The Marketing Implications of Corporate and Business

Chapter 2
The Marketing
Implications of
Corporate and
Business
Strategies
McGraw-Hill/Irwin
Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
Marketing’s Role in Formulating and
Implementing Strategies
• Marketing managers are not only
responsible for developing strategic plans
for their own product-market entries, but
also are often primary participants and
contributors to the planning process at the
business and corporate level as well.
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Marketing’s Role in Formulating and
Implementing Strategies
• Market oriented management
– The marketing concept holds that the
planning and coordination of all company
activities around the primary goal of satisfying
customer needs is the most effective means
to attain and sustain a competitive advantage
and achieve company objectives over time.
– Characterized by a consistent focus on
customers’ needs and competitive
circumstances in the market environment.
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Marketing’s Role in Formulating and
Implementing Strategies
• Does being market-oriented pay?
– Organizations should be able to enhance,
accelerate, and reduce the volatility and
vulnerability of their cash flows.
– And that should enhance their economic
performance and shareholder value.
– Profitability is the third leg, together with a
customer focus and cross-functional
coordination, of the three-legged stool known
as the marketing concept.
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Marketing’s Role in Formulating and
Implementing Strategies
• Does being market-oriented pay?
– Interpreting the marketing concept as a
philosophy of trying to satisfy all customers’
needs regardless of the cost would be a
prescription for financial disaster.
– Studies indicate that a market orientation has
a significant positive effect on return on
assets, sales growth, and new product
success.
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Marketing’s Role in Formulating and
Implementing Strategies
• Factors that mediate marketing’s strategic
role
– Competitive conditions may enable a
company to be successful in the short run
without being particularly sensitive to
customer desires.
– Product-orientation or production-orientation
– Sales-orientation
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Marketing’s Role in Formulating and
Implementing Strategies
• Factors that mediate marketing’s strategic
role
– Different levels of economic development
across industries or countries may favor
different business philosophies
– Firms can suffer from strategic inertia—the
automatic continuation of strategies
successful in the past, even though current
market conditions are changing.
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Three Levels of Strategy: Similar
Components, but Different Issues
• A strategy is a fundamental pattern of
present and planned objectives, resource
deployments, and interactions of an
organization with markets, competitors,
and other environmental factors.
• The hierarchy of strategies
– Corporate strategy
– Business-level strategy
– Functional strategies
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Three Levels of Strategy: Similar
Components, but Different Issues
• The components of strategy:
– Scope
– Goals and objectives
– Resource deployments
– Identification of a sustainable competitive
advantage
– Synergy
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Three Levels of Strategy: Similar
Components, but Different Issues
• Corporate strategy
– Decisions about the firm’s scope and resource
deployments across its businesses are the
primary focus of corporate strategy.
– Essential questions at this level:
• What business(es) are we in?
• What business(es) should we be in?
• What portion of our total resources should we
devote to each of these businesses?
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Three Levels of Strategy: Similar
Components, but Different Issues
• Business-level strategy
– A major issue in a business strategy is that of
sustainable competitive advantage.
– It must address appropriate scope.
– Synergy should be sought across productmarkets and across functional departments
within the business.
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Three Levels of Strategy: Similar
Components, but Different Issues
• Marketing strategy
– The primary focus is to effectively allocate and
coordinate marketing resources and activities
to accomplish the firm’s objectives within a
specific product-market.
– A critical issue is specifying the target
market(s) for a particular product or product
line.
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The Marketing Implications of
Corporate Strategy Decisions
• A corporate mission statement should
clearly define the organization’s strategic
scope.
• It should answer the following fundamental
questions:
– What is our business?
– Who are our customers?
– What kinds of value can we provide to these
customers?
– What should our business be in the future?
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The Marketing Implications of
Corporate Strategy Decisions
• Market influences on the corporate mission.
– An organization’s mission should fit both its
internal characteristics and the opportunities
and threats in its external environment.
– It should also focus the firm’s efforts on
markets where those resources and
competencies will generate value for
customers, an advantage over competitors,
and synergy across its products.
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The Marketing Implications of
Corporate Strategy Decisions
• Criteria for defining the corporate mission.
– The most useful mission statements focus on
the customer need to be satisfied and the
functions that must be performed to satisfy
that need.
– They are specific as to the customer groups
and the products or technologies on which to
concentrate.
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The Marketing Implications of
Corporate Strategy Decisions
• Social values and ethical principles
– Some firms pursue social programs
intertwined with their economic objectives.
– Others follow the principles of sustainability.
– Ethics is concerned with the development of
moral standards by which actions and
situations can be judged.
– It focuses on those actions that may result in
actual or potential harm of someone else.
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The Marketing Implications of
Corporate Strategy Decisions
• Corporate objectives must be specific and
measurable.
• Each objective contains four components:
– A performance dimension or attribute sought.
– A measure or index for evaluating progress.
– A target or hurdle level to be achieved.
– A time frame within which the target is to be
accomplished.
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The Marketing Implications of
Corporate Strategy Decisions
• The marketing implications of corporate
objectives
– Trying to achieve many objectives at once
leads to conflicts and trade-offs.
– Managers can reconcile conflicting goals by
prioritizing them.
– Another approach is to state one of the
conflicting goals as a constraint or hurdle.
– A firm attempts to maximize growth subject to
meeting some minimum ROI hurdle.
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The Marketing Implications of
Corporate Strategy Decisions
• Corporate sources of competitive
advantage
– A sustainable competitive advantage at the
corporate level is based on company
resources: resources that other firms do not
have, that take a long time to develop, and
that are hard to acquire.
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The Marketing Implications of
Corporate Strategy Decisions
• Corporate growth strategies
• A firm can go in two major directions in
seeking future growth:
– Expansion of its current businesses and
activities.
– Diversification into new businesses, either
through internal business development or
acquisition.
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The Marketing Implications of
Corporate Strategy Decisions
• Expansion by increasing penetration of
current product-markets
• Expansion by developing new products for
current customers
• Expansion by selling existing products to
new segments or countries
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Alternative Corporate Growth Strategies
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The Marketing Implications of
Corporate Strategy Decisions
• Expansion by diversifying
– Vertical integration
• Forward vertical integration
• Backward integration
– Related (or concentric) diversification
– Unrelated (or conglomerate) diversification
• Expansion by diversifying through
organizational relationships or networks
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The Marketing Implications of
Corporate Strategy Decisions
• Portfolio models
– The Boston Consulting Group’s (BCG)
growth-share matrix analyzes the impact of
investing resources in different businesses on
the corporation’s future earnings and cash
flows.
– Each business is positioned within a matrix.
– The vertical axis indicates the industry’s
growth rate and the horizontal axis shows the
business’s relative market share.
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BCG’s Market Growth Relative Share Matrix
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Cash Flows across Businesses in the BCG Portfolio Model
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The Marketing Implications of
Corporate Strategy Decisions
• Limitations of the growth-share matrix
– Market growth rate is an inadequate descriptor of
overall industry attractiveness.
– Relative market share is inadequate as a description
of overall competitive strength.
– The outcomes are highly sensitive to variations in
how growth and share are measured.
– It provides little guidance on how best to implement
investment strategies for each business.
– It assumes that all business units are independent of
one another except for the flow of cash.
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The Marketing Implications of
Corporate Strategy Decisions
• Alternative portfolio models
– Multifactor models are more detailed and
provide more strategic guidance concerning
appropriate resource allocation across
businesses.
– More useful for evaluating potential new
product markets.
– The multifactor measures in these models can
be subjective and ambiguous.
– Conclusions drawn still depend on the way
industries and product-markets are defined.
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The Industry Attractiveness–Business Position Matrix
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The Marketing Implications of
Corporate Strategy Decisions
• Value-based planning
– A resource allocation tool that attempts to
address such questions by assessing the
shareholder value a given strategy is likely to
create.
– The amount of return a strategy or operating
program generates in excess of the cost of
capital is commonly referred to as its
economic value added, or EVA.
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The Marketing Implications of
Corporate Strategy Decisions
• Discounted cash flow model.
– Shareholder value created by a strategy is
determined by the cash flow it generates, the
business’s cost of capital, and the market
value of the debt assigned to the business.
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The Marketing Implications of
Corporate Strategy Decisions
• Some limitations of value-based planning.
– It is not a substitute for strategic planning.
– Good forecasts that are difficult to make, are
critical to the validity of value-based planning.
– Human tendencies to overvalue the financial
projections associated with some strategy
alternatives and to undervalue others.
– Value-based planning can evaluate
alternatives, but it cannot create them.
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The Marketing Implications of
Corporate Strategy Decisions
• Using customer equity to estimate the
value of alternative marketing actions.
– A variation of value-based planning.
– This approach calculates the economic return
for a prospective marketing initiative based on
its likely impact on the firm’s customer equity,
which is the sum of the lifetime values of its
current and future customers.
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The Marketing Implications of
Corporate Strategy Decisions
• Sources of synergy
– Knowledge-based synergies
• Performance enhancement through transfer of
competencies, knowledge, or customer-related
intangibles from other units within the firm.
– Corporate identity and the corporate brand
• Corporate identity flows from the communications,
impressions, and personality projected by an
organization.
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The Marketing Implications of
Business-unit Strategy Decisions
• Strategic business units, or SBUs are the
components of a firm engaged in multiple
industries or businesses.
– Deciding how to divide into SBUs.
– SBU managers must recommend:
•
•
•
•
The unit’s objectives.
The scope of its target customers and offerings.
Which broad competitive strategy to pursue.
How resources should be allocated.
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The Marketing Implications of
Business-unit Strategy Decisions
• Ideally, strategic business units have the
following characteristics:
– A homogeneous set of markets to serve with
a limited number of related technologies.
– A unique set of product-markets.
– Control over those factors necessary for
successful performance.
– Responsibility for their own profitability.
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The Marketing Implications of
Business-unit Strategy Decisions
– The dimensions that define the scope and
mission of the entire corporation also define
individual SBUs.
– Gaining a competitive advantage: To be
successful over the long haul, a competitive
strategy should have three characteristics.
• It should generate customer value.
• The superior value must be perceived by the
customer.
• The advantage should be difficult for competitors
to copy.
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The Marketing Implications of
Business-unit Strategy Decisions
• Strategies for entrepreneurial start-ups
– Most successful start-ups have a narrow strategic
scope, at least in the beginning.
– Successful start-ups tend to concentrate on niche
segments that are not being adequately served
and/or on finding ways to provide unique benefits and
superior value.
– The symbiosis between market analysis and
customer knowledge, competitive strategy, marketing
programs, and successful performance is often
stronger in small firms and new start-ups.
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Take-Aways
• Marketing perspectives lie at the heart of
strategic decision making.
• Market-oriented firms tend to outperform
other firms.
• Unethical behavior by a firm’s employees
can damage the trust between a firm and
its suppliers and customers.
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Take-Aways
• The four major paths to corporate growth
imply differences in a firm’s strategic
scope, require different competencies and
marketing actions, and involve different
types and amounts of risk.
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Take-Aways
• A strong corporate brand makes sense.
• The ultimate goal in formulating businessunit strategies is to establish a basis for a
sustainable competitive advantage that
provides superior value to customers.
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Take-Aways
• Successful new firm formation typically
requires a competitive strategy that
delivers superior value to a narrowly
defined target segment in a way that either
avoids direct confrontation with
established competitors or is difficult for
them to emulate.
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