Defensive Strategies

Chapter Chapter ThirteenThirteen

MMarket-Basedarket-Based Management, 4Management, 4thth editionedition

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Defensive StrategiesDefensive Strategies

Chapter Thirteen

– Defensive Strategic Market Plans

– Core Defensive Strategies

– Sub Defensive Strategies

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Defensive Strategic Market Defensive Strategic Market PlansPlans

What are the main objectives of defensive strategies?– Protect profitability

and manage profitability

When are Defensive Market Plans employed?

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Core Defensive StrategiesCore Defensive Strategies

Core Strategy 1 Core Strategy 2 Core Strategy 3

Protect Position Optimize Position Monetize, Harvest, or

Divest

Maintain Sales

Maximize Profits

Cash Flow

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1. Protect position in growth markets

2. Protect a high-share position

3. Protect a follower share position

4. Protect a niche share position

Defensive Core Strategy 1: Defensive Core Strategy 1: Invest to Protect PositionInvest to Protect Position

Sub Strategy A Sub Strategy B

Protect Market Share

Build Customer Retention

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Defensive Core Strategy 2: Defensive Core Strategy 2: Optimize PositionOptimize Position

Sub Strategy A

Sub Strategy B

Maximize Net Marketing

Contribution

Selective Market Focus

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1. Harvest Price Strategy

2. Harvest Marketing Resource Strategy

3. Divest Market Strategy

Defensive Core Strategy 3: Defensive Core Strategy 3: Monetize, Harvest, Or DivestMonetize, Harvest, Or Divest

Sub Strategy A Sub Strategy B

Manage for Cash Flow

Harvest-Divest for Cash Flow

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TakeawaysTakeaways//ReviewReview

• Strategic Market Plans

• Profit Protection

• Portfolio Analysis and Strategy Selection

• Defensive Strategies

• Defensive Tactics

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Marketing Performance ToolsMarketing Performance Tools

Defensive Strategy to Protect Share

Strategic Market Plan (customers) Current Plan Plan Plan

Invest to Protect Share Year Year 1 Year 2 Year 3

Market Demand (000) 1,000 1,050 1,100 1,150

Market Share 10.0% 10.0% 10.0% 10.0%

Customer Volume (000) 100 105 110 115

Customer Retention 0.90 0.90 0.90 0.90

Retained Customers (000) 85.5 90 94.5 99

New Customers (000) 14.5 15.0 15.5 16.0

Revenue per Customer

Retained Customers $500 $500 $500 $500

New Customers $300 $300 $300 $300

Average Revenue per Customer $471 $471 $472 $472

Sales Revenues (millions) $47.10 $49.50 $51.90 $54.30

Percent Margin per Customer

Retained Customers 50.0% 50.0% 50.0% 50.0%

New Customers 33.3% 33.3% 33.3% 33.3%

Average Percent Margin 48.5% 48.5% 48.5% 48.5%

Gross Profit (millions) $22.82 $24.00 $25.17 $26.35

Marketing Expenses

Retention Cost per Customer $25 $25 $25 $25

Acquistion Cost per Customer $150 $150 $150 $150

Average Marketing Expense (% sales) 9.2% 9.1% 9.0% 9.0%

Marketing Expenses (millions) $4.31 $4.50 $4.69 $4.88

Net Marketing Contribution (millions) $18.51 $19.50 $20.49 $21.47

Marketing ROS 39.3% 39% 39% 40%

Marketing ROI 429% 433% 437% 441%

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Marketing Performance ToolsMarketing Performance Tools

Evaluating Defensive Strategies

Strategic Market Plan (customers) Current Plan Plan Plan

Defensive Strategy Year Year 1 Year 2 Year 3

Market Demand (000) 1,000 1,050 1,100 1,150

Market Share 10.0% 10.0% 10.0% 10.0%

Customer Volume (000) 100 105 110 115

Customer Retention 0.90 0.90 0.90 0.90

Retained Customers (000) 85.5 90 94.5 99

New Customers (000) 14.5 15.0 15.5 16.0

Revenue per Customer

Retained Customers $500 $500 $500 $500

New Customers $300 $300 $300 $300

Average Revenue per Customer $471 $471 $472 $472

Sales Revenues (millions) $47.10 $49.50 $51.90 $54.30

Percent Margin per Customer

Retained Customers 50.0% 50.0% 50.0% 50.0%

New Customers 33.3% 33.3% 33.3% 33.3%

Average Percent Margin 48.5% 48.5% 48.5% 48.5%

Gross Profit (millions) $22.82 $24.00 $25.17 $26.35

Marketing Expenses

Retention Cost per Customer $25 $25 $25 $25

Acquistion Cost per Customer $150 $150 $150 $150

Average Marketing Expense (% sales) 9.2% 9.1% 9.0% 9.0%

Marketing Expenses (millions) $4.31 $4.50 $4.69 $4.88

Net Marketing Contribution (millions) $18.51 $19.50 $20.49 $21.47

Marketing ROS 39.3% 39% 39% 40%

Marketing ROI 429% 433% 437% 441%