MARKETING STRATEGY, PLANNING & DEVELOPMENT

Transcription

1 MARKETING STRATEGY, PLANNING & DEVELOPMENT 1 DEFINITION OF ENTREPRENEUR (1) Schumpeter: the entrepreneur and his function are not difficult to conceptualize: the defining characteristic is simply the doing of new things that are already being done in a new way (innovation). It is but natural, and in fact only an advantage, that such a definition does not draw any sharp line between what is and what is not 'enterprise'...it should be observed that the 'new thing' need not be spectacular or of historical importance. It need not be Bessemer Steel or the explosion motor. It can be Deerfoot sausage." Chapter 10 of Joseph A. Schumpeter: The Economics and Sociology of Capitalism, Richard Swedberg (ed). 2 1

2 DEFINITION OF ENTREPRENEUR (2) From Schumpeter s definition, it emerges that: The entrepreneur is an innovator; The entrepreneur creates something that has market opportunities because it satisfies customers needs; As supply exceeds demand, firms should focus on satisfying customers to make profits in the long range. The entrepreneur should create wellness, not just make money, i.e., the exchanges of products/services with customers should not be a zero-sum game. 3 HOW TO MAXIMIZE THE PROFIT? (1) Alternatives at two different levels: Operate in markets where it is possible to obtain high returns of capital (corporate strategy: select and develop the market where a firm will compete); Pursue a competitive advantage in a given market in order to obtain a higher returns of capital compared to the average one in the market. (business strategy: determines the way firm will compete in a given market); 4 2

3 SOURCES OF PROFITABILITY CORPORATE STRATEGY Select markets where to compete BUSINESS STRATEGY How to gain a competitive advantage Industry Attractiveness Competitors Strategy analysis 5 PROCESS OF STRATEGY DEFINITION DEFINITION OF BUSINESS AND TARGETED MARKET ANALYSIS OF THE TARGETED MARKET SWOT ANALYSIS Mission definition; Needs identification; Customers identification; Purchase Behavior analysis; SBU identification. Macroenvironment analysis; Needs identification; Demand estimation. Porter model In each SBU Competitors strategy analysis Weaknesses and strengths Analysis of the business idea. GOALS Position the firm in the competitive context GOALS Assess market attractiveness GOALS Set up a competitive strategy 6 3

4 MISSION BUSINESS DEFINITION MAPPING PRODUCTS TO MARKETS ANSOFF MATRIX DEFINTION MARKETS FIRM SWOT ANALYSIS ANALYSIS OF SUSTAINABLE BUSINESS DEVELOPMENT PORTFOLIO TECHNIQUES GOALS, STRATEGY, CHANGE PLANS 7 A mission statement defines what an organization is, why it exists, its reason for being. At a minimum, the mission statement should define who your primary customers are, identify the products and services you produce, and describe the geographical location in which you operate. The mission represents the guide for the long-term strategy: Who are we? What do we do? Why do we do it? 8 4

5 GOOGLE: Google s mission is to organize the world s information and make it universally accessible and useful. UNILEVER: We work to create a better future every day. SKYPE: Skype s mission is to be the fabric of real-time communication on the web. INDESIT: To be the European leader, producing technological solutions compatible with the environment, to create quality of time for people day after day" Indesit Company's mission can be summed up by its Brand Essence: Simply better. OPTISSIMO GRUPPO RANDAZZO: La nostra missione è creare valore per il Cliente e per il Gruppo fornendo le migliori soluzioni ai bisogni legati alla vista, alla protezione degli occhi, al piacere ed al piacersi, grazie alla forza della nostra professionalità ed esperienza, della nostra storia di innovazione e della nostra straordinaria passione. 9 STRATEGIC BUSINESS UNIT SBU (STRATEGIC BUSINESS UNIT): SBU is a profit making area that focuses on a combination of product offer and market segment, requiring its own marketing plan, competitor analysis, and marketing campaign. As SBUs are profit centers, the profit performances of a multi- SBUs company depends on the sum of the outcomes achieved in every single SBU and the ability of the firm to aggregate such outcomes. SBU definition: Identifies the targeted market; Identifies the competitors; Identifies new opportunities; Allows to develop specific strategies. Example: SBUs of companies such as Unilever, P&G, Reliance Industries Limited (this one, from textile to chemicals, oil, retail banking, telecom) 10 5

6 SBU definition is strategic: A too restrictive definition can lead to myopic strategies, not fully exploiting market opportunities. On the other hand, a too wide definition does not allow a focused strategy, with the risk of underrating competitors. Porfolio analysis and management techniques requires to measure the SBU attractiveness and the competitive position of the firm in the SBU. 11 According to Abell the SBU is identified by three dimensions: The customer groups the business unit serves. The functions the business unit fulfills for these customer groups. The technologies (as perceived by customers) deployed to realize these functions. 12 6

7 13 Clothing cleaning Through washing machine Kitchenware cleaning by washing machine Kitchenware hand washing Clothing hand-washing Powder Home cleaning Tablet Families Individuals Communities Liquid 14 7

8 Functions Paper Plastics Glass Preservation Protection Image/ Status Business Customer groups Alternative Technologies Cleaner Producers Milk Producers Wine Producers 15 Firm A produces wood-based furniture for offices, banks, residential apartments; Firm B produces metal-based furniture for offices; Firm C produces plastics-based furniture for schools. The projection of the SBU on the diagram Functions Segments (i.e. Product-Market Matrix) defines the market macro-segmentation. If in the same projection the products realized with different technologies are reported, it means that substitutes are also considered. 16 8

9 INTERSECTIONS IN THE SBU (1) what who how Firms offering products that satisfy the same needs/wants and adopting the same technology are the restricted competitive arena 17 INTERSECTIONS IN THE SBU (2) what who Firms offering products that satisfy the same needs/wants and adopting different technologies are the enlarged competitive arena how 18 9

10 INTERSECTIONS IN THE SBU (3) what who MARKET MACRO-SEGMENTATION: THE PRODUCT- MARKET MATRIX how 19 A starting point for definition of business development strategies is relared to the strategy firm aims at pursuing in the H. J. Ansoff matrix (productmarket matrix)

11 The market penetration strategy aims at increasing sales more rapidly that industry sales. Firms can leverage on marketing mix to reach this purpose. The market development strategy can be viewed as a strategy aimed at extending the business to further geographical markets or extending to further market segments. In the latter case, firms should consider modifying or introducing a new marketing mix for a new or further positioning. The product development strategy focuses on R&D activities to introduce new products based on new technologies. 21 The diversification strategy integrates both market and product perspectives, representing the highest level of innovation in terms of both product technical features and marketing strategic and operational decisions. The diversification strategy can be distinguished in two different approaches: - Horizontal or vertical, i.e. firms integrate business activities which are complementary, similar or belonging to the same value-chain to the current business activity in order to exploit internally existing competences and know-how (e.g. IBM, Siemens, Barilla, Apple, etc ) - Conglomerate, i.e. firms integrate business activities which unrelated to their current business activities (e.g., some tobacco industries (Altria Group) which have purchased food/beverage companies, Virgin FIAT, Reliance Ltd, etc ). Require managerial capabilities for financial resources allocation among businesses and there is lack of focus, but business risk is scattered among different businesses

12 SWOT ANALYSIS Strength - Weakness - Opportunities -Threats Internal Analysis STRATEGY PESTLE Analysis PORTER S MODEL 23 SWOT ANALYSIS Examples (1) 24 12

13 SWOT ANALYSIS Examples (2) 25 Portfolio techniques for corporate strategy planning provide a support for answering to questions such as the following: Should the company be in a given business? Should the company dismiss a given business unit? Should the company develop a given business unit? Should the company buy a certain business unit? Therefore, such techniques aim at supporting the financial resources allocation process among different business units in order to develop those that appear to be more promising in terms of profitability

14 It had been created by Bruce Henderson for the Boston Consulting Group in 1968 to help corporations with analyzing their business units or product lines. This helps the company allocate resources and is used as an analytical tool in brand marketing, product management, strategic management, and portfolio analysis. X-axis: relative market share; Y-axis: market growth rate. In such a chart different businesses/products are visualized by circles centered at (x,y) and with size proportional to revenue it generates. A development of the matrix is to reflect the relative profit contribution of each division and this is shown as a piesegment within the circle

15 Let: be the market share and the unit production cost of firm A with respect to its own main competitor B, respectively. The value of the market share is equal to the ration of the cumulative volumes, if for both firms the annual growth rate of the sales is the same. 29 From the experience curve equation we obtain: So an equal increment of the relative market share (in log expression) corresponds to an equal decrement in the production cost (in log expression)

16 High market growth rates requires high level of investments (both fixed assets and working capital) in order to increase or maintain the relative market share. When market growth rate decreases, there is less need to financial resources and therefore, the sales of the products will generate a cash flow which will be higher, the higher the cumulative market share. 31 The X-axis represents also the ability of the given business unit to generate liquidity. The higher the relative market share, the lower the production cost and, all else being equal, the margin will be higher

17 When market growth rate decreases, there is less need to financial resources and therefore, the sales of the products will generate a cash flow which will be higher, the higher the cumulative market share. Y-axis represents the extent of liquidity absorption

18 Question marks are products that grow rapidly and as a result consume large amounts of cash, but because they have low market shares they don t generate much cash. The result is a large net cash consumption. A question mark has the potential to gain market share and become a star, and eventually a cash cow when the market growth slows. If it doesn t become a market leader it will become a dog when market growth declines. Question marks need to be analysed carefully to determine if they are worth the investment required to grow market share. 35 Stars generate large sums of cash because of their strong relative market share, but also consume large amounts of cash because of their high growth rate. So the cash being spent and brought in approximately nets out. If a star can maintain its large market share it will become a cash cow when the market growth rate declines

19 As leaders in a mature market, cash cows exhibit a return on assets that is greater than the market growth rate so they generate much more cash than they consume. These units should be milked extracting the profits and investing as little as possible. They provide the cash required to turn question marks into market leaders. 37 Dogs have a low market share and a low growth rate and neither generate nor consume a large amount of cash. However, dogs are cash traps because of the money tied up in a business that has little potential. Such businesses are candidates for divestiture. Strategic price reduction to damage the leader company

20 39 BCG MATRIX AN EXAMPLE 40 20

21 Market Competitors Technology Social/Political 41 Industry attractiveness Weights Evaluation Score INDUSTRY REVENUE MARKET GROWTH PROFIT MARGIN COMPETITION LEVEL TECHNOLOGY REQUIREMENTS INFLATION ENERGY REQUIREMENTS ENVIRONMENTAL IMPACT 42 21

22 MARKET SHARE MARKET PENETRATION CUSTOMER LOYALTY PRODUCT QUALITY BRAND REPUTATION DISTRIBUTION CHANNELS PROMOTIONAL EFFECTIVENESS PRODUCTION CAPACITY PRODUCTION EFFICIENCY UNIT PRODUCTION COSTS SUPPLY SOURCES R&D MANAGEMENT STYLE Competitive strength Weights Evaluation Score

23 BCG: It is not always true that by increasing the relative market share the cash flow increases (i.e., experience curves might not always be in place). There are studies showing that companies using BCG matrix for corporate strategy have low profitability (e.g. Slater and Zwirlein, 1992). GE: Multifactorial matrix with subjective evaluation. 45 MARKET SHARE % FIRM CRITICAL FACTORS OF SUCCESS TECHNICAL PRODUCT FEATURES BRAND IMAGE weight Average score score DISTRIBUTION CHANNELS EXPERIENCE FINANCIAL RESOURCES TOTAL SCF score SCF average score Prof. Paolo Roma Marketing Class slides - Academic Year

24 SCF score SCF average score Map of competitive position considering the SCF of companies Prof. Paolo Roma Marketing Class slides - Academic Year Product Prof. Paolo Roma Marketing Class slides - Academic Year

25 Product Prof. Paolo Roma Marketing Class slides - Academic Year Dynamic competitive analysis Lose market share Maintain market share Product Market Share Variation Market growth Win market share Product growth Prof. Paolo Roma Marketing Class slides - Academic Year