Strategic Planning. Three Levels of Strategy in an Organization

Transcription

1 Strategic Planning The process of developing and maintaining a fit between a compan y s goals and capabilities and its changing marketing opportunities It involves: Defining company vision/mission Specifying objectives Designing portfolio of products/businesses Coordinating functional strategies Three Levels of Strategy in an Organization Corporate strategy Vision Vision Corporate Corporate goals goals Philosophy Philosophy and and culture culture Business unit unit strategy Mission Mission Business Business goals goals Competencies Competencies Functional strategy Information systems Research & development Manufacturing Finance Marketing Human resources 1

2 Components of Strategy Scope Breadth of strategic domain: number and types of industries, product lines, market segments. Reflects company mission and strategic intent (vs. Strategic fit) MCI... Core business (long distance), Contiguous business (fastest growing sector - communications related products: wireless paging, Internet, local service), Content (invested $2 billion in News Corp): Vision of Bert Roberts, Chairman MMM PCL EllisDon Mattamy Components of Strategy Goals and Objectives Desired level of accomplishment on one or more performance dimensions and the growth vector Resource deployments Allocation of human, financial and other resources across businesses, markets, etc. Identification of a sustainable competitive advantage What are the distinctive competencies or strengths relative to competitors? MMM PCL EllisDon Mattamy Synergy Improving overall efficiency and effectiveness by exploiting syn ergies across businesses and product markets 2

3 Market Oriented Vision / Missions COMPANY Revlon PRODUCT-ORIENTED VISION/MISSION STATEMENTS We make cosmetics. MARKET-ORIENTED VISION/MISSION STATEMENTS We sell lifestyle and self expression; success and status; memories, hopes and dreams. Disney We run theme parks. We provide fantasies and entertainment -- a place where America still works the way it is supposed to. Wal-Mart We run discount stores. We offer products and services that deliver value to middle Americans. Market Oriented Vision / Missions COMPANY MMM PCL EllisDon Mattamy PRODUCT-ORIENTED VISION/MISSION STATEMENTS MARKET-ORIENTED VISION/MISSION STATEMENTS 3

4 The Strategic Marketing Process: 1. Situation and SWOT analysis 2. Market-product focus & goal setting 3. Marketing programs 1. Situation Analysis: The Three Cs Industry Industry Structure Structure Analysis Analysis (entry/exit (entry/exit barriers, barriers, buyers, buyers, sellers, sellers, substitutes) substitutes) Competitor Competitor Response Response Profiles Profiles (capabilities, (capabilities, current current and and future future actions) actions) Customers Company Competitors Market Market Potential Potential (size, (size, growth growth rate) rate) Customer Customer Behavior Behavior (wants (wants and and needs, needs, segmentation, segmentation, price price sensitivity) sensitivity) Economic Economic Analysis Analysis (costs, (costs, break-even, break-even, profitability) profitability) Company Company Fit Fit (strengths, (strengths, weaknesses, weaknesses, resources, resources, culture, culture, goals) goals) 4

5 Company considerations History / Culture Resources Existing portfolio Existing customer base characteristics, esp. vis a vis future market loyalty Experience with markets with marketing Business Objectives Maximize profits Maximize shareholder returns Maximize market share Survival Social responsibility 5

6 SWOT Analysis Favorable Strengths: Unfavorable Weaknesses: Internal External Opportunities: Threats: Strategic Issue Analysis Strengths Opportunities Areas to Leverage Threats Problems Weaknesses Chances lost Vulnerabilities 6

7 Strengths and Weaknesses Checklist do this for every competitor Performance Importance MAJOR MINOR NEUTRAL MINOR MAJOR HI MED LOW STRENGTH STRENGTH WEAKNESS WEAKNESS Marketing 1. Company reputation Market share Customer satisfaction Customer retention Product quality Service quality Pricing effectiveness Distribution effectiveness Promotion effectiveness Sales force effectiveness Innovation effectiveness Geographical coverage Finance 13. Cost/availability of capital Cash flow Financial stability Manufacturing 16. Facilities Economies of scale Capacity Able, dedicated workforce Ability to produce on time Technical manufacturing skill Organization 22. Visionary,capable leadership Dedicated employees Entrepreneurial orientation Flexible or responsive Opportunities and Threats Success Probability Probability of Occurrence Attractiveness High Low High Low Seriousness High Low High Low Opportunities Threats

8 Designing the Business Portfolio Fit company strengths and weaknesses to the opportunities in the environment Analyze current SBU s Which SBU s should receive more, less, or no investment? Develop growth strategies 2. Identify SBUs Single business standing alone from rest of company Having own competitors to equal or surpass Has own manager who is responsible for strategic planning and profit Examples? 8

9 3. Evaluate your Current Portfolio The Boston Consulting Group (BCG) Matrix The General Electric (GE) Approach Portfolio Analysis: The BCG Matrix 9

10 Strategies Associated with the BCG Matrix Business unit strategy: Manage your portfolio Marketing/product strategy: Build Hold Harvest Divest Limitations of the BCG Beyond growth rate: Barriers to entry Long term, stable consumer demand High ROI relative to other options Beyond market share: Technological leadership Related competencies Distribution strength Supplier relationships Management skills Leverage/extend brand equity 10

11 General Electric s stoplight strategy chart Green band = Go signal = Build Market attractiveness High Medium Low High overall attractiveness B C Yellow band = Caution signal = Hold A Medium overall attractiveness Low overall attractiveness Red band = Stop signal = Divest Strong Medium Weak Business position Competitive Analysis Market structure Leader Follower Nicher Defining competition Industry Based Definition Market Based Definition Substitutes 11

12 Porter s Five Forces Bargaining Power of Suppliers Barriers to Potential Entrants Intensity of Competitive Rivalry & Barriers to Exit Substitutes in Other Industries Bargaining Power of Buyers External environment Political trends-- politically correct, partisan Regulatory trends what s (il)legal Economic trends: macro, micro Social and Cultural trends Changing family, immigration Technological trends Other: Demographic trends Natural resources 12

13 Agenda for Competitor Analysis Introduction Competitive Analysis Strengths and Weaknesses Behaviors Competitive Strategy for dealing with competition Game Theory Porter s 5 Forces Framework Competitive Analysis and Strategy Competitive analysis answers What is driving competition in this industry or industries the firm may consider joining? What actions are competitors likely to take, and what are the best responses? How will the industry evolve? in order to set strategy, which answers How should the firm be positioned to compete in the long-run? 13

14 Competitive Analysis Current position and strategy Market share and sales Target market and positioning Marketing mix (4 P s) Manufacturing and R&D Financial strength Capabilities: Ability to Design new products Manufacture Market Finance Manage Future Goals Product portfolio Share or profit Product Differentiation or Cost Leadership Step 2: Market-product focus & goal setting 1. Set market & product objectives 2. Select target markets 3. Find points of difference 4. Position the product 14

15 Step 3: Marketing Programs Product Product Variety Quality Design Features Brand Name Packaging Sizes Services Warranties Returns Price List Price Discounts Allowances Payment Period Credit Terms Marketing Mix Target Market Promotion Sales Promotion Advertising Sales Force Public Relations Direct Marketing Place Channels Coverage Assortments Locations Inventory Transport The Marketing Plan - Integrating the 3 C s and the 4 P s - Current marketing situation (3 C s) Opportunity and issue analysis (3 C s) Objectives Marketing strategy (4 P s) Action programs (4 P s) Project profit-andloss statement Background data on sales, costs, profits, market, competitors, distribution, and environment. Identifies the main opportunities/threats, strengths/weaknesses. Defines plan s financial and marketing goals in terms of sales volume, market share, and profit. Presents the broad marketing approach that will be used to achieve the plan s objectives. Presents the special marketing programs designed to achieve the business objectives. Forecasts the plan s expected financial outcomes. Adapted From: Philip Kotler, Marketing Management, pg

16 Ansoff Product-Market Expansion Grid Existing Markets Existing Products Market Penetration New Products Product Development New Markets Market Development Diversification Strategy: Porter s Five Forces Model Potential Entrants Threat of new entrants Suppliers Bargaining power of suppliers Industry Competitors Bargaining power of customers Customers Rivalry among existing firms Substitutes Threat of substitute offerings Porter s Five Forces Model - Each Force is a Threat 16

17 Existing Rivalry More Intense If: Numerous or equally balanced competitors Slow industry growth High fixed costs Low customer loyalties or switching costs Added capacity comes in large increments Diverse competitors High strategic stakes High exit barriers Specialized assets, emotional barriers, government and social restrictions (e.g., concerns for job losses, etc) Threat of New Entry Barriers to entry Economies of scale Brand loyalties Capital requirements Switching costs independent of loyalties Access to distribution Cost disadvantages independent of scale Market Attractiveness 17

18 Expected Reactions of Firms Conditions that signal strong retaliation Firms with history of retaliation to entrants Firms with substantial resources Cash and unused debt and/or equity capacity Excess productive capacity High leverage with channels or customers Firms with commitment to industry and high levels of idiosyncratic assets employed in it Slow industry growth The Entry Deterring Price Structure of prices that just balances... the potential rewards from entry that are forecast by the potential entrant with the expected costs of overcoming structural barriers to entry and costs of retaliation If prevailing prices exceed the entry deterring price, entry will occur 18

19 Bargaining Power of Customers Customers compete for lower prices Customers tend to be powerful when They represent a large portion of the firm s sales Offerings represent large portion of their expenditures Offerings are undifferentiated Switching costs are low They pose a credible threat of backward integration Quality of offerings is not important to them They have full information Big customers are attractive and dangerous (e.g., Walmart) Bargaining Power of Suppliers Suppliers compete with the industry by trying to force costs higher Suppliers tend to be powerful when They are concentrated There are few substitutes to their offerings The industry is not an important customer of theirs Their offerings are important inputs to the firm s Their offerings are differentiated or there are high switching costs They pose a credible threat of forward integration They have full information 19

20 Customer or Competitor Orientation? Focus on competitors: Aggressive and alert for changes Focus on customers: Align resources to customer needs Which is better? Which is more common? Porter s 4 Generic Business Strategies Source of Competitive Advantage Lower Cost Differentiation Competitive Scope Broad Target Cost Leadership Differentiation Narrow Target Cost Focus Differentiation Focus 20

21 Market Life Cycle High Price Low *Product/Market expansion *Competitive activity *Knowledgeable customers *Selected products / selected markets *Problem solving emphasis *Customer needs knowledge *Product/market proliferation *Market volatility *Aggressive customer Low Cost-to-serve High Changing the players Bring in customers - Increase industry demand. Educate consumers about your product Pay customers (esp. early adopters) Subsidize some customers, other full paying customers will follow (Initial discount to lower risk) Become your own customer Bring in suppliers Bring in complementors Do it yourself. Encourage complementors to come (Banking) Bring in competitors License technology to make money, avoid complacency Create a second source to encourage buyers to adopt technology 21

22 Changing the added value Limit your supply DeBeers and diamonds Raise amount consumers are willing to pay Policies that build loyalty (frequent flier miles) increase willingness to pay - GM / Ford credit cards; Intuit Lower competitors value Questions to ask: What is your added value? How can you increase value by changing supply, buyers, suppliers, complementors, or substitutorsin your value net? What is the value added by other players? Should you be increasing or decreasing their added values? Changing the rules Questions to ask are: Which rules are helping you? Which ones are hurting you? Rules can be for pricing, advertising, product variety, satisfaction, etc. What kinds of contracts are you willing to write with your buyers and suppliers? Do you want Match Competition Clauses? What does this do for you? Do you have the power to change the rules? Does someone else have the power to overturn them? Can you signal your commitment credibly 22

23 Changing tactics Questions to ask are: How do other players perceive the game? How do these perceptions affect the play of the game? Which perception do you want to keep, which to change? Do you want the game to be transparent or opaque? When do you want to send signals that benefit you? When do you want to preserve the fog? To establish credibility (clear the fog) Accept a pay-for-performance contract Offer guarantees or advertise Ask others to demonstrate their credibility to you To preserve the fog Create complexity (long distance calling rates) Bluff: Ask yourself whether you will be believed and under what circumstances Ask what others stand to gain by preserving the fog, and what they could be bluffing about Changing tactics Competitive stances that can be used to clear / add to the fog Appear Tough Appear Soft Being Big Top Dog Fat Cat Being Small Lean & Hungry Puppy Dog 23

24 The Strategy Game Fishbowl. This exercise brings everybody with an ax to grind on a given issue together in one room, with advocates of certain points of view in the center of the Red team / blue team. assign managers to teams representing major competitors and have them plan the strategies they would use to beat us. Future mapping. This is a fancy name for a way of looking at different scenarios for the future. We look at several alternative futures, or "end states," for our business, assign a probability to each one, and identify the forces that will determine whether that scenario will happen. Strategic objectives for share leaders Typically the pioneer or initial entrant Share maintenance objectives Retain current customers by: Maintaining and improving loyalty Encourage / simplify repeat purchase Reduce attractiveness of switching Stimulate selective demand among later adopters Head-to-head positioning against competition Differential positioning against competition 24

25 Strategic choices for share leaders Flanker strategy: Proactive / Reactive Competitor or potential competitor Confrontation Strategy Proactive / Reactive Fortress / Position defense Leader Contraction / Strategic withdrawal Market Expansion Fortress or position defense Primary objective Increase satisfaction, loyalty, repeat purchase Build on strengths to keep current customers; use same tactics to appeal to late adopters Market characteristics Relatively homogeneous market Strong preference for leader s product in the largest segment Competitors characteristics Current / potential competitors have limited resources and competencies Firm s characteristics High awareness and preference for leader s product Marketing and R&D resources exceed competition s. 25

26 Flanker strategy Primary objective Market characteristics Protect against loss of specific segment Develop a second filler entry Attract customers in the segment Two or more major segments with distinct needs and purchase criteria Competitors characteristics One or more current or potential competitors Have resources to implement a differentiation strategy Firm s characteristics Current product weak on at least one attribute for a major segment Firm has resources to develop and launch a second offering for disaffected segment Confrontation strategy Primary objective Protect loss of share among current customers Meet/beatcompetitive offerings head-on Get new customers who may be attracted to competitors Market characteristics Relatively homogeneous market Little preference for leader s product in the largest segment Competitors characteristics One or more potential competitors Sufficient resources and competencies to implement head-to-head strategy Firm s characteristics Current product suffers from low awareness, preference, loyalty in a major segment Firm has resources (R&D, marketing) comparable or greater than competitor 26

27 Market expansion strategy Primary objective Market characteristics Competitors characteristics Firm s characteristics New products or line offerings Aimed at new applications / users Improve ability to retain customers as market fragments Heterogeneous market Multiple product uses requiring different product or service attributes Current / potential competitors have limited resources / competencies in R&D and marketing No offerings in one or more application segments Firm has relative competencies in R&D and marketing Contraction strategy Primary objective Market characteristics Competitors characteristics Increase ability to attract new customers in selected high growth segments Withdraw from slower growing segments to conserve resources Heterogeneous market Segments with different growth potential Multiple product uses requiring different product / service attributes One or more current / potential competitors with resources to mount a strong challenge in growth segments Firm s characteristics Current product suffers from low awareness, preference, loyalty in one or more major growth segment Firm s resources limited vis-a-vis one or more competitor 27

28 Strategic objectives for followers Capture repeat / replacement purchases from current customers of the leader or other target competitor by: Head-to-head positioning against competitor s offering in primary target market (athletic footwear, PCs) Technological differentiation from target competitor s offering in a primary target market Stimulate selective demand among later adopters by: Head-to-head positioning against target competitor s offering in established market segments Differentiated positioning focused on untapped or underdeveloped segments Strategic choices for challengers Leapfrog strategy Flanking attack Guerrilla attacks Target competitor Frontal Attack Challenger Encirclement strategy 28

29 Who should a follower attack? Attack the share leader within its primary target market Most to lose, but also most likely to retaliate - in a few geographic markets? Attack another follower who has an established position within a major market segment Attack one or more smaller competitors who have only limited resources Avoid direct attacks on any established competitor Frontal attack Primary objective Market characteristics Competitors characteristics Firm s characteristics Capture substantial repeat / replacement buyers from target competition Attract new customers from later adopters via better price / features Homogeneous market Little preference or loyalty for existing brands Vulnerable to direct attack Few R&D and marketing resources Stronger R&D, marketing resources than target competitor and / or Lower operating costs 29

30 Leapfrog Primary objective Market characteristics Competitors characteristics Firm s characteristics Induce current buyers to switch to a superior product offering Attract new customers via superior benefits Relatively homogeneous w.r.t. customer needs and purchase criteria Some needs or criteria are currently unfulfilled One or more current competitors has strong marketing competencies but relatively weaker R&D capabilities Firm has proprietary technology Has necessary marketing and production resources to stimulate and meet primary demand for next generation products Flank attack Primary objective Market characteristics Competitors characteristics Attract share of new customers in market segments where needs are different from those of early adopters Two or more segments with distinct needs Needs of at least one segment not currently met Strong target competitor able to withstand direct attack Firm s characteristics Resources limited but sufficient to penetrate and serve at least one major market segment 30

31 Encirclement Primary objective Market characteristics Competitors characteristics Firm s characteristics Attract share of new customers in several smaller, specialized segments whose needs are different from those of early adopters Heterogeneous Some segments not currently served Strong competitors capable of withstanding direct attack Decentralized and adaptable management structure Resources to serve several small segments Guerrilla attack Primary objective Capture modest share of repeat, replacement purchases in several market segments or territories Attract a share of new customers in a number of existing segments Market characteristics Heterogeneous market, several segments Needs of most currently being satisfied by competition Competitors characteristics Number of strong competitors capable of direct attack Firm s characteristics Limited resources Decentralized and adaptable management structure 31

32 Rubbermaid s growth strategy Objectives for the 1990s 1. Corporate objective is to increase sales, earnings, and EPS 15% a year, while achieving a 20% return on shareholders equity 2. Pay approx. 30% of current year earnings as dividends to shareholders while using the remainder to fund future growth 3. Each year, 30% of sales are projected to come from new products introduced over the past 5 years. It is planned to enter an entirely new market every 12 to 18 months 4. The objective for customers and consumers is to offer the best value possible. Highest quality products at a reasonable price, a continuous flow of new products, and exceptional service to customers 5. Treat all constituents fairly and consider the interests of associates as individuals 6. Aim to be an environmentally responsible corporate citizen Rubbermaid s growth strategy Incremental growth Focus on growth within the company s businesses that was responsive to customer needs and in turn, provided value to these customers Leap growth High visibility and high vulnerability Win big or lose big 32

33 Rubbermaid s incremental growth strategy To increase the value of Rubbermaid s existing products. The key to this growth area was in providing value to dealers, distributors, and consumers. The key to value is providing quality, low cost and service To upscale existing products to meet today s consumer and new design preferences. Upscaling includes introducing new colors to existing lines To extend existing lines to capitalize on product successes, increase retail shelf space, and boost sales volume To expand Rubbermaid s international business as a significant growth opportunity during the 1990s Rubbermaid s leap growth strategy To develop new products. Goal is to have at least 30% of annual sales coming from new products introduced during the past 5 years To hone product lines and optimize the number of stock units retained to keep the lines manageable and provide proper customer service le vels To enter entirely new markets. This is consistent with the corporate objective to enter a new market every months To engage in joint ventures or acquisitions to enter new markets by combining the capabilities of a strong outside partner with the many strengths of Rubbermaid 33

34 Implications Value axis High 1 A B Price 2 3 C D Low Low 4 Cost-to-serve High Power axis Growth markets Share gains are easier. Due to Gaps or undeveloped segments in the market Lower risk of retaliation from share leader given growth» Problem: Leader has higher expectations given growth Share gains are worth more Based on the expectation that earnings produced by each share point expands as market expands. This depends critically upon» Changes in technology and other success factors» Competitive structure (large number of new entrants: PC)» Market fragmentation Price competition less intense? Early entry necessary to maintain technical expertise 34

35 Marketing strategies for mature markets Maintain current market share Maximize flow of profits over the remaining life which (could be several decades) Need to maintain repeat purchases via customer satisfaction For large players Use fortress defense to» improve customer satisfaction and loyalty» encourage and simplify repeat purchasing Expand product line or launch flanker brands For small players Avoid prolonged direct confrontation with the big guys Niche strategy Extend volume growth...(later) Marketing strategies for mature markets Extend volume growth Sales depend upon (1) Number of persons buying product (2) Number of units purchased per person (3) How often the product is purchased So, one of the following strategies can be used Increased penetration strategy Increased frequency of use Wider variety of uses Market expansion strategy Underdeveloped domestic markets (BDI / CDI analysis) New customer or application segments Produce private labels Global expansion via sequential strategies 35

36 Marketing strategies for mature markets Assess the relative attractiveness of declining markets Conditions of demand speed of decline, certainty of decline, existence of pockets of enduring demand, extent of product differentiation in market, price stability Exit barriers reinvestment requirements, amount of excess capacity, age of assets, resale market for assets, extent of facilities shares with other SBUs, extent of vertical integration, number of single product competitors Intensity of future competitive rivalry bargaining power of customers, customer switching costs, diseconomies of scale Marketing strategies for mature markets... Divestment or liquidation Strategies for remaining competitors Harvesting Maintenance Profitable survivor Niche 36

37 Problem Not easy to tell when a market has reached maturity Variations in brands, marketing programs, and customer groups can mean that different brands and segments reach maturity at different times Industry stability also affected by threats and opportunities Customer preferences can shift Product substitutes may appear Raw material costs may increase Changes in government regulation Entry of low-cost foreign producers Mergers and acquisitions Product improvements Process technology improvements Other environmental factors Strategic issues Shakeout declining growth rate potential for overestimating future demand, hence over capacity competition intensifies as volume increases needed to cover fixed costs weaker businesses fail, withdraw or acquired Maturity volume stabilizes replacement sales dominate continued satisfaction and loyalty of existing customers key not all segments and all brands reach maturity simultaneously possibility of extending life via new uses, applications or creative marketing Decline divest, liquidate or hang-on? consolidation 37

38 Shakeout Excess capacity More intense competition Difficulty in maintaining differentiation Distribution problems Pressures on prices and profits Strategic traps during shakeout Failure to recognize events signaling the beginning of a shakeout...hence optimistic forecasts Stuck without a clear strategic advantage during shakeout Failure to recognize declining importance of product differentiation and increasing importance of price and / or service Giving up market share in favor of short term profits...hence priced out of the market 38

39 Strategies to beat the commodity magnet Pro-active strategies Value-added strategy Process innovation strategy Reactive strategies Market focus strategy Service innovation strategy Demand side: Value added & Market focus Supply side: Process innovation & Service innovation International Marketing Strategy Strategic Alliances Global Companies International Firm Take our domestic practices overseas Multinational firm Customize strategies to each market Global firm Standardize strategy globally 39

40 Global Market Entry Strategies Exporting Licensing Joint Venture Direct Investment International Environment Trends Political: stability, sentiment Regulatory: trade regulations, tariffs, quotas Economic: exchange rates Social and Cultural: ethnocentrism 40

41 To help evaluate ideas generated The NewProd Scoring Model Sub-factor Product Superiority Unique features for users Reduce customer costs Higher quality than competitors Does unique task for user Priced lower than competition Very Good (10) Good (8) Average (6) Poor (4) Very Poor (2) Sub-factor EP EV EP EV EP EV EP EV EP EV TOTAL Sub-factor Weight EV Evaluation TOTAL 71.4 Steps in the Design Process Opportunity Definition Customer Measurement 1. Qualitative measurement to identify issues 2. Quantitative measurement for input to models Summary of Customer Refinement Perception Product Features Marketing R&D Engineering Production Preference Choice Segments Evaluation What-if Forecasts 1. Aggregate Individuals 2. Awareness & Availability 41