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Strategic Marketing Decisions
Knowledge Factory
Market led strategic management
The discipline of marketing has migrated from being a functional discipline to being a concept of how business should be run
Only few companies have moved beyond the marketing trapping of advertising, short-term sales growth and flamboyant innovations to achieve a sustainable robust marketing strategy that produces long term performance and strong shareholder value
Radical strategy Rational strategy Robust strategy
2003/2004 TKF
Competitive Advantage
Definition of competitive advantage
Sustainable competitive advantage strategies
SustainableCompetitiveAdvantage
The way you compete
Basis of competition
Where you compete?
Who you compete against with?
Product StrategyPositioning strategyDistribution strategyPricing / Manufacturing strategy
2003/2004 TKF
Managing in the 21st Century
Globalization of markets
(e.g.:- Intel, Microsoft, McDonalds, Barbie, Sony)
Change in industrial structures
(e.g.:- Coconut Vs. Microchips)
The information revolution and technological change
(e.g.:- Amazon.com) Rising customer expectation
(e.g.:- Nike, P&G, United Distillers, Coca Cola, Dell)
Intel Company Microsoft Barbie Sony Amazon Ni`ke Proctor & Gamble United Distillers Coca Cola Dell
Company Profiles
2003/2004 TKF
Rising customer expectation
Nike
P&G
United Distillers
Coca Cola
Dell computers Time
expectation
Mass marketing
Customization
Mass customization
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Stages of involvement in global market
Domestic market(Local customer)
Export market(Reactive, No product development, No Research)
International markets(Committed, Resource dedication, Profit objective
Segment importance)
Global markets(Global opportunity, Global branding, Standardized products)
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Key drivers of the globalization
Customer demand Global supply Organizational objective
to be globally competitive
Global Business
Risk perception
Competition Commitment
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Understanding global strategies and competitive advantage Manage globally available information ROI marketing e.g.:- HSBC Develop global strategies Manage customization Vs. standardization
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Decisions involved in developing a global strategy In which country should products be marketed and at
what market share level (e.g.:- India or China) To what extent should products & services be
standardized across countries Where should the value added activities such as
research production and service be located To what extent should the brand name and marketing
activities such as brand positioning, advertising and pricing be standardized across countries
Should competitive moves be part of a global strategy or should it be individual (e.g.:- HSBC)
2003/2004 TKF
Motivation for global strategies
Obtaining scale economies(e.g.:- Nike footwear, Kodak film, Nestle coffee)
Desirable global brand association Access to low labour and materials Access to national investment incentives Dodged Trade barriers Cross subsidization
(Resources accumulated in one country can be used in another)
Access to strategically important markets(e.g.:- India & China)
2003/2004 TKF
10 ways to develop a high global business IQ Be comfortable with change and respond at lightning
speed (Speed rules). Peter Ducker said “One cannot manage change,one can be a head of it”
Develop and old encompasy perspectives, Where should able to function well on small scale and large scale
Welcome new experiences even crises for they loring about the positive confrontation between different prospective. “A crisis is a turning point which offers as much opportunity as danger”
Adopt, take risk and be innovative
continue….2003/2004 TKF
10 ways to develop a high global business IQ (Continued) Travel to atleast one foreign country and stay for
several weeks preferably with a native family Learn as much as possible about the culture in which
you are above to do the business Maintain position & enthusiasm, playfulness &
curiosity know your self well before you present your self.
(listening, empathizing and understanding) Store enormous reserves of energy with patient Own courage
2003/2004 TKF
Standardization Vs. Customization
The prime motivation for standardization is economies. The more standardization, the more potential there is for scale economies.
The vision of a single global product that share not only R&D and manufacturing but also a common name as well as brand equity
The second motivation for standardization is to create impact for the marketing programs outside the main country through media-spill-over
The 3rd motivation for standardization global strategy is the global brand association and essence of brand positioning (e.g.:- Levis jeans, French perfumes)
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The customization option
Customization provides name associations and advertising that can be developed locally tailored to the local market and selected without the constrains of standardization
customization also involves reduce risk from “buy local” sentiments
Home work:- One page summary Sony’s of global strategy
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Question
You are the Marketing Manager of AXY company, who currently markets specialized ice creams. Recent meeting at Tesco’s with other competitor manufacturers. Tesco has requested that your company manufacturers an ice-cream for Tesco. This would be chosen on the basis of product cost and quality.
Evaluate and justify options available for the company to perceive or not to perceive this decision
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Definition of Marketing
Marketing is the management process that seeks to maximise return to shareholders by developing and implementing strategies to build relationship of trust with high value customers and to create a sustainable differential advantage
Two critical areas of focus in this topic is understanding what customers want and choosing
them Profiling your competitors so that the company can
create continue value for customers
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Areas of creating value for customers Choice of markets Target market
segmentation Differential advantage Marketing mix
Overtime perceive similar competitive strategies and use the same distribution channel and heavy advertising
Have similar characteristics
Have similar assets and competencies
Identifying competitors
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Strategic groups
Product Range
Sca
le o
f op
erat
ion
BroadSpecific
Global
Local
•Land Rover•Range Rover
•Montex
•Mercs•BMW•Volvo•Audi
•Toyota•Nissan•Honda•Ford
•Hyundai
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Changing traditional thinking
From the marketing concept to marketing as a business process
Old Marketing concept definition New Marketing concept definition marketing as a business process
Old Marketing concept
New Marketing concept
Businessprocess
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Old marketing concept Marketing concept can
be defined as a process of achieving organisational goals by determining customer needs and wants of target markets and delivering the desired satisfactions more efficiently and effectively than competitors
Marketing is the process of planning and executing activities that satisfy individual, ecological and social needs ethically and sincerely by also satisfying organisational objectives
New marketing concept
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Marketing as a Business process
Marketing can be thought of as a process which designs and manages business process necessary to define, develop and deliver value to target customers
Therefore marketing should include;
Value defining, Value developing & Value delivery
Value definingprocess
Value developing
process
Value deliveryprocess
Gillette:- complete shaving system
Philips:- CD ROM
Sony:- CDROM BMW:- i-Drive
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Assignment
Identify one company that has been a market leader and identify why this company lost its position as a market leader and decline?
Giving examples of findings two areas of information; Why market leaders decline? What are the capabilities market leaders need
to acquire to maintain leadership?
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Characteristics shared by the strongest brand today Clarity of vision (ownership in the people’s mind)
Consistency Leadership
Out of sum 2500 Interbrand studies in brand valuation throughout the world the most discriminating factor in generating long term brand value at the highest level is leadership
This is the brand’s ability to lead and exceed expectations to take people in to new territories and new areas of product and service and even social philosophy at right time
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Sainsbury’s strategic return to core values The UK’s 3rd biggest food retailer is looking to
establish a more up market position in order to reverse the recent downturns in fortune
A new flagship store in London will feature a luxury product ranges. These includes a juice bar, a up market bakery, a premium wine merchant and a seasonal produce counter
Sainsbury’s traditional strength is not price but rather quality with the above developments aiming to position the company upmarket
Sainsbury struggled to compete in a price war with larger groups such as ASDA and Tesco
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Strategic drift
Strategy must fit the environment
Successful strategies erode
Effectiveness is more important than efficiency
Speed and decisiveness (first mover advantage)
Organisation is more vital than the strategy Time
Sales
The environment changes over time
Strategic drift
Strategic ware out
This doesn’t have a corporate charisma
Efficiency
Effect
ivene
ss
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Strategy must fit the environment
Companies like Virgin, Orange, O2 seceded, because they give today’s customers what they want.
They have the brands and distribution channels which offer update solutions for customers
Virgin (web link) Brand name associated
with Richard Branson Orange (web link)
There are 16 countries in the Orange Group worldwide offering a broad range of voice and data communication services.
O2 (web link)Products & Services Mobiles Voicemail WAP Media Messaging Mobile Video
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Successful strategies erode
History suggest that nothing fails like success IBM had 80% market share 10 years ago, today it has 8%. Almost
invariably a new competitors innovative technology, new distribution channels or changes in customer tastes undermines market dominant
market leadership is immensely difficult . It requires enormous investments, high rates of innovation, greater flexibility (e.g.:- HSBC conservative lending policy)
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Effectiveness is more important than efficiency
Peter Drucker made the famous distinguish between efficiency (doing things right) and effectiveness (doing the right thing).
Efficiency is essential about cost reduction and effectiveness about innovation
innovations first offer customers superior benefit, but in long run also offer lower cost
Profit
Time
Efficiency
Effect
ivene
ssInnovationApple Ipod
Play station 2Cost reduction
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Speed and decisiveness
First mover find it easier to establish competitive advantage.
They get premium prices and faster payback on their earlier investments.
Companies, who are slow have to launch at discounted prices and catch-up in the battle in the battle for market share
First mover advantage
suchimi principle
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Organisation is more vital than the strategy Where organisations
create systems, structures and attitudes, which stimulate people to be customer focus
Culture and behavior of corporations (The Seven-Ss Model)
Structure
Strategy Systems
Skills Style
Staff
Sharedvalues
Hard Ss
Soft Ss
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Reinvention or changing the paradigm
Adoption of Recipe
Developmentof strategy
ImplementationBusiness
Performance
If unsatisfactory
Abandon old recipe & reinvent
Modify plan or tighten control
Modify or develop new strategy
Source: CIM Professional PG Diploma SMD Slide No. 36
2003/2004 TKF
The strategic planing factors
Value and purpose Time Level of market
orientation Performance measures Product, market and
industry sectors Degree of turbulence Resource leverage &
resource availability Market analysis
This is that the more linear and iterative process of marketing although useful may be too restrictive and not dynamic enough.
When organizations need to consider the various internal and external factors which must be taken in to account when developing a strategic marketing stance
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Organizational learning and knowledge management Organizational learning can be basically defined as a
process of improving action through better knowledge and understanding
Organizational learning is a development of knowledge or insights that have the potential to influence behavior
Learning facilities, behavior changes that lead to improve performance
dynamic and turbulent environment demand learning and behavior changes that lead to improve performance
Continue…...
2003/2004 TKF
Organizational learning and knowledge management (continued)
More recently a learning organization has been viewed as a continuously creative, innovative organization
As an coherent, cohesive structure, where each member is willingly active
If this is to occur there needs to be single loop learning and double loop learning
Organizational Learning
IndividualLearning
Gap
Transfer Learning
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Double loop learning
This is limited to a section of an organization
Have a defined set of behaviors, design to cope with particular problems (reactive learning)
Emphasis on making technique more efficient
This effects the whole organization
it entails deeper challenge to routine practices and rules
Take advantages of windows of opportunities
Single loop learning
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Distinguishing between Explicit knowledge and Tacit knowledge Explicit Knowledge
can be formally articulated or encoded
This can be more easily transferred or shared
This is abstract and removed from direct experience
Tacit Knowledge is knowledge in practice
Developed from direct experience and action
highly pragmatic and situation specific
Subconsciously understood and applied
Difficult to articulate Usually shared through
highly interactive conversation and shared experience
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Knowledge ManagementLeveraging learning across markets
Socialisation(Sharing experience)
Externalisation(Articulating tacit knowledge
explicitly)
Internalisation(Learning by doing)
Combination(Building a knowledge
system)
Fro
m
Exp
licit
know
ledg
eT
acit
know
ledg
e
To
Tacit Knowledge Explicit Knowledge2003/2004 TKF
Barriers to the sharing of Tacit Knowledge Hierarchies Strong preference for analysis over intuition: discouraging
employees to offer ideas without “hard facts” to back it up Penalties for failure (discouraging experimentation) Strong preference for a particular type of communication
within working groups Fear of failing to express the inexpressible: When trying to
convert tacit knowledge to explicit one Inequality in status among the participants Uneasiness of expressing emotional life experience Distance, both physical separation and time
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Tacit knowledge as a source of competitive advantage Tacit knowledge underlies many competitive
capabilities. Tacit knowledge, or implicit knowledge as opposite to
explicit knowledge, is far less tangible and is deeply embedded into an organisation’s operating practices.
Tacit knowledge includes relationships, norms, values and standard operating procedures
Because tacit knowledge is much harder to detail, copy and distribute it can be a sustainable source of competitive advantage Individual tacit knowledge Collective tacit knowledge
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Learning organisation
An organisation that learns and encourages learning among its people, it promotes; Exchange of information between employees Hence creating a more knowledgeable work force
This promotes; Very flexible organisation Where people except and adopt to new ideas and
changes through a shared vision The corporation which is able to quickly learn
and then innovate their work practices performs better in the constantly changing environment
Continue….2003/2004 TKF
Learning organisation (Continued)
Business reengineering used to concentrate on eliminating waste and not working smarter and learning
Speed of learning this is how fast an organisation absorb and put it in to practice
This can only be introduced to a company that is prepared to reach a balance between change and stability
Balance
Change in the
organisation
Stability ofthe
organisation
Company
1. No tacit knowledge shared
2. Sharing tacit knowledge
3. Convert it in to explicit knowledge
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The nature of strategic innovation
Most strategic innovations came from outsiders, rarely from established players
It arises from complex interactions between many individuals, organisations and their operating environment
Rapid innovation requires an effective innovation process. "The process of innovation is a rhythm of search and selection, exploration and synthesis, cycles of divergent thinking followed by convergence".
Corporate innovation system Systematic approach to innovation - 7 areas of
innovation
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Marketing & Innovation
In most businesses innovation is regarded as the key to corporate success
In today’s rapidly changing environment a company cannot alone maintain market share or profits unless its innovative
If a company’s product or service are not continually improved, competitive pressure in variably leads to fall in prices, declining margins and the commoditization of the offer
Innovation is the path to achieve growth in sales and profitability
Marketing innovation Innovative design and
presentation techniques
New forms of differentiation, positioning and advertising
Innovative distribution and customer service methods
Source: 1000 ventures web site2003/2004 TKF
Key challenges to companies
1. Collapse of boundaries
WTO (reduction of taxes for foreign entry)
Dell computers (Innovative and cost effective processes
Amazon.com (e-businesses)
2. Rising customer expectations
Micro marketing
Customized products (Nike, make your own shoe)
High number of users and large volumes
3. Speed of change
Latest product Latest
technology Latest model
or version “Latest” is the
key word of today’s business
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Exploiting innovation for effective strategies
Product differentiation Service differentiation Customer intimacy Brand leadership Lower total cost
Process innovation
Gillette, Nike
Singapore airlines HSBC
Giorgio Armani McDonalds, Dell,
Amozon.com, Boeing
HSBC-PIL, SIA - e-ticket
Giorgio Armani NIKE
2003/2004 TKF
Success criteria for innovation
The strategy must fit the environment This means companies must offer customers, brands
they want and offer them through distribution channels which offer update solutions (e.g.:- Dell Computers)
Successful strategies erode “Nothing fails like success”. Today's market leaders
generally tomorrow’s basket cases(number of years earlier IBM had 80% market share, now it has 8%)
Effectiveness is more important than efficiency (Doing things right Vs. Doing the right thing)
Speed and decisiveness Organisation is more vital than the strategy
2003/2004 TKF
Conditions required for innovation
Innovation
Moderateenvironmental
uncertainty
Cohesivework
groups
Exchangeof information
Resourcesfor
innovation
Supportivestructure and
systems
Lowpeople
turnover
Source: CIM Professional PG Diploma SMD Slide No. 55
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Criteria of success innovation
It must offer customer value Breathtaking technology is not good enough. It
must offer unique value (e.g.:-WIFI) It must be perceived as unique It must be marketable(e.g.:-Concord) It must be sustainable
(e.g.:-Coca-Cola, Malbro, Starbucks)
2003/2004 TKF
Example Question
For an organisation of your choice discuss how the organisation has created conditions for effective innovation.
Explain how this innovation process sets them apart from competitors What are the obstacles they are likely to face
and why? What can they do to overcome this obstacles? How do you think e-technology can contribute
supporting and stimulating innovation?2003/2004 TKF
Innovation strategy Marketing department led innovation
e.g.:- STP, new Campaigns, differentiated branding, trading up customers, Rin & SurfUltra, Johnnie Walker ad.
Acquisition led innovation Many companies have often sought to find innovation through
acquisition.It is faster and the company can leapfrog in competition (e.g.:- Apple Ipod-Fujitsu hard disk, HP-Compaq, Nissan-Renault
Invention led innovation e.g.:- Evan moisturizing spray
Market led innovation most effective way to build sustainable innovations through a
comprehensive market innovation. This focuses on building value generating relationships with
customers, system partners & staff (e.g.:- Amazon, FedEx)2003/2004 TKF
Innovation Zones
Zone 03
Zone 02
Zone 01
Basic innovation
Relativeinnovation
Conceptinnovation
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Basic innovation – Zone 01
Minor product or service enhancement.
This will not add value to the product
It can be copied by the competitors easily
Examples:- Coca cola Lemon HSBC 0% interest in
credit cards Life policy premiums and
Bonus combined packages
2003/2004 TKF
Relative innovation – Zone 02
This is innovations that build on existing products and services
Taking existing products to new markets
Relate yourself to the competitors and to the markets
Examples Gillette Sensor for women HSBC e-saver accounts Ceylinco LIPS
Gillette Sensor for women
2003/2004 TKF
Concept innovation – Zone 03
Major areas of concept innovation are; Information technology
innovation (e.g.;- e-merchandizing, use PDAs to send order immediately to suppliers extranets)
Strategic innovation e.g.:- Tetra packs
Demand innovation e.g.:- Samsung mobile phones
Operational innovation e.g.:- McDonalds drive through
Mc-Drive Through
Tetra packs Samsung SGH E700
2003/2004 TKF
Strategic decisions on innovation in marketing
BlindKnow how to, but not whether we can sell it.Need alliances with
better partnersAnti aging products
SpeculativeDon’t know how to or What the market is?Sometimes can be
Successful, sometimes notDesign a baby (Bio-tech)
Straight forwardKnow the market
and how to approachBasic approachMobile windows
Potential disasterKnow what the market isBut not how to approach
3G
Un
cert
ain
ty a
bo
ut
mar
ket
(en
ds)
Low
Hig
h
Uncertainty about development approach
Low High2003/2004 TKF
Alternative approaches to strategic decisions
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Strategic Intent versus Traditional Missions and Visions
Traditional company visions and missions, developed in one-day strategy session, often lack discovery, opportunity and purpose, the critical elements of strategic intent
Strategic intent cannot be planned all in advance. It must evolve on the basis of experience during its implementation. Separating strategy creation from strategy implementation by using corporate planners or consultants for the former activity is thus a hindrance to the evolution of a successful strategy. Linking creation and implementation supports the overall process, and thus a strategy emerges and evolves.
Source: 1000 ventures Business E-coach, Strategic Intent
2003/2004 TKF
Coca-cola Strategic priorities (6)
1. Accelerated carbonated soft-drink growth led by Coca-cola
2. Selectively broaden our family of beverage brands to drive profitable growth
3. Grow system profitability and capability to together with our bottling partners
4. Serve customers with creativity and consistency to generate growth across all channels
5. Direct investments to highest-potential areas across markets
6. Drive efficiency and cost-effectiveness everywhere
Continue …….2003/2004 TKF
Strategic intent defined
Strategic intent is a high level statement of the means by which an organisation will achieve its vision
The purpose of the strategic intent; is a logic, the uniqueness and
discovery that makes the strategic intent come to life are vitally important for all the employees
They have to understand, believe and live according to it
Strategic intent
Challenges
Opportunities
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Strategic define (Continued)
In developing a “strategic intent” takes the form of a number of corporate challenges. It should imply or convey a significant stretch for your company, a sense of direction, discovery and opportunity
Strategy should be a stretch exercise not a fit exercise
therefore the expression of strategic intent is to help individuals and organisations share a common intention to survive, continue and extend
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Developing a Statement of Strategic Intent Strategic intent takes the form of a number of
corporate challenges, specified as short term projects and opportunities.
The strategic intent must convey a significant stretch for your company, a sense of direction, discovery and opportunity that can conveyed a worthwhile to all employees.
It should not focus so much on today's problems, which are normally dealt with by company visions and missions, but rather on tomorrow's opportunities.
Strategic intent should specify the competitive factors, the factors critical to success in the future.
Source: 1000 ventures Business E-coach, Strategic Intent
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Developing a Statement of Strategic Intent (Continued)
The strategic focus is the starting point for developing a statement of strategic intent.
A statement of strategy must become then a statement of design through which the principles, processes and practices of an organization are developed.
These statements must represent the whole as seen from any location in the organization
strategic intent should also be accompanied by intermediate goals against which company achievements can be measured.
Source: 1000 ventures Business E-coach, Strategic Intent
2003/2004 TKF
Developing a Statement of Strategic Intent (Continued)
Discovery and detection of opportunity serve as platforms for developing strategic intent.
A strategic intent creates a picture of the customer daily life and describes discontinuities and anticipated changes from the world of today.
It describes future customer's needs and the success factors required for meeting these needs.
An example of expression of strategic intent would be Coca Cola's dream of putting a Coke within arm's reach of every consumer in the world.
Source: 1000 ventures Business E-coach, Strategic Intent
2003/2004 TKF
Mission statement
The mission statement should be clear succinct represented of the enterprises purpose for existence.
It should incorporate socially meaningful and measurable criteria addressing concept such as the moral and ethical position of the enterprise, public image, target market, products/services, geographic domain and expectation of growth and profitability
The intent of the mission statement should be the first consideration for any employee, who is evaluating a strategic decision
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How specific should mission statement be (e.g.) Airco Inc. mission statement
Airco incorporated will be recognized as the most progressive enterprise in the transportation business. We will offer our customers cost effective transportation service within geographical areas and market segments that can be benefit from our service and be ensure on ROI and growth rate consistent with a current management guide lines.
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Example mission statements
3M mission statement “To solve unsolved problems innovatively”
Mary K cosmetics mission statement “To give unlimited opportunity to women”
Merc - Pharma Co. USA “To perceive and improve human life”
Walt Disney “To make people happy”
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Strategic decisions are concerned with; Long term directions of the organization as
suppose to day to day management issues Defining the scope of the organization activities
of what it will do and will not do Matching the activities of the organization to the
environment in which it operates. So that it promises and minimizes threats
Matching the organizations activities to it resource capacity in finance, technology or skill level
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Different ways of building strategies by organisations
Planning model Interpretive model Political model Logical incremental model Ecological model Visionary leadership model
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Planning model
Strategic decisions are reached by use of sequenced plan; search for optimum solutions to define problems
This process is highly rationale and fuel by concrete data
e.g.:- Play Station 2, Apple Ipod, Pixal,MP3
e.g.:- Employee Develop Systems, Strategic Alliances
Play Station 2
Apple Ipod
2003/2004 TKF
Interpretive model
The organisation as regarded as collection of associations, sharing similar values believes and perceptions.
These frames of reference enable the stakeholders to interpret the organisation and the environment.
Strategy thus become the product not of defined aims and objectives, but of the prevailing values, attitudes and ideas in the organisation
e.g.:- Family driven business (Walt Disney)
2003/2004 TKF
Political model
Where a strategy is not chosen directly, but immerges through compromise, conflicts and consensus seeking among interested stakeholders.
The person with the most amount of power have the greatest influence
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Logical incremental model
Strategies immerged from strategic subsystems, each concern with a different type of strategic issue
It is not structured as planning model
Goals can be wage, general and non-rigid
e.g.:- Sony vision statement moves from;
Digital company to Content enabler to Integrated intelligent networks
Time
Sales
Sony HIFI
Sony Pictures
Sony PS2
Today’s bread winners
Tomorrow’s bread winners
2003/2004 TKF
Ecological model
In this perspective the environment impinges on the organisation in such a way that strategies are virtually prescribed and there is little or no free choice
The organisation that adopts to this environment will survive
e.g.:- Post Sep 11th model (Way the airlines compete)looked at the business class and long haul passengers, for traveling executives economy class with office environment
2003/2004 TKF
Visionary leadership model
Where strategy immerges as a result of a leaders vision enforced by his commitment, credibility and how he articulate others
e.g.:- Starbucks, Microsoft, Body-shop, E-bay
Body Shop2003/2004 TKF
Characteristics of Competitive Advantage An efficient SCA will be created when a
strategy has at least 3 characteristics It should be supported by assets and
competencies It should be employed in a competitive arena
that contains segments that will value the strategy
It should be employed against competitors, who cannot easily match or neutralize SCA
2003/2004 TKF
an effective SCA should be;
Substantial enough to make difference e.g.:- Marginally superior, quality
Sustainable in the phase of environmental changes/challenges
and competitive actions a high-tech market can erode their advantage overtime.
Leverage When possible the SCA should be embedded in to
the visible business attributes that will influence customers. This is possible through advertising and positioning.
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Strategic Thrusts (Route to an SCA)
Strategic Thrust
Differentiation Focus
Synergy
PreemptionCost Leadership
Besides the strategic thrust shown out above there are several other strategic thrusts that could be considered. They are;
Being innovative, Thinking globally, Having an entrepreneurial style, Exploiting information technology2003/2004 TKF
Differentiation strategy
There is a element of uniqueness above to strategy that provides value to the customer
Firms differentiate their offerings by enhancing performance, quality, reliability, prestige or convenience
The differentiation strategy is an integrated set of action designed to produce or deliver goods or services that customers perceive as being different in ways that are important to them
. With the enormous competition markets today are driven by choice - your targeted customers have too many choices, all of which can be fulfilled instantly. Choosing among multiple options is always based on differences, implicit or explicit, so you ought to differentiate in order to give the customer a reason to chose your product or service.
2003/2004 TKF
Low cost strategy
Low-cost strategy can be based on cost advantage that can be used to invest in the product support low prices or provide high profit
Some of the ways that firms acquire cost advantages are by improving process efficiencies, gaining unique access to a large source of lower cost materials, making optimal outsourcing, and vertical integration decision, or avoiding some costs altogether
e.g.:- McDonalds, Dell Computers, ToysRus
Continue…
2003/2004 TKF
Preemptive strategy Preemptive strategies
employee first mover advantage to inhibit or prevent competitors from duplicating or countering
Synergistic strategy rely on synergy between a business and other businesses at the same firm
e.g.:- GE is Jack Welch e.g.:- IBM focus on the
internet was to create synergy by pushing core technologies across more product lines
Synergistic strategy
2003/2004 TKF
Strategies for specific situations
The position of the organisation or product within a given market will clearly influence the strategic options available
A market leader dominant within given market or a segment. This dominance is mainly due to the market share
You can be a; market leader market challenger market follower market nicher
2003/2004 TKF
The strategic square
2003/2004 TKF
The market leader
The market leader will be the constant target for aggressive competitors. Therefore must be vigilant and proactive. The common strategies for a market leader will be;
Expanding the market This can be achieved by
finding new users or new uses Muscles
& Joint pain
Headache
Panadol 650 million tablets per
year
60 million market
penetration
MarketsContinue…….
2003/2004 TKF
The market leader (Continued)
Offensive strategy Aggressive perceived of market share and the
fight taken to competitors Maintaining high Share of Voice and Share of
Mouth Defensive strategy
Its equally important to protect your customer base
2003/2004 TKF
Market challenger
Market challenges will see confrontation and aggressively perceived market share
These organisations have to be well resourced and present a long term sustainable challenge to the market leader
Two strategies available are; Selective targeting;- where challenger can target
specific competitors. Locking at attacking weaker competitor who are under finance and under resource.
Attack the leader:- where the challenger can challenge the dominant player. Usually a long term war and have to be sustained for market share to be won
2003/2004 TKF
Market follower
Market follower tend to shadow the market leaders as oppose to challenging them
Two broad strategies used by the market follower is; Duplication:- Where the offering is duplicated in
every possible way even in packaging and promotion
Adoption:- Here the market follower will adopt the basic product offering, if possible improve on the concept
2003/2004 TKF
Offensive Strategies
Frontal attack Flank attack Encirclement attack By pass attack Guerilla warfare
Defensive Strategies
Position defense Flank defense Preemptive defense Counter defense Mobile defense
2003/2004 TKF
Frontal attack
This is an all out attack on a competitor.
Requires a sustained effort and attackers must be certain that they are able to endure a long and hard struggle
e.g.:- Elephant House Vs. Cargils in Sri Lanka
Flanks are the weakest points of any company.
Flanking is achieved by attacking selective market segments, where the competitor is relatively weak
e.g.:- Elephant house don’t look at the health conscious segment
e.g.:- HSBC most expensive bank charges
Flank attack
2003/2004 TKF
Encirclement attack Here the company offer
a range of products that effectively encircles the competitor
e.g.:- a washing powder market leader can be encircled on three product attributes. They are; Low cost Cleaning power Environmental friendly
This is more of avoidance than attack
where the attacker moves in areas, where competitors are inactive
e.g.:- “Move & Pick” Supermarket
Bypass attack
2003/2004 TKF
Gorilla warfare
Tactical, short term marketing initiatives are used to gradually weaken the opposition.
e.g.:- price cuts, burst of promotional activities or other tactics
Gorilla attacks are not committed to marketing activities. They may also includes; Legal action Field force recruitment
2003/2004 TKF
Position defense Aims to strengthen
the current position and shut out the competition
Assets and competencies are used to develop a value added product, which is unmatchable
This is more of protect weak points
e.g.:- Elephant house can come with a low fat healthy ice cream
Flank defense
2003/2004 TKF
Preemptive defense This involves striking
at potential competitors before they attack
e.g.:- Deep price cuts and special promotions
E.g.:- Points, Interest Free on credit cards, Loyalty points
Counter defense
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Mobile defense
Involve the flexible and adoptive response allowing the defender to switch in to new areas of interests
It is achieved by diversifying in to the unrelated markets and broadening current markets e.g.:- Elephant House can go to drinking ice-
creams, soft drinks to energy drinks e.g.:- HSBC car loans, PIL, Insurance
2003/2004 TKF
Investment Appraisal
A means of assessing whether an investment project is worthwhile or not
Investment project could be the purchase of a new PC for a small firm, a new piece of equipment in a manufacturing plant, a whole new factory, etc
Used in both public and private sector
2003/2004 TKF
Investment Appraisal
Types of investment appraisal: Payback Period Accounting Rate of
Return (ARR) Internal Rate of Return
(IRR) Profitability Index Net Present Value
(discounted cash flow)What factors need to be considered before investing in equipment such as this?
Source: Gergely Erno, http://www.sxc.hu
2003/2004 TKF
Investment Appraisal
Why do companies invest? Importance of remembering investment as the
purchase of productive capacity NOT buying stocks and shares or investing in a bank!
Buy equipment/machinery or build new plant to: Increase capacity (amount that can be produced)
which means: Demand can be met and this generates sales
revenue Increased efficiency and productivity
2003/2004 TKF
Investment Appraisal
Investment therefore assumes that the investment will yield future income streams
Investment appraisal is all about assessing these income streams against the cost of the investment
Not a precise science!
A fork lift may be an important item but what does it contribute to overall sales? How long and how much work would it have to do to repay its initial cost?
2003/2004 TKF
Investment appraisals - action check list
Identify the key plans objectives for the organisation(market share, brand extension & NPD)
Asses payments, receipts and duration of the investment project
Produce a each flow forecast and profit & loss account for the project
Establish the methods that your organisation uses to appraise investments Payback point Net Present Value Internal Rate of Return
2003/2004 TKF
Payback Method
The length of time taken to repay the initial capital cost
Requires information on the revenue the investment generates
E.g. A machine costs £600,000 It produces items that sell at £5 each and produces
60,000 units per year Payback period will be 2 years
2003/2004 TKF
Payback method
Payback could occur during a year Can take account of this by reducing the cash
inflows from the investment to days, weeks or years.
Days/Weeks/Months x Initial Investment
Payback = ------------------------------------------
Total Cash Received
2003/2004 TKF
Payback Method
e.g. Cost of machine =
£600,000 Annual income
streams from investment = £255,000 per year
Payback = 36 x 600,000/765,000 = 28.23 months (2 yrs, 6¾ months)
255,000Year 3
255,000Year 2
255,000Year 1
Income
2003/2004 TKF
Accounting Rate of Return
A comparison of the profit generated by the investment with the cost of the investment
Average annual return or annual profit
ARR = --------------------------------------------
Initial cost of investment
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Accounting Rate of Return
e.g. A investment is expected to yield cash flows of
£10,000 annually for the next 5 years. The initial cost of the investment is £20,000 Total profit therefore is: £30,000 Annual profit = £30,000 / 12
= £2,500ARR = 2,500/20,000 x 100
= 12.5%A worthwhile return?
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Investment Appraisal
To make a more informed decision, more sophisticated techniques need to be used.
Importance of time-value of money
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Net Present Value
Takes into account the fact that money values change with time
How much would you need to invest today to earn x amount in x years time?
Value of money is affected by interest rates NPV helps to take these factors into
consideration Shows you what your investment would have
earned in an alternative investment regime
2003/2004 TKF
Net Present Value
e.g. Project A costs £1,000,000 After 5 years the cash returns = £100,000 (10%) If you had invested the £1 million into a bank
offering interest at 12% the returns would be greater
You might be better off re-considering your investment!
2003/2004 TKF
Net Present Value
The principle: How much would you have to invest now to earn
£100 in 1 years time if the interest rate was 5%? The amount invested would need to be: £95.24 Allows comparison of an investment by valuing
cash payments on the project and cash receipts expected to be earned over the lifetime of the investment at the same point in time, i.e the present.
2003/2004 TKF
Net Present Value
Future ValuePV = -----------------
(1 + i)n
Where i = interest rate n = number of years The PV of £1 @ 10% in 1 years time is 0.9090. If you invested 0.9090p today and the interest rate
was 10% you would have £1 in a years time Process referred to as:
‘Discounting Cash Flow’
2003/2004 TKF
Net Present Value
Cash flow x discount factor = present value e.g. PV of £500 in 10 years time at a rate of
interest of 4.25% = 500 x .6595373 = £329.77 £329.77 is what you would have to invest today
at a rate of interest of 4.25% to earn £500 in 10 years time
PVs can be found through valuation tables (e.g. Parry’s Valuation Tables)
2003/2004 TKF
Discounted Cash Flow
An example: A firm is deciding on investing in an energy
efficiency system. Two possible systems are under investigation
1 yields quicker results in terms of energy savings than the other but the second may be more efficient later
Which should the firm invest in?
2003/2004 TKF
Discounted Cash Flow – System A
NPV =139,416285,000Total
113,544.750.7569650+150,0006
166,513.390.7929209+210,0005
166,116.920.8305846+200,0004
130,505.610.8700374+150,0003
91,136.410.9113641+100,0002
71,599.040.9546539+75,0001
-600,0001.00- 600,0000
Present Value (£) (CF x DF)
Discount Factor (4.75%)
Cash Flow (£)Year
2003/2004 TKF
Discounted Cash Flow – System B
NPV =108,802.70285,000Total
340,634.300.7569650+450,0006
118,938.100.7929209+150,0005
83,058.460.8305846+100,0004
73,953.180.8700374+85,0003
68,352.310.9113641+75,0002
23,866.350.9546539+25,0001
-600,0001.00- 600,0000
Present Value (£)
(CF x DF)
Discount Factor (4.75%)
Cash Flow (£)Year
2003/2004 TKF
Discounted Cash Flow
System A represents the better investment System B yields the same return after 6 years
but the returns of System A occur faster and are worth more to the firm than returns occurring in future years even though those returns are greater
2003/2004 TKF
Internal Rate of Return Allows the risk associated with an investment
project to be assessed. The IRR is the rate of interest (or discount rate)
that makes the net present value = to zero Helps measure the worth of an investment Allows the firm to assess whether an investment in the
machine etc would yield a better return based on internal standards of return
Allows comparison of projects with different initial outlays Set the cash flows to different discount rates Software or simple graphing allows the IRR to be found
2003/2004 TKF
Profitability Index
Allows a comparison of the costs and benefits of different projects to be assessed and thus allow decision making to be carried out
Net Present Value
Profitability Index = --------------------
Initial Capital Cost
2003/2004 TKF
Investment Appraisal
Key considerations for firms in considering use: Ease of use/degree of simplicity required Degree of accuracy required Extent to which future cash flows can be
measured accurately Extent to which future interest rate movements
can be factored in and predicted Necessity of factoring in effects of inflation
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Corporate Social Responsibility
Representing CSR in action
Triple Bottom Line Sustainability and
marketing Organisational
interactions Sustainability through
the market Ethical consumerism A CSR value chain
CSR Brands2003/2004 TKF
CSR in action (e.g. Unilever)
Representing CSR in action around our business. The picture shows our on-site fire fighting team – which is staffed entirely by employee volunteers – practising their skills at their monthly training session.
2003/2004 TKF
Triple Bottom Line
People
Planet
Profit
People
Planet Profit
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Sustainability and marketing
Recent surveys suggest that awareness of green issues is currently running at very high levels in most of the developed world.
Instead of lowering living standards in one part of the world and improving them in other parts, the business idea is to create sustainable development by creating goods and services that improve the quality of life in all parts of the world.
Companies have the opportunity to improve people’s lives through what they do, how they do it, and who and what they affect.
Sustainability is about understanding the interactions of the various stakeholders in an organisation. 2003/2004 TKF
Organisational interactions
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Sustainability through the market - Seven keys to success Innovate Practice eco-efficiency Move from stake holder dialogues to
partnerships for progress Provide an inform consumer choice Improve market framework conditions Establish the worth of earth Make the markets work for every one
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Ethical consumerism
The “invisibles” contributed £5.6 billion to the £19.9 billion ethical marketplace in 2002.
The total value of ethical banking increased to £3.9 billion (a rise of 16%), while the value of ethical investments fell back to £3.5 billion, (a contraction of 8% against a market decline of 17%).
Boycotts by ethically motivated consumers cost big brands £2.6 billion a year.
Ethical consumerism has crossed into the mainstream with some ethical products now close to being the product of consumer choice in their respective sectors.
2003/2004 TKF
UNILEVER SUSTAINABLE VALUE CHAIN
INBOUND LOGISTICS
Recyclable raw materials sourcing e.g. recyclable soap packaging for Lux
Sustainable procurement and logistics practices e.g. Reduction of supplier delivers.
Sustainable Vendor Partnership.
e.g. Fish, Agriculture
FIRM INFRASTRUCTURE
% of Greenery in the factory, Preservation of surrounding eco-system, Location effect on the environment
OPERATIONS
Using renewable energy sources e.g. Renewable energy for production
Increasing production eco-efficiency e.g. water conservation.
Environmental Control mechanisms (ISO 14000)
OUTBOUND LOGISTICS
Optimize delivery time and loads e.g. less deliveries to retailers.
Sustainable transport strategy e.g. use of eco-efficient deliver vans.
E-Technologies to drive eco-efficient order processing.
MARKETING & SALES
Reduce printed material/collateral
Ethical Communication e.g. proper labeling on food products
Develop CSR based MKIS
Cause Related Marketing & Branding e.g. Unilever campaign in India
AFTER SALES
Incentives for recycling of used products/parts. e.g. collection and reuse of waste detergent packaging.
Website or Call Center to reduce field visits.
SU
STA
INA
BLE
MA
RG
IN
HUMAN RESOURCE MANAGEMENT
Good Quality of Work Life e.g. Setting CSR Standards (TQM), Diversity and Equality in the work place
Motivation scheme to encourage employee participation in CSR. Internal CSR Marketing
TECHNOLOGY DEVELOPMENT
Using internet and e-commerce, and as waste minimizer. Research and Development into CSR products and best practices. E.g. Research into new sources of renewable energy.
PROCUREMENT
Sustainability Audits for supplier selection – e.g. Unilever’s sustainable sourcing of agriculture products.
2003/2004 TKF
Challenge conventional marketing thinking Global position Master brand The integrated enterprise and end user focus Best in class processes Mass customization Break - Through technology
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Branding
Brands are difficult to build Brands add value for customers
e.g.:- Coca cola Vs. Pepsi
Brands create defensible position e.g.:- Panadol and Paracetamol
Brands build customer retention e.g.:-Johnson & Johnson
Brands can transform markets e.g.:- Dialogue GSM
Brands perform financially2003/2004 TKF
Brands perform financially
Brand Value in Year 2004(in USD / $) 01. COCA-COLA 67,394 02. MICROSOFT 61,372 03. IBM 53,791 04. GE 44,111 05. INTEL 33,499 06. DISNEY 27,113 07. McDonald's 25,001 08. NOKIA 24,041 09. TOYOTA 22,673 10. MARLBORO 22,128 11. MERCEDES 21,331 12. HEWLETT–PACKARD 20,978
2003/2004 TKF
Factors consider in brand evaluation
Current market position Brands that are market leaders typically more highly
than brands that may have good market shares, but operating markets where another brand is dominant
Market type Brands are more valuable in more established markets
with further potential for growth Durability
Brand names which have lasted for many years are likely to have develop stronger customer loyalty and become part of the fabric of the market
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Factors consider in brand evaluation(continued)
Global presence Those brands that can be exploited internationally are
generally more valuable than those restricted to domestic market
Extendibility Brands that can be extended and exploited in the same
or new markets have greater value than brands that are more limited in scope
Protection e.g.:- Coca cola’s patent protection of the shape of the
bottle
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Market relationship alliances
Key drivers of customer equity Value equity Brand equity Retention equity Recommendation
CustomerEquity
Recommendations
Brand Equity
Value Equity
Retention Equity
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Building relationship with customers
Building enhanced benefits of loyalty e.g.:- Loyalty cards, (HSBC, AmEx)
Creating structural ties and bonds e.g.:- Through strategic bundling, strategic
alliances and loyalty contracts Creating delighted customers
Satisfaction is not the something as retention and loyalty. Some customers who defect are yet satisfied with their previous supplier
2003/2004 TKF
Three phases in CRM
AcquireDifferentiation
InnovationConvenience
Retain
adoptability
Bun
dlin
g
Red
uce
cost
Enh
ance
cust
omer
serv
ice
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Technology drivers that creates CRM
Salesman on the road can be updated on customer requirement Information can be used to enhance CRM and logistics
Mobile devices enables customers to access supplier inventories
Consumers as well as talking to each other will be able to communicate with machines
Using blue tooth retailers can give customers special offers
GPS (Global positioning System) enables customers to locate nearest outlet or ask for service
2003/2004 TKF
The End