“Any customer can have a car painted any color that he wants 2. Shared Intangible Resources.
ces. Hewlett Packard discovered
so long as it is black,” said -Henry Ford
Unit costs can be predicted
Growth is not an option in many markets
The experience curve is dependent on the industry
Economies of scale can be achieved in a
number of ways:
1.Cost Spreading. This is particularly important in industries
with high fixed costs
2.Purchasing Power. Another source of scale
economies are the volume discounts that companies receive
due to the size of their purchases
3.Specialization of Labor. Economies of scale
also occur because large companies with high volumes of
production can divide labor into discrete activities which then
are performed more efficiently
4. Specialization of Technology. Large companies
have more capital and can more easily afford expensive
machines and technology that bring costs down.
Diseconomies of scale occur when various
kinds of forces cause larger firms to produce goods and
services at increased per-unit costs.
If companies or plants exceed the optimal volume of
production, costs can increase due to diseconomies of scale
for the following major reasons:
1. Physical Limits to Efficient Size. When the
production volume exceeds capacity, additional investments
have to be made
2. Managerial Diseconomies. Size can increase
complexity and bureaucracy
3. Worker De-Motivation. In larger companies
workers become segregated and communicate
less with each other
4. Distance to Market. Finally, diseconomies of
scale can occur because of the physical distance
of larger
Economies of scope exist whenever there are cost savings
from using a resource in multiple activities carried out in
combination rather than carrying out those activities
independently. There are basically six forms of synergies:
1. Shared Tangible Resources. Unit costs can be reduced
when tangible resources such as production plants
that its inkjet technology could replace hypodermic needles or
pills for the delivery of vaccines
3. Pooled Negotiating Power. By combining their purchases,
different strategic business units can benefit from bulk
discounts and from cost savings in transportation and logistics
4. Coordinated Strategies. Multi-business-unit companies can
coordinate market entry strategies
5. Vertical Integration. Vertically integrated companies can
benefit from a faster flow of products through the supply chain
6. Combined Business Creation. Diversified companies can
combine the know-how and technologies of each business unit
to create new products or businesses
They can benefit from synergies.
• Customer assets: Brand recognition, customer loyalty and
trust can reduce costs dramatically when new products are
introduced.
• Channel assets: Access to distribution channels and
distributor loyalty facilitates the establishment of a dealer
network
• Input assets: Knowledge of and access to supplier markets
and cheap raw materials or components can also reduce costs
and time to market.
• Process assets: Product or market-specific experience and
know-how in
• Market knowledge assets: Knowledge of competitors,
customers, etc. provides valuable insights into the marketing
process.
Another problem with building strategy on marketshare
objectives is that market share is a competitor-oriented
objective
What on Business School Professor J. Scott
Armstrong has reviewed and extended findings on the
negative effects of competitor-orientated strategies
“First, second, or out.” - Jack Welch
Some particular issues to consider when integrating market-
share considerations into a strategy include the following:
Scale effects: The chief precondition to using
market share as an objective in strategy definition should be
some well-tested expectation of substantial benefits from
scale.
Dissuasion of competitors: Often, market share can serve as a
barrier to entry for competing firms.
Standardization: If an industry is expected to
establish standards, then the firm with the
highest market share for that industry will usually earn the
power to influence or even lead
Ancillary sales: Market share can establish an
“installed base” of equipment and establish relationships with
customers who will purchase ancillary products, supplies, or
services from the firm.
Customer “stickiness”: Customers gained via
market-share oriented strategies must be retained as costs
come down, margins go up, or competition in the market
changes
Scenario analysis is, essentially, an elaborate “if . . . then . . .”
planning tool
THE SCENARIO ANALYSIS PROCESS
As powerful as it is, scenario analysis can nevertheless
be reduced to a few basic steps:
1. Define the scope of the analysis;
2. Identify the drivers of future strategic contexts;
3. Select specific levels, changes, or events within each driver
to frame the future;
4. Combine those drivers and levels/changes/events
to develop comprehensive scenarios;
5. Select three or four scenarios for analysis;
6. Analyze and plan for each selected scenario; and
7. Integrate results to identify near- and longterm directions,
actions, and investments and to appraise strategic alternatives.
“There is only one valid definition of business purpose: to
create a customer. . . .
-Peter Drucker
“Strategy is the coordinated means by which an organization
pursues its goals and objectives.”
Strategic marketing decisions address a range of issues and
critical tasks, including:
• The long-term direction of a company,
• The scope of the company,
• The identification and/or creation of competitive advantages,
• The maintenance and protection of those competitive
advantages, and
• The identification and prioritization of opportunities and
threats in the external
environment, including
• The identification and prioritization of customer needs as well
as expectations
and the needs and interests of other stakeholders
A sound and compelling marketing strategy should consider all
of these issues. It should fulfill three basic requirements:
-Comprehensive
-Integrative
-Consistent
A comprehensive marketing strategy must specify who, where,
what, why, why, and how (“5 Ws and 1 H”):
1. Who the company will serve—the customer segments and
products: A strategy requires a clear definition of the target
market, the intended position within each market and the
products and services that are tailored to it.
2. Where the firm will do business—the geographic markets
and regions: Related to the first question is the definition of the
geographic market
3. What needs the firm will meet—needs that a firm can meet
better than the competitors and lead to a sustainable
differentiation
4. How will the company serve the customers and needs —the
means (core competences and activities of the value chain)
5. When the firm will act—the speed and sequence of the
firm’s actions
6. Why the firm will do these things—the compelling business
model and economic logic
The two key elements are:
• Target Segments. Questions about who the
firm serves, when the firm meets those needs
• Competitive Advantages. Questions about
how the firm serves those target segments and
their needs better than the competition
Harvard Professor Michael Porter has argued that that “[a]
company can outperform its rivals only if it can establish a
difference that it can preserve.”
Sources of Cost Advantages:
Economies of Scale
Economies of Scope
Experience Curve Effect
Production Techniques
Product Design
Input Costs
Cost Leadership
A cost leader typically offers a standardized, no-frills product;
adding ‘frills’ adds costs
Common Bases of Differentiation
Quality in Goods
Brand Personality
Quality in Services
Channel Functions
COMPETITIVE SCOPE
The second dimension or characteristic of strategies that has
emerged across various frameworks and been well-
established by many strategy experts is competitive scope
“Value” can be defined in many ways, but in marketing strategy
it refers to customer
perceptions that weigh or combine what the customer gets
The pioneers of customer value analysis—Bradley T. Gale and
Robert D. Buzzell —carried out extensive research to measure
the impact that customer value has on market share and
profitability using the PIMS
The superior customer value strategy is a combination of
Michael Porter’s cost leadership strategy and his differentiation
strategy
Strategy formulation based on the value frontier concept can
be systematically accomplished using a number of single
analytical tools over eight distinct steps of analysis. These
steps are as follows
• Step 1: Definition of the target market
• Step 2: Identification of competitors
• Step 3: Identification of customers’ buying criteria and their
relative importance
• Step 4: Assessment of product performance and price
• Step 5: Calculation of relative quality and relative price
• Step 6: Estimation of customers’ price sensitivity
• Step 7: Creation of the customer value map and formulation
of strategies
• Step 8: Definition of an action plan using importance
performance analysis
STEP 1: DEFINING THE TARGET MARKET. A good
customer value analysis begins with the definition of
market segments
STEP 2: IDENTIFYING COMPETITORS. The second step of
the strategy formulation process involves identifying
competitors within the market segment
STEP 3: IDENTIFYING AND ASSESSING BUYING
CRITERIA. Next comes a particularly crucial step in customer
analysis: identification of the customers’ buying criteria and
their relative weights.
STEP 4: ASSESSING PRODUCT PERFORMANCE
AND PRICE. Product performance is best assessed
using a rating scale
STEP 5: CALCULATING RELATIVE QUALITY AND
PRICE. Next, in order to calculate the quality score of each
competing product
STEP 6: ESTIMATING PRICE SENSITIVITY.
Customers’ price sensitivity can simply be measured using a
constant sum scale and a question similar to the following:
“Please indicate how much weight you put on quality
STEP 7: CREATING THE CUSTOMER VALUE MAP
AND FORMULATING STRATEGIES. At this point,
the relative quality and relative price of each product can be
used to create the customer value map
STEP 8: DEFINING AN ACTION PLAN. The final step of
customer value analysis involves defining an action plan
Four quadrants with the following implications are, therefore,
identified:
Quadrant 1 (high importance –high performance): These
product characteristics or attributes are the competitive
advantages.
Quadrant 2 (high importance –low performance): These
product characteristics or attributes are the “burning fires”.
Quadrant 3 (low importance –high performance):
A higher performance on unimportant
attributes can represent a possible overkill.
Quadrant 4 (low importance –low performance): Actions have
low priority here, as these disadvantages are not very relevant.
MARKET PENETRATION
The easiest and most promising way to grow is to increase
sales of existing products in existing markets.
There are several options to grow via market penetration:
Increase Frequency of Use. In this case, a company tries to
persuade its customers to use its products more often.
Increase Quantity Used. Another option to increase sales of an
existing product to existing customers is to increase the
quantity used.
Convert Nonbuyers. In any market there are customers that,
for one reason or another, are nonusers of a product.
New Applications. Sales can also be increased when
customers are shown new applications for existing products
Convert Lost Customers. The average company has a
customer turnover of 20 to 40 percent peryear.
Convert Competitor’s Customers. This, usually, is the most International
difficult way to grow as a company needs either a clear price -Products are developed for the domestic market and sold
advantage or a clear differentiation advantage abroad with no alteration
Multinational
PRODUCT DEVELOPMENT -Each foreign market develops customized strategies and
To introduce modified, improved, or new products on existing offerings to fully adapt to thelocal requirements
markets is the second successful strategy with an average Global
success rate of 33 percent. However, it takes on average eight -Products are developed for the global marketand companies
times more resources than the market penetration strategy: sell “the same thing, the same way, everywhere
Product Improvements. Adding new product features (e.g., Transnational
digital camera to a cell phone) orimproving product -As much standardization as possible, as much adaptation as
performance. necessary
Product Innovations. Synergies can be exploited when a
company introduces a new product targeted to the existing Market Entry Strategies
customer base. 1. Exporting;
Product Line-Extensions. When a company introduces under Indirect—through independent intermediaries
its successful brand name in a given product category new Direct—through home-based expor
flavors, forms, colors, package sizes, etc. 2. Licensing;
Cross Selling. Cross selling in most cases offers very attractive Issuing a license to a foreign company to use a process,
opportunities for growth trademark, patent, or product
3. Franchising;
DIVERSIFICATION Offering a complete brand concept and operating system to a
Taking a new product to a new market is the strategy franchisee against a fee
with the highest risk. 4. Joint Ventures; or
There are different ways of diversification: Joint venture with a local investor with shared
-Related Diversification. In a related diversification a company ownership and control
enters a new market with a new product attaining synergies by 5. Direct Investment.
sharing assets or competencies across businesses. Direct ownership of a foreign production or assembly plant
-Unrelated Diversification. In an unrelated diversification a
company enters a new market with a new product not related Offensive Strategies:
to the existing product markets. 1.Frontal attack
-Forward and Backward Integration. Vertical integration is Massing one’s forces against the strengths
another potential growth strategy. of the competitor
2. Flanking
First-Mover versus Follower Strategy: Attacking segments or addressing needs
First-Mover that are neglected by the competitor
-Being first to market with a new product, service, business 3. Encirclement
model, or technology Attacking at several fronts simultaneously
Follower 4. Bypass
-Entering a market as a follower with either an improved or Gain strength in unserved markets to
lower priced version attack later
5. Guerrilla
When a company internationalizes, it has four options): Minor attacks on multiple fronts to
1. Build an international strategy; demoralize competitor
2. Build a multinational strategy;
3. Build a global strategy; or Defensive Strategies
4. Build a combination of the above or a transnational strategy. 1.Position
Building a “fort” around the current product
Approaches to Internationalization: 2.Mobile
Diversify into new products and or markets to
launch retaliatory strikes
3. Preemptive
Defending by attacking
4. Flank positioning
Develop defenders for uncertain eventualities
5. Counteroffensive
Directly attacking aggressor
6. Strategic withdrawal
Withdraw from unimportant segments to
concentrate resources for a counterattack

Organizational Segmentation Variables:

Macro variables
Micro variables

Psychographic variables (e.g., personality

traits, lifestyle) are often used when geographic
and demographic variables fail to predict
needs and behavior
Behavioral variables (e.g., user status, intensity of use) divide
customers into homogeneous
segments based on their consumer behavior, or
their attitudes toward the use of, and response
to, a product.