STRATEGIC MARKETING PLANNING

STRATEGY Strategy is the framework of the choices that determine the nature and direction of the organization. The framework as a whole establishes the boundaries or parameters that define the scope of business activity-in short, an organizations domain. The screens, or the criteria, that determine whats in or out are derived from variety of sources, such as current domain, the organizations overriding beliefs and values, the competitive advantages identified, and shareholder and parent company interests. For example, a privately owned Swiss trading firm, Gerad S. A., does not trade with terrorist regimes or their supporters; they also chose not to trade in weapons, tobacco, or alcohol. These activities would contradict the core beliefs of its devout Hindu owners. Choices are made in three dimensions of an organization: the product or service it will offer, the markets (consumers, customers and geographies) that it will serve, and the key capabilities that it must deploy in order to take its products and services to its markets. The criteria that guide their choices vary. We know of several global firms, for example, that have chosen to limit their entry into certain geographic markets based on prevalence of an acceptable business climate characterized by a solid banking structure, minimal corruption, a minimum per capita gross domestic product (GDP), and an overall Western legal and business orientation. The nature of an organization is what exemplifies it, describes its character and makes its shape recognizable. For example, Mc Donalds is now an epitome of fast food chain. Around the world, Intel means chips; any Disney is synonymous with family entertainment. The nature of an organization lends strategic coherence to its decision-making and communication. Also, Strategy has much to say about future. Direction is our term for the organizations future course. It encompasses the choices that will be made about future products and services, future customers and markets. For example, Mc Donalds could have been once described as a Hamburger chain, but that no longer applies. Through on going strategic choices about its direction its nature has now been redefined. Ford and other automobile companies have metamorphosed to encompass both products (agriculture equipment, and even planes) and services (insurance, financing, and rental/leasing) that redefine their nature. Is BMW now a transport company? Daimler-Chrysler a conglomerate? Every organization has a direction; it is headed somewhere. Unfortunately, in many organizations, that direction is not the result of conscious choice. Chief executives who have the insight and the discipline to insure that the use of an effective process leads the organization in a clearly defined organization lead the best organizations. In a sense, organizations continually reinvent themselves as they make strategic choices. New markets may be pursued as certain criteria may be relaxed, tightened or revised; older products may be abandoned as the overall framework shifts based on new technological assumptions. This constant evaluation of what is in and what is out is a reflection of a shift in a dynamic strategy. Whether these changes are transformational or incremental, they arise as a result of the organizations strategic framework.

By preparing the statements of mission policy, strategy, and goals, headquarters establishes the framework within which the divisions and business units prepare their plan. In some corporation these business units are free to have their own set of sales and profit goals and strategy. Others may have to set their goals as per their goals and strategy framed by headquarters. All corporate headquarters undertake four planning activities. Defining the corporate mission Establishing the strategic business units Assigning resources to each SBU SMP-Som; MBA 2ND Sem; FoM; GEU

Planning new businesses, downsizing older businesses.

Defining the corporate mission

Mission is often perceived as raison d etre, or reason for existence and may be defined as organizations continuing purpose or reason for being. As the organization grows older its mission becomes unclear, for the corporation may have added new products and markets to its portfolio. At this stage the company must renew its search for purpose. The company can ask itself some fundamental questions. What is our business? Who is the customer? What will our business be? What should our business be? Organizations develop mission statements to share with its managers, employees and (in many cases) customers. A well-worked statement provides employees with a shared share of purpose, direction and opportunity. Good mission statements have three major characteristics. First they are focused on limited number of goals Second mission statement stresses the major policies and values the company wants to honour. Third, they define the major competitive scope within which the company will operate: i. Industry scope ii. Products and applications scope iii. Competence scope iv. Market-segment scope v. Vertical scope vi. Geographical scope
Establishing SBU

A business can be defined in terms of three dimensions Customer groups Customer needs Technology An SBU has three characteristics, i. It is a single business or collection of related business that can be planned separately from rest of the company. ii. It has its own set of competitors iii. It has a manager who is responsible for strategic planning and profit performance and who controls most of the factors affecting profits. Assigning resources to each SBU The purpose of identifying the companys strategic business unit is to develop separate strategies and to assign appropriate funding. The top management knows that its portfolio of business usually includes a number of yesterdays has been and tomorrows bread winners. But that cannot be the criteria of classification. Certain approaches for marketing planning are discussed below:

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SITUATION AUDIT Where are we? How did we reach here? Who have been our major competitors? Their strategies ANALYSIS OF FIRMS STRENGTH AND WEAKNESSES What are the key facilitators or hindrances in our situation?

OBJECTIVE SETTING Market share? ROI? Sales turnover? DEVELOP AND EVALUATE STATEGIC OPTIONS STRATEGIC DECISION MAKING
IMPLEMENTATION

FIG: STRATEGIC PLANNING PROCESS

PIMS (Profit Impact on Market Strategies)

The PIMPS approach suggests identification of the strength and weaknesses on the basis of firms ROI. Also, the firm should also analyze its cash flows/ investments that are normal for a business, given its market environment, competitive position, production structure, budget allocation, and the historical pattern of strategic moves. Strategic strengths and weaknesses are identified on the basis of individual profit or cash flow or o the forecast of ROI. This analysis also helps the firm to identify key success factors in the industry. Another key factor is the market share. PIMS programme today is widely accepted in industry, mainly because contingent principles of business strategy, governing relationship among the characteristics of market served by a business unit, its competitive position, and the strategy it employs and the financial results.

SMP-Som; MBA 2ND Sem; FoM; GEU

Portfolio Methods

The two most widely practiced method of portfolio analysis for marketing planning area. The Boston Consulting Group Approach (BCG) b. The general Electric Approach (GE)
Boston Consulting Group

BCG model provides a graphic representation for an organization to examine different business in portfolio on the basis of relative market shares and industry growth rates. I N D U S T R Y G R O W T H R A T E

BCG MODEL
H 20% STARS
1

PROBLEM CHILD 7

15% 3 10% 4 5% 6 L H

Hold CASH COW

5

8 DOGS

Invest

9 10

Harvest

Divest L

RELATIVE MARKET SHARE

Business could be classified as either low or high according to their industry growth rate and relative market share. The vertical axis denotes the rate of growth in % for a particular industry. The horizontal axis represents the relative market share, which is the ratio of a companys sales to the industrys largest competitor or market leader. The four cells of BCG matrix are termed as STARS, CASHCOWS, QUESTION MARKS or PROBLEM CHILDREN & DOGS. And each of the cells represents the particular type of business. STARS Stars are high growth high market share businesses, which may or may not be self sufficient in terms of cash flows. This cell corresponds to the growth phase of the Product Life Cycle (PLC). A company generally pursues an SMP-Som; MBA 2ND Sem; FoM; GEU 4

expansion strategy to establish a strong competition with regard to a star business. Examples: Petrochemicals, electronics and telecommunications, fast food, ceramic tiles etc.

CASHCOWS

Businesses that generate a large amount of cash but their rate of growth is slow. In terms of PLC these generally are matrix businesses, which are reaping the benefits of experience curve. The cash generation exceeds the reinvestment that can profitably be made cash cows. This business can mainly adopt strategy of stability. When longterm prospects are exceptionally bright, limited expansion can be adopted. As cash cow industries loose their attractiveness and tend towards decline, a phased retrenchment strategy may be feasible. The cash generated by cash cows is reinvested in stars and question marks. Companies, which are well entrenched in established markets enjoy the advantages of cash cows. Bikes particularly Splendor for Hero Honda, Maruti 800 for MUL, India Today for Living Media are few of the cash cows in contempory markets. Business with high growth but low market share for a company is question mark or problem children. They require large amounts of cash to maintain or gain market share. These are usually new products or services having good commercial potential. The logic of experience curve dictates that a company obtaining an early lead can expect cost advantages and market leadership and can successfully create entry barriers. No single strategy is recommended. If a company feels it can obtain large market share, select expansion strategies, other retrenchment is more realistic alternative. Question marks may therefore become stars if more investment is made or may become dogs if ignored. Holiday resorts; Light commercial Vehicles (LVC) and Home Improvement Equipments are some examples of question marks. Those businesses where there is slow-growth and where a company has a low relative market share are termed as dogs. They neither require nor generate large amount of cash. In terms of PLC dogs are usually products in late maturity or declining stage. Experience curve shows that for a company there is a disadvantage due to low market share. The only way a company can gain a market share is

PROBLEM CHILDREN

DOG

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at the competitors costthough it has remote possibilities due to the cost involved. So, retrenchment strategies are usually followed. However, the government policies may artificially sustain dogs. Cotton textiles, jute, shipping, leasing, photocopiers, are examples that have become dogs for few of the companies. General strategies involved
STAGE STAR QUESTION MARK CASH COW DOGS STRATEGIES ADOPTED Hold market share Build market share Harvest Divest

Revised BCG framework It is revised BCG framework and stars, question marks, cash cows, and dogs have been replaced by Volume, Specialization, Profitable fragmented, and Stalemate respectively. The revised BCG can be put as
MAINTAIN & SUPPORT VOLUME
(Emphasize market share leadership)

DIVEST STALEMATE
(Regardless of relative market share)

SPECIALIZATION
(Emphasize maintenance of low market share)

UNPROFITABLE FRAGMENTED
(Regardless of relative market share)

PROFITABLE FRAGMENTED
(Do not emphasize market share)

G E Approach

The GE Approach is an improvement over the BCG model as it relates the market attractiveness to the SBU or firms strengths, which will make it competitive in market place. Factors determining market attractiveness are state of competition, government policy, ROI, rate of technology development, overall market size, annual market growth rate and other environmental variables. Strength of an SBU may lie in R&D, finance, distribution, market share, product quality, brand image, production capacity, managerial personnel etc. Each of these factors constitute market attractiveness and the SBUs strengths are assigned a weight, which represents the importance the management assigns to it and is measured on a 5 point scale with one indicating very unattractive or very low, and five, very attractive or very high. Based on this analysis, the GE model suggests a 3-coloured screen and mentions products or SBUs may fall in any part of this coloured screen. The three colours are green, yellow and red.

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M A R K E T H A T T R M A C T I V E N L E S S

INVEST

Go WAIT & SEE SELECTIVITY Go No DIVEST/ HARVEST

M GE NINE CELLS

SBUs falling in green segment i.e., moderate to high market attractiveness and moderate to high strengths require the firm to invest in it and evolve strategies that will lead it to grow. This is very promising segment. The firm will have to evolve aggressive strategies to penetrate effectively in this segment. From the point of view of a decision to enter a market, this situation represents a go decision. SBUs that fall in the red segment, i.e., low to moderate market attractiveness and company strengths, will require the marketer to harvest them or divest from its portfolio. If a new business falls in this segment, the firm will be advised not to enter in it. All other SBUs falling in the yellow segment, i.e., low market attractiveness and moderate SBU strength and high market attractiveness but low SBU strength, and high market attractiveness but low SBU strength, demand that management uses the principle of selectivity, or in other words wait and go strategy.

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M A R K E T A T T R A C T I V E N E S S

Strong PROTECT POSITION

STRATEGIES Medium
INVEST TO BUILD

Weak
BUILD SELECTIVELY

BUILD SELECTIVELY

SELECTIVITY MANAGE FOR EARNINGS

LIMITED EXPANSION OR HARVEST

PROTECT AND REFOCUS

MANAGE FOR EARNINGS

DIVEST

Downsizing older Business, Planning new ones 1. Intensive growth 2. Integrative growth 3. Diversification growth DESIRED SALES Diversification growth Integrative growth Intensive growth
STRATEGIC PLANNING GAP

CURRENT PORTFOLIO

TIME (years)

Intensive Growth

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 Market Penetration Strategy Market Development Strategy Product Development Strategy Integrative Growth Balanced Integration Forward Integration Horizontal Integration Diversification Growth Concentric Diversification Strategies Horizontal Diversification Strategies Conglomerate Diversification Strategies Current Products 1. MARKET PENENTRATION STRATEGY 2. MARKET DEVELOPMENT STRATEGY New Products 3. PRODUCT DEVELOPMENT STRATEGY 4. DIVERSIFICATION STRATEGY

Current Markets

New Markets

Downsizing Older Businesses Carefully prune, harvest or divest tired old businesses in order to release needed resources or reduce cost.
BUSINESS STRATEGIC PLANNING
EXTERNAL ENVIRONMENT (Opportunity and threat analysis)

SWOT Analysis
BUSINESS MISSION
Goal Formulation Strategy Formulation Program Formulation Implementation Feedback & control

INTERNAL ENVIRONMENT (Strength & weaknesses analysis)

The Business Strategic Planning Process

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Business Mission

Each SBU needs to define its specific mission within the broader company mission SWOT Analysis
EXTERNAL ENVIRONMENT (Opportunity and threat analysis) INTERNAL ENVIRONMENT (Strength & weaknesses analysis)

Goal Formulation Goals are used to describe objectives that are specific with respect to magnitude and time. Generally business units may pursue a mix of objectives-profitability, sales growth, market share improvement, risk containment, innovativeness and reputation. Strategy Formulation Goals indicate what a business unit wants to achieve; strategy is the game plan for getting in there. Michael E porter has give three types of marketing strategies. i. Overall cost leadership ii. Differentiation iii. Focus Strategic Alliances Product or Service Alliances Promotional Alliances Logistics Alliances Pricing Collaborations Program Formulation Once the business unit has developed its principal strategies, it must work out a detailed program as support. Implementation

Feedback & control

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