DIWAKAR EDUCATION HUB

STATEGIC
MANAGEMENT
(UNIT-6)
UPDATED NOTES UGC-NET MANAGEMENT (CODE-17)

DIWAKAR EDUCATION HUB

3/20/2019
strategic management
Strategic management is the continuous planning, monitoring, analysis and assessment of all
that is necessary for an organization to meet its goals and objectives. Fast-paced innovation,
emerging technologies and customer expectations force organizations to think and make
decisions strategically to remain successful. The strategic management process helps
company leaders assess their company's present situation, chalk out strategies, deploy them
and analyze the effectiveness of the implemented strategies. The strategic management
process involves analyzing cross-functional business decisions prior to implementing them.
Strategic management typically involves:

 Analyzing internal and external strengths and weaknesses.

 Formulating action plans.

 Executing action plans.

 Evaluating to what degree action plans have been successful and making changes when
desired results are not being produced.
Importance of strategic management

Strategic management necessitates a commitment to strategic planning, which represents an

organization's ability to set both short- and long-term goals, then determining the decisions
and actions that need to be taken to reach those goals.IT leadership and management

A brief explanation of how to be a collaborative and strategic IT leader.

The strategic management process is a management technique used to plan for the future:
Organizations create a vision by developing long-term strategies. This helps identify
necessary processes and resource allocation to achieve those goals. It also helps companies
strengthen and support their core competencies.

By determining a strategy, organizations can make logical decisions and develop new goals
quickly to keep pace with the changing business environment. Strategic management can
also help an organization gain competitive advantage and improve market share.

SWOT analysis
A SWOT analysis is a crucial element of strategic management by helping companies identify
their strengths, weaknesses, opportunities and threats. The SWOT analysis helps detect and
analyze internal and external environments and other factors that may impact the business,
and helps organizations prepare for the future. It also aids decision-makers by analyzing key
aspects of their organizational environment to help formulate competitive strategies.

The process is helpful when determining whether the firm's resources and abilities will be
effective in the competitive environment within which it has to function, and when developing
their goals and strategies to remain successful in this environment.

The value of organizational culture in strategic management

Organizational culture can determine the success and failure of a business and is a key
component that strategic leaders consider when developing a dynamic organization. Culture
is a major factor in the way people in an organization outline objectives, execute tasks and
organize resources. A strong business culture will make it easier for leaders to motivate their
staff to execute their tasks in alignment with the outlined strategies.

Therefore, it is important to create strategies that are suitable to the organization's culture. If a
particular strategy does not match the organization's culture, it would hinder the ability to
accomplish the outcomes expected from that strategy implementation.

strategic Management Process

1. Defining the levels of strategic intent of the business:
 Establishing vision
 Designing mission
 Setting objectives
2. Formulation of strategy
 Performing environmental and organizational appraisal
 Considering strategies
 Carrying out strategic analysis
 Making strategies
 Preparing strategic plan
3. Implementation of strategy
 Putting strategies into practice
 Developing structures and systems
 Managing behavioural and functional implementation
4. Strategic Evaluation and Control
 Performing evaluation
 Exercising control
 Recreating strategies
Strategic Management is all about specifying organization’s vision, mission and objectives,
environment scanning, crafting strategies, evaluation and control.

Importance of Strategic Management

 It guides the company to move in a specific direction. It defines organization’s goals and fixes
realistic objectives, which are in alignment with the company’s vision.
 It assists the firm in becoming proactive, rather than reactive, to make it analyse the actions of
the competitors and take necessary steps to compete in the market, instead of becoming
spectators.
 It acts as a foundation for all key decisions of the firm.
 It attempts to prepare the organization for future challenges and play the role of pioneer in
exploring opportunities and also helps in identifying ways to reach those opportunities.
 It ensures the long-term survival of the firm while coping with competition and surviving the
dynamic environment.
 It assists in the development of core competencies and competitive advantage, that helps in the
business survival and growth.
The basic purpose of strategic management is to gain sustained-strategic competitiveness of the
firm. It is possible by developing and implementing such strategies that create value for the
company. It focuses on assessing the opportunities and threats, keeping in mind firm’s strengths
and weaknesses and developing strategies for its survival, growth and expansion.

BREAKING DOWN Strategic Management

Strategic management is divided into several schools of thought. A prescriptive approach to
strategic management outlines how strategies should be developed, while a descriptive approach
focuses on how strategies should be put into practice. These schools differ over whether
strategies are developed through an analytic process in which all threats and opportunities are
accounted for, or are more like general guiding principles to be applied.

Business culture, the skills and competencies of employees, and organizational structure are
important factors that influence how an organization can achieve its stated objectives. Inflexible
companies may find it difficult to succeed in a changing business environment. Creating a barrier
between the development of strategies and their implementation can make it difficult for managers
to determine whether objectives were efficiently met.

While an organization’s upper management is ultimately responsible for its strategy, the strategies
themselves are often sparked by actions and ideas from lower-level managers and employees. An
organization may have several employees devoted to strategy rather than relying on the chief
executive officer (CEO) for guidance. Because of this reality, organization leaders focus on
learning from past strategies and examining the environment at large. The collective knowledge is
then used to develop future strategies and to guide the behavior of employees to ensure that the
entire organization is moving forward. For these reasons, effective strategic management requires
both an inward and outward perspective.

Strategic Management in Practice

Making companies able to compete is the purpose of strategic management. To that end, putting
strategic management plans into practice is the most important aspect of the planning itself. Plans
in practice involve identifying benchmarks, realigning resources – financial and human – and
putting leadership resources in place to oversee the creation, sale, and deployment of products
and services. Strategic management extends to internal and external communication practices as
well as tracking to ensure that the company meets goals as defined in its strategic management
plan.

For example, a for-profit technical college wishes to increase enrollment of new students and
graduation of enrolled students over the next three years. The purpose is to make the college
known as the best buy for a student's money among five for-profit technical colleges in the region,
with a goal of increasing revenue. In this case, strategic management means ensuring that the
school has funds to create high-tech classrooms and hire the most qualified instructors. The
college also invests in marketing and recruitment and implements student retention strategies.
The college’s leadership assesses whether its goals have been achieved on a periodic basis.

What is Strategic Analysis?

Strategic analysis refers to the process of conducting research on a company and its operating
environment to formulate a strategy. The definition of strategic analysis may differ from an
academic or business perspective, but the process involves several common factors:
 1. Identifying and evaluating data relevant to the company’s strategy
2. Defining the internal and external environments to be analyzed
3. Using several analytic methods such as Porter’s five forces analysis, SWOT analysis,
and value chainanalysis

What is Strategy?

A strategy is a plan of actions taken by managers to achieve the company’s overall goal and
other subsidiary goals. It determines the success of a company. In strategy, a company is
essentially asking itself, “Where do you want to play and how are you going to win?” The
following guide gives a high-level overview of business strategy, its implementation, and the
processes to lead to business success.

Vision, Mission, and Values

To develop a business strategy, a company needs a very well-defined understanding of what it

is and what it represents. Strategists need to look at the following:

 Vision – What it wants to achieve in the future (5-10 years)

 Mission Statement – What business a company is in and rallies people
 Values – The fundamental beliefs of an organization reflecting its commitments and
ethics

After gaining a deep understanding of the company’s vision, mission, and values, strategists
can help the business undergo a strategic analysis. The purpose of a strategic analysis is to
analyze an organization’s external and internal environment, assess current strategies, and
generate and evaluate the most successful strategic alternatives.

Strategic Analysis Process

The following infographic demonstrates the strategic analysis process:

1. Perform an environmental analysis of current strategies
Starting from the beginning, a company needs to complete an environmental analysis of its
current strategies. Internal environment considerations include issues such as operational
inefficiencies, employee morale, and constraints from financial issues. External environment
considerations include political trends, economic shifts, and changes in consumer tastes.

2. Determine the effectiveness of existing strategies

A key purpose of a strategic analysis is to determine the effectiveness of the current strategy
amid the prevailing business environment. Strategists must ask themselves questions such as:
Is our strategy failing or succeeding? Will we meet our stated goals? Does our strategy align
with our vision, mission, and values?

3. Formulate plans
If the answer to the questions posed in the assessment stage is “No” or “Unsure,” we undergo
a planning stage where the company proposes strategic alternatives. Strategists may propose
ways to keep costs low and operations leaner. Potential strategic alternatives include changes
in capital structure, changes in supply chain management, or any other alternative to a
business process.
4. Recommend and implement the most viable strategy
Lastly, after assessing strategies and proposing alternatives, we reach the recommendation.
After assessing all possible strategic alternatives, we choose to implement the most viable and
quantitatively profitable strategy. After producing a recommendation, we iteratively repeat the
entire process. Strategies must be implemented, assessed, and re-assessed. They must change
because business environments are not static.

Levels of Strategy

Strategic plans involve three levels in terms of scope:

1. Corporate-level (Portfolio)
At the highest level, corporate strategy involves high-level strategic decisions that will help a
company sustain a competitive advantage and remain profitable in the foreseeable future.
Corporate-level decisions are all-encompassing of a company.

2. Business-level
At the median level of strategy are business-level decisions. The business-level strategy
focuses on market positions to help the company gain a competitive advantage in its own
industry or other industries.

3. Functional-level
At the lowest level are functional-level decisions. They focus on activities within and between
different functions aimed at improving the efficiency of the overall business. The strategies are
focused on particular functions and groups.

Strategy Formulation
Definition: Strategy Formulation is an analytical process of selection of the best suitable
course of action to meet the organizational objectives and vision. It is one of the steps of
the strategic management process. The strategic plan allows an organization to examine its
resources, provides a financial plan and establishes the most appropriate action plan for increasing
profits.

It is examined through SWOT analysis. SWOT is an acronym for strength, weakness, opportunity
and threat. The strategic plan should be informed to all the employees so that they know the
company’s objectives, mission and vision. It provides direction and focus to the employees.
 Steps of Strategy Formulation
The steps of strategy formulation include the following:

1. Establishing Organizational Objectives: This involves establishing long-term goals of

an organization. Strategic decisions can be taken once the organizational objectives are
determined.
2. Analysis of Organizational Environment: This involves SWOT analysis, meaning identifying the
company’s strengths and weaknesses and keeping vigilance over competitors’ actions to
understand opportunities and threats.

Strengths and weaknesses are internal factors which the company has control over. Opportunities
and threats, on the other hand, are external factors over which the company has no control. A
successful organization builds on its strengths, overcomes its weakness, identifies new
opportunities and protects against external threats.

3. Forming quantitative goals: Defining targets so as to meet the company’s short-term and long-
term objectives. Example, 30% increase in revenue this year of a company.
4. Objectives in context with divisional plans: This involves setting up targets for every
department so that they work in coherence with the organization as a whole.
5. Performance Analysis: This is done to estimate the degree of variation between the actual and
the standard performance of an organization.
6. Selection of Strategy: This is the final step of strategy formulation. It involves evaluation of the
alternatives and selection of the best strategy amongst them to be the strategy of the organization.

Strategy formulation process is an integral part of strategic management, as it helps in framing

effective strategies for the organization, to survive and grow in the dynamic business environment.

Levels of strategy formulation

 There are three levels of strategy formulation used in an organization:

 Corporate level strategy: This level outlines what you want to achieve: growth, stability,
acquisition or retrenchment. It focuses on what business you are going to enter the market.
 Business level strategy: This level answers the question of how you are going to compete. It
plays a role in those organization which have smaller units of business and each is considered as
the strategic business unit (SBU).
 Functional level strategy: This level concentrates on how an organization is going to grow. It
defines daily actions including allocation of resources to deliver corporate and business level
strategies.
Hence, all organisations have competitors, and it is the strategy that enables one business to
become more successful and established than the other.

Strength, Weakness, Opportunity, and Threat

(SWOT) Analysis
What is SWOT Analysis?
SWOT analysis is a framework used to evaluate a company's competitive positionand to develop
strategic planning. SWOT stands for strengths, weaknesses, opportunities, and threats. SWOT
analysis assesses internal and external factors, as well as current and future potential.

A SWOT analysis is designed to facilitate a realistic, fact-based, data-driven look at the strengths
and weaknesses of an organization, its initiatives or an industry. The organization needs to keep
the analysis accurate by avoiding pre-conceived beliefs or gray areas and instead focusing on
real-life contexts. Companies should use it as a guide and not necessarily as a prescription.

Volume 0%

SWOT Analysis
Understanding SWOT Analysis
SWOT analysis is a technique for assessing the performance, competition, risk, and potential of a
business, as well as part of a business such as a product line or division, an industry, or other
entity.
[Important: Using internal and external data, a SWOT analysis can tell a company where it
needs to improve internally, as well as help develop strategic plans.]

Using internal and external data, the technique can guide businesses toward strategies more likely
to be successful, and away from those in which they have been, or are likely to be, less
successful. An independent SWOT analysis analysts, investors or competitors can also guide
them on whether a company, product line or industry might be strong or weak and why.

A Visual Overview

SWOT Matrix.

Analysts present a SWOT analysis as a square with each of the four areas making up one
quadrant. This visual arrangement provides a quick overview of the company’s position. Although
all the points under a particular heading may not be of equal importance, they all should represent
key insights into the balance of opportunities and threats, advantages and disadvantages, and so
forth.
[Fast Fact: SWOT Analysis was first used to analyze businesses. Now it's often used by
governments, nonprofits, and individuals, including investors and entrepreneurs.]

Example of SWOT Analysis

In 2015, a Value Line SWOT analysis of The Coca-Cola Company noted strengths such as its
globally famous brand name, vast distribution network and opportunities in emerging markets.
However, it also noted weaknesses and threats such as foreign currency fluctuations, growing
public interest in "healthy" beverages and competition from healthy beverage providers.

Its SWOT analysis prompted Value Line to pose some tough questions about Coca-Cola's
strategy, but also to note that the company "will probably remain a top-tier beverage provider" that
offered conservative investors "a reliable source of income and a bit of capital gains exposure."

 Strengths describe what an organization excels at and what separates it from the
competition: a strong brand, loyal customer base, a strong balance sheet, unique
technology and so on. For example, a hedge fund may have developed a proprietary
trading strategy that returns market-beating results. It must then decide how to use those
results to attract new investors.
 Weaknesses stop an organization from performing at its optimum level. They are areas
where the business needs to improve to remain competitive: a weak brand, higher-than-
average turnover, high levels of debt, an inadequate supply chain or lack of capital.
 Opportunities refer to favorable external factors that could give an organization a
competitive advantage. For example, if a country cuts tariffs, a car manufacturer
can export its cars into a new market, increasing sales and market share.
 Threats refer to factors that have the potential to harm an organization. For example, a
drought is a threat to a wheat-producing company, as it may destroy or reduce the crop
yield. Other common threats include things like rising costs for materials, increasing
competition, tight labor supply and so on.

Advantages of SWOT Analysis

A SWOT analysis is a great way to guide business-strategy meetings. It's powerful to have
everyone in the room to discuss the company's core strengths and weaknesses and then move
from there to define the opportunities and threats, and finally to brainstorming ideas. Oftentimes,
the SWOT analysis you envision before the session changes throughout to reflect factors you
were unaware of and would never have captured if not for the group’s input.

A company can use a SWOT for overall business strategy sessions or for a specific segment such
as marketing, production or sales. This way, you can see how the overall strategy developed from
the SWOT analysis will filter down to the segments below before committing to it. You can also
work in reverse with a segment-specific SWOT analysis that feeds into an overall SWOT analysis.

Key Takeaways:

 SWOT analysis is a strategic planning technique that provides assessment tools.

 Identifying core strengths, weaknesses, opportunities, and threats lead to fact-based
analysis, fresh perspectives and new ideas.
 SWOT analysis works best when diverse groups or voices within an organization are free
to provide realistic data points rather than prescribed messaging.

What is Corporate Strategy?

Definition: Corporate strategy encompasses a firm’s corporate actions with the aim to
achieve company objectives while achieving a competitive advantage.
What Does Corporate Strategy Mean?
What is the definition of corporate strategy? A corporate strategy entails a clearly defined,
long-term vision that organizations set, seeking to create corporate value and motivate the
workforce to implement the proper actions to achieve customer satisfaction. In addition,
corporate strategy is a continuous process that requires a constant effort to engage investors
in trusting the company with their money, thereby increasing the company’s equity.
Organizations that manage to deliver customer value unfailingly are those that revisit their
corporate strategy regularly to improve areas that may not deliver the aimed results.
Let’s look at an example.

Example
Corporate strategies may pertain to different aspects of a firm, yet the strategies that most
organizations use are cost leadership and product differentiation.

Cost leadership is a strategy that organizations implement by providing their products and
services as low as consumers are willing to pay, thereby being competitive and realizing a
volume of sales that allows them to be the leaders in the industry. Typical examples of cost
leaders are Wal-Mart in the retail industry, McDonalds in the restaurant industry, and Ikea, the
furniture retailer that offers low-priced, yet good quality home equipment by sourcing its
products in emerging markets, thereby having a high-profit margin.
Product differentiation refers to the effort of organizations to offer a unique value proposition
to consumers. Typically, companies that manage to differentiate their products from the
competition are gaining a competitive edge, thereby realizing higher profits. Often,
competitors employ cost leadership to directly compete with these companies; yet, customer
satisfaction and customer loyalty are the factors that eventually make or break a strategy.

Other examples of corporate strategies include the horizontal integration, the vertical
integration, and the global product strategy, i.e. when multinational companies sell a
homogenous product around the globe.
Corporate strategies are always growth-oriented, seeking to retain a company’s existing
customer base while attracting new customers.
What are the Components of Corporate Strategy?

There are several important components of corporate strategy that leaders of organizations
focus on. The main tasks of corporate strategy are:

1. Allocation of resources
2. Organizational design
3. Portfolio management
4. Strategic tradeoffs
In the following sections, this guide will break down the four main components outlined
above.

#1 Allocation of Resources
The allocation of resources at a firm focuses mostly on two resources: people and capital. In
an effort to maximize the value of the entire firm, leaders must determine how to allocate
these resources to the various businesses or business units to make the whole greater than
the sum of the parts.

Key factors related to allocation of resources are:

 People
o Identifying core competencies and ensuring they are well distributed across the
firm
o Moving leaders to the places they are needed most and add the most value
(changes over time-based on priorities)
o Ensuring an appropriate supply of talent is available to all businesses
 Capital
o Allocating capital across businesses so it earns the highest risk-adjusted return
 o Analyzing external opportunities (mergers and acquisitions) and allocating
capital between internal (projects) and external opportunities

#2 Organizational Design
Organizational design involves ensuring the firm has the necessary corporate structure and
related systems in place to create the maximum amount of value. Factors that leaders must
consider are, the role of the corporate head office (centralized vs decentralized approach and
the reporting structure of individuals and business units (vertical hierarchy, matrix reporting,
etc.).

Key factors related to allocation of resources are:

 Head office (centralized vs decentralized)

o Determining how much autonomy to give business units
o Deciding whether decisions are made top down or bottom up
o Influence on the strategy of business units
 Organizational structure (reporting)
o Determine how large initiatives and commitments will be divided into smaller
projects
o Integrating business units and business functions such that there are no
redundancies
o Allowing for the balance between risk and return to exist by separating
responsibilities
o Developing centers of excellence
o Determining the appropriate delegation of authority
o Setting governance structures
o Setting reporting structures (military / top down, matrix reporting

#3 Portfolio Management
Portfolio management looks at the way business units complement each other, their
correlations, and decides where the firm will “play” (i.e. what businesses it will or won’t enter).

Corporate Strategy related to portfolio management includes:

 Deciding what business to be in or to be out of

 Determining the extent of vertical integration the firm should have
 Managing risk through diversification and reducing the correlation of results across
businesses
 Creating strategic options by seeding new opportunities that could be heavily invested
in if appropriate
 Monitor the competitive landscape and ensure the portfolio is well balanced relative to
trends in the market
#4 Strategic Tradeoffs
One of the most challenging aspects of corporate strategy is balancing the tradeoffs between
risk and return across the firm. It’s important to have a holistic view of all the businesses
combined and ensure that the desired levels are risk management and return generation are
being pursued.

Below are the main factors to consider for strategic tradeoffs:

 Managing risk
o Firm-wide risk is largely depending on the strategies it chooses to pursue
o True product differentiation, for example, is a very high-risk strategy that could
result in a market leadership position, or total ruin
o Many companies adopt a copycat strategy by looking at what other risk takers
have done and modifying it slightly
o It’s important to be fully aware of strategies and associated risks across the firm
o Some areas might require true differentiation (or cost leadership) but other
areas might be better suited to copy-cat strategies that rely on incremental
improvements
o The degree of autonomy business units have is important in managing this risk
 Generating returns
o Higher risk strategies create the possibility of higher rates of return. The
examples above of true product differentiation or cost leadership could provide
the most return in the long run if they are well executed
o Swinging for the fences will lead to more home runs, and more strikeouts so it’s
important to have the appropriate number of options in the portfolio. These
options can later turn into big bets as the strategy develops
 Incentives
o Incentive structures will play a big role in how much risk and how much return
managers seek
o It may be necessary to separate the responsibilities of risk management and
return generation so that each can be pursued to the desired level
o It may further help to manage multiple overlapping timelines, ranging from
short-term risk/return to long-term risk/return and ensuring there is appropriate
dispersion

Learn more in CFI’s Corporate & Business Strategy Course.

Corporate strategy wrap-up

Corporate Strategy is different than business strategy as it focuses on how to manage
resources, risk and return across a firm, as opposed to looking at competitive advantages.

Leaders responsible for strategic decision making have to consider many factors, including
allocation of resources, organizational design, portfolio management, and strategic tradeoffs.

By optimizing all of the above factors, a leader can hopefully create a portfolio of businesses
that is worth more than just the sum of the parts.

Strategic Portfolio Analysis of Business |

Management
In this article we will discuss about strategic portfolio analysis, explained with the help
of suitable examples.

Strategic Portfolio Analysis, alternatively termed Business Portfolio planning or

Portfolio strategy or Policy-Strategy Profile or Organisational Portfolio Plan, is a broad
term and refers to a technique found in many different variations.

This analytical technique helps to satisfy the emerging need for centralised decisions
on key strategic issues in multinational corporations. It provides a means of comparing
numerous business activities in relation to each other, establishing priorities and
deciding between winners and losers.

Strategic portfolio analysis has, as its primary objective, the optimal allocation of cash
resource among the various business activities comprising a diversified corporate
portfolio. In addition, it can help top management decide what business activities the
company should be in, how performance of the different business units should be
evaluated, and who should manage these units.

The formulation of the organisational portfolio plan is the final phase of the strategic
planning process. Strategic portfolio analysis assumes that most organisations, at a
particular time and in reality, are a portfolio of businesses.

For example, an appliance manufacturer may have several product lines (such as TV,
Refrigerators, Stereos, Washers, Dryers) as well as two divisions (consumer appliances
and industrial appliances). In other words, the corporate portfolio consists of all of the
businesses, product lines, divisions or other components of the parent multi-industry
corporation.

Managing such groups of businesses is made little easier if resources and cash are
plentiful and each group is experiencing ‘growth’ and ‘profits’. Unfortunately,
providing larger and larger budgets each year to all business groups [may be Strategic
Business Units (SBU’s)] is no longer feasible.

Many are not experiencing growth, and profits and/or resources (financial and non-
financial) are becoming more and more scarce. In such a situation, strategic portfolio
analysis helps the management make choices in the form of master strategies as well
as programme strategies (included would be competitive strategies, financial
strategies, and so on).

ADVERTISEMENTS:

In this approach of strategic portfolio analysis, General Electric and Boston Consulting
Group made pioneering contributions. General Electric introduced the concept of
dividing business activities into SBU’s with like characteristics, related to the life cycles
of the products.

Boston Consulting Group (BCG) deserve much of the credit for developing and
popularising this analytical technique, BCG approach consisted of a wide variety of
products in different growth rates, and market shares, search for investment strategies
to allocate resources among them to optimise company’s long-run profits.

At the heart of strategic portfolio theory is the growth-share matrix shown

below:

The above matrix provides a scheme for broadly classifying a company’s businesses
according to their strategic needs (including cash requirements). The horizontal axis
shows the relative market share held by the various SBUs, expressed as a ratio of each
SBU’s share held by the leading competitor in its particular market. The vertical axis
depicts the growth rate of the various markets in which the businesses compete.

A corporation, at any given time, may be comprised of several SBUs that fit into each
of the four categories shown in the above matrix. Since the STARS are growing rapidly
and have the advantage of already having achieved a high share of the market, they
provide the firm’s best profit and growth opportunities.

The BCG believes that the only two viable strategies exist for QUESTION MARK SBU:
growing the SBU into a star or divesting (getting rid of it). Since DOGS (our apologies
to fellow dog lovers) hold little promise for the future and may not even pay their own
way, they are prime candidates for divestiture.

In contrast, because of their high share positions in a low growth area CASH COWS
are ideal for providing the funds needed to pay dividends and debts, recover
overheads, and supply the funds for investment in other growth areas002E

The matrix above illustrates how companies in two well-known industries might be
classified using the growth-share approach. In practice, however, portfolio matrices
are used to classify various businesses for resource-allocation purposes.

Classifying businesses into a portfolio is often a very difficult task. Yet proper classi-
fication is essential in order to compete successfully in its industry. Again, for
optimising resource-allocation, the development of a sound portfolio typically requires
considerable analysis and negotiation by managers and staff at both the corporate and
business level.

For a balanced portfolio, the cash needed by question marks must roughly equal the
cash generated by cows. This equilibrium places a limit on the number of question
marks a portfolio should contain.

Strategic portfolio analysis has many variants other than BCG matrix. These are profit
impact on market strategy (PIMS), Experience or Learning Curve, Nine-cell General
Electric matrix, Life Cycle Portfolio matrix, McKinsey’s Framework, Directional Policy
matrix (DPM), Risk matrix, DPM and Risk matrix (combined three-dimensional
matrix, portfolio plus risk), etc.
Strategic portfolio planning is useful in establishing performance objectives for
different business units. The theory suggests that the four kinds of businesses in the
growth- share matrix should be evaluated quite differently with respect to growth and
profitability. It helps guide the selection of managers to head up the businesses in a
company’s portfolio

BCG growth-share matrix

Definition
BCG matrix

(or growth-share matrix) is a corporate planning tool, which is used to portray firm’s brand portfolio
or SBUs on a quadrant along relative market share axis (horizontal axis) and speed of market
growth (vertical axis) axis.
Growth-share matrix

is a business tool, which uses relative market share and industry growth rate factors to evaluate the
potential of business brand portfolio and suggest further investment strategies.

Understanding the tool

BCG matrix is a framework created by Boston Consulting Group to evaluate the strategic position of the
business brand portfolio and its potential. It classifies business portfolio into four categories based on
industry attractiveness (growth rate of that industry) and competitive position (relative market share). These
two dimensions reveal likely profitability of the business portfolio in terms of cash needed to support that unit
and cash generated by it. The general purpose of the analysis is to help understand, which brands the firm
should invest in and which ones should be divested.

Relative market share. One of the dimensions used to evaluate business portfolio is relative market share.
Higher corporate’s market share results in higher cash returns. This is because a firm that produces more,
benefits from higher economies of scale and experience curve, which results in higher profits. Nonetheless,
it is worth to note that some firms may experience the same benefits with lower production outputs and
lower market share.

Market growth rate. High market growth rate means higher earnings and sometimes profits but it also
consumes lots of cash, which is used as investment to stimulate further growth. Therefore, business units
that operate in rapid growth industries are cash users and are worth investing in only when they are
expected to grow or maintain market share in the future.

There are four quadrants into which firms brands are classified:

Dogs. Dogs hold low market share compared to competitors and operate in a slowly growing market. In
general, they are not worth investing in because they generate low or negative cash returns. But this is not
always the truth. Some dogs may be profitable for long period of time, they may provide synergies for other
brands or SBUs or simple act as a defense to counter competitors moves. Therefore, it is always important
to perform deeper analysis of each brand or SBU to make sure they are not worth investing in or have to be
divested.
Strategic choices: Retrenchment, divestiture, liquidation
Cash cows. Cash cows are the most profitable brands and should be “milked” to provide as much cash as
possible. The cash gained from “cows” should be invested into stars to support their further growth.
According to growth-share matrix, corporates should not invest into cash cows to induce growth but only to
support them so they can maintain their current market share. Again, this is not always the truth. Cash cows
are usually large corporations or SBUs that are capable of innovating new products or processes, which
may become new stars. If there would be no support for cash cows, they would not be capable of such
innovations.
Strategic choices: Product development, diversification, divestiture, retrenchment

Stars. Stars operate in high growth industries and maintain high market share. Stars are both cash
generators and cash users. They are the primary units in which the company should invest its money,
because stars are expected to become cash cows and generate positive cash flows. Yet, not all stars
become cash flows. This is especially true in rapidly changing industries, where new innovative products
can soon be outcompeted by new technological advancements, so a star instead of becoming a cash cow,
becomes a dog.
Strategic choices: Vertical integration, horizontal integration, market penetration, market development,
product development

Question marks. Question marks are the brands that require much closer consideration. They hold low
market share in fast growing markets consuming large amount of cash and incurring losses. It has potential
to gain market share and become a star, which would later become cash cow. Question marks do not
always succeed and even after large amount of investments they struggle to gain market share and
eventually become dogs. Therefore, they require very close consideration to decide if they are worth
investing in or not.
Strategic choices: Market penetration, market development, product development, divestiture

BCG matrix quadrants are simplified versions of the reality and cannot be applied blindly. They can help as
general investment guidelines but should not change strategic thinking. Business should rely on
management judgement, business unit strengths and weaknesses and external environment factors to
make more reasonable investment decisions.

Advantages and disadvantages

Benefits of the matrix:

 Easy to perform;
 Helps to understand the strategic positions of business portfolio;
 It’s a good starting point for further more thorough analysis.

Growth-share analysis has been heavily criticized for its oversimplification and lack of useful application.
Following are the main limitations of the analysis:

 Business can only be classified to four quadrants. It can be confusing to classify an SBU that falls
right in the middle.
 It does not define what ‘market’ is. Businesses can be classified as cash cows, while they are
actually dogs, or vice versa.
 Does not include other external factors that may change the situation completely.
 Market share and industry growth are not the only factors of profitability. Besides, high market share
does not necessarily mean high profits.
 It denies that synergies between different units exist. Dogs can be as important as cash cows to
businesses if it helps to achieve competitive advantage for the rest of the company.

Using the tool

Although BCG analysis has lost its importance due to many limitations, it can still be a useful tool if
performed by following these steps:
  Step 1. Choose the unit
 Step 2. Define the market
 Step 3. Calculate relative market share
 Step 4. Find out market growth rate
 Step 5. Draw the circles on a matrix

Step 1. Choose the unit. BCG matrix can be used to analyze SBUs, separate brands, products or a firm as
a unit itself. Which unit will be chosen will have an impact on the whole analysis. Therefore, it is essential to
define the unit for which you’ll do the analysis.

Step 2. Define the market. Defining the market is one of the most important things to do in this analysis.
This is because incorrectly defined market may lead to poor classification. For example, if we would do the
analysis for the Daimler’s Mercedes-Benz car brand in the passenger vehicle market it would end up as a
dog (it holds less than 20% relative market share), but it would be a cash cow in the luxury car market. It is
important to clearly define the market to better understand firm’s portfolio position.

Step 3. Calculate relative market share. Relative market share can be calculated in terms of revenues or
market share. It is calculated by dividing your own brand’s market share (revenues) by the market share (or
revenues) of your largest competitor in that industry. For example, if your competitor’s market share in
refrigerator’s industry was 25% and your firm’s brand market share was 10% in the same year, your relative
market share would be only 0.4. Relative market share is given on x-axis. It’s top left corner is set at 1,
midpoint at 0.5 and top right corner at 0 (see the example below for this).

Step 4. Find out market growth rate. The industry growth rate can be found in industry reports, which are
usually available online for free. It can also be calculated by looking at average revenue growth of the
leading industry firms. Market growth rate is measured in percentage terms. The midpoint of the y-axis is
usually set at 10% growth rate, but this can vary. Some industries grow for years but at average rate of 1 or
2% per year. Therefore, when doing the analysis you should find out what growth rate is seen as significant
(midpoint) to separate cash cows from stars and question marks from dogs.

Step 5. Draw the circles on a matrix. After calculating all the measures, you should be able to plot your
brands on the matrix. You should do this by drawing a circle for each brand. The size of the circle should
correspond to the proportion of business revenue generated by that brand.

Examples

Corporate ‘A’ BCG matrix

Brand Revenues % of Largest Your Relative Market

corporate rival’s brand’s market growth
revenues market market share rate
share share
 Corporate ‘A’ BCG matrix

Brand Revenues % of Largest Your Relative Market

corporate rival’s brand’s market growth
revenues market market share rate
share share

Brand $500,000 54% 25% 25% 1 3%

1

Brand $350,000 38% 30% 5% 0.17 12%

2

Brand $50,000 6% 45% 30% 0.67 13%

3

Brand $20,000 2% 10% 1% 0.1 15%

4

This example was created to show how to deal with a relative market share higher than 100% and with
negative market growth.
 Corporate ‘B’ BCG matrix
Brand Revenues % of Largest Your Relative Market
corporate rival’s brand’s market growth
revenues market market share rate
share share

Brand $500,000 55% 15% 60% 1 3%

1

Brand $350,000 31% 30% 5% 0.17 -15%

2

Brand $50,000 10% 45% 30% 0.67 -4%

3

Brand $20,000 4% 10% 1% 0.1 8%

4

The Ansoff Matrix

Understanding the Risks of Different Options
(Also known as the Product/Market Expansion Grid)
Successful leaders understand that if their
organization is to grow in the long term, they can't
stick with a "business as usual" mindset, even
when things are going well. They need to find new
ways to increase profits and reach new customers.
There are numerous options available, such as developing new products or
opening up new markets, but how do you know which one will work best for
your organization?

This is where you can use an approach like the Ansoff Matrix to think about
the potential risks of each option, and to help you devise the most suitable
plan for your situation.

Understanding the Tool

The Ansoff Matrix was developed by H. Igor Ansoff and first published in
the Harvard Business Review in 1957, in an article titled "Strategies for
Diversification" It has given generations of marketers and business leaders a
quick and simple way to think about the risks of growth.
Sometimes called the Product/Market Expansion Grid, the Matrix (see figure
1, below) shows four strategies you can use to grow. It also helps you
analyze the risks associated with each one. The idea is that each time you
move into a new quadrant (horizontally or vertically), risk increases.
Figure 1: The Ansoff Matrix

Tip:
You can also use the Ansoff Matrix as a personal career planning tool. It can
help you weigh up the risks of your career decisions, and choose the best
option as a result. Learn more about this with our article on the Personal
Ansoff Matrix

The Corporate Ansoff Matrix

Let's examine each quadrant of the Matrix in more detail.

Market penetration, in the lower left quadrant, is the safest of the four
options. Here, you focus on expanding sales of your existing product in your
existing market: you know the product works, and the market holds few
surprises for you.

Product development, in the lower right quadrant, is slightly more risky,

because you're introducing a new product into your existing market.
With market development, in the upper left quadrant, you're putting an
existing product into an entirely new market. You can do this by finding a
new use for the product, or by adding new features or benefits to it.

Diversification, in the upper right quadrant, is the riskiest of the four options,
because you're introducing a new, unproven product into an entirely new
market that you may not fully understand.

How to Use the Tool

It's fairly straightforward to use the Ansoff Matrix to weigh up the risks
associated with a number of strategic options.

Step 1: Analyze Your Options

.

Market Development Diversification

Here, you're targeting new markets, or new

areas of your existing market. You're trying to
sell more of the same things to different
people. Here you might:

 Target different geographical markets at home

or abroad. Conduct a PEST Analysis or use
the CAGE Distance Framework to identify
opportunities and threats in this different
market.
 Use different sales channels, such as online or
direct sales, if you are currently selling through
agents or intermediaries.
 Use Market Segmentation to target different
groups of people, perhaps with different age,
gender or demographic profiles from your usual
customers.
 Use the marketing mix to understand how to
reposition your product.
This strategy is risky: there's often little scope
for using existing expertise or for achieving
economies of scale, because you are trying to
sell completely different products or services
to different customers
Beyond the opportunity to expand your
business, the main advantage
of diversification is that, should one business
suffer from adverse circumstances, another
may not be affected.
Market Development Diversification

Market Penetration Product Development

With this approach, you're trying to sell more

of the same things to the same market. Here
you might:

 Develop a new marketing strategy to

encourage more people to choose your product,
or to use more of it.
 Introduce a loyalty scheme.
Here, you're selling different products to the
 Launch price or other special offer promotions. same people, so you might:

 Increase your sales force's activities.
 Use the Boston Matrix to decide which
products warrant further investment, and which
should be disregarded.
 Buy a competitor company (particularly in
mature markets).
 Extend your product by producing different
variants, or repackage existing products.
 Develop related products or services.
 In a service industry, shorten your time to
market, or improve customer service or
quality.

Reprinted by permission of Harvard Business Review. From "Strategies for

Diversification" by H. Igor Ansoff, 1957. Copyright © 1957 by the Harvard Business
School Publishing Corporation; all rights reserved.

Step 2: Manage Risks

Conduct a Risk Analysis to gain a better understanding of the dangers
associated with each option. (If there are a lot of these, prioritize them using
a Risk Impact/Probability Chart .) Then, create a contingency plan that
addresses the ones you're most likely to face.

Step 3: Choose the Best Option

By now, you might have a sense of which option is right for you and your
organization. You can make sure it really is the best one with one last step:
use Decision Matrix Analysis to weigh up the different factors in each
option, and make the best choice.

Using a Nine-Box Ansoff Matrix

Some marketers use a nine-box grid for a more sophisticated analysis. This
puts "modified" products between existing and new ones (for example, a
different flavor of your existing pasta sauce rather than launching a soup),
and "expanded" markets between existing and new ones (for example,
opening another store in a nearby town, rather than expanding
internationally).

This is useful as it shows the difference between product extension and true
product development, and also between market expansion and venturing into
genuinely new markets (see figure 2, below).

However, be careful of the three "options" in orange, as they involve trying

to do two things at once without the one benefit of a true diversification
strategy: completely escaping a downturn in a single-product market.

Figure 2: The Nine-Box Grid

Key Points
H. Igor Ansoff developed the Ansoff Matrix in 1957. It offers you a simple
and useful way to think about growth.

The Matrix outlines four possible avenues for growth, which vary in risk:

 Market penetration.
 Product development.
 Market development.
 Diversification.
To use the Matrix, plot your options into the appropriate quadrant. Next,
look at the risks associated with each one, and develop a contingency plan to
address the most likely risks. This will help you make the best choice for
your organization

GE McKinsey Matrix
Definition
GE-McKinsey nine-box matrix

is a strategy tool that offers a systematic approach for the multi business corporation to
prioritize its investments among its business units.
[1]

GE-McKinsey

is a framework that evaluates business portfolio, provides further strategic implications and
helps to prioritize the investment needed for each business unit (BU).
[2]

Understanding the tool

In the business world, much like anywhere else, the problem of resource scarcity is affecting the
decisions the companies make. With limited resources, but many opportunities of using them, the
businesses need to choose how to use their cash best. The fight for investments takes place in every
level of the company: between teams, functional departments, divisions or business units. The
question of where and how much to invest is an ever going headache for those who allocate the
resources.
How does this affect the diversified businesses? Multi business companies manage complex
business portfolios, often, with as much as 50, 60 or 100 products and services. The products or
business units differ in what they do, how well they perform or in their future prospects. This
makes it very hard to make a decision in which products the company should invest. At least, it
was hard until the BCG matrix and its improved version GE-McKinsey matrix came to help. These
tools solved the problem by comparing the business units and assigning them to the groups that are
worth investing in or the groups that should be harvested or divested.

In 1970s, General Electric was managing a huge and complex portfolio of unrelated products and
was unsatisfied about the returns from its investments in the products. At the time, companies
usually relied on projections of future cash flows, future market growth or some other future
projections to make investment decisions, which was an unreliable method to allocate the
resources. Therefore, GE consulted the McKinsey & Company and as a result the nine-box
framework was designed. The nine-box matrix plots the BUs on its 9 cells that indicate whether the
company should invest in a product, harvest/divest it or do a further research on the product and
invest in it if there’re still some resources left. The BUs are evaluated on two axes: industry
attractiveness and a competitive strength of a unit.

Industry Attractiveness
Industry attractiveness indicates how hard or easy it will be for a company to compete in the
market and earn profits. The more profitable the industry is the more attractive it becomes. When
evaluating the industry attractiveness, analysts should look how an industry will change in the long
run rather than in the near future, because the investments needed for the product usually require
long lasting commitment.
Industry attractiveness consists of many factors that collectively determine the competition level in
it. There’s no definite list of which factors should be included to determine industry attractiveness,
but the following are the most common: [1]

 Long run growth rate

 Industry size
 Industry profitability: entry barriers, exit barriers, supplier power, buyer power, threat of
substitutes and available complements (use Porter’s Five Forces analysis to determine this)
 Industry structure (use Structure-Conduct-Performance framework to determine this)
 Product life cycle changes
 Changes in demand
 Trend of prices
 Macro environment factors (use PEST or PESTEL for this)
 Seasonality
 Availability of labor
 Market segmentation

Competitive strength of a business unit or a product

Along the X axis, the matrix measures how strong, in terms of competition, a particular business
unit is against its rivals. In other words, managers try to determine whether a business unit has a
sustainable competitive advantage (or at least temporary competitive advantage) or not. If the
company has a sustainable competitive advantage, the next question is: “For how long it will be
sustained?”

The following factors determine the competitive strength of a business unit:

 Total market share

 Market share growth compared to rivals
 Brand strength (use brand value for this)
 Profitability of the company
 Customer loyalty
 VRIO resources or capabilities (use VRIO framework to determine this)
 Your business unit strength in meeting industry’s critical success factors (use Competitive
Profile Matrix to determine this)
 Strength of a value chain (use Value Chain Analysis and Benchmarking to determine this)
 Level of product differentiation
 Production flexibility

Advantages
 Helps to prioritize the limited resources in order to achieve the best returns.
 Managers become more aware of how their products or business units perform.
 It’s more sophisticated business portfolio framework than the BCG matrix.
 Identifies the strategic steps the company needs to make to improve the performance of its
business portfolio.

Disadvantages
  Requires a consultant or a highly experienced person to determine industry’s attractiveness
and business unit strength as accurately as possible.
 It is costly to conduct.
 It doesn’t take into account the synergies that could exist between two or more business
units.

Difference between GE McKinsey and BCG matrices

GE McKinsey matrix is a very similar portfolio evaluation framework to BCG matrix. Both
matrices are used to analyze company’s product or business unit portfolio and facilitate the
investment decisions.

The main differences:

 Visual difference. BCG is only a four cell matrix, while GE McKinsey is a nine cell
matrix. Nine cells provide better visual portrait of where business units stand in the matrix.
It also separates the invest/grow cells from harvest/divest cells that are much

Strategy Implementation
Definition: Strategy Implementation refers to the execution of the plans and strategies, so as to
accomplish the long-term goals of the organization. It converts the opted strategy into the moves
and actions of the organisation to achieve the objectives.

Simply put, strategy implementation is the technique through which the firm develops, utilises and
integrates its structure, culture, resources, people and control system to follow the strategies to have
the edge over other competitors in the market.

Strategy Implementation is the fourth stage of the Strategic Management process, the other
three being a determination of strategic mission, vision and objectives, environmental and
 organisational analysis, and formulating the strategy. It is followed by Strategic Evaluation and
Control.

Process of Strategy Implementation

1. Building an organization, that possess the capability to put the strategies into action successfully.
2. Supplying resources, in sufficient quantity, to strategy-essential activities.
3. Developing policies which encourage strategy.
4. Such policies and programs are employed which helps in continuous improvement.
5. Combining the reward structure, for achieving the results.
6. Using strategic leadership.

The process of strategy implementation has an important role to play in the company’s success.
The process takes places after environmental scanning, SWOT analyses and ascertaining the
strategic issues.

Prerequisites of Strategy Implementation

 Institutionalization of Strategy: First of all the strategy is to be institutionalized, in the sense

that the one who framed it should promote or defend it in front of the members, because it may
be undermined.
 Developing proper organizational climate: Organizational climate implies the components of
the internal environment, that includes the cooperation, development of personnel, the degree of
commitment and determination, efficiency, etc., which converts the purpose into results.
 Formulation of operating plans: Operating plans refers to the action plans, decisions and the
programs, that take place regularly, in different parts of the company. If they are framed to
indicate the proposed strategic results, they assist in attaining the objectives of the organization
by concentrating on the factors which are significant.
 Developing proper organisational structure: Organization structure implies the way in which
different parts of the organisation are linked together. It highlights the relationships between
various designations, positions and roles. To implement a strategy, the structure is to be designed
as per the requirements of the strategy.
 Periodic Review of Strategy: Review of the strategy is to be taken at regular intervals so as to
identify whether the strategy so implemented is relevant to the purpose of the organisation. As
the organization operates in a dynamic environment, which may change anytime, so it is
essential to take a review, to know if it can fulfil the needs of the organization.
Even the best-formulated strategies fail if they are not implemented in an appropriate manner.
Further, it should be kept in mind that, if there is an alignment between strategy and other elements
like resource allocation, organizational structure, work climate, culture, process and reward
structure, then only the effective implementation is possible.

Aspects of Strategy Implementation

 Creating budgets which provide sufficient resources to those activities which are relevant to the
strategic success of the business.
 Supplying the organization with skilled and experienced staff.
 Conforming that the policies and procedures of the organisation assist in the successful
execution of the strategies.
 Leading practices are to be employed for carrying out key business functions.
 Setting up an information and communication system, that facilitate the workforce of the
organisation, to perform their roles effectively.
 Developing a favourable work climate and culture, for proper implementation of the strategy.
Strategy implementation is the time-taking part of the overall process, as it puts the formulated
plans into actions and desired results.

Marketing is a business term that experts have defined in dozens of different ways. In fact, even at
company level people may perceive the term differently. Basically, it is a management process through
which products and services move from concept to the customer. It includes identification of a product,
determining demand, deciding on its price, and selecting distribution channels. It also includes developing
and implementing a promotional strategy.

The UK-based Chartered Institute of Marketing (CIM) defines the term as follows:

“Marketing is the management process responsible for identifying, anticipating and satisfying customer
requirements profitably.”

Below is the American Marketing Association’s definition:

“Marketing is the activity, set of institutions, and processes for creating, communicating, delivering, and
exchanging offerings that have value for customers, clients, partners, and society at large.”

Marketing refers to the activities of a business related to buying and selling a product or service. It involves
finding out what consumers want and determining whether it is possible to produce it at the right price. The
company then makes and sells it.
According to , marketing covers a vast area of business, including:

 how you communicate

 the brand
 the design
 pricing
 market research
 consumer psychology
 measuring effectiveness

At the core of marketing is an understanding of what customers need and value. A company’s long-term
success depends on learning what its customers’ needs are. It then finds ways to add value through
different approaches.

Business-to-business marketing
This involves targeting other businesses. We also call it business-to-business or B2B marketing. It
involves supplying other companies with products or services.

Physical products that companies sell to other businesses are ‘industrial goods.’ Industrial goods may
include raw materials for companies that make plastics, yarn for use in the textile trade. It also includes
aircraft for airlines and the military.

In fact, the term ‘industrial goods’ refers anything a company or organization needs and buys.

We can aim marketing at businesses

(B2B) or individual consumers (B2C).

B2B services may include legal advice, management consultancy, tax consultancy, or training provision. IT
services and the provision of temporary staff are also examples of B2B services. IT stands
for Information Technology.
Marketing directly to consumers
We also call it B2C. The term refers to targeting the individual people who purchase products and use
services. Specifically, people who bought for their own consumption.

This may include FMCGs (fast-moving consumer goods) such as food, beverages, and toiletries, or durable
goods. For example, cars, televisions, refrigerators and other white goods are durable goods. ‘White goods’
are major appliances that traditionally have had a white enamel surface.

B2B + B2C marketing

Most large corporations have an integrated marketing approach. In other words, they focus on both
individual consumers and businesses at the same time.

The Coca-Cola company, for example, knows that its B2C marketing must succeed. Put simply; it has to
persuade supermarkets and smaller stores – B2B – to provide shelf space.

Most makers of durable goods also have an integrated marketing approach. For example, The Haier Group
focuses on individual consumers (B2C). However, it also focuses on supermarkets, department stores, and
other retail outlets (B2B). The Haier Group is world’s largest manufacturer of consumer electronics and
home appliances.

Recruitment marketing
Recruitment marketing includes all the tools and strategies that employers use to engage, attract, and
eventually hire talented people. The aim is to encourage people to want to join the organization.

The practice takes advantage of data analytics, omnichannel communication, social media platforms, and
other digital marketing strategies.

According to Adrian Cernat, CEO and co-founder of SmartDreamers:

“Recruitment marketing is the process of trying to attract and hire talented people. It includes the strategies
and tactics that employers use to attract, engage, and nurture talented personnel before they apply for a
job.”

Marketing strategy
A company’s marketing strategy should combine all its objectives into one integrated and comprehensive
plan. In other words, it should not focus on one strategy at the expense of others.

It should use market research data to create its strategy. The company should focus on the ideal product
mix to reach the optimum profit potential. The right product mix is also crucial to sustaining the business.
According to marketingstrategynow.com: “The best marketing strategy process allows you to specially target
your products and services to the ideal buyers most likely to buy.”

An effective and successful marketing plan depends on a good strategy. A company’s strategy should begin
with the setting of objectives that will support its overall aims.

It then needs to come up with a strategy that allows it to reach these objectives.

According to CIM:

“The strategy may involve research into product or service development, how the product or service will
reach the market (channels) and how the customers will find out about it (communication).”

“It will also attempt to define a unique positioning for the product or business to differentiate it from its
competitors.”
Fundamentally, sales and marketing are trying to achieve the same thing. In other words, they are trying to
get more customers and revenues. However, they look at things slightly differently. Put simply; marketing
focuses on the market, while sales focuses on the product. Sales also focuses on how to persuade
consumers to like it and buy it. Some sales managers disagree with the image above, insisting that sales
does continue after the sale of the product.

Typical marketing divisions

There are many divisions of marketing. Not all companies have the same names for each one. Below is a
list of the most common divisions (Source: London School of Economics):

Advertising
Advertising involves promoting an idea or product into the marketplace by placing ads in the media.

Community Involvement
The term means working with the local community. This is not only good for the company’s standing locally,
and as a way of growing customer loyalty, but it is also great for morale within the firm

Examples include sponsoring local events, chairing meetings, volunteering in schools or local youth centers,
and belonging to local associations.

Customer Service
Basically, this involves providing assistance and advice to people who purchased the product. In many
business, sellers also provide this service to customers before, during, and after a sale.
Good customer service produces satisfied customers. In other words, their experience meets or exceeds
their expectations. If your competitors have good customer service and you don’t, you will probably lose
market share to them.

Direct Marketing
This approach involves delivering your message directly to consumers via leaflets, forms, fliers, catalogs, as
well as street promotion.

Distribution
Distribution is part of the management chain. It involves transporting one product from storage to a shop or
supermarket.

Market Research
Market research is the process of gathering and analyzing information. The data will make the company
more aware of how people will react to its current and future products.

Business owners are conducting market research all the time. When they talk to customers about their
business, they are conducting market research. Whenever somebody tries to find out what the competition
is doing, they are conducting market research.

Good market research can produce a wealth of data about the business’ products, customers, and the
marketplace.

Media Planning
Media planning is closely-related to advertising. It is an advertising strategy we employ to target consumers
using a range of informational outlets.

Advertising or media planning agencies usually conduct this kind of work. They find the best media outlets
to reach the target market.

Examples of media outlets include the internet, posters, television, radio, physical newspapers and
magazines, etc.

Product pricing
When setting the price, you should take into account how much something costs to produce and deliver.
You should also consider how much competitors are selling it for, its quality, the brand, etc.

Most product prices rarely stay the same for long. Production costs may change, salaries can rise, or
competitors might suddenly offer discounts or raise their prices. You need to be aware of every factor that
influences price all the time.

Public Relations
“A strategic communication process that builds mutually beneficial relationships between organizations and
their publics,” says the PRSA.

Sales
Sales includes planning and supporting the sales team by pushing ahead with sales targets. It also involves
formulating a plan as to how to reach potential and existing customers. Salespeople aim to hit those targets.

One-to-One Marketing
One-to-one marketing involves communicating directly with each customer. The company then tailors the
approach to each customer’s tastes and preferences.
Impression Management
Impression management is the process of shaping people’s perceptions of things, other people, places and
events.

In marketing and sales, it means getting consumers to perceive your products or services in a good light.

The Internet and marketing

With the advent of the Internet and ad-blocking software, inbound marketing has become increasingly
popular. It involves using content – newsletters, blogs, podcasts, etc. – that online users like, to lure them in.

In the past, company’s sales personnel used to be the experts. However, today the experts are the
consumers.

A term that Internet marketing specialists use all the time is the ‘bounce rate.’ The bounce rate refers to the
percentage of people who leave the website after visiting a page.

In other words, instead of going to another page within the same site, they leave – they bounce out. The
lower the bounce rate, the better.

Global Marketing refers to the planning, creating, placing, and promoting a business’ goods or services in
the worldwide market. Is is a specialized skill. Executives who manage to implement an effective
strategy, can take their company to the next level.

During the 1960s and 1970s, many Japanese business practices emerged, which later spread across the
world. In some cases, engineering and marketing overlapped. For example, Kansei Engineering
is engineering that is based on human emotions. Not only do Kansei developers focus on what products can
do, but also on how they make consumers feel.

Marketing principles
Marketing principles are agreed-upon marketing ideas that sellers use for a successful marketing strategy.
We also refer to it as the principles of marketing.

Some companies follow the 4Ps Strategy of product, price, place, and promotion. We also refer to it as
the 4P Marketing Mix. Others, on the other hand, may follow the 7Ps Strategy of product, place, price,
promotion, people, physical environment, and process.
 closer to each other in the BCG matrix and may confuse others of what investment

decisions to make.

 Comprehensiveness. The reason why the GE McKinsey framework was developed is that
BCG portfolio tool wasn’t sophisticated enough for the guys from General Electric. In BCG
matrix, competitive strength of a business unit is equal to relative market share, which
assumes that the larger the market share a business has the better it is positioned to compete
in the market. This is true, but it’s too simplistic to assume that it’s the only factor affecting
the competition in the market. The same is with industry attractiveness that is measured
only as the market growth rate in BCG. It comes to no surprise that GE with its complex
business portfolio needed something more comprehensive than that.
Using the tool
There are no established processes or models that managers could use when performing the
analysis. Therefore, we designed the following steps to facilitate the process:

Step 1. Determine industry attractiveness of each business unit

 Make a list of factors. The first thing you’ll need to do is to identify, which factors to
include when measuring industry attractiveness. We’ve provided the list of the most
common factors, but you should include the factors that are the most appropriate to your
industries.
 Assign weights. Weights indicate how important a factor is to industry’s attractiveness. A
number from 0.01 (not important) to 1.0 (very important) should be assigned to each factor.
The sum of all weights should equal to 1.0.
 Rate the factors. The next thing you need to do is to rate each factor for each of your
product or business unit. Choose the values between ‘1-5’ or ‘1-10’, where ‘1’ indicates the
low industry attractiveness and ‘5’ or ‘10’ high industry attractiveness.
 Calculate the total scores. Total score is the sum of all weighted scores for each business
unit. Weighted scores are calculated by multiplying weights and ratings. Total scores allow
comparing industry attractiveness for each business unit.

Industry
Attractiveness
(1/2)

Business Unit 1 Business Unit 2

Factor Weight Rating Weighted Rating Weighted

Score Score

Industry growth rate 0.25 3 0.75 4 1

Industry size 0.22 3 0.66 3 0.66

Industry profitability 0.18 5 0.90 1 0.18

Industry structure 0.17 4 0.68 4 0.68

Trend of prices 0.09 3 0.27 3 0.27

Market segmentation 0.09 1 0.09 3 0.27

Total score 1.00 - 3.35 - 3.06

Industry
Attractiveness
(2/2)

Business Unit 3 Business Unit 4

Factor Weight Rating Weighted Rating Weighted

Score Score

Industry growth rate 0.25 3 0.75 2 0.50

Industry size 0.22 2 0.44 5 1.10

 Industry profitability 0.18 1 0.18 5 0.90

Industry structure 0.17 2 0.34 4 0.68

Trend of prices 0.09 2 0.18 3 0.27

Market segmentation 0.09 2 0.18 3 0.27

Total score 1.00 - 2.07 - 3.72

This is a tough task and one that usually requires involving a consultant who is an expert of the
industries in question. The consultant will help you to determine the weights and to rate them
properly so the analysis is as accurate as possible.

Step 2. Determine the competitive strength of each business unit

‘Step 2’ is the same as ‘Step 1’ only this time, instead of industry attractiveness, the competitive
strength of a business unit is evaluated.

 Make a list of factors. Choose the competitive strength factors from our list or add your
own factors.
 Assign weights. Weights indicate how important a factor is in achieving sustainable
competitive advantage. A number from 0.01 (not important) to 1.0 (very important) should
be assigned to each factor. The sum of all weights should equal to 1.0.
 Rate the factors. Rate each factor for each of your product or business unit. Choose the
values between ‘1-5’ or ‘1-10’, where ‘1’ indicates the weak strength and ‘5’ or ‘10’
powerful strength.
 Calculate the total scores. See ‘Step 1’.

Competitive
Strength (1/2)
 Business Unit 1 Business Unit 2

Factor Weight Rating Weighted Rating Weighted

Score Score

Market share 0.22 2 0.44 2 0.44

Relative growth rate 0.18 3 0.48 2 0.38

Company’s 0.14 3 0.42 1 0.14

profitability

Brand value 0.10 1 0.10 2 0.20

VRIO resources 0.20 1 0.20 4 0.80

CPM Score 0.16 2 0.32 5 0.80

Total score 1.00 - 1.96 - 2.74

Competitive
Strength (2/2)
 Business Unit 3 Business Unit 4

Factor Weight Rating Weighted Rating Weighted

Score Score

Market share 0.22 4 0.88 4 0.88

Relative growth rate 0.18 4 0.64 2 0.36

Company’s 0.14 3 0.42 3 0.42

profitability

Brand value 0.10 3 0.30 3 0.30

VRIO resources 0.20 4 0.80 4 0.80

CPM Score 0.16 5 0.80 5 0.80

Total score 1.00 - 3.92 - 3.56

Step 3. Plot the business units on a matrix

With all the evaluations and scores in place, we can plot the business units on the matrix. Each
business unit is represented as a circle. The size of the circle should correspond to the proportion of
the business revenue generated by that business unit. For example, ‘Business unit 1’ generates 20%
revenue and ‘Business unit 2’ generates 40% revenue for the company. The size of a circle for
‘Business unit 1’ will be half the size of a circle for ‘Business unit 2’.

Step 4. Analyze the information

There are different investment implications you should follow, depending on which boxes your
business units have been plotted. There are 3 groups of boxes: investment/grow,
selectivity/earnings and harvest/divest boxes. Each group of boxes indicates what you should do
with your investments.

Investment implications

Box Invest/Grow Selectivity/Earnings Harvest/Divest

Invest Definitely Invest if there’s money left Invest just enough to

or not? invest and the situation of business keep the business unit
unit could be improved operating or divest

Invest/Grow box. Companies should invest into the business units that fall into these boxes as they
promise the highest returns in the future. These business units will require a lot of cash because
they’ll be operating in growing industries and will have to maintain or grow their market share. It is
essential to provide as much resources as possible for BUs so there would be no constraints for
them to grow. The investments should be provided for R&D, advertising, acquisitions and to
increase the production capacity to meet the demand in the future.

Selectivity/Earnings box. You should invest into these BUs only if you have the money left over
the investments in invest/grow business units group and if you believe that BUs will generate cash
in the future. These business units are often considered last as there’s a lot of uncertainty with
them. The general rule should be to invest in business units which operate in huge markets and
there are not many dominant players in the market, so the investments would help to easily win
larger market share.

Harvest/Divest box. The business units that are operating in unattractive industries, don’t have
sustainable competitive advantages or are incapable of achieving it and are performing relatively
poorly fall into harvest/divest boxes. What should companies do with these business units?

First, if the business unit generates surplus cash, companies should treat them the same as the
business units that fall into ‘cash cows’ box in the BCG matrix. This means that the companies
should invest into these business units just enough to keep them operating and collect all the cash
generated by it. In other words, it’s worth to invest into such business as long as investments into it
doesn’t exceed the cash generated from it.

Second, the business units that only make losses should be divested. If that’s impossible and there’s
no way to turn the losses into profits, the company should liquidate the business unit.

Step 5. Identify the future direction of each business unit

The GE McKinsey matrix only provides the current picture of industry attractiveness and the
competitive strength of a business unit and doesn’t consider how they may change in the future.
Further analysis may reveal that investments into some of the business units can considerably
improve their competitive positions or that the industry may experience major growth in the future.
This affects the decisions we make about our investments into one or another business unit.

For example, our previous evaluations show that the ‘Business Unit 1’ belongs to invest/grow box,
but further analysis of an industry reveals that it’s going to shrink substantially in the near future.
Therefore, in the near future, the business unit will be in harvest/divest group rather than
invest/grow box. Would you still invest as much in ‘Business Unit 1’ as you would have invested
initially? The answer is no and the matrix should take that into consideration.

How to do that? Well, the company should consult with the industry analysts to determine whether
the industry attractiveness will grow, stay the same or decrease in the future. You should also
discuss with your managers whether your business unit competitive strength will likely increase or
decrease in the near future. When all the information is collected you should include it to your
existing matrix, by adding the arrows to the circles. The arrows should point to the future position
of a business unit.

The following table shows how industry attractiveness and business unit competitive strength will
change in 2 years.
 Business Business Business Business
Unit 1 Unit 2 Unit 3 Unit 4

Industry Decrease Stay the Stay the Increase

attractiveness same same

Business unit Decrease Increase Increase Decrease

competitive strength

Step 6. Prioritize your investments

The last step is to decide where and how to invest the company’s money. While the matrix makes it
easier by evaluating the business units and identifying the best ones to invest in, it still doesn’t
answer some very important questions:

 Is it really worth investing into some business units?

 How much exactly to invest in?
 Where to invest into business units (more to R&D, marketing, value chain?) to improve
their performance?
Doing the GE McKinsey matrix and answering all the questions takes time, effort and money, but
it’s still one of the most important product portfolio management tools that significantly facilitate
investment decisions.

The segmentation, targeting and

positioning model

How to use Segmentation, Targeting and Positioning (STP)

to develop marketing strategies
Today, Segmentation, Targeting and Positioning (STP) is a familiar strategic approach in
Modern Marketing. It is one of the most commonly applied marketing models in practice. In
our poll asking about the most popular marketing model it is the second most popular, only
beaten by the venerable SWOT / TOWs matrix. This popularity is relatively recent since
previously, marketing approaches were based more around products rather than
customers. In the 1950s, for example, the main marketing strategy was 'product
differentiation'.

The STP model is useful when creating marketing communications plans since it helps
marketers to prioritise propositions and then develop and deliver personalised and relevant
messages to engage with different audiences.

This is an audience rather than product focused approach to communications which helps
deliver more relevant messages to commercially appealing audiences. The diagram below
shows how plans can have the flow from

Audience options > Audience selection > Production positioning

In addition, STP focuses on commercial effectiveness, selecting the most valuable segments
for a business and then developing a marketing mix and product positioning strategy for each
segment.

Applying Segmentation, Targeting and Positioning to digital

communications
STP is relevant to digital marketing too at a more tactical communications level. For
example, applying marketing personas can help develop more relevant digital
communications as shown by these alternative tactical email customer segmentation
approaches. This visual from Dave Chaffey of Smart Insights book shows how Segmentation,
Targeting and Positioning apply to digital marketing strategy.
 It
reminds us how digital channels offer new options for targeting audiences that weren't
available previously, but we need to reserve sufficient budget for. For example:

 Search intent as searchers type keywords when comparing products they are interested in
buying

 Interest-based targeting in Facebook, e.g. Prospecting for those interested in Gardening,

Gym membership or Golf

 Targeting through email personalization and on-site personalization based on profile,

behaviour (e.g. content consumed)

There are also new opportunities to make a brand more compelling through offering new
types of value to consumers based on an online or digital value proposition or what Jay Baer
has called Youtility. This can be via content or interactive tools on websites or mobile apps.

How to use STP?

Through segmentation, you can identify niches with specific needs, mature markets to find
new customers, deliver more focused and effective marketing messages.

The needs of each segment are the same, so marketing messages should be designed for
each segment to emphasise relevant benefits and features required rather than one size fits
all for all customer types. This approach is more efficient, delivering the right mix to the same
group of people, rather than a scattergun approach.
 You can segment your existing markets based on nearly any variable, as long as it’s effective
as the examples below show:

Well known ways to segment your audience include:

 1. Demographics

Breakdown by any combination: age, gender, income, education, ethnicity, marital status,
education, household (or business), size, length of residence, type of residence or even
profession/Occupation.

An example is Firefox who sell 'coolest things', aimed at younger male audience. Though,
Moshi Monsters, however, is targeted to parents with fun, safe and educational space for
younger audience.

 2. Psychographics

This refers to 'personality and emotions' based on behaviour, linked to purchase choices,
including attitudes, lifestyle, hobbies, risk aversion, personality and leadership traits.
magazines read and TV. While demographics explain 'who' your buyer is,
psychographics inform you 'why' your customer buys.

There are a few different ways you can gather data to help form psychographic profiles for
your typical customers.

1. Interviews: Talk to a few people that are broadly representative of your target audience. In-
depth interviews let you gather useful qualitative data to really understand what makes your
customers tick. The problem is they can be expensive and difficult to conduct, and the
small sample size means they may not always be representative of the people you are
trying to target.

2. Surveys: Surveys let you reach more people than interviews, but it can be harder to get as
insightful answers.

3. Customer data: You may have data on what your customers tend to purchase from you,
such as data coming from loyalty cards if an FMCG brand or from online purchase history if
you are an ecommerce business. You can use this data to generate insights into what kind
of products your customers are interested in and what is likely to make them purchase. For
example, does discounting vastly increase their propensity to purchase? In which case they
might be quite spontaneous.

An example is Virgin Holidays who segment holidays into 6 groups.

 3. Lifestyle

This refers to Hobbies, recreational pursuits, entertainment, vacations, and other non-work
time pursuits.

Companies such as on and off-line magazine will target those with specific hobbies i.e.
FourFourTwo for football fans.

Some hobbies are large and well established, and thus relatively easy to target, such as the
football fan example. However, some businesses have found great success targeting very
small niches very effectively. A great example is the explosion in 'prepping' related
businesses, which has gone from a little heard of fringe activity to a billion dollar industry in
recent years. Apparently now 3.7 million American's think of themselves as preppers or
survivalists. A great way to start researchign and targeting these kind of niches is Reddit,
where people create subReddits to share information about a given interest or hobby.

 4. Belief and Values

Refers to Religious, political, nationalistic and cultural beliefs and values.

The Islamic Bank of Britain offers Sharia-compliant banking which meets specific religious
requirements.

A strange but interesting example of religious demographics influencing marketing that you
might not have guessed is that Mormons are really into 'multi-level marketing'. They're far
more likely to be engaged in the practice than any other US group. Going the extra mile with
demographic research can lead to discovering new marketing opportunities and thinking
outside the box. For example, did you know 55-64-year-olds are the most likely age group to
buy a new car? But you don't tend to see them in the car ads. An opportunity waiting to be
seized!

 5. Life Stages

Life Stages is the Chronological benchmarking of people’s lives at different stages.

An example is Saga holidays which are only available for people aged 50+. They claim a
large enough segment to focus on this life stage.
 6. Geography

Drill down by Country, region, area, metropolitan or rural location, population density or even
climate.

An example is Neiman Marcus, the upmarket department store chain in the USA now delivers
to the UK.

 7. Behaviour

Refers to the nature of the purchase, brand loyalty, usage level, benefits sought, distribution
channels used, reaction to marketing factors.

In a B2B environment, the benefits sought are often about ‘how soon can it be delivered?’
which includes the ‘last minute’ segment - the planning in advance segment.

An example is Parcelmonkey.co.uk who offer same day, next day and international parcel
deliveries.

 8. Benefit

Benefit is the use and satisfaction gained by the consumer.

Smythson Stationary offer similar products to other stationery companies, but their clients
want the benefit of their signature packaging: tissue-lined Nile Blue boxes and tied with navy
ribbon!

Market targeting
The list below refers to what’s needed to evaluate the potential and commercial attractiveness
of each segment.

 Criteria Size: The market must be large enough to justify segmenting. If the market is
small, it may make it smaller.

 Difference: Measurable differences must exist between segments.

 Money: Anticipated profits must exceed the costs of additional marketing plans and other
changes.

 Accessible: Each segment must be accessible to your team and the segment must be
able to receive your marketing messages

 Focus on different benefits: Different segments must need different benefits.

Product positioning
Positioning maps are the last element of the STP process. For this to work, you need two
variables to illustrate the market overview.

In the example here, I’ve taken some cars available in the UK. This isn’t a detailed product
position map, more of an illustration. If there were no cars in one segment it could indicate a
market opportunity.
Expanding on the extremely basic example above, you can unpack the market by mapping
your competitors onto a matrix based on key factors that determine purchase.

Pricing Decision
Organizations producing goods and services need to set the price for their product. Setting the price for an
organization's product is one of the most important decisions a manager faces. It is one of the most crucial
and difficult decisions a firm's manager has to make. Pricing is a profit planning exercise. Cost is one of the
major considerations in price determination of the product. It is one of the three major factors which
influence ricing decision. The two other factors are customers and competitors.

Customer: In a situation where the product has many substitutes, customers decide the price. That is, the
demand of customers are the paramount importance in setting the price of the product. In such a situation,
the firm should try to deliver the value, in the form of product and/or service, at the target cost so that a
reasonable profit can be earned. Similarly, under competitive condition, price is determined by market
forces and an individual firm or an individual customer can not influence the price.
Competitors: When there are only few players in the market, competitors usually, react to the price
changes and, therefore, pricing decisions are influenced by the possible reaction of competitors. As such
management must keep watchful eye on the firm's competitors. That is, knowledge of competitors' strategy
is essential for pricing decision in an oligopoly situation.
Cost: Cost is the third major factor. Its role in price setting varies widely among industries. Some industries
determine price by market forces and in some industries, managers set prices a on the basis of production
costs. Firms want to charge a price that covers its costs like production costs, distribution costs and costs
relate with selling the product and also including a fair return for its effort.

Objectives Of Pricing Policy

Formulation of pricing policy begins with the classification of the basic objectives of the firm. Pricing
objectives have to be in conformity with overall organizational objectives. In most of the situation, profit
maximization is the main objective of price policy, but it is only one objective. Following may be other
objectives of pricing policy in an organization:

1. Pricing the goods based on reasonable costs.

2. Increase the market share or growth rate at the expense of immediate profits.
3. Avoid adverse public reaction consequent on charging high price.
 4. Ethical consideration not to reap high profit.
5. Immediate survival of the firm.
6. Charge reasonable price so as to have good relations with government and public at large.
7. Maximization of prestige of the firm rather than profit, and
8. To safeguard against the emergence of new producers in same line.

Although its importance varies from firm to firm, pricing is one of the tools that a firm has at its disposal in
its attempt to reach the stated objectives

Abstract
This paper studies the optimal product and pricing decisions in a crowdfunding mechanism by
which a project between a creator and many buyers will be realized only if the total funds
committed by the buyers reach a specified goal. When the buyers are sufficiently heterogeneous in
their product valuations, the creator should offer a line of products with different levels of product
quality. Compared to the traditional situation where orders are placed and fulfilled individually,
with the crowdfunding mechanism, a product line is more likely than a single product to be optimal
and the quality gap between products is smaller. This paper also shows the effect of the
crowdfunding mechanism on pricing dynamics over time. Together, these results underscore the
substantial influence of the emerging crowd f unding mechanisms on common marketing decisions.

What Is a Product Mix?

Product mix, also known as product assortment, refers to the total number of product lines a company offers to its

customers. For example, your company may sell multiple lines of products. Your product lines may be fairly similar, such

as dish washing liquid and bar soap, which are both used for cleaning and use similar technologies. Or your product

lines may be vastly different, such as diapers and razors.

The four dimensions to a company's product mix include width, length, depth and consistency.
Tip

 Product mix, also known as product assortment, refers to the total number of product lines a company offers to its customers. The

four dimensions to a company's product mix include width, length, depth and consistency.

Width: Number of Product Lines

The width, or breadth, of a company's product mix pertains to the number of product lines the company sells. For

example, if you own EZ Tool Company and have two product lines – hammers and wrenches – your product mix width

is two.

Small and upstart businesses will usually not have a wide product mix. It is more practical to start with some basic

products and build market share. Later on, the company's technology may allow the company to diversify into other

industries and build the width of the product mix.

Length: Total Products

The product mix length is the total number of products or items in your company's product mix. For example, EZ Tool

has two product lines, hammers and wrenches. In the hammer product line are claw hammers, ball peen hammers,
sledge hammers, roofing hammers and mallet hammers. The wrench line contains Allen wrenches, pipe wrenches,

ratchet wrenches, combination wrenches and adjustable wrenches.

Thus, EZ Tool's product mix length would be 10. Companies that have multiple product lines will sometimes keep track

of their average length per product line. In this case, the average length of your company's product line is five.
Depth: Product Variations

Depth of a product mix pertains to the total number of variations for each product. Variations can include size, flavor and

any other distinguishing characteristic. For example, if your company sells three sizes and two flavors of toothpaste, that

particular line of toothpaste has a depth of six. Just like length, companies sometimes report the average depth of their

product lines; or the depth of a specific product line.

If the company also has another line of toothpaste, and that line comes in two flavors and two sizes, its depth is four.

Since one line has a depth of six and the second line has a depth of four, your company's average depth of product

lines is five (6+4=10, 10/2=5).

Consistency is Relationship

Product mix consistency describes how closely related product lines are to one another – in terms of use, production

and distribution. Your company's product mix may be consistent in distribution but vastly different in use. For example,

your company may sell health bars and a health magazine in retail stores. However, one product is edible and the other

is not.

The production consistency of these products would vary as well, so your product mix is not consistent. Your toothpaste

company's product lines, however, are both toothpaste. They have the same use and are produced and distributed the

same way. So, your toothpaste company's product lines are consistent.
Product Market Mix Strategy

Small companies usually start out with a product mix limited in width, depth and length; and have a high level of

consistency. However, over time, the company may want to differentiate products or acquire new ones to enter new

markets. They may also add to their lines similar products that are of higher or lower quality to offer different choices

and price points.

This is called stretching the product line. When you add higher quality, more expensive products, it's called upward

stretching. If you add lesser quality, lower priced items, it's called downward stretching.
This chart is not meant to be any kind of accurate representation of the car market, but rather
just illustrate how you could use a product positioning map to analyze your own businesses
current position in the market, and identify opportunities. For example, as you can see in the
gap below, we've identified in a possible opportunity in the market for low-priced family cars.
We're not saying this gap actually exists, I'm sure you could think of cars that fit this category,
as the car market is an extremely developed and competitive market. However, it does show
how you can use the tool to identify gaps in your own market.

An example of a company using STP?

Any time you suspect there are significant, measurable differences in your market, you should
consider STP. Especially if you have to create a range of different messages for different
groups.

A good example of segmentation is BT Plc, the UK’s largest telecoms company. BT has
adopted STP for its varied customer groups; ranging from individual consumers to B2B
services for its competitors:
Product Life Cycle
The product life cycle is an important concept in marketing. It describes the stages a product goes through
from when it was first thought of until it finally is removed from the market. Not all products reach this final
stage. Some continue to grow and others rise and fall.

What are the main stages of the product life cycle?

The main stages of the product life cycle are:

1. Research & development - researching and developing a product before it is made available for
sale in the market
2. Introduction – launching the product into the market
3. Growth – when sales are increasing at their fastest rate
4. Maturity – sales are near their highest, but the rate of growth is slowing down, e.g. new competitors
in market or saturation
5. Decline – final stage of the cycle, when sales begin to fall

This can be illustrated by looking at the sales during the time period of the product.

Overview of the Product Life Cycle

Extending the Product Life Cycle

For successful products, a business will want to do all it can to extend the growth and maturity phases of the
life cycle, and to delay the decline phase.

What can businesses do to extend the product life cycle?

To do so, it may decide to implement extension strategies - which are intended to extend the life of the
product before it goes into decline.

Examples of extension strategies are:

1. Advertising – try to gain a new audience or remind the current audience

2. Price reduction – more attractive to customers
3. Adding value – add new features to the current product, e.g. improving the specifications on a
smartphone
4. Explore new markets – selling the product into new geographical areas or creating a version
targeted at different segments
5. New packaging – brightening up old packaging or subtle changes

Evaluating the Product Life Cycle Model

The product life cycle model is by definition simplistic. It is used to predict a likely shape of sales growth for
a typical product.

Whilst there are many products whose sales do indeed follow the classic shape of the life cycle model, it is
not inevitable that this will happen.

For example, some products may enjoy a rapid growth phase, but quickly move into a decline phase if they
are are replaced by superior products from competitors or demand in the market overall declines quickly.

Other products with particularly long life cycles seem to enjoy a maturity phase that lasts for many years.
THE NEW PRODUCT DEVELOPMENT PROCESS (NPD) –
OBTAIN NEW PRODUCTS
order to stay successful in the face of maturing products, companies have to obtain new ones by a carefully executed
new product development process. But they face a problem: although they must develop new products, the odds weigh
heavily against success. Of thousands of products entering the process, only a handful reach the market. Therefore, it is
of crucial importance to understand consumers, markets, and competitors in order to develop products that deliver
superior value to customers. In other words, there is no way around a systematic, customer-driven new product
development process for finding and growing new products. We will go into the eight major steps in the new product
development process.
 The 8 steps in the New Product Development Process
1. Idea generation – The New Product Development Process
The new product development process starts with idea generation. Idea generation refers to the systematic search for
new-product ideas. Typically, a company generates hundreds of ideas, maybe even thousands, to find a handful of good
ones in the end. Two sources of new ideas can be identified:

 Internal idea sources: the company finds new ideas internally. That means R&D, but also contributions from employees.
 External idea sources: the company finds new ideas externally. This refers to all kinds of external sources, e.g.
distributors and suppliers, but also competitors. The most important external source are customers, because the new
product development process should focus on creating customer value.

2. Idea screening – The New Product Development Process

The next step in the new product development process is idea screening. Idea screening means nothing else than
filtering the ideas to pick out good ones. In other words, all ideas generated are screened to spot good ones and drop
 poor ones as soon as possible. While the purpose of idea generation was to create a large number of ideas, the
purpose of the succeeding stages is to reduce that number. The reason is that product development costs rise greatly in
later stages. Therefore, the company would like to go ahead only with those product ideas that will turn into profitable
products. Dropping the poor ideas as soon as possible is, consequently, of crucial importance.

3. Concept development and Testing – The New Product Development

Process
To go on in the new product development process, attractive ideas must be developed into a product concept. A product
concept is a detailed version of the new-product idea stated in meaningful consumer terms. You should distinguish

 A product idea à an idea for a possible product

 A product concept à a detailed version of the idea stated in meaningful consumer terms
 A product image à the way consumers perceive an actual or potential product.

Let’s investigate the two parts of this stage in more detail.

Concept development
Imagine a car manufacturer that has developed an all-electric car. The idea has passed the idea screening and must
now be developed into a concept. The marketer’s task is to develop this new product into alternative product concepts.
Then, the company can find out how attractive each concept is to customers and choose the best one. Possible product
concepts for this electric car could be:

 Concept 1: an affordably priced mid-size car designed as a second family car to be used around town for visiting friends
and doing shopping.
 Concept 2: a mid-priced sporty compact car appealing to young singles and couples.
 Concept 3: a high-end midsize utility vehicle appealing to those who like the space SUVs provide but also want an
economical car.

As you can see, these concepts need to be quite precise in order to be meaningful. In the next sub-stage, each concept
is tested.

Concept testing
New product concepts, such as those given above, need to be tested with groups of target consumers. The concepts
can be presented to consumers either symbolically or physically. The question is always: does the particular concept
have strong consumer appeal? For some concept tests, a word or picture description might be sufficient. However, to
increase the reliability of the test, a more concrete and physical presentation of the product concept may be needed.
After exposing the concept to the group of target consumers, they will be asked to answer questions in order to find out
the consumer appeal and customer value of each concept.

4. Marketing strategy development – The New Product Development Process

The next step in the new product development process is the marketing strategy development. When a promising
concept has been developed and tested, it is time to design an initial marketing strategy for the new product based on
the product concept for introducing this new product to the market.

The marketing strategy statement consists of three parts and should be formulated carefully:

 A description of the target market, the planned value proposition, and the sales, market share and profit goals for the
first few years
 An outline of the product’s planned price, distribution and marketing budget for the first year
 The planned long-term sales, profit goals and the marketing mix strategy.

5. Business analysis – The New Product Development Process

Once decided upon a product concept and marketing strategy, management can evaluate the business attractiveness of
the proposed new product. The fifth step in the new product development process involves a review of the sales, costs
and profit projections for the new product to find out whether these factors satisfy the company’s objectives. If they do,
the product can be moved on to the product development stage.

In order to estimate sales, the company could look at the sales history of similar products and conduct market surveys.
Then, it should be able to estimate minimum and maximum sales to assess the range of risk. When the sales forecast is
prepared, the firm can estimate the expected costs and profits for a product, including marketing, R&D, operations etc.
All the sales and costs figures together can eventually be used to analyse the new product’s financial attractiveness.

6. Product development – The New Product Development Process

The new product development process goes on with the actual product development. Up to this point, for many new
product concepts, there may exist only a word description, a drawing or perhaps a rough prototype. But if the product
concept passes the business test, it must be developed into a physical product to ensure that the product idea can be
turned into a workable market offering. The problem is, though, that at this stage, R&D and engineering costs cause a
huge jump in investment.

The R&D department will develop and test one or more physical versions of the product concept. Developing a
successful prototype, however, can take days, weeks, months or even years, depending on the product and prototype
methods.

Also, products often undergo tests to make sure they perform safely and effectively. This can be done by the firm itself
or outsourced.

In many cases, marketers involve actual customers in product testing. Consumers can evaluate prototypes and work
with pre-release products. Their experiences may be very useful in the product development stage.

7. Test marketing – The New Product Development Process

The last stage before commercialisation in the new product development process is test marketing. In this stage of the
new product development process, the product and its proposed marketing programme are tested in realistic market
settings. Therefore, test marketing gives the marketer experience with marketing the product before going to the great
expense of full introduction. In fact, it allows the company to test the product and its entire marketing programme,
including targeting and positioning strategy, advertising, distributions, packaging etc. before the full investment is made.

The amount of test marketing necessary varies with each new product. Especially when introducing a new product
requiring a large investment, when the risks are high, or when the firm is not sure of the product or its marketing
programme, a lot of test marketing may be carried out.

8. Commercialisation
Test marketing has given management the information needed to make the final decision: launch or do not launch the
new product. The final stage in the new product development process is commercialisation. Commercialisation means
 nothing else than introducing a new product into the market. At this point, the highest costs are incurred: the company
may need to build or rent a manufacturing facility. Large amounts may be spent on advertising, sales promotion and
other marketing efforts in the first year.

Some factors should be considered before the product is commercialized:

 Introduction timing. For instance, if the economy is down, it might be wise to wait until the following year to launch the
product. However, if competitors are ready to introduce their own products, the company should push to introduce the
new product sooner.
 Introduction place. Where to launch the new product? Should it be launched in a single location, a region, the national
market, or the international market? Normally, companies don’t have the confidence, capital and capacity to launch new
products into full national or international distribution from the start. Instead, they usually develop a planned market
rollout over time.

In all of these steps of the new product development process, the most important focus is on creating superior customer
value. Only then, the product can become a success in the market. Only very few products actually get the chance to
become a success. The risks and costs are simply too high to allow every product to pass every stage of the new
product development process.
What Is the Difference Between Place & Promotion in the Marketing Mix?
A well-defined marketing plan includes the four basic elements: product, price, place and promotion. The element of place deals

with the factors that go into the distribution of a product, whereas promotion is concerned with the dedicated communication

activities.
Place or Distribution

After a product is fully developed and offered at a competitive price, it must be delivered to an identified target audience. The place

element of the marketing mix is where product production and distribution channels are decided and planned. The decisions made in

this step directly affect the types of communication that are used to tell the target audience about a product.

Place Decisions

Place decisions, including the choice of business partners, encompass how a product will be manufactured, stored, shipped and

delivered to the end customer. A company may have a product manufactured internationally, use local warehouses and shipping

resources when the product arrives from overseas, and then use a network of independent retailers to offer the product to consumers.

Place decisions in the marketing mix directly affect the company’s promotion activities.

Promotion

Promotion is summarized as the specific communication avenues for a product. In the marketing mix, promotion is a combination of

activities such as advertising, public relations and direct sales. Some common communication methods are television, radio and print

advertising and public-relations activities, such as press releases or promotional events.

Promotion Decisions

The specific communication methods chosen are dependent on factors such as product place decisions and the marketing budget.

For example, if a new toy product will be distributed through local independent retailers, a company may choose advertising media

in specific retailer locations, in lieu of regional or national advertising. The company may choose to use public relations and local

promotions if the marketing budget for the line of toys is not enough for a large-scale advertising campaign.
Designing and Managing Value Networks and
Marketing Channels
A normal way of functioning for a company is to procure raw materials, use its expertise in creating the product and then distribute to
the customer. Companies have to convert this supply chain into a value network as to develop and maintain partnership with different
stakeholders.

Value Network and Marketing Channel

A network which creates partnership and value in purchase, production and selling of products is referred to as value network. Value
network looks at the whole supply chain system players as partners rather than customers. The purpose of value network is to increase
productivity, save cost and increase revenue. Companies are willing to take the procurement process on online for accuracy and
speed. Companies exactly know each partner’s role in influencing or disrupting normal operations.

Companies have developed distribution channel and network through which it supplies final product to customers. This distribution
channel and network are referred to as the marketing channel. Companies invest time and money in a well functioning marketing
channel. The marketing channels are an integral part of marketing and promotional activity of the company.

Marketing Channels
Core competency for a company lies in developing a product which satisfies a particular need of the market. A company if it decides to
sell a product on its own than it is diverting from main line business resulting in operational difficulties. Marketing channel is ears and
eyes of companies in the market. They provide companies with valuable information of customers, competitors and other players in the
market. Dell’s computer exclusively uses direct marketing (the Internet and express mail service) in reaching customers. are different of
marketing channel depending upon the number intermediaries like retailer, wholesaler and distributor. Channels are also used by
companies providing services; for example, hospital and fire station have to strategically locate for people to reach without considerable
efforts.

Marketing Channel Design, Management, Evaluation and Modification

In designing marketing channel companies analyze customer needs and preference for a given product. Further marketing channel
should fall in line with overall objectives of the company in cost and desired output level. Companies then need to explore various
marketing channels like direct marketing, tele-marketing, direct mail, etc. to find the right fit to reach the customer. Each channel short
listed has is to be evaluated on operational, cost effective and flexibility criteria. Once the channel is designed, companies look forward
to selecting partners with characteristics, which have a positive impact for the product. Channel members need to get the right amount
of training as to full understand their role with respect to customer and product. Companies need to develop a mechanism as to monitor
functioning of marketing channels on criteria based on total customer satisfaction. After reviewing marketing channel companies should
modify them to improve functioning and productivity.

New Trends in Marketing Channels

Companies are looking forward to innovating business functioning as to stand up to the competition and changing market scenario.
This has seen rise different types of marketing channel. In a vertical marketing channel, the traditional producer-wholesaler-retailer
becomes one functional unit. This can be achieved through franchise or single ownership. In horizontal marketing channel two or more
un-related agencies combine to exploit the market opportunities, for example, banks in super markets. In multi-channel marketing
systems, companies use different marketing channels to reach different customer base or segment.

Conflict Management in Marketing Channels

In vertical channel conflicts are between members of same channel. In horizontal channel conflicts are between similar service
providers in a different channel. In multi-channel conflict arise when a different channel serves the same market. The first step in
conflict resolution is to identify the cause for the conflict. Next step is to manage the conflict. This can be done by setting up clear
mandate for each member and their role in the overall objective of the company. Further, joint membership, diplomacy and exchange of
team members are other ways in resolving conflicts.

Companies need to design and manage marketing channels in such a way that they are always able to deliver value to customer.

What is a Vendor Management System

(VMS)
If your organization has to deal with a large amount of external hiring, a Vendor Management System, or a VMS, would
be a suitable solution. VMS is one of the applications of the Connexys Resource Manager. But what exactly is a VMS,
and what advantages does this solution offer your organization when it comes to managing complex hiring processes?

What is a VMS?
With a VMS you manage the entire hiring process with one comprehensive solution. From the initial request by the
manager to approving an order confirmation by the supplier.

What are the benefits of a VMS?

What are the benefits of working with a VMS for your organization? I will discuss the most important ones underneath:
1. Control over the hiring process
Currently, requests are submitted by e-mail via the manager within the organization. Suppliers send candidates directly
to this manager. This way, the hiring desk is not affiliated to the process and employed candidates are unknown to the
system. In addition, purchase order numbers are missing and price agreements are not always respected. Perhaps
slightly oversimplified, but the hiring process within an organization is often a black box.
By facilitating all users through a VMS, all steps in the hiring process go through a transparent route and everyone
involved knows what the status of an application is. This way, you won’t get any surprises at the end of the process and
you can monitor your hiring process from one single solution. Also the supplier makes use of the same VMS
functionalities and is therefore an integral part of the hiring process.
2. Optimization administrative processes
Curriculum vitae, copy of identity, VAR declaration and a certificate of good conduct; just a small sample of the many
documents you will need for a candidate during the hiring process. Currently, these documents lie around anywhere and
nowhere within your organization; in mailboxes, on servers and even in printed version. Whilst from a compliance and
privacy perspective, it’s advisable to have these documents stored centrally.
With a VMS you will have the option to request a set of mandatory documents for a job application or at the start of
employment. This way, in case you are hiring a self-employed individual, you will actually have his current VAR
declaration and Chamber of Commerce documents at the right time in the process. Documents are stored centrally with
the assignment or candidate and the validity of the documents will also be monitored via VMS. By making clever use of
digital signature software, you also cover simple signing of your most important documents within a VMS.

3. Guarantee of contractual agreements

If you hire a large number of external employees within your organization, you probably will be faced with a wide variety
of price agreements. These agreements are currently manually controlled, or not controlled at all, during the recruiting
process. The result: billing by suppliers is therefore more often wrong than right, which leads to frustrations within your
financial department.
With a VMS, price agreements are guaranteed within the solution and automatically applied when contracts are drawn
up. Price agreements are maintained centrally, allowing simple variables to be added per supplier. This way, the
purchase department will have the control of the agreements and therefore the margin of error in bills will be reduced to
a minimum level.
4. Understanding supplier performance
How do my suppliers perform? A simple question at first glance, which turns out to be more complex in practice. As an
organization, you are always trying to reduce the number of suppliers without compromising the quality of the
candidates. However, the buyer needs a good foundation to enter into negotiations with suppliers. No more just trusting
your gut feelings as is happening too often now.
A VMS uses powerful reports for a realistic understanding whether suppliers deviate from the price agreements.
Through offer ratios and processing times, purchase has also grip on quantitative arrangements that are made. This
data makes the life of a buyer a lot easier when they sit down with the suppliers.
5. Integration with the ICT landscape
SAP is often a leading ERP system within organizations and purchase has set up its processes accordingly. Connecting
the further hiring process to this is complex and error-prone, and your IT organization is therefore sceptical about it. As a
result, within your organization the hiring process and the purchase process are still two separate worlds.
With a VMS, integration with SAP does not have to be complex at all, because a VMS will be part of the ICT landscape.
Master data from SAP are exchanged in real time with the VMS for correct input of applications. Upon approval of the
candidate, data will be exchanged between the VMS and SAP, take for example a purchase order number or an
employee number. The big advantage is that both systems contain the same data end-to-end, so you don’t have to deal
with two versions of the truth.

Integrated Marketing Communications

Integrated Marketing Communications is a simple concept. It ensures that all forms of
communications and messages are carefully linked together.
At its most basic level, Integrated Marketing Communications, or IMC, as we’ll call it, means
integrating all the promotional tools, so that they work together in harmony.

Promotion is one of the Ps in the marketing mix. Promotions has its own mix of
communications tools.

All of these communications tools work better if they work together in harmony rather than in
isolation. Their sum is greater than their parts – providing they speak consistently with one
voice all the time, every time.

This is enhanced when integration goes beyond just the basic communications tools. There
are other levels of integration such as Horizontal, Vertical, Internal, External and Data
integration. Here is how they help to strengthen Integrated Communications.

 Horizontal Integration occurs across the marketing mix and across business functions – for example, production, finance,
distribution and communications should work together and be conscious that their decisions and actions send messages to
customers.

 While different departments such as sales, direct mail and advertising can help each other through Data Integration. This requires
a marketing information system which collects and shares relevant data across different departments.

 Vertical Integration means marketing and communications objectives must support the higher level corporate objectives and
corporate missions.

 Meanwhile Internal Integration requires internal marketing – keeping all staff informed and motivated about any new
developments from new advertisements, to new corporate identities, new service standards, new strategic partners and so on.

 External Integration, on the other hand, requires external partners such as advertising and PR agencies to work closely together
to deliver a single seamless solution – a cohesive message – an integrated message.

Benefits of Integrated Marketing

Communications
Although Integrated Marketing Communications requires a lot of effort it delivers many
benefits. It can create competitive advantage, boost sales and profits, while saving money,
time and stress.
IMC wraps communications around customers and helps them move through the various
stages of the buying process. The organisation simultaneously consolidates its image,
develops a dialogue and nurtures its relationship with customers.

This ‘Relationship Marketing’ cements a bond of loyalty with customers which can protect
them from the inevitable onslaught of competition. The ability to keep a customer for life is a
powerful competitive advantage.

IMC also increases profits through increased effectiveness. At its most basic level, a unified
message has more impact than a disjointed myriad of messages. In a busy world, a
consistent, consolidated and crystal clear message has a better chance of cutting through the
‘noise’ of over five hundred commercial messages which bombard customers each and every
day.

At another level, initial research suggests that images shared in advertising and direct mail
boost both advertising awareness and mail shot responses. So IMC can boost sales by
stretching messages across several communications tools to create more avenues for
customers to become aware, aroused, and ultimately, to make a purchase

Carefully linked messages also help buyers by giving timely reminders, updated information
and special offers which, when presented in a planned sequence, help them move
comfortably through the stages of their buying process… and this reduces their ‘misery of
choice’ in a complex and busy world.

IMC also makes messages more consistent and therefore more credible. This reduces risk in
the mind of the buyer which, in turn, shortens the search process and helps to dictate the
outcome of brand comparisons.

Un-integrated communications send disjointed messages which dilute the impact of the
message. This may also confuse, frustrate and arouse anxiety in customers. On the other
hand, integrated communications present a reassuring sense of order.

Consistent images and relevant, useful, messages help nurture long term relationships with
customers. Here, customer databases can identify precisely which customers need what
information when… and throughout their whole buying life.

Finally, IMC saves money as it eliminates duplication in areas such as graphics and
photography since they can be shared and used in say, advertising, exhibitions and sales
literature. Agency fees are reduced by using a single agency for all communications and even
if there are several agencies, time is saved when meetings bring all the agencies together –
for briefings, creative sessions, tactical or strategic planning. This reduces workload and
subsequent stress levels – one of the many benefits of IMC.

Barriers to Integrated Marketing

Communications
Despite its many benefits, Integrated Marketing Communications, or IMC, has many barriers.
In addition to the usual resistance to change and the special problems of communicating with
a wide variety of target audiences, there are many other obstacles which restrict IMC. These
include: Functional Silos; Stifled Creativity; Time Scale Conflicts and a lack of Management
know-how.
Take functional silos. Rigid organisational structures are infested with managers who protect
both their budgets and their power base.

Sadly, some organisational structures isolate communications, data, and even managers from
each other. For example the PR department often doesn’t report to marketing. The sales force
rarely meet the advertising or sales promotion people and so on. Imagine what can happen
when sales reps are not told about a new promotional offer!

And all of this can be aggravated by turf wars or internal power battles where specific
managers resist having some of their decisions (and budgets) determined or even influenced
by someone from another department.

Here are two difficult questions – What should a truly integrated marketing department look
like? And how will it affect creativity?

It shouldn’t matter whose creative idea it is, but often, it does. An advertising agency may not
be so enthusiastic about developing a creative idea generated by, say, a PR or a direct
marketing consultant.

IMC can restrict creativity. No more wild and wacky sales promotions unless they fit into the
overall marketing communications strategy. The joy of rampant creativity may be stifled, but
the creative challenge may be greater and ultimately more satisfying when operating within a
tighter, integrated, creative brief.

Add different time scales into a creative brief and you’ll see Time Horizons provide one more
barrier to IMC. For example, image advertising, designed to nurture the brand over the longer
term, may conflict with shorter term advertising or sales promotions designed to boost
quarterly sales. However the two objectives can be accommodated within an overall IMC if
carefully planned.

But this kind of planning is not common. A survey in 1995, revealed that most managers lack
expertise in IMC. But its not just managers, but also agencies. There is a proliferation of single
discipline agencies. There appear to be very few people who have real experience of all the
marketing communications disciplines. This lack of know how is then compounded by a lack
of commitment.

For now, understanding the barriers is the first step in successfully implementing IMC.

Communications Theory
How do we communicate? How do customers process information? There are many models
and theories. Let’s take a brief look at some of them.

Simple communications models show a sender sending a message to a receiver who

receives and understands it. Real life is less simple – many messages are misunderstood, fail
to arrive or, are simply ignored.

Thorough understanding of the audience’s needs, emotions, interests and activities is

essential to ensure the accuracy and relevance of any message.

Instead of loud ‘buy now’ advertisements, many messages are often designed or ‘encoded’ so
that the hard sell becomes a more subtle soft sell. The sender creates or encodes the
message in a form that can be easily understood or decoded by the receiver.

Clever encoding also helps a message to cut through the clutter of other advertisements and
distractions, what is called ‘noise’. If successful, the audience will spot the message and then
decode or interpret it correctly. The marketer then looks for ‘feedback’ such as coupons
returned from mailshots, to see if the audience has decoded the message correctly.

The single step model – with a receiver getting a message directly from a sender – is not a
complete explanation.

Many messages are received indirectly through a friend or through an opinion leader.

Communications are in fact multifaceted, multi-step and multi-directional. Opinion leaders talk
to each other. Customers talk to opinion leaders and they talk to each other.

Add in ‘encode, decode, noise and feedback’ and the process appears more complex still.

Understanding multiphase communications helps marketers communicate directly through

mass media and indirectly through targeting opinion leaders, opinion formers, style leaders,
innovators, and other influential people.

How messages are selected and processed within the minds of the target market is a vast
and complex question. Although it is over seventy years old, rather simplistic and too
hierarchical, a message model, like AIDA, attempts to map the mental processes through
which a buyer passes en route to making a purchase.
There are many other models that attempt to identify each stage. In reality the process is not
always a linear sequence. Buyers often loop backwards at various stages perhaps for more
information. There are other much more complex models that attempt to map the inner
workings of the mind.

In reality, marketers have to select communications tools that are most suitable for the stage
which the target audience has reached. For example, advertising may be very good at raising
awareness or developing interest, while free samples and sales promotions may be the way
to generate trial. This is just a glimpse into some of the theory. Serious marketers read a lot
more.

Golden Rules
Despite the many benefits of Integrated Marketing Communications (or IMC); there are also
many barriers. Here’s how you can ensure you become integrated and stay integrated – 10
Golden Rules of Integration.
(1) Get Senior Management Support for the initiative by ensuring they understand the
benefitsof IMC.

(2) Integrate At Different Levels of management. Put ‘integration’ on the agenda for various
types of management meetings – whether annual reviews or creative sessions. Horizontally –
ensure that all managers, not just marketing managers understand the importance of a
consistent message – whether on delivery trucks or product quality. Also ensure that
Advertising, PR, Sales Promotions staff are integrating their messages. To do this you must
have carefully planned internal communications, that is, good internal marketing.

(3) Ensure the Design Manual or even a Brand Book is used to maintain common visual
standards for the use of logos, type faces, colours and so on.

(4) Focus on a clear marketing communications strategy. Have crystal clear communications
objectives; clear positioning statements. Link core values into every communication. Ensure
all communications add value to (instead of dilute) the brand or organisation. Exploit areas of
sustainable competitive advantage.

(5) Start with a Zero Budget. Start from scratch. Build a new communications plan. Specify
what you need to do in order to achieve your objectives. In reality, the budget you get is often
less than you ideally need, so you may have to prioritise communications activities
accordingly.

(6) Think Customers First. Wrap communications around the customer’s buying process.
Identify the stages they go through before, during and after a purchase. Select communication
tools which are right for each stage. Develop a sequence of communications activities which
help the customer to move easily through each stage.

(7) Build Relationships and Brand Values. All communications should help to develop stronger
and stronger relationships with customers. Ask how each communication tool helps to do this.
Remember: customer retention is as important as customer acquisition.

(8) Develop a Good Marketing Information System which defines who needs what information
when. A customer database for example, can help the telesales, direct marketing and sales
force. IMC can help to define, collect and share vital information.
(9) Share Artwork and Other Media. Consider how, say, advertising imagery can be used in
mail shots, exhibition stands, Christmas cards, news releases and web sites.

(10) Be prepared to change it all. Learn from experience. Constantly search for the optimum
communications mix. Test. Test. Test. Improve each year. ‘Kaizen’.

Just a few ways to beat the barriers and enjoy the benefits of integrated marketing
communications.

Difference Between Advertising and Sales Promotions

Advertising and sales promotions are two of the key components of a business, but they are distinct concepts that

people often misunderstand. Advertising promotions are done to build brand image, and the results become apparent

though the passage of time. Sales promotions are much more immediate and focus on getting revenues into the

business bank account right now.

What is Advertising Promotion?

Advertising is the process of expressing the qualities and advantages of your products and services, relative to the

product and services that your competitors are offering. In most instances, businesses will use advertising as a means

of expressing the unique selling proposition that makes their products and services superior to those that their

competitors sell.

For example, Lexus advertises its luxury vehicles as having been created by the “relentless pursuit of perfection,” and

BMW counters this message by touting its vehicles as “The Ultimate Driving Machine.” The main goal of advertising is to

increase sales and to create branding opportunities that can pay off in the future.
What is Sales Promotion?

Sales promotions are all about the short-term sales of products and services. Many companies push these promotions

during specific periods when consumer demand is likely to be higher than normal. For example, the holiday season is a

prime time for businesses to hold sales promotions, because customers are more primed to make impulse purchases.

Sales promotions can include free trials for a limited time, discount coupons, and buy-one-get-one-free deals.
Differences Between Advertising and Sales Promotions

Permanent vs temporary strategy

Advertising is a permanent strategy that involves marketing and sales, whereas sales promotions have a limited time

frame.

Different end goals

Advertising appeals to the wants and needs of a target audience, and seeks to persuade prospective customers that

your company is worthy of their attention. The end goal with advertising isn’t always to make a sale; in some instances,

it’s to set the stage for a sale in the future by introducing prospects to your company’s products and services. In

contrast, sales promotions are strictly about moving products and services, and are designed solely to appeal to the

financial consideration of a prospect.

Indirect vs direct appeal

Advertising can involve a number of indirect methods to create the desired effect in a target audience, whereas sales

promotions are not subtle or meant to be hidden in any way. For example, a skateboard company that's involved in

advertising might talk about the type of material used to make the board, the rotational capabilities of the board’s

wheels, and the different types of jumps that skaters can attempt with the board. However, if the skateboard company

was involved in sales promotions, it would focus on the price of the board, and the discounts available, if consumers buy

more than one board.