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Strategy

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    Strategy Strategy Document Transcript

    • Marketing Strategy<br /> A marketing strategy is a process that can allow an organization to concentrate its limited resources on the greatest opportunities to increase sales and achieve a sustainable competitive advantage. A marketing strategy should be centered on the key concept that customer satisfaction is the main goal. Marketing strategy is most effective when it is an integral component of corporate strategy, defining how the organization will successfully engage customers, prospects, and competitors in the market arena. As the customer constitutes the source of a company's revenue, marketing strategy is closely linked with sales. A key component of marketing strategy is often to keep marketing in line with a company's overarching mission statement. <br /> Importance of marketing strategy<br /> A marketing strategy can serve as the foundation of a marketing plan. A marketing plan contains a set of specific actions required to successfully implement a marketing strategy. For example: " Use a low cost product to attract consumers. Once our organization, via our low cost product, has established a relationship with consumers, our organization will sell additional, higher-margin products and services that enhance the consumer's interaction with the low-cost product or service." <br /> A strategy consists of a well thought out series of tactics to make a marketing plan more effective. Marketing strategies serve as the fundamental underpinning of marketing plans designed to fill market needs and reach marketing objectives. Plans and objectives are generally tested for measurable results.<br />A marketing strategy often integrates an organization's marketing goals, policies, and action sequences (tactics) into a cohesive whole. Similarly, the various strands of the strategy, which might include advertising, channel marketing, internet marketing, promotion and public relations, can be orchestrated. Many companies cascade a strategy throughout an organization, by creating strategy tactics that then become strategy goals for the next level or group. Each one group is expected to take that strategy goal and develop a set of tactics to achieve that goal. This is why it is important to make each strategy goal measurable.<br />Marketing strategies are dynamic and interactive. They are partially planned and partially unplanned. <br /> Tools of marketing strategy<br /> B C G MATRIX<br />The BCG matrix is a chart that had been created by Bruce Henderson for the Boston Consulting Group in 1970 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.<br />To use the chart, analysts plot a scatter graph to rank the business units (or products) on the basis of their relative market shares and growth rates.<br /> * Cash cows are units with high market share in a slow-growing industry. These units typically generate cash in excess of the amount of cash needed to maintain the business. They are regarded as staid and boring, in a " mature" market, and every corporation would be thrilled to own as many as possible. They are to be " milked" continuously with as little investment as possible, since such investment would be wasted in an industry with low growth.<br /> * Dogs, or more charitably called pets, are units with low market share in a mature, slow-growing industry. These units typically " break even" , generating barely enough cash to maintain the business's market share. Though owning a break-even unit provides the social benefit of providing jobs and possible synergies that assist other business units, from an accounting point of view such a unit is worthless, not generating cash for the company. They depress a profitable company's return on assets ratio, used by many investors to judge how well a company is being managed. Dogs, it is thought, should be sold off.<br /> * Question marks are growing rapidly and thus consume large amounts of cash, but because they have low market shares they do not generate much cash. The result is large net cash consumption. A question mark has the potential to gain market share and become a star, and eventually a cash cow when the market growth slows. If the question mark does not succeed in becoming the market leader, then after perhaps years of cash consumption it will degenerate into a dog when the market growth declines. Question marks must be analyzed carefully in order to determine whether they are worth the investment required to grow market share.<br /> * Stars are units with a high market share in a fast-growing industry. The hope is that stars become the next cash cows. Sustaining the business unit's market leadership may require extra cash, but this is worthwhile if that's what it takes for the unit to remain a leader. When growth slows, stars become cash cows if they have been able to maintain their category leadership, or they move from brief stardom to dogdom.<br />As a particular industry matures and its growth slows, all business units become either cash cows or dogs. The natural cycle for most business units is that they start as question marks, and then turn into stars. Eventually the market stops growing thus the business unit becomes a cash cow. At the end of the cycle the cash cow turns into a dog.<br /> G E MATRIX<br />The GE matrix is an alternative technique used in brand marketing and product management to help a company decide what products to add to its product portfolio, and which market opportunities are worthy of continued investment. Also known as the 'Directional Policy Matrix,' the GE multi-factor model was first developed by General Electric in the 1970s.<br />Conceptually, the GE Matrix is similar to the Boston Box as it is plotted on a two-dimensional grid. In most versions of the matrix:<br /> * The Y-Axis comprises industry attractiveness measures, such as Market Profitability, Fit with Core Skills etc. and<br /> * The X-Axis comprises business strength measures, such as Price, Service Levels etc.<br />Each product, brand, service, or potential product is mapped as a pie chart onto this industry attractiveness/business strength space. The diameter of each pie chart is proportional to the Volume or Revenue accruing to each opportunity, and the solid slice of each pie represents the share of the market enjoyed by the planning company.<br />The planning company should invest in opportunities that appear to the top left of the matrix. The rationale is that the planning company should invest in segments that are both attractive and in which it has established some measure of competitive advantage. Opportunities appearing in the bottom right of the matrix are both unattractive to the planning company and in which it is competitively weak. At best, these are candidates for cash management; at worst candidates for divestment. Opportunities appearing 'in between' these extremes pose more of a problem, and the planning company has to make a strategic decision whether to 'redouble its efforts' in the hopes of achieving market leadership, manage them for cash, or cut its losses and divest.<br />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.<br />The GE Business Screen 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.<br />A large corporation may have many Small business units( SBU's), which essentially operate under the same strategic umbrella, but are distinctive and individual. A loose example would refer to Microsoft, with SBU's for operating systems, business software, consumer software and mobile and Internet technologies.<br />Growth/share are replaced by competitive position and market attractiveness. The point is that successful SBU's will go and do well in attractive markets because they add value that customers will pay for. So weak companies do badly for the opposite reasons. To help break down decision-making further, you then consider a number of sub-criteria:<br />For market attractiveness:<br /> * Size of market.<br /> * Market rate of growth.<br /> * The nature of competition and its diversity.<br /> * Profit margin.<br /> * Impact of technology, the law, and energy efficiency.<br /> * Environmental impact.<br />. . . and for competitive position:<br /> * Market share.<br /> * Management profile.<br /> * R & D.<br /> * Quality of products and services.<br /> * Branding and promotions success.<br /> * Place (or distribution).<br /> * Efficiency.<br /> * Cost reduction.<br />At this stage the marketing manager adapts the list above to the needs of his strategy. The GE matrix has 5 steps:<br /> * One - Identify your products, brands, experiences, solutions, or SBU's.<br /> * Two - Answer the question, what makes this market so attractive?<br /> * Three - Decide on the factors that position the business on the GE matrix.<br /> * Four - Determine the best ways to measure attractiveness and business position.<br /> * Five - Finally rank each SBU as either low, medium or high for business strength, or low, medium and high in relation<br /> To market attractiveness.<br />Now follow the usual words of caution that go with all boxes, models and matrices. Yes the GE matrix is superior to the Boston Matrix since it uses several dimensions, as opposed to BCG's two. However, problems or limitations include:<br /> * There is no research to prove that there is a relationship between market attractiveness and business position.<br /> * The interrelationships between SBU's, products, brands, experiences or solutions are not taken into account.<br /> * This approach does require extensive data gathering.<br /> * Scoring is personal and subjective.<br /> * There is no hard and fast rule on how to weight elements.<br /> * The GE matrix offers a broad strategy and does not indicate how best to implement it.<br />Ansoff matrix<br />To portray alternative corporate growth strategies, Igor Ansoff presented a matrix that focused on the firm's present and potential products and markets (customers). By considering ways to grow via existing products and new products, and in existing markets and new markets, there are four possible product-market combinations. <br />Ansoff's matrix provides four different growth strategies:<br /> Market Penetration - the firm seeks to achieve growth with existing products in their current market segments, aiming to increase its market share.<br /> Market Development - the firm seeks growth by targeting its existing products to new market segments.<br /> Product Development - the firms develops new products targeted to its existing market segments.<br /> Diversification - the firm grows by diversifying into new businesses by developing new products for new markets.<br />The market penetration strategy is the least risky since it leverages many of the firm's existing resources and capabilities. In a growing market, simply maintaining market share will result in growth, and there may exist opportunities to increase market share if competitors reach capacity limits. However, market penetration has limits, and once the market approaches saturation another strategy must be pursued if the firm is to continue to grow.<br />Market development options include the pursuit of additional market segments or geographical regions. The development of new markets for the product may be a good strategy if the firm's core competencies are related more to the specific product than to its experience with a specific market segment. Because the firm is expanding into a new market, a market development strategy typically has more risk than a market penetration strategy.<br />A product development strategy may be appropriate if the firm's strengths are related to its specific customers rather than to the specific product itself. In this situation, it can leverage its strengths by developing a new product targeted to its existing customers. Similar to the case of new market development, new product development carries more risk than simply attempting to increase market share.<br />Diversification is the most risky of the four growth strategies since it requires both product and market development and may be outside the core competencies of the firm. In fact, this quadrant of the matrix has been referred to by some as the " suicide cell" . However, diversification may be a reasonable choice if the high risk is compensated by the chance of a high rate of return. Other advantages of diversification include the potential to gain a foothold in an attractive industry and the reduction of overall business portfolio risk.<br /> GAP ANALYSIS<br />In business and economics, gap analysis is a business resource assessment tool enabling a company to compare its actual performance with its potential performance. At its core are two questions:<br /> Where are we?<br /> Where do we want to be?<br /> Why are we here?<br /> How did I get stuck doing this?<br />If a company or organization, such as a state juvenile justice agency, is under-utilizing its current resources or is forgoing investment in capital or technology, then it may be producing or performing at a level below its potential. This concept is similar to the base case of being below one's production possibilities frontier.<br />This goal of the gap analysis is to see how long one person can collect a paycheck for doing next-to-nothing. It is also a useful exercise for tying the patience of your superiors and determining how catastrophic one's failure must be to get fired from state government. It can also be used to identify the gap between the optimized allocation and integration of the inputs, and the current level of allocation. This helps provide the company with insight into areas which could be improved.<br />The gap analysis process involves determining, documenting and approving the variance between business requirements and current capabilities. Gap analysis naturally flows from benchmarking and other assessments. Once the general expectation of performance in the industry is understood, it is possible to compare that expectation with the level of performance at which the company currently functions. This comparison becomes the gap analysis. Such analysis can be performed at the strategic or operational level of an organization. Analysts may need to " telework" or take several sick days to endure the lengthy process of data collection. Having the know-how to use Microsoft Excel is essential to this endeavor.<br />'Gap analysis' is a formal study of what a business is doing currently and where it wants to go in the future. It can be conducted, in different perspectives, as follows:<br /> 1. Organization (e.g., human resources)<br /> 2. Business direction<br /> 3. Business processes<br /> 4. Information technology<br />Gap analysis provides a foundation for measuring investment of time, money and human resources required to achieve a particular outcome (e.g. to turn the salary payment process from paper-based to paperless with the use of a system).<br />The need for new products or additions to existing lines may have emerged from portfolio analyses, in particular from the use of the Boston Consulting Group Growth-share matrix, or the need will have emerged from the regular process of following trends in the requirements of consumers. At some point a gap will have emerged between what the existing products offer the consumer and what the consumer demands. That gap has to be filled if the organization is to survive and grow.<br />To identify a gap in the market, the technique of gap analysis can be used. Thus an examination of what profits are forecasted for the organization as a whole compared with where the organization (in particular its shareholders) 'wants' those profits to be represents what is called the 'planning gap': this shows what is needed of new activities in general and of new products in particular.<br />