Developing a Strategic Vision about the Future

Answers to the following questions may indicate the possibility of a market changing significantly in the future.

1. Are industry boundaries clear and static? Are customers and competitors identifiable? Or are industry boundaries blurring and evolving?

2. Do firms compete as “distinct entities” or as families of suppliers and end product firms?

3. Is there competition for managing migration paths?

4. Is competition taking place at product line, business, and corporate levels? Do these levels of competition influence each other?

5. Can there be competition between clusters of firms to influence standards and industry evolution?

Phases of Competition

It is useful to distinguish between different phases in the development of competition.

Anticipating the Future

Increasingly, we find that change and turbulence, rather than stability, characterize many product-markets.

Hamel and Prahalad offer a compelling blueprint for analyzing the forces of change. While the details of their process cannot be captured in a few pages of discussion, the following questions are illustrative of the information needed to anticipate the future.

· What are the influences (discontinuities) present in the product-market that have the potential to profoundly transform market/competitor structure?

· Investigate each discontinuity in substantial depth.

· How will the trend impact customers?

· What is the likely economic impact?

· How is exploiting this trend?

· Who has the most to gain/lose?

· What new product opportunities will be created by this discontinuity?

· How can we learn more about this trend?

Market Size Estimation

Three key measures of market size are: market potential, sales forecast, and market share.

Market Potential

Market potential is the maximum amount of product sales that can be obtained from a defined product-market during a specified time period.

Sales Forecast

The sales forecast indicates the expected sales for a defined product-market during a specified time period.

The Boeing Current Market Outlook is a very complete analysis of demand for commercial airplanes and aviation support services. It is a useful basic forecasting guide for the various companies serving the commercial aviation market.

Market Share

Company sales divided by the total sales of all firms for a specified product-market determines the market share of a particular firm.

Evaluating Market Opportunity

Since a company‘s sales depend, in part, on its marketing plans, forecasts and marketing strategy are closely interrelated.

Analyzing Competition

Competitor analysis considers the companies and brands that compete in the product-market of interest.

Defining the Competitive Arena

Competition often includes more than the firms that are considered to be direct competitors, like Coke and Pepsi.

The industry identification is based on product similarity, location at the same level in the value chain (e.g., manufacturer, distributor, retailer), and geographical scope. The industry analysis consider:

· Industry size, growth, and composition.

· Typical marketing practices.

· Industry changes that are anticipated (e.g., consolidation trends).

· Industry strengths and weaknesses.

· Strategic alliances among competitors.

Analysis of the Value-Added Chain. The study of supplier and distribution channels is important in understanding and serving product-markets.

Competitive Forces. Michael porter’s five competitive forces that impact industry performance:

1. Rivalry among existing firms.

2. Threat of new entrants.

3. Threat of substitute products.

4. Bargaining power of suppliers.

5. Bargaining power of buyers.

Key Competitor Analysis

Competitors analysis is conducted for the firms directly competing with each other (e.g., Nike and Reebok) and other companies that management may consider important in strategy analysis (e.g., potential market entrants).

We now look at two major aspects of competitor analysis: (1) preparing a descriptive profile for each competitor, and (2) evaluating the competitor’s strengths and weaknesses (Step 2 and 3 of Exhibit 3.7).

Describing and Evaluating the Competitor. A key competitor is any organization going after the same market target as the firm conducting the analysis.

Anticipating Competitor’s Actions

The information obtained in the previous steps of the analysis should be helpful in estimating future trends, although possible strategy shifts by competitors may occur.

Estimating Competitors’ Future Strategies. Competitors’ future strategies may continue the directions that they have established in the past, particularly if no major external influences require changing their strategies.

Identifying New Competitors. Market entry by a new competitor is more likely under these conditions:

· High profit margins are being achieved by market incumbents.

· Future growth opportunities in the market are attractive.

· No major market-entry barriers are present.

· Competition is limited to one or a few competitors.

· Gaining an equivalent (or better) competitive advantage over the existing firms(s) serving the market is feasible.

Describing and Analyzing End Users

After determining the product-market structure it is useful to develop profiles of end user buyers for the generic, product-type, and product-variant levels of the product-market.

Identifying and Describing Buyers

Characteristics such as family size, age, income, geographical location, and occupation are often useful in identifying buyers in consumer markets.

How Buyers Make Choices

Often, simply describing buyers does not provide enough information to guide targeting and positioning decisions. We also need to try find out why people buy products and specific production brands.

Environmental influences

The final step in building customer profiles is to identify the external factors that influence buyers and thus impact the size and composition of the market over time.

Building customer profiles

Describing customers starts with the generic product-market.

Product-Market Scope and Structure

Matching Needs with Product Benefits

The term product-market recognizes that markets exist only when there are buyers with needs who have the ability to purchase goods and services (products) and products are available to satisfy the needs.

Determining Product-Market Boundaries and Structure

Product-Market Structure. A company’s brands compete with other companies’ brands in generic, product-type, and product-variant product- markets. The generic product-market includes a broad group of products that satisfy a general, yet similar, need.

The product-type product-market includes all brands of a particular product type or class, such as ovens.

Guidelines for Definition. In determining the scope of the product-market, it is helpful to identify (1) the basis for identifying buyers in the product-market of interest (geographical area and buyer characteristics such as age group), (2) the market size and characteristics, and (3) the brand and /or product categories competing for the needs and wants of the buyers included in the product-market.

Forming Product-Markets

The factors that influence how product-market boundaries are determined include the purpose for analyzing the product-market, the rate of changes in market composition over time, and the extent of market complexity.

Purpose of Analysis. If management is deciding whether or not to exit from a business, primary emphasis may be on financial performance and competitive position.

Changing Composition of Markets. Product-market composition may change as new technologies become available and new competition emerges.

Extent of Market Complexity. Three characteristics of markets capture a large portion of the variation in their complexity: (1) the functions or uses of the product required by the customer, (2) the technology contained in the product to provide the desired function, and (3) the different customer segments using the product to perform a particular function.

Ø Customer function considers what the good or service does.

Ø Different technologies may satisfy the use situation of the customer.

Ø Customer segment recognizes the diversity of the needs of customers in a particular product-market such as automobiles.

Markets and Competitive Space CH: 3

Markets are increasingly complex, turbulent, and interrelated, creating challenges for managers in understanding market structure and identifying opportunities for growth. Consider, for example, the pervasive impact of digital technology on computer, telecommunications, photography, and office equipment markets and competitive space.

There is perhaps no better example of the importance of understanding markets and developing a vision of how they are likely to change in the future than the market for cell phones.

Markets and Strategies

Market knowledge is essential in guiding business and marketing strategies.

Markets and Strategies Are Interlinked

Market changes often require altering business and marketing strategies. Managers that do not understand their markets, and how they will change in the future, may find their strategies inadequate as buyers’ value requirements change and new products become available that better satisfy buyers’ requirements.

Value Migration

Value migration describes the process of customers shifting their purchases away from the products generated by outmoded business designs to new ones that offer superior value.

Preparing the Marketing Plan

Marketing plans vary widely in scope and detail.

Planning Relationships and Frequency

Marketing plans are developed, implemented, evaluated, and adjusted to keep the strategy on target. Since the marketing strategy normally extends beyond one year, it is useful to develop a three-year strategic plan and an annual plan to manage marketing activities during the year.

Planning Considerations

Suppose that you need to develop a plan for a new product to be introduced into the national market next year.

Responsibility for Preparing Plans. A marketing executive or team is responsible for preparing the marketing plan.

Planning Unit. The choice of the planning unit may vary due to the product- market portfolio of the organization.

Preparing the Marketing Plan

The Conference Board offers several examples of plan formats in its excellent reports on marketing planning. Format and content depend on the size of the organization managerial responsibility for planning, product and market scope, and other situational factors.

The Situation Summary. This part of the plan describes the market and its important characteristics, size estimates, and growth projections.

Describe the Market Target. A description of each market target, size and growth rate, end users’ characteristics, positioning strategy guidelines, and other available information useful in planning and implementation are essential parts of the plan.

Objectives for the Market Target(s). Here we spell out what the marketing strategy is expected to accomplish during the planning period.

Marketing Program Positioning Strategy. The positioning statement indicates how management wants the targeted customers and prospects to perceive the brand.

Forecasting and Budgeting. Financial planning includes forecasting revenues and profits and estimating the costs necessary to carry out the marketing plan.

International Planning Process. Planning for global operations is more complex than domestic planning

Internal Strategy

The explosive growth of Internet initiative has resulted in a variety of Web strategies which may impact the business and marketing strategies of existing firms, and lead to the formation of new business designs.

Major Force for Change

The Internet era provides a new way of developing relationships between and user customers, value-chain members, and alliance partners.

Strategy and the Internet

While some authorities argue that the Internet will make conventional strategies obsolete, a more compelling logic is that the Internet is a powerful complement to traditional business and marketing strategies.

While there are various strategy initiatives regarding the Internet, they correspond to one of the following:

· Formation of a separate business model as an independent venture or an initiative by an existing company.

· Amazon.com Inc. is an example of the former whereas Sabre’s Travelocity. Com venture was initiated by an existing company.

· Creation of a separate value-chain channel direct from the producer to the end user. Dell Inc. uses this Internet strategy.

· Using the Internet as an information resource.

This initiative is used by various organizations such as Business Week.

· Using the Web for advertising and sales promotion activities.

· These activities may be provided for one or more sponsors by a Web-based enterprise that offers users information at no charge. Ad revenues support the enterprise.

Implementing and Managing Market-Driven Strategy

Designing Effective Market-Driven Organizations. An effective organization design matches people and work responsibilities in a way that is best for accomplishing the firm’s marketing strategy.

Strategy Implementation and Control. Marketing strategy implementation and control consist of (1) preparing the marketing plan and budget: (2) implementing the plan; and (3) using the plan in managing and controlling the strategy on an ongoing basis.

Marketing Strategy Process

The marketing strategy analysis, planning, implementation, and management process that we follow is described in Exhibit 2.5.

Strategic Situation Analysis

Marketing management uses the information provided by the situation analysis to guide the design of a new strategy or change an existing strategy.

Market Vision, Structure, and Analysis. Markets need to be defined so that buyers and competition can be analyzed. For a market to exist, there must be (1) people with particular needs and wants and one or more products that can satisfy buyers’ needs, and, (2) buyers willing and able to purchase a product that satisfies their needs and wants.

Segmenting Markets. Market segmentation looks at the nature and extent of diversity of buyers’ needs and wants in a market. It offers an opportunity for an organization to focus its business capabilities on the requirements of one or more groups of buyers.

Continuous Learning about Markets. One of the major realities of achieving business success today is the necessity of understating markets and competitions.

Designing Market-Driven Strategies

The strategic situation analysis phase of the marketing strategy process identifies market opportunities, defines market segments, evaluates competition, and assesses the organization’s strengths and weaknesses.

Market Targeting and Strategic Positioning. Marketing advantage is influenced by several situational factors including industry characteristics, type of firm (e.g., size), extent of differentiation in buyers needs, and the specific competitive advantage(s) of the company designing the marketing strategy.

The purpose of the market targeting strategy is to select the people (or organizations) that management wishes to serve in the product-market. When buyers’ needs and wants vary, the market target is usually one of more segments of the product market.

Marketing Relationship Strategies. Marketing relationship partners may include end user customers, marketing channel members, suppliers, competitor alliance, and internal teams.

Planning for New Products. New products are needed to replace old products because of declining sales and profits.

Market-Driven Program Development

Market targeting and positioning strategies for new and existing products guide the choice of strategies for the marketing program components.

Strategic Brand Management Product (goods and services) often are the focal point of positioning strategy, particularly when companies or business units adopt organizational approaches emphasizing product or brand management. Product strategy includes: (1) developing plans for new products, (2) managing programs for successful products, and (3) deciding what to do about problem products (e.g., reduce costs or improve the product).

Value-Chain, Price, and Promotion Strategies. One of the major issues in managing the marketing program is deciding how to integrate the components of the mix.

Business and Marketing Strategy

Business and Marketing Strategy

During the 1990s many strategy guidelines were offered by consultants, executives, and academics to guide business strategy formulation.

Developing the Strategic Plan for Each Business

Strategic analysis is conducted to: (1) diagnose business units’ strengths and limitations, and (2) select strategies for maintaining or improving performance.

Business and Marketing Strategy Relationships

An understanding of business purpose, scope, objectives, capabilities, and strategy is essential in designing and implementing marketing strategies that are consistent with the corporate and business unit plan of action.

The chief marketing executive’s business strategy responsibilities include (1) participating in strategy formulation, and (2) developing marketing strategies that are consistent with business strategy priorities and integrated with other functional strategies.

Strategic Marketing

Marketing strategy consists of the analysis, strategy development, and implementation activities in:

Corporate Strategy

What is Corporate Strategy?

Michael Porter, indicates that an effective strategy should display these characteristics:

· Unique competitive position for the company.

· Activities tailored to strategy.

· Clear trade-offs and choices vis-à-vis competitors.

· Competitive advantage arising from fit across activities.

· Sustainability coming from the activity system, not the parts.

· Operational effectiveness as a given.

Organizational Change

In recent decades massive changes were made in the size and structure of many business firms.

Ø Vertical Disaggregation

Ø Internal Redesign.

Ø New Organization Forms

Components of Strategy

Recognizing that there are several definitions of corporate strategy, we utilize this definition:

Corporate strategy is the way a company creates value through the configuration and coordination of its multimarket activities.

Deciding Corporate Vision. Management’s vision defines what the corporation is and what it does and provides important guidelines for managing and improving the corporation.

The vision statement sets several important guidelines for business operations:

1. The reason for the company’s existence and its responsibilities to stockholders, employees, society, and other stakeholders.

2. The firm’s customers and the needs (benefits) that are to be met by the firm’s goods or services (areas of product and market involvement).

3. The extent of specialization within each product-market area and the geographical scope of operations.

1. The amount and types of product-market diversification desired by management.

2. The stage(s) in the value-added chain where the business competes from raw materials to the end user.

3. Management’s performance expectations for the company.

4. Other general guidelines for overall business strategy, such as technologies to be used and the role of research and development in the corporation.

Objectives. Objectives need to be set so that the performance of the enterprise can be gauged.

Capabilities. As we discussed in Chapter 1, it is important to place a company ‘s strategic focus on its distinctive capabilities.

Business Composition. Defining the composition of the business provides direction for both corporate and marketing strategy design.

Structure, System, and Processes. This aspect of strategy considers how the organization controls and coordinates the activities of its various business units and staff functions.

Corporate Competitive Advantage. This part of corporate strategy looks at whether the strategy components create value through multimarket activity.

Corporate, Business, and Marketing Strategy CH: 2

Business and marketing strategies are being altered and renewed in a wide range of companies by executives in their efforts to survive and prosper in an increasingly complex and demanding business environment.

Key issues underpinning strategic choices are:

· Revolution – In many industries, the drivers of radical, revolutionary change have created most of the new wealth over the last decade. Examples include Jet Blue, Costco, and eBay.

· Renewal – To survive, existing companies must innovate with respect to their traditional business models. P&G‘s renewal initiatives are impressive as discussed in Chapter 1.

· Resilience – To capacity for continuous reconstruction requires innovation with respect to the organizational values, processes, and behaviors that systematically favor perpetuating the past rather than innovation for renewal.

Challenges of a New Era for Strategic Marketing

Challenges of a New Era for Strategic Marketing

At the midpoint of the first decade of the 21^st century it is century it is apparent that executives face unprecedented challenges in strategic marketing to cope with turbulent markets, competitive revolution, and escalating customer demands for value superiority.

Escalating Globalization

The internationalization of business is well recognized in terms of the importance of export /import trade and the growth of international corporations, particularly in the Triad, comprising North America, Europe, and Japan. However, for strategic marketing in the 21^st century, such a view of the international marketing issue may be shortsighted.

Technology Diversity and Uncertainty

The impact of technology on business may also be underestimated.

The skills and vision required to decide which radical innovation opportunities can be successfully commercialized will be extremely demanding, and the risks of failure will be high.

EXHIBIT 1.6 Radical Product Opportunities from New Technologies

A Self-Cleaning Fabric from Nanotechnology. Research in Hong Kong offers the potential for fabrics that are self-cleaning.

Private Space Travel. In 2004, private space travel became a potentially commercial product.

The Digital Home. Consumers have growing opportunities to set up home electronics room-by-room to share high-speed Internet access and to exchange music, video, and other content.

Self-Cleaning Windows. Pilkington in the United Kingdom has spent a decade developing its Activ product –glass with a microscopic coating that reacts with sunlight to dissolve dirt and grime, leaving a residue that is washed away by the rain.

Ethical Behavior and Social Responsiveness

The demands on individuals with high levels of personal integrity will likely increase in the future.