CHAPTER 6

BUSINESS STRATEGIES

BUSINESS STRATEGIES

Strategic Planning

Strategic Options

Global Market-driven

Strategies

Major Marketing

Strategies

STRATEGIC PLANNING

Core Competency

Strategic Alliances

Outsourcing

Sustainable Competitive Advantage

CORE COMPETENCY

The activities that an organization has expertise in and performing very well

• WalMart

•IBM

•Pappas

IBM STRATEGIC ACTIONS

Bought PricewaterhouseCoopers consulting division in 2002

Sold IBM personal computer division in 2005

Reorganized service group in 2005 a) Technical computer services b) Traditional consulting

STRATEGIC ALLIANCES

A win-win strategy where all parties benefit from the relationship

•UH Bauer School and Methodist Hospital

•Toyota and Nissan

•Busch and Tsingtao Beer

OUTSOURCING

Corporate Outsourcing

Global Outsourcing

Microbusiness Outsourcing

CORPORATE OUTSOURCING INTHE UNITED STATES 2005

Manufacturing 170 Billion

Logistics and

Procurement 179 Billion

Information/

Technology 90 Billion

GLOBAL OUTSOURCING

India Dominates

Eastern Europe

Asia

Latin America

SUSTAINABLE COMPETITIVE ADVANTAGE

Obtaining a competitive advantage over a long period of time

•Patents/copyrights

•Brand equity

•Location

PATENTS/COPYRIGHTS

Patents and copyrights are monopoly awards given by the government for new technology and innovations

• Microsoft Windows

•Valium Drugs

•Dead Moneymakers

LOSS OF DRUG PATENT PROTECTION

Company Drug Sales Results

Eli Lilly Prozac Yearly sales

fell 61%

Roche Valium Yearly sales

fell 67%

DEAD MONEYMAKERS2003

Celebrity Millions

Elvis Presley 40

Charles Schulz 32

J. R. R. Tolkien 22

John Lennon 19

BRAND EQUITY

Brand equity is the goodwill of a brand.

•Coca Cola

•Intel

•Toyota

LOCATION

Location is used as a sustainable advantage, particularly in retailing

•Specs Liquor Store

•UH Bookstore

•Flying J Truck Stops

STRATEGIC OPTIONS

Contrasting Business Models

Strategic Decision Choices

SWOT Analysis

Changing Business Models

CONTRASTING BUSINESS MODELS

Traditional Business Model Many Levels of Management Rules are Very Important Focus on Command and Control

Entrepreneurial Model Few Levels of Management Rules are Guidelines Focus on Recognition and Response

ENTREPRENEUR RULES FOR SUCCESS

Focus on the Customer

Keep a Short Turnaround Time

Always Add Value to the Customer

STRATEGIC DECISION CHOICES

Maximizing

Maximizing is where you are trying to get the one best answer.

Satisficing

Satisficing is where you are trying to get a satisfactory (best) answer.

SATISFICING CONTINGENCIES IN MARKETING

Should I introduce a new banking service for immigrants?

Should I introduce Blue Bell Ice Cream nationwide?

Should “Mattress Mac” change his advertising message on TV?

SWOT ANALYSIS

Controllable by Management

Strengths of the Business

Weaknesses of the Business

Not Controllable by Management

Opportunities

Threats

CHANGING BUSINESS MODELS

Southwest Airline

Toyota

Dell

SOUTHWEST AIRLINE BUSINESS MODEL

Use one type of plane - Boeing 737 Avoid hub airports in favor or secondary

airports Concentrate on short-haul flights Use low-fare pricing Emphasize no frill service

DELL BUSINESS MODEL

Minimal R & D

No intermediaries

Minimize inventory

Low operating cost

TOYOTA BUSINESS MODEL

Faster turnaround time for new cars

Outsource manufacturing and assembly

Close high cost manufacturing plants

Revolutionize traditional inventory and supply chain systems

STRATEGIC WEAKNESSES OF GM AND FORD

High Labor, Health, and Retirement Costs

Obsolete Plants in Detroit

High Supply Chain Costs

Weak Customer Focus

OPERATING COST FORPERSONAL COMPUTERS

Dell 10%

H-P 21%

Gateway 25%

THREATENED BUSINESS MODELS

Department Stores Lots of Services

Telephone Companies Physical Phone

Lines

Brokerage Firms Execute Orders

Financial Advice

GLOBAL MARKET-DRIVEN STRATEGIES

Push for Healthy Competition

Meaningful Incentives

Rules for the System

Move To Common Standards

PUSH FOR HEALTHY COMPETITION

Protect small Japanese retailers from international competition

Moscow blocks new Ikea retail store

Rewarding family members in Indonesia

MEANINGFUL INCENTIVES

Reduce the cost of starting a new business in Mexico

Change the incentives in U.S. to inflate short-term profits

Cheaper labor costs encourages outsourcing overseas

RULES FOR THE SYSTEM

Russia Mafia influences

Japan Banking off-book

losses

U.S. CPA auditing rules

MOVE TO COMMON STANDARDS

English as international business language

Common physical measurements

Euro monetary system

Standard container in global shipping

INTERNATIONAL DIFFERENCES

Concept U.S. Other Countries

Time 1-12 am 1:00 - 24:00 1-12 pm

Measurements Feet Meter

Temperature Fahrenheit Centigrade

Driving On Right On Left

MAJOR MARKETING STRATEGIES

Intensive Growth - growth within the organization

Concentrated Niche – one target segment

Multiple Niches – more than one target segment

Market Positioning

Multiple Revenue Streams

INTENSIVE GROWTH

Market Penetration – existing products in existing markets

Product Development – new products in existing markets

Market Development – existing products in new markets

MARKET PENETRATION

Use more of the product

Cross-sell products/services

•Green ketchup

•Arm & Hammerbaking soda

PRODUCT DEVELOPMENT

New products

New services

MARKET DEVELOPMENT

Expand from Houston to all major U.S. cities

Expand overseas

Develop new market for existing products

INTENSIVE GROWTH OF BLUE BELL ICE CREAM

Market Penetration

Increasing share of market for existing products in Houston

Product Development

Introducing a new line of Diet Blue Bell ice cream

Market Development

Enter Oklahoma and Kansas with Blue Bell

CONCENTRATED NICHE

Marketing to one market segment rather than the whole market for a product/service

•Cliff Notes

•Jolt Soda

•Long haul blue jeans

MULTIPLE NICHES

Marketing to more than one market segment rather than the whole market for a product/service

•Procter & Gamble

•General Motors

•Anheuser – Busch

GENERAL MOTORSAUTOMOBILES

Chevrolet Cadillac Buick Pontiac Saturn

MARKET POSITIONING

The perception that a potential buyer has about your product/service versus your competitor’s product/service

•Lite beer

•Gerber

•Barbie doll

MULTIPLE REVENUE STREAMS

Sterling McCall

Wells Fargo Bank

Harry Potter

STERLING MCCALL TOYOTA MULTIPLE REVENUE STREAMS

New automobiles

Used automobiles

Finance contracts

Service department

THREATS TO MULTIPLE REVENUE STREAMS

Car Max vs. New Car dealers

Cartridge World vs. HP cartridge refills

Ditech mortgage vs. local home mortgages

MARKETING MIX

Target Market(s)

Product/ServiceStrategy

DistributionStrategy

PricingStrategy

PromotionStrategy

MARKETING MIX STRATEGIES

Girl Scout Cookies

Prescription Drugs

Long Haul Blue Jeans

GIRL SCOUT COOKIES

Target Market

Product Strategy

Distribution Strategy

Promotion Strategy

Pricing Strategy

DRUG COMPANIES MARKETING MIX

Product

Distribution

Promotion

Pricing

DRUG PRODUCTS

Patent Drugs

Generic Drugs

Over-the-counter Drugs

U.S. HEARTBURN DRUGS

Purchase CostDrugs Pattern per pill Sales

Prilosec Over-the-Counter $.80 304 Million

Prevacid Prescription Only $4.00 2,190 Million

Nexium Prescription Only $4.00 2,100 Million

LOSS OF DRUG PATENTS

Company Drug Sales Results

Eli Lilly Prozac Yearly sales

fell 61%

Roche Valium Yearly sales

fell 67%

U.S. GENERIC DRUG GROWTH(Share of Market)

1984 19%

2002 47%

DRUG DISTRIBUTION

Retail Pharmacies

Employer Buying Group

Medical Insurance Companies

Medicare/Medicaid

Supermarkets

DRUG PROMOTIONS

Advertising

Personal Selling

Sales Promotion

ADVERTISING OF PRESCRIPTION DRUGS IN 2003 (Millions)

Drug Treatment Advertising

Nexium Heartburn 257

Clarinex Allergy 129

Allegra Allergy 125

Viagra Impotency 112

Lipitor Cholesterol 109

PRESCRIPTION DRUG ADVERTISING

1996 .8 Billion

2000 2.5 Billion

PRESCRIPTION DRUG SALES FORCE

1993 35,000

2003 82,000

PRESCRIPTION DRUG SALES PROMOTIONS

Consumers

Doctors

•Drug Coupons•Rebates•Free Samples

•Gifts•Honorarium•Educational Programs

DRUG PRICING

Antibiotics

Claritin tablets

Online in Canada

PRICING OF PRESCRIPTION DRUGSANTIBIOTICS (100 Tablets)

Branded Generic

Product Product

(Abbot) (Mylan)

Price to Retailer $13.27 $4.75

Price to Consumer $18.93 $10.99

Retail Markup 42% 131%

PRICES FOR CLARITIN TABLETS

Availability Time Period Price Range

Prescription Dec. 1997 - $2.50 - $3.00Only Dec. 2002

Over the Jan. 2003 - $0.90 – $1.35Counter May 2003

Generics Enter July 2003 $0.40 – $0.50The Market

ONLINE DRUG PRICES

Drug and Purpose U.S. Price Canada Price

Lipitor $269 $184(Cholesterol)

Tamoxifen $287 $47(Breast Cancer)

Celebrex $133 $68