Download - Lecture 2 Corporate Marketing Planning
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Corporate Marketing Planning
Chapter 2
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Chapter Roadmap
Difference between corporate strategy and product mix strategy
Three Levels of corporate strategy
Mission and Vision
Scanning external environment
Porters Analysis Competitor analysis (competitive profile matrix)
External Factor Analysis Summary
Internal Factor analysis Summary
TOWS matrix
Types of Corporate strategies
Product life Cycle
Product Portfolio models
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Corporate Marketing planning
The process by which an organization sets its long termpriorities regarding products and markets in order toenhance the value of the overall company
Two kinds of decisions are involved:
1. Corporate strategy
2. Product mix strategy
In corporate strategy, management identifies thebusiness in which the company will be involved in
future by specifyinga) The range of markets to be served
b) The kinds of products to be offered
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Corporate Marketing planning
Product mix strategy identify the role eachproduct is expected to play in building the valueof the business. It should specify
a) The relative share of the firms resources to bedevoted to each product or product line
b) The kind of contribution ( rapid sales growth orhigh profitability) that each product or productline is expected to make toward building the
companys value The product mix strategy provide guidance tomiddle level managers about topmanagements expectations
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Three Levels of Strategy
Corporate Level
Composed principally of Board of Directors, CEO and Administrativeofficers
Responsible for firms Financial Performance and Non Financial Goals
In multi business firms:
Determine what business to be involved What markets to enter
How to grow the business:
- Vertical Integration
- Horizontal integration
- Diversification- Develop synergies between the various units ( economies of scope)
Set objectives for various business units
Determine investment priorities using portfolio models for various units
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Three Levels of Strategy
Business Level Strategies
Composed principally of business and corporate managers
Translate the statements of direction and intent generated at corporatelevel into concrete objectives and strategies for individual divisions orSBUs
Determine how the division or SBU will compete in the product- marketarena
Strive to identify and secure the most promising market segment withinthat arena
Common business level strategies are:
Overall low cost leadership
Differentiation Focus
a. Low cost focus
b. Focus differentiation
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Three Levels of Strategy
Functional Level Strategies
Develop annual objectives and short-term
strategies in functional areas
Their principal responsibility is to implement
or execute the firms strategic plans
They a address issues relating to efficiencyand effectiveness of their functional activities
in increasing the firms profitability
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8
Single-business Firms
POM/R&D
strategies
Financial/
accountingstrategies
Marketing
strategies
Human
relationsstrategies
Corporate/
business level
FunctionalLevel
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Multiple business Firms
Business
Level
Function
al
Level
Corporatestrategies
Business 1Business 2 Business 3
POM/R&Dstrategies
Financial/accountingstrategies
Marketingstrategies
Humanrelationsstrategies
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Comprehensive Strategic Management Model
Develop
Vision and
Mission
Statement
Scan external
Environment
Performinternal
audit
Establish
long termobjectives
Implement
strategies
Evaluate
Strategy
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Mission statement is declaration of an organizations reason for being
A clear mission statement is essential for effectivelyestablishing objectives and formulating strategies
It is usually broad in scope for at-least two reasons1. A good mission statement allows for the generation
and consideration of range of feasible alternativeobjectives and strategies without stifling managementcreativity.
2. Excess specificity would limit the potential growth forthe organization. On the other hand an overly generalstatement that does not exclude any strategyalternative should be dysfunctional
Developing Vision and Mission
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Developing Vision and Mission
A strategic vision describes the route a companyintends to take in developing and strengtheningits business. It lays out the companys strategic
course in preparing for the future. Involves thinking strategically about
Future direction of company
Changes in companys product/market/customer technology
to improve
Current market position
Future prospects
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Scanning the external environment
Analysis of General Environment
Economic, socio-cultural, technological, political-legal factors
Market
Analysis
Competitor
analysis
Supplier
Analysis
Government
Analysis
Identification of Opportunities and
Threats
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Scanning the external environment
1. Demographics: Age distribution, birthrate populationgrowth, regional population shifts etc.
2. Social cultural values: attitudes towards health andnutrition, the need for self expression, materialism,ecological concerns, product safety, etc.
3. Economic factors: inflation, unemployment rates,economic growth, raw material scarcities, energy cost,interest rates, import duties, excise taxes
4. Technology: developing and anticipated changes thataffect the kinds of product available in the market andthe kinds of processes( such as automation or the use ofsynthetic materials) used to produce these products
5. Political / Legal and regulatory actions: includingregulation on the type of advertising, product labelingand testing requirements, limitation against productcontents, pollution control, and restrictions or incentiveswith respect to imports and exports
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Industry Analysis: Porters Five Forces Model
Entry and Exit
Barriers
Power of
Buyers
Power of
Suppliers
Industry
Competitiveness
Rivalry among
existing firms
Threat of
substitutes
Threat of new
entrantsEase of exit
Scanning Task Environment
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Threat of new entrants
New entrants to an industry brings new capacity, a desire to gainmarket share, and substantial resources. They are threat to anestablished firm
The threat of an entry depends on the presence of entry barriersand the reaction that can be expected from existing competitors
An entry barrier is an obstruction that makes it difficult for acompany to enter an industry
Possible barriers to entry are:1. Economies of scale: ( Entry barriers high if existing firms have cost
advantage because of economy of scales)2. Product differentiation: ( Products of firms sold on the basis of
differentiation or as commodity, if commodity entry barriers arelow)
3. Capital Requirement:4. Switching Cost ( the ease with which the new product can easilyreplace the existing firms products)
5. Access to distribution channels: ease with which a new firm canobtain distribution and proper shelf space):
6. Government Policy:
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Exit Barriers
Specialized Assets
Fixed Cost of Exit
Strategic interrelationship Government Barriers
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Rivalry Among Existing Firms
In most industries corporations are mutuallydependent
A competitive move by one firm can be expected tohave a noticeable effect on the competitors andcause retaliation or counter efforts
Intense rivalry is related to several factors:1. Number of competitors of equal size:2. Rate of Industry Growth3. Product or service characteristics (Specialty vs.
commodity)4. Amount of fixed cost:5. Capacity increase by one firm6. Height of Exit barriers
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Buyers affect an industry through their ability to force downprices, bargain for higher quality or more services, and playcompetitors against each other.
A buyer or group of buyers are powerful if:1. A buyer purchase a large proportion of sellers product or service2. A buyer has the potential to integrate backward by producing the
product itself3. Alternate suppliers are plentiful because product is standard orundifferentiated
4. Switching cost of changing supplier low5. The purchased product represent a high percentage of buyers
cost, thus providing a incentive to shop around6. A buyer earns low profits and thus is very sensitive to costs and
service differences7. The purchased product is unimportant to the final quality or priceof a buyers product or services and thus can be easilysubstituted without affecting the final product adversely
Bargaining Power of Buyers
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Suppliers can affect an industry through their ability toraise prices, or reduce the quality of purchased goodsand services.
Supplier group is powerful if some of the followingfactors apply:
1. The supplier industry is dominated by a few companies2. The product or service is unique or has a built in
switching costs ( word processing software)3. Substitutes are not available ( electricity)4. Suppliers are able to integrate forward and compete
directly with their present customers5. A purchasing industry buys a small portion of the
suppliers groups goods and services and is thusunimportant to the supplier.
Bargaining Power of suppliers
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Threat of Substitutes
Threat of Obsolescence of Industrys product
Aggressiveness of substitute products in
promotion
Switching Cost
Perceived price/ value
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Competitor Analysis
Identifying Key Success factors within the industry Key success factors are those variables that can affect
significantly the overall competitive position of allcompanies within that industry
Usually determined by the economic and technological
characteristics of the industry and by competitive weaponson which on which the industry have built their strategies Examples: Low cost Extensive distribution
Reliability and durability of products Market share Developing Competitive profile matrix
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Competitive Profile Matrix
Key Success
Factors Weight
Company
A Rating
Company A
Weighted
score
Company B
RatingCompany B
Weighted score
1 2 3 4 5 6
Total 1.0 Total Score Total Score
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Steps for Competitive Profile Matrix
1. In column 1 (key success factors) list 6 8 factors that appear to determinecurrent and expected success in the industry
2. In column 2 ( weight) assign a weight to each factor from 1.0 ( most important)to 0.0 (least or not important) based on the factors probable impact on theoverall industrys current and future success. All weight must sum to 1.0regardless of the number strategic factors)
3. In Column 3 (Company A rating) examines a particular company within theindustry. Assign a rating of 4 for outstanding to 1.0 for poor
4. In column 4, ( company A weighted score) multiply the weight in column 2 foreach factor times in column 3 to obtain that factors weighted score forcompany A. This result in a weighted score for each key success factor rangingfrom 4 (outstanding) to 1.0 to poor
5. In column 5 ( company B rating) examine a second company within the industry. Assign rating to each key success factor from 41 based on the companys Bcurrent response to each particular factor
6. In Column 6, ( company B weighted Score) multiply the weight in column 2 foreach factor times its rating in column 5 to obtain that factors weighted score
7. Add the weighted scores for all the factors in column 4 and 6 to determine thetotal weighted score for each company.8. The total weighted score indicates how well each company is responding to
current and expected key success factor in the industry environment
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Using Resources to Gain competitive
advantage1. Identify and classify the firms resources in terms of
strengths and weaknesses2. Combine the firms strengths into specific capabilities.
Core competencies are the things that a corporation cando exceedingly well. Distinctive competencies aresuperior to competitors and provide the firm with
competitive advantage3. Appraise the profit potential of these resources andcapabilities in terms of their potential for sustainablecompetitive advantage and the ability to harvest theprofits resulting from the use of these resources andcapabilities
4. Select the strategy that best exploits the firms resourcesand capabilities relative to external opportunities
5. Identify resource gaps and invest in upgradingweaknesses
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Sources of competitive advantage
A superior market position
(e.g. a differentiatedcompetitive stance, a lower
cost base, or protected niche)
Asuperior knowledge
and or relationship base
(e.g. detailed customerknowledge, trade
relationships, technical
expertise, political links
or cartel membership
A superior resourcebase (e.g.
Size and economies of scale,
financial structures, strategicalliances, the breadth of
geographic coverage, marketing
and manufacturing flexibility,
image/ reputation, or channel
control
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Prentice Hall, 2000 Chapter 3 27
External Factor Analysis Summary (EFAS)
External
Strategic Factors Weight Rating
Weighted
Score Comments
1 2 3 4 5
1.00
Opportunities
Threats
Total Weighted Score
Notes: 1. List opportunities and threats (510 each) in column 1. 2. Weight each factor from 1.0 (Most Important) to 0.0 (Not Important) in Column 2based on that factors probable impact on the companys strategic position. The total weights must sum to 1.00. 3. Rate each factor from 5 (Outstanding)to 1 (Poor) in Column 3 based on the companys response to that factor. 4. Multiply each factors weight times its rating to obtain each factorsweighted score in Column 4. 5. Use Column 5 (comments) for rationale used for each factor. 6. Add the weighted scores to obtain the total weightedscore for the company in Column 4. This tells how well the company is responding to the strategic factors in its external environment.Source:T. L. Wheelen and J. D. Hunger, External Strategic Factors Analysis Summary (EFAS). Copyright 1991 by Wheelen and Hunger Associates.Reprinted by permission.
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Prentice Hall, 2000 Chapter 4 28
Internal Factor Analysis Summary (IFAS)
Internal Factors Weight Rating
Weighted
Score Comments
1 2 3 4 5
1.00
Strengths
Weaknesses
Total Weighted Score
Notes: 1. List strengths and weaknesses (510 each) in column 1. 2. Weight each factor from 1.0 (Most Important) to 0.0 (Not Important) in Column2 based on that factors probable impact on the companys strategic position. The total weights must sum to 1.00. 3. Rate each factor from 5(Outstanding) to 1 (Poor) in Column 3 based on the companys response to that factor. 4. Multiply each factors weight times its rating to obtain eachfactors weighted score in Column 4. 5. Use Column 5 (comments) for rationale used for each factor. 6. Add the weighted scores to obtain the totalweighted score for the company in Column 4. This tells how well the company is responding to the strategic factors in its internal environment.Source:T. L. Wheelen and J. D. Hunger, External Strategic Factors Analysis Summary (EFAS). Copyright 1991 by Wheelen and Hunger Associates.Reprinted by permission.
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TOWS Matrix
External
Elements
Internal
Elements
Organizational Strengths Organizational
Weaknesses
Strategic Options
Environmental
opportunities
Environmental
Threats
SO: Strengths can be
used to capitalize or
build upon existing
opportunities
WO: The strategies
developed need to
overcome organizational
weaknesses if existing or
emerging opportunities areto be exploited
ST: Strengths in the
organization can be used to
minimize existing or
emerging threats
WT: The strategies pursued
must minimize or
overcome weaknesses and
cope with threats
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Prentice Hall, 2000 Chapter 5 30
SO Strategies
Generate strategies herethat use strengths to takeadvantage of opportunities
ST Strategies
Generate strategies herethat use strengths toavoid threats
WO Strategies
Generate strategies herethat take advantage ofopportunities byovercoming weaknesses
WT Strategies
Generate strategies herethat minimize weaknessesand avoid threats
INTERNALFACTORS
(IFAS)EXTERNALFACTORS(EFAS)
Strengths (S)
List 5 10 internalstrengths here
Weaknesses (W)
List 5 10 internalweaknesses here
Opportunities (O)
List 5 10 externalopportunities here
Threats (T)
List 5 10 externalthreats here
TOWS Matrix5.4 TOWS Matrix (Fig. 5.2)
Source: Adapted from Long-Range Planning, April 1982, H. Weihrich, The TOWS MatrixA Tool for Situational Analysisp. 60. Copyright 1982, with kind permission from H. Weihrich and Elsevier Science Ltd. The Boulevard, Langford Lane,Kidlington OX5 1GB, UK.
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Setting Objectives
Purpose ofsetting objectives
Converts vision into specific performance targets
Creates yardsticks to track performance
Well-stated objectives are
Quantifiable
Measurable
Contain a deadline for achievement Spell-out how much ofwhat kind
of performance by when
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Common types of corporate
Objectives1. Profitability: Net profit as a percent of sale Net profit as percent of total investment Net profit per share of common stock2. volume: Market share
Percentage growth in sales Sales rank in the market Production capacity utilization3. Stability: Variance in annual sales volume Variance in seasonal sales volume
Variance in profit4. Non-financial Maintenance of family control Improved corporate image Enhancement of technology
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Types of Corporate strategies
Organizations have two fundamental directionsin which to proceed when selecting a corporatestrategy
1. Growth
Growth strategy is one in which sales growth (usually from new products or markets)becomes a vehicle for achieving a stability orenhanced profitability
2. Consolidation The firm seek to achieve current goals
(especially enhanced profits) through non-growth
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Basic types of corporate strategies
Growth Strategies: For current markets- Market penetration- Product development- Vertical integration
For new markets- Market development- Market expansion- Diversification- Strategic alliances
Consolidation- Retrenchment- Pruning- Divestment
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1. Market penetration Aims at increasing sales of existing products in the
current market Is achieved by increasing the level of marketing effort (
increasing advertisement, distribution, number of sales
personnel) It is essentially a status quo because it requires no change
in firms products or services As long as the current performance is sound, and the
environment supports growth and profits opportunities,a firm may want to stick to its basic business
Market penetration may not be feasible when a brandreaches a practical ceiling of sales
Growth strategies for Current Market
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2. Product Development Involves the development of new product for existing
markets in order to:- Meet customer needs- March new competitive offerings
- Take advantage of new technology- Meet the needs of specific market segments The strategy involves replacing or reformulating existing
products or expanding the product line Product development is appropriate when changing needs
and tastes result in the emergence of new segments or; when competitive and technological changes motivate
firms to modify their product lines
Growth strategies for Current Market
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Growth strategies for Current Market
3. Vertical Integration: To make a firm more efficient in serving existing markets.
Such integration is is accomplished when a firm becomesits own supplier( Backward integration) or intermediary (
forward integration) These strategies will be most appropriate when theultimate markets have high growth potential, becauseintegration requires extensive resources
In practice, vertical integration is not nearly as simple as
other current market strategies because the skills requiredfor forward or backward integration may be very different
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Growth Strategies for New Markets
1. Market Development: Bringing current products to new markets
Management will employ this strategy
when:- existing products are stagnant
- Market share increases are difficult toachieve because market shares are already
very high or competitors are very strong This strategy can be implemented by
identifying new uses or new users
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Growth Strategies for New Markets
2. Market Expansion: Moving into new geographic market areas International market expansion can be pursued at three
levels:- Regional strategy implies that a company will concentrate
its resources and efforts in one or two areas- Multinational strategies (multi-domestic) involves a
commitment to a broad range of national marketsincluding those in Europe. Asia, and the Americas. Suchfirms organize their businesses around nations so thatseparate marketing strategies (including range ofproducts to offer) are left largely to local subsidiary
- Global strategy is employed when an organizationoperates in a broad set of markets but with a commonset of strategic principles
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Growth Strategies for New Markets
. Diversification strategy: A strategy that involves both new products and new
markets
This strategy is likely to be chosen when one or more
of the following conditions exist- No other growth opportunities can be established
with existing products or markets
- The firm has unstable sales or profits because it
operates in markets that are characterized by unstableenvironments
- The firm wishes to capitalize on a distinctivecompetence
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Growth Strategies for New Markets
Types of diversification
a) Related Diversification
- Company taking advantage of manufacturing
technology, Research and Developmentdistribution, customers to get economies ofscope
b. Unrelated /Conglomerate diversification:
- Adding new and unrelated products to newcustomers
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Three types of consolidation strategiesi. Retrenchment
Essentially the opposite of market development
A firm reduces its commitment to its existing products bywithdrawing from weaker markets
This strategy is pursued when a firm has experienced unevenperformance in different markets
ii. Pruning :
When a firm reduces the number of products offered in a market
Opposite to product development and occurs when a firm
decides that some market segments are too small or too costlyto operate
Consolidation strategies
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Consolidation strategies
Divestment; When a firm sells off a part of its business to
another organization Divestment is opposite to diversification as the
firm is taking itself out of a particular market
A firm typically pursues divestment strategieswhen management becomes aware that:
- A particular business is not meeting theorganizations objectives
- A diversification strategy has ailed. This is morelikely to happen when the business does not fitthe organizations competencies and when topmanagement fails to appreciate the kinds ofskills central to success in that market
P d t Mi St t i
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Product Mix Strategies
Introduction Growth Maturity Decline
Product Life Cycle
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Product Life Cycle
Plays an important part in the development of product mixstrategy
It helps in identifying the significance of sales trends and toassess the changing nature of competition, costs, and marketopportunities over time
1. Introduction
The product is new to the market No direct competition Buyers must be educated about what the product does, how it is
used, and where to buy it2. Growth:
Product is more widely known Sales grow rapidly because new buyers enter the market andbuyer find many ways to use the product
Many competitors enter the market Major marketing task is to build market share
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Product Life Cycle
3. Maturity: Sales growth levels off as nearly all potential buyers
have entered the market Consumers are knowledgeable about the alternatives
Repeat purchase dominate the sales, and productinnovations are restricted to minor improvements Only the strongest competitors survive4. Decline> Sales slowly declines because of changing buyer
needs or because of introduction of new productsthat are sufficiently different to have their own lifecycles
Product life cycle
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Product life cycleDifferent Definitions of Relevant Markets
LevelIllustrative Measure(s)
Product Form Sale of regular tea, or decaffeinated tea, or
herbal tea
Product Class Sale of tea
Generic Need Sales of all beverages
Managers could select from different portrayal of life cycle for a given
product
An executive at a company that makes tea could consider three
different levels of the markets in which the product competes when
measuring unit sales. The decision involved in selecting a level is
known as determining the relevant market
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Product life cycle
One could arrive at a very different interpretation of product lifecycle depending on how the relevant market is defined Generic need life cycles are seldom useful for strategy purposes
because they seldom experience significant changes Product form and product class life cycles are of substantial value
to the process of developing strategies From the view point of corporate marketing planning, the product
life-cycle has two major contributions1. Product form life cycle stage tells more about the market
opportunities than does current brand growth rate. Low brand-sales growth may occur because the market share may bedeclining in a growth stage or because market share is stable in amature market.
By knowing which state a product is in enables the management
to evaluate the opportunities for enhancing brand-sales growth2. Knowing the stage of product life-cycle enables a firm to projectfuture costs and profits
Li i i f P d lif l
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Limitations of Product life-cycle
concept
1. It does not take into consideration specificcompetencies and resources of the competitorsin a given market. Thus:
If the competitors have extensive financialresources available, the level of marketing
expenditure necessary at various stages may begreater than the model suggest Competitors that are financially strong due to
sales of the other products may survive intomarket maturity even with small market shares
2. Competitors may mistake leveling of growth asan indicator of maturity when the true cause isa lack of industry promotional effort or pricesthat are too high.
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Organizations have a range of products with varyingcharacteristics. Top management strive to find a balanceamong alternative products.
In seeking long-run balance managers must recognize thatsome products will generate large amount of cash over and
above what is required for operating expenses or foradditional investment. Other products will, at-least in short run will generate far
less cash than is needed for operating expenses Portfolio models are methods that managers can use to
classify products in order to determine the future cash
requirements each product will have. In using a portfolio model, managers must examine the
competitive position of a product and opportunitiespresented by the market
Product Portfolio Models
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The BCG model assumes that cash flow andprofitability will be closely related to sales volume Products are classified in terms of the products
market share dominance and in terms of rate ofgrowth in that market
A firms relative market share is the ratio of itsshare to that of its largest competitor (X). The rate of growth of the market can be
interpreted as reflecting the stages in the PLChigh growth reflecting the first two stages and
low growth reflecting the maturity and decline The BCG matrix enables the a manager to classifyfirms product s into four basic types: Stars,Problem child, cash cows, and dogs
The BCG Growth Share Matrix
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BCG Growth Share Matrix
Market Dominance
Market
GrowthRate
High Low
Low
High STAR
Cash Generated ++
Cash Use _ _ _
_________
NET (0.-)
Problem Child
Cash Generated +
Cash Use _ _ _
______
NET ( _ _ _)
Cash COW
Cash Generated + + +
Cash Use -
__________
NET ( + +)
Dogs
Cash generated +
Cash Use -
______
NET ( -.0)
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BCG Matrix Example
Division Revenue Percent
Rev.
Profits % profit RMS %
Growth1
2
3
45
$60,000
40,000
40,000
20,0005,000
37
24
24
1203
10,000
5,000
2000
8,000500
39
20
08
3102
.80
.40
.10
.60
.05
+15
+10
+1
-20-10
Total 165,000 100 25,500 100
GE Matrix
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GE Matrix Evaluating Industry Attractiveness Relative to others
Market Size and projected growth
Intensity of competition
Emerging opportunities and threats
Seasonal cyclical factors
Resource RequirementsPresence of cross industry strategic fits and resourcefits
Industry profitability
Social, regulatory and environmental factorsIndustry uncertainty and business fits
E l i I d A i R l i h
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Evaluating Industry Attractiveness Relative to others
Industry
Attractiveness Factor
Weight Rating A Weightedscore A
RatingB
WeightedScore B
Market Size and projectedgrowth
Intensity of competition
Emerging opportunities and
threatsSeasonal cyclical factors
Resource Requirements
Presence of cross industrystrategic fits and resource fits
Industry profitability
Social, regulatory andenvironmental factors
Industry uncertainty and
business fits
C titi St th f h f th
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Competitive Strength of each of the
companys Business Units
Relative Market ShareCosts relative to competitors
Ability to match rivals on key product attributes
Bargaining leverage with suppliers/ buyers
Strategic-fit relationships with sister businesses
Technology and innovation capabilities
How well resources are matched to industry keysuccess factors
Brand name reputation/image
Degree of profitability relative to competitors
C titi St th f h f th B i U it
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Competitive Strength of each of the companys Business Units
Competitive strength measure Weight RatingSBU 1
WeightedScoreSBU1
RatingSBU 2
WeightedScore SBU2
Relative Market Share
Costs relative to competitors
Ability to match rivals on keyproduct attributes
Bargaining leverag4e withsuppliers/ buyers
Strategic-fit relationships withsister businesses
Technology and innovation
capabilitiesHow well resources arematched to industry keysuccess factors
Brand name reputation/image
Degree of profitability relative
Directional Policy Matrix
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Directional Policy Matrix
Competitive Position
Market
Attractive-ness
Strong Medium Weak
HIGH
Medium
Low
Maintain leadership Challenge leaderOvercome weakness,
find niche, or quit
Challenge leader Manage for earnings Harvest
Cash generator Harvest Divest
D l GE M t i
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Develop GE Matrix
Division Sales % sales Profits % profit I. A. S C. strength
1 $100 .25.0 10 .50 3.2 3.6
2 200 .50.0 5 25 3.5 2.1
3 50 12.5 4 20 2.1 3.1
4 50 12.5 1 5 2.5 1.8