Strategic Marketing Week 2

Strategic Marketing052 430

Instructor: Michael Cooke E-mail Address: [email protected] Office: IC room 817

Class hours: Friday 13:00-16:00 Class Location: IC room 806 Web: home/kku.ac.th/michco

mailto:[email protected]

Rebranding a Country

Quiz: Pass/Fail = 50%1. Which of the following are not elements of strategy:

A) ResourcesB) GoalsC) PlansD) All are elements of strategy

2. Intuition is:A) Most reliable when based on long experienceB) Can not be used with rigorous analysisC) Never wrongD) Useless when thinking about strategy

3. Business goals and priorities are theoretically decided by: A) Partner owners B) Proprietor owners C) Shareholders D) Any of the above, depending on the structure of the business

4. Which is not one of Michael Porter’s three generic strategies? A) Niche or Focus strategyB) Peaceful coexistence C) DifferentiationD) Cost leadership

5. According to Booz and Company, successful innovation is most likely to involveA) Substantial research and development expensesB) Well paid and intelligent managersC) Engaging customers to shape innovationD) Consulting firms

6. When a business owner or partner has unlimited liabilityA) The owner or partner’s personal assets may be used to settle claims against the businessB) The owner can only lose the amount invested in the businessC) Owner’s or partners may lose an unlimited amount of moneyD) Both A and C.

Definitions Unlimited liability: personal assets can be taken to pay losses or debts of

the business. Limited liability: financial liability of owners is limited to amount of

investment. Sole proprietorship: business owned and operated by one person

Owner has unlimited liability for business losses and debts Issue of business continuity makes getting loans difficult

Partnership: proportional sharing of profits and losses. Unlimited liability, except in the case of a limited partner.

Corporation: organization that acts and has rights of a person. Shareholders and officers are protected from personal claims in most cases.

Stock: a security that signifies ownership in a corporation, and a claim on earnings and assets. Liability is limited. In event of bankruptcy, shareholders have lowest claim on assets. Note: “publicly traded”

Venture capital (VC): money provided to a start up or pre-IPO business in the form of a high rate loan or an investment in the business.

IPO (initial public offering): first time sale of stock. Privately owned/publicly owned: company that does not/does have shares

traded on a stock exchange. Note liquidity and reporting aspects of public ownership.

Ch 1 -6

Marketing is in the best position to understand customers, competitors, environments, and trends

Marketing has lead role in understanding brand portfolio, distribution channels, and new product development

Marketing ought to be voice of the customer within the organization

Business strategy makes no sense without marketingMarketing strategy depends on business competenciesThe marketing function often spans all areas and

functions of the organization

Role of Strategic Market Management

Booz & Co. R&D Survey 2011http://www.booz.com/global/home/press/article/49852237

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Study of 1,000 public companies that spent the most on research and development in 2010Total for the 1,000 $550 bbComputing and electronics 28% of all R&D expenditureHealth care (pharmaceuticals) 22%Automotive 15% of all R&D expendituresChina and India HQ companies = 2% of total R & D

Spending doesn’t correlate successful innovation“There is no statistically significant relationship between financial

performance and innovation spending, in terms of either total R&D dollars or R&D as a percentage of revenues.” according to Booz & Co

Most innovative firms were Apple, Google, and 3MSamsung and Toyota were big spenders and innovativeThe key finding: culture is key to innovation successAccording to 3M: “Our goal is to get the voice of the customer all

the way back to the basic research level and the product development level, to make sure our technical people see how their technologies work in various market conditions.”

http://www.booz.com/global/home/press/article/49852237


Booz & Co. R&D Survey 2011 http://www.booz.com/global/home/press/article/49852237Need Seekers, Market Readers and Technology Drivers Need Seekers consistently strive to be first movers and proactively engage

customers to shape new innovations, and align innovation and business strategies (3M)

Market Readers adopt a second mover strategy and emphasize incremental change (Samsung)

Technology Drivers stress technology achievement and both incremental and breakthrough change (Google)

If you align innovation strategy and culture to your business model, build the right capabilities, and execute, you can prevail no matter which strategy you follow

There may be no more critical source of business success or failure than a company’s culture. It is more important than strategy and leadership. According to Booz & Co.:Companies whose strategic goals are clear, and whose cultures strongly

support those goals, possess a huge advantage“Connect with the customer, find out their articulated and unarticulated

needs, and then determine the capability at 3M that can be developed across the company that could solve that customer’s problem in a unique, proprietary, and sustainable way. Our businesses are all interdependent and collaborative.”



Booz & Co. R&D Survey – 2011*Most often cited strategic goals of innovation are:

Superior product performance Superior product quality

Cultural attributes:Strong identification with the customerPride in products

Need seekers: Gaining insights on customers needs is the responsibility of all customer-facing employees.

Silicon Valley companies are almost twice as likely as average companies to have capabilities that provide a superior understanding of the stated and unstated needs of their end customers

Technological advances that lead to products and services that gain traction in the marketplace come through superior insight into customers, as well as the development of practical value propositions that will win those customers business

6/10 of the most innovative were need seekers2/10 of the biggest spenders were need seekers

*http://www.booz.com/media/uploads/BoozCo-Global-Innovation-1000-2011-Culture-Key.pdf9

Booz & Co. R&D Survey Top 12 R&D in 2010 Excluding Health

Rank list Rank all Company R&D $BB % sales Region

1 4 Microsoft 8.7 14 US

2 6 Toyota 8.5 4 Asia

3 7 Samsung 7.9 6 Asia

4 8 Nokia 7.8 14 Europe

5 9 General Motors

7.0 5 US

6 11 Intel 6.6 15 US

7 12 Panasonic 6.1 6 Asia

8 14 VW 6.1 4 Europe

9 15 IBM 6.0 6 US

10 17 Honda 5.7 6 Asia

11 19 Cisco 5.3 13 US

12 20 Siemens 5.2 5 Europe

http://www.booz.com/media/uploads/BoozCo-Global-Innovation-1000-2011-Culture-Key.pdf10

Booz & Co. R&D Survey 2011Innovation

As part of this year’s study, Booz & Co. surveyed almost 600 innovation leaders in companies around the world, large and small, in every major industry sector.

As noted, almost half of the companies reported inadequate strategic alignment and poor cultural support for their innovation strategies.

Possibly even more surprising, nearly 20 percent of companies said they didn’t have a well defined innovation strategy at all.


Booz & Co. R&D Survey Top 10 Innovative Companies in 2010

Rank Company R&D $BB % sales Spend rank

1 Apple $1.8 2.7 702 Google $3.8 12.8 343 3M $1.4 5.4 864 GE $3.9 2.6 325 Microsoft $14.0 14.0 4

6 IBM $6.0 6.0 157 Samsung $5.9 5.9 78 P&G $2.5 2.5 619 Toyota $3.9 3.9 610 Facebook na na na


Strategy Defined• Many definitions of business strategy

– Johnson and Scholes: "Strategy is the direction and scope of an organization over the long-term: which achieves advantage for the organization through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfill stakeholder expectations".

– Alfred Chandler's definition: "determination of the basic long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals."

– Business dictionary: • 1. A method or plan chosen to bring about a desired future, such as achievement of

a goal or solution to a problem.• 2. The art and science of planning and marshalling resources for their most efficient

and effective use. The term is derived from the Greek word for leading an army.– Harvard Business School: You can't develop a strategy for your business without first thinking

through mission and goals. Likewise, you can't develop a coherent strategy in isolation from decisions concerning the network of partners with whom the business will co-create and capture value. By focusing on all four elements, and sequencing them in the right way, the process of crafting strategy can be demystified

• All have in common– Goals– Resources– Plans

David Aaker, Damien McLoughlin, Strategic Market Management European Edition, 0470059869, © Copyright 2007 John Wiley & Sons Ltd 14

“In terms of the three key players (competitors, customers, company) strategy is defined as the

way in which a corporation endeavors to differentiate itself positively from its

competitors, using its relative corporate strengths to better satisfy customer needs.”

Kenichi Ohmae“The Mind of the Strategist”

Strategy or Strategic Planning

Strategic planning is a process typically done in large companies when they perceive the need to change

We will focus more on strategy, or how to achieve long range goals

Strategy is often thought of as ‘how to achieve competitive advantage’But many businesses simply want to co-existAll businesses need to have goals and plans

Sole Proprietorships Need StrategyExample sidewalk vendor in Bangkok

Rents space in front of a businessBuys food for cooking and resaleHas a helper, or twoOwns some basic equipment, purchased with family funds

Skilled cook, good location, good price = many customers

But:Business and family funds are comingledRevenue from business goes to family consumptionExpenses are ‘lumpy’ (due only at certain times)Problem arises when bills for rent or supplies are due,

when equipment needs maintenance or replacement, or at payday

Need to understand resources of the business and marketing

If co-existence is the aim, still have “5 Forces” long term issues

Strategy for Whom?We will focus on strategy for ownersThis might differ from strategy of managersIllustration from banking:

Think of bank loan marketingEasy to make loans that will go bad in two yearsShort term profit in the loans, losses appear laterLending officer gets bonus based on his salesBut he works against owner interests

Think of bank customer serviceBranch manager can show bigger profit by cutting staffCustomers wait, or face surly overworked staffIf the bank had brand that said ‘great service’ the brand suffersHow would an owner, or management that works for owners

prevent this?In general, managers often have incentive to achieve

short term profit by wasting brand equity where owners want to preserve B/E

Business Purpose

Why does a business exist?In theory, a public company exists to benefit shareholder ‘owners’A partnership or sole proprietorship exists to benefit owners (and in

return they have unlimited risk)What happens when unlimited risk becomes limited?

Company strategy may change, actions may become more riskyExample of investment banking firms in USA, 1999

Some early investors want to ‘cash out’ by selling a company

Management and owners of public companies may have different interests Managers can employ strategies that further manager interestManagers might be most interested in protecting their positionsFight ‘hostile’ merger or acquisition that is in interest of

shareholdersJeff Bezos owns 19% of all AMZN stock ($20BB). Which type of

strategy would AMZN use?

Apple and Amazon Two of the Three Generic Strategies.

Michael Porter wrote about three basic strategies for competitive advantageCost leadershipDifferentiationNiche (or Focus) strategy

Amazon’s strategy is cost leadershipApple’s strategy is differentiationEach has profoundly different approaches

See: “So Amazon unnerved investors” Word documentDifferences in approach to marketsDifferences in how resources are deployed

Yet each creates barriers to entryBusinesses may use niche strategy to compete with

giants

http://home.kku.ac.th/michco/Business_Strategy/So%20Amazon%20unnerved%20investors.docx

The strategic management process attempts to organize quantitative and qualitative information under conditions of uncertainty (Fred David)

Strategy can be a formal planning process or informal

Intuition is based on:Past experiencesJudgmentFeelings (often the ego leads to poor

judgment) Intuition is useful for decision making in

conditions of: Great uncertainty Little precedent Highly interrelated variables Several plausible alternatives

Intuition and analysis complement each other

Integrating Intuition & Analysis

There is no Substitute for Knowing the Business

Maurice Greenberg CEO, AIG, Inc., 1968-2005

AIG’s legendary risk management was mostly in the head of one man: Hank Greenberg

He would get raw data. He made assessments.

AIG became an extremely complex organization with hundreds of subsidiaries

What happened when Maurice Greenberg left AIG?

The new CEO did not understand risks taken by distant units. The culture did not support succession.

AIG Collapse (word document)

http://home.kku.ac.th/michco/Business_Strategy/AIG%20collapse.docx

Structure of a Global Company

Parent

Product line A

Country A(subsidiary)

Country B

Country C(subsidiary)

Product C

How are Resources Allocated?Budgets are typically organized annually

Can be thought of as communication documentsPriorities are arranged within the framework of a strategic plan Resources are identifiedManagement allocates resources according to prioritiesMechanisms are set up for monitoring actual v budgetMost companies have quarterly or rolling ‘reforecasts’

How are budget priorities established?A formal strategic plan is used to set global priorities, in some

casesResources allocated by negotiation at the highest levelsDetailed assessment of strategic variables may occur within

budget process Strategy is created or modified with information from all areasOften begin with ‘wish lists’ at lowest levels of hierarchyEnds with explicit or implicit broad company strategy

Most organizations have flexible budgets – can redirect resources

From “Only the Paranoid Survive”Andy Grove

We live in an age in which the pace of technological change is pulsating ever faster, causing waves that spread outward toward all industries. This increased rate of change will have an impact on you, no matter what you do for a living. It will bring new competition from new ways of doing things, from corners that you don't expect.

If you run a business, you must recognize that no amount of formal planning can anticipate such changes (strategic inflection points).

Does that mean you shouldn't plan? Not at all. You need to plan the way a fire department plans: It cannot anticipate where the next fire will be, so it has to shape an energetic and efficient team that is capable of responding to the unanticipated as well as to any ordinary event.

Course CorrectionOrganizations typically review budget variances

monthlyPeriodic re-forecasts (streamlined budget exercises)

might be supplementedWhen variances point to unforeseen issuesWhen new opportunities or threats ariseHow are these opportunities or threats discovered

Many times through variance analysis (for example sales versus expected)

Other times from external sourcesWe will discuss innovation at length later

Course corrections or resetting strategic priorities might occur outside of normal planning cycles

Often found in conjunction with review of quarterly results (in the case of public companies)

Why do thriving small businesses fail?

Often they lack information about their resourcesFormal bookkeeping does not happen or is sloppyPersonal and business expenditures are mingled

Or they under-estimate need for capitalRevenue and expenses have cycles

Revenues might spike before a holidayExpenses have cycles

Pay employeesPay for materialsMonthly rents, etc

False sense of wealth before expenses loom or failure to borrow before crisis (the worst time to borrow is during crisis)

Without having a sense of future income and expenses, the owner or manager ‘misallocates’ resources

To survive, a business must be forward looking

Successful Businesses have Plans and Goals

Bank lending facilities require long range plans

Venture capitalists are demanding about strategy & calibration of plans

Wise investors look for goals and plansHow does a company plan to earn a profit (or

generate capital)?When does a company plan to generate

profit or pay back loans?Government demanded a strategic plan for

automobile companies before injecting capital in 2008-2009

Sole proprietorships need to consider the future (money for college, legacy for children?) and how to get there

Eastman Kodak CompanyBackground information

Founded in 1880s, once an iconic US firmIn 1976 Kodak sold between 85-90% of all film and

cameras in the USA Fuji of Japan took market share in 1980s (economy

segment)In 1994 Kodak 20th ranked US company by sales

Kodak spins off Eastman Chemical, now thrivingApple launched a digital camera made by Kodak

Kodak stops selling film cameras in 2004, becomes biggest retailer of digital cameras in 2005

Falls to 7th biggest digital camera retailer by 2010Declares bankruptcy in 2012

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Eastman Kodak CompanyTransition from Film

Gross margins in the film business estimated at 75%Compare with computers and peripherals at 33%George Eastman wanted ‘rapid succession of changes and improvements’Kodak had technological lead in film backed by patentsVertical integration and cost leadershipFilm sales immensely profitable

Digital imaging a disruptive technology Kodak executives aware of digital camera trend from 1993*

CEO Fisher from Motorola and Bell Labs hired 1993, a technologistResistance by customers (film development business)Resistance from investors (legacy business as ‘cash cow’)Company culture resistance (film business, not imaging)Public image of support for film business through 1990sCEOs aware of competitive environment, no barriers to entry in digital,

lower marginsCollaboration with Canon in 2000 (professional segment)Collaboration with Fuji, HP, IBM, others to develop digital image storageBy late 1990s Kodak was leader in digital color management and

electronic image sensors due to huge digital R&D effort**http://www.blackwellpublishing.com/grant/docs/06Kodak.pdf30

Eastman Kodak CompanyWhat Went Wrong?

Conflicts between film and digital began to ebb around 2005More collaborative cultureTen years elapsed since CEO Fisher began determined push to digital

Leader in digital sales in 2005Losing money on each cameraLegacy labor costs*Vertical integration impossible in digital business (JVs, alliances instead)Diminished film business (would have been used to subsidize transition)

Tried to buy time by selling film in developing markets But Asian film sales dropped as rapidly as elsewhere

Falls to seventh rank in digital camera sales in 2010Capable competitors Canon, Sony, Samsung, and Nikon in Asia and othersPace of change in digital camera business rapid and unpredictable, with

rapidly declining prices Could Kodak’s culture adapt to digital’s pace of change?

Did they miss a product cycle in 2007?What happened in their R&D organization? Marketing?

*Http://www.consultingcase101.com/kodak-to-improve-profit-margin-for-digital-cameras/31

Objectives of Strategic Market Management (from McLoughlin p.

14)Precipitate consideration of strategic choices

Assess opportunities and threatsOrganizations fail because strategic decisions were made

too lateHelp a business cope with changeForce a long range viewMake the resource allocation decisions explicit

These decisions are too often political or the result of inertia

Promising businesses may get too few resourcesAid strategic analysis and decision makingProvide a strategic management and control systemProvide both horizontal and vertical communication

and coordination

The Strategy Planning CycleIdentify issues facing the firm (challenges,

trends)Bring together people from all functional

areasAdapt planning cycles to the business

Differing regular intervalsTrends or events can trigger strategy review

Create a strategy performance systemProgress goals (milestones)End objectivesIdentify barriers and ways around barriers


Exercise

Select a company

What business are they in?

Who are the direct and indirect competitors?

Is this company proactive or reactive?

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What is a Business Strategy? The Product-Market Investment Strategy – Scope of the Business

◦ Products offered, not offered Often the most important strategic choice A resource allocation decision

◦ Markets served◦ Competition a business chooses to engage or avoid◦ Vertical integration◦ Scope dynamics

Product expansion (new products to existing markets) Market expansion (bring existing product to new markets) Diversification (Enter new product markets)

◦ Strategic investment choices Invest to grow or enter new markets Invest to maintain existing position Minimize investment (milk the business) Liquidate or divest (get rid of) the business

Assets and Competencies (to achieve Strategic Competitive Advantage)◦ Resources such as brands or customer base that is strong relative to competitors◦ Competency: What does a business unit do well that has strategic importance?◦ Avoidance of disadvantage might be enough

© Copyright 2010 John Wiley & Sons Ltd

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A Business StrategyA Business Strategy

Where to CompeteThe product-market investment decision

How to CompeteValue Assets & Function area

proposition competencies strategies and programs

Figure 1.1

A Business Strategy

Figure 1.1


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Customer Value Proposition Examples

Good value (Aldi – discount markets)

Excellence on an important product or service attribute (El

Bulli restaurant in Spain)

The best overall quality (Krug Grande Cuvée)

Product line breadth (Tesco)

Innovative offerings (Logitech)

A shared passion for an activity or a product (Ducati)

Global connections and prestige (HSBC)


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Functional Strategies and ProgramsSupportive Functions or Programs

Manufacturing strategy

Distribution strategy

Brand-building strategy

Communication strategy

Information technology

strategy

Sourcing strategy

Global strategy

Segmentation strategy

Quality program

Customer relationship program

Social technology strategy

PPT 1-39

Criteria to Select Business Strategies

Is the ROI (return on investment) attractive?

Is there a Sustainable Competitive Advantage?

Exploit assets and competencies

Neutralize weaknesses

Will the strategy have success in the future? (scenario testing – is it adaptable?)

Is the strategy feasible (within the organization’s capabilities)?

Does the strategy fit with the other strategies of the firm?

PPT 1-40

Overview of Strategic Market Management

External Analysis• Customer Analysis• Competitor Analysis• Market/submarket Analysis• Environmental Analysis

Internal Analysis• Performance Analysis• Determinants of strategic options

SWOT Strategic Analysis Outputs etcSWOT Strategic Analysis Outputs etc

Figure 2.1

Creating, Adapting, and Implementing Strategy

Creating, Adapting, and Implementing Strategy

PPT 1-41

Why Strategic Market Management?

Precipitate the consideration of strategic choices.

Help a business cope with change.

Force a long-range view.

Make visible the resource allocation decision.

Aid strategic analysis and decision making.

Provide a strategic management and control system.

Provide both horizontal and vertical communication and coordination systems.


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Strategic Options Quality

Innovation

Focus

Being global

Product attribute

Product design

Product quality

Product line breadth

Corporate social responsibility

Brand familiarity

Customer intimacy


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Key Ideas A business strategy includes the determination of the product-

market investment strategy, the customer value proposition, assets and competencies, and functional area strategy.

Strategy needs to be developed and executed in the context of a dynamic market. To cope, it is important to develop competencies in strategic analysis, innovation, managing multiple businesses, and developing Sustainable Competitive Advantages.

Strategic market management is a system designed to help visions. A strategic vision is a vision of a future strategy or sets of strategies. Strategic market management includes a strategic analysis of the business to identify existing or emerging opportunities, threats, trends, strategic uncertainties, and strategic alternatives.

The CMO role has grown over the years and is now often charged with being a partner in developing strategies and a vehicle to deal with the dysfunctions of the product market silos.


“It isn’t that they can’t see the solution, it’s that they can’t see the problem.”

G. K. Chesterton


“Strategy is a framework which guides those choices that determine the nature and direction

of an organisation.”

Benjamin B. Tregoe & John W. Zimmerman“Top Management Strategy”


“Strategy is the creation of a unique and valuable position, involving a different set of

activities.”

Michael Porter, “What is Strategy?”

Harvard Business Review


“Four dimensions define a business strategy: the product-market investment strategy, the

customer value proposition, assets and competencies, and functional strategies and

programs. The first specifies where to compete, and the remaining three indicate how to

compete to win.”

David Aaker and Damien McLoughlin“Strategic Market Management”

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Ch 1 -48

Organizations should continually monitor internal and external events and trends so that timely changes can be made as needed

Adapting to Change

Competitive advantage is “Anything that a firm does especially well compared to rival firms”

But: self interest and greed are distinct Self interest often means helping others Gains from greed are usually short term

According to Fred David: “Strategic Management is Gaining and Maintaining Competitive Advantage”


Ch 1 -50

1. Continually adapting to changes in external trends and events and internal capabilities, competencies, and resources

Achieving Sustained Competitive Advantage

2. Effectively formulating, implementing, and evaluating strategies that capitalize on those factors

External Opportunities and Threats Analysis of Trends

Social, Economic, Demographic Cultural Political, Legal, Governmental Technological Competitors

Larger companies may have people designated to monitor external threats and opportunities

Lobbying seeks to influence government


Ch 1 -52

Basic Tenet of Strategic Management

External Opportunities and Threats

Strategy Formulation

Take advantage of External Opportunities

Take advantage of External Opportunities

Avoid/minimize impact ofExternal Threats

Avoid/minimize impact ofExternal Threats


Ch 1 -53

Controllable activities performed especially well or poorly

Determined relative to competitors

Internal Strengths and Weaknesses


Ch 1 -54

Typically located in functional areas of the firm

Management Marketing Finance/Accounting Production/Operations Research & Development Management Information Systems

Internal Strengths and Weaknesses


Ch 1 -55

Strategies

Examples Geographic expansion Diversification Acquisition Product development Market penetration Retrenchment Divestiture Liquidation Joint venture

Strategic Marketing Week 2

Documents

Transcript of Strategic Marketing Week 2