8/30/21

Company Analysis

Marketing Management
Prof. Suresh Ramanathan

Mapping the Strategic Terrain

1
 8/30/21

Porter: What is Strategy?

• Defining and communicating the company’s
unique positioning
• Variety-based (Product line choice - e.g., narrow)
• Needs-based (Customer segment choice)
• Access-based (Specific to how customers are reached)
• Making tradeoffs
• Performing activities consistent with chosen position
• Not performing activities not consistent with chosen position
• Forging a fit among firm’s activities
• Simple consistency between each activity & with strategy
• Activities reinforce each other
• Optimization of effort
• Locks out imitators and provides competitive advantage
• Create activity system maps
• Do not fall into the operational effectiveness trap
– Focus on best practices/benchmarking leads to
“strategic herding” that competes away industry
margins

Measuring Strategic Differentiation: SDI

• Measure all products’ "characteristics" numerically.

– Inherent physical attributes (e.g., automobile: horsepower, weight, and size)
– Commercial environment in which it is marketed (targeted customer segments, channels
employed, advertising etc.)
• Generate product-characteristics/price index for the relevant competitive set.
Index weights are the strength of customer preferences for each product
characteristic. The higher the value of the index
– The greater the number of desirable product characteristics the company offers at a
given price and/or,
– The company’s product offers the same bundle of characteristics at a lower price
– Thus, a company with a high individual index has succeeded in differentiating itself clearly
from competitors.
• The product-characteristics/price index of each company describes its position vis-
a-vis its competitors in the strategic landscape. The variance among the
companies’ individual indexes, denoting the degree of strategic differentiation
across the industry, generates the strategic-differentiation index (SDI).
• At industry level, the static SDI is of little interest. What is important is the change
over the long term (industry cycle). A sharp decline in the SDI demonstrates that
managers are engaged in strategic herding.

Source: Natterman, McKinsey Quarterly, 2000

2
 8/30/21

Strategic Herding

Strategic Herding

3
 8/30/21

Competitive Advantage Through Reinforcing Activities:

Southwest Airlines

No meals No baggage
No seat transfers
assignments Limited
passenger No connections
service with other airlines
Frequent,
reliable
15 min. gate Short haul,
departures
turnarounds point-to-point
routes between
midsize cities,
secondary
Highly productive airports
ground and gate
crews Low
ticket Limited use
Flexible prices
High of travel agents
union
contracts aircraft
utilization
High level of Automatic Standardized
employee ticketing fleet of 737
stock ownership machines aircraft

Components of Strategy
• Scope
• Breadth of strategic domain: number and types of
industries, product lines, market segments. Reflects
company mission and strategic intent.
• Objectives and Goals
• Desired level of accomplishment on one or more
performance dimensions and the growth vector.
• Resources & their deployment
• Allocation of human, financial and other resources across
businesses, markets, etc.
• Competitive advantage
• What are the distinctive competencies or strengths relative
to competitors?
• Synergy
• Improving overall efficiency and effectiveness by
exploiting synergies across businesses and product
markets.

4
 8/30/21

Great Lakes Chennai

Vision
To Be a World Class Management Institute to Develop Socially
Sensitive, Business Ready Leaders and Entrepreneurs with
Futuristic Orientation and Commitment towards Innovation and
Excellence through Cost-Effective Programs.
Mission
To Develop Future Ready Business Leaders and Entrepreneurs
with an Analytical Mindset, Prepared For Current and Future
Market Needs, Through Contemporary and High-Quality
Teaching, Research and Social Engagement.

10

5
 8/30/21

The Core Competence of the Corporation

(1980s)
• Core competencies are the collective knowledge in an
organization, especially how to use and coordinate different
production skills and technologies.
§ Honda
§ Sony
§ Amazon

• Core competencies
§ provide potential access to a wide variety of markets
§ make a significant contribution to the perceived customer benefits of
the end product
§ are difficult for competitors to imitate

11

11

Unbundling the Corporation

• Product Innovation
• Economics: Early market entry allows for premium price and large market
share; speed is key.
• Culture: Employee centered; coddling the stars; digest one challenge
before launching another
• Competition: Battle for talent; low barriers to entry; many small players
thrive
• Customer Relationship Management
• Economics: High cost of customer acquisition makes it imperative to gain
large shares of weight; economies of scope are key.
• Culture: Highly service oriented; “customer comes first”
• Competition: Battle for scope; rapid consolidation; a few big players
dominate
• Infrastructure Management
• Economics: High fixed costs make large volumes essential to achieving low
unit costs; economies of scale are key
• Culture: Cost focused; stress on standardization; predictability; efficiency
• Competition: Battle for scale; rapid consolidation; a few big players
dominate

Source: Hagel and Singer, HBR

12

6
 8/30/21

Objectives and Goals

13

The Adoption Generate volumes and experience so

“Stairway” products become reliable and cheap
to meet demands of conservatives

Gain bulk of revenue by serving

pragmatists ideally by becoming
market leader and setting de facto
standards

Capture interest of visionaries

Make them satisfied customers
Serve as good references for pragmatists

Seed enthusiasts with new products

Leave skeptics to their own devices
Help them educate visionaries

14

7
 8/30/21

The Chasm

The Early The Mainstream

Market Market

The
Chasm
Vi

Sk
Pr
Te nth

sio

Co
E

ep
a
ch us

gm
n

ns

t
ar
no ias

ics
er
at
ies
lo ts

ist

va
gy

ivt
es

15

Landscape of Technology
Adoption Life Cycle Main Street

The Tornado

The Early
Market

The The Bowling End of

Chasm Alley Life

16

8
 8/30/21

What causes the tornado?

• Pragmatists’ Principles
• When it is time to move, let us all move together
• When we pick the vendor to lead us to the new paradigm, let us all pick the
same one
• Once the move starts, the sooner we get it over with, the better

The Gorilla
Chimp #1
Chimp #2
Monkeys
Post-Tornado
Market Shares

17

The Gorilla
• Technology is about standards. To succeed with consumers, one
firm's gadget often has to work with other gadgets from other firms.
Technology moves so quickly that standards set by committees
usually come too late. Instead, the industry organizes itself around de
facto standards championed by single firms with the clout to make
them stick--as, for instance, Intel has done with microprocessors.

• By bringing order to an otherwise chaotic marketplace, the standard

can serve as a foundation from which many firms can sell
compatible products, strengthening the industry as a whole.

• As long as the technopoly puts most of its effort into expanding the
overall market (as Intel has with PCs), the rest of the industry is happy.
And if a technopoly uses its dominance to charge too much, then its
customers are quick to rebel. When IBM began to plunder the
mainframe-software market in the mid-1980s, it only accelerated the
move towards networked PCs; ever since the early 1990s, Big Blue
has had to cut prices.

18

9

Bowling Alley vs. Tornado
• Focus on economic buyer and end-
user
• Emphasize ROI as the compelling
reason to buy
• Differentiate “whole product” for a
single application
• Partner with value-added distribution
channel to ensure customized
solution delivery
• Use value-based pricing to maximize
profit margins
• Avoid competition to gain niche
market share
• Position products within vertical
market segments
19
Tornado vs. Main Street
• Sell to infrastructure buyer
• Focus on timely & reliable
infrastructure deployment
• Commoditize product for universal
deployment (open systems & need for
strategic partnerships)
• Distribute via low cost, high volume
channels & advertise heavily to ensure
maximum market exposure
• Drive price points even lower to
maximize market share
• Attack other competitors to gain
market share
• Position products horizontally as global
infrastructure
20
8/30/21
• Focus on infrastructure buyer; ignore
economic buyer
• Ignore ROI; focus on timely
infrastructure deployment
• Commoditize product for general
purpose use
• Distribute via low cost, high volume
channels to ensure maximum market
exposure
• Use competition based pricing to
maximize market share
• Attack competition to gain mass
market share
• Position products horizontally as
global infrastructure
• Sell to end-user
• Focus on end-user’s product
experience; seek to gratify individual
needs
• Differentiate commoditized products
via +1 campaigns directed at specific
niches
• Continue same channels, but focus on
merchandising that communicates +1
messages
• Gain margins above low cost clone
with +1 benefits
• Compete against own low-cost offering
to boost margin share
• Position in niche markets based on
end user preferences
10
 8/30/21

Implications for Segmentation

• In the early market, do not segment - go

where visionaries lead you

• To cross the chasm and negotiate the

bowling alley, need to segment

• Once inside the tornado, must not segment

• On main street, must segment - basis of +1

strategy

21

Strategy 3:
Mass Marketing Strategy 4:
Mass Customization

Specific
Strategies
Strategy 1: Deal-
driven Marketing Strategy 2:
Niche Marketing

Key Priority: Design & build the
whole product
Partnering Priority: Complementary
technologies & services to form the whole
product and win dominant segment share
Distribution Priority: Find some
evangelists for Early market and
Crusaders for Bowling Alley
Key Priority: Simplify and extend the whole product
Partnering Priority: Complementary skills and resources in marketing
and distribution to succeed in identifying new niches
Distribution Priority: Find some hunters for the Tornado and farmers
for the Main Street

22

11
 8/30/21

Value Disciplines & the Life Cycle

Operational Excellence
Product Leadership +
+ Customer Intimacy
Operational Excellence

Product
Leadership Only

Product Leadership
+
Customer Intimacy

23

Objectives: Metrics & Anti-metrics

Market Share Profits
Customer Satisfaction “Design Wins”

Segment Share
Total Revenue

“Design Wins”
Profitability
La
Ea

Ea

La
In

gg
no

te
rly

rly

ar
va

Ma
Ad

Ma

ds
to

jo
op

jo
rs

r
r

ity
te

ity
rs

24

12
 8/30/21

Resources

25

The Resource Based View (RBV) of the Firm (1990s)

• Core competencies are often

– hard to pin down
– not the only source of a competitive
advantage
• RBV is a broader framework than core
competencies
• Think of a firm as a collection of resources:
– Physical assets
– Intangible assets
– Capabilities
– Human capital
• Different firms have different sets of
resources: entire set of reinforcing activities
constitutes a strategy.
26

26

13
 8/30/21

27

The Resource Based View (RBV) of the Firm

Resources need to pass the external market tests of value:
– Inimitability: Is the resource hard to copy?
– Durability: How quickly does the resource depreciate?
– Appropriability: Who captures the value that the resource creates?
– Substitutability: Can a unique resource be trumped by a different one?
– Competitive superiority: Whose resource is really better?

What makes a resource competitively valuable?

Scarcity Appropriability

Demand

27

Resources

• How to allocate resources?

• Value Based Planning
• Classic tools (BCG matrix, GE Multifactor Portfolio
Model)

28

14
 8/30/21

29

Portfolio Analysis: The BCG Matrix

(1970s)
Invest

High
(>10%)
Market growth &

Reinvest
cash required

Don’t
invest

Low
(<10%) Divest

10 ´ 1´ 0.1 ´

Market share relative to largest competitor

29

Shell New Lens Scenario

30

15
 8/30/21

Shell New Lens Scenario

31

Competitive Advantage

32

16
 8/30/21

Types of Advantage
Lowest Superior Buyer
Delivered Cost Value

Cost
Broad Differentiation
Leader
Scope
Cost Differentiation
Narrow Focus Focus

Focuser takes advantage of sub optimization by broad scope competitors who:

Over perform at high costs or under perform (by not meeting market needs)

8/30/21

33

Competitive Leverage Analysis

Bells & Hot

Whistles Buttons

Entry Tickets
Penny
Discriminating

Savers Unmet Needs

Power

Importance

34

17
 8/30/21

Synergy

35

Marketing Synergies
• Within firm
– Look for synergies in served product-markets
– Look for synergies on cost side (production, logistics)

• Across firm
– Find partners who increase synergy on one or more dimension
of the marketing mix
– For example, the rise of the Online Category Manager
• Most general retailers are expert at managing 3-5 categories
• Core customers driven to store because of interest in these
categories
• Retailers need expertise in other categories, so category
manager
• Category managers are useful in categories where category is
relatively complex and customers demand deep array of many
competing brands e.g. CDs, Financial Services, Sporting Goods

36

18
 8/30/21

Company Analysis: Summary

• The objective of the corporate strategy is to develop and maintain a fit
between the company’s resources, goals, and outside market opportunities
– Operational Effectiveness, while important, is not Strategy, since it does not involve
trade-offs. Most management tools are about measuring/improving O.E. Strategy is
much harder to envision.
• Strategy is about what not to do, about understanding trade-offs between
different plans and choosing the best one.
• Strategic planning should be based on an understanding of the sources of a
firm’s competitive advantage
– Core competencies
– Resource based view of the firm
– Competitive advantage through reinforcing activities
• Seek to disrupt business models; don’t fall into a trap where core
competence becomes core rigidity

37

37

19