Competitive advantage 1


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Principles of Marketing: Competitive Advantage 1

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Competitive advantage 1

  1. 1. PRINCIPLES OF MARKETING Competitive Advantage 1 Ashraf Alsinglawi B.Sc Pharmacy, MBA15/02/2013 Ashraf Alsinglawi 1
  2. 2. Competitive Advantage: TheImportance of Strategic Marketing Strategic Alternatives: Companies must go through a number of steps to create an effective marketing plan and strategy. They first must conduct a S.W.O.T. analysis. S.W.O.T. stands for strengths, weaknesses, opportunities and threats. They must use a S.W.O.T. analysis to decide on the competitive advantage they will use in the marketplace.15/02/2013 Ashraf Alsinglawi 2
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  4. 4. Competitive Advantage: TheImportance of Strategic Marketing The next step is that companies must decide on which strategic alternative they will use to market their product or service. A strategic alternative is the game plan that a company chooses in order to get the largest growth and profits with the lowest risk.15/02/2013 Ashraf Alsinglawi 4
  5. 5. Competitive Advantage: TheImportance of Strategic Marketing Four Strategic Alternatives: Companies can choose to go in four different ways: market penetration, market development, product development, and diversification. A company that decides to use a market penetration strategy would plan to increase profits by increasing market share among existing customers. Promotional methods ex. Giveaways, incentives15/02/2013 Ashraf Alsinglawi 5
  6. 6. Competitive Advantage: TheImportance of Strategic Marketing Sometimes companies concentrate on developing a new customer base. They want to attract new customers to their existing product lines. This is called market development. One key way of achieving this is to find new ways to use existing products. Ex. Finding new uses, targeting new markets15/02/2013 Ashraf Alsinglawi 6
  7. 7. Competitive Advantage: TheImportance of Strategic Marketing Another strategic alternative is product development. In a product development strategy, companies create new products for current markets. Companies constantly look for ideas for new products. Food market best describes this strategy15/02/2013 Ashraf Alsinglawi 7
  8. 8. Competitive Advantage: TheImportance of Strategic Marketing The last strategy a company can use is called diversification. This strategy has the most risk because it is when a company not only develops new products, but also pushes into new markets. Companies must thoroughly research the new product development process and the new markets.15/02/2013 Ashraf Alsinglawi 8
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  10. 10. Competitive Advantage: TheImportance of Strategic Marketing Selecting A Strategic Alternative: Large companies create SBUs or strategic business units to help them manage their organizations growth. SBUs are business divisions set up to make the larger organizations more nimble and provide flexibility and control in the marketplace. Companies always have certain SBUs that are more successful than others and might need a different strategic plan.15/02/2013 Ashraf Alsinglawi 10
  11. 11. Competitive Advantage: TheImportance of Strategic Marketing SBUs can be categorized in a portfolio matrix which classifies each SBU by its present or forecast growth and market share. The portfolio matrix is set up with the market share dominance (the share as relative to the largest competitor) on the x-axis and the market growth rate on the y-axis, in constant dollars. The portfolio matrix consists of four matrix areas: stars, cash cows, problem children (question marks) and dogs.15/02/2013 Ashraf Alsinglawi 11
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  13. 13. Competitive Advantage: TheImportance of Strategic Marketing Four Quadrants Of A Portfolio Matrix: A star is a market leader with tremendous growth potential. Most stars require a large amount of cash investment for product development and promotion to stay ahead of competition. A cash cow is an SBU that generates heaps of cash and does not need a large investment to maintain market share and sales.15/02/2013 Ashraf Alsinglawi 13
  14. 14. Competitive Advantage: TheImportance of Strategic Marketing A problem child has good growth potential but very poor profit margins. Just like a star, problem children also need a large amount of cash or they will end up as dogs. Many times companies end up divesting their problem children after pumping large amounts of cash into trying to get them to succeed. A dog has very low growth opportunity and very small market share. These poor-performing products eventually become extinct.15/02/2013 Ashraf Alsinglawi 14
  15. 15. Competitive Advantage: TheImportance of Strategic Marketing Once a company has classified their SBUs in the matrix, they must then decide their future plans. They have four choices for each matrix.15/02/2013 Ashraf Alsinglawi 15
  16. 16. Competitive Advantage: TheImportance of Strategic Marketing Four Ways To Allocate Resources For The Matrices: A company can build, hold, harvest or divest. If a company has a star or a problem child that has great potential with some investment, a company will choose the first option: build15/02/2013 Ashraf Alsinglawi 16
  17. 17. Competitive Advantage: TheImportance of Strategic Marketing If an SBU is a profitable cash cow, then the choice would be to hold and not invest anything but continue to reap the profits. Problem children, dogs and cash cows all have the option of the harvest allocation of resources. Harvesting is when a company runs operations for short-term cash flow and does not plan for the future of the product. Companies that harvest their products usually do not spend any money on promotion or advertising.15/02/2013 Ashraf Alsinglawi 17
  18. 18. Competitive Advantage: TheImportance of Strategic Marketing Lastly, a company can plan to divest, or un-invest its SBU because of low profits and small market share. Usually the dogs find themselves in these situations if a company cannot turn them around. Divest is the opposite of invest, so instead of putting more money into failing brands, the companies decided to divest themselves of these SBUs.15/02/2013 Ashraf Alsinglawi 18
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  20. 20. Summary Having a competitive advantage is one thing, but knowing what to do next is an important step for a company. After conducting a S.W.O.T. analysis and finding the strengths, weaknesses, opportunities and threats for a product or brand, a company decides which strategic alternative will serve them the best. They can decide to penetrate the market of existing customers, find new markets to explore, develop new products or push new products into new markets. By dividing large companies into strategic business units, companies can choose whether to build, hold, harvest or divest specific products and brands to ensure product, profit and market growth. Whether these SBUs are up-and-coming stars, top-earning cash cows, in-need-of-development problem children or lazy dogs, companies use portfolio matrices to determine the best decision for the business.15/02/2013 Ashraf Alsinglawi 20
  21. 21. To me, were marketing hope. Next: Business Plans: How to Develop a Busi +9627950400315/02/2013 Ashraf Alsinglawi 21