Corporate Strategy Lession 2 Tools

8/2/2019 Corporate Strategy Lession 2 Tools

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PEST ANALYSIS

PEST analysis is very important that an organization considers its environment before beginning the

marketing process. In fact, environmental analysis should be continuous and feed all aspects of planning.

The organization's marketing environment is made up from: PEST analysis stands for "Political,

Economic, Social, and Technological analysis" and describes a framework of macroenvironmental factors

used in environmental scanning. It is also referred to as the STEP, STEEP or PESTLE analysis (Political,

Economic, Socio-cultural, Technological, Legal, Ethical).

It is a part of the external analysis when doing market research and gives a certain overview of the

different macroenvironmental factors that the company has to take into consideration. Political factors

include areas such as tax policy, employment laws, environmental regulations, trade restrictions and

tariffs and political stability. The economic factors are the economic growth, interest rates, exchange

rates and inflation rate. Social factors often look at the cultural aspects and include health consciousness,

population growth rate, age distribution, career attitudes and emphasis on safety. The technological

factors also include ecological and environmental aspects and can determine the barriers to entry,

minimum efficient production level and influence outsourcing decisions. It looks at elements such as R&D

activity, automation, technology incentives and the rate of technological change.

1. The internal environment e.g. staff (or internal customers), office technology, wages and finance, etc.

2.The microenvironment e.g. our external customers, agents and distributors, suppliers, ourcompetitors,

etc.

3.The macro-environment e.g. Political (and legal) forces, Economic forces, Socio cultural forces,and

Technological forces. These are known as PEST factors.

Political Factors

The political arena has a huge influence upon the regulation of businesses, and the spendingpower of consumers and other businesses. You must consider issues such as:

l.How stable is the political environment?

Z.Will government policy influence laws that regulate or tax your business?

S.What is the government's position on marketing ethics?

4. What is the government's policy on the economy?

5. Does the government have a view on culture and religion?

6. Is the government involved in trading agreements such as EU, NAFTA, ASEAN, or others?

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CORPORATE STRATEGY AND PLANNING TUTORIAL 1 LAST UPDATED - 02/01/2011
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Economic Factors

Marketers need to consider the state of a trading economy in the short and long-terms. This is especially true

when planning for international marketing. You need to look at:

1. Interest rates

2. The level of inflation Employment level per capita

3. Long-term prospects for the economy Gross Domestic Product (GDP) per capita, and so on

Sociocultural Factors

The social and cultural influences on business vary from country to country. It is very important that such factors

are considered. Factors include:

l.What is the dominant religion?

2.What are attitudes to foreign products and services?

3.Does language impact upon the diffusion of products onto markets?

4.How much time do consumers have for leisure?

S.What are the roles of men and women within society?

6.How long are the population living? Are the older generations wealthy?

7.Do the population have a strong/weak opinion on green issues?

Technological Factors

Technology is vital for competitive advantage, and is a major driver of globalization. Consider the

following points:

1. Does technology allow for products and services to be made more cheaply and to a better standard of quality?

2.Do the technologies offer consumers and businesses more innovative products and services such as Internet

banking, new generation mobile telephones, etc?

3.How is distribution changed by new technologies e.g. books via the Internet, flight tickets, auctions, etc?

4.Does technology offer companies a new way to communicate with consumers e.g. banners, Customer

Relationship Management (CRM), etc?

SCENARIO PLANNING

Nishan Wimalachandra MABE, MAFE W: www.nishanw.org E: [email protected] M: 0773 236 237 Page 2



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Traditional forecasting techniques often fail to predict significant changes in the firm's external environment,especially when the change is rapid and turbulent or when information is limited. Consequently, importantopportunities and serious threats may be overlooked and the very survival of the firm may be at stake.Scenario planning is a tool specifically designed to deal with major, uncertain shifts in the firm'senvironment.

Scenario planning has its roots in military strategy studies. Herman Kahn was an early founder of scenario-based planning in his work related to the possible scenarios associated with thermonuclear war ("thinking

the unthinkable"). Scenario planning was transformed into a business tool in the late 1960's and early1970's, most notably by Pierre Wack who developed the scenario planning system used by RoyalDutch/Shell. As a result of these efforts, Shell was prepared to deal with the oil shock that occurred in late1973 and greatly improved its competitive position in the industry during the oil crisis and the oil glut thatfollowed.

Scenario planning is not about predicting the future. Rather, it attempts to describe what is possible. Theresult of a scenario analysis is a group of distinct futures, all of which are plausible. The challenge then ishow to deal with each of the possible scenarios.

Scenario planning often takes place in a workshop setting of high level executives, technical experts, andindustry leaders. The idea is to bring together a wide range of perspectives in order to consider scenariosother than the widely accepted forecasts. The scenario development process should include interviews with

managers who later will formulate and implement strategies based on the scenario analysis - without theirinput the scenarios may leave out important details and not lead to action if they do not address issuesimportant to those who will implement the strategy.

Some of the benefits of scenario planning include:

Managers are forced to break out of their standard world view, exposing blind spots that might otherwise beoverlooked in the generally accepted forecast.

Decision-makers are better able to recognize a scenario in its early stages, should it actually be the one thatunfolds.

Managers are better able to understand the source of disagreements that often occur when they areenvisioning different scenarios without realizing it.

The Scenario Planning Process

The following outlines the sequence of actions that may constitute the process of scenario planning.

1. Specify the scope of the planning and its time frame.2. For the present situation, develop a clear understanding that will serve as the common departure

point for each of the scenarios.3. Identify predetermined elements that are virtually certain to occur and that will be driving forces.4. Identify the critical uncertainties in the environmental variables. If the scope of the analysis is wide,

these may be in the macro-environment, for example, political, economic, social, and technological

factors (as in PEST).

5. Identify the more important drivers. One technique for doing so is as follows. Assign eachenvironmental variable two numerical ratings: one rating for its range of variation and another forthe strength of its impact on the firm. Multiply these ratings together to arrive at a number that




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specifies the significance of each environmental factor. For example, consider the extreme case inwhich a variable had a very large range such that it might be rated a 10 on a scale of 1 to 10 forvariation, but in which the variable had very little impact on the firm so that the strength of impactrating would be a 1. Multiplying the two together would yield 10 out of a possible 100, revealing thatthe variable is not highly critical. After performing this calculation for all of the variables, identify thetwo having the highest significance.

6. Consider a few possible values for each variable, ranging between extremes while avoiding highlyimprobable values.

7. To analyze the interaction between the variables, develop a matrix of scenarios using the two mostimportant variables and their possible values. Each cell in the matrix then represents a singlescenario. For easy reference in later discussion it is worthwhile to give each scenario a descriptivename. If there are more than two critical factors, a multidimensional matrix can be created to handlethem but would be difficult to visualize beyond 2 or 3 dimensions. Alternatively, factors can be takenin pairs to generate several two-dimensional matrices. A scenario matrix might look something likethis:

One of these scenarios most likely will reflect the mainstream views of the future. The other scenarios willshed light on what else is possible.

8. At this point there is not any detail associated with these "first-generation" scenarios. They aresimply high level descriptions of a combination of important environmental variables. Specifics canbe generated by writing a story to develop each scenario starting from the present. The story shouldbe internally consistent for the selected scenario so that it describes that particular future asrealistically as possible. Experts in specific fields may be called upon to devlop each story, possiblywith the use of computer simulation models. Game theory may be used to gain an understanding ofhow each actor pursuing its own self interest might respond in the scenario. The goal of the storiesis to transform the analysis from a simple matrix of the obvious range of environmental factors intodecision scenarios useful for strategic planning.

9. Quantify the impact of each scenario on the firm, and formulate appropriate strategies.




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An additional step might be to assign a probability to each scenario. Opinions differ on whether one shouldattempt to assign probabilities when there may be little basis for determining them.

Business unit managers may not take scenarios seriously if they deviate too much from their preconceivedview of the world. Many will prefer to rely on forecasts and their judgement, even if they realize that theymay miss important changes in the firm's environment. To overcome this reluctance to broaden theirthinking, it is useful to create "phantom" scenarios that show the adverse results if the firm were to base itsdecisions on the mainstream view while the reality turned out to be one of the other scenarios.

FIVE FORCES ANALYSIS

Analysing the environment - Five ForcesAnalysis

Five Forces Analysis helps the marketer tocontrast a competitive environment. It hassimilarities with other tools forenvironmental audit, such as PESTanalysis, but tends to focus on the single,stand alone, business or SBU (StrategicBusiness Unit) rather than a single product

or range of products. For example, Dellwould analyse the market for BusinessComputers i.e. one of its SBUs.

Five forces analysis looks at five key areasnamely the threat of entry, the power ofbuyers, the power of suppliers, the threat ofsubstitutes, and competitive rivalry.

The threat of entry.

Economies of scale e.g. the benefits associated with bulk purchasing.

The high or low cost of entry e.g. how much will it cost for the latest technology?

Ease of access to distribution channels e.g. Do our competitors have the distribution channels sewnup?

Cost advantages not related to the size of the company e.g. personal contacts or knowledge thatlarger companies do not own or learning curve effects.

Will competitors retaliate?

Government action e.g. will new laws be introduced that will weaken our competitive position?

How important is differentiation? e.g. The Champagne brand cannot be copied. This desensitisesthe influence of the environment.

The power of buyers

This is high where there a few, large players in a market e.g. the large grocery chains.




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If there are a large number of undifferentiated, small suppliers e.g. small farming businessessupplying the large grocery chains.

The cost of switching between suppliers is low e.g. from one fleet supplier of trucks to another.

The power of suppliers

The power of suppliers tends to be a reversal of the power of buyers.

Where the switching costs are high e.g. Switching from one software supplier to another.

Power is high where the brand is powerful e.g. Cadillac, Pizza Hut, Microsoft.

There is a possibility of the supplier integrating forward e.g. Brewers buying bars.

Customers are fragmented (not in clusters) so that they have little bargaining power e.g. Gas/Petrolstations in remote places.

The threat of substitutes

Where there is product-for-product substitution e.g. email for fax Where there is substitution of neede.g. better toothpaste reduces the need for dentists.

Where there is generic substitution (competing for the currency in your pocket) e.g. Video suppliers

compete with travel companies. We could always do without e.g. cigarettes.

Competitive Rivalry

This is most likely to be high where entry is likely; there is the threat of substitute products, andsuppliers and buyers in the market attempt to control. This is why it is always seen in the center ofthe diagram.

Customers are fragmented (not in clusters) so that they have little bargaining power e.g.

Gas/Petrol stations in remote places.

MARKET SEGMENTATION

Market segmentation is the identification of portions of the market that are different from one another.Segmentation allows the firm to better satisfy the needs of its potential customers.

The Need for Market Segmentation

The marketing concept calls for understanding customers and satisfying their needs better than thecompetition. But different customers have different needs, and it rarely is possible to satisfy all customers bytreating them alike.

Mass marketing - refers to treatment of the market as a homogenous group and offering the samemarketing mix to all customers. Mass marketing allows economies of scale to be realized through massproduction, mass distribution, and mass communication. The drawback of mass marketing is that customer

needs and preferences differ and the same offering is unlikely to be viewed as optimal by all customers. Iffirms ignored the differing customer needs, another firm likely would enter the market with a product thatserves a specific group, and the incumbant firms would lose those customers.




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Target marketing - on the other hand recognizes the diversity of customers and does not try to please all ofthem with the same offering. The first step in target marketing is to identify different market segments andtheir needs.

Requirements of Market Segments

In addition to having different needs, for segments to be practical they should be evaluated against thefollowing criteria:

Identifiable: the differentiating attributes of the segments must be measurable so that they can beidentified.

Accessible: the segments must be reachable through communication and distribution channels.

Substantial: the segments should be sufficiently large to justify the resources required to target them.

Unique needs: to justify separate offerings, the segments must respond differently to the different marketingmixes.

Durable: the segments should be relatively stable to minimize the cost of frequent changes.

A good market segmentation will result in segment members that are internally homogenous and externallyheterogeneous; that is, as similar as possible within the segment, and as different as possible between segments.

Bases for Segmentation in Consumer Markets

Consumer markets can be segmented on the following customer characteristics.

Geographic

Demographic

Psychographic

Behavioralistic

Geographic Segmentation

The following are some examples of geographic variables often used in segmentation.

Region: by continent, country, state, or even neighborhood

Size of metropolitan area: segmented according to size of population

Population density: often classified as urban, suburban, or rural




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Climate: according to weather patterns common to certain geographic regions

Demographic Segmentation

Some demographic segmentation variables include:

Age, Gender, Family size, Family lifecycle,Generation: baby-boomers, Generation X, etc., Income, Occupation,Education, Ethnicity, Nationality, Religion and Social class

Many of these variables have standard categories for their values. For example, family lifecycle often is expressedas bachelor, married with no children (DINKS: Double Income, No Kids), full-nest, empty-nest, or solitary survivor.Some of these categories have several stages, for example, full-nest I, II, or III depending on the age of thechildren.

Psychographic Segmentation

Psychographic segmentation groups customers according to their lifestyle. Activities, interests, and opinions (AIO)surveys are one tool for measuring lifestyle. Some psychographic variables include:

E.g. Activities, Interests, Opinions, Attitudes, Values

Behavioralistic Segmentation

Behavioral segmentation is based on actual customer behavior toward products. Some behavioralistic variablesinclude:

Benefits sought, Usage rate, Brand loyalty, User status: potential, first-time, regular, etc., Readiness to buy,Occasions: holidays and events that stimulate purchases.

Behavioral segmentation has the advantage of using variables that are closely related to the product itself. It is afairly direct starting point for market segmentation.

Bases for Segmentation in Industrial Markets

In contrast to consumers, industrial customers tend to be fewer in number and purchase larger quantities. Theyevaluate offerings in more detail, and the decision process usually involves more than one person. Thesecharacteristics apply to organizations such as manufacturers and service providers, as well as resellers,governments, and institutions.

Many of the consumer market segmentation variables can be applied to industrial markets. Industrial marketsmight be segmented on characteristics such as:

Location, Company type, Behavioral characteristics,

Location

In industrial markets, customer location may be important in some cases. Shipping costs may be a purchasefactor for vendor selection for products having a high bulk to value ratio, so distance from the vendor may becritical. In some industries firms tend to cluster together geographically and therefore may have similar needswithin a region.

Company Type, Business customers can be classified according to type as follows:




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Company size, Industry, Decision making unit, Purchase Criteria,

Behavioral Characteristics

In industrial markets, patterns of purchase behavior can be a basis for segmentation. Such behavioralcharacteristics may include:

Usage rate, Buying status: potential, first-time, regular, etc., Purchase procedure: sealed bids, negotiations, etc.

COMPETITOR ANALYSIS

Competitor analysis in Corporate Strategy is an assessment of the strengths and weaknesses of currentand potential competitors.

Competitor array

One common and useful technique is constructing a competitor array. The steps include:

define your industry - scope and nature of the industry determine who your competitors are

determine who your customers are and what benefits they expect

determine what the key success factors are in your industry

rank the key success factors by giving each one a weighting - The sum of all the weightings mustadd up to one.

rate each competitor on each of the key success factors - this can best be displayed on a twodimensional matrix - competitors along the top and key success factors down the side.

multiply each cell in the matrix by the factor weighting.

sum columns for a weighted assessment of the overall strength of each competitor relative to eachother.

An example of a competitor array follows:

Key IndustrySuccess Factors

WeightingCompetitor # 1

ratingCompetitor #1

weightedCompetitor #2

ratingCompetitor #2

weighted

1 - Extensivedistribution

.4 6 2.4 3 1.2

2 - Customerfocus

.3 4 1.2 5 1.5


http://en.wikipedia.org/wiki/Competitorhttp://en.wikipedia.org/wiki/Competitor


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3 - Economies ofscale

.2 3 .6 3 .6

4 - Productinnovation

.1 7 .7 4 .4

Totals 1.0 20 4.9 18 3.7

Based on material presented in "Beat the Competition: How to Use Competitive Intelligence to DevelopWinning Business Strategies", Ian Gordon, Basil Blackwell Publishers, Oxford, UK, 1989.

In this example competitor #1 is rated higher than competitor #2 on product innovation ability (7 out of 10,compared to 4 out of 10) and distribution networks (6 out of 10), but competitor #2 is rated higher oncustomer focus (5 out of 10). Overall, competitor #1 is rated slightly higher than competitor #2 (20 out of 40compared to 18 out of 40). When the success factors are weighted according to their importance, competitor#1 gets a far better rating (4.9 compared to 3.7).

Two additional columns can be added. In one column you can rate your own company on each of the keysuccess factors (try to be objective and honest). In another column you can listbenchmarks. They are theideal standards of comparisons on each of the factors. They reflect the workings of a company using all theindustry's best practices.

Marketing

o segments served, market shares, customer base, growth rate, and customer loyalty

o promotional mix, promotional budgets, advertising themes, ad agency used, and salesforce success rate

o distribution channels used, exclusivity agreements, alliances, and geographical coverageo pricing, discounts,and allowances

Facilities

o plant capacity, capacity utilization rate, age of plant, plant efficiency, capital investment

o location, shipping logistics, and product mix by plant

Personnelo number of employees, key employees, and skill sets

o strength of management, and management style

o compensation, benefits, and employee morale

Corporate and marketing strategies

o objectives, mission statement, growth plans, acquisitions, and divestitures

o marketing strategies

MEDIA SCANNING

We can learn a lot about the competitive environment by scanning our competitors' ads. Changes in a

competitor's advertising message can reveal new product offerings, new production processes, a new

branding strategy, a new positioning strategy, a new segmentation strategy, line extensions andcontractions, problems with previous positions, insights from recent marketing or product research, a

new strategic direction, a new source of sustainable competitive advantage, or value migrations within the

industry. It might also indicate a new pricing strategy such as penetration, price discrimination, price

skimming, product bundling, joint product pricing, discounts, or loss leaders. It may also indicate a new

promotion strategy such as push, pull, balanced, short term sales generation, long term image creation,

informational, comparative, affective, reminder, new creative objectives, new unique selling proposition,

new creative concepts, appeals, tone, and themes, or a new advertising agency. It might also indicate a

new distribution strategy, new distribution partners, more extensive distribution, more intensive

distribution, a change in geographical focus, or exclusive distribution. Little of this intelligence is

definitive : additional information is needed before conclusions should be drawn.Nishan Wimalachandra MABE, MAFE W: www.nishanw.org E: [email protected] M: 0773 236 237 Page 10

http://en.wikipedia.org/wiki/Benchmarkinghttp://en.wikipedia.org/wiki/Benchmarking


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A competitor's media strategy reveals budget allocation, segmentation and targeting strategy, and

selectivity and focus. From a tactical perspective, it can also be used to help a manager implement

his/her own media plan. By knowing the competitor's media buy, media selection, frequency, reach,

continuity, schedules, and flights, the manager can arrange his/her own media plan so that they do not

coincide.

Other sources of corporate intelligence include trade shows, patent filings, mutual customers, annual

reports, and trade associations. Some firms hire competitor intelligence professionals to obtain this

information.

New competitors

In addition to analysing current competitors, it is necessary to estimate future competitive threats. Themostcommon sources of new competitors are:

Companies competing in a related product/market

Companies using related technologies

Companies already targeting your prime market segment but with unrelated products

Companies from other geographical areas and with similar products

The entrance of new competitors is likely when:

There are high profit margins in the industry

There is unmet demand (insufficient supply) in the industry

There are no major barriers to entry

There is future growth potential

Competitive rivalry is not intense

Gaining a competitive advantage over existing firms is feasibleThe

MILITARY THEORISTS

Military strategy and tactics are essential to the conduct of warfare. Broadly stated, strategy is the planning,coordination, and general direction of military operations to meet overall political and military objectives.

Tactics implement strategy by short-term decisions on the movement of troops and employment of

weapons on the field of battle. The great military theorist Carl von Clausewitz put it another way: "Tactics is

the art of using troops in battle; strategy is the art of using battles to win the war." Strategy and tactics,

however, have been viewed differently in almost every era of history. The change in the meaning of these

terms over time has been basically one of scope as the nature of war and society has changed and as

technology has changed. Strategy, for example, literally means "the art of the general" (from the Greek

strategos) and originally signified the purely military planning of a campaign. Thus until the 17th and 18th

centuries strategy included to varying degrees such problems as fortification, maneuver, and supply. In the

19th and 20th centuries, however, with the rise of mass ideologies, vast conscript armies, global alliances,

and rapid technological change, military strategy became difficult to distinguish from national policy or

"grand strategy," that is, the proper planning and utilization of the entire resources of a society--military,

technological, economic, and political. The change in the scope and meaning of tactics over time has beenlargely due to enormous changes in technology. Tactics have always been difficult--and have become

increasingly difficult--to distinguish in reality from strategy because the two are so interdependent. (Indeed,

in the 20th century, tactics have been termed operational strategy.) Strategy is limited by what tactics are

possible; given the size, training, and morale of forces, type and number of weapons available, terrain,

weather, and quality and location of enemy forces, the tactics to be used are dependent on strategic

considerations.

- Peace through Superior Fire Power -




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In the 1980s some business strategists realized that there was a vast knowledge base stretching backthousands of

years that they had barely examined. They turned to military strategy for guidance. Militarystrategy books like

"The Art of War" bySun Tzu, "On War" byvon Clausewitz,and "The Red Book" byMao Tse Tungbecame

instant business classics. From Sun Tzu they learned the tactical side of militarystrategy and specific tactical

prescriptions. From Von Clausewitz they learned the dynamic andunpredictable nature of military strategy.

From Mao Tse Tung they learned the principles of guerrillawarfare. The mainmarketing warfarebooks were:

Business War Games byBarrie James,1984 Marketing Warfare byAl Ries and Jack Trout,1986

Leadership Secrets ofAttila the Hun by Wess Roberts, 1987

Philip Kotlerwas a well-known proponent of marketing warfare strategy.There were generally thought to be four types of business warfare theories. They are:

Offensive marketing warfare strategies

Defensive marketing warfare strategies

Flanking marketing warfare strategies

Guerrilla marketing warfare strategies

In marketingand strategic management,marketing warfare strategies are a type ofmarketing strategythat uses

military metaphor to craft a businesses strategy.

Offensive marketing warfare strategies

Offensive marketing warfare strategies are a type of marketing warfare strategy designed to obtainan objective,

usually market share, from a target competitor. In addition tomarket share,an offensivestrategy could be designed

to obtain key customers, high marginmarket segments,or high loyaltymarket segments.

Fundamental Principles

There are four fundamental principles involved:

1. Assess the strength of the target competitor. Consider the amount of support that the targetmight muster from allies. Choose only one target at a time.

2. Find a weakness in the target's position. Attack at this point. Consider how long it will take forthe target to realign their resources so as to reinforce this weak spot.

3. Launch the attack on as narrow a front as possible. Whereas a defender must defend all theirborders, an attacker has the advantage of being able to concentrate their forces at one place.

4. Launch the attack quickly. The element of surprise is worth more than a thousand tanks.

Types of offensive strategies

The main types of offensive marketing warfare strategies are:

Frontal Attack - This is a direct head-on assault. It usually involves marshaling all your resources including a

substantial financial commitment. All parts of your company must be geared up for the assault, from marketing to

production. It usually involves intensive advertising assaults and often entails developing a new product that is able

to attack the target competitors' line where it is weak. It often involves an attempt to "liberate" a sizable portion of

the target's customer base. In actuality, frontal attacks are rare. There are two reasons for this. Firstly, they are

expensive. Many valuable resources will be used and lost in the assault. Secondly, frontal attacks are often

unsuccessful. If defenders are able to re-deploy their resources in time, the attacker's strategic advantage is lost.

You will be confronting strength rather than weakness. Also, there are many examples (in both business and

warfare) of a dedicated defender being able to hold-off a larger attacker.




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The strategy is suitable when

o the market is relatively homogeneous

o brand equity is low

o customer loyalty is low

o products are poorly differentiated

o the target competitor has relatively limited resources

o the attacker has relatively strong resources

Envelopment Strategy (also called encirclement strategy) - This is a much broader but subtle offensive strategy. It

involves encircling the target competitor. This can be done in two ways. You could introduce a range of products

that are similar to the target product. Each product will liberate some market share from the target competitor's

product, leaving it weakened, demoralized, and in a state of siege. If it is done stealthfully, a full scale

confrontation can be avoided. Alternatively, the encirclement can be based on market niches rather than products.

The attacker expands the market niches that surround and encroach on the target competitor's market. This

encroachment liberates market share from the target.

The envelopment strategy is suitable when:

the market is loosely segmented some segments are relatively free of well endowed competitors the attacker has strong product development resources

the attacker has enough resources to operate in multiple segments simultaneously the attacker has a decentralized organizational structure

Leapfrog strategy -This strategy involves bypassing the enemy's forces altogether. In the business arena, thisinvolves either developing new technologies, or creating new business models. This is a revolutionary strategy that

re-writes the rules of the game. The introduction of compact disc technology bypassed the established magnetic tapebased defenders. The attackers won the war without a single costly battle. This strategy is very effective when it canbe realized.

Flanking attack - This strategy is designed to pressure the flank of the enemy line so the flank turns inward. You

make gains while the enemy line is in chaos. In doing so, you avoid a head-on confrontation with the main force.

Defensive marketing warfare strategies

In marketing and strategic management, marketing warfare strategies are a type of marketing strategy that uses


Defensive marketing warfare strategies are a type of marketing warfare strategy designed to protect a

company's market share, profitability, product positioning, or mind share.

Fundamental principles

There are five fundamental principles involved:

1. Always counter an attack with equal or greater force.

2. Defend every important market.

3. Be forever vigilant in scanning for potential attackers. Assess the strength of the competitor.Consider the amount of support that the attacker might muster from allies.

4. The best defense is to attack yourself. Attack your weak spots and rebuild yourself anew.Nishan Wimalachandra MABE, MAFE W: www.nishanw.org E: [email protected] M: 0773 236 237 Page 13



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5. Defensive strategies should be the exclusive domain of the market leader.

Types of defensive strategies

The main types of defensive marketing warfare strategies are:

Position defense - This involves the defense of a fortified position. This tends to be a weak defense because you

become a "sitting duck". It can lead to a siege situation in which time is on the side of the attacker, that is, as

time goes by the defender gets weaker, while the attacker gets stronger. In a business context, this involves

setting up fortifications such as barriers to market entry around a product, brand, product line, market, or market

segment. This could include increasing brand equity, customer satisfaction, customer loyalty, or repeat

purchase rate. It could also include exclusive distribution contracts, patent protection, market monopoly, or

government protected monopoly status. It is best used in homogeneous markets where the defender has dominant

market position and potential attackers have very limited resources.

Mobile defense - This involves constantly shifting resources and developing new strategies and tactics. A mobiledefense is intended to create a moving target that is hard to successfully attack, while simultaneously, equippingthe defender with a flexible response mechanism should an attack occur. In business this would entail introducingnew products, introducing replacement products, modifying existing products, changing market segments,changing target markets, repositioning products, or changing promotional focus. This defense requires a veryflexible organization with strong marketing, entrepreneurial, product development, and marketing research skills.

Flank position - This involves the re-deployment of your resources to deter a flanking attack. You protectagainst potential loss of market share in a segment, by strengthening your competitive position in this segment withnew products and other tactics.

Counter offensive - This involves countering an attack with an offense of your own. If you are attacked,retaliate with an attack on the aggressor's weakest point. If you are being attacked with an advertising campaign,initiate your own promotional campaign aimed at the aggressor's weak spot. If a competitor introduces a newproduct, retaliate with a fighting brand that is designed to nullify any advantage the new product might have had.

Pre-emptive strike - This is a "defensive" attack initiated because an enemy attack is believed to be imminent. The

objective is to use the element of surprise to create chaos. The enemy will need time to regroup and might have

second thoughts about an attack. The advantages are that you gain first-strike advantage and you get to choose thebattlefield, a battlefield that you can win on. This strategy is similar to the counter-offensive strategy except that it is

proactive rather than reactive.

Strategic withdrawal - This involves freeing your resources deployed in untenable positions. If an objective

becomes strategically unimportant or tactically impossible to defend, then the best strategy can be to withdraw. The

resources can be re-deployed where they will be more effective. In business, this can entail dropping unprofitable

products, product lines, or brands. It could also involve exiting a market or market segment. At one extreme, a

radical strategic withdrawal involves closing down the business completely. At the other extreme, it involves a

contraction of resources in a market segment.

Flanking marketing warfare strategies


military metaphor to craft a businesses strategy. Flanking marketing warfare strategies

are a type of marketing warfare strategy designed to minimize confrontational losses.

Fundamental principles

The fundamental principles involved are:

1. Avoid areas of likely confrontation. A flanking move always occurs in an uncontested area.




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2. Make your move quickly and stealthfully. The element of surprise is worth more than a thousandtanks.

3. Make moves that the target will not find threatening enough to respond decisively to.

Types of flanking strategies

Flanking strategies can be either offensive or defensive:

Flanking Attack (offensive) - This is designed to pressure the flank of the enemy line so the flank turns inward. Youmake gains while the enemy line is in chaos. In doing so, you avoid a head-on confrontation with the main force. Thedisadvantage with a flanking attack is that it can draw resources away from your center defense, making youvulnerable to a head-on attack. In business terms, a flanking attack involves competing in a market segment that thetarget does not consider mission critical.

The target competitor will not be as concerned about your activities if they occur in market niches that it considers

peripheral. It usually involves subtle advertising campaigns and other discrete promotional measures, like personal

selling and public relations. It often entails customizing a product for that particular niche. Rather than finding

uncontested market niches, the attacker could also look for uncontested geographical areas.

The strategy is suitable when:

the market is segmented

there are some segments that are not well served by the existing competitors

the target competitor has relatively strong resources and is well able to withstand a

head-on attack

the attacker has moderately strong resources, enough to successfully defend several niches

Flanking Position (defensive) - This involves the re-deployment of your resources to deter a flanking attack. You

strengthen your flank if you think it is vulnerable. The disadvantage of this defense is that it can distract you from

your primary objective and siphon resources away from where they are needed most. In business terms, this

involves the introduction of new products, product lines, or brands, the defensive re-positioning of existing

products, or additional promotional activity in a market niche. It requires market segmentation and/or product

differentiation. You protect against potential loss of market share in a segment by strengthening your competitive

position there.

Guerrilla marketing warfare strategies



Guerrilla marketing warfare strategies are a type of marketing warfare strategy designed to wear-down the enemy

by a long series of minor attacks. Rather than engage in major battles, a guerrilla force is divided into small groupsthat selectively attacks the target at its weak points. To be effective, guerrilla teams must be able to hide between

strikes. They can disappear into the remote countryside, or blend into the general population. The general form of

the strategy is a sequence of attacking, retreating, and hiding, repeated multiple times in series. It has been said that

"Guerrilla forces never win wars, but their adversaries often lose them".

Strengths

The main strengths of guerrilla strategies are :




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Because you never attack the enemy's main force, you preserve your resources.

It is very flexible and can be adapted to any situation, offensive or defensive.

It is very difficult to counter with conventional methods.

Guerrilla marketing warfare involves In the

business arena, this involves :

1. targeted legal attacks on the competition

2. product comparison advertising

3. executive raiding

4. short-term alliances

5. selective price cuts

6. deliberate sabotage of the competitions test markets, marketing research, advertising campaigns,or sales promotions

7. orchestrating negative publicity for a competitor

A guerrilla marketer must be flexible. They must be able to change tactics very quickly : this may include abandoninga market segment, product, product line, brand, business model, or objective. Guerrillas are not ashamed to make astrategic withdrawal. The strategy is suitable when:

the target competitor has relatively strong resources and is well able to withstand a head-on attack the attacker has moderately weak resources

It can involve choosing a modest market segment, geographical territory, or niche and defending it, that is, it isincorrectly used to describe a niche strategy. The term Guerrilla marketing is sometimes used to refer simply to theuse of unorthodox marketing tactics

The marketing warfare literature also examined leadership and motivation, intelligence gathering, types of marketingweapons, logistics, and communications.

By the turn of the century marketing warfare strategies had gone out of favour. It was felt that they were limiting.

There were many situations in which non-confrontational approaches were more appropriate. The "Strategy of the

Dolphin" was developed in the mid 1990s to give guidance as to when to use aggressive strategies and when to

use passive strategies. A variety of aggressiveness strategies were developed.

J. Moore (1993) used a similar metaphor. Instead of using military terms, he created an ecological theory of predators

and prey a sort of Darwinian management strategy in which market interactions mimic long term ecological stability.




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PORTER GENERIC STRATEGIES

Michael Porter has described a category scheme consisting of three general types of strategies that are

commonly used by businesses. These three generic strategies are defined along two dimensions: strategic

scope and strategic strength. Strategic scope is a demand-side dimension (Porter was originally an economist

before he specialized in strategy) and looks at the size and composition of the market you intend to target.

Strategic strength is a supply-side dimension and looks at the strength or core competency of the firm. In

particular he identified two competencies that he felt were most important: product differentiation and product cost

(efficiency).

He originally ranked each of the three dimensions (level of differentiation, relative product cost, and scope of

target market) as either low, medium, or high, and juxtaposed them in a three dimensional matrix. That is, the

category scheme was displayed as a 3 by 3 by 3 cube. But most of the 27 combinations were not viable.

In his 1980 classic Competitive Strategy: Techniques for Analysing Industries and Competitors, Porter simplifies thescheme by reducing it down to the three best strategies. They are cost leadership, differentiation, and market




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segmentation (or focus). Market segmentation is narrow in scope while both cost leadership anddifferentiation are relatively broad in market scope.

Empirical research on the profit impact of market share indicated that firms with a high market share were often

quite profitable, but so were many firms with low market share. The least profitable firms were those with

moderate market share. This was sometimes referred to as the hole in the middle problem. Porter's explanation of

this is that firms with high market share were successful because they pursued a cost leadership strategy and firms

with low market share were successful because they used market segmentation to focus on a small but profitable

market niche. Firms in the middle were less profitable because they did not have a viable generic strategy.

Combining multiple strategies is successful in only one case. Combining a market segmentation strategy with aproduct differentiation strategy is an effective way of matching your firm's product strategy (supply side) to thecharacteristics of your target market segments (demand side). But combinations like cost leadership with productdifferentiation are hard (but not impossible) to implement due to the potential for conflict between costminimization and the additional cost of value-added differentiation.Since that time, some commentators have made a distinction between cost leadership, that is, low cost strategies, andbest cost strategies. They claim that a low cost strategy is rarely able to provide a sustainable competitiveadvantage. In most cases firms end up in price wars. Instead, they claim a best cost strategy is preferred. Thisinvolves providing the best value for a relatively low price.

Cost Leadership Strategy

This strategy emphasizes efficiency. By producing high volumes of standardized products, the firm hopes to takeadvantage of economies of scale and experience curve effects. The product is often a basic no-frills product that isproduced at a relatively low cost and made available to a very large customer base. Maintaining this strategy requiresa continuous search for cost reductions in all aspects of the business. The associated distribution strategy is toobtain the most extensive distribution possible. Promotional strategy often involves trying to make a virtue out of lowcost product features.

To be successful, this strategy usually requires a considerable market share advantage or preferential access to

raw materials, components, labour, or some other important input. Without one or more of these advantages, the

strategy can easily be mimicked by competitors. Successful implementation also benefits from:

process engineering skills products designed for ease of manufacture

sustained access to inexpensive capital

close supervision of labour

tight cost control

incentives based on quantitative targets

Examples include low-cost airlines such as EasyJet and Southwest Airlines, and supermarkets such as KwikSave.

Differentiation Strategy

Differentiation involves creating a product that is perceived as unique. The unique features or benefits should

provide superior value for the customer if this strategy is to be successful. Because customers see the product asunrivaled and unequaled, the price elasticity of demand tends to be reduced and customers tend to be more

brand loyal. This can provide considerable insulation from competition. However there are usually additional costs

associated with the differentiating product features and this could require a premium pricing strategy.

To maintain this strategy the firm should have:

strong research and development skills

strong product engineering skills

strong creativity skills

good cooperation with distribution channelsNishan Wimalachandra MABE, MAFE W: www.nishanw.org E: [email protected] M: 0773 236 237 Page 18



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strong marketing skills

incentives based largely on subjective measures

be able to communicate the importance of the differentiating product characteristics

stress continuous improvement and innovation

attract highly skilled, creative people

Focused Strategy

In this strategy the firm concentrates on a select few target markets. It is also called a focus strategy or nichestrategy. It is hoped that by focusing your marketing efforts on one or two narrow market segments andtailoring your marketing mix to these specialized markets, you can better meet the needs of that target market.The firm typically looks to gain a competitive advantage through effectiveness rather than efficiency. It is mostsuitable for relatively small firms but can be used by any company.

Criticisms of generic strategies

Several commentators have questioned the use of generic strategies claiming they lack specificity, lack flexibi lity,and are limiting. In many cases trying to apply generic strategies is like trying to fit a round pa into one ofthree square holes: You might get the peg into one of the holes, but it will not be a good fit.

In particular, Millar (1992) questions the notion of being "caught in the middle". He claims that there is a viable

middle ground between strategies. Many companies, for example, have entered a market as a niche player

and gradually expanded. According to Baden-Fuller and Stopford (1992) the most successful companies are the

ones that can resolve what they call "the dilemma of opposites".

The Product Life Cycle (PLC)

The Product Life Cycle (PLC) is based upon the biological life cycle. For example, a seed is planted(introduction); it begins to sprout (growth); it shoots out leaves and puts down roots as it becomes an adult(maturity); after a long period as an adult the plant begins to shrink and die out (decline).

In theory it's the same for a product. After a period of development it is introduced or launched into the rnsrket; itgains more and more customers as it grows; eventually the market stabilises and the product becomes mature;then after a period of time the product is overtaken by development and the introduction of superior competitors,




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it goes into decline and is eventually withdrawn. However, most products fail in the introduction phase. Othershave very cyclical maturity phases where declines see the product promoted to regain customers.

The need for immediate profit is not a pressure. The product is promoted to create awareness. If the producthas no or few competitors, a skimming price strategy is employed. Limited numbers of product are available infew channels of distribution.

Growth

Competitors are attracted into the market with very similar offerings. Products become more profitable andcompanies form alliances, joint ventures and take each other over. Advertising spend is high and focuses uponbuilding brand. Market share tends to stabilize.

Maturity

Those products that survive the earlier stages tend to spend longest in this phase. Sales grow at a decreasing

rate and then stabilise. Producers attempt to differentiate products and brands are key to this. Price wars andintense competition occur. At this point the market reaches saturation. Producers begin to leave the market dueto poor margins. Promotion becomes more widespread and use a greater variety of media.

Decline

At this point there is a downturn in the market. For example more innovative products are introduced orconsumer tastes have changed. There is intense price-cutting and many more products are withdrawn fromthe market. Profits can be improved by reducing marketing spend and cost cutting.

Problems with Product Life Cycle

In reality very few products follow such a prescriptive cycle. The length of each stage varies enormously thedecisions of marketers can change the stage, for example from maturity to decline by price-cutting. Not allproducts go through each stage. Some go from introduction to decline. It is not easy to tell which stage theproduct is in. Remember that PLC is like all other tools. Use it to inform your gut feeling.

Description of the Model

The General Electric Company,with the aid of the BostonConsulting Group and McKinseyand Company, pioneered the nine-cell strategic business screenillustrated here. The circle on thematrix represents your enterprise.

Both axes are divided into threesegments, yielding nine cells. Thenine cells are grouped into threezones:

The Green Zone consists of thethree cells in the upper left corner. Ifyour enterprise falls in this zone you




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are in a favorable position with relatively attractive growth opportunities. This indicates a "green light" to invest inthis product/service.

The Yellow Zone consists of the three diagonal cells from the lower left to the upper right. A position in theyellow zone is viewed as having medium attractiveness. Management must therefore exercise caution whenmaking additional investments in this product/service. The suggested strategy is to seek to maintain share ratherthan growing or reducing share.

The Red Zone consists of the three cells in the lower right corner. A position in the red zone is not attractive. Thesuggested strategy is that management should begin to make plans to exit the industry.

Characterize Your Enterprise

The vertical axis represents the industry attractiveness. The expert system will position your enterprise on the

chart based upon your description of:

D bargaining power of the buyersL bargaining power of the suppliersL internal rivalryD the threat of new entrantsL the threat of substitutes

The horizontal axis represents the firm's competitive strength or ability to compete in the industry. It includes ananalysis of:

D the value and quality of the offeringC market shareD staying powerL experience

You can trace through the supporting analysis and its conclusions, adjusting your input until you are satisfied yourdescription accurately characterizes your enterprise.

Analysis of Your Enterprise Position

High AttractivenessStrong Competitive Position Thestrategy advice for this cell is to

invest for growth. Considerthe following strategies: provide

maximum investmentdiversify consolidate your position to

focus your resourcesaccept moderate near-term

profits to build share

High AttractivenessAverage Competitive Position The

strategy advice for this eel! is toinvest for growth. Consider

the following strategies:build selectively on strengthdefine the implications of

challenging for marketleadership fill weaknesses to

avoid vulnerability

High AttractivenessWeak Competitive Position

The strategy advice for this cell is toopportunistically invest for

earnings. However, if you can'tstrengthen your enterprise you

should exit the market. Consider thefollowing strategies: ride with the market

growth seek niches or specialization seekan opportunity to increase

strength through acquisition

Medium AttractivenessStrong Competitive Position

The strategy advice for this cellis to selectively invest for growth.Consider the following strategies:

invest heavily in selectedsegments, establish a ceiling for the

market share you wish to achieveseek attractive new segments to

Medium AttractivenessAverage Competitive Position The

strategy advice for this cell is toselectively invest for earnings.

Consider the following strategies:segment the market to find a more

attractive position make contingencyplans to protect your vulnerable

position

Medium AttractivenessWeak Competitive Position The strategy

advice for this cell is to preserve forharvest Consider

the following strategies:act to preserve or boost cash flow as you

exit the businessseek an opportunistic sale

seek a way to increase your




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apply strengths strengths

Low AttractivenessStrong Competitive Position The

strategy advice for this cellis to selectively invest for earnings.

Consider the followingstrategies:

defend strengths shift resources to

attractive segments examine waysto revitalize the industrytime your exit by monitoring forharvest or divestment timing

Low AttractivenessAverage Competitive PositionThe strategy advice for this cell

is to restructure: harvest ordivest. Consider the following

strategies: make only essentialcommitmentsprepare to divest

shift resources to a moreattractive segment

Low AttractivenessWeak Competitive PositionThe advice for this cell is to

harvest or divest. You should exit themarket or prune the proc

line.

"In business as well as the military, he who has the shortest procurementand deployment cycle wins."- Bill Gates

Nishan Wimalachandra MABE MAFE W: www nishanw org E: nishan@consultant com M: 0773 236 237 Page 22

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