Strategic Marketing

The Strategy Concept

Dr. B. K. Mukherjee 1
 The Strategy Concept
This area of management study was first developed in 1950s
and 1960s by H. Igor Ansoff (Organizational & Operational
strategy) – rational and accurate ways by which orgns. could
both adjust to and exploit changes in their environment.

Opening Case: DELL COMPUTERS

Started in 1984 by Michael Dell in his dorm room at the Uni. Of Texas in
Austin. Sales in 2002 was USD 30 billion.
 Direct selling strategy;
 Customization of product over the Internet; and
 Using the Web for Supply Chain Mgmt (JIT), resulting in lowest (5
days’) Inventory on hand.

If a company’s strategy results in superior performance relative

to other companies in the same business/industry, then it is said
to have a competitive advantage.
Dr. B. K. Mukherjee 2
Competitive Advantage
Major authority currently is Prof. Michael E.
Porter of Harvard Business School
(‘Competitive Strategy: Techniques for
Analyzing Industries and Competitors’, 1980)
.According to Porter, competitive advantage
grows fundamentally out of value a firm is
able to create for its buyers that exceeds the
firm’s cost of creating it. Value
(Benefits/Cost)is what buyers are willing to
pay, and superior value stems from offering
lower prices than competitors for equivalent
benefits or providing unique benefits that
more than offset a higher price.
Today, every enterprise operates in a complex
business environment, hence Strategy must
necessarily change over time to fit the
prevalent environmental conditions.
However, to remain competitive, companies
must focus on
 a) Core competence,
 b) Synergy, and
 c) Value creation.

Dr. B. K. Mukherjee 3
 Core Competence
Core competence: a business activity that an organization does
particularly well in comparison to its competitors – should be
1) Distinctive – only for me / non-duplicable / based on
relationship, culture, etc.
2) Reproducible – in terms of Technology, Value (VFM), etc.
SOME EXAMPLES OF CORE COMPETENCE
 BRITANNIA INDUSTRIES – real expertise lies in handling
perishable goods. However, AMUL is one step ahead of Brittannia
in the value chain because of its own milk-producing unit.
 HINDUSTAN LEVER LTD.– Distribution of FMCGs, Toiletries, Food
products, etc.- vast and efficient distribution Network – long shelf
life.
 OIL COMPANIES : Exploration(Crude oil, Natural gas) >
Drilling(Technology) > Crude Transportation (Pipelines, Tank ships)
> Crude Storage (Tank Farms) > Refining (Different fractions –
CNG/LPG/ Petrol/Diesel/Kerosene/ATF/Naphtha/Lubes/Fuel Oil) >
Product storage(Tanks) >Product Transportation > Retail pumps
[example of Forward Integration]
Dr. B. K. Mukherjee 4
 Core competence (contd.)
 RELIANCE INDS : Textiles(VIMAL) >Yarn(PFY/POY
etc) > Petrochemicals(PTA, PP, etc) > Oil Refining
(Naphtha) > Exploration (Crude). This is an example of
Backward Integration.
These are Integrated corporations who participate in
the entire Value chain, right from Exploration to Retail
Pumps or from Textiles to Oil Exploration.
 TOYOTA MOTORS, JAPAN :
The Japanese have further promulgated this view by
developing the “Five Zeros” and “Seven Wastes”
concepts.
Actually, Toyota’s core-competence lies not in making
and selling cars, but in following the 5-zeros and 7-
wastes strategies.
Dr. B. K. Mukherjee 5
 Toyota’s 5-zeros strategy
 FIVE ZEROS STRATEGY:
1. Zero Customer feedback time – continuous
customer feedback after sale.
2. Zero Product improvement time – ongoing
R&D activities, prompt introduction of improved
variants.
3. Zero Purchase time – JIT system, reduced
inventory, lower costs.
4. Zero Set-up time – Flexible design of tools,
jigs, robotics, processes.
5. Zero Defect – Frequent inspections, In-
process QC, Flawless finish.
Dr. B. K. Mukherjee 6
 Toyota’s 7-wastes strategy
SEVEN WASTES TO BE AVOIDED:
1. Waste of time on hand (i.e, waiting time) – because
men, m/c, raw materials, stocks are waiting, by proper planning
and scheduling.
2. Waste in Transportation – by planned logistics and
material movements.
3. Waste in over-productions – by proper production
planning and estimations.
4. Waste in stocks-on-hand – by effective sales
forecasts.
5. Waste in Processing – efficient use of technology.
6. Waste in movement – by detailed Work-study.
7. Waste in making defective products – state of mind
Dr. B. K. Mukherjee 7
 Core (Internal) Competences [Chaston]
Clearly defined Market Opportunity
Strategic
Adoption of appropriate Market Positioning Competences

Formal Plan to exploit identified opportunity

Financial Resources capable of

Resource Competences
supporting Plan

Organizational competences

INNOVATION WORKFORCE QUALITY PRODUCTIVITY SYSTEMS

Effective or Appropriate Adequate and Adequate, Information
requiring structure, regularly supported by flows permit
improvement? motivated and assessed or ongoing invest- rapid problem
competent or requiring ment in Techno- resolution or
requiring improvement? logy or requiring requiring
Improvement? improvement Improvement?

Dr. B. K. Mukherjee 8
 Core (Internal) Competences
 STRATEGIC COMPETENCE: Complacency is dangerous in a world full of
competition. An organization’s strategic competence can be evaluated by testing
whether the strategies are distinctive, appropriate, usable, measurable and
sustainable.
 FINANCIAL RESOURCE COMPETENCE: may be achieved by way of conservative
financial management rather than ambitious over-expansion through cavalier
acquisitions of competitors’ businesses.
 INNOVATION: To prosper and grow all organizations need to continually innovate
and improve their products and process technologies (eg. 3M)
 WORKFORCE: HRM practices within the organization often play a decisive role,
because a motivated and appropriately structured workforce can contribute
significantly towards building market competitiveness.
 QUALITY: In the 1970s, countries like Japan and Korea were able to penetrate
global markets solely on the basis of superior quality of their products (concepts like
TQM, Kaizen, etc). Over the years, it has been clearly demonstrated that companies
whose products are perceived to be of a higher quality will enjoy higher profits and a
larger market share.
 PRODUCTIVITY (measured as level of value-added activities per employee per
number of hours worked): The secret of Japanese competitiveness lies in adoption of
concepts such as lean production, concurrent engineering and JIT, thereby making
them world leaders and, at the same time, generating very healthy profits.
 INFORMATION SYSTEMS: The advent of low-cost, extremely powerful computers
offers opportunities through which to develop integrated Mgmt Information Systems.
Dr. B. K. Mukherjee 9
 Synergy and Value creation
‘Synergy’ occurs when the various parts of an organization interact
to produce a joint effect which is greater than the sum of the parts
acting alone, i.e, 1+1+1+1>4. This involves a strong psychological
element.
‘Value’ can be defined as the perception of benefits received
against price paid by the customer, hence the term,”Value for
money”. Value must be greater than the cost of resources for the
business to be profitable.
The task of any business is to deliver customer value at a profit.
Traditional view was that a firm makes something and then sells it.
The economy is marked by shortages and customers are not fussy
about quality, features or style (eg. Henry Ford’s Model-T).
However, this view will not hold in more competitive economies
where people face abundant choices. The smart competitor must
design and deliver offerings for well-defined target markets.
This places Market at the beginning of the planning process and
companies now have to develop a proper ‘Value-creation & Value-
delivery’ sequence in order to remain competitive.
Dr. B. K. Mukherjee 10
 Value Creation & Value Delivery
Traditional Physical process sequence
Design the product
1.Make the product Procure materials
Make/manufacture the product

Price the product

Sell the product
2.Sell the product Advertise / Promote
Distribute
Service after sales
Dr. B. K. Mukherjee 11
 Value creation & Value delivery (contd)
Value Creation & Delivery sequence
Customer Segmentation
1. Select the value S-T-P
Focus Target audience
(“Homework” by Co.) Position the value
Strategic Mktg
Product/Service developmt
Price
2. Create the value Procurement/sourcing
Manufacturing

Distribution Tactical
Mktg.
Sales force
3. Communicate the Sales Promotion
Sales process
value Advertising

Servicing

Dr. B. K. Mukherjee 12
 Emergent strategies: The case of Honda
According to Henry Mintzberg, emergent strategies are the unplanned
responses to unforeseen circumstances, often arising from autonomous
action by individual managers or from serendipitous discoveries or
events. Mintzberg maintains that emergent strategies are often
successful and may be more appropriate than intended strategies.
In 1959, Honda Motor Co. decided to enter the U.S. motorcycle market. A
number of Honda executives arrived in Los Angeles from Japan to
establish the U.S. operation. Their original aim (intended strategy) was
to focus on selling 250-cc and 350-cc machines to confirmed
motorcycle enthusiasts rather than the 50-cc Honda Cubs, which were
a big hit in Japan. Their instinct told them that the Honda-50s were not
suitable for the U.S. market where everything was bigger and more
luxurious than Japan (eg, Harley-Davidsons, big sedans, etc).
However, sales of the 250-cc and 350-cc bikes were sluggish, and the
bikes themselves were plagued by mechanical problems. It looked like
Honda’s strategy was going to fail.
At the same time, the Japanese executives who were using the Honda-50s
to run errands around Los Angeles were attracting a lot of attention.
Dr. B. K. Mukherjee 13
 The case of Honda (contd.)
One day they got a call from Sears, Roebuck who wanted to sell
the 50-cc bikes to a broad market of Americans who were not
necessarily already motorcycle enthusiasts. The Honda
executives were initially hesitant to sell the small bikes for fear
of alienating serious bikers, who might then associate Honda
with “wimpy” machines. In the end, they were pushed into
doing so by the failure of he 250-cc and 350-cc models.
Honda had thus stumbled onto a previously untouched market
segment that was to prove huge: the average American who
had never owned a motorbike.
Honda had also found an untried channel of distribution: general
retailers rather than specialty motorbike stores. By 1964, nearly
one out of every two motorcycles sold in the United States was
a Honda.
In this case, the company’s meticulously planned intended strategy
was a near disaster. What ultimately worked was the emergent
strategy, not through planning but through unplanned action in
response to unforeseen circumstances.
Dr. B. K. Mukherjee 14
 Serendipity and Strategy
Business history is full of examples which suggest that many successful
strategies emerge not out of well-thought-out plans but out of serendipity,
i.e, stumbling upon good things unexpectedly.
THE CASE OF THE MINNESOTA MINING & MANUFACTURING CO (3M)
In the 1920s, 3M was a small manufacturer of sandpaper. Its best-selling
product, wet-and-dry sandpaper, was introduced in 1921 and was
primarily sold to automobile companies for sanding auto bodies between
paint coats. A problem with the paper, however, was that the grit did not
always stay bound to the sandpaper and ended up damaging the paint
surface.
To tackle the problem in the early 1920s, a young CEO, William McKnight,
hired 3M’s first research scientist, Richard Drew, who was fresh out of
college on his first job. While experimenting with adhesives, Drew
happened to develop a weak adhesive that did not seem very promising.
However, it had an interesting quality: when applied to paper, it would
easily peel off from a surface without damaging it or leaving any adhesive
residue. This led to the advent of “masking tape”, which would be
extensively used in all auto paint shops and, years later, the product
“Post-it” pads.
Sticky (“Scotch”) Tape subsequently became a major business for 3M and for
40 years McKnight and Drew together helped build 3M and shape its
organizational culture: that of encouraging initiative and innovation.
Dr. B. K. Mukherjee 15
 Serendipity and Strategy (contd.)
Another such example happened in the 1960s. At that time, 3M
was producing fluorocarbons for the air-conditioning industry.
One day a researcher working with fluorocarbons in a 3M lab
spilled some of the liquid on her shoes. Later that day when she
spilled coffee on he shoes, she was surprised to notice that the
coffee formed into little beads of liquid and ran off her shoes
without leaving any stain.
Further research led to the development of ‘Scotch Guard’, a
fluorocarbon-based product for protecting fabrics from liquid
stains. Subsequently, Scotch Guard became one of 3M’s most
profitable products and took the company into the fabric
protection business, an area it had never planned to enter.
But some companies have missed out on profitable serendipitous
opportunities because of strategic myopia. A century ago, the
telegraph company Western Union turned down an opportunity
to purchase the rights to an invention made by Alexander
Graham Bell.
The invention was the telephone, a technology that subsequently
made the telegraph obsolete.
Dr. B. K. Mukherjee 16