Strategic Marketing Management (STMM211)

Midterm Reviewer

Module 5: Opportunities, Threats, Industry Competition and

Competitor Analysis

THREAT OF NEW ENTRANTS

Barriers to Entry:
 Economies of Scale
 Product Differentiation
 Capital Requirements
SWOT Analysis
 Switching Costs
 Strengths
 Access to Distribution Channels
 Weaknesses
 Cost Disadvantages Independent of Scale
 Opportunities
 Government Policy
 Threats
 Expected Retaliation
The purpose of SWOT Analysis
BARGAINING POWER OF SUPPLIERS
 It is an easy-to-use tool for developing an overview of a
 Suppliers exert power in the industry by:
company’s strategic situation
 Threatening to raise prices or to reduce quality
 It forms a basis for matching your company’s strategy to its
 Powerful suppliers can squeeze industry profitability if firms
situation
are unable to recover cost increases
 Suppliers are likely to be powerful if:
SWOT is the starting point
 Supplier industry is dominated by a few firms
 It provides an overview of the strategic situation.
 Suppliers’ products have few substitutes
 It provides the “raw material” to do more extensive internal
 Buyer is not an important customer to supplier
and external analysis.
 Suppliers’ product is an important input to buyers’
product
OPPORTUNITIES
 Suppliers’ products are differentiated
 is a chance for firm growth or progress due to a favorable
 Suppliers’ products have high switching costs
juncture of circumstances in the business environment.
 Supplier poses credible threat of forward integration
 Possible Opportunities:
 Emerging customer needs
BARGAINING POWER OF BUYERS
 Quality Improvements
 Buyers compete with the supplying industry by:
 Expanding global markets
 Bargaining down prices
 Vertical Integration
 Forcing higher quality
 Playing firms off of each other
THREATS
 Buyer groups are likely to be powerful if:
 is a factor in your company’s external environment that poses
 Buyers are concentrated or purchases are large relative
a danger to its well-being.
to seller’s sales
 Possible Threats:
 Purchase accounts for a significant fraction of supplier’s
 New entry by competitors
sales
 Changing demographics/shifting demand
 Products are undifferentiated
 Emergence of cheaper technologies
 Buyers face few switching costs
 Regulatory requirements
 Buyers’ industry earns low profits
 Buyer presents a credible threat of backward integration
Opportunities and Threats form a basis for EXTERNAL analysis
 Product unimportant to quality
 By examining opportunities, you can discover untapped
 Buyer has full information
markets, and new products or technologies, or identify
potential avenues for diversification.
THREAT OF SUBSTITUTE PRODUCTS
 By examining threats, you can identify unfavorable market
 Products with similar function limit the prices firms can charge
shifts or changes in technology, and create a defensive posture
 Keys to evaluate substitute products:
aimed at preserving your competitive position.
 Products with improving price/performance trade-offs
relative to present industry products
The purpose of Five-Forces Analysis
Example:
 The five forces are environmental forces that impact on a
 Electronic security systems in place of security guards
company’s ability to compete in a given market.
 Fax machines in place of overnight mail delivery
 The purpose of five-forces analysis is to diagnose the principal
competitive pressures in a market and assess how strong and
RIVALRY AMONG COMPETING FIRMS IN INDUSTRY
important each one is.
 Intense rivalry often plays out in the following ways:
 Jockeying for strategic position
Porter’s Five Forces Model of Competition
 Using price competition
 Staging advertising battles
  Increasing consumer warranties or service
 Making new product introductions
 Occurs when a firm is pressured or sees an opportunity
 Price competition often leaves the entire industry worse
off
 Advertising battles may increase total industry demand,
but may be costly to smaller competitors
 Cutthroat competition is more likely to occur when:
 Numerous or equally balanced competitors
 Slow growth industry
 High fixed costs
 High storage costs
 Lack of differentiation or switching costs
 Capacity added in large increments
 Diverse competitors
 High strategic stakes
 High exit barriers
The Five Forces are Unique to Your Industry
 Five-Forces Analysis is a framework for analyzing a particular
industry.
 Five forces affect all the other businesses in that industry.
Competitor Analysis
The follow-up to Industry Analysis is effective analysis of a firm’s
Competitors
 Industry Environment
 Competitive Environment
WHAT DRIVES THE COMPETITOR?
Future Objectives
 How do our goals compare to our competitors’ goals?
 Where will emphasis be placed in the future?
 What is the attitude toward risk?
WHAT IS THE COMPETITOR DOING? WHAT CAN THE COMPETITOR
DO?
Current Strategy
 How are we currently competing?
 Does this strategy support changes in the competitive
structure?
WHAT DOES THE COMPETITOR BELIEVE ABOUT ITSELF AND THE
INDUSTRY?
Assumptions
 Do we assume the future will be volatile?
 What assumptions do our competitors hold about the
industry and themselves?
 Are we assuming stable competitive conditions?
WHAT ARE THE COMPETITORS’ CAPABILITIES?
Capabilities
 What are my competitors’ strengths and weaknesses?
 How do our capabilities compare to our competitors?
Conclusion
 Know your competitors as you know yourself
 Create and sustain your competitive advantage
 The market size matters! Take the advantage of it.
 The key success factors will give you the core
competencies hence a competitive advantage
Module 6: Internal vs. External Analysis
 Mission
 Vision
 Values
 SWOT Analysis
 Strategic Planning
 Does it work? Is it worth it?
Sustainability of a Competitive Advantage
Sustainability of a competitive advantage is a function of:
 The rate of core-competence obsolescence due to
environmental changes
 the availability of substitutes for the core competence
 the imitability of the core competence
Challenge of Internal Analysis
 How do we effectively manage current core competencies
while simultaneously developing new ones?
 How do we assemble bundles of resources, capabilities and
core competencies to create value for customers?
 How do we learn to change rapidly?
Three Conditions Affecting Managerial Decisions About Resources,
Capabilities, and Core Competencies
 UNCERTAINTY -regarding characteristics of the general and
the industry environments, competitors’ actions, and
customers’ preferences
 COMPLEXITY -regarding the interrelated causes shaping a
firm’s environments and perceptions of the environments
 INTRAORGANIZATIONAL CONFLICTS -among people making
managerial decisions and those affected by them
RESOURCES (Tangible , Intangible) OUTSOURCING
 Resources are what a firm has to work with--its assets--  Outsourcing is the purchase of some or all of a value-creating
including its people and the value of its brand name activity from an external supplier
 Resources represent inputs into a firm’s production process...  Usually this is because the specialty supplier can provide these
such as capital equipment, skills of employees, brand names, functions more efficiently
finances and talented managers
Tangible Resources Intangible Resources Strategic Rationales for Outsourcing
Financial Technological 1. IMPROVE BUSINESS FOCUS- let company focus on broader
Physical Innovation business issues by having outside experts handle various operational
Human resources Reputation details
Organizational 2. PROVIDE ACESS TO WORLD-CLASS CAPABILITIES - the specialized
resources of outsourcing providers makes world-class capabilities
CAPABILITIES available to firms in a wide range of applications
 Capabilities become important when they are combined in 3. ACCELERATE BUSINESS RE-ENGINEERING BENEFITS - achieves re-
unique combinations which create core competencies which engineering benefits more quickly by having outsiders--who have
have strategic value and can lead to competitive advantage already achieved world-class standards--take over process
 Capabilities are what a firm does, and represent the firm’s 4. SHARE RISKS - reduces investment requirements and makes firm
capacity or ability to integrate individual firm resources to more flexible, dynamic and better able to adapt to changing
achieve a desired objective opportunities
CORE COMPETENCIES
 Core competencies are resources and capabilities that serve as Core Competencies: Cautions and Reminders
a source of competitive advantage over rivals  Never take for granted that core competencies will continue
 Core competencies distinguish a company competitively and to provide a source of competitive advantage
make it distinctive  All core competencies have the potential to become core
 McKinsey and Co. recommends using three to four rigidities
competencies when framing strategic actions  CORE RIGIDITIES are former core competencies that now
generate inertia and stifle innovation
Four Criteria of Sustainable Advantages
1. VALUABLE - capabilities that help a firm neutralize threats Applying it to your Career/Organization
or exploit opportunities  What is your core competence?
2. RARE - capabilities that are not possessed by many others  Where does leadership fit?
3. COSTLY TO IMITATE - capabilities that other firms cannot  Is it really as complicated as theory makes it sound – e.g.,
develop easily, usually due to small business?
 Unique historical conditions  Where do core competences originate?
 Causal ambiguity
 Social complexity Conclusion
4. NONSUBSTITUTABLE - capabilities that do not have  Internal analysis and External are somehow interrelated
strategic equivalents  Resource base and capabilities are necessary for a stable
 Invisible to competitors internal environment
 Firm specific knowledge  Good management team is the best starting point to give a
 Trust-based working relationships between managers signal of internal capability/core competencies
and non-managerial personnel
Module 7: Managing the Marketing Strategies
Characteristics of Successful Strategy
 Unique competitive position for the company.
 Activities tailored to strategy.
 Clear trade-offs and choices vis-à-vis competitors.
 Competitive advantage arises from fit across activities.
 Sustainability comes from the activity system not the parts.
 Operational effectiveness a given.

Organizational Change
 Vertical Disaggregation
 Internal Redesign
 New Organizational Forms
Marketing Plan Outline
Corporate Strategy Components I. STRATEGIC SITUATION SUMMARY
 Management’s long-term vision for the corporation - Summarize the key points from your situation analysis (market
 Objectives analysis, segments, industry/competition) in order to recount the
 Assets, skills, and capabilities major events and provide information to better understand the
 Businesses in which the corporation competes strategies outlined in the marketing plan.
 Structure, systems, and processes
 Creation of value II. MARKET-TARGETS AND OBJECTIVES
- The market target may be defined demographically (key
Marketing Strategy Focus characteristics only), geographically, or in social/economic terms.
Each market target should have needs and wants that differ to some
degree from other targets. These differences may be with respect to
o types of products purchased
o use situation
o frequency of purchase
o other variations that indicate a need to alter the positioning
strategy to fit the needs and wants of each target.
- An objective is a quantified goal identifying what is expected when
it specifies the end results expected. The objectives should be
written for each target market. Objectives should also be included
for the following program components:
1. Product
Situation Analysis 2. Price
3. Distribution
4. promotion (salesforce, advertising, sales promotion, and public
relations)
5. Technical services

III. POSITIONING STATEMENTS

- Write statements that describe how you want each market
target to perceive each product relative to competition. State the
core concept used to position the product (brand) in the eyes and
mind of the targeted buyer. The positioning statement should
describe:
 What criteria or benefits the customer considers when
Designing Market-Driven Strategies buying a product along with the level of importance
 Market targeting and strategic positioning  What we offer that differentiates our product from
 Relationship strategies competition
 Planning for new products  The limitations of competitive products.

Positioning Strategy Development IV. MARKET MIX STRATEGY FOR EACH MARKET TARGET
A. Product Strategy
- Identify how each product fits the market target. Other issues
that may be addressed would be new product suggestions,
adjustments in the mix of existing products, and product deletion
candidates.
B. Price Strategy
- The overall pricing strategy (I.e., competitive, premium-priced,
etc.) should be identified along with a cost/benefit analysis if
applicable. Identify what role you want price to play, i.e. increase
share, maintenance, etc.
C. Distribution Strategy
- Describe specific distribution strategies for each market target.
Issues to be addressed are intensity of distribution (market
coverage), how distribution will be accomplished, and assistance
provided to distributors. The role of the sales force in distribution
strategy should also be considered.
D. Promotion Strategy
- Promotion strategy is used to initiate and maintain a flow of
communication between the company and the market target. To
assist in developing the communications program, the attributes or
benefits of our product should be identified for each market target.
How our product differs from competition (competitive advantage)
should be listed. The sales force’s responsibilities in fulfilling the
market plan must be integrated into the promotion strategy.
Strategies should be listed for
1. personal selling
2. Advertising
3. sales promotion
4. public relations

E. Marketing Research
- Describe the market research problem and the kind of
information needed. Include a statement which addresses why this
information is needed. The specific market research strategies can
be written once the above two steps have been followed.

V. COORDINATION WITH OTHER BUSINESS FUNCTIONS

- Indicate other departments/functions that have
responsibilities for implementing the marketing plan.

VI. SALES FORECASTS AND BUDGETS

VII.CONTINGENCY PLANS
- Indicate how your plans should be modified if events should Desirable Capabilities
occur that are different from those assumed in the plan.  Superior to the Competition
 Difficult to Duplicate
 Applicable to Multiple Competitive Situations
Module 8: Market Driven Strategy (A Case of SWA)
Types of Capabilities
SOUTHWEST AIRLINES  Outside-In Processes
 Point-to-Point Strategy  Inside-Out Processes
 On-Time Service  Spanning Processes
 High Aircraft Utilization
 Market-Oriented Culture Customer Delivered Value
 Low Operating Expenses  Benefits
 Lowest debt to capital ration of the major airlines.  Costs
 Low Fares
 No Connections with other airlines Creating Value for Customers

Characteristics of Market-Driven Strategies

Becoming Market Oriented
 Effective Market Sensing Processes
 Cross-Functional Analysis of Information
 Shared Diagnosis and Coordinated Action
 Delivery of Superior Customer Value
Components of Organizational Capabilities
Market-Driven Strategies
 Market Sensing Capabilities
 Customer Linking Capabilities
Module 9: Generic Strategies Strategic Choice
 In pursuing competitive advantage, a company also has to
choose its scope – whether it will target a particular
segment or go for a broad market. These choices define
four basic approaches to competitive advantage choices a
company makes determines ,“generic strategies” as Porter
calls them.
Generic Strategies (By M Porter)
  Porter interviewed Mr. Chuck Knight, CEO of Emerson
Electric Company, Emerson is the company most identified
in the United States with being a low-cost competitor.
They discuss how Emerson goes about succeeding as the
“best-cost producer”.
 Chuck Knight lists six points that have been critical to
Emerson’s success:
1. You can’t be the best-cost producer without having a
high-quality product.
2. Know the competitors’ costs.
3. Be receptive to change and be willing to go after
productivity in your plants.
4. Devise a formalized cost-reduction program.
5. Make all employees a part of the cost-reduction plan by
Stuck-In-The Middle
communicating the plan to them strongly.
 Failure to make a choice means that a company is stuck-
6. Commit capital to reduce long-run costs.
in-the middle, with no advantage. The result is poor
performance.
Summary of Cost Leadership
 In illustrating the concept of Generic strategies, Porter
 Cost leadership starts with a good product.
used four superior performing companies that follow each
 A cost leader is willing to make some choices to be low cost.
of the generic strategies. Ivory Soap is a broadly targeted,
 Successful cost leaders draw their advantage from many
low cost producer, La Quinta Inns is a cost focuser;
sources throughout the business.
American Airlines is a broad differentiator, and Cray
 Cost leaders pay intense regular attention to their competitors
Research, Inc., is a focused differentiator. The Companies
cost positions.
and the strategies are indicated on the Fig. above.
 Cost leaders build low cost into the culture of their
organizations.
Cost Leadership (First dimension)
 Cost leaders constantly manage costs down.
 A cost strategy begins with a good product that is
acceptable in quality and features. Instead of a unique
Differentiation (First Dimension)
product, the company following the cost strategy seeks
 The differentiation strategy starts by identifying needs
advantage by opening up a sustainable cost gap over its
that the buyer thinks are valuable. The differentiator then
competitors. It does so by managing the areas in the
sets out to meet these needs better than any other
business that are critical to cost. This leads to superior
competitor, and is willing to bear extra costs if necessary
margins, provided prices are at or near the industry
to do so. The differentiator seeks to command premium
average.
price, which leads to superior performance
 Porter uses Procter & Gambles Ivory Soap to illustrate the
 Provided the premium exceeds the extra costs of being
basic principles of positioning and to discuss the overall
unique. To illustrate his points, Porter discusses two
cost leadership strategy. Ivory’s strategies changed since it
companies – American Airline and Cray Research, Inc –
was first introduced. Porter shows how Ivory moved from
that successfully use differentiation strategies.
being a differentiator to being a basic soap providing good
 American Airline serves a wide range of travelers
value. Ivory’s shift in strategy illustrates both why a
(business vacation, personal) and seeks to be the
strategy may have to change as well as some principles of
differentiated airline.
competing as a cost leader.
Lessons from American Airlines
Cost Leadership (Second Dimension)
1. Any differentiator starts with the problem of creating
 Companies can also achieve cost advantage by focusing on
value for buyers successful. Differentiators find areas of
a particular target segment where they can be more
value that the buyer views as most important.
efficient than broadly targeted competitions. Companies
2. Successful differentiators not only create value, they also
in this position achieve advantage by dedicating
communicate their uniqueness to consumers through
themselves to serving the needs of a particular segment,
incredible ways.
and no more. Porter shows how La Quinta Inns has
3. Differentiators must be willing to bear the cost of being
created a strategy around a particular target customer –
unique. Differentiators must, however, minimize the
the traveling salesperson – and how this dedication
added costs of uniqueness.
satisfies the customer’s needs but allows La Quinta to be
4. In the pursuit of differentiation there is a trade-off
very low cost.
between cost and differentiation. Successful air
differentiators are clear about how they’re going to make
Lessons from La Quinta
it.
1. A focused strategy begins with choosing a particular target
5. To sustain differentiation, a company must be a moving
segment with unusual or distinctive needs.
target and constantly invent new buyer value.
2. A focused strategy dedicates everything to serving the
target segment exclusively.
Differentiation (Second Dimension)
3. Despite temptations, a focused strategy forgoes the
 Another route to differentiation is through a focus
opportunity to serve other segments, or offer other
strategy; that is, choosing a narrow target and
products or services.
concentrating on serving its needs better than more
4. A cost focus strategy depends on finding a target segment
broadly targeted competitors.
that has a lower level of needs than most of the market.
 Cray Research, Inc, which manufactures only
5. Cost advantage requires investment.
supercomputers, is a good example of a company that
6. Low cost must become part of the company’s culture if
this strategy is to be successfully implemented.
 targets a specific product segment dedicates itself to
providing uniquely high performance.

Lessons from Cray Research

1. Differentiation starts with creating value for the customer
that justifies a premium price.
2. Differentiation involves more than just a physical product.
Helping the customer to use the product is as important as
selling it.
3. To be successful, a differentiation strategy must be
communicated both internally and externally.
4. To sustain differentiation, a company must become a
moving target by improving performance and constantly
seeking innovation. Pricing Situations
5. The differentiation focus strategy requires that the  New product pricing
company isolate a segment that has more extensive needs  Life cycle pricing
in market.  Positioning strategy change
6. The focuser dedicates itself to (and bets everything on) its  Countering competitive threats
particular target segment(s).
7. A focused differentiator, like a focused low-cost Pricing Strategy for New and Existing Products
competitor, must avoid the tendency to blur its focus in  Set Pricing Objectives
pursuit of incremental business.  Analyze the Pricing Situation
 Select Pricing Strategy
Overall Lessons About Positioning  Determine Specific Prices and Policies
1. Successful strategy must concern itself with industry
structure as well as positioning.
2. Successful strategists select positions that are different
from their competitors.
3. Strategy involves making choices and trade-offs, and
taking risks. These are the flip-slides of advantage.

The Process of Developing Strategy

 In this final segment Porter discusses some of the practical
problems of developing and carrying out a strategy.
Important issues are how to organize an effective planning
process, how to communicate its results, and how to
measure performance.
Buyers’ Perceptions of Value Offerings of Brands A-E
Lessons for Effective Strategy Development
1. To develop strategy effectively, a company needs a formal
strategic planning process.
2. A multi-functional team is the best unit to develop a
strategy. It can take the holistic approach and make the
complex trade-offs essential in formulating effective
strategies
3. To be successful, a strategy needs to be communicated,
both internally and externally.
4. It takes time to change and communicate a strategy. A
strategy should be changed infrequently and must be
followed consistently.
5. Financial results are a misleading indication of strategic
health.
6. To gauge strategic health, companies have to create Guide to Cost Analysis
measure of underlying advantage, such as customer A. Determine cost structure
surveys, studies of cost position, and studies of how B. Analyze cost and volume relationships
products are performing relative to competition. C. Analyze competitive advantage
Customer satisfaction ought to be the best yardstick. D. Estimate the effect of experience on costs
7. A strategist must continually probe and test a strategy for E. Determine the extent of control over costs
the need to change.
Determinants of Pricing Flexibility

Module 10: Pricing Strategies & Sales

Strategic Approaches The Boston Matrix - Chocolate Bars

Illustrative Price Strategies Ansoff’s Matrix (Product/Market Matrix)

Basis of Determining Specific Prices Ansoff’s Matrix (Product/Market Matrix)

 Cost
 Demand
 Competition

Module 11: Product Decision (Ansoff’s Matrix)

Product and Service Classification System

 Convenience goods - little effort, relatively inexpensive
 Shopping goods - e.g ‘white goods’, equipment, more
expensive, infrequent
 Speciality goods - extensive search e.g Jewellery, gourmet
food
 Unsought goods - e.g. Buying a shirt just after seeing it. Module 12: Strategy Implementation and Control
 Implementation is the process that turns a marketing plan into
The Product Life Cycle (PLC) Model specific tasks to be performed and ensures that they
ultimately accomplish the plan’s objectives.
 If the implementation process is not well thought-out and
managed, the plan will not succeed.

Factors in Implementation
 On-time and accurate performance by marketing staff,
agencies and vendors (the organization staff must deliver their
services according to the specifications in the plan)
 Clear delineation of responsibilities of various elements of the
implementation process (each task must be accomplished and
naming the individual responsible)
 Communication of the plan’s objectives, strategies, and tactics
throughout the bank (it is important that all areas of the bank
be aware of the bank’s marketing efforts).
The Boston Matrix (Growth/Share Matrix)
 Cooperation of all areas affected by implementation (the
individual who chairs the task force must effectively steer the
group toward the desired end).
 Monitoring of results (having a system in place for monitoring
the implementation process and its progress toward
achievement of the plan’s goals) = PROGRESSIVE EVALUATION

Strategy Control
 The control process involves continuous monitoring and
evaluation of the strategic plan as well as feedback necessary
to ensure that the plan has been assigned and communicated
to the right people in the right way.
 Adequate monitoring system will help to trace the causes of
problems and take corrective actions.
 Plans may derail because of the changes in the operational
environment (competition, technology, social, economic,
political or legal factors) or some situation within the firm (lack
of cooperation at the operating level): Therefore
 Problems should be viewed as opportunities for learning,
growth, and improvement.

Total Concluding Summary

 It is imperative for any marketer to understand the role of
strategy in Business
 Strategy is set of unified Coherent and integrated set of ideas
 There are long and short term strategies
 Customer are not and will never buy products but values
 Understand the mission of an organization
 You need to analyze your customers in order to be customer
driven
 Industry analysis is important to determine the attractiveness
of an industry
 Market driven strategies are more sustainable
 Product decision are necessary in order to make proper choice
of the strategy