Strategic Marketing

1. Lesson 4 Strategic Marketing

2. Aim • Understand the tools used to develop a strategic marketing strategy

3. LO 2.1 • assess the value of models used in strategic marketing planning General areas Models: organisation, industry and market environment situation analysis; Porter’s Five Forces model; structure, conduct and performance; SWOT (strengths, weaknesses, opportunities, threats) analysis, STEEPLE (social, ethnological, economical, environmental, political, legal, ethical) analysis, PEST (political, economic, social, technological) analysis, marketing audit; portfolio analysais techniques eg BCG matrix, Product Life Cycle model, Ansoff matrix

4. Components of the General Environment Economic Demographic Sociocultural Industry Environment Competitive Environment Political/Legal Global Technological

5. SWOT Analysis • Strengths • Weaknesses • Opportunities • Threats

6. The purpose of SWOT Analysis • It is an easy-to-use tool for developing an overview of a company’s strategic situation • It forms a basis for matching your company’s strategy to its situation

7. SWOT is the starting point • It provides an overview of the strategic situation. • It provides the “raw material” to do more extensive internal and external analysis.

8. Opportunities • An OPPORTUNITY is a chance for firm growth or progress due to a favorable juncture of circumstances in the business environment. • Possible Opportunities: • Emerging customer needs • Quality Improvements • Expanding global markets • Vertical Integration

9. Threats • A THREAT is a factor in your company’s external environment that poses a danger to its well-being. • Possible Threats: • New entry by competitors • Changing demographics/shifting demand • Emergence of cheaper technologies • Regulatory requirements

10. Opportunities and Threats form a basis for EXTERNAL analysis • By examining opportunities, you can discover untapped markets, and new products or technologies, or identify potential avenues for diversification. • By examining threats, you can identify unfavorable market shifts or changes in technology, and create a defensive posture aimed at preserving your competitive position.

11. The purpose of Five-Forces Analysis • The five forces are environmental forces that impact on a company’s ability to compete in a given market. • The purpose of five-forces analysis is to diagnose the principal competitive pressures in a market and assess how strong and important each one is.

12. Porter’s Five Forces Model of Competition Threat of New Entrants Threat of New Entrants

13. Economies of Scale Product Differentiation Barriers to Entry Capital Requirements Switching Costs Access to Distribution Channels Cost Disadvantages Independent of Scale Government Policy Threat of New Entrants Expected Retaliation

14. Porter’s Five Forces Model of Competition Bargaining Power of Suppliers Threat of New Entrants Threat of New Entrants

15. Supplier industry is dominated by a few firms Suppliers exert power in the industry by: Suppliers’ products have few substitutes * Threatening to raise prices or to reduce quality Buyer is not an important customer to supplier Powerful suppliers can squeeze industry profitability if firms are unable to recover cost increases Suppliers’ product is an important input to buyers’ product Suppliers’ products are differentiated Suppliers’ products have high switching costs Supplier poses credible threat of forward integration Bargaining Power of Suppliers Suppliers are likely to be powerful if:

16. Porter’s Five Forces Model of Competition Bargaining Power of Buyers Threat of New Entrants Threat of New Entrants Bargaining Power of Suppliers

17. Buyers are concentrated or purchases are large relative to seller’s sales Buyers compete with the supplying industry by: Purchase accounts for a significant fraction of supplier’s sales Products are undifferentiated * Bargaining down prices * Forcing higher quality Buyers face few switching costs * Playing firms off of Buyers’ industry earns low profits each other Buyer presents a credible threat of backward integration Product unimportant to quality Buyer has full information Bargaining Power of Buyers Buyer groups are likely to be powerful if:

18. Porter’s Five Forces Model of Competition Threat of Substitute Products Threat of New Entrants Threat of New Entrants Bargaining Power of Suppliers Bargaining Power of Buyers

19. Products with similar functionlimit the prices firms can charge Products with improving price/performance tradeoffs relative to present industry products Example: Electronic security systems in place of security guards Fax machines in place of overnight mail delivery Threat of Substitute Products Keys to evaluate substitute products:

20. Porter’s Five Forces Model of Competition Rivalry Among Competing Firms in Industry Threat of New Entrants Threat of New Entrants Bargaining Power of Suppliers Bargaining Power of Buyers Threat of Substitute Products

21. Intense rivalry often plays out in the following ways: Jockeying for strategic position Using price competition Staging advertising battles Increasing consumer warranties or service Making new product introductions Occurs when a firm is pressured or sees an opportunity Price competition often leaves the entire industry worse off Advertising battles may increase total industry demand, but may be costly to smaller competitors Rivalry Among Existing Competitors

22. Numerous or equally balanced competitors Slow growth industry High fixed costs High storage costs Lack of differentiation or switching costs Capacity added in large increments Diverse competitors High strategic stakes High exit barriers Rivalry Among Existing Competitors Cutthroatcompetition is more likely to occur when:

23. The Five Forces are Unique to Your Industry • Five-Forces Analysis is a framework for analyzing a particular industry. • Yet, the five forces affect all the other businesses in that industry.

24. Industry Environment Competitive Environment Competitor Analysis The follow-up to Industry Analysis is effective analysis of a firm’s Competitors

25. Assumptions What assumptions do our competitors hold about the future of industry and themselves? Response Current Strategy What will our competitors do in the future? Does our current strategy support changes in the competitive environment? Where do we have a competitive advantage? Future Objectives How will this change our relationship with our competition? How do our goals compare to our competitors’ goals? Capabilities How do our capabilities compare to our competitors? Competitor Analysis

26. Competitor Analysis Future Objectives What Drives the competitor? How do our goals compare to our competitors’ goals? Where will emphasis be placed in the future? What is the attitude toward risk?

27. Competitor Analysis Future Objectives What is the competitor doing? How do our goals compare to our competitors’ goals? What can the competitor do? Current Strategy Where will emphasis be placed in the future? How are we currently competing? What is the attitude toward risk? Does this strategy support changes in the competitive structure?

28. Future Objectives How do our goals compare to our competitors’ goals? Current Strategy Where will emphasis be placed in the future? How are we currently competing? What is the attitude toward risk? Does this strategy support changes in the competition structure? Competitor Analysis What does the competitor believe about itself and the industry? Assumptions Do we assume the future will be volatile? What assumptions do our competitors hold about the industry and themselves? Are we assuming stable competitive conditions?

29. Future Objectives How do our goals compare to our competitors’ goals? Current Strategy Where will emphasis be placed in the future? How are we currently competing? What is the attitude toward risk? Assumptions Does this strategy support changes in the competition structure? Do we assume the future will be volatile? What assumptions do our competitors hold about the industry and themselves? Are we operating under a status quo? Competitor Analysis What are the competitor’s capabilities? Capabilities What are my competitors’ strengths and weaknesses? How do our capabilities compare to our competitors?

30. Future Objectives How do our goals compare to our competitors’ goals? Current Strategy Where will emphasis be placed in the future? How are we currently competing? What is the attitude toward risk? Assumptions Does this strategy support changes in the competition structure? Do we assume the future will be volatile? What assumptions do our competitors hold about the industry and themselves? Capabilities What are my competitors’ strengths and weaknesses? Are we operating under a status quo? How do our capabilities compare to our competitors? Competitor Analysis Response What will our competitors do in the future? Where do we have a competitive advantage? How will this change our relationship with our competition?

31. The Structure – conduct- performance Paradigm

32. Basic Conditions: factors which shape the market of the industry, e.g. demand, supply, political factors Structure: attributes which give definition to the supply-side of the market, e.g. economies of scale, barriers to entry, industry concentration, product differentiation, vertical integration. Conduct: the behavior of firms in the market, e.g. pricing behavior advertising, innovation. Performance: a judgment about the results of market behaviour, e.g. efficiency, profitability, fairness/income distribution, economic growth. How can the government improve the performance in an industry?

33. Life-Cycle Strategies

34. Learning Goals • Know the stages of the product life cycle • Realize how marketing strategies change during the product’s life cycle

35. Product Life-Cycle Strategies • The Product Life Cycle (PLC) has Five Stages • Product Development, Introduction, Growth, Maturity, Decline • Not all products follow this cycle: • Fads • Styles • Fashions Goal 1: Know the stages of the product life cycle process

36. Product Life-Cycle Strategies • The product life cycle concept can be applied to a: • Product class (soft drinks) • Product form (diet colas) • Brand (Diet Dr. Pepper) • Using the PLC to forecast brand performance or to develop marketing strategies is problematic Goal 1: Know the stages of the product life cycle process

37. Product Life-Cycle Strategies • Product development • Introduction • Growth • Maturity • Decline • Begins when the company develops a new-product idea • Sales are zero • Investment costs are high • Profits are negative PLC Stages Goal 2: Realize how marketing strategies change during the product life cycle

38. Product Life-Cycle Strategies • Product development • Introduction • Growth • Maturity • Decline • Low sales • High cost per customer acquired • Negative profits • Innovators are targeted • Little competition PLC Stages Goal 2: Realize how marketing strategies change during the product life cycle

39. Marketing Strategies: Introduction Stage • Product – Offer a basic product • Price – Use cost-plus basis to set • Distribution – Build selective distribution • Advertising – Build awareness among early adopters and dealers/resellers • Sales Promotion – Heavy expenditures to create trial Goal 2: Realize how marketing strategies change during the product life cycle

40. Product Life-Cycle Strategies • Product development • Introduction • Growth • Maturity • Decline • Rapidly rising sales • Average cost per customer • Rising profits • Early adopters are targeted • Growing competition PLC Stages Goal 2: Realize how marketing strategies change during the product life cycle

41. Marketing Strategies: Growth Stage • Product – Offer product extensions, service, warranty • Price – Penetration pricing • Distribution – Build intensive distribution • Advertising – Build awareness and interest in the mass market • Sales Promotion – Reduce expenditures to take advantage of consumer demand Goal 2: Realize how marketing strategies change during the product life cycle

42. Product Life-Cycle Strategies • Product development • Introduction • Growth • Maturity • Decline • Sales peak • Low cost per customer • High profits • Middle majority are targeted • Competition begins to decline PLC Stages Goal 2: Realize how marketing strategies change during the product life cycle

43. Marketing Strategies: Maturity Stage • Product – Diversify brand and models • Price – Set to match or beat competition • Distribution – Build more intensive distribution • Advertising – Stress brand differences and benefits • Sales Promotion – Increase to encourage brand switching Goal 2: Realize how marketing strategies change during the product life cycle

44. Product Life-Cycle Strategies • Product development • Introduction • Growth • Maturity • Decline • Declining sales • Low cost per customer • Declining profits • Laggards are targeted • Declining competition PLC Stages Goal 2: Realize how marketing strategies change during the product life cycle

45. Marketing Strategies: Decline Stage • Product – Phase out weak items • Price – Cut price • Distribution – Use selective distribution: phase out unprofitable outlets • Advertising – Reduce to level needed to retain hard-core loyalists • Sales Promotion – Reduce to minimal level Goal 2: Realize how marketing strategies change during the product life cycle

46. Ansoff-Matrix or Product-Market Expansion Grid

47. Ansoff-Matrix Improving the performance of existing businesses • “Do Nothing” if the environment is static (short-run only) • “Withdraw” when there is an irreversible decline in demand or opportunity costs of staying in a market are too high • “Consolidation” means concentration of resources and focusing on existing competitive advantages • “Penetration” means gaining market share

48. SWOT Analysis SWOT is a universal analytical tool developed by the military: Matching corporate skills and resources with forecasted market opportunities • Strengths: Internal Positives(available skills & competencies) • Weaknesses: Internal Negatives(poor use or lack of skills) • Opportunities: External Positives(evaluating areas where advantages may be gained, ex: add a new product, target new segments) • Threats: External Negatives(evaluating forces that may prevent the company from accomplishing its objectives, ex: competition, regulation, customer preferences)