Identifying Alternative stragy

Ansoff’s Product Market Matrix:

Theodore Levitt (Article : Marketing Myopia) argued that a firm should not only deliver products based on its distinctive competence. Rather, it should serve the customer and adapt to changing tastes & needs of customer. If they fail to develop new marketing initiative and product, they themselves will not last long.

Ansoff, on the other head, argued that, firms would take unnecessary risks by developing new products not fitting into its distinctive competence. A firm should first ask whether new product has a “common thread” with its existing products / existing mission.

Present Product New Product

Present mission/Market

Market Penetration (Concentration)

Product Development(New Product to same segments)

New Mission/Market

Market Development

(New Segment)

Diversification (New Product, New Segments)

Grand Strategies (master/business strategies)Intended to provide basic direction for strategic action.

Grand Strategy is a unique package of long term strategies for a firm, which forms the basis for co-ordinated and continuous efforts to achieve its long term objectives. The grand strategy provides the framework for the entire business portfolio of the firm.

1. Concentration

Resources directed to a SINGLE PRODUCT in a SINGLE MARKET with a SINGLE DOMINATING TECHNOLOGY

Advantage – It leads to enhanced performance.

Alternatives available -1) Focus on customer

(increase usage/purchase size/frequency).2) Attract competitor’s customers

(price cut, promotional efforts)3) Attract non-users (advertise new uses).4) Focus on product (differentiation, develop new uses,

change styles/colors). 5) Focus on technology

(new eqpt.to improve efficiency, use of by-products).

Risky - If environment is unstable or changes.Better suited - If the product/technology is superior.

2. Market Development –

Marketing present products (with minor modifications) to customers in related market areas, by adding channels of distribution / promotion, etc. Identify new uses for existing products, or develop new markets segments (demographically, psycho graphically and geographically.

3. Product Development - substantial modification in

existing products for the current customers.

Purpose - To prolong life cycle of current product.

Taking advantage of good brand image.

To attract satisfied customers to new products.

Options - a) developing new products features

(modify,change color/sound, miniaturize/magnify).

b) Develop quality variations (Fevicol & Parcol).

c) Develop addl. models/sizes (Product Proliferation). 4. Innovation - to create new product life cycle and thereby

making similar product obsolete.

5. Horizontal Integration – growth through acquisition of similar

firm operating at same stage of production/marketing chain.

e.g. Bank of Madura merger with ICICI,

TOMCO merged with HLL

Reasons - To increase market share. Benefits of Synergy.

To reduce Cost of Op. through large scale economics.

Greater access to distribution channels.No Integration

Raw Materials

IntermediateManufacturing

Assembly

Distribution

End Customer

Backward Integration

Raw Materials

IntermediateManufacturing

Assembly

Distribution

End Customer

Forward Integration

Raw Materials

IntermediateManufacturing

Assembly

Distribution

End Customer

6. Vertical Integration - acquiring new products / services, complementary to the existing ones, at different levels.

Two issues to be considered (to decide whether to vertically integrate) are cost and control.

Cost aspect depends on the cost of market transactions between firms versus the cost of administering the same activities internally within a single firm.

The second issue is the impact of asset control, which can impact barriers to entry and which can assure cooperation of key value-adding players.

Benefits of Vertical Integration

Reduce transportation costs if closer geographic proximity. Improve supply chain coordination. Increased control over inputs. Capture upstream or downstream profit margins. Increase entry barriers to potential competitors, Gain access to downstream distribution channels Facilitate investment in highly specialized assets Lead to expansion of core competencies.

Backward Integration – 7 Up - owning lemon tree orchards.

Adv.- Regular and uninterrupted supply of raw mat.

Economies of large scale operations. Quality control of raw materials. Increase of power of negotiation with suppliers.

Forward Integration – 1. PC maker taking over retail store.2. Zee TV starting DISH TV

Adv. – Control over sales price and level of output.

Own network of consumer feedback.

7. Tapered Integrates: In addition to the take-over of supplier,

Suppliers CustomersBA C

Suppliers CustomersBA C

Full Integration

Taper Integration

you also have outside suppliers.

Adv.: Using ext. supplier’s cost as a yardstick for internal supplier (check point), lesser capital investment,

8. Quasi Integration : allows a degree of managerial control over aspects of the activities of their suppliers or buyers without taking an ownership position in these firms.

Alliance bet. vertically related businesses

Somewhere between: Long Term contract and full ownership.

Lesser capital investment for achieving integration

Both partners enjoy specialization

(e.g. Manufacturer & Logistic provider)

Some of the forms are: Minority equity investment, Loans or Loan guarantees, Pre-purchase credits, exclusive dealing agreements, Cooperative R&D etc.,

Advantages: Can achieve the benefits of vertical integration without incurring all costs, can create greater interest

between the parties, lowering unit costs and reducing the risk of demand /supply interruptions

Quasi integration does not require full capital investment for achieving integration

9. Joint Ventures - Partnerships to carry out a specific project

in a selected area of business. When ?- If activity is uneconomical to do alone.

Risk to be shared. Distinctive Competence of both firms pulled

together (mutual benefit) Problems of JV-

Risk of losing control over technology. Lack of coordination between partners.

10. Concentric Diversification - development of new areas, clearly distinct from current businesses.

Why? - to reduce the risk associated with a a single product (e.g. - A snow ski manufacturer acquiring water ski mfg.

Firm. This move will remove cyclicality of sale.)

11. Conglomerate Diversification - New business area with no business connection with the existing areas.

(ITC entering into Hotel business).Benefits – Reduction in risk, particularly if the industry is subjected to rapid environmental changes.

Financial stability

Retrenchment Strategies –

When the firm’s survival is at stake, due to poor economic conditions, inefficiency, inability to implement latest technology, excessive competition.

12. Divestiture - Sell of a firm or its major component.

3 approaches- a) Spinning off a part of the business.b) Selling complete business unit.c) Closing down/transfer of firm’s operations.

Causes – Market share is negligible to earn desired profit. Limited resources to allocate. If cash outflows are more than cash inflows. Inability to meet competition/technology changes. To allow remaining business to survive. To abide by provisions of law/political factors.

13. Liquidation – closing down a business and selling its assets (when the industry is unattractive and the

company too weak to be sold as a going concern).Reasons –

a. Small businesses liquidate if partner withdraws.b. Assets are more worthwhile than the ROI of business.

Consequences – Government discouragement. Not welcome by employees/unions/stake holders. Difficult to find buyer, due to large finance.

LONG -TERM OBJECTIVES & STRATEGY-SETS

The strategy planners seek to achieve following seven objectives and formulate strategies accordingly:

Profitability-ROI or EPS.

Public responsibility (responsible corporate citizens).

Productivity.

Competitive position (to dominate market place).

Employee development (value growth and career opportunities).

Employee relations – through ESOPs, safety programs, welfare measures.

Technological leadership.