Strategic

Marketing,
3rd edition

Chapter 4:
Strategic Marketing Decisions, Choices, and Mistakes
 Learning Objectives
• To define ‘Strategic Choice’

• To outline strategic decisions

taken at the corporate, SBU
and functional levels

• To review the strategic

marketing decisions including
products to offer, markets to
target and competitive
position strategies

• To review the analytical models

and frameworks that can be
used by organisations to make
their strategic choices for the
future
Strategic Choice :Strategic Marketing Management
Strategic choice involves generating a well-
justified set of interrelated strategic
alternatives and choose from them the
ones that will contribute to the
achievement of the corporate overall
goals and strategic objectives
 Hierarchy of Strategic Choice
Strategic Decisions at Corporate
Level
1. Mission statement,
2. Directional Strategy (Growth, Stability,
Retrenchment)
3. Resource Allocation
at S B U L evel
teg i c D ec isi ons
Stra Strategy
neric
Choosing Ge
hip
Cost Leaders
n
Differentiatio
Focus
Marketing-Related Strategic
decisions at Functional Level
Products to Offer
Market segments to target
Positioning Strategy
Competitive Stance to take
A. Corporate Level
 1A. Defining the Business Purpose
• Business Vision n Mission answers the question: Why a company
exists n how it should operate to achieve that Vision?
• Hence, a clear thoughtful Vision and Mission Statement provides a
shared sense of purpose, direction to the company and its
employees. Furthermore, it helps the company come up with the
right strategies to fulfill the mission.
 1B.Components of a Business Purpose
• Strategic Intent/Vision: signifies the vision of where the organization
wants to be in the foreseeable future. Value Based Vision
• Mission/Company Values/Culture: signifies the company’s ethical
and moral principles in pursuing their business operations. It is what
creates an organizational culture.

Mission Statement includes principles/practices regarding

• Customers
• Offerings
• Location
• Tech
• Philosophy
• Self concept/ Identity
• Public Image
• Employees
L'Oreal enables all individuals to
express their personalities, gain self-
confidence and open up to
others. L'Oreal has set itself the
mission of offering all women and
men worldwide the best of cosmetics
innovation in terms of quality,
 2. Directional Strategy
A. Growth Strategies: expand the corporation’s
activities. Concentration or Diversification?
B. Stability Strategies: no change to the existing
activities
C. Retrenchment Strategies: reduce the corporation’s
level of activities
 2. Directional (grand) Strategies

A.Growth Strategies B. Stability Strategies C. Retrenchment Strategies

i. Concentration i. Pause/Proceed with i. Turnaround

Caution ii. Captive Company
a. Vertical Growth
ii. No Change iii. Sell-Out/Divestment
b. Horizontal Growth
iii. Profit iv. Bankruptcy/Liquidation
ii. Diversification
a. Concentric
b. Conglomerate
 2A.Growth Strategies: i. Concentration

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http://www.nydailynews.com/autos/news/ford-partners-lyft-jaguar-focused-sports-cars-article-
1.3525580
 2 A. Growth Strategies: i. Concentration

b. Horizontal
integration
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http://www.hindustantimes.com/autos/is-tata-
motors-joining-hands-with-volkswagen-or-is-
ford-buying-it-out/story-
3XIj6fRC5Ech0Fpnlb8DnN.html
Horizontal Growth
 2 A .Growth Strategies: ii. Diversification

a. Concentric Diversification
involves adding new products or
services that are related to your
current offerings -- either because
they appeal to the same market or
because they can be offered
without much investment in new
resources (or both.)
 2 A. Growth Strategies: ii. Diversification

b. Conglomerate: In business, a conglomerate is a company involved

in multiple lines of business that have little relationship to one another.
 2 A. Growth Strategies: Advantages

Concentric diversity aims for synergy -- using your experience and

strengths in one area to gain a foothold in another area as well as a
gainful use for excess capacity.

Conglomerate Diversification, the advantage is the diversification itself --

spreading the market risk across more sectors. Cross Selling and Risk
Management
2 A. Growth Strategies: Disadvantages
• With Conglomerate Diversity, there's no guarantee that the
businesses will be a good fit.
• Dangers of Concentric Diversity include line overextension --
diluting the value of your brand by trying to do too much.
• With both types of diversification, there is always the
possibility that the diversification will just be a poor
investment -- you'll misread the market and end up offering
something that customers don't want (at least from you.)
 2 B. Stability Strategies
i. Pause (Quality Concentration) /Proceed with
Caution
ii. No Change
iii. Profit (Cash Flow)
 2 C. Retrenchment Strategies: i. Turnaround
• Turnaround: This strategy is recommended when despite the
industry having high appeal, a company actually has trouble coping
up with business.
• This strategy emphasizes on improving efficiency and/or operational
implementation
 Retrenchment Strategies: Turnaround
Two Stages of Turnaround Strategy:
• Contraction : the efforts aims to reduce the company's costs ,
for example in the form of job cuts and not spending on things that
are considered less necessary . Prune/harvest
• Consolidation : the development of programs to stabilize a
company that has experienced the downsizing
Indicators:
• Continuous losses
• Poor management
• Persistent negative cash flows
• High employee attrition rate
• Poor quality of functional management
• Declining market share
• Uncompetitive products and services
http://fortune.com/2015/04/21/20-companies-who-increased-profits/
 2 C. Retrenchment Strategies: ii. Captive Company
Captive Company: Essentially, a captive company's destiny is tied to a
larger company. For some companies, the only way to stay viable is to
act as an exclusive supplier to a giant company. A company may also be
taken captive if their competitive position is irreparably weak.
http://www.gaebler.com/Corporate-Level-Strategy.htm
2 C. Retrenchment strategies: Divestment and Liquidation

iii. Sell out/ Divestment

iv. Bankruptcy
V. Liquidation

https://books.google.com.bd/books?
id=bhF_AgAAQBAJ&pg=PA181&lpg=PA181&d
q=captive+company+retrenchment&source=
bl&ots=DXPw-
tvXVt&sig=ndIQcho8BMqLunBivFaXVazm7b8
&hl=en&sa=X&ved=0ahUKEwi7gpnf2JvZAhU
GTY8KHWBWAB4Q6AEIYTAK#v=onepage&q=
captive%20company
%20retrenchment&f=false
Michael Dell talks turnaround strategy
https://
www.youtube.com/watch?v=HbcQC7nbcBo

How To Turnaround a Failing Business | Dan

Martel

https://
www.youtube.com/watch?v=JyfE6jzcOGI

Lego Story: What the Company Learned From

Its Mistakes

https://www.youtube.com/watch?
v=gvLVslZQbZI
 3. Resource Allocation: BCG matrix
The company must analyze its current business portfolio and decide
which businesses should receive more, less, or no investment

It must shape the future portfolio by developing strategies for growth

and downsizing

Most Portfolio Analysis evaluates:

The attractiveness of the SBU’s market
The strength of the SBU’s position in that market

To be successful, a company should have a portfolio of products with

different growth rates and different market shares. The portfolio
composition is a function of the balance between cash flows.
High growth products require cash inputs to grow.
Low growth products should generate excess cash
3. Resource Allocation: BCG matrix
Corporate level

Movement of cash

Desired
movement of
business over
time
 3. Resource Allocation: BCG matrix
Stars- Stars represent business units having large market share in a
fast growing industry. They may generate cash but because of fast
growing market, stars require huge investments to maintain their
lead.SBU’s located in this cell are attractive as they are located in a
robust industry and these business units are highly competitive in the
industry. If successful, a star will become a cash cow when the industry
matures.
Cash Cows- Cash Cows represents business units having a large
market share in a mature market, slow growing industry. Cash cows
require little investment and generate cash that can be utilized for
investment in other business units. These SBU’s are the corporation’s
key source of cash, and are specifically the core business. They are the
base of an organization. These businesses usually follow stability
strategies. When cash cows loose their appeal and move towards
deterioration, then a retrenchment policy may be pursued.
 3. Resource Allocation: BCG matrix
Question Marks- Question marks represent business units having low
relative market share and located in a high growth industry. They require
huge amount of cash to maintain or gain market share. They require attention
to determine if the venture can be viable. Question marks are generally new
goods and services which have a good commercial prospective. There is no
specific strategy which can be adopted. If the firm thinks it has dominant
market share, then it can adopt expansion strategy, else retrenchment
strategy can be adopted. Most businesses start as question marks as the
company tries to enter a high growth market in which there is already a
market-share. If ignored, then question marks may become dogs, while if huge
investment is made, then they have potential of becoming stars.

Dogs- Dogs represent businesses having weak market shares in low-growth

markets. They neither generate cash nor require huge amount of cash. Due to
low market share, these business units face cost disadvantages. Generally
retrenchment strategies are adopted because these firms can gain market
share only at the expense of competitor’s/rival firms. These business firms
have weak market share because of high costs, poor quality, ineffective
marketing, etc. Unless a dog has some other strategic aim, it should be
liquidated if there is fewer prospects for it to gain market share. Number of
dogs should be avoided and minimized in an organization.
 BCG strategies

• Stars: Build and Grow

• Hold/Harvest: Cash Cows
• Investment: Question Mark
• Divestment: Dogs
B. SBU LEVEL
 SBU Level: Generic Competitive Strategy
• Generic strategy can be viewed as building defenses against the
competitive forces or finding a position in the market where the forces
are the weakest
 Generic Competitive Strategies

e a d e rs h i p
• Cost L
re n ti ati o n
• Diffe
st F o c us
• Co
• Focused n
re n ti atio
Diffe
 Generic competitive Strategies: Cost Leadership
• Low cost competitive strategy
aimed at broad mass market.
• Requires aggressive construction of
efficient-scale facilities, vigorous
pursuit of cost reduction, tight cost
and overhead control, and cost
minimization in R&D, service, sales
force advertising.
• Cost leadership is not the same as
setting low prices
• Defense against rivals
• Greater bargaining power with
suppliers because it buys in larger
quantities.
• Barrier to entry
• Having a low cost position gives a
company a defense against rivals.
• Its lower costs allow it to continue
to earn profits during times of
heavy competition.
 Generic competitive Strategies: Differentiation
• Involves the creation of a
significantly differentiated
offering, for which the
company charges a
premium. Associated with
design, brand image,
technology, dealer
network, or customer
service.
• Brand loyalty lowers
customers’ sensitivity to
price, and so it’s a viable
strategy for earning above
average returns
• Buyers’ loyalty serves as
entry barrier
 Generic Competitive Strategies: Cost focus
• Low-cost strategy that
focuses on a particular buyer
group or geographic market
and attempts to serve only
this niche, to the exclusion
of others.
• The company seeks cost
advantage in its target
segment.
• Company that focuses its
efforts can serve its narrow
strategic target more
efficiently than can its
competitors
Generic Competitive Strategies: Focused Differentiation
• Concentrates on a particular
buyer group, product line
group, or geographic market.
• Target segments have buyers
with unusual needs or else
the production and delivery
system that best serves the
target segment must differ
from that of other industry
segments.
• A company that focuses its
efforts can serve its narrow
strategic target more
effectively than competitors
 Bowman’s Strategy Clock
Low Price and Low Value Added (Position 1)
Not a very competitive position for a business. The product is not differentiated and
the customer perceives very little value, despite a low price. This is a bargain
basement strategy. The only way to remain competitive is to be as “cheap as chips”
and hope that no-one else is able to undercut you.
Low Price (Position 2)
Businesses positioning themselves here look to be the low-cost leaders in a market. A
strategy of cost minimization is required for this to be successful, often associated
with economies of scale. Profit margins on each product are low, but the high volume
of output can still generate high overall profits. Competition amongst businesses with
a low price position is usually intense – often involving price wars.
Hybrid (Position 3)
As the name implies, a hybrid position involves some element of low price
(relative to the competition), but also some product differentiation. The aim is
to persuade consumers that there is good added value through the
combination of a reasonable price and acceptable product differentiation. This
can be a very effective positioning strategy, particularly if the added value
involved is offered consistently.
.
 Hybrid (Position 3)

BDT 45

Low Price and Low Value Added (Position 1)

 Bowman’s Strategy Clock
Differentiation (Position 4)
The aim of a differentiation strategy is to offer customers the highest level of perceived
added value. Branding plays a key role in this strategy, as does product quality. A high
quality product with strong brand awareness and loyalty is perhaps best-placed to
achieve the relatively prices and added-value that a differentiation strategy requires.
Focused Differentiation (Position 5)
This strategy aims to position a product at the highest price levels, where customers
buy the product because of the high perceived value. This the positioning strategy
adopted by luxury brands, who aim to achieve premium prices by highly targeted
segmentation, promotion and distribution. Done successfully, this strategy can lead to
very high profit margins, but only the very best products and brands can sustain the
strategy in the long-term.
Risky High Margins (Position 6)
With this strategy, the business sets high prices without offering anything extra in
terms of perceived value. If customers continue to buy at these high prices, the profits
can be high. But, eventually customers will find a better-positioned product that offers
more perceived value for the same or lower price. Other than in the short-term, this is
an uncompetitive strategy.
 Bowman’s Strategy Clock
Monopoly Pricing (Position 7)
Where there is a monopoly in a market, there is only one business offering the
product. The monopolist doesn’t need to be too concerned about what value the
customer perceives in the product – the only choice they have is to buy or not. There
are no alternatives. In theory the monopolist can set whatever price they wish.
Fortunately, in most countries, monopolies are tightly regulated to prevent them from
setting prices as they wish.
Loss of Market Share (Position 8)
This position is a recipe for disaster in any competitive market. Setting a middle-range
or standard price for a product with low perceived value is unlikely to win over many
consumers who will have much better options (e.g. higher value for the same price
from other competitors).
Low Price and Low Value Added (Position 1)
Risky High Margins (Position 6)
Loss of Market Share (Position 8)
 Focused Differentiation (Position 5)

Differentiation (Position 4)
Bowman’s Strategy Clock

Maids