9/29/21, 3:17 PM Competitive Advantage: The Importance of Strategic Marketing - Video & Lesson Transcript | Study.

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Competitive Advantage: The Importance of Strategic Marketing

Successful companies often perform S.W.O.T analyses (strengths, weaknesses, opportunities, & threats) to
determine the appropriate strategic alternative to use to maximize sales and gain competitive advantages.
Learn about four ways to allocate resources, strategic alternatives, the four quadrants of a portfolio matrix,
and the importance of strategic marketing.

Strategic Alternatives
Companies must go through a number of steps to create an effective marketing plan and
strategy. They first must conduct a S.W.O.T. analysis. S.W.O.T. stands for strengths,
weaknesses, opportunities, and threats. They must use a S.W.O.T. analysis to decide on the
competitive advantage they will use in the marketplace. The next step is that companies must
decide on which strategic alternative they will use to market their product or service. A strategic
alternative is the game plan that a company chooses in order to get the largest growth and
profits with the lowest risk.

Four Strategic Alternatives

Companies can choose to go in four different ways: market penetration, market development,
product development, and diversification. A company that decides to use a market
penetration strategy would plan to increase profits by increasing market share among existing
customers. When Coca-Cola runs a special summer sweepstakes contest with spectacular prize
giveaways, the plan is to increase market share by using promotional methods. When Hershey
Candy offers two bags of candy for five dollars at Target around Halloween, they are also using
market penetration through an incentive for customers to possibly buy more than they
originally intended.

Examples of SBUs created by the Campbell Soup company

Sometimes companies concentrate on developing a new customer base. They want to attract
new customers to their existing product lines. This is called market development. One key way
of achieving this is to find new ways to use existing products. A perfect example is Arm &
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Hammer Baking Soda. They constantly find new ways to bring in additional customers. In fact,
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their promotional campaigns always indicate the many uses, such as cleaning pesticides off
fruit, brushing your teeth, baking, deodorizing, et cetera. Another way companies can increase
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their new customers is to target new markets. For example, McDonald's has had much of their
growth overseas and is looking to gain even more customers in Eastern Europe.

Another strategic alternative is product development. In a product development strategy,

companies create new products for current markets. Some examples of this type of strategy
would be Microsoft's Xbox gaming console, Pretzel M&M's candy, and Apple's iPad. Companies
constantly look for ideas for new products. Did you know that in the food category alone, over
twenty thousand new products are introduced to the marketplace each year?

The last strategy a company can use is called diversification. This strategy has the most risk
because it is when a company not only develops new products, but also pushes into new
markets. A great example is when Disney went from making movies to building theme parks.
When a firm is able to be successful at this strategy, they can reap large market share and
profits. Companies must thoroughly research the new product development process and the
new markets. One of the worst failures was when Colgate tried to make frozen dinners and
Cosmopolitan magazine marketed yogurt! The companies should have stuck with teeth and
magazines.

Selecting a Strategic Alternative

Large companies create SBUs or strategic business units to help them manage their
organization's growth. SBUs are business divisions set up to make the larger organizations more
nimble and provide flexibility and control in the marketplace. Campbell Soup has their large
company divided into smaller SBUs such as USA, Bakery & Confectionery, and International
Grocery.

Companies always have certain SBUs that are more successful than others and might need a
different strategic plan. SBUs can be categorized in a portfolio matrix which classifies each SBU
by its present or forecast growth and market share. The portfolio matrix is set up with the
market share dominance (the share as relative to the largest competitor) on the x-axis and the
market growth rate on the y-axis, in constant dollars. The portfolio matrix consists of four
matrix areas: stars, cash cows, problem children, and dogs.

The portfolio matrix

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Four Quadrants oflesson?

How useful is this a Portfolio Matrix
A star is a market leader with tremendous growth potential. Most stars require a large amount
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of cash investment for product development and promotion to stay ahead of competition.
Samsung has developed its tablet computers, a fast-growing industry, but needs to continue to
invest in the product in order to maintain a market share.

A cash cow is an SBU that generates heaps of cash and does not need a large investment to
maintain market share and sales. Laptop computers would be considered cash cows, because
they sell consistently in a slower-growth industry and don't require much investment. Heinz at
one time had two large cash cows to milk: ketchup and Weight Watchers frozen dinners, both
products that maintain a large market share without development or advertising costs.

A problem child has good growth potential but very poor profit margins. Just like a star,
problem children also need a large amount of cash or they will end up as dogs. Many times
companies end up divesting their problem children after pumping large amounts of cash into
trying to get them to succeed. For example, when gas prices were low in the 1990s, very large
SUVs sold out like hotcakes. Once gas prices hit close to $4.00 a gallon, those same cash cows
became problem children.

The last area in the matrix is a dog. A dog has very low growth opportunity and very small
market share. These poor-performing products eventually become extinct. Frito Lay's dog was
the Stuffers cheese-filled snack, and recent dogs were the CD and the VCR, which have both
gone out of production. Once a company has classified their SBUs in the matrix, they must then
decide their future plans. They have four choices for each matrix.

Four Ways to Allocate Resources for the Matrices

There are four ways to allocate resources in the matrix. A company can build, hold, harvest, or
divest. If a company has a star or a problem child that has great potential with some investment,
a company will choose the first option: build. An example of a product that was a problem child
but with good management and investment became a star is Proctor & Gamble's Pringles chips.
Proctor & Gamble used three different people to develop the chip and brought the brand to the
forefront with its catchy 'once you pop, you just can't stop' ad campaign.

If an SBU is a profitable cash cow, then the choice would be to hold and not invest anything but
continue to reap the profits. A great example of this hold strategy is any of Apple's products
which continue to sell strongly with little input.

Problem children, dogs, and cash cows all have the option of the harvest allocation of
resources. Harvesting is when a company runs operations for short-term cash flow and does
not plan for the future of the product. Companies that harvest their products usually do not
spend any money on promotion or advertising. A great product example is Shredded Wheat
cereal which continues to sell well without bold advertising or reinvention.

Lastly, a company can plan to divest, or 'un-invest' its SBU because of low profits and small
market share. Usually the dogs find themselves in these situations if a company cannot turn
them around. Divest is the opposite of invest, so instead of putting more money into failing
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brands like Oldsmobile, Betamax, and record players, the companies decided to divest
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themselves of these SBUs.

☆Summary
Lesson ☆ ☆ ☆ ☆
Having a competitive advantage is one thing, but knowing what to do next is an important step
for a company. After conducting a S.W.O.T. analysis and finding the strengths, weaknesses,
opportunities, and threats for a product or brand, a company decides which strategic alternative
will serve them the best. They can decide to penetrate the market of existing customers, find
new markets to explore, develop new products, or push new products into new markets.

By dividing large companies into strategic business units, companies can choose whether to
build, hold, harvest, or divest specific products and brands to ensure product, profit and market
growth. Whether these SBUs are up-and-coming stars, top-earning cash cows, in-need-of-
development problem children, or lazy dogs, companies use portfolio matrices to determine the
best decision for the business.

Learning Outcomes
After watching this lesson, you should be able to:

Classify the four types of strategic alternatives

Define portfolio matrix, and identify the four quadrants

Interpret examples of each quadrant

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