Chapter 8Chapter 8

Growth StrategiesGrowth StrategiesObjective:Objective: to determine the direction within the to determine the direction within the firm’s current products and markets or growth firm’s current products and markets or growth

in related or unrelated businesses.in related or unrelated businesses.

Grand or Growth Grand or Growth StrategiesStrategies

For a multi-business firmFor a multi-business firm (both corporate (both corporate and business level), the primary focus of and business level), the primary focus of strategic marketing is on grand (or growth) strategic marketing is on grand (or growth) strategies which concern the products and strategies which concern the products and services that will be offered, the market or services that will be offered, the market or markets for which the firm will compete, and markets for which the firm will compete, and the timing of new product/service the timing of new product/service introductions or market additions (both introductions or market additions (both customer segment and geographic markets). customer segment and geographic markets). These strategies are so important that they These strategies are so important that they determine how the business will be known.determine how the business will be known.

For a single businessFor a single business (business level (business level strategies), the primary aims of strategic strategies), the primary aims of strategic marketing are (1) to maximize the firm’s marketing are (1) to maximize the firm’s position (image in the mind’s of consumers position (image in the mind’s of consumers relative to competitors), (2) to determine relative to competitors), (2) to determine what factors are necessary for the firm to what factors are necessary for the firm to attain its strongest position, (3) to allow the attain its strongest position, (3) to allow the firm to specialize in an area where it can firm to specialize in an area where it can either be the best of its competitive segment either be the best of its competitive segment or one of the best, (4) to provide managers or one of the best, (4) to provide managers with a target on which their efforts can be with a target on which their efforts can be focused, and (5) to continuously learn from focused, and (5) to continuously learn from experience and seek ways of improving the experience and seek ways of improving the firm’s position. firm’s position.

There are normally very few changes in a firm’s There are normally very few changes in a firm’s grand strategies, but there may well be many grand strategies, but there may well be many minor ones. E.g. a midscale hotel would not minor ones. E.g. a midscale hotel would not consider to upgrade to a luxury one, but it would consider to upgrade to a luxury one, but it would consider to add new customer or market consider to add new customer or market segments, find new ways of promoting to segments, find new ways of promoting to existing customers, renovate the hotel, or add existing customers, renovate the hotel, or add new products or services. Based on the firm’s new products or services. Based on the firm’s grand strategies, marketing strategies and grand strategies, marketing strategies and action plans are determined depending on their action plans are determined depending on their time frame. The time frame for the plan and its time frame. The time frame for the plan and its implementation will vary by need and implementation will vary by need and importance. Some areas of the plan would be importance. Some areas of the plan would be focused on the immediate future; others would focused on the immediate future; others would be planned for several years in the future.be planned for several years in the future.

Steps InvolvedSteps Involved

When a firm decides to incorporate any form of When a firm decides to incorporate any form of grand strategies into the plan, the firm also grand strategies into the plan, the firm also needs to decide “what” specific marketing mix needs to decide “what” specific marketing mix variables (product, price, place, promotion) will variables (product, price, place, promotion) will be used to accomplish them. The marketing mix be used to accomplish them. The marketing mix variables in this context are referred to as variables in this context are referred to as “strategies” since they guide the strategic “strategies” since they guide the strategic direction of the firm. However, then these direction of the firm. However, then these strategies are required to be turned into strategies are required to be turned into “tactics”; “how” exactly they will be used, “tactics”; “how” exactly they will be used, which are known as which are known as marketing action plansmarketing action plans. .

Intensive StrategiesIntensive Strategies Intensive strategies are concerned with Intensive strategies are concerned with

improving the performance of existing improving the performance of existing businesses. Here, most activities relate to businesses. Here, most activities relate to increasing the frequency of present customers, increasing the frequency of present customers, increasing their average amount spent, or increasing their average amount spent, or attracting new customers (either competitors attracting new customers (either competitors customers or those from a different market customers or those from a different market segment).segment).

1.1. Concentration or penetrationConcentration or penetration – focusing on the current – focusing on the current market with the current productmarket with the current product

2.2. Product and service developmentProduct and service development – focusing on the new – focusing on the new products and services targeted at existing marketsproducts and services targeted at existing markets

3.3. Market developmentMarket development – focusing on new markets – focusing on new markets (customer segment or geographic markets with existing (customer segment or geographic markets with existing products)products)

Concentration or Concentration or PenetrationPenetration

For existing products and services in existing For existing products and services in existing markets; selling more of present products or markets; selling more of present products or services (or slightly modified versions) to the services (or slightly modified versions) to the existing customer base, or simply doing a existing customer base, or simply doing a better job of what is currently being done. better job of what is currently being done.

Advantage of concentration is that the Advantage of concentration is that the company is doing what it does best.company is doing what it does best.

Disadvantage; if a company becomes Disadvantage; if a company becomes overconfident in its present product/service overconfident in its present product/service mix, it may lose touch with shifts in demand mix, it may lose touch with shifts in demand or the environment which may require or the environment which may require improvements. This may cost the firm a lot. improvements. This may cost the firm a lot.

Product and Service Product and Service DevelopmentDevelopment

This includes the development of new or This includes the development of new or modified products/services for “existing modified products/services for “existing customers”. customers”.

Most often, product or service additions are Most often, product or service additions are modifications of existing offerings. If modifications of existing offerings. If competition is strong or the product/service competition is strong or the product/service has reached the end of its life cycle, then an has reached the end of its life cycle, then an entirely new or innovative product/service entirely new or innovative product/service may be needed. may be needed.

However, when a company adds a new However, when a company adds a new product/service, it may also add customers product/service, it may also add customers from other market segments as well.from other market segments as well.

When the goal of new products/services is When the goal of new products/services is specifically to bring in new market segments, it specifically to bring in new market segments, it is called “diversification”, or more properly is called “diversification”, or more properly “intensive diversification” (diversifying the “intensive diversification” (diversifying the product offering). product offering).

When a fine dining restaurant or luxury hotel When a fine dining restaurant or luxury hotel adds almost any product/service to its adds almost any product/service to its product/service mix, this could be considered a product/service mix, this could be considered a pure product development, since these firms pure product development, since these firms generally have only one target market, and are generally have only one target market, and are not usually concerned about attracting new ones.not usually concerned about attracting new ones.

However, keep in mind that the primary goal of However, keep in mind that the primary goal of product development is that increasing brand product development is that increasing brand loyalty of “existing customers” by developing loyalty of “existing customers” by developing new products/services. Attraction of new market new products/services. Attraction of new market segments would be a secondary purpose. segments would be a secondary purpose.

Market DevelopmentMarket Development This includes selling existing products to new This includes selling existing products to new

customer segments.customer segments. This is done in two ways: the new customers This is done in two ways: the new customers

would be new market segments (market segment would be new market segments (market segment development) or customers in new locations development) or customers in new locations (geographic development).(geographic development).

When a firm opens new stores in new cities, the When a firm opens new stores in new cities, the strategy is considered to be market development, strategy is considered to be market development, however, when the firm opens new locations in however, when the firm opens new locations in the same city, in trade areas with similar target the same city, in trade areas with similar target customers, the strategy would be considered customers, the strategy would be considered penetration – trying to sell more to existing penetration – trying to sell more to existing customers. The firm is trying to penetrate its customers. The firm is trying to penetrate its market. market.

Market Segment Development:Market Segment Development:

Market targetingMarket targeting; the primary purpose of ; the primary purpose of segmentation is to learn enough about the segmentation is to learn enough about the various segments of the market to be able to various segments of the market to be able to determine which will be have good potential. determine which will be have good potential.

Selecting target marketsSelecting target markets; the decision must ; the decision must be made on whether or not to target one be made on whether or not to target one market, a new markets, or several markets. market, a new markets, or several markets. Single-market targetingSingle-market targeting: allows the firm to focus : allows the firm to focus

on just one market. The reason to focus on a on just one market. The reason to focus on a single market is that the firm would decide to be single market is that the firm would decide to be the “best” alternative for the target group.the “best” alternative for the target group.

Another reason would be is to locate a niche which Another reason would be is to locate a niche which will probably increase in importance in the future.will probably increase in importance in the future.

Selective targeting:Selective targeting: or targeting a limited number of or targeting a limited number of markets, expands the business’s opportunities and markets, expands the business’s opportunities and limits its dependence on a single market (to fill rooms limits its dependence on a single market (to fill rooms or seat at off-peak times). or seat at off-peak times).

Extensive targeting or full marketing coverageExtensive targeting or full marketing coverage: is : is attempting to gain a large market share by targeting attempting to gain a large market share by targeting the majority of the potential users of one’s the majority of the potential users of one’s products/services. This mass-market targeting products/services. This mass-market targeting strategy can be approached in two ways. (1) strategy can be approached in two ways. (1) differentiated market targeting: developing different differentiated market targeting: developing different concepts for each market segment within a product or concepts for each market segment within a product or service category. E.g. different concepts of chains.service category. E.g. different concepts of chains. (2) (2) undifferentiated market targeting: offering one undifferentiated market targeting: offering one product/service to all market segments. The objective product/service to all market segments. The objective in that is to reduce costs by focusing on larger in that is to reduce costs by focusing on larger markets.markets.

Geographic Market Geographic Market DevelopmentDevelopment This concerns opening new locations of the This concerns opening new locations of the

same business in other areas – generally other same business in other areas – generally other cities. cities.

The new geographic markets would normally be The new geographic markets would normally be located and identified in the customer analysis, located and identified in the customer analysis, and occasionally in the competitor analysis.and occasionally in the competitor analysis.

Companies should be careful to expand too Companies should be careful to expand too quickly out of one’s area of strength. For quickly out of one’s area of strength. For restaurants, it is generally better to focus on restaurants, it is generally better to focus on penetrating a single geographic area first and penetrating a single geographic area first and then to expand to nearby areas.then to expand to nearby areas.

For hotels, the decision to expand to new For hotels, the decision to expand to new geographic locations depends on whether geographic locations depends on whether the hotel gets the majority of its business the hotel gets the majority of its business from walk-ins or reservations. Chain from walk-ins or reservations. Chain hotels with excellent name recognition hotels with excellent name recognition and reservation systems can open a hotel and reservation systems can open a hotel in almost any location that is in need of in almost any location that is in need of more or newer rooms. Small chains or more or newer rooms. Small chains or independents should generally penetrate independents should generally penetrate their current market first, then focus their current market first, then focus expansion on nearby markets. expansion on nearby markets.

Grand Strategy Selection Grand Strategy Selection MatrixMatrix

Grand strategy selection matrix can be Grand strategy selection matrix can be used to graphically display grand used to graphically display grand strategy options or to inspire strategy options or to inspire brainstorming. brainstorming.

With the grand strategies, the main With the grand strategies, the main objective is to increase sales. There are objective is to increase sales. There are three primary ways to do this;three primary ways to do this; by raising average checksby raising average checks by getting customers to come back more by getting customers to come back more

oftenoften by attracting new customersby attracting new customers

DiversificationDiversification This involves developing a new product for This involves developing a new product for

a new market. a new market. It concerns adding businesses that will It concerns adding businesses that will

increase the firm’s competitive advantage.increase the firm’s competitive advantage. There are two ways to diversify; There are two ways to diversify;

Extensive diversificationExtensive diversification: refers to opening a : refers to opening a new business outside the current business of new business outside the current business of the firm. Here the categories include the firm. Here the categories include horizontalhorizontal, , concentricconcentric, and , and conglomerateconglomerate diversification. diversification.

Intensive diversificationIntensive diversification: is either getting into a : is either getting into a new business similar to the existing business of new business similar to the existing business of the firm, into one within the same industry but the firm, into one within the same industry but in a different segment, or into a new type of in a different segment, or into a new type of business altogether.business altogether.

Horizontal Diversification:Horizontal Diversification:

This category includes opening This category includes opening another business that competes for the another business that competes for the same customer, or purchasing a same customer, or purchasing a primary competitor; basically getting primary competitor; basically getting into a business in the same level of the into a business in the same level of the marketing channel. E.g. a midscale marketing channel. E.g. a midscale hotel purchasing another midscale hotel purchasing another midscale hotel, or a fast-food restaurant chain hotel, or a fast-food restaurant chain acquiring a competing fast-food chain.acquiring a competing fast-food chain.

Concentric Diversification:Concentric Diversification:

This involves the acquisition of a This involves the acquisition of a business that is related to the business that is related to the hospitality business or that would hospitality business or that would use similar skills. E.g. a restaurant use similar skills. E.g. a restaurant buying a specialty grocery store. buying a specialty grocery store. HorizontalHorizontal diversificationdiversification and and vertical integrationvertical integration could be could be included in this category.included in this category.

Conglomerate Diversification:Conglomerate Diversification:

This category includes the purchase This category includes the purchase of unrelated businesses. This of unrelated businesses. This strategy rarely works successfully strategy rarely works successfully because of the lack of synergy of because of the lack of synergy of skills. E.g. a restaurant owner is skills. E.g. a restaurant owner is better to stay away from printing better to stay away from printing business.business.

Vertical Integration:Vertical Integration:

This consists of opening or purchasing a supplier This consists of opening or purchasing a supplier to one’s business – to one’s business – backward vertical integrationbackward vertical integration – or purchasing an organization that is a – or purchasing an organization that is a customer to one’s business – customer to one’s business – forward vertical forward vertical integrationintegration. The act of integration is counted as a . The act of integration is counted as a type of diversification, since it involves type of diversification, since it involves acquisition of a new business or it involves acquisition of a new business or it involves combination of two or more components of the combination of two or more components of the marketing channel. There are many ways of marketing channel. There are many ways of utilizing backward integration. E.g. a restaurant utilizing backward integration. E.g. a restaurant or hotel gets into the bakery, linen, or produce or hotel gets into the bakery, linen, or produce an equipment. Forward integration is not an equipment. Forward integration is not common in hospitality. E.g. a hotel purchasing a common in hospitality. E.g. a hotel purchasing a travel agency or reservation system.travel agency or reservation system.

Other Grand StrategiesOther Grand Strategies

Often, firms that want to pursue Often, firms that want to pursue diversification or integration strategies do diversification or integration strategies do not have adequate funds or expertise. not have adequate funds or expertise. Common options include;Common options include; Joint ventureJoint venture; is the combining of resources ; is the combining of resources

with another company for mutual benefitwith another company for mutual benefit Strategic allianceStrategic alliance; occurs when a smaller ; occurs when a smaller

company, generally with expertise, time, and company, generally with expertise, time, and little money, joins with a larger company with little money, joins with a larger company with money or available credit, business money or available credit, business background or knowhow.background or knowhow.

FranchisingFranchising; is the licensing of others to ; is the licensing of others to operate a business using the firm’s operate a business using the firm’s operating system and brand name.operating system and brand name.

Management contractsManagement contracts; include a variety ; include a variety of agreements between those that have of agreements between those that have the expertise and reputation for the expertise and reputation for successfully operating a particular type of successfully operating a particular type of business and those that own the business. business and those that own the business.

AcquisitionsAcquisitions; are basically the outright ; are basically the outright purchase of another business that may purchase of another business that may continue to operate under its own name.continue to operate under its own name.

MergersMergers; occur when two or more firms ; occur when two or more firms are combined to create one firm.are combined to create one firm.

However, when serious problems exist However, when serious problems exist or there is an opportunity to sell the or there is an opportunity to sell the business at a profit, the following business at a profit, the following strategies should be considered.strategies should be considered. TurnaroundTurnaround; when a major effort is required ; when a major effort is required

to correct the downward direction of sales, to correct the downward direction of sales, profits, or operational performance, a form profits, or operational performance, a form of concentration strategy referred to as a of concentration strategy referred to as a turnaround should be implemented.turnaround should be implemented.

DivestmentDivestment; selling the business as an ; selling the business as an ongoing concern. It is best for a business to ongoing concern. It is best for a business to be sold, while it is operating.be sold, while it is operating.

LiquidationLiquidation; selling the business in parts. ; selling the business in parts.