Chapter Four

Strategic Planning & Marketing Process

 What is Strategic Planning?
• It is the managerial process that helps to develop a strategic
and viable fit between the firm’s objectives, skills, resources
with the market opportunities available.

• It helps the firm deliver its targeted profits and growth

through its businesses and products.

• is the management task concerned with the growth and future

of a business enterprise.
 Cont’d
• viewed as a flow of decisions and actions that lead to effective
strategies.

• The process involves a thorough self-appraisal by the

corporation, including an appraisal of the businesses it is
engaged in and the environment in which it operates.

• In most organizations, "strategic planning" is an annual

process, typically covering just the year ahead.

• Occasionally, a few organizations may look at a practical plan

which stretches three or more years ahead.
• The issue is that most people try to set out to achieve the
"how" without first knowing the "what."

• This can end up wasting resources for a company, both time

and money.

• When it comes to marketing, we must always identify the

what and then dig into the how.
 Three Aspects of Strategy Formulation
• The three aspects or levels of strategy formulation, each with a
different focus, need to be dealt with in the formulation phase
of strategic management.

• The three sets of recommendations must be internally

consistent and fit together in a mutually supportive manner
that forms an integrated hierarchy of strategy, in the order
given.
 4.1.Corporate Level Strategy
• the overall strategy elements for the corporation as a whole,
the grand strategy.

• concerned with broad decisions about the total organization's

scope and direction.

• Basically, we consider:
 what changes should be made in our growth objective and
strategy for achieving it,
 the lines of business we are in, and
 how these lines of business fit together.
Corporate strategy involves four kinds of
initiatives:

1. Making the necessary moves to establish positions in

different businesses and achieve an appropriate amount
and kind of diversification.

• A key part of corporate strategy is making decisions on how

many, what types, and which specific lines of business the
company should be in.

• This may involve deciding to increase or decrease the

amount and breadth/scope of diversification
• It may involve closing out some LOB's (lines of business),
adding others, and/or changing emphasis among LOB's.
2. Initiating actions to boost the combined performance of the
businesses the company has diversified into

• This may involve vigorously:

 pursuing rapid-growth strategies in the most promising
LOB's,

 keeping the other core businesses healthy,

 initiating turnaround efforts in weak-performing LOB's with

promise, and

 dropping LOB's that are no longer attractive or don't fit into

the corporation's overall plans.
3. Pursuing ways to capture valuable cross-business strategic
fits and turn them into competitive advantages

• especially transferring and sharing related technology,

procurement leverage, operating facilities, distribution
channels, and/or customers.
4. Establishing investment priorities and moving more corporate
resources into the most attractive LOB's.

It is useful to organize the corporate level strategy considerations

and initiatives into a framework with the following three
main strategy components: growth, portfolio, and parenting.
 1. Growth Strategies

• All growth strategies can be classified into one of two

fundamental categories:
concentration within existing industries or diversification into
other lines of business or industries.

• When a company's current industries are attractive, have

good growth potential, and do not face serious threats,
concentrating resources in the existing industries makes
good sense.

• Diversification tends to have greater risks, but is an

appropriate option when a company's current industries have
little growth potential or are unattractive in other ways.
• When an industry consolidates and becomes mature, unless
there are other markets to seek (for example other
international markets), a company may have no choice for
growth but diversification.
• There are two basic concentration strategies, vertical
integration and horizontal growth.

• Diversification strategies can be divided into related (or

concentric) and unrelated (conglomerate) diversification.

• Each of the resulting four core categories of strategy

alternatives can be achieved internally through investment
and development, or externally through mergers,
acquisitions, and/or strategic alliances
 a. Vertical Integration

• Vertical integration strategies allow a firm to gain control

over distributors, suppliers, and/or competitors.
• a good one if the company has a strong competitive position in a
growing, attractive industry.

• A company can grow by taking over functions earlier in the

value chain that were previously provided by suppliers or other
organizations ("backward integration").

• This strategy can have advantages, e.g., in cost, stability and

quality of components, and making operations more difficult
for competitors.
 b. Horizontal Growth

• This strategy alternative category involves:

 expanding the company's existing products into other

locations and/or market segments, or

 increasing the range of products/services offered to current

markets, or a combination of both.
 Mergers, acquisitions, and takeovers among competitors

 It amounts to expanding sideways at the point(s) in the value

chain that the company is currently engaged in.
 c. Related Diversification
• In this alternative:
 a company expands into a related industry, one having
synergy with the company's existing lines of business
 creating a situation in which the existing and new lines of
business share and gain special advantages from
commonalities such as technology, customers, distribution,
location, product or manufacturing similarities, and
government access.

• This is often an appropriate corporate strategy when a

company has a strong competitive position and distinctive
competencies, but its existing industry is not very attractive.
 d. Unrelated Diversification
• involves diversifying into a line of business unrelated to the
current ones.
• The reasons to consider this alternative are:
 primarily seeking more attractive opportunities for growth in
which to invest available funds (in contrast to rather
unattractive opportunities in existing industries)
 risk reduction, and/or preparing to exit an existing line of
business (for example, one in the decline stage of the product
life cycle).
• an appropriate strategy when:
 the present industry is unattractive,
 the company lacks outstanding competencies that it could
transfer to related products or industries.
2. What Should Be Our Portfolio Strategy?

• Concerned with making decisions about the portfolio/range

of lines of business (LOB's) or
• strategic business units (SBU's), not the company's portfolio
of individual products.
• Portfolio matrix models can be useful in reexamining a
company's present portfolio.
• The purpose of all portfolio matrix models is to help a
company:
 understand and consider changes in its portfolio of
businesses, and
 to think about allocation of resources among the different
business elements
• The two primary models are the BCG Growth-Share Matrix
and the GE Business Screen.

• These models consider and display on a two-dimensional

graph each major SBU in terms of some measure of its
industry attractiveness and its relative competitive strength
 The BCG Growth-Share Matrix model
• considers two relatively simple variables:

 growth rate of the industry as an indication of industry

attractiveness, and

 relative market share as an indication of its relative

competitive strength.
 Stars
• The business units or products that have the best market share
and generate the most cash
• Monopolies and first-to-market products are frequently
termed stars.

• However, because of their high growth rate, stars also

consume large amounts of cash.
• This generally results in the same amount of money coming
in that is going out.
• Stars can eventually become cash cows if they sustain their
success until a time when the market growth rate declines.
• Companies are advised to invest in stars.
 Cash cows
• Cash cows are the leaders in the marketplace and generate
more cash than they consume.
• These are business units or products that have a high market
share, but low growth prospects.
• cash cows provide the cash required:
 to turn question marks into market leaders,
 to cover the administrative costs of the company,
 to fund research and development,
 to service the corporate debt, and
 to pay dividends to shareholders.
 Dogs
• dogs are units or products that have both a low market share
and a low growth rate.

• They frequently break even, neither earning nor consuming

a great deal of cash.

• Dogs are generally considered cash traps/setups because

businesses have money tied up in them, even though they are
bringing back basically nothing in return.
 Question marks
• These parts of a business have high growth prospects but a
low market share.
• They are consuming a lot of cash but are bringing little in
return.
• In the end, question marks, also known as problem children,
lose money.
• However, since these business units are growing rapidly, they
do have the potential to turn into stars.
• Companies are advised to invest in question marks if the
product has potential for growth, or to sell if it does not
 GE Business screen
• The GE Business Screen considers two composite variables:
 industry attractiveness (e.g, one could include industry size
and growth rate, profitability, pricing practices, favored
treatment in government dealings, etc.)
 competitive strength (e.g., market share, technological
position, profitability, size, etc.)
• Factors that affect industry attractiveness include:
a) Industry size
b) Market profitability
c) Industry growth
d) Pricing trend
e) Overall risk and returns in the industry
f) Opportunity to differentiate products and services
g) Distribution structure
h) Competition intensity
• Factors that affect business strength/ Competitive position
include:
a) Strengths of assets and competencies
b) Market share
c) Customer loyalty
d) Relative cost position
e) Distribution Strength
F) Access to finance and other investment resources.
 3. What Should Be Our Parenting Strategy?

• concerned with how to allocate resources and manage

capabilities and activities across the portfolio of businesses.
• It includes evaluating and making decisions on the following:
 Priorities in allocating resources (which business units will
be stressed/worried)
 What are critical success factors in each business unit, and
how can the company do well on them
 Coordination of activities (e.g., horizontal strategies) and
transfer of capabilities among business units
 How much integration of business units is desirable?
 4.2. Competitive/Business Level
• The focus is on how to compete successfully in each of the
lines of business the company has chosen to engage in.

• The central thrust is how to build and improve the company's

competitive position for each of its lines of business

• Competitive strategy is about being different.

• It means deliberately choosing

 to perform activities differently or
 to perform different activities than rivals to deliver a unique
mix of value.
• A company has competitive advantage whenever it can:

 attract customers and

 defend against competitive forces better than its rivals

• The essence of strategy lies in creating tomorrow's

competitive advantages faster than competitors mimic/imitate
the ones you possess today.
• Successful competitive strategies usually involve:

 building uniquely strong or distinctive competencies in one or

several areas crucial to success and
 using them to maintain a competitive edge over rivals.

• Some examples of distinctive competencies are:

 superior technology and/or product features,
 better manufacturing technology and skills,
 superior sales and distribution capabilities, and
 better customer service and convenience.
 Porter's Three Generic Competitive Strategies

• He argues that a business needs to make two fundamental

decisions in establishing its competitive advantage:

1. whether to compete primarily on price

 he says "cost," which is necessary to sustain competitive
prices, but price is what the customer responds to) or
 to compete through providing some distinctive points of
differentiation that justify higher prices, and

2. how broad a market target it will aim at (its competitive

scope).
These two choices define the following three generic
competitive strategies.
 1. Overall Price (Cost) Leadership
• appealing to a broad cross-section of the market by providing
products or services at the lowest price.
• This requires being the overall low-cost provider of the
products or services.

• Implementing this strategy successfully requires continual,

exceptional efforts to reduce costs:
 without excluding product features and
 services that buyers consider essential.

• It also requires achieving cost advantages in ways that are

hard for competitors to copy or match.
Some conditions that tend to make this strategy an attractive choice are:

• The industry's product is much the same from seller to seller

• The marketplace is dominated by price competition, with
highly price-sensitive buyers
• There are few ways to achieve product differentiation that
have much value to buyers
• Most buyers use product in same ways -- common user
requirements
• Switching costs for buyers are low
• Buyers are large and have significant bargaining power
 2. Differentiation
• appealing to a broad cross-section of the market through
offering differentiating features that make customers willing
to pay premium prices.
• e.g., superior technology, quality, prestige, special features,
service, convenience
• Success with this type of strategy requires differentiation
features that are hard or expensive for competitors to
duplicate.
Sustainable differentiation usually comes from advantages in:
 core competencies,
 unique company resources or capabilities, and
 superior management of value chain activities.
 Some conditions that tend to favor differentiation strategies are:

• There are multiple ways to differentiate the product/service

that buyers think have substantial value

• Buyers have different needs or uses of the product/service

• Product innovations and technological change are rapid and

competition emphasizes the latest product features

• Not many rivals are following a similar differentiation

strategy
 3. Price (Cost) Focus
• a market niche strategy:
 concentrating on a narrow customer segment and

 competing with lowest prices, which, again, requires having

lower cost structure than competitors.

• e.g., a single, small shop on a side-street in a town, in which

they will order electronic equipment at low prices
 Some conditions that tend to favor focus (either price or differentiation focus) are:

• The business is new and/or has modest/different resources

• The company lacks the capability to go after a wider part of
the total market
• Buyers' needs or uses of the item are diverse; there are many
different niches and segments in the industry
• Buyer segments differ widely in size, growth rate,
profitability, and intensity in the five competitive forces,
• Industry leaders don't see the niche as crucial to their own
success
• Few or no other rivals are attempting to specialize in the same
target segment
 4.3. Functional Strategic Planning
• relatively short-term activities that each functional area
within a company will carry out to implement the broader,
longer-term corporate level and business level strategies.

• Each functional area has a number of strategy choices that

interact with and must be consistent with the overall company
strategies.

• Three basic characteristics distinguish functional strategies

from corporate level and business level strategies:
1. shorter time horizon,
2. greater specificity, and
3. primary involvement of operating managers
• A few examples follow of functional strategy topics for the
major functional areas of:
1. Marketing strategy deals with:
 product/service choices and features,
 pricing strategy,
 markets to be targeted,
 distribution, and
 promotion considerations.
 2. Financial strategies include decisions about:

 capital acquisition,
 capital allocation,
 dividend policy, and investment and
 working capital management.

3. The production or operations functional strategies address

choices about:
 how and where the products or services will be manufactured
or delivered,
 technology to be used,
 management of resources,
 purchasing and relationships with suppliers
 3.Human resources functional strategy includes

• job categories and descriptions;

• pay and benefits;
• recruiting, selection, and orientation;
• career development and training;
• evaluation and incentive systems;
• policies and discipline; and
• management/executive selection processes.
 The Strategic Planning (Marketing) Process

A. Defining Organizational Mission

• long-term commitment to a type of business and a place in
the market.
• It describes the scope of the firm and its dominant emphasis
and values, based on that firm's history, current management
preferences, resources, and distinctive competences, and on
environmental factors.
• An organizational mission can be expressed in terms of:
 the customer group (s) served,
 the goods and services offered,
 the functions performed, and/or the technologies utilized.
 Contd.

• it is considered implicitly/totally whenever a firm:

 seeks a new customer group or abandon/reject an existing

one,

 introduces a new product category, deletes an old one,

 acquire another company or sells a business,

 engages in more marketing or in fewer marketing functions

or shifts its technological focus.
 B. Establishing Strategic Business Units

• Each strategic business unit (SBU) is a self-contained

division, product line or product department in an
organization with a specific market focus and a manager
with complete responsibility for integrating all functions into a
strategy.

• An SBU may include:

 all products with the same physical features or
 products bought for the same use by customers, depending on
the mission of the organization.
 Contd.
• Each SBU has these general attributes:
 A specific target market.
 Its own senior marketing executive.
 Control over its resources.
 Its own marketing strategy.
 Clear-cut competitors.
 Distinct differential advantages.
 Contd.
• The SBU concept lets firms:
 indentify the business units with the most earnings potential
and

 allocate to them the resources needed for growth.

 C. Setting Marketing Objectives

• A firm needs overall marketing objectives, as well as goals

for each SBU.
• Objectives are often described in both quantitative terms
(rupee sales, percentage profit growth, market share, etc.) and
qualitative terms (image, level of innovativeness, industry
leadership role, etc.)

• The goals are necessary to focus the firm and to be able to

monitor the level of success or failure.
• Without Goals, how can a firm really measure its
performance?
 D. Performing Situation Analysis
• In situation analysis(SWOT) an organization identifies its
internal strengths (S) and weaknesses (W), as well as external
opportunities (O) and threats (T).
• Situation analysis seeks to answer: Where is a firm now? In
what direction is it headed?
• Answers are derived by:
 recognizing both company strengths and weaknesses relative
to competitors,
 studying the environment for opportunities and threats,
 assessing the firm's ability to capitalize on opportunities and
to minimize or avoid threats, and
 Anticipating/forecasting competitor‘s responses to company
strategies.
 E. Developing Marketing Strategy

• outlines the way in which the marketing mix is used to attract

and satisfy the target market(s) and achieved an
organization's goals.

• Marketing-mix decisions center on product, distribution,

promotion, and price plans.

• A separate strategy is necessary for each SBU in an

organization; these strategies must be coordinated.
 Contd.
• It should take into account:
 a firm's mission, resources, abilities, and standing in the
marketplace;
 the status of the firm's industry and the product groups in it
(such as cola versus non-cola soft drink);
 domestic and global competitive forces;

 environmental factors as the economy and population growth;

and

 the best opportunities for growth and the threats that could
dampen it.
 F. Evaluation of strategic Planning Approaches

• Many firms:
 assess alternative market opportunities;
 know which products are stars, cash cows, question marks,
and dogs;
 recognize what factors affect performance;
 understand their industries; and
 realize they can target broad or narrow customer bases.
 Contd.
• The approaches' major strengths are that:
 they let a firm analyze all SBUs and products,
 study various strategies' effects,
 learn the opportunities to pursue and the threats to avoid,
 compute marketing and other resource needs,
 focus on meaningful differential advantages,
 compare performance with designated goals, and discover
principles for improving.
• Competitors' actions and trends can also be studied.
 Contd.
• The approaches' major weaknesses are that they:
 may be hard to use (particularly by a small firm),
 may be too simplistic and omit key factors,
 are somewhat arbitrary/chance/illogical in defining SBUs and
evaluative criteria (like relative market share),
 may not be applicable to all firms and situations (a dog SBU
may be profitable and generate cash),
 do not adequately account for environmental conditions (like
the economy),
 G. Implementing Tactical Plans

• A tactical plan specifies the short-run actions (tactics) that a

firm undertakes in implementing a given marketing strategy.
• At this stage, a strategy is operationalized.
• A tactical plan has three basic elements: specific tasks, a time
frame, and resource allocation.
• The marketing mix (specific tasks) may range from a
combination of high quality, high service, low distribution
intensity, personal selling emphasis, and above-average prices
to a combination of low quality, low service, high distribution
intensity, advertising emphasis, and low prices.
 Contd.

• Proper timing (time horizon) mean:

 being the first to introduce a product,
 bringing out a product when the market is most
receptive/open, or
 quickly reacting to a competitor's strategy to catch it off
guard.

• Marketing opportunities exist for limited periods of time, and

the firm needs to act accordingly.
 Contd.
• Marketing investments (resource) are order processing or
order generating.
• Order processing costs involve recording and handling
orders, such as order entry, computer data handling, and
merchandise handling.
• The goal is to minimize those costs, subject to a given level of
service.

• Order-generating costs, such as advertising and personal

selling, produce revenues.

• Reducing them may be harmful to sales and profits.

 H. Monitoring Results

• Monitoring results involves comparing the actual

performance of a firm, business unit, or product against
planned performance for a specified period.

• Actual performance data are then fed back into the strategic
planning process.

• Budgets, timetables, sales and profit statistics, cost analysis,

and image studies are just some measures that can be used to
assess results.
 Contd.
• When actual performance lags, corrective action is needed.

• For instance, if implementation problems persist/continue, it is

not because employees mean to do the wrong thing.
It is because they do not know the right thing to do.