Professional Documents
Culture Documents
SYLLABUS
1) Marketing strategy-overview
Reference Books:
• Marketing Strategy –Boyd, Walker & Larrenche
Strategy is about:
• Which markets should a business compete in and what kinds of activities are involved
in such markets? (markets; scope)
• How can the business perform better than the competition in those markets?
(Advantage)?
• What are the values and expectations of those who have power in and around the
business? (stakeholders)
Strategies exist at several levels in any organization - ranging from the overall business (or
group of businesses) through to individuals working in it.
• Corporate Strategy - is concerned with the overall purpose and scope of the business
to meet stakeholder expectations. This is a crucial level since it is heavily influenced
by investors in the business and acts to guide strategic decision-making throughout
the business. Corporate strategy is often stated explicitly in a "mission statement".
• Operational Strategy - is concerned with how each part of the business is organized to
deliver the corporate and business-unit level strategic direction. Operational strategy
therefore focuses on issues of resources, processes, people etc.
Strategy versus Tactics:
Strategy Tactics
The annual business plan specifies actions Tactics are designed for the short term
needed to implement the strategy
Strategy is the broad approach to the Tactics are the details within the overall the
achievement of objectives strategy
It starts with the identification and The details include what, where and how
evaluation of strategic objectives activities will take place to accomplish a
goal
• Strategic options can be analyzed by using Ansoff’s matrix and Porter’s generic
strategies
• Strategy is differentiated from tactics in that tactics are micro strategies that contribute
to large goal. Opening a successful business would fall under strategy achieving
financing or an important client would be considered tactics towards strategy.
• A successful strategy begins with a goal , along with an analysis of the current
situation & then sets out a plan that address each operational aspects needed to
realize the achievement of the goal. This generalized formula is characteristic of all
straitening.
7P’s 7C’s
Product Customer value
Promotion Communication
Price Cost
Place Convenience
People Capable
Process Convergent
Physical Evidence Conductive
Issues for marketing strategy
• Product
What product do customers use now?
What benefits does consumer want from the product?
• Promotions
What promotions appeals would influence consumer to purchase & use of our product?
What advertising claims would be effective for our product?
• Pricing
How important is price to the consumer in various target markets?
What effect will a price change have on purchase behavior?
• Place
Where do consumers buy this product?
Would a different distribution system change consumer purchasing behavior?
• People
What type of people is desired by the consumer to deliver the service? Would
differentiation by people help in gaining competitive advantage?
• Process
Would different procedure, mechanism, routine, and helps in satisfying the customer
needs?
• Physical Evidence
Can we have different physical evidence?
Marketing Strategy
Tactical Programs – Marketing strategy sets the stage for specific actions that will take place.
Marketing tactics are the day-to-day actions that marketers undertake and involve the major
marketing decision areas. As would be expected, this is the key area of the Marketing Plan
since it explains exactly what will be done to reach the organization’s objectives.
Marketing Budget – Carrying out marketing tactics almost always means that money must be
spent. The marketing budget lays out the spending requirements needed to carry out
marketing tactics. While the marketing department may request a certain level of funding
they feel is required, in the end it is upper-management that will have final say on how much
financial support will be offered.
One of the most important concepts of the marketing planning process is the need to develop
a cohesive marketing strategy that guides tactical programs for the marketing decision areas.
Market Expansion :
– Grow Sales with Existing Products – With this approach the marketer seeks to actively
increase the overall sales of products the company currently markets. This can be
accomplished by: 1) getting existing customers to buy more; 2) getting potential
customers to buy (i.e., those who have yet to buy); or 3) selling current products in new
markets.
– Grow Sales with New Products – With this approach the marketer seeks to achieve
objectives through the introduction of new products. This can be accomplished by: 1)
introducing updated versions or refinements to existing products; 2) introducing
products that are extensions of current products; or 3) introducing new products not
previously marketed.
• Market Share Growth – This strategy looks to increase the marketer’s overall
percentage or share of market. In many cases this can only be accomplished by taking
sales away from competitors. Consequently, this strategy often relies on aggressive
marketing tactics.
• Niche Market – This strategy looks to obtain a commanding position within a certain
segment of the overall market. Usually the niche market is much smaller in terms of
total customers and sales volume than the overall market. Ideally this strategy looks to
have the product viewed as being different from companies targeting the larger market.
• Status Quo – This strategy looks to maintain the marketer’s current position in the
market, such as maintaining the same level of market share.
• Market Exit – This strategy looks to remove the product from the organization’s
product mix. This can be accomplished by: 1) selling the product to another
organization, or 2) eliminating the product.
• These are used to achieve the General Marketing Strategies by guiding the decisions
within important marketing areas (product, pricing, distribution, promotion, target
marketing).
• For example, a General Marketing Strategy that centers on entering a new market with
new products may be supported by Decision Area Strategies that include:
• For instance, to meet the Pricing Strategy that lowers cost versus competitors’ products, the
marketer may employ such tactics as: quantity discounts, trade-in allowances or sales
volume incentives to distributors.
Segmentation:
• Grouping consumers by some criteria, such that those within a group will respond
similarly to a marketing action and those in a different group will respond differently.
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Which segment –
• Mass market,
• Multiple segments,
• Single segment
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Market
What is a Market?
• PEOPLE
• BUT - not just ANY people, they have to have
• Willingness to buy
• Purchasing power (money)
• Authority to buy
Types of Markets:
ATM
Market Segmentation:
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• Geographic location - based upon where people live (historically a popular way of
dividing markets)
• Demographic - based upon age, gender and income level (very often used)
• Psychographic / lifestyles - based on people’s opinions, interests, lifestyles
eg, people who like hard rock music probably prefer beer to wine
• Benefits - based on the different expectation that customers have about what a
product/service can do for them
eg. People who want to but “lite” food cause ti will help them lose weight
Geographic Segmentation
• The reason why we study geographic segmentation is because WHERE people live
has a big effect on their consumption patterns.
• Additionally, WHERE people live in a city is also a reflection of their income level
and we can make certain assumptions about their ABILITY TO SPEND based upon
their address.
• This helps people plan store locations and the location of other services.
• Climate:
winter equipment and recreation are effected by geographic location clothing
purchases are also effected by climate/geography
Demographic Segmentation
• Demographic Segmentation is the most common approach to Market Segmentation
• Variables are:
• age
• gender (male/female)
• income
• occupation
• education
• household (family - style) size
Demographic Segmentation
Demographic Segmentations
• Age
• Also, people have different consumption patterns at different ages
• e.g. Milk products
• Children and teens drink a lot of milk
• Adults don’t
• older adults need calcium, but don’t drink milk (they take pills)
Psychographic segmentation
Benefit Segmentation
• “Many marketers now consider benefit segmentation one of the most useful methods of
classifying markets”
ie. Watches
• the benefits customers looked for where durability and product quality- older research
was based on dividing the watch market according to a different segment - once they
used the new segment, they changed the marketing plan- modern example would be
price of PCs for home use - biggest use is entertainment NOT schoolwork or home
based businesses
PRODUCT DIFFERENTIATION
• Offered under different brands by competing firms, products fulfilling the same need
typically do not have identical features.
• The differentiation of goods along key features and minor details is an important strategy
for firms to defend their price from leveling down to the bottom part of the price
spectrum.
• Within firms, product differentiation is the way multi-product firms build their own
supplied products' range.
• As a general rule, better products have a higher price, both because of higher
production costs (more noble materials, longer production, more selective tests for
throughput...) and bigger expected advantages for clients, partly reflected in higher
margins.
• Thus, the quality-price relationship is typically upwards sloped. This means that
consumers without their own opinion nor the capability of directly judging quality may
rely on the price to infer quality. They will prefer to pay a higher price because they
expect quality to be better.
• Vertical differentiation
• Vertical differentiation occurs in a market where the several goods that are present can
be ordered according to their objective quality from the highest to the lowest. It's
possible to say in this case that one good is "better" than another-the perceived
difference in quality by different consumer will play a crucial role in the purchase
decisions.
• Horizontal differentiation-
• When products are different according to features that can't be ordered, a horizontal
differentiation emerges in the market.
A typical example is the ice-cream offered in different tastes. Chocolate is not "better"
than lemon.
The
TheNature
Natureof
ofDifferentiation
Differentiation
DEFINITION: Providing something unique that is valuable to the
buyer beyond simply offering a low price. (M. Porter)
THE KEY IS CREATING VALUE FOR THE CUSTOMER
Positioning Strategy:
• A Positioning Strategy results in the image you want to draw in the mind of your
customers, the picture you want him/her to visualize of you what you offer, in relation
to the market situation, and any competition you may have".
• While designing your positioning strategy you will be faced with three main options:
• Positioning your product against your competitors, " Our prices are half of that you
may find else where for similar products"
• Emphasizing a distinctive unique benefit "the only book keeping system that instantly
calculates your taxes"
• Affiliating your product with something the customer knows and values "the same
archiving system used by the library of university "
• Positioning is what the customer believes about your product’s value, features, and
benefits; it is a comparison to the other available alternatives offered by the
competition.
• These beliefs tend to based on customer experiences and evidence, rather than
awareness created by advertising or promotion.
• Marketers manage product positioning by focusing their marketing activities on a
positioning strategy. Pricing, promotion, channels of distribution, and advertising all
are geared to maximize the chosen positioning strategy.
• By use or application- The users of Apple computers can design and use graphics
more easily than with Windows or UNIX. Apple positions its computers based on
how the computer will be used.
• By user- Face book is a social networking site used exclusively by college students.
Face book is too cool for MySpace and serves a smaller, more sophisticated cohort.
Only college students may participate with their campus e-mail IDs.
• Positioning is what the customer believes and not what the provider wants them to
believe. Positioning can change due to the counter measures taken at the competition.
• Managing your product positioning requires that you know your customer and that you
understand your competition; generally, this is the job of market research not just what
the entrepreneur thinks is true.
• The most direct is market share. This is the percentage of the total market serviced by
a firm or brand. A declining scale of market shares is common in most industries
• Market share is not a perfect proxy of market dominance. We must take into account
the influences of customers, suppliers, competitors in related industries, and
government regulations.
• Although there are no hard and fast rules governing the relationship between market
share and market dominance, the following are general criteria:
• A company, brand, product, or service that has a combined market share exceeding
60% most probably has market power and market dominance.
• A market share of over 35% but less than 60%, held by one brand, product or service,
is an indicator of market strength but not necessarily dominance.
• A market share of less than 35%, held by one brand, product or service, is not an
indicator of strength or dominance and will not raise anti-combines concerns of
government regulators.
• Market Leader
• Market Challenger
• Market Follower
• Market Nicher
Competitor Analysis
Market leader:
• The market leader is dominant in it’s industry. It has substantial market share and
often extensive distribution arrangements with retailers. It typically is the industry
leader in developing innovative new business models and new products (although not
always).
• It tends to be on the cutting edge of new technologies and new production processes.
It sometimes has some market power in determining either price or output.
• Of the four dominance strategies, it has the most flexibility in crafting strategy.
However it is in a very visible position and can be the target of competitive threats
and government anti-combines actions.
• It was claimed that if you cannot get enough market share to be a major player, you
should get out of that business and concentrate your resources where you can take
advantage of experience curve effects and economies of scale, and thereby gain
dominant market share.
Defense Strategy :
• A market leader should generally adopt a defense strategy
• Six commonly used defense strategies
– Position Defense
– Mobile Defense
– Flanking Defense
– Contraction Defense
– Pre-emptive Defense
– Counter-Offensive
– Defense
• “A company attempting a fortress defense will find itself retreating from line after
line of fortification into shrinking product markets.” Saunders (1987)
• e.g. Mercedes was using a position defense strategy until Toyota launched a frontal
attack with its Lexus.
Mobile Defense :
Flanking Defense:
• Secondary markets (flanks) are the weaker areas and prone to being attacked
Pre-emptive Defense:
• Detect potential attacks and attack the enemies first
• Let it be known how it will retaliate
• Product or brand proliferation is a form of pre-emptive defense e.g. Seiko has over
2,000 models
Counter-Offensive Defense:
• Responding to competitors’ head-on attack by identifying the attacker’s weakness and
then launch a counter attack
• e.g. Toyota launched the Lexus to respond to Mercedes attack
Market challenger:
• A market challenger is a firm in a strong, but not dominant position that is following
an aggressive strategy of trying to gain market share.
• It typically targets the industry leader (for example, Pepsi targets Coke), but it could
also target smaller, more vulnerable competitors. The fundamental principles involved
are:
• Assess the strength of the target competitor. Consider the amount of support that the
target might muster from allies.
• Choose only one target at a time.
• Find a weakness in the target's position. Attack at this point. Consider how long it will
take for the target to realign their resources so as to reinforce this weak spot.
• Launch the attack on as narrow a front as possible. Whereas a defender must defend
all their borders, an attacker has the advantage of being able to concentrate their
forces at one place.
• Launch the attack quickly, then consolidate.
The market challengers’ strategic objective is to gain market share and to become the
leader eventually
How?
• By attacking the market leader
• By attacking other firms of the same size
• By attacking smaller firms
• Frontal attack
• Flank attack
• Encirclement attack
• Bypass attack
• Guerrilla attack
Frontal Attack
Flank attack
• Attack the enemy at its weak points or blind spots i.e. its flanks
• Ideal for challenger who does not have sufficient resources
• e.g., opening numerous stores in markets
Encirclement attack
Bypass attack
• By diversifying into unrelated products or markets neglected by the leader
• Could overtake the leader by using new technologies
• e.g. Pepsi use a bypass attack strategy against Coke in China by locating its bottling
plants in the interior provinces
Guerrilla attack
• By launching small, intermittent hit-and-run attacks to harass and destabilize the
leader
• Usually use to precede a stronger attack
• e.g. Airlines use short promotions to attack the national carriers especially when
passenger loads in certain routes are low
Market Follower:
• A market follower is a firm in a strong, but not dominant position that is content to
stay at that position. The rationale is that by developing strategies that are parallel to
those of the market leader, they will gain much of the market from the leader while
being exposed to very little risk.
• This “play it safe” strategy is how Burger King retains its position behind McDonalds.
Market-Follower Strategies
• Theodore Levitt in his article, “Innovative Imitation” argued that a product imitation
strategy might be just as profitable as a product innovation strategy
Market nicher
• In this niche strategy the firm concentrates on a select few target markets. It is also
called a focus strategy. It is hoped that by focusing ones marketing efforts on one or
two narrow market segments and tailoring your marketing mix to these specialized
markets, you can better meet the needs of that target market.
• The niche should be large enough to be profitable, but small enough to be ignored by
the major industry players. Profit margins are emphasized rather than revenue or
market share. The firm typically looks to gain a competitive advantage through
effectiveness rather than efficiency.
• It is most suitable for relatively small firms and has much in common with guerrilla
marketing warfare strategies. The most successful nichers tend to have the following
characteristics:
• They tend to be in high value added industries and are able to obtain high margins.
• They tend to be highly focused on a specific market segment.
• They tend to market high end products or services, and are able to use a premium
pricing strategy.
• They tend to keep their operating expenses down by spending less on R&D,
advertising, and personal selling.
Market-Nicher Strategies:
• Smaller firms can avoid larger firms by targeting smaller markets or niches that are of
little or no interest to the larger firms
e.g. Logitech--mice
Microbrewers--special beers
Chapter 5
COMPETITION,
COMPETITIVE ENVIRONMENT
AND
PORTER’S
FIVE FORCES MODEL
• Competitiveness is essentially the ability of a firm, sector or economy to compete
against other firms, sectors or economies.
• One common issue that comes from looking at the competition is what do you do
about it? The options are:
• Ignore
• Fight
• Adopt
• Microsoft's Embrace and Extend and Intel's "Only the Paranoid Survive" are good
examples of companies that use the competition to keep their products at the cutting
edge.
Competitor analysis:
• Competitor analysis in marketing assessment of the strengths and weaknesses of current and
potential competitors.
• This analysis provides both an offensive and defensive strategic context to identify
opportunities and threats.
Competitor profiling:
Analysis of competition:
• Secondly, you need to know if your competitors are doing things better than you are,
or more dangerously, whether they are looking to change the basis of competition in
the market, for instance by moving to a direct sales model, or by introducing some
revolutionary new product or technology.
• Some businesses think it is best to get on with their own plans and ignore the
competition. Others become obsessed with tracking the actions of competitors (often
using underhand or illegal methods).
• Many businesses are happy simply to track the competition, copying their moves and
reacting to changes.
Market Intelligence
Market Intelligence is about providing a company with a view of a market using existing
sources of information to understand –
• what is happening in a market place,
• what the issues are and what the likely market potential is.
• Market intelligence from external data is normally gathered through what is known as
desk research. This means sourcing and analyzing published information to build a
picture of a market and to try and answer some specific commercial questions such as
what is the market potential.
• For example identifying who your competitors are and analyzing their market position
against yours to find strengths and weaknesses and indications of new developments.
• Much marketing intelligence information can come from making better use of
existing information. For instance by carrying out database analysis on orders taken it
may be possible to understand where you have cross-sale and up-sale opportunities, or
to understand what type of customers are your most profitable.
• The Porter's 5 Forces tool is a simple but powerful tool for understanding where
power lies in a business situation. This is useful, because it helps you understand both
the strength of your current competitive position, and the strength of a position you're
looking to move into.
The five forces come from Porter's famous framework and are:
• Power of Buyers
• Power of Suppliers
• Threat of substitutes
• Barriers to entry
• Competitors
• Porter's five forces include three forces from 'horizontal' competition: threat of
substitute products, the threat of established rivals, and the threat of new entrants; and
two forces from 'vertical' competition: the bargaining power of suppliers, bargaining
power of customers.
• Firms that compete in a single industry should develop, at a minimum, one five forces
analysis for its industry.
• Porter makes clear that for diversified companies, the first fundamental issue in
corporate strategy is the selection of industries (lines of business) in which the
company should compete; and each line of business should develop its own, industry-
specific, five forces analysis.
• The idea is that change in your market is likely to come as the basis of one of these
five areas. For instance, buyers may distort the market by forcing prices down, or by
deciding to take build products in-house.
• In considering how these "forces" act on your markets, you get a picture of issues
such as channel conflict, threats from vertical integration, the impact of regulatory
change or the advent of new technology. You can also take a view as to how you are
or can affect the competitive situation for your own benefit, rather than statically
accepting the status quo.
Threat of Substitution:
• This is affected by the ability of your customers to find a different way of doing what
you do – for example, if you supply a unique software product that automates an
important process, people may substitute by doing the process manually or by
outsourcing it.
• If substitution is easy and substitution is viable, then this weakens your power.
• For most industries, this is the major determinant of the competitiveness of the
industry. Sometimes rivals compete aggressively and sometimes rivals compete in
non-price dimensions such as innovation, marketing, etc.
• number of competitors
• rate of industry growth
• intermittent industry overcapacity
• exit barriers
• diversity of competitors
• informational complexity and asymmetry
• fixed cost allocation per value added
• level of advertising expense
• economies of scale
• Sustainable competitive advantage through improvisation
Examples
Competitive Rivalry:
• What is important here is the number and capability of your competitors – if you have
many competitors, and they offer equally attractive products and services, then you’ll
most likely have little power in the situation.
• If suppliers and buyers don’t get a good deal from you, they’ll go elsewhere.
• On the other hand, if no-one else can do what you do, then you can often have
tremendous strength.
• Profitable markets that yield high returns will draw firms. This results in many new
entrants, which will effectively decrease profitability. Unless the entry of new firms
can be blocked by incumbents, the profit rate will fall towards a competitive level
• the existence of barriers of entry (patents , rights, etc.)
• economies of product differences
• brand equity
• switching costs or sunk costs
• capital requirements
• access to distribution
• absolute cost advantages
• learning curve advantages
• expected retaliation by incumbents
• government policies
Buyer Power:
• Here you ask yourself how easy it is for buyers to drive prices down.
• Again, this is driven by the number of buyers, the importance of each individual buyer
to your business, the cost to them of switching from your products and services to
those of someone else, and so on. If you deal with few, powerful buyers, they are
often able to dictate terms to you.
• Also described as the market of outputs. The ability of customers to put the firm under
pressure and it also affects the customer's sensitivity to price changes.
• buyer concentration to firm concentration ratio
• degree of dependency upon existing channels of distribution
• bargaining leverage, particularly in industries with high fixed costs
• buyer volume
• Buyer switching costs relative to firm switching costs
• buyer information availability
• ability to backward integrate
• availability of existing substitute products
• buyer price sensitivity
• differential advantage (uniqueness) of industry products
Supplier Power:
• Here you assess how easy it is for suppliers to drive up prices. This is driven by the
number of suppliers of each key input, the uniqueness of their product or service, their
strength and control over you, the cost of switching from one to another, and so on.
• The fewer the supplier choices you have, and the more you need suppliers' help, the
more powerful your suppliers are.
Examples
• The bargaining power of Microsoft and Intel in more because they are the huge
suppliers of software and hardware.
• Intel on the other hand also demands computer manufacturers to place their logo on
machines using Intel processor. Intel and Microsoft enforcing their terms and
conditions also charging high cost from the computer manufacturing companies.
• Manufacturer needs to build relationship with the supplier to improve the quality and
reduce the prices of the product by working together for improvement in processes
and reduce time to market by implementing just-in-time inventory.
• Dell computer known for low cost and best quality computer, laptop and server
manufacturer in the industry. The key behind dell success is maintaining better
relationship and collaboration with the supplier of computer hardware and software.
• To gain control or ownership over its suppler backward integration strategy is
adopted by most of the companies. This strategy will help both suppliers and
companies to work together for improvement in product quality, reduce cost, reduce
time to market and earn good reputation in the industry.
• A business has to understand the dynamics of its industries and markets in order to
compete effectively in the marketplace. Porter (1980a) defined the forces which drive
competition, contending that the competitive environment is created by the interaction
of five different forces acting on a business.
• In addition to rivalry among existing firms and the threat of new entrants into the
market, there are also the forces of supplier power, the power of the buyers, and the
threat of substitute products or services. Porter suggested that the intensity of
competition is determined by the relative strengths of these forces.
• Porter’s model is a strategic tool used to identify whether new products, services or
businesses have the potential to be profitable. However it can also be very
illuminating when used to understand the balance of power in other situations.
• Porter argues that five forces determine the profitability of an industry. At the heart of
industry are rivals and their competitive strategies linked to, for example, pricing or
advertising; but, he contends, it is important to look beyond one’s immediate
competitors as there are other determines of profitability. Specifically, there might be
competition from substitute’s products or services.
• These alternatives may be perceived as substitutes by buyers even though they are
part of a different industry. An example would be plastic bottles, cans and glass bottle
for packaging soft drinks.
• There may also be potential threat of new entrants, although some competitors will
see this as an opportunity to strengthen their position in the market by ensuring, as far
as they can, customer loyalty.
• Finally, it is important to appreciate that company’s purchase from suppliers and sell
to buyers. If they are powerful they are in a position to bargain profits away through
reduced margins, by forcing either cost increases or price decreases.
• This relates to the strategic option of vertical integration, when the company acquires,
or mergers with, a supplier or customer and thereby gains greater control over the
chain of activities which leads from basic materials through to final consumption.
Chapter 5.
Sustainable Competitive Advantage,
Porter’s Generic Strategy
• An advantage that a firm has over its competitors, allowing it to generate greater sales
or margins and/or retains more customers than its competition.
• Sustainable competitive advantage comes from performing better than competitors for
a long time
– Imitating firms cannot duplicate the strategy since they do not understand why
it is successful in the first place.
• Social Complexity (trust, teamwork, informal relationships, causal
ambiguity where cause of effectiveness is uncertain)
– Forms of substitutability:
• Duplication: Although no two management teams are the same, they
can be strategically equivalent, produce the same results.
• Substitution: Very different resources can be substitutes, e.g.
– A charismatic leader with a clear vision vs. a strategic planning
dept.
– A superior marketing strategy for a recognized brand name.
– A superior technical support group for an intelligent diagnostic
software package
• Types of assets:
– Physical: plant equipment, location, access to raw materials
– Human: training, experience, judgment, decision-making skills, intelligence,
relationships, knowledge
– Organizational: Culture, formal reporting structures, control systems,
coordinating systems, informal relationships
• SCA is an element (or combination of elements) of the business strategy that provides
a meaningful advantage over both existing and future competitors.
• An SCA needs to be meaningful, sustainable and substantial.
• An SCA needs to be supported and enhanced over time.
• The assets and competencies of an organization represent the most sustainable
element of a business strategy, because these are usually difficult to copy or counter.
• Knowledge-based strategy
• Generic strategy
• Hybrid strategy
• Core competence/distinctive capability/resource based strategy
Knowledge-based Strategy
Competitive Advantage
Knowledge (2 Types)
• Explicit knowledge – knowledge whose meaning is clearly stated, the details of which
can be recorded and stored
– Examples: human resource audit, financial analysis, market research
• Tacit knowledge – unstated, based on individual knowledge and experience, and is
difficult to record and store (but is also difficult to imitate)
Generic Strategy
• According to Porter, competitive advantage, and thus higher profits will result either
from:
• Differentiation of products and selling them at a premium price, OR
• Producing products at a lower price than competitors
• In association with choosing differentiation or cost leadership, the organization
must decide between:
• Targeting the whole market with the chosen strategy, OR
• Targeting a specific segment of the market
• Strategy focus: organize value adding activities to be the lowest cost producer of a
product in an industry
Advantages
• Higher profits resulting from charging prices below that of competitors, because unit
costs are lower
• Increase market share and sales by reducing the price below that charged by
competitors (assuming price elasticity of demand)
• Ability to enter new markets by charging lower prices
• Is a barrier to entry for competitors trying to enter the industry
Differentiation
NOTE: If 2 or more competitors choose the same box, competition will increase
• Focus strategy – targets a segment of the product market, rather than the whole
market or many markets
• Segment is determined by the bases for segmentation, i.e., geographic, psychographic,
demographic, behavioral characteristics
• Within the segment, either cost leadership or differentiation strategy is used
Economic
Performance
Chapter 6.
PORTFOLIO
ANALYSIS
What is a portfolio?
• A business portfolio is the collection of Strategic Business Units that together form a
corporation.
• The optimal business portfolio is one that fits perfectly to the company's strengths and
helps to exploit the most attractive industries or markets.
Portfolio Analysis
Definition
This helps the company allocate resources and is used as an analytical tool in
•Brand marketing,
•Product management
•Strategic management and
•Portfolio analysis
• To use the chart, analysts plot a scatter graph to rank the business units (or products)
on the basis of their relative market share and growth rates.
• Cash cows are units with high market share in a slow-growing industry. These units
typically generate cash in excess of the amount of cash needed to maintain the
business.
• They are regarded as staid and boring, in a "mature" market, and every corporation
would be thrilled to own as many as possible.
• They are to be "milked" continuously with as little investment as possible, since such
investment would be wasted in an industry with low growth.
• Dogs, or more charitably called pets, are units with low market share in a mature,
slow-growing industry. These units typically "break even", generating barely enough
cash to maintain the business's market share.
• Though owning a break-even unit provides the social benefit of providing jobs and
possible synergies that assist other business units, from an accounting point of view
such a unit is worthless, not generating cash for the company.
• They depress a profitable company's return on assets ratio, used by many investors to
judge how well a company is being managed. Dogs, it is thought, should be sold off.
• Question marks are growing rapidly and thus consume large amounts of cash,
but because they have low market shares they do not generate much cash. The result
is a large net cash consumption.
• A question mark (also known as a "problem child") has the potential to gain market
share and become a star, and eventually a cash cow when the market growth slows.
• If the question mark does not succeed in becoming the market leader, then after
perhaps years of cash consumption it will degenerate into a dog when the market
growth declines.
• Question marks must be analyzed carefully in order to determine whether they are
worth the investment required to grow market share.
• Stars are units with a high market share in a fast-growing industry. The hope is that
stars become the next cash cows.
• Sustaining the business unit's market leadership may require extra cash, but this is
worthwhile if that's what it takes for the unit to remain a leader.
• When growth slows, stars become cash cows if they have been able to maintain their
category leadership, or they move from brief stardom to dogdom.
• As a particular industry matures and its growth slows, all business units become either
cash cows or dogs.
• The overall goal of this ranking was to help corporate analysts decide which of their
business units to fund, and how much; and which units to sell.
• Managers were supposed to gain perspective from this analysis that allowed them to
plan with confidence to use money generated by the cash cows to fund the stars and,
possibly, the question marks. As the BCG stated in 1970:
Only a diversified company with a balanced portfolio can use its strengths to truly
capitalize on its growth opportunities. The balanced portfolio has:
– stars whose high share and high growth assure the future;
– cash cows that supply funds for that future growth; and
– question marks to be converted into stars with the added funds.
• A Strategic Business Unit (SBU) can either be an entire medium size company or a
division of a large corporation.
• As long as it formulates its own business level strategy and has separate objectives
from the parent company.
• The McKinsey Matrix is more sophisticated than the BCG Matrix in three aspects:
• Market Attractiveness includes a broader range of factors other than just the market
growth rate that can determine the attractiveness of an industry / market. Compare
also :Five Forces
• Competitive strength likewise includes a broader range of factors other than just the
market share that can determine the competitive strength of a Strategic Business Unit.
• Finally, the GE Matrix works with a 3*3 matrix, while the BCG Matrix has only 2*2.
This also allows more sophistication.
• Market size
- Market growth rate
- Market profitability
- Pricing trends
- Competitive intensity / rivalry
- Overall risk of returns in the industry
• Entry barriers
- Opportunity to differentiate products and services
• - Demand variability
- Segmentation
- Distribution structure
• - Technology development
Often, Strategic Business Units are portrayed as a circle plotted in the GE Matrix,
whereby:-
• The size of the circles represent the Market Size
• The size of the pies represent the Market Share of the SBU's
• Arrows represent the direction and the movement of the SBU's in the future
• Specify drivers of each dimension. The corporation must carefully determine those
factors that are important to its overall strategy.
• Determine the weight of each driver. The corporation must assign relative importance
weights to the drivers.
• Score the SBU's on each driver.
• Multiply weights and scores for each SBU.
• View resulting graph and interpret it.
• Perform a review/sensitivity analysis. Make use of adjusted other weights and scores
(there may be no consensus).
Some limitations of the McKinsey Matrix
Chapter 7
New Product Strategy –Innovation, Market Entry,
Product Line Extension
Introduction
• Product (or service) is the main element of the marketing mix
• Therefore, need to determine the Product Strategies before deciding on the remaining
marketing mix
Product Hierarchy
• Need
• Product family
• Product class
• Product Line
• Product type
• Brand
• Item
What is product?
• A product can be defined as a collection of physical, service and symbolic attributes
which yield satisfaction or benefits to a user or buyer.
• A product is a combination of physical attributes say, size and shape; and subjective
attributes say image or "quality".
Product-Mix Decisions
Decisions on the product mix (the number of product lines and items in each line) that
the company may offer:
• A single product
– Most firms started off as a single-product company
• Multiple products
– e.g. Creative Technology markets sound cards as well as MP3 players
• A systems of products
e.g. Nikon sells camera, lenses, filters & other options
Product Innovation:
• Product innovation means different things to different people.
• A modified version of an existing product range
• A new model in the existing product range
• A new product outside the existing range but in a similar field of technology
• A totally new product in a new field of technology.
• Product/service innovation is the result of bringing to life a new way to solve the
customer's problem – through a new product or service development – that benefits
both the customer and the sponsoring company.1
• The term innovation refers to a new way of doing something.
• Product-innovation strategy includes introducing a new product to replace an existing
product in order to satisfy a need in an entirely different way or to provide a new
approach to satisfy an existing or latent need.
• This strategy suggests that the entrant is the first firm to develop and introduce the
product.
• The ballpoint pen is an example of a new product; it replaced the fountain pen.
• The VCR was a new product introduced to answer home entertainment needs.
• Product innovation, however, does not come easy. Besides involving major financial
commitments, it requires heavy doses of managerial time to cut across organizational
lines.
• And still the innovation may fail to make a mark in the market. A number of
companies have discovered the risks of this game.
• Innovation is usually thought of as invention. Innovation is usually new technology
being turned into something unique that the company can sell.
• For those companies with strong R&D departments, this focus on the invention of
innovative products is probably a key element of their corporate strategy
Product Line
• Product lining is the marketing strategy of offering for sale several related products.
Unlike product bundling, where several products are combined into one, lining
involves offering several related products individually.
• A line can comprise related products of various sizes, types, colors, qualities, or
prices.
• Line depth refers to the number of product variants in a line.
• Line consistency refers to how closely related the products that make up the line are.
• Line vulnerability refers to the percentage of sales or profits that are derived from
only a few products in the line.
• Product line is defined as a group of products with in a product class that are closely
related because they perform similar function, are sold to the same customer groups,
are marketed through the same channels, or fall within given price ranges.
• Line extensions consist of introducing additional items in the same product category
under the same brand name , such as new flavors, forms, color, added ingredients,
package sizes etc.
For example Lux soap comes in different variants like Lux International etc. So when
Lux comes with a new variant, it is a line extension.
Line Extensions occur when a company introduces additional items in the same
product category under the same brand name such as new flavors, forms, colors,
added ingredients, package sizes. This is as opposed to brand extension which is a
new product in a totally different product category.
Examples include
i) Zen LXI, Zen VXI
ii) Surf, Surf Excel, Surf Excel Blue
iii) Splendour, Splendour Plus
iv) Coke, Diet Coke, Vanilla Coke
v) Clinic All Clear, Clinic Plus
• Product extensions are versions of the same parent product that serve a segment of
the target market and increase the variety of an offering. An example of a product
extension is Coke vs. Diet Coke in same product category of soft drinks.
• This tactic is undertaken due to the brand loyalty and brand awareness they enjoy
consumers are more likely to buy a new product that has a tried and trusted brand
name on it.
• This means the market is catered for as they are receiving a product from a brand they
trust and Coca Cola is catered for as they can increase their product portfolio and they
have a larger hold over the market in which they are performing in.
• Trading down - adding a low priced items to its line of prestige products with the
expectations that the people who cannot buy the original product may buy these new
products because they carry some of the status of the higher price4d goods.
Chapter 9.
Advertising & Sales
Promotional
Strategy
PROMOTIONAL STRATEGY:
Non-Personal
• Advertising
• Sales Promotion
• Public Relations
• Sponsorships
Promotion Strategy is ―
Initiating and maintaining a flow of communications between a company (brand) and
its market targets.
Composition of
Promotion Strategy
Budgeting Approaches
Budgeting Methods
Features Limitations
ADVERTISING STRATEGY
• Setting Objectives and Budgeting
• Creative Strategy
• Media/Programming Strategy
• Role of the Agency
• Program Implementation and Effectiveness
Illustrative
Advertising
Objectives
Determining Advertising Objectives
• Does the advertising aim at immediate sales?
• Does the advertising aim at near-term sales?
• Does the advertising aim at building a long-range consumer franchise?
• Does the advertising aim at helping increase sales?
• Does the advertising aim at some specific step that leads to a sale?
• How important are supplementary benefits of advertising?
• Should the advertising impart information needed to consummate sales and build
customer satisfaction?
• Should advertising build confidence and goodwill for the corporation?
What kind of images does the company wish to build?
Provide a unifying concept that binds together
the various parts of the advertising campaign.
MEDIA / SCHEDULING DECISION
• Television
• Radio
• Magazines
• Online
• Website
• Outdoor
Media Selection
• Coverage – maximum number of consumers in the retailer’s target market
• Reach – actual total number of target customers who come into contact with the ad
message
• Frequency – average number of times each person who is reached is exposed to the ad
during a given time period
Chapter 10
BRAND
STRATEGY
Definitions of Brand Strategy:
• A plan for the systematic development of a brand to enable it to meet its agreed
objectives.
• The strategy should be rooted in the brand's vision and driven by the principles of
differentiation and sustained consumer appeal.
• The true brand is the sum total of the perceptions of all the constituencies which
contribute to revenues and profits.
BRAND VISION
• A clean articulation of strategic, financial & brand goals that management has created
for the brand.
• A first step to strategic success as to where the brand can & cannot go.
• Provides a vision that forces management to articulate what they want the brand to do
for the organization over the next five years, relative to brand value, revenue & profit
contributions.
BRAND’S POSITIONING IS
• The place in the consumer’s mind that you want your brand to own –the benefit you
want them to think of when they think of your brand.
• A strong position means the brand has a unique, credible, sustainable, & valued place
in the customer’s mind.
• Good positioning gives you the direction required to focus the organization & focused
your strategic moves.
• A good positioning is a single idea to be communicated to your customers.
• It revolves around a benefit that helps your product or service stand apart from the
competition.
• It allows the brand to have unique values, personality, identity and positioning.
• By doing so, it implies that every new product the company brings on to the market is
a new brand and can be positioned precisely for a specific market segment
• It has the advantage of making it easier for the company to evaluate brand
performance and worth and allows better resource-allocation decisions.
• Here, the products appear under the same brand name and possess the same basic
identity but with slightly different competencies for example Follow Me line of hair
shampoos. Here the brand line comes under the hair-care category but the different
line extensions cover complementary applications of essentially the same product
• Advantages therefore are economies of scale in advertising and promotion and each
new line extension strengthens the position of the brand and therefore its image. The
line helps defend the category from predatory attack. Hence, individual product
brands can move across to line brands as companies find ways of extending the brand
to different consumer groups or segments.
PRODUCT- RANGE BRANDING STRATEGY
• A number of products or services in a broad category are grouped together under one
brand name and promoted with one basic identity.
• Compared to product-line branding, product-range branded products carry out the
basically the same functions but at different performance levels like various cars in
the Mercedes S, E, C and A class and Intel’s Pentium and Celeron ranges of
microprocessors.
• Therefore the advantage here is that a single brand name allows some economies of
scale in advertising and promotion as the products tend to carry the same overall
brand values and positioning.
What is a brand?
• A brand is a name, term, sign, symbol, design or a combination of the above to
identify the goods or service of a seller and differentiate it from the rest of the
competitors
A brand comprises of
• Tangible attributes
• Product
• Packaging
• Labeling
• Attributes
• Functional benefits
• Intangible attributes
• Quality
• Emotional benefits
• Values
• Culture
• Image
Brand Identity
• It is the marketer’s promise to give a set of features, benefits and services
consistently.
Brand Building
• Involves all the activities that are necessary to nurture a brand into a healthy cash flow
stream after launch.
Eg.
• Product development
• Packaging
• Advertising
• Promotion
Sales and distribution
Brand Equity
Brand Associations
• ‘owned word’
• Slogans
• Colours
• Symbols and logos
Troubled brand
Product upgradation
required
Brand Ambassadors
• Giving a face and personality to the brand that is expected to be rubbed off from the
brand ambassador
Brand Vitality
Chapter 11.
Distribution
Strategy
completing course
• Distribution is all about getting your product/service to the right people at the right
time with special consideration for profit and effectiveness.
• Successful marketing does not end when a business has developed a product/service
and has found its appropriate target audience with a view to selling it at the right
price.
• Strategic distribution is a competitive advantage that accrues generally from the
configuration of a distribution network (who, what, where, when) and, more
specifically, from the selection of partners (i.e. middlemen) who intermediate between
the company and the customer by performing necessary fulfillment and service
activities.
Distribution Objectives:
• Minimize total distribution costs for a given service output
• Determine the target segments and the best channels for each segment
• Objectives may vary with product characteristics
– e.g. perishables, bulky products, non-standard items, products requiring
installation & maintenance
DISTRIBUTION STRATEGY
Distribution- Definitions
• Retailing : Consists of the activities involved in selling goods and services to ultimate
consumers. A retail sale is one in which the buyer is an ultimate consumer and the
buying motive for a retail sale is always personal or family satisfaction derived from
the final consumption of item being purchased.
• Wholesalers: Wholesaling is concerned with the activities of those persons or
establishments which sell to retailers and other merchants , and/or to industrial ,
institutional and commercial users , but who don’t sell in significant amount to
ultimate consumers.
1) List the factors that could potentially influence the direct/indirect decision.
2) Pick out the factors that will have the most impact on the channel design
decision.
4) Create a matrix based on the key factors to consider the interactions among
key factors.
5) Decide (for each cell in the matrix) whether a direct channel, an indirect
channel or a combination of both a direct and an indirect channel is most
appropriate, considering the factors involved.
6) For each product or service in question, locate the corresponding cell in the
box model.
• Create a matrix based on the key factors to consider the interactions among key
factors. If only two factors are being considered, a two-by-two matrix of four cells
would result. For three factors, a three-by-three matrix of nine cells would result.
• Decide (for each cell in the matrix) whether a direct channel, an indirect channel or a
combination of both a direct and an indirect channel is most appropriate, considering
the factors involved. Combination channels are becoming more common in business
practice, especially in industrial markets.
• For each product or service in question, locate the corresponding cell in the box
model. The prediction in this cell is the one that should be followed or at least the one
that should be most seriously considered by the firm.
Channel Strategies:
Advantages Disadvantages
Advantages
• In the short run, uncontrolled distribution may not pose any problem if the intensive
distribution leads to increased sales.
Disadvantages
• First, suitable for low-priced and low-margin products that require a fast turnover.
• Second, difficult to control a large number of retailers.
Over the long run, it may foster duplicate products
Local packing and poor service for the firm
Collective bargaining for higher margins and lower stock level a variety of
devastating effects.
• SELECTIVE DISTRIBUTION :
Here companies select a combination of Exclusive distribution (only company’s
products) & Intensive Distribution (some important outlets which are multibrand
outlets)
E.g. SAMSUNG, VIDEOCON
- Customers need to do comparison shopping to select between stores
- Multiple stores sell products to suit the convenience of customers, Vijay Sales,
Sumaria, etc for TVs and white goods.
Channel-Structure Strategy:
• The channel-structure strategy refers to the number of intermediaries that may be
employed in moving goods from manufacturers to customers.
• Speculation, on the other hand, requires the channel to hold the inventory.
-Firm undertakes risk through changes in form and movement of goods within
channels.
Multiple-Channel Strategy:
• The multiple-channel strategy refers to a situation in which two or more different
channels are employed to distribute goods and services.
• Complementary Channels
Complementary channels exist when each channel handles a different non-competing
product or non-competing market segment. An important reason to promote
complementary channels is to reach market segments that cannot otherwise be served.
Tibbs Frankie, Orpat Calculators with Stationery, Orpat Clocks thru Watch
shops in the same place.
• Competitive Channels
Competitive channels exist when the same product is sold through two different and
competing channels. Two franchises could be issued to the same dealer, but they are
normally issued to separate dealers. Competition between dealers holding separate
franchises is both possible and encouraged.
Amul Ice creams are sold in competing retail channels
Chapter 12.
PRICING
STRATEGY
Introduction
• Pricing is one of the 4 Ps of the marketing mix. The other three aspects are product,
promotion, and place. It is also a key variable in microeconomic price allocation
theory.
• Price is the only revenue generating element amongst the 4ps, the rest being cost
centers.
• Pricing is the manual or automatic process of applying prices to purchase and sales
orders, based on factors such as: a fixed amount, quantity break, promotion or sales
campaign, specific vendor quote, price prevailing on entry, shipment or invoice date,
combination of multiple orders or lines, and many others.
Definitions:
• Pricing is the process of determining what a company will receive in exchange for its
products. Pricing factors are manufacturing cost, market place, competition, market
condition, Quality of product.
• The effective price is the price the company receives after accounting for discounts,
promotions, and other incentives.
• Promotional pricing refers to an instance where pricing is the key element of the
marketing mix.
Pricing Process:
1. Set Pricing Objectives
2. Analyze demand
3. Draw conclusions from competitive intelligence
4. Select pricing strategy appropriate to the political, social, legal and economical
environment
5. Determine specific prices
Pricing Objectives:
• It is necessary that the marketing manager decide the objective of pricing before
actually setting price.
• According to experts, pricing objectives are the overall goals that describe the role of
price in an organization’s long-range plans.
• The objectives help the marketing manager as guidelines to develop marketing
strategies. The following are the important pricing objectives.
• Market Penetration
• Market Skimming
• Target rate of Return
• Price Stabilization
• Meet of Follow Competition
• Market Share
• Profits Maximization
• Cash Flow
• Product Line Promotion
• Survival
• In the market penetration objective, the unit cost of production and distribution will
decrease when the volume of sales attain a particular target.
• Market skimming means utilizing the opportunities in the market to reap the benefits
of high sales, increased profits and low unit costs. Some of the entrepreneurs study the
buyer’s needs and try to provide the suitable goods, but charge them high prices.
• This objective is realized in those markets where the magnitude of competition is very
low. The entrepreneurs, in this situation, make profits over a short period.
• The market-skimming objective would not be meaningful, when the consumer refuses
to purchase the goods at the prices fixed by the producers.
• This pricing objective would be suitable in the markets where the consumers feel that
costly goods are of the superior quality.
• Mostly, middleman like wholesalers, retailers will price their merchandise to earn a
particular rate of return on sales.
• They do not exploit a short supply position to earn the maximum. During the periods
of good business, they try to keep prices from rising and during the periods of
depression, they keep prices from falling too low.
• If they raise their market share, they may draw the attention of the government and if
they shed their share, they may lose revenues.
• Contrary to this, small business houses are found interested in raising their share in
the market so as to reap the benefit of large-scale production. In few cases, firms may
sell the products even at a lower cost to capture the market.
• However, such practice may lead to financial crisis. As a matter of fact, this is an
objective to be adopted by new firms cautiously.
Survival objective:
• Perpetual existence of the business over a period is the indication of the sound
financial position of the enterprise. All organizations will have to meet expected and
unexpected, initial and external economic losses.
• These enterprises have to pool up the resources to meet all the contingencies through
appropriate pricing strategies. Price is use to increase sale volume to level up the ups
and downs that come to the organization.
Demand-Based Pricing:
• Definition: Price depends upon your customers' perception of your products' value
and the level of demand for your item. Your product must provide a unique benefit to
your target market.
Example: Your product has prestige appeal so it can be priced in a range well above
the cost of production. For example, luxury cars and gourmet food have prestige
appeal.
• Caution: Success depends on your knowledge of your customers and your market.
You must have an uncanny skill for accurately estimating customer demand to avoid
disappointing sales results.
• Demand-based pricing is any pricing method that uses consumer demand - based on
perceived value - as the central element.
These include:
• Price skimming,
• Price discrimination & Yield management,
• Price points,
• Psychological pricing,
• Bundle pricing,
• Penetration pricing,
• Price lining,
• Value -based pricing, and
• Premium pricing.
Pricing factors are manufacturing cost, market place, competition, market condition,
quality of product.
Multidimensional Pricing:
• Multidimensional pricing is the pricing of a product or service using multiple
numbers. In this practice, price no longer consists of a single monetary amount (e.g.,
sticker price of a car), but rather consists of various dimensions (e.g., monthly
payments, number of payments, and a down payment).
• Research has shown that this practice can significantly influence consumers' ability
to understand and process price information
• Premium Pricing.
Use a high price where there is a uniqueness about the product or service. This
approach is used where a substantial competitive advantage exists.
• A few examples of companies which partake in premium pricing in the marketplace
include Rolex .People will buy a premium priced product because:
• They believe the high price is an indication of good quality;
• They believe it to be a sign of self worth - "They are worth it" - It authenticates their
success and status - It is a signal to others that they are a member of an exclusive
group;
• Penetration Pricing.
The price charged for products and services is set artificially low in order to gain
market share. Once this is achieved, the price is increased. DTH
• Economy Pricing.
This is a no frills low price. The cost of marketing and manufacture are kept at a
minimum. Retail outlets often have economy brands for soups, spaghetti, etc.
Price Skimming.
• Charge a high price because you have a substantial competitive advantage. However,
the advantage is not sustainable. The high price tends to attract new competitors into
the market, and the price inevitably falls due to increased supply. Manufacturers of
digital watches used a skimming approach in the 1970s. Once other manufacturers
were tempted into the market and the watches were produced at a lower unit cost,
other marketing strategies and pricing approaches are implemented.
• Premium pricing, penetration pricing, economy pricing, and price skimming are the
four main pricing policies/strategies. They form the bases for the exercise. However
there are other important approaches to pricing.
• Psychological Pricing.
This approach is used when the marketer wants the consumer to respond on an
emotional, rather than rational basis. For example 'price point perspective' 99 cents
not one dollar.
• Geographical Pricing.
Geographical pricing is evident where there are variations in price in different parts of
the world. For example rarity value, or where shipping costs increase price.
• Value Pricing.
This approach is used where external factors such as recession or increased
competition force companies to provide 'value' products and services to retain sales
e.g. value meals at McDonalds.
Cost-Based Pricing:
• Definition: Price is based on a product's total fixed and variable costs.
Example: Typical pricing in commodity markets. For example, a commodity-type raw
product such as steel is priced using a standard formula based on cost.
Caution: If you use this exclusively, you must be able to stay in business with a very
low profit margin. In non commodity businesses, this option should be only one
aspect of the total product pricing strategy.
Competition-Based Pricing:
• Definition: Price is set in relationship to your competition's prices. In some cases this
may be below cost and is usually indicative of a product that has no competitive edge.
Example: You are caught in an industry "price war" where all products must compete
on the basis of price or risk losing their market share.
Caution: Your Company’s long-term goals may be sacrificed in the interest of
competitive pricing. Also, you are at the mercy of the larger companies in your
industry that can afford short-term losses in order to play this expensive game of war.
Value Pricing:
• Definition: Gives your customer more quality for less than they expected to pay.
Example: Used when you want to gain market share, position your product with
customers, or obtain market acceptance of a new product.
Caution: Product quality must be consistent and your company must operate
efficiently for this to be an effective strategy. Using this strategy means that you
understand your customers and competitors very well. In addition, you may find it
difficult to raise prices to more profitable levels once your initial distribution goal is
achieved.
• The price/quality relationship refers to the perception by most consumers that a
relatively high price is a sign of good quality.
• The belief in this relationship is most important with complex products that are hard
to test, and experiential products that cannot be tested until used (such as most
services).
• The greater the uncertainty surrounding a product, the more consumers depend on the
price/quality hypothesis and the more of a premium they are prepared to pay.
Chapter 13.
Product Life Cycle Strategy
• The Product Life Cycle (PLC) describes the stages a new product idea goes through
from beginning to end. The PLC is divided into five major stages:
• Product Development
• Market Introduction
• Market Growth
• Market Maturity
• Sales Decline
PLC Stages
• Product Development:
• Begins when the company develops a new-product idea
• Sales are zero
• Investment costs are high
• Profits are negative
• Introduction
• Low sales
• High cost per customer acquired
• Negative profits
• Innovators are targeted
• Little competition
Introduction
The seller tries to stimulate demand
Promotion campaigns to get increase public awareness
Explain how the product is used,
• Features Advantages Benefits
You will lose money, but you expect to make profits in the future
Growth
• Rapidly rising sales
• Average cost per customer
• Rising profits
• Early adopters are targeted
• Growing competition
Growth
A lot is sold - The seller tries to sell as much as possible.
Other competitor companies watch, and decide about joining in with a competitor product.
Growth will continue until too many competitors in the market - and the market is saturated.
At the end of the growth stage profits starts to decline when competition means you have
to spend more money on promotions to keep sales going, which cuts in to your profits.
Maturity:
• Sales peak
• Low cost per customer
• High profits
• Middle majority are targeted
• Competition begins to decline
Maturity
Many competitors have joined - the market is saturated
The only way to sell is to begin to lower the price - and profits decrease
It is difficult to tell the different between products since most have the same F.A.B. -
Features, Advantages & Benefits
Competition can get “Nasty” and commercials are intense
“Persuasive Promotion” becomes more important during this stage
That is to say, you have commercials almost begging the customer to still buy your
product because you still make it just as good.
Decline
• Declining sales
• Low cost per customer
• Declining profits
• Laggards are targeted
• Declining competition
Newer products are now more attractive - even a low price does not make consumers
want to buy.
Profit margin declines - and so the only way to make money is to sell a high volume
To increase volume you try to –
1. Increase the number of customers - get new customers
2. Increase the amount each customer uses
MARKET MODIFICATION
You look for new consumers by changing the product so it has new users - and then new
customers.
PRODUCT MODIFICATION
• To prevent the product going into decline you modify the product
• Adding new features, variations, model varieties will change the consumer reaction -
create more demand
• Therefore you attract more users
• Examples
• C D players
• Chip flavours - many kinds
• Digital sound at theatres
• When it is no longer adopted by many, a fashion product life cycle ends. Fashion
products have a steep decline once they reach their highest sales.
• The fad has the shortest life cycle. It is typically a style that is adopted by a particular
sub-culture or younger demographic group for a short period of time.
• The overall sales of basic products are the highest of the three types of products, and
their life cycles are generally the longest.
• Different marketing strategies should be used to reach each of these consumer types.
• Fashion innovators adopt a new product first. They are interested in innovative and
unique features. Marketing and promotion should emphasize the newness and
distinctive features of the product.
• Fashion opinion leaders (celebrities, magazines, early adopters) are the next most
likely adopters of a fashion product. They copy the fashion innovators and change the
product into a popular style. The product is produced by more companies and is sold
at more retail outlets.
• At the peak of its popularity, a fashion product is adopted by the masses. Marketing
is through mass merchandisers and advertising to broad audiences.
• As its popularity fades, the fashion product is often marked for clearance, to invite the
bargain hunters and consumers, the late adopters and laggards, who are slow to
recognize and adopt a fashionable style.
Marketing Objectives:
MARKETING STRATEGIES:
Product Pruning:
• Product pruning enables the marketer to dedicate its resources to its best products or
brands.
• The marketer must first evaluate whether a product or marketing mix modification
could revive demand for the ailing product.-
• The declining product may also be sold to a competitor or sold in limited quantities to
a market segment with self-sustaining demand.
• There is a tendency for product lines to lengthen over time. Hence a review must be carried
out regularly. This review is what is termed as product line pruning.
• Product line pruning may also be defined as a method of shortening the product line
by dropping a few items from the present product range.
Harvesting:
• Harvesting refers to getting the most from a product while it lasts. It is a controlled
divestment whereby the business unit seeks to get the most cash flow it can from the
product.
• An effort is made to cut the costs associated with the business to improve cash flow.
Alternatively, price is increased without simultaneous increase in costs. Harvesting
leads to a slow decline in sales.
• When the business ceases to provide a positive cash flow, it is divested.
Harvesting Strategy:
• Harvesting strategy has been popularized by the Boston Consulting Group in its
application to what is termed 'dogs'.
• Internationally, there are two alternative uses of the term “harvest strategy”. The
simplest one is that the harvest strategy specifies target and limit reference points and
management actions associated with achieving the targets and avoiding the limits.
• For the purposes of the Harvest Strategy Standard, the definition adopted is the
simpler one, with the more comprehensive definition being referred to as a
“management strategy”. The process of evaluating alternative management strategies
against one or more operating models (simulation models of the real world) is termed
a “management strategy evaluation” (MSE).
• Ideally, harvesting strategy should be pursued when the following conditions are
present:
• The business entity has a small market share, but building it up would be too costly;
or it has a respectable market share that is becoming increasingly costly to defend or
maintain.
• The business entity is not producing especially good profits or may even be producing
losses.
• The business entity is not a major component of the company’s business portfolio.
• The business entity does not contribute other desired features to the business
portfolio, such as sales stability or prestige.