C

H
3
A
P
T
E
R

THREE

Business Strategies
and Their Marketing
Implications

McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
How should the SBUs be designed?

o A Homogeneous set of markets

to serve with limited number of
related technologies
o A Unique set of product-
markets
o Control over factors necessary
for successful performance
o Responsibility for their own
profitability
4-2
Generic Business-Level Competitive Strategies

o Michael Porter distinguishes three strategies

o Overall cost leadership
o Differentiation
o Focus
o Robert Miles and Charles Snow classify
business units into four strategic types:
o Prospectors
o Defenders
o Analyzers
o Reactors

4-3
Definitions of Miles and Snow’s Four Business Strategies

o Prospector
o Focus on growth through the development
of new products and markets.
o Defender
o Concentrate on maintaining positions in
established product-markets while paying
less attention to new product development.
o Analyzer
o Attempt to maintain a strong position in its
core product-market(s)
o Seek to expand into new product-markets.
o Reactors
o Businesses with no clearly defined
strategy.
4-4
Exhibit 3.2

Combined Typology of Business-Unit Competitive Strategies

Emphasis on new product-market growth

Heavy emphasis No emphasis
Prospector Analyzer Defender Reactor
Units with Units primarily
strong core bus.; concerned with
Differentiation

actively seeking maintaining a

Units primarily to expand into differentiated Units with no
Competitive strategy

concerned with rel. prod-mkts position in clearly defined

attaining with mature product-
growth through differentiated markets market
aggressive offerings development
pursuit of new or competitive
product-market strategy
Units with Units primarily
Cost leadership

opportunities strong core concerned with

bus.; actively maintaining a
seeking to low-cost
expand into rel. position in
prod-mkts with mature markets
low-cost
offerings

4-5
 4

CHAPTER FOUR
Understanding Market Opportunities

McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
The Seven Domains of Attractive Opportunities

Market Domains Industry Domains

Macro Market Attractiveness Industry

Level Attractiveness
Mission, Ability to
Aspirations, Execute
Propensity on CSFs
for Risk
Team
Micro Domains

Connectedness up
Level and down Value Chain

Target Segment
Sustainable Advantage
Benefits
and Attractiveness
4-7
Difference between Markets and Industries

‡A market is a group of individuals

or organizations having the
willingness and ability to buy
goods or services to satisfy a
particular class of wants or needs
‡An industry is a group of
organizations offering goods or
services that are similar and close
substitutes for one another

4-8
Macro Trend Analysis

o The macroenvironment can be

divided into six major
components:
o Demographic
o Sociocultural
o Economic
o Regulatory
o Technological
o Natural
4-9
Macro Trend Analysis (continued)

o Demographic trend examples/businesses

affected:
o Graying of the population/nursing homes,
hospitals
o Increase in ethnic population/food,
clothing industries
o Sociocultural trend examples/businesses
affected:
o Evolution of the family structure/food,
women’s apparel
o Exercise for both genders is in/exercise
clothing, sports beverage
4-10
Macro Trend Analysis (continued)

o Economic trend examples/businesses

affected:
o Increase or decrease of interest
rates/capital goods, real estate
o Free trade agreements/goods and
services
o Regulatory trend examples/businesses
affected:
o Government regulation/food, drug
o Government deregulation/airlines,
trucking, railroads, telecommunications,
and banking
4-11
Macro Trend Analysis (continued)

o Technological trend
examples/businesses affected:
o Development of fiber-optic
cables/telecommunications, computers
o Production of more disease-resistant
livestock and plants/farming and
ranching, food
o Physical trend examples/businesses
affected:
o Global warming/ ski resorts, winter
tourism
4-12
Exhibit 4.7

The Major Forces that Determine Industry Attractiveness

Threat of new
entrants

Bargaining Rivalry among Bargaining

power existing industry power
of suppliers firms of buyers

Threat of substitute
products

4-13
Porter’s Five Competitive Forces

o Rivalry among present competitors

o Rivalry is greater under the following
conditions:
o There is high investment intensity
o There are many small firms in an
industry or no dominant firms exist
o There is little product differentiation
o It is easy for customers to switch
from one seller’s products to those
of others

4-14
Porter’s Five Competitive Forces (continued)

o Threat of new entrants

o Entry is more difficult under the
following conditions:
o When strong economies of scale and
learning effects are present
o When the industry has high capital
requirements
o When strong product differentiation
exists among current players
o If gaining distribution is particularly
difficult

4-15
Porter’s Five Competitive Forces (continued)

o Bargaining power of suppliers

o Their power is increased under the
following conditions:
o If the cost of switching suppliers is
high
o If prices of substitutes are high
o If suppliers can realistically threaten
forward integration
o When the supplier’s product is a
large part of the buyer’s value added

4-16
Porter’s Five Competitive Forces (continued)

o Bargaining power of buyers:

o The extent to which buyers succeed in
their bargaining efforts depends on
several factors:
o The extent of buyer concentration
o Switching costs that reduce the buyer’s
bargaining power
o The threat of backward integration
o The product’s importance to the
performance of the buyer’s product
o Buyer profitability
o Threat of substitute products
4-17
Information Sources for Macro-Level Analyses

o Trade associations
o Trade magazines
o General business and popular
press
o The Internet

4-18
Understanding Markets at the Micro Level

o Opportunities are attractive when

market offering meets most/all of the
following tests:
o There is a clearly identified source of
customer pain, for some clearly
identifiable set of target customers,
which the offering resolves
o The offering provides customer benefits
that other solutions do not
o The target segment is likely to grow
o There are other segments for which the
currently targeted segment may provide
a springboard for subsequent entry
4-19
Understanding Industries at the Micro Level

o Opportunities are attractive when

the company itself meets most/all of
the following tests:
o It possesses something proprietary that
other companies cannot easily duplicate or
imitate
o The business has or can develop superior
organizational processes, capabilities, or
resources that others would find it difficult
to imitate or duplicate
o The company’s business model is
economically viable

4-20