consumer rupee. Eg : Maruti vs Consumer Durable, foreign vacations, new homes, home repairs and uplift etc.,

Industry Concept of Competition

An industry is defined as a group of firms that offer a product or class of products that are close substitutes of each other. Auto industry, Steel Industry, Pharmaceutical Industry etc. Economists define close substitutes as products with high cross elasticity of demand Coffee vs tea A company must strive to undertsand the competitive pattern of its industry if it hopes to be an effective player.

Model of Industrial Organizational Analysis

Basic Conditions Supply
Raw Materials, Technology, Unionizations, Product Durability, Public Policy, Business Attitudes,

Demand
Price Elasticity, Substitutes, Rate of Growth, Cyclical and Seasonality, Purchase Method, Marketing Type

Industry Structure
Number of Sellers, Product Differentiation, Entry and mobility barriers, Exit and shrinkage barriers, Cost Str, Global reach, Vertical Integration

Conduct
Pricing Behaviour, Product Strategy and Advertising, Research and Innovation, Plant Investment, Legal Tactics

Performance
Production and efficiency, Progress, Full Employment, Equity

Number of Sellers and Degree of Product Differentiation : 5 Industry Structure Types

One Seller
Few Sellers Many Sellers

Undifferentiat ed Product

Pure Oligopoly Pure Monopoly

Pure Competitive

Differentiated Product

Differentiated Oligopoly

Monopolistic Competitive

Number of Sellers and Degree of Product Differentiation

Pure Monopoly : When only one firm provides a certain product or service in a certain country or area Eg : Indian Post, CESC in WB etc., Pure Oligopoly : Few companies producing the same commodity Eg : Steel, Coal, Oil : lower costs high volume Differentiated Oligopoly : Few companies producing products that are partially differentiated Eg : Automobile companies, Camera Monopolistic Competition : Many competitors able to differentiate their offers in whole or part Eg : Restaurants, Beauty Salons, Pure Competition : Many competitors offering the same product & service. No basis for differentiation. Eg : Telecom,

Example : Dynamism
One Seller
Few Sellers Many Sellers

Undifferentiat ed Product

Pure Oligopoly Pure Monopoly Sony Walkman

Others enter

Pure Competitive

Differentiated Product

Differentiated Oligopoly

Monopolistic Competitive

Shakeout happens

Other Industry Structure Parameters

Entry & Mobility Barriers : Ease of entry into industries prevents current firms from extracting excess profits in the long run however it is easier to open a restaurant than to set up an automobile plant. The reasons are as follows : High capital requirements Economies of scale Patents and licensing requirements Scarcity of locations, raw materials, Distribution network

Other Industry Structure Parameters

Exit & Shrinkage Barriers : Ease of exit from industries that provide low and unattractive profits. Exit barriers could be due to the following reasons : Legal and moral obligations to customers, creditors and employees Government restrictions Low salvage value of assets due to over specialization or obsolescence Lack of alternative opportunities They may shrink in size if they cannot exit.

Other Industry Structure Parameters

Cost Structures : Each industry will have a certain cost mix that will drive much of its strategic conduct. For example : making steel involves heavy manufacturing and raw material costs whereas an FMCG company will have high distribution and marketing costs. Firms in an industry will pay great attention to the high cost areas Thus a steel company with a most modern plant and machinery and ownership of raw material will be more competitive than others.

Other Industry Structure Parameters

Vertical Integration : In some industries such as the Oil Industry, companies will find it advantageous to integrate backward and/or forward. Major oil producers carry oil exploration, oil drilling, oil refining, and chemical manufacture. Eg : Reliance Industries. Vertical Integration often effects lower costs and also more control over the value added stream. In addition, these firms can manipulate their prices and costs in different segments of their business to earn profits where taxes are the lowest.

Other Industry Structure Parameters

Global Reach : Some industries are highly local : Biscuits and Packaged Snacks and others are highly global Automotive. Companies in the global market must compete globally if they are to enjoy economies of scale and keep up with the latest advances in technology.

Market Concept of Competition

Instead of looking at companies making the same product we can look at companies that are trying to satisfy the same customer need or serve the same customer group. In general, the market concept of competition opens the companys eyes to a broader set of actual and potential competitors and stimulates more long-run strategic market planning. The key is to link industry and market analysis through mapping the product/market battlefield

Product Market Battlefield for Toothpaste

Plain Toothpaste Colgate-Palmolive P&G Colgate-Palmolive P&G Colgate-Palmolive P&G

Product Segmentation

Toothpaste with Flouride

Colgate-Palmolive P&G Colgate-Palmolive P&G Unilever Beecham

Colgate-Palmolive P&G Colgate-Palmolive P&G Unilever Beecham Topol

Colgate-Palmolive P&G Colgate-Palmolive P&G Unilever

Gel Toothpaste

Striped Toothpaste Smokers Toothpaste

Topol Age 35 plus

Children/Teens

Age 19 to 35 Customer Segmentation

Identifying the Competitors Strategy

Identification
There is a close relationship between who the companys competitors are and the strategies that other firms are pursuing. The more that one firms strategy resembles another firms strategy, the more they compete. In most industries, competitors can be sorted into groups that pursue different strategies. A strategic group is a group of firms in an industry following the same or a similar strategy along key dimensions

Strategic Groups in an Appliance Industry

High
Group A Narrow line Lower manufacturing cost Very High Service High Price Group C Moderate line Med manufacturing cost Medium Service Medium Price Group B Full line Low manufacturing cost Good Service Medium Price

Quality

Low High

Group D Broad line Med manufacturing cost Low Service Low Price

Vertical Integration

Low (Assembler)

Determining the Competitors Objectives

Objectives
What is each competitor seeking in the marketplace? What drives each competitors behaviour? A useful initial assumption is that competitors strive to maximize their profits and choose their actions accordingly. Long term vs short term Weights on current profitability, market share, technology, cash flow etc., Must monitor its competitors objectives with respect to attacking new product/market segments.

Assessing the Competitors Strengths & Weaknesses

Competitors S&W
Must gather data on Sales Market Share Profit Margin ROI Cash Flow New Investments Capacity Utilization Often through secondary data, experience, hearsay, Institutional bodies etc.,

Competitors S&W
Market Share, Mind Share and Heart Share (Brands) A measure of the sales share A measure of the TOP awareness A measure of whom would you buy the product from Financial Parameters Liquidity Ratio : Short Term Leverage Capital Structure Ratio : Long Term Profitability Ratio : ROE, ROI Turnover Ratio : Assets being utilized well

Estimating the Competitors Reaction Pattern

Common Reaction Profiles

The Laid Back Competitor : Do not react quickly or strongly to a given competitor move. Loyal Customers, Lack of Funds The Selective Competitor : Reacts only to certain types of assaults and not others. Respond to price cuts but not advtg expense increase. The Tiger Competitor : The competitor reacts swiftly and strongly to any assault on its terrain. The Stochastic Competitor : Some competitors do not exhibit a predictable reaction pattern. May or may not react

Competitive Equilibrium
Bruce Henderson one of the founding members of the Boston Consulting Group thinks that much of competitive spirit among organizations depends of the industrys competitive equilibrium
If competitors are nearly identical and make their living in the same way, then their competitive equilibrium is unstable If a single major factor is the critical factor, then competitive equilibrium is unstable If multiple factors may be critical factors, then it is possible for each competitor to have some advantage and be differentially attractive to some customers. Relatively stable The fewer the number of competitive variables that are critical they fewer the number of competitors A ratio of 2:1 of market share between any two competitors seems to be the equilibrium point

Designing the Competitive Intelligence System

Intelligence System
Setting up the System : Calls for identifying vital types of competitive information and assigning a person who will manage the same Collecting the Data : Various Sources both Primary, Secondary and Hearsay. Has to develop ways of documenting the information Evaluating and Analyzing : Checked for validity and reliability Disseminating and Responding : Sent to key decision makers at appropriate intervals

Selecting Competitors to Attack and Avoid

Customer Value Analysis

Identify the major attributes that the customer values Assess the customers ratings of the importance of different attributes Assess the companys and competitors performances of different attributes against each rated importance Examine how customers in a specific segment rate the companys performance against a specific major competitor on an attribute by attribute basis Monitor changing customer attributes and importance ratings over time

Classes of Competitors
Strong vs Weak : Surf vs Ghari Detergent i/o Ariel Close vs Distant : Coke vs Mineral Water, Museums vs Malls, Tata Steel vs Hindalco/Reliance Petro Good vs Bad : Good ones play by same rules where as Bad ones take short cuts etc. Q. Infosys vs TCS or Satyam ???

Balancing Customer & Competitor Orientations

Competitor Centred Company

A competitor centred company is one whose moves are basically dictated by competitors actions and reactions. For example
Situation Competitor W is going all out to crush us in Mumbai Competitor X is improving distribution coverage in Nagpur and hurting our sales Competitor Y is has cut its price in Pune and we lost share Competitor Z has introduced a new product feature in Ahmedabad Solution We will withdraw from Mumbai as we cannot afford to fight them We will increase our advertising expenses in Nagpur We will match the price cut in Pune We will increase our sales promo budget in Ahmedabad

Customer Centred Company

A company who would focus more on customer developments to formulate its strategy
Situation The total market is growing at 4 % annually The fastest growing segment is the quality sensitive segment, growing 8% annually The deal prone customer segment also growing but do no loyalty A number of customers have expressed a 24 hr helpline no one has it as yet Solution Focus more on quality, improve QC, buy better, advertise on the quality aspects Avoid cutting prices and making deals as we do not want such customers We will work on a Cost Benefit analysis before introducing the 24 hr helpline

Evolution of Orientations
No Yes

Competitor Centred

No

Product Orientation

Customer Orientation

Yes

Competitor Orientation

Market Orientation

Customer Centred

Designing Competitive Strategies

Part 2

Classification of Roles in Target Markets

40%

Market Leader

30%

Market Challenger

20%
10%

Market Follower Market Nichers

Classification of Strategies
Market Leader
40%

Expand the Market

New Users, More Usage, New Uses

Defend & Protect Share

Increase Market Share

Position, Flank, Preemptive, Counteroffensive, Mobile & Contraction

Market Challenger
30%

Attack to gain share Not attack

Frontal, Flank, Encirclement, Bypass, Guerrilla

Market Follower
20%

Imitation vs Innovation Specialization

Counterfeiter, Cloner, Imitator, Adapter

Market Nichers
10%

Market Leader Strategies

Who is a Market Leader

Many industries contain one company that is the acknowledged market leader This company has the largest market share in the relevant product market and usually leads the other firms in prices changes, new product introductions, distribution coverage and promotional intensity Example : Photography Material : Kodak Computer Software : Microsoft Microprocessor : INTEL FMCG : P&G Soft Drinks : Coca Cola Earth Moving Equipment : Caterpillar Fast Food : Mc Donaldss Unless the dominant firm is vigilant it can be hurt due to the following reasons Product Innovation : Motorola (Analog Phones) to Nokia (Digital) Challenger Spends : Pepsi to Coca Cola (India only) Changing Customer Styles : Levis to Tommy Hilfiger/Calvin Klein/GAP To remain number one calls for action on three fronts Expand Market Demand Defend/Protect Current Share : Defensive and Offensive Actions Increase Market Share

Expanding the Total Market

Dominant firm gains the most when the total market expands Eg : Surf vs Nirma in the 80s Market Leader needs to look for New Users, New Uses and More Usage of its products

Expanding the Market through New Users

Markets can be expanded through discovering and promoting new uses for the current products Eg : Cereals into Energy Bars and Snacks, Vaseline from lubricant in machine shops to personal moisturizer Any other examples ??

Expanding the Market through More Usage

Convince people to use more product per use of the occasion. Eg : Shampoo : Typically in their communication Lather, Rinse and Repeat are we sure of the benefits of shampooing our hair twice?? Eg : Michelin Tyres : French Tyre Company : Michelin Guide Eg : Gillete Mach 3 Blades : Blue Strip fades after 12 shaves alerts consumers that they are getting the most optimal Mach 3 shaving experiencethey more they change the more we sell

Expanding through New Uses

New Users : Market Penetration Strategy: those who may use it but do not New Market Segment Strategy : those who have never used it Geographical Expansion Strategy : those who live elsewhere
Eg : Colgate Toothpaste Eg : Khadims Footwear

Defending Market Share

While trying to expand the total market size, the dominant market leader must also protect its own turf and current share. Coca Cola vs Pepsi, Gillete vs Bic, Hertz vs Avis, Mc Donalds vs Burger King, GM vs Ford/Toyota, Kodak vs Fuji Sometimes the competitor is domestic and sometimes foreign The best defense of good offense Art of War by Sun Tsu Chinese Military Strategist Eg : Johnson and Johnson cardiac stent from 90% share dropped to 8% - why ?

The 6 Defense (Leader) Strategies

(2) Flank (3) Preemptive (1) Position

ATTACKER
(4) Counteroffensive

(6) Contraction

DEFENDER

(5) Mobile

The 6 Defense Strategies (Position & Flank)

Position Defense : Building superior brand power, making the brand almost impregnable : Eg :Heinz (50%) vs Hunt (17%) Ketchup market in the US Flank Defense : Instead of building fortifications around its product, it should erect outposts to protect a weak front.: Eg. Smirnoff Vodka (23%) vs Wolfschmidt who lowered $1 per bottle, What was Smirnoffs strategy ? Goodyear vs Michelin/Bridgestone product innovation Extended Mobility tyre, Aquatred Tyre and Dunlop Acquisition

The 6 Defense Strategies (Pre emptive)

Pre emptive Defense : A more aggressive maneuver is to attack before the enemy starts its offensive. Can be done in the following way Guerrilla Attack : attacking different competitors in different markets and keep everyone off balance. Grand Market Envelopment : Seiko has done with 2300 watch models available worldwide Sustained Price Attacks Sending out Market Signals : Eg : Chrysler Minivan price vs lower price minivan

The 6 Defense Strategies (Counter Offensive)

Counter Offensive Defense : When attacked, most market leaders will respond with a counter attack. It can be frontally (head on), hit competitors flanks or launch a pincer movement. Eg : Northwest Airline Minneapolis Atlanta : most profitable, smaller airline cut fares, NW cut fares on Minneapolis-Chicago route hurting the smaller airline so that they cam back to normal pricing

The 6 Defense Strategies (Mobile Defense)

Mobile Defense : The leader stretches its domain over new territories that can serve as future centres for defense and offense. It spreads through market broadening and market diversification. Market Broadening : Focus on R&D and product based on the technology that addresses the need : Refrigerators not just cooling but bio fresh, etc. Market Diversification : Into unrelated industries is another alternative : Eg : ITC Limited

The 6 Defense Strategies (Contraction)

Contraction Defense : Large companies sometime recognize that they can no longer defend all of their territory. The best course of action then appears to be planned contraction (also known as strategic withdrawal). Planned contraction means giving up weaker territories and reassigning resources to stronger territories. Eg : HUL moved out of Dalda, Hindustan Motors exited Contessa etc.,

Increasing Market Share

Market leaders can improve their profitability by increasing their market share. A study by Strategic Planning Institute USA called PIMS (Profit Impact of Market Strategy) found that a companys profitability, measured by pre tax return on investment rises with its relative market share of the markets served. It showed that companies with a 40% market share earned an average 30% ROI. Eg : GE strategy to exit out of businesses if they were not No1 in market share. Divested its A/C and computer businesses Profitability depends on the strategy to gain Market Share and not an Increase in Market Share alone

Market Challenger Strategies

Who is a Market Challenger ?

Companies that occupy second, third and lower ranks in an industry are often called runner up or trailing companies. 2nd run companies/brands such as Pepsi, Ford, Avis etc., are quite large in themselves. They can either attack the leader aggressively to garner higher market share or they can sit back and not rock the boat (market followers) Many challengers have overtaken the leaders Eg : Toyota over General Motors British Airways (then BOAC) over Pan Am (no longer exists)

Market Challengers
Competitive Rivalry and price cutting are most intense in industries with high fixed costs, high inventory costs and stagnant primary demand. Eg : Steel, Auto, Paper, Chemicals etc., The Challenger must decided its strategic objective and whom does it wish to attack It can attack the market leader : High risk but high potential payoff : Eg : Photocopying Industry Xerox from 3M and then Canon from Xerox It can attack firms of its own size and are underfinanced : It can attack small local/regional firms

The 5 Attack (Challenger) Strategies

4) Bypass Attack 2) Flank Attack

Attacker (Challenger)

1)Frontal Attack 3) Encirclement Attack

Defender (Leader)

5) Guerrilla Attack

The 5 Attack Strategies (Frontal)

Frontal Attack : In pure frontal attack, the attacker matches its opponent's product, advertising, price and distribution. The principle of force says that the side with the greater manpower (resources) will win. A modified frontal attack can work by cutting prices, only if the leader does not counter the move. Helene Curtis does it successfully for lower priced products.

The 5 Attack Strategies (Flank)

Flank Attack : The major principle of warfare is concentration of strength against weakness. Find a chink in the armour. The leaders weak spots are the challengers opportunity. This can be along two strategic dimensions Geographical : Areas where leader is underperforming. Eg : Honeywell focussed on smaller markets where IBM was weak Segmental : Newer customer segments : Toyota entered with more fuel efficient cars to counter GM in US

The 5 Attack Strategies (Encirclement)

Encirclement Attack : Is an attempt to capture a wide slice of the enemys territory through a blitz. Grand offensive on several fronts. Makes sense when the challenger commands superior resources. Eg : Nestle vs Cadbury in India for the chocolate market

The 5 Attack Strategies (Bypass)

BypassAttack : The most indirect assault is the bypass strategy. It is to bypass the leader and attack easier markets to broaden ones resource base. This strategy offers three lines of approach : Diversifying into unrelated products. Eg : Pepsi bought Tropicana in 1998 (42% market share) over Minute Maid from Coca Cola (24%) Diversifying into new geographical markets : Eg : Pepsi entering India before Coke Leapfrogging into new technologies to supplant exisiting products : Eg. SCA in Sweden over P&G for their Diaper market through innovative interactive Web Site Strategy

The 5 Attack Strategies (Guerrilla)

Guerrilla Attack : Consists of waging small, intermittent attacks to harass and demoralize the leader and eventually secure permanent footholds. Eg : Kaplan Educational Centre (Stanley Kaplan) vs Princeton Review. Ad which said Friens dont let friends take Kaplan

More Specific Challenger Strategies

The challenger must go beyond the 5 broad strategies and develop more specific strategies such as : Price Discount Lower priced goods Prestige Goods : Mercedes vs Cadillac GM Product Proliferation : Baskin Robbins 31 flavours Product Innovation : 3M Improved Services : Avis vs Hertz We are No.2. We try harder Distribution Channel : Avons door to door selling over conventional stores Manufacturing Cost Reduction : Tata Steel Intensive advertising : Miller Lite over Budweizer

Who is a Market Follower ?

Theodore Levitt has coined the word Innovative Imitation where he argued that a strategy of product imitation might be as profitable as product innovation. Quite prevalent in capital intensive, homogenous-product industries such as steel, fertilizer, cement, chemicals etc., Product differentiation low, service comparable, price sensitivity runs high Eg : Tata Steel innovated and launched TISON TMT bars, SRMB, TIMCON, Rathi TOR, Elegant 4 strategies : Counterfeiter, Cloner, Imitator, Adapter

4 Follower Strategies
Counterfeiter : Duplicates the leaders product and package and sells it through disreputable dealers : Rolex Watches, CDs etc., Cloner : Emulates the leaders products, name and packaging with slight variations. Imitator : Copies from the leader but maintains a differentiation in terms of packaging, price etc., Adapter : Takes the leaders products and adapts or improves them significantly to offer a new product. Eg : What Japanese Electronics Industry did to Germany/England

Who is a Niche Player ?

An alternative to being a follower in a large market, is to be a leader in a small market that is the concept of a niche player. Eg : Logitech International : Specialist in manufacture and variations of a computer mouse and then onto all computer peripherals such as keyboards, speakers, joystick, webcams, etc., - has become a US$ 750 billion company The key strategy for a niche player is specialization

Niche Player Strategies

End User Specialist : Logitech International Vertical Level Specialist : Making Copper Wires Customer Size Specialist : Minority Group Hotels Specific Customer Specialist : Sona Steering for Maruti Geographic Specialist : Sreeleathers Product or Product Line Specialist : Carl Zeiss Lenses Quality Price Specialist : Mont Blanc Pens

Product Life Cycle

Product Life Cycle

Product Life Cycle shows the stages that products go through from development to withdrawal from the market Product Portfolio the range of products a company has in development or available for consumers at any one time. Managing product portfolio is important for cash flow

Product Life Cycle Fundamentals

Product Life Cycle (PLC) Each product may have a different life cycle PLC determines revenue earned Contributes to strategic marketing planning May help the firm to identify when a product needs support, redesign, reinvigorating, withdrawal, etc. May help in new product development planning May help in forecasting and managing cash flow

Product Life Cycle Fundamentals

The Stages of the Product Life Cycle Development Introduction/Launch Growth Maturity Saturation Decline Withdrawal

Product Life Cycle Fundamentals

The Development Stage Initial Ideas possibly large number May come from any of the following Market research identifies gaps in the market Monitoring competitors Planned research and development (R&D) Luck or intuition stumble across ideas? Creative thinking inventions, hunches? Futures thinking what will people be using/wanting/needing 5,10,20 years?

Product Life Cycle Fundamentals

Product Development: Stages New ideas/possible inventions Market analysis is it wanted? Can it be produced at a profit? Who is it likely to be aimed at? Product Development and refinement Test Marketing possibly local/regional Analysis of test marketing results and amendment of product/production process Preparations for launch publicity, marketing campaign

Product Life Cycle Fundamentals

Introduction/Launch: Advertising and promotion campaigns Target campaign at specific audience? Monitor initial sales Maximise publicity High cost/low sales Length of time type of product

Product Life Cycle Fundamentals

Growth: Increased consumer awareness Sales rise Revenues increase Costs - fixed costs/variable costs, profits may be made Monitor market competitors reaction?

Product Life Cycle Fundamentals

Maturity Sales reach peak Cost of supporting the product declines Ratio of revenue to cost high Sales growth likely to be low Market share may be high Competition likely to be greater Price elasticity of demand? Monitor market changes/amendments/new strategies?

Product Life Cycle Fundamentals

Saturation New entrants likely to mean market is flooded Necessity to develop new strategies becomes more pressing: Searching out new markets: Linking to changing fashions Seeking new or exploiting market segments Linking to joint ventures media/music, etc. Developing new uses Focus on adapting the product Re-packaging or format Improving the standard or quality Developing the product range

Product Life Cycle Fundamentals

Decline and Withdrawal: Product outlives/outgrows its usefulness/value Fashions change Technology changes Sales decline Cost of supporting starts to rise too far Decision to withdraw may be dependent on availability of new products and whether fashions/trends will come around again?

Product Life Cycle Fundamentals

Sales
Development Introduction Growth Maturity Saturation Decline

Time

Product Life Cycle Fundamentals

Sales

Effects of Extension Strategies

Time

Generic Industry Environments

Types of Industry Environment

Fragmented Emerging Declining Mature Global

Challenges for Fragmented Industries

What is a Fragmented Industry?

Is an industry where no particular firm or organization has any significant market share and therefore cannot strongly influence the industry outcome. No single precise quantitative definition of a fragmented industry but an industry that does not have any significant leader Canned fruits Toilet and Tissue paper Machine Tools Costume Jewellery

What makes an Industry Fragmented

Low Overall Entry Barriers (not the most important one) Absence of Economies of Scale or Experience Curve High Transportation Costs Erratic Sales Fluctuations No Advantage of Size in Dealing with Buyers/Suppliers Diverse Market Needs (Uniforms for Local State/City Police) No Exit Barriers Local Regulation (Liquor Retailing : Goan Wine in Kolkata) Newness (Solar cookers)

How to overcome Fragmentation?

Create economies of Scale : eg : Kids Apparel Market Standardize diverse Market Needs : eg : Modular Kitchens Make Acquisitions for critical Mass : Steel Recognize Industry Trends early if newness was the cause : Dot Coms Amazon.com

How do your cope with Fragmentation?

Tightly Managed Decentralisation Formula Facilities (Common Warehousing) Increased Value Added Specialization by Product Type or Product Segment (Furniture) Specialization by Customer Type Specialization by Type of Order (Small Order/Custom Order) Focussed Geographic Area Bare Bones/No Frills (Low Overhead Costs Travel Trade)

Potential Strategic Traps

Seeking Dominance Lack of Strategic Discipline Overcentralization Assumption that Competitors have the Same Overhead and Objectives Overreactions to New Products

Formulating Strategy for Fragmented Industries

Step One : What is the structure of the industry and the positions of competitors? Step Two : Why is the industry fragmented? Step Three : Can fragmentation be overcome? How? Step Four : Is overcoming fragmentation profitable? Where should the firm be positioned to do so? Step Five : If fragmentation is inevitable, what is the best alternative for coping with it?

Challenges for Emerging Industries

What is an Emerging Industry?

Emerging industries are newly formed or re-formed industries that have been created by technological innovations, shifts in relative cost relationships, emergence of new consumer needs or other economic or sociological changes that elevate a product or service to the level of a potentially viable business opportunity. Solar Heating Alternative Fuels Internet based services Fibre Optics Packaged Drinking Water

Common Structural Characteristics

Technological Uncertainty Strategic Uncertainty High Initial Costs Embryonic Companies (Infosys at the time of launch) First Time Buyers Short Term Horizon Subsidy

Problems Constraining Emerging Industries

Inability to obtain Raw Material Absence of Infrastructure Absence of Product Standardization Perceived likelihood of Obsolescence Customers Confusion Erratic Product Quality High costs Image and Credibility with Financial Community

Strategic Choices
Shaping Industry Structure Changing Role of Suppliers and Channels Shifting Mobility barriers
Timing Entry Coping with Competitors Forecasting Which emerging Industry to enter??

Challenges for Declining Industries

What is a Declining Industry?

Declining Industries can be described as those which have experienced an absolute decline in unit sales over a sustained period. Here the end game strategies must be developed. Postal Services in Developed Nations Hand Driven Ploughs in India Magnetic Cassette Tapes in Developed Nations Glass containers for Milk and Packaged Water Propeller Engines to Jet Engines

Causes of Decline
Technological Advancement and Substitution Demographics Shift in needs

Strategic Choices
Has Strength Relative To Competitors for Remaining Pockets Lacks Strength Relative To Competitors for Remaining Pockets

Favourable Industry Structure for Decline

Leadership Or Niche

Harvest Or Divest Quickly

Unfavourable Industry Structure for Decline

Niche Or Harvest

Divest Quickly

Strategy Analysis and Choice

Strategy Analysis and Choice

Strategic management is not a box of tricks or a bundle of techniques. It is analytical thinking and commitment of resources to action. But quantification alone is not planning. Some of the most important issues in strategic management cannot be quantified at all. Peter Drucker

Strategy Analysis and Choice

The Nature of Strategy Analysis and Choice Strategy analysis and choice seeks to determine alternative courses of action that could best enable the firm to achieve its mission and objectives. During this process the idea is to establish long-term objectives generate alternative strategies select appropriate strategies to pursue.

Strategy Analysis and Choice

Alternative strategies are derived from the firms vision the firms mission the firms objectives the external audit the internal audit past strategies that have worked well.

The Strategy-Formulation Analytical Framework

Stage 1: The Input Stage

Stage 2: The Matching Stage

Stage 3: The Decision Stage

Stage 1: The Input Stage

Internal Factor Evaluation Corporation VMV, Objectives And Resources (IFE)

Stage 1: The Input Stage

External Factor Evaluation (EFE), Industry Structure, PLC, Environment, Market Mapping Competitive Profile (CPE), Key Competitor Analysis, Competitive Strategy Anlysis

Stage 2: The Matching Stage

Porters 5 Forces Matrix (Industry)

SWOT Matrix (Corporation) Porters Generic Strategy Matrix (SBUs) Ansoff s Matrix (Market/Product)

Stage 2: The Matching Stage

BCG Matrix (Product/Brand Portfolio)

Porters 5 Forces Model

Five Forces Determining Segment Structural Attractiveness

Potential Entrants (Threat of New Entrants)

Suppliers (Bargaining Power Of Suppliers)

Industry Competitors (Rivalry among Existing firms)

Buyers (Bargaining power Of Buyers)

Substitutes (Threat of Substitute Products/Services)

Threat of Entry
Barriers to Entry Economies of Scale Product Differentiation (Strong Brands) Switching Costs (Buyers to buy the new product) Access to Distribution Channels Cost Disadvantage (Depreciated Assets) Government Policy (Airline to non metro routes)

Rivalry Among Existing Firms

Numerous or equally balanced competitors Slow Industry Growth (Fight for market share) High Fixed Costs Lack of Differentiation (Coke vs Pepsi) Diverse Competitors High Exit Barriers

Others
Threat from Substitute Products (Sugar and Sugar Free) Bargaining power of Buyers (Organized Retail) Bargaining Power of Suppliers (Steel pre liberalization)

SWOT Analysis

The SWOT Matrix

In this Matrix we seek to match the organizations internal resources and skills and the opportunities and risks created by the industrys external environment.
S = Strengths W = Weaknesses O = Opportunities T = Threats

The SWOT Matrix

A SWOT Matrix produces four types of strategies SO Strategy use a firms internal strengths to take advantage of external opportunities. WO Strategy aim at improving internal weaknesses by taking advantage of external opportunities. ST strategy use a firms strengths to avoid or reduce the impact of external threats. WT strategy are defensive strategies directed at reducing internal weaknesses and avoiding external threats.

Developing the SWOT Matrix

List the firms key external opportunities. List the firms key external threats. List the firms key internal strengths. List the firms key internal weaknesses. Match internal strengths with external opportunities, and record the resultant SO strategy in the appropriate cell. Match internal weaknesses with external opportunities, and record the resultant WO strategy. Match internal strengths with external threats, and record the resultant ST strategy. Match internal weaknesses with external threats, and record the resultant WT strategy.

SWOT Matrix
Leave Blank Strengths S
List strengths

Weaknesses W
List weaknesses

Opportunities O
List opportunities

SO Strategy
Use strengths to take advantage of opportunities

WO Strategy
Overcoming weaknesses by taking advantage of opportunities

Threats T
List threats

ST Strategy
Use strengths to avoid threats

WT Strategy
Minimize weaknesses and avoid threats

SWOT Matrix
The purpose of each stage is to generate feasible alternative strategies, not to select or determine which strategies are best. Not all of the strategies developed in the SWOT Matrix, therefore, will be selected for implementation.

Porters Generic Strategy

Porters Generic Strategy

Cost Leadership Strategy

Differentiation Strategy

Cost Focus Strategy

Focussed Differentiation Strategy

Porters Generic Strategy

Cost Leadership : is a low cost competitive start that aims at the broad mass market and requires aggressive construction of efficient scale facilities, cost reduction, and cost minimization in areas like R&D, Sales force and Advertising Because of its lower cost, the cost leader is able to charge a lower price for its products than its competitors and still make a satisfactory profit. Gives it a good defense against rivals. Eg : Dell Computers, Tata Steel

Porters Generic Strategy

Differentiation : is a a generic strategy that involves the creation of a slightly or significantly differentiated offering for which the company may charge a premium. This specialty can be associated with design, brand image, technology feature, dealer network or customer service. Differentiation is a viable strategy for earning above average returns in a specific business because the resulting brand loyalty lowers the customers sensitivity to price Eg : Rolex Watches

Porters Generic Strategy

Cost Focus : is a low cost strategy that focuses on a particular buyer group or geographic market and attempts to service only this niche to the exclusion of others. Eg : Nokia lower end handsets for India

Porters Generic Strategy

Focussed Differentiation : like cost focus, concentrates on a particular buyer group, product line segment or geographic market. Segment targets buyers with unusual needs which are different from others in the industry. Not necessarily on price. Eg : Beauty products that have collagen or aloe veraLOccitane, Professional Cameras from Nikon, Pentax

Ansoffs Matrix

Ansoffs Concepts
Market Penetration : selling more of the companies products in the existing market which means increasing the level of penetration in these segments. Eg : P&G and HUL Product Development : developing additional or new products to serve existing market segments. Eg : Coke into Minute Maid Market Development : concentrates on the present product range by searches for new segments. Eg Telecom Sector Diversification : marketing of new products into new markets. Eg : ITC : Apparel, Personal care from Cigarettes

Ansoffs Matrix
PRODUCT
Old
New

MARKET

Market Penetration

Product Development

Old

Market Development

New

Diversification

BCG Matrix

The Boston Consulting Group Growth/Share Matrix

The Boston Consulting Group Matrix: A means of analyzing the product portfolio and informing decision making about possible marketing strategies Developed by the Boston Consulting Group a business strategy and marketing consultancy in 1968 Links growth rate, market share and cash flow

BCG Matrix
When a firms divisions compete in different industries, a separate strategy often must be developed for each business. The BCG Matrix is designed to enhance a multidivisional firms efforts to formulate strategies. Allows a multidivisional organization to manage its portfolio of businesses Focuses on relative market share position and the industry growth rate.

BCG Matrix
MARKET GROWTH
High
Low

MARKET SHARE

High

Stars

Cash Cows

Problem Child/ Question Marks

Low

Dogs

BCG Matrix
Classifies Products into four simple categories: Stars products in markets experiencing high growth rates with a high or increasing share of the market - Potential for high revenue growth

BCG Matrix
Cash Cows High market share Low growth markets maturity stage of PLC Low cost support High cash revenue positive cash flows

BCG Matrix
Dogs Products in a low growth market Have low or declining market share (decline stage of PLC) Associated with negative cash flow May require large sums of money to support

BCG Matrix
Problem Child Products having a low market share in a high growth market Need money spent to develop them May produce negative cash flow Potential for the future?

BCG Matrix
Implications Dogs Are they worth persevering with? How much are they costing? Could they be revived in some way? How much would it cost to continue to support such products? How much would it cost to remove from the market?

BCG Matrix
Implications Problem Children: What are the chances of these products securing a hold in the market? How much will it cost to promote them to a stronger position? Is it worth it?

BCG Matrix
Implications Stars Huge potential May have been expensive to develop Worth spending money to promote Consider the extent of their product life cycle in decision making

BCG Matrix
Implications Cash Cows Cheap to promote Generate large amounts of cash use for further R&D? Costs of developing and promoting have largely gone Need to monitor their performance the long term? At the maturity stage of the PLC?

BCG Matrix
Sales (1) (2) (3)
Importance maturity (3) (2) Cash from C (1) A is at of B used The product maintaininggrowth of of to support a balance used support C stageto cash cow. products in four portfolio the portfolio D and growth for throughpossibly to Generates stages stage atproducts funds of the different in the financelaunch D. A and toBoston Matrix the development of PLC extension portfolio strategy for B? now with the a dog? D possibly analysis helps

D
A B C

Time

BCG Matrix
The major benefit of the BCG matrix is that it draws attention to the cash flow, investment characteristics, and needs of an organizations various divisions. Over time, organizations should strive to achieve a portfolio of divisions that are Stars.

BCG Matrix Limitations

Viewing every business as a star, cash cow, dog, or question mark is overly simplistic. Many businesses fall right in the middle of the BCG matrix and thus are not easily classified. The BCG matrix does not reflect whether or not various divisions or their industries are growing over time. Other variables besides relative market share position and industry growth rate in sales are important in making strategic decisions about various divisions.

Lets discuss the Retail Industry

Strategic Brand Positioning

Questions ?
How can a firm choose and communicate an effective positioning in the market? How are brands differentiated? What marketing strategies are appropriate at each stage of the product life cycle? What are the implications of market evolution for marketing strategies?

Introduction
If your product is the same as your competitors then you cannot win. Your product must be different. There must be a remarkable difference otherwise you will just compete on price with your competitors. Once you know that you are different then you can advertise it. All marketing strategy is built on Segmentation, Targeting and positioning (STP) of ones product/service. If a company does a poor job on positioning its product/service the market will be confused.

What is Positioning?
Positioning is the act of designing the companys

offering and image to occupy a distinctive place in the mind of the target market.

Value Propositions
Perdue Chicken More tender golden chicken at a moderate premium price Dominos A good hot pizza, delivered to your door within 30 minutes of ordering, at a moderate price

Defining Associations
Points-of-difference (PODs) Points-of-parity (POPs) Associations that are not Attributes or benefits necessarily unique to the consumers strongly associate brand but may be shared with a brand, positively with other brands evaluate, and believe they could not find to the same extent with a competitive brand

Conveying Category Membership

Announcing category benefits Comparing to exemplars Relying on the product descriptor

Consumer Desirability Criteria for PODs

Relevance Distinctiveness Believability

Deliverability Criteria for PODs

Feasibility Communicability Sustainability

Examples of Negatively Correlated Attributes and Benefits

Low-price vs. High quality Taste vs. Low calories Nutritious vs. Good tasting Efficacious vs. Mild Powerful vs. Safe Strong vs. Refined Ubiquitous vs. Exclusive Varied vs. Simple

Addressing negatively correlated PODs and POPs

Present separately Leverage equity of another entity Redefine the relationship

Differentiation Strategies
Product Channel Personnel Image

Product Differentiation
Product form Features Performance Conformance Durability Reliability Reparability Style Design Ordering ease Delivery Installation Customer training Customer consulting Maintenance

Claims of Product Life Cycles

Products have a limited life Product sales pass through distinct stages each with different challenges and opportunities Profits rise and fall at different stages Products require different strategies in each life cycle stage

Strategies for Sustaining Rapid Market Growth

Improve product quality, add new features, and improve styling Add new models and flanker products Enter new market segments Increase distribution coverage Shift from product-awareness advertising to productpreference advertising Lower prices to attract the next layer of price-sensitive buyers

Stages in the Maturity Stage

Growth Stable Decaying maturity

Marketing Product Modifications

Quality improvements Feature improvements Style improvements

Marketing Program Modifications

Prices Distribution Advertising Sales promotion Services

Ways to Increase Sales Volume

Convert nonusers Enter new market segments Attract competitors customers Have consumers use the product on more occasions Have consumers use more of the product on each occasion Have consumers use the product in new ways

Market Evolution Stages

Emergence Growth Maturity Decline

Emerging Markets
Latent Single-niche Multiple-niche Mass-market

Maturity Strategies
Market fragmentation stage Market consolidation stage

Competitive Pricing

Pricing Situations
Deciding on how to price a new product or line of products Evaluating the need to adjust price as the product moves through the product life cycle Changing the positioning strategy that requires modifying the current price strategy Deciding on how to respond to the pressures of competitiveness

Examples
Gillette : Sensor Excel, Mach 3 (35% higher) Mach 3 Turbo Nokia Handsets FMCG products Airline Fare Hotel Tariffs Steel Consumer Durables

Pricing Objectives
Gain Market Position : Big Bazaar low prices Achieve Financial Performance : Increasing Margins Product Positioning : Premium/Leisure/Designer Products Stimulate Demand : Discounts/Offers Influence Competition : Cartels

Factors Affecting Pricing Situation

Customer Price Sensivity

Legal & Ethical Constraints

Pricing Situation

Competitors Likely Response

Product Cost

Pricing Strategy
Active Strategy Low Relative Price

Low Active Strategy

Low Passive Strategy

High Active Strategy High Passive Strategy

High Relative Price

Passive Strategy

Pricing Strategy
High Active Strategy : Emphasizing High Price Product Positioning/High Margin Low Volume, Less subject to retaliation : High End Alcohol/Perfume/Apparel High Passive Strategy : Positioning focussing on non-price factors such as esteem, prestige. BMW, Mercedes, Watches Low Active Strategy : Discount Stores, where price is an important factor. Big Bazaar Low Passive Strategy : Products which have lower cost features. Do not emphasize the low price as it may give a wrong indication to quality. Neutral Pricing : Or at near the prices of the key competitor

All the best !!