Imperatives for Market Driven Strategy

Chapter-1 Imperatives for market driven Strategy Market driven Strategy: The underlying logic of market-driven strategy is that the market & the customers that form the market should be the starting point in business strategy. Market driven strategy provides a company wide perspective, which mandates more effective integration of activities & processes that impact customer value. The characteristics of market driven strategy is projected here:    

Becoming Market-Oriented Determining Distinctive Capabilities Matching Customer value Requirements to Capabilities Achieving Superior Performance

Becoming Market-Oriented: A business is market-oriented when its culture is systematically & entirely committed to the continuous creation of superior customer value. A market-oriented organization performs the following functions:    

Continuously gathers information about customers, competitors, & markets; Views information from a total business perspective; Decides how to deliver superior customer value; & Takes actions to provide value to customers

Market orientation requires –  Customer focus,  Competitor intelligence, &  Cross-functional coordination Determining Distinctive Capabilities: Identifying distinctive capabilities of an organization is a vital part of market-driven strategy. “Capabilities are complex bundles of skills & accumulated knowledge, exercised through organizational processes, that enables firms to coordinate activities & make use of their assets.”

Classifying capabilities:

EXTERNAL EMPHASIS

INTERNAL EMPHASIS

Outside-in process

Inside-Out process Spanning Process

Market sensing Customer linking Channel bonding Technology monitoring

Customer order fulfillment Pricing purchasing Customer service delivery New product/service development Strategy development

Financial Management Cost control Technology development Integrated logistics Manufacturing HRM Environmental health & safety The outside-in process connects the organization to the external environment, providing market feedback & forging external relationships. The inside-out processes are activities necessary to satisfy customer value requirements. The outside-in processes play a key role in offering direction for the spanning & inside-out capabilities. Market sensing, customer linking, channel bonding, & technology monitoring provide vital information for new product opportunities, service requirements, & competitive threats. Creating & Providing Value for customers: Customer value can be defined as the difference between what the customer gets from owning & using a product & the costs of obtaining the product. The organization’s distinctive capabilities are used to deliver value by differentiating the product offer, offering lower prices relative to competing brands, or a combination of lower cost & differentiation. Achieving Superior Performance: The supporting logic for becoming market oriented, leveraging distinctive capabilities, & finding good match between customer’s value requirements is that they are expected to lead to superior customer value & organizational performance. Market-driven organizations display higher performance than their counterparts that are not market-driven.

Corporate Strategy: Corporate strategy consists of deciding the scope & purpose of the business, its objectives, & the initiatives & resources necessary to achieve the objectives. Corporate strategies are concerned with how the company can achieve its growth objectives in current or new business areas. Components of corporate strategy: 1. Corporate vision: Vision is an almost “impossible dream” that provides a direction for the company. Management’s vision defines what the corporation is & what it does & provides important guidelines for managing & improving the corporation. 2. Objectives: Objectives need to be set so that the performance of the enterprise can be gauged. Corporate objectives may be established in the following areas: marketing, innovation, resources, productivity, social responsibility, & finance. 3. Business composition: Defining the composition of business provides direction for both corporate & marketing strategy design. A business segment, group, or division is often too large in terms of product & market composition to use in strategic analysis & planning, so it is divided into more specific strategic units. A popular name for these units is the Strategic Business Unit (SBU). Strategic Business Unit is a unit of the company that has a separate mission & objectives & that can be planned independently from other company businesses. It can be a company division, a product line within the division, or sometimes a single product or brand 4. Resources: It is important to place a company’s strategic focus on its resources- assets, skills, & capabilities. These resources may offer the organization the potential to compete in different markets, provide significant value to end-user customers, & create barriers to competitor duplication. 5. Structure, Systems, & processes: Structure determines the composition of the corporation. Systems are the formal policies & procedures that enable the organization to operate. Processes consider the informal aspects of the organization’s activities. All corporate headquarters undertake four planning activities: 1. Defining the corporate mission 2. Establishing strategic business units (SBUs) 3. Assigning resources to each SBU 4. Planning new business, downsizing or terminating older business. 1. Defining the corporate mission: Mission is a statement of the organization’s purposes what it wants to accomplish in the larger environment. To define the mission, the company should address the following questions:  What is our business?  Who is the customer?  What is of value to the customer?

 What will our business be?  What should our business be? Mission statements are at their best when they are guided by a vision, an almost “impossible dream” that provides a direction for the company for the next 10 to 20 years. Good mission statement has three characteristics:  First, they focus on a limited number of goals.  Second, mission statements stress the major policies & values the company wants to honor.  Third, they define the major competitive scopes within which the company will operate. For example, industry scope, products & application scope, competence scope, market segment scope, Vertical scope, geographical scope. 2. Establishing Strategic Business Units: Strategic Business Unit is a unit of the company that has a separate mission & objectives & that can be planned independently from other company businesses. It can be a company division, a product line within the division, or sometimes a single product or brand. An SBU has three characteristics: 1. It is a single business or collection of related businesses that can be planned separately from the rest of the company 2. It has its own set of competitors 3. It has a manager who is responsible for strategic planning & profit performance & who controls most of the factors affecting profit. 3. Assigning resources to each SBU: The purpose of identifying the company’s strategic business units is to develop separate strategies & assign appropriate funding. Two of the best-known business portfolio evaluation models are:  Boston Consulting Group (BCG) Approach  General Electric (GE) Approach Boston Consulting Group (BCG) Approach: Boston Consulting Group analysis is a chart that had been created by Bruce Henderson for the Boston Consulting Group in 1968 to help corporations with analyzing their business units or product lines. This helps the company allocate resources and is used as an analytical tool in brand marketing, product management, strategic management, and portfolio analysis.

Figure: BCG Growth-Share Matrix The growth-share matrix has two controlling aspect namely relative market share and market growth rate. It is divided into four cells, each indicating different types of business. Question Marks: These are products with a low share of a high growth market. They consume resources and generate little in return. They absorb most money as the company attempt to increase market share. Stars: These are products that are in high growth markets with a relatively high share of that market. Stars tend to generate high amounts of income. The company must spend substantial funds to keep up with the high market growth, & to fight off competitors attack. Cash Cows: These are products with a high share of a low growth market. Cash Cows generate more than is invested in them. So the company should keep them in its portfolio of products for the time being. Dogs: These are products with a low share of a low growth market. These are the canine version of 'real turkeys!’ They do not generate cash for the company, they tend to absorb it. The company should get rid of these products. General Electric (GE) Approach: The General Electric Business Screen was originally developed to help marketing managers overcome the problems that are commonly associated with the Boston Matrix (BCG), such as the problems with the lack of credible business information, the fact that BCG deals primarily with commodities not brands or Strategic Business Units (SBU's), and that cash flow if often a more reliable indicator of position as opposed to market growth/share.

The GE approach introduces a three by three matrix, which now includes a medium category. It utilizes industry attractiveness as a more inclusive measure than BCG's market growth and substitute’s competitive position for the original's market share.

Market attractiveness depends on:      

Size of market. Market rate of growth. The nature of competition and its diversity. Profit margin. Impact of technology, the law, and energy efficiency. Environmental impact.

Competitive position depends on:        

Market share. Management profile. R & D. Quality of products and services. Branding and promotions success. Place (or distribution). Efficiency. Cost reduction.

The GE matrix is divided into nine cells, which in turn fall into three zones. The three cells in the upper left corner indicate strong SBUs in which the company should invest or

grow. The diagonal cells stretching from the lower left to upper right indicate SBUs that are medium in overall attractiveness. The company should pursue selectivity & manage for earnings in these SBUs. The three cells in the lower right corner indicate SBUs that are low in overall attractiveness. The company should give serious thought to harvesting or divesting these SBUs. 4. Planning new business, Downsizing or terminating older business: The company plans for its existing businesses allow it to project total sales & profits. If there is a gap between future desired sales and projected sales corporate management will have to develop or acquire new business to fill it. Strategic planning gap:

Three options are available to fill up the strategic planning gap: I. The first is to identify opportunities to achieve further growth within current businesses (Intensive growth opportunities) II. The second is to identify opportunities to build or acquire businesses that are related to current businesses (Integrative growth opportunities) III. The third is to identify opportunities to add attractive businesses tat are unrelated to current businesses (Diversification growth opportunities)

Intensive Growth Strategies:

Integrative Growth strategies: there are three types of integrative growth strategies: 1. Backward integration (integration with the suppliers) 2. Forward integration (integration with the distributors) 3. Horizontal integration (integration with one or more of the competitors) Diversification Growth Strategies: Diversification growth makes sense when good opportunities can be found outside the present businesses. Three types of diversification are possible: 1. Concentric diversification strategy ( new products, new market, technology or marketing may be related) 2. Horizontal diversification strategy (new products, new/current market, technology unrelated) 3. Conglomerate diversification strategy (new products, new market, new technology) Downsizing or terminating older business: Companies must not only develop new businesses, but must also carefully prune, harvest, or divest tired old businesses in order to release needed resources & reduce costs.

Business Unit Strategy: The business unit strategic planning consists of eight steps:

Business mission

SWOT Analysis

Goal formulation

Strategy formulation

Program formulation

Implementation 1.

2.

Feedback & Control

Many strategy guidelines are offered by consultants, executives, & academics to guide business strategy formulation. These strategy paradigms propose a range of actions including re-engineering, TQM, overall cost leadership, building distinctive capabilities, supply chain strategy, differentiation, focus, strategic partnering, etc.

The Marketing Strategy Process:

There are four stages of marketing strategy

process. They are: 1. Markets, Segments, & Customer Value 2. Designing market driven strategy 3. Market-driven program development 4. Implementing & managing market-driven strategies

Markets, Segments, and Customer value: Markets, segments, & customer value consider Market & competitor analysis: Markets need to be defined so that buyers and competition can be analyzed. Identifying the product-market, evaluation of competitor’s strategies, strengths, limitations, and plans is a key aspect of this analysis.  Strategic market segmentation: Market segmentation offers an opportunity for an organization to focus its business capabilities on the requirements of one or more groups of buyers. The objective of market segmentation is to examine the differences in needs and wants to identify the segments (subgroups) in the product-market of interest.  Strategic customer relationship management: A strategic perspective on Customer Relationship Management (CRM) emphasizes delivering superior customer value by personalizing the interaction between the customers and the

company and achieving the coordination of complex organizational capabilities around the customer.  Capabilities for continuous learning about markets: Understanding markets and competition has become a necessity in modern business. Sensing what is happening and is likely to occur in the future is complicated by competitive threats that may exist beyond the traditional industry boundaries. Manager and professionals in market-driven firms are able to sense what is happening in their markets, develop business and marketing strategies to seize the opportunities and counter the threats, and anticipate what the market will be like in the future. Designing Market-driven Strategy: Designing market-driven strategies examines Market targeting & strategic positioning: The purpose of market targeting strategy is to select the people (or organizations) that the management wishes to serve in the product-market. The objective is to find the best match between the value requirements of each segment and the organization’s distinctive capabilities. Positioning strategy is the combination of the product, value chain, price, and promotional strategies a firm uses to position itself against its key competitors in meeting the needs and wants of the market target.  Strategic relationships: Marketing relationship partner may include end-user customers, marketing channel members, suppliers, competitor alliances, and internal teams. The driving force underlying these relationships is that a company may enhance its ability to satisfy customers and cope with a rapidly changing business environment through collaboration of the parties involved.  Innovation & new product strategy: New products are needed to replace the old products when sales and profit growth decline. New product decisions include finding and evaluation ideas, selecting the most promising for development, designing the products, developing marketing programs, market testing the products, and introducing them to the market. Market-Driven Program Development: Market-driven program development consists of Strategic brand management: Strategic brand management consists of building brand value and managing the organization’s system of brands for overall performance.  Value-chain ( Distribution channel) strategy: decision that need to be made include the type of channel organization to use, the extent of channel management, and the intensity of distribution appropriate for the product or service.  Pricing strategy: Price strategy involves choosing the role of price in the positioning strategy, including the desired positioning of the product or brand as

well as the margins necessary to satisfy and motivate distribution channel participants.  Promotion strategy: advertising, sales promotion, the sales force, direct marketing, and public relation help the organization to communicate with the customers, value-chain partners, the public and other target audiences. Promotion informs, reminds, and persuades buyers and others who influence the purchasing process. Implementing & Managing Market-Driven Strategy: Implementing & managing market-driven strategies considers the following things:  Designing market-driven organization: An effective organization design matches people and work responsibilities in a way that is best for accomplishing the firm’s marketing strategy. Organizational structures and processes must be matched to the business and marketing strategies that are developed and implemented.  Marketing strategy implementation & control: Marketing strategy implementation and control consists of: (1) Preparing the marketing plan and budget; (2) implementing the plan and (3) Using the plan in managing and controlling the strategy on an ongoing basis.

Contents of a Marketing Plan:

Challenges of a New Era for Strategic Marketing:

The modern era for a market-driven strategy involves many complex & challenging issues for the marketers. The challenges are projected here: 

Escalating Globalization



Technology Diversity & Uncertainty



The internet



Ethical Behavior & Corporate Social Responsiveness

Escalating Globalization: Globalization refers to the shift toward a more integrated & interdependent world economy. The internalization of business is well-recognized in terms of the importance of export/import trade & the growth of international corporations. It is challenging for the marketers to take the advantages & disadvantages of globalization. Technology Diversity & Uncertainty: The skills & vision required to decide which radical innovation opportunities can be successfully commercialized will be extremely demanding, & the risks of failure will be high. Innovations have the potential to revolutionize a range of different industries. They demand a strategic perspective that accepts the potential for revolution but balances this with commercial imperatives. The danger is that conventional approaches & short-sighted management may miss out on the most important opportunities. The Internet: Another challenge of a new era for strategic marketing is the internet. The web is creating new opportunities for marketers & providing a collaboration mechanism allowing companies to tap into the collective intelligence of employees, customers & outsiders to solve problems & identify opportunities. Ethical Behavior & Corporate Social Responsiveness: In the past corporate ethics & social responsibility may not have been center-stage in corporate & business strategy, this situation has changed dramatically. At present major concerns about fairness & justice, & the business activities on the physical environment are high on the management agenda.