Chap 9 strategy selection

Chapter Strategy Selection A Product/Market Strategy Product/Market Strategy: Step-by-Step Procedure (TM 9-1) Formulating Strategy • Measuring the Momentum (TM 9-2) • Filling the Gap (TM 9-3) a Issue Assessment (TM 9-4) b Common Issues (TM 9-5) c Identification of Key Variables (TM 9-6) d Strategy Selection (TM 9-7) Core Marketing Strategies (TM 9-8) Distinguishing Aspects of Different Core Marketing Strategies (TM 9-9) B SBU Strategy Industry Maturity or Attractiveness Guide (TM 9-10 and 9-11) Strategic Competitive Positions (TM 9-12) Strategic Thrusts (TM 9-13) C Strategy Evaluation (TM 9-14) 15 16 CHAPTER 9: Strategy Selection 9-1 PRODUCT/MARKET STRATEGY: STEP-BY-STEP PROCEDURE Start with present Predict momentum over the planning period Forecast environment Modify in light of Stop if the predicted performance is fully satisfactory Continue if not Measure strengths and weaknesses Evaluate difference between yours and competitive marketing strategies Conceive more effective marketing strategy Evaluate in terms of (a) (b) (c) Possible risks Competitive response Potential payout Stop if appears satisfactory 10 If not, broaden definition of present business and repeat 7, 8, and That is, look at other products that can be supplied to market 11 Continue 10 until: (a) (b) (c) Knowledge of the new area becomes thin Cost of studying the new area becomes too expensive Prospects of finding a competitive opportunity become remote 12 Lower the objectives, if necessary CHAPTER 9: Strategy Selection 17 9-2 MEASURING THE MOMENTUM It refers to the company’s state of affairs into the future, assuming the environment and the strategy remain the same Momentum may be measured using • forecasting • modeling • simulation 18 CHAPTER 9: Strategy Selection 9-3 FILLING THE GAP • Issue assessment • Common issues • Identification of key variables • Strategy selection CHAPTER 9: Strategy Selection 19 9-4 ISSUE ASSESSMENT Raise issues about the status quo to evaluate competitive standing in view of present and expected market conditions The following questions may be raised: • How mature is the product/market segment under review? • What new avenues of market growth are conceivable? • Is the industry becoming more cyclical? • Are competitive factors changing (e.g., product-line elaboration declining and cost control gaining in importance)? • Impact of inflation? • Impending new regulation? • Competitive position — How mature is product line? — Cost position — Performance — Marketing capability — Customers’ common criticism — Distribution channels — Technology lead — Record in new product introduction 20 CHAPTER 9: Strategy Selection 9-5 COMMON ISSUES Profit economics analysis How product costs are physically generated and where the economic leverage lies Test profit sensitivity Market segmentation analysis Alternative ways of segmenting market and finding out segments not properly cultivated Project determinants of demand and consider pricing patterns, relative market shares, and other determinants of profitability Competitor profiling May involve examining their sales literature, talking with industry association, and interview-ing shared customers and former employees Compare competition in terms of: — Product features, performance — Pricing — Costs and profitability — Service efforts — Manufacturing facilities and efficiency — Technology and product development — Infer competitor’s basic strategy CHAPTER 9: Strategy Selection 21 9-6 IDENTIFICATION OF KEY VARIABLES • Things to exceptionally well to win • Factors that can lead a company to fail • Unique competitive strengths • Risks of product obsolescence • Things to to increase sales; market share • Major elements of costs and how each may be reduced • Profit leverage points of the industry • Key recurring decisions in different functional areas • Impact on profits of a good/bad decision • Likely competitive advantage 22 CHAPTER 9: Strategy Selection 9-7 STRATEGY SELECTION • Examine key factors with reference to current status of product/market to define alternative strategies • Evaluate each alternative for: — Profit payoff — Investment costs — Feasibility — Risk • Choose a preferred strategy CHAPTER 9: Strategy Selection 23 9-8 CORE MARKETING STRATEGIES (a) Operational Excellence: Offering middle-of-the-market products at the best price with the least inconvenience Example: Wal-Mart (b) Product Leadership: Offering products that push performance boundaries Example: Nike (c) Customer Intimacy: Focuses on what the specific customers want by cultivating long-term relationships Example: Cable and Wireless 24 CHAPTER 9: Strategy Selection 9-9 DISTINGUISHING ASPECTS OF DIFFERENT CORE MARKETING STRATEGIES Managerial Attributes Core Strategy Operational Excellence Product Leadership Customer Intimacy Strategic Direction Sharpen distribution systems and provide no-hassle service Nurture ideas, translate them into products, and market them skillfully Provide solutions and help customers run their businesses Organizational Arrangement Has strong, central authority and a finite level of empowerment Acts in an ad hoc, organic, loosely knit, and ever-changing way Pushes empowerment close to customer contact Systems Supports Maintain standard operating procedures Reward individuals’ innovative capacity and new product success Measure the cost of providing service and of maintaining customer loyalty Corporate Culture Acts predictably and believes “one size fits all” Experiments and thinks “out-of-thebox” Is flexible and thinks “have it your way” CHAPTER 9: Strategy Selection 25 9-10 INDUSTRY MATURITY OR ATTRACTIVENESS GUIDE STAGES OF INDUSTRY MATURITY DESCRIPTIORS EMBRYONIC Accelerating Meaningful rate cannot be calculated because base is too small Usually difficult to determine GROWTH Substantially faster than GNP Industry sales expanding significantly Product Line Line generally narrow Frequent changes tailored to customer needs Product lines undergo rapid proliferation Some evidence of products oriented toward multiple industry segments Number of Competitors Few competing at first, but number increasing rapidly Number and types are unstable Increase to peak, followed by shakeout and consolidation Growth Rate Industry Potential Demand exceeds current industry volume, but is subject to unforeseen developments MATURE Growing at rate equal to or slower than GNP More subject to cyclicality Well known Primary markets approach saturation Product line turnover but little or no change in breadth Products frequently oriented toward narrow industry segments Generally stable or declining slightly AGING Industry volume declining Saturation is reached Supply capability exceeds long-term demands Product line shrinking, but tailored to major customer needs Declines, or industry may break up into many small regional suppliers 26 CHAPTER 9: Strategy Selection 9-11 INDUSTRY MATURITY OR ATTRACTIVENESS GUIDE (continued) DESCRIPTIO Market Share Stability STAGES OF INDUSTRY MATURITY EMBRYONIC Volatile Share difficult to measure Share frequently concentrated Purchasing Patterns Varies Some customers have strong loyalties; others have none Ease of Entry (Exclusive of Capital Consideation) Usually easy Opportunity may not be apparent Technology Important to match performance to market needs Industries started on technologi-cal breakthrough or application Multiple competing technologies GROWTH Rankings can change A few firms have major shares MATURE Little share volatility Firms with major shares are entrenched Significant niche competition Firms with major shares are unlikely to gain major shares Some customer Suppliers are well loyalty Buyers known Buying are aggressive, patterns are estabbut evidence of lished Customers repeat or add-on generally loyal to purchases Some limited number of price sensitivity acceptable suppliers In-creasing price sensitivity Usually easy Difficult Competitors Presence of are entrenched competitors is Growth is slowing offset by vigorous growth AGING Some change as marginal firms drop out As market volume declines, market share generally becomes more concentrated Fewer competing tech-nologies Significant product line refinements or extensions likely Performance enhance-ment is important Minimal role in ongoing products New technology may be sought to renew growth Process and materials refinement Technologies developed outside this industry are used in seeking efficiencies Strong customer loyalty as number of alternatives decreases Customers and suppliers may be tied to each other Little incentive CHAPTER 9: Strategy Selection 27 9-12 STRATEGIC COMPETITIVE POSITIONS Dominant Strong • Controls behavior and/or strategies of other competitors • Can choose from widest range of strategic options, independent of competitors’ actions Can take independent stance or action without endangering long-term position • • Favorable Tenable Weak Nonviable • Can generally maintain long-term position in the face of competitors’ actions Has strengths that are exploitable with certain strategies if industry conditions are favorable • Has more than average ability to improve positions • If in a niche, holds a commanding position relatively secure from attack Has sufficient potential and/or strengths to warrant continuation in business • • May maintain position with tacit consent of dominant company or the industry in general, but is unlikely to significantly improve position • • Tends to be only marginally profitable If in a niche, is profitable, but clearly vulnerable to competitors’ actions Has currently unsatisfactory performance, but has strengths that may lead to improvement • • Has many characteristics of a better position, but suffers from past mistakes or current weaknesses • Inherently short-term position; must change (up or out) • Has currently unsatisfactory performance and few, if any, strengths that may lead to improvement (may take years to die) 28 CHAPTER 9: Strategy Selection 9-13 STRATEGIC THRUSTS COMPETITI VE POSITIO N Domina nt EMBRYON IC Fast Startgrow up Stron g StartDifferentiat up Fast e grow Favorabl e StartDifferentiat up Focu e Fast s grow Tenabl e StartGrow with up Focu industry s Wea k Find Catchniche Grow with up industry STAGES OF INDUSTRY MATURITY GROWT MATUR H Fast Attain grow cost Rene leadership Defend w position Fast Catchgrow Attain up cost ship Differentiat leader e Differentiate, Catchfocus Grow with up industry Harvest, catchHold up niche, Find hang-in Turnaroun niche Focu d Grow with s industry Turnaroun Retrenc d h E Defend Attain position cost Rene leadership Fast w grow Attain cost Renew, leadership Differentiat focus Grow with e industry Harvest, Find niche, hold hang-in Renew, niche Differentiate, turnaround Grow with focus industry Harves Turnaroun t Find d Retrenc niche h Withdra Dives w t AGIN G Defend Focu position Rene s Grow with w industry Find Hold niche Hangniche Grow with in Harves industry t Retrenc Turnaroun h d Dives Retrenc t h Withdra w CHAPTER 9: Strategy Selection 29 9-14 STRATEGY EVALUATION • Suitability: Is there a sustainable advantage? • Validity: Are the assumptions realistic? • Feasibility: Do we have the skills, resources, and commitments? • Internal consistency: Does the strategy hang together? • Vulnerability: What are the risks and contingencies? • Workability: Can we retain our flexibility? • Appropriate time horizon [...]... with in Harves industry t Retrenc Turnaroun h d Dives Retrenc t h Withdra w CHAPTER 9: Strategy Selection 29 9-14 STRATEGY EVALUATION • Suitability: Is there a sustainable advantage? • Validity: Are the assumptions realistic? • Feasibility: Do we have the skills, resources, and commitments? • Internal consistency: Does the strategy hang together? • Vulnerability: What are the risks and contingencies?... reached Supply capability exceeds long-term demands Product line shrinking, but tailored to major customer needs Declines, or industry may break up into many small regional suppliers 26 CHAPTER 9: Strategy Selection 9- 11 INDUSTRY MATURITY OR ATTRACTIVENESS GUIDE (continued) DESCRIPTIO Market Share Stability STAGES OF INDUSTRY MATURITY EMBRYONIC Volatile Share difficult to measure Share frequently concentrated... developed outside this industry are used in seeking efficiencies Strong customer loyalty as number of alternatives decreases Customers and suppliers may be tied to each other Little incentive CHAPTER 9: Strategy Selection 27 9- 12 STRATEGIC COMPETITIVE POSITIONS Dominant Strong • Controls behavior and/or strategies of other competitors • Can choose from widest range of strategic options, independent of competitors’... • Inherently short-term position; must change (up or out) • Has currently unsatisfactory performance and few, if any, strengths that may lead to improvement (may take years to die) 28 CHAPTER 9: Strategy Selection 9- 13 STRATEGIC THRUSTS COMPETITI VE POSITIO N Domina nt EMBRYON IC Fast Startgrow up Stron g StartDifferentiat up Fast e grow Favorabl e StartDifferentiat up Focu e Fast s grow Tenabl e...CHAPTER 9: Strategy Selection 25 9- 10 INDUSTRY MATURITY OR ATTRACTIVENESS GUIDE STAGES OF INDUSTRY MATURITY DESCRIPTIORS EMBRYONIC Accelerating Meaningful rate cannot be calculated because base is too small Usually difficult ... simulation 18 CHAPTER 9: Strategy Selection 9- 3 FILLING THE GAP • Issue assessment • Common issues • Identification of key variables • Strategy selection CHAPTER 9: Strategy Selection 19 9-4 ISSUE... Impact on profits of a good/bad decision • Likely competitive advantage 22 CHAPTER 9: Strategy Selection 9- 7 STRATEGY SELECTION • Examine key factors with reference to current status of product/market... relationships Example: Cable and Wireless 24 CHAPTER 9: Strategy Selection 9- 9 DISTINGUISHING ASPECTS OF DIFFERENT CORE MARKETING STRATEGIES Managerial Attributes Core Strategy Operational Excellence Product