1. Strategic Marketing
Faculty : Prof .Ashok Kumar
Reference :
Subhash Jain, Marketing
Planning & Strategy, 6th
Ed.)
Strategic Marketing
Management, Aakers)
1

2. What should corporations do to survive in the fast
changing environment.
What policies & business practices should be followed
to support changing business environment ?
.“SURVIVAL OF THE FITTEST”.
What should be the responsibilities of marketing
managers to achieve the goals ?
Which is the best alternative among the options
available? ( Evaluation and choice of strategy )
What is the system to monitor & control the
operational issues ?
Benchmark Corporate excellence periodically to
evaluate the position. 2

3. Story of blind men and elephant :
Fifth one
touched the ear Six blind men went to see an elephant .Each
and said it is satisfied himself by feel and observation
like a fan.
Second one felt the
The sixth one tusk and expressed it
caught the as a spear.
swinging tail
and said it is
like a rope.
Third one felt its
squirming trunk and
said it is like a snake.
First one touched the
elephant’s side and Fourth one felt
expressed it as a big wall. around its knee and
3
said it is like a tree.

4. All these men disputed loud and long , each was right in
his view , but they all were wrong .
What is the morale of the story
Managers often act like blind people, they loose
sight of big picture of the business and focus on
short term goal . Strategy formation is our elephant.
Since none of them had the vision of the entire beast
(elephant) , each caught hold of some part or other
and relied on the utter ignorance about the rest.
While you can not get an elephant by just adding all
parts, to comprehend the whole , we need to
understand each part.
4

5. Strategic Management Process.
Strategic management is a process through which
organizations analyze and learn their internal and
external environments , establish strategic direction,
create plans that are intended to help and achieve
the established vision & goals by executing the plans
with an effort to satisfy the stakeholders &
shareholders.
5

6. Sun Tze on Strategy
• “Know your enemy ( Competition ) ,
know yourself,( Corporation ) and
your victory will not be threatened.
Know the terrain,( market ) know the
weather ( market forces ) , and your
victory will be complete.”
6

7. Strategic Planning
…is the managerial process of developing
and maintaining a strategic fit between
the organization's objectives and
resources and its changing market
opportunities.
Org Objectives Strategic Fit Resources
Changing Environment
7

8. Strategic planning in an organization aims to achieve a fit
between the internal resources and capabilities of an
organization and external opportunities and threat in the industry
environment.
According to C.K Prahalad and Gary Hamel, such approach
leads to a mind set in which management focuses too much on
achieving the best fit between internal resources and external
environment and do not focus enough in building new resources
and capabilities to exploit future opportunities in the business.
Therefore the organization which rely on the fit model to strategy
formulation are unlikely to build competitive advantage. This is
more apt in dynamic competitive environment.
Eg Xerox ignored the rise of cannon, Ricoh, etc in photocopier
market.
GM overlooked Toyota ,
Caterpillar ignored komatso. 8

9. Hence strategic approach by the companies to think beyond their
existing resources and capabilities create an obsession and quest
for global leadership within the top management of the company .
This is described as Strategic intent. It is more internally focused
and concerned with building new resources and capabilities .
9

10. Strategic Innovation
Innovation helps to address the demand of new market and or
existing market. This can be explained with Ansoff’s model.
New
product Disruptive
innovation
Evolution Revolution
Exiting
Product
Existing New
Market Market
10

11. Sustaining
Revolutionary or discontinuous
An innovation that creates a new market by allowing
customers to solve a problem in a radically new way.
Evolutionary
An innovation that improves a product in an existing market
in ways that customers are expecting.
Disruptive
An innovation that creates a new (and unexpected) market by
applying a different set of values.
11

12. Strategic Innovation
12

13. 13

14. Innovation versus sustainability: An age old question
Is which is more important Strategy or execution ?
You stick to your knitting You think out side the box.
You exploit what you know You explore what you don’t know.
You meet current customer needs. You anticipate future needs.
You Plan You let things emerge.
You demand accountability You allow freedom and flexibility
You impose process and You avoid process and encourage
Structure . Unstructured interaction.
14

15. The Role of Marketing Strategy
in business
Corporate
Vision Strategy:
•Corporate Operating
•Business Plans
•Functional
Execution
& control
Market
feedback
15

16. According to Hofer and Schendel,
organizations develop strategies at three
structural levels:
• Corporate level—(corporate marketing)
• SBU level — (Strategic Marketing)
• Product/Market level—(Functional
Marketing)
16

17. Strategic Marketing
(Marketing at the SBU Level)
• Strategic Marketing requires
–Detailed understanding of market needs,
–Proactive use of competitive intelligence at
the corporate as well as SBU’s levels
• Strategic Marketing
–Focuses on what the firm do best at the
SBU level
–To secure and maintain a sustainable
competitive advantage
17

18. Strategic Marketing Process.
Define Vision, Mission
Goal , Objective
Environment Analysis
Identify core competency
Generate strategic Alternatives
Implement , feedback and Control
18

19. SINGAPORE AIRLINES is engaged in air
transportation and related businesses. It
operates world-wide as the flag carrier of the
Republic of Singapore, aiming to provide
services of the highest quality at competitive
prices for customers to earn the mind share
of its customers and profit for the company
19

20. Examples of Corporate Mission
MARRIOTT’S Mission Statement:
We are committed to being the best lodging
and food service company in the world, by
treating employees in ways that create
extraordinary customer service and
shareholder value
20

21. Strategic marketing begins starts with defining the vision
for the company.
Vision is some thing a company wishes to become or
aspire to be.
It defines the frame work for the organization taking in to
account the core ideology and envisioned future.
•Core ideology is the unchanging part of the organization,
it is like a character .
•Envisioned future is the goal to be reached .
CORE VALUES
CORE
IDEOLOGY CORE PURPOSE
VISION
AUDACIOUS GOALS
ENVISIONED
FUTURE VIVID DESCRIPTION
21

22. Core values are deeply held thought which an
organization would not change irrespective of change in
industry environment or management fads.
Social responsibility, Integrity, Innovation, Customer
excellence etc.
Core purpose : It is the idealistic reason for being. The
purpose sets the direction in which organization
proceeds.
Audacious goal : what an organization would like to
achieve , a tough and an extra ordinary commitment and
effort of the management .
Vivid description is putting the goal in to words that
invoke an action . ( Putting a measurable system )
22

23. Corporate Culture
“ Corporate Culture" is people's ability to collaborate with
humour and energy to to align themselves with the vision of
the firm & create smart strategy on-the-hoof.
Margaret Wheatley said that strategy concept has to move
from strategic planning to strategic thinking. A better
strategic thinking comes when people are adept at thinking
collaboratively. They think better when not being constantly
whipped into line by a hefty strategy document produced by
a clever elite.
They think better when each member of the organization
feels the Sense of Ownership
Responsibility
Accountability towards the assigned task in line with the
goal. ( SHARED VISION )
23

24. McKinsey 7-S Framework for building corporate level
Strategy .
STRUCTURE
STRATEGY SYSTEMS
SHARED
VALUES
SKILLS STYLE
STAFF
24

25. Commit Build
Resources responsibility
Define
measurement Measure
criteria Performance
Strategic
control
25

26. Frame Work of Marketing Strategy
A successful marketing strategy requires customer orientation and
competitor focus called market orientation 26

27. Strategy Formulation
Mission
Goal
Objective
External BPEST Internal
Analysis analysis Analysis
Corporate level strategy
Business Unit level
Functional Level
Evaluate business performance ,
Governance & ethics
27

28. Key Elements of Marketing Strategy
Formulation
• The strategic 3 Cs
– Customers, Competitors & the Corporation
• Environment analysis -- PEST
• Strategic Marketing Decisions
– Where to compete
– How to compete
– When to compete
28

29. A Viable Marketing Strategy
• Must have a clearly defined market
• Must have a good match between
corporate strengths and market needs
• Must have significant positive
differentiation in the key success
factors of the business
29

30. Marketing strategy of a firm is for :
Fast Growth
Fast growth is the result of strategies designed to expand
the market size and earnings quickly, in terms of monetary
value rather than quantity.
Fast Innovation
Fast innovation involves setting extremely high innovation
goals and securing a competitive edge, over what our
competitors can do.
30

31. GROWTH STRATEGY OF AN ORGANIZATION CAN BE :
ORGANIC GROWTH OR INORGANIC GROWTH
Organic growth strategies are business development techniques
that grow a company via increased output and larger sales
volume. Organic growth is growth that comes from a company's
existing businesses. Organic growth strategies are built on
four main pillars: revenue, headcount, PR, and quality.
Inorganic growth strategy : As part of business strategy ,
management decide whether the firm should grow naturally
(commonly called organic growth) or in the form of going
outwards to acquire or merge with other businesses .
. This is called inorganic growth which normally takes the form
of Mergers and Acquisitions (M&A) exercise.
31

32. 32

33. While M&A is the easiest way to grow, it is a risky proposition as it
could either be a success or disaster. While the market values
growth, there is a hierarchy in quality of growth drivers.
Organic growth is preferred over inorganic growth as the latter
comes at a higher cost and is more risky.
Companies go in for M&A activity to boost sagging growth in top
line. Typically, growth is slow in maturing markets with intense
competition. In such a scenario, companies can either boost growth
through product innovation or differentiation.
Alternatively, they can acquire a high growth company with good
fundamentals in a fast growing market.
33

34. In the early 21st century, the beer industry experienced aggressive
consolidation due to a series of mergers and acquisitions between
the big breweries. To strengthen its position in the fast
consolidating industry, South African Breweries (SAB) acquired
Miller brewing company, thereby forming the world's second
largest beer company- SABMiller. Instead of establishing its own
brands, SAB had a history of acquiring companies and
transforming them according to its own model. With the formation
of SABMiller, the competition in the US heated up between itself
and Anheuser-Busch, which controlled more than half of the US
beer market. The battle intensified when Anheuser-Busch entered
the Chinese market, where SABMiller already had a presence.
34

35. Cisco systems, which is a well know brand in the networking
and communications space, is on a major expansion spree with
its recent acquisition of Starent Networks. The $2.9 billion deal
aims to leverage Starent’s mobile infrastructure capability by
enabling Cisco to provide a strong architecture for rich, quality
multimedia experiences to mobile subscribers.
Starent has an extended expertise in delivering high quality
content such as video, mobile TV and gaming to mobile
subscribers. With the rapid explosion of content downloads from
mobile phones, especially video transfer, mobile data traffic has
seen an exponential growth in recent times.
35

36. Accelerating organic growth – The first step to accelerate organic
growth is securing the customer relationships for effective retention
strategies.
Understanding the factors most important to your customers, what
drives their loyalty, and what areas deserve the most focus.
Develop account managers and sales departments to develop a
coordinated strategy to build and grow your company the most
intelligent way – through the eyes of your customers.
36

37. GE 9 cell matrix or business screen matrix.
M
a Organization’s business strength
r
k H M L
e
t H
gy
y
eg
at t e
ra
st
st r
A d
Go
t M ol gy
e /h at
e
t r
r ct iv o
st
le G
a Se N
o
c
t L
i Market Attractiveness : Size, growth, Margin , Regulation
v Fewer competition etc
e Business strength : Skill, financial soundness, technology
n
e
edge , Distribution , Brand , large
37
customer base , R&D, prod Qlty etc.
s

38. Michael Porter’s 5 force model to study the barriers to entry
In a market .
38

39. 39

40. Entry mode strategies in new Market .
Entry Mode Choice Advantage
Exporting Ability to realize on economy of scale
Licensing Low development costs & risk
Franchising Low development cost & brand visibility
JV Access to local partner & leverage on their
Competitive advantage
Wholly owned
Subsidiaries. Protection of technology , global strategic
coordination , leverage on location &
experience curve.
40

41. 41

42. 42

43. 43

44. 44

45. •For Outsourcing to be an effective strategy :
•Evaluate organizational Cultural compatibility between the
partners.
•Technological and managerial skills which complement the
principle partner’s line of business
•Principle’s control over quality
•An agreement to ensure that there will be no infringement of
copyright , IPR etc.
•Evaluate if the local partner has potential to turn out to be
principle’s competitor in near future .
45

46. Reason for New Product Failures
Overestimating market size
Poor marketing research
Design problems
Excessive development costs
Incorrectly positioned, priced, or advertised
Competitive reaction
46

47. New Product Development Strategy
Original products
Acquisition
Product improvements
Product modifications
New brands through the firm’s own
R&D efforts.
47

48. NPD Strategy
48

49. 49

50. 50

51. 51

52. Strategic role of Product Management
52

53. Consumer decision making process.
Buying motives.
Benefits desired
Product Consumer Purpose
Gives meaning
attributes Perception In consumer
To the product
To associate
Product choices
Brands
preference = ∑ P.A + CP
Buy
53

54. Pricing strategy
• We need to set price when we have a new
product, or when we enter a new market
with an existing product.
• How?
– Need to decide what position you want your
product to be in.
54

55. Pricing Strategies
A Sound Strategy Pays for Itself . Sound pricing strategy creates a
more competitive position within your industry and has the potential
to increase profitability across product lines. While it may be
tempting to implement tactics that yield short-term gains, a well-
crafted pricing strategy will help to deliver sustainable profitability
over the long haul.
Pricing strategy addresses 4 key drivers of pricing strategy
excellence:
55

56. 4 key drivers of pricing strategy .
56

57. Transaction management : Manages immediate pricing issues for all
products and services that impact list prices, discount grids,
allowances, rebates, and resulting net prices.
Value Perception: Perceived value metric and competitive
environment analysis determine how your products and service
measure up with customers in order to determine base prices.
Organization: Work in partnership with clients to transfer pricing
management knowledge, establish best pricing practices and
processes, instill a pricing culture focused on driving profits, and
install tools to control and manage price .
57

58. Pricing Grid
58

59. Price-Quality Strategies
• Philip Kotler’s 9 price-quality strategies
Price
High medium Low
High Quality High Super
Premium
Value Value
Over Mid Good
Medium
Charging Value Value
False
Rip-off Economy
Economy
Low Quality
59

60. 60

61. New-Product Pricing Strategies
1. Skimming pricing
– Charging a high price initially and reducing the
price over time
– Commonly used when introducing new &
innovative products .
2. Penetration pricing
– Charging a low price when entering the market
to capture market share
– Used when competitors are closing in with
similar or better products 61

62. 3. Intermediate pricing
– Pricing somewhere in between the skimming
strategy and the penetration strategy
62

63. Pricing Strategies
63

64. Pricing Process
1. Set Pricing Objectives (see next slide)
2. Analyze demand
3. Draw conclusions from competitive
intelligence
4. Select pricing strategy appropriate to
the political, social, legal and
economical environment
5. Determine specific prices
64

65. Possible Pricing Objectives
• Profit objectives e.g.
– Targeted profit return
• Volume objectives e.g.
– Dollar or unit sales growth
– Market share growth
• Other objectives e.g.
– Match competitors’ price
– Non-price competition
65

66. Demand Analysis
• Measure the impact of price change on total
revenue
• Predicts unit sales volume and total
revenue for various price levels
• Different customers have different price
sensitivities and needs
66

67. Impact of Cost on Pricing
Strategy
• Fixed and variable costs
– Full-Cost Pricing
• Markup pricing, break-even pricing and rate-of-
return pricing
– Variable-cost pricing
• 3 types of relationships
– Ratio of fixed costs to variable costs
– Economies of scales
– Cost structure
67

68. Impact of Ethics on Pricing
• How should you price if your product is a
life-saving drug?
• What are the ethical considerations?
– Customers have no choice
– Need to pay for the research
– When cheaper options doesn’t work
– Competition decides
68

69. Information Needed for Price Change
• Customers’ ability & willingness to buy;
customer lifestyle; benefits sought;
characteristics of the product e.g.
– When the kopi tiams, local coffee shops in
Singapore tried to raise the price of a cup of coffee
by 10 cents in March 1994, the grass-root reaction
was stormy
– When Starbucks Coffee and Spinelli’s raised their
prices in the beginning of 1998 by a hefty 20%,
nobody raised an eyelit 69

70. • Need to know everything about the
competitors
– How would competitors react to our price
change? (see following slide)
– In obtaining competitors’ information,
remember the value of the information
70

71. Pricing Strategies for Established Products
Three strategic alternatives:
• Maintain the price if you are the leader e.g.
– In 1999, Shell in Singapore maintained its price when other
petrol companies engaged in a price war until towards the
end of the engagement
• Reduce the price e.g.
– SIA regularly reduce its airfare in anticipation of the
developing market situations
• Increase the price
– during inflation, or if demand is expected to increase or if
you wish to harvest e.g. in Indonesia 71

72. Price-Flexibility Strategy
• One-price policy—setting one fixed
price for all markets
• Flexible-price policy—setting different
prices in different markets based on:
– Geographic Location,
– Time of delivery, or
– The complexity of the product
72

73. How much flexibility in price?
• Depends on the Demand-Cost gap and the
influence of competition, social, legal and
ethical considerations
• Example: Life-saving drugs
73

74. Product-Line Pricing
• When pricing products in different lines,
must take cross-elasticities of demand
across the set of products into
consideration
• The idea is to maximize the profits of the
entire organization rather than that of a
single product or a single line
74

75. Leasing Strategy
• Leasing is more common for industrial
goods e.g.
– Singapore Airlines sold many of their
aircraft and lease them back for their
operations
• There is a growing trend toward leasing
consumer goods as well
– e.g. Leasing of office equipment
75

76. Reactions to Price Change
• Customers are more sensitive to price
changes if the products cost a lot and/or
are bought frequently
• Competitors may see each of your price
change as a fresh challenge and react
according to its self-interest at the time.
Need to estimate each close competitor’s
likely reaction
76

77. Responding to Competitors’
Price Change
• If competitors lower price for homogenous
products
– Try augmenting the product
– If it doesn’t work or if it is not likely to work,
then meet the price cut head-on
77

78. Responding to Competitors’
Price Change (cont’d)
• If competitors raise price
– In a homogeneous market, follow if you think the
whole market is likely to follow
– In a non-homogeneous market, evaluate
• The reason for the competitor price change
• If the price increase is temporary
• The effect on your market share & profit
• The likely response(s) from the other competitors
78

79. When a Market Leader is Being
Attacked on Price
Options available:
• Maintain price
• Raise perceived quality
• Match competitors’ price
• Increase price and improve quality
79

80. Impact of Discounting on Brand
Equity
• Why discount?
• Problems emerging with discounts
• The value equation (V=Q/P)
80

81. Price War
Price wars are frequent in industries where
• Cost differentiation opportunities exists
• Capital is intensive and products are
homogeneous
Examples: Airfares, ISP, Petrol, & Loans e.g.
– The Home Loan price war in Singapore in Sept
2000 involving OUB, UOB, DBS among others
81

82. Yield Management
• What is it?
• Yield management goals
• Industries that benefited from yield
management
• Common variables
82

83. 83

84. 84

85. Core Capabilities
Product Leadership
Refers to the ability to develop creative, premium products
through specialized new technologies.
Market Leadership
Refers to the ability to achieve the "LG brand is No. 1" goal
backed by its formidable market presence worldwide.
People Leadership
Refers to talented people who perform excellently by
internalizing and practicing innovations.
85

86. LG strives to enhance the customer’s life (and lifestyle) with our
intelligent features, intuitive functionality, and exceptional
performance. (Positioning Statement)
Choosing LG is a form of self-expression and self-satisfaction.
Our customer will take pride in owning and take comfort in
knowing he/she made a smart, more informed decision.
Brand Platform The LG brand is composed of four basic elements:
86

87. Management Level responsible for strategic
management in an Organization
LEVEL-I
Corporate Management
Chmn, B.o.Dir
LEVEL-2
S BU Management
CEO, COO, CFO, CMO
LEVEL -3
Operating Management . Line &
Functional managers
87

88. Level Responsibilities
Corporate Management Set Vision, Goal & Direction for the
organization .
Chart long range plans . Review the
strategies w.r.t Goal & suggest
course of correction if any.
Strategic Business Unit Make strategies for SBU in line with
Management the corporate goal . Drive strategies to
achieve the desired performance at
business unit level.
Operating Management Execute the plans at all functional
level to achieve the target set by the
SBU .
88

89. Summary : Objective of Strategic Management
Process in an Organization.
Achieve Goal Congruence . Harmonize corporate goals , Vision
across the diversifies corporation of business enterprise.
Ensure Smooth communication & coordination between all business
function of the corporation for successful implementation of
business strategy
Evaluate business strategy , take corrective action plan, formulate
contingency plan in tune with the market condition.
Influence change management in the organization .
Enhance profit consciousness among the employees.
89

90. Generic issues in BPEST analysis in external environment.
Business Political Economic Social Technological
Life Cycle of
Legislation Inflation skill Development
Industry Labor Law Interest rate consumer in IT
Company law Currency confidence Industrial
Competition Taxation fluctuation Consumerism application
type Government’s GDP
priority Terms of trade
Income levels
employment
levels
90

91. McKinsey 7-S Framework to create organizational
Structure conducive for growth .
STRUCTURE
STRATEGY SYSTEMS
SHARED
VALUES
SKILLS STYLE
STAFF
91

92. Internal analysis for building Competitive advantage : Michael
Porter’s value chain model
S Organizational infrastructure
u
HRM
p
p Technology initiative
o v
Procurement a
r
t l
Inbound operation Mktg & Service & u
logistics Sales support e
Out
bound
logistics
Primary Activities 92

93. Generic building blocks of competitive advantage
Quality
Process
CA through
Superior Customer
LOW COST &
efficiency Responsiveness
Differentiation
Innovation
93

94. Long range corporate planning strategy
Growth & expansion strategy
1.Hive off
2.Out source
3.Contract
Expansion Diversification Divestment Manufac-
Strategy Strategy Strategy turing
4 Liquidation
1.New market/Existing Related Un Related
Product
2.New Product/Existing Forward, Backward, Concentric Conglomerate
market M&A
3.Existing market /Existing J.V
product 32
94

95. Entry mode strategies in new Market .
Entry Mode Choice Advantage
Exporting Ability to realize on economy of scale
Licensing Low development costs & risk
Franchising Low development cost & brand visibility
JV Access to local partner & leverage on their
Competitive advantage
Wholly owned
Subsidiaries. Protection of technology , global strategic
coordination , leverage on location &
experience curve.
95

96. •For Outsourcing to be an effective strategy :
•Evaluate organizational Cultural compatibility between the
partners.
•Technological and managerial skills which complement the
principle partner’s line of business
•Principle’s control over quality
•An agreement to ensure that there will be no infringement of
copyright , IPR etc.
•Evaluate if the local partner has potential to turn out to be
principle’s competitor in near future .
96

97. Corporate Level Growth Strategies.
The corporate level strategy identifies the business in
which an organization should participate , create value
, expand or contract by mergers, acquisition & spin-off
to maximize the long term profitability & growth.
Three corporate level growth strategies are :
•Horizontal growth strategy :
•Vertical Growth Strategy
•Out source strategy
97

98. Corporate level growth strategies :
1.Horizontal integration. The process of acquiring or
merging with industry competitors in an effort to
achieve competitive advantage which come with large
scale & scope.
Eg World COM acquired 60 companies between 1983 to
2001
Chrysler merged with Diamler Benz
Pfizer acquired Warner lambert
2 .Vertical integration is a process of expanding the
operation backward into an industry which produces
inputs for the company or forward into an industry to
market its products.
IBM , Reliance Raymond etc.
98

99. Strategic out-sourcing :: : This involves separating
some of the value creating activities within the
business & allowing them performed by independent
entity or spinning off the part of that function of the
organization as an independent entity.
99

100. Strategic Management process at SBU level in an
organization.
Reward & recognize ( Satisfied)
Business vision Evaluation
Strategic Budget & Responsibility
& goal of
plan Resources. Centers
performance
Alternative
plan/ Budget Corrective Action
revision ( Unsatisfied)
Contingency
plan
(Feedback)
100

101. 101

102. STRATEGIC MOVES
TO FACE
COMPETITION IN MARKET
102

103. The objective of defense position or fortress strategy is to
strengthen the strongly held position to build an impregnable
fortress capable of repelling attacks by current or future
competitors.
The marketing actions used are :
Retain customer & build CLV by improving customer satisfaction
& loyalty.
Actions are: Increase quality control process at all level. TPM , Six
sigma Lean manufacturing process , etc.
Continue product innovation & modification to increase customer
benefit.
103

104. Focus on market communication to simulate selective demand ,
stress product superiority & build TCO.
Build key accounts , customer referrals.
Train internal employees , partners, channel members , build
learning & sharing culture ( knowledge management initiative)
Build/expand distribution channel , subcontract , outsource the
activities which are not of competitive strength of the organization
Leverage on technologies for building strength.
Reduce attractiveness of switching : create /build brands, brand
extensions at every price point . Fill the product gaps.
104

105. Flanker strategy:
Protect against loss of specific segment of customers by developing a
second line of products /Brand which takes care of the weakness of
the original product offering in terms of price point, compact
features. etc. More often used in the mass segment for price
conscious customer to deliver the similar benefit of owning a
reputed brand with more critical features.
A strategy for creating a second line of customers who are different
from the early adopters & wanting to associate /experiment the
brand .
The underlining purpose of the strategy is to close the product gaps
through which the competitors can enter in the market.
( unorganized sector , regional player etc)
105

106. Confrontation strategy Protect against he loss of share in the
current market or customer base by meeting or beating a head to
head competitive offering .
Improve ability to win new customers who will other wise attract
to competition offing .
Develop or modify the product to match superior competitor’s
offering. Lower prices & or heavy promotional efforts . Create a
price war & force the competition to to follow it.
Market expansion strategy: Increase ability to attract new
customers by developing new product offering . Build product line
extension, for variety of new applications.
Contract or strategic withdrawal . Increase ability to attract new
customers in select high growth segment & with draw from
smaller non strategic ( markets , profit ) . Build segment focus.
106

107. Follower’s growth strategy.
Frontal attack strategy : Leapfrog strategy , Flank strategy ,
Encirclement strategy , Guerrilla attack strategy.
Frontal attack strategy : The challenger builds cost advantage
through internal efficiency & creates a differentiation good enough
to attract the leaders,s existing & potential customer base. The
strategy works well only when the consumer do not have strong
brand preference for the leader’s product.
Leapfrog strategy: Challenger differentiates its position, on
distribution, price, low cost product etc leveraging on technology,
tie ups. More often technology is used as a driver to differentiate
itself. Vistacon’s strategy on “Acuve” contact lens, to displace
Bausch & Lomb.
107

108. Flank attack strategy: When the leaders brand does not satisfy the
full need of the segment , which is more fragmented . The strategy
is all about re-defining the market. Small car , bike market etc.
Encirclement strategy: Targeting several untapped/
underdeveloped market segment simultaneously , The strategy is
to surround the leader’s brand with variety of offering aimed at
several peripheral segments.The strategy works well when the
market is fragmented on the basis of multiple applications, &
different geographic locations.
Guerilla Attack strategy: A challenger makes sporadic un
predictable moves in the market to upset the going strategy of the
leader. These strategies can be either a artificial price drop.
Short term sales promotion campaign, offensive strategies leading
to lawsuits. Etc. The aim of the strategy is to slow down the
leader’s expansion strategies by diverting its resources &
108
attention.

109. Investment center Decisions
ROI = PBIT
Invested Capital
ROCE = PAT + Post tax interest on Loan term Loan
Capital Employed
CE=(Shareholder’s capital+ Reserves+ Long term Liabilities)
109

110. ROI Problems
• Feed the Dogs ( Over Investment )
• Starve the Stars ( Under Investment )
High
STAR PROBLEM
CHILD
Relative
Market
Growth CASH COW DOG
Low
High Market Share Low
110

111. EVA Basic Premise
Managers are obliged to create value for their investors
Investors invest money in a company because they expect returns
There is a minimum level of profitability expected from investors,
called capital charge
Capital charge is the average equity return on equity markets;
investors can achieve this return easily with diversified, long-term
equity market investment
Thus creating less return (in the long run) than the capital charge is
economically not acceptable (especially from shareholders
perspective)
Investors can also take their money away from the firm since they
have other investment alternatives
111

112. EVA is the gain or loss that remains after assessing a charge
for the cost of all types of capital employed.
What an accountant calls profits in an income statement , it
includes a charge for the debt capital employed which is
commonly referred to as interest expense. However, an
income statement does not include a charge for the equity
capital that was employed during the accounting period.
Therefore, EVA goes beyond conventional
accounting standards by including a provision for
the cost of equity capital. The cost of equity needs to
be factored into business investment decisions in
order to enhance shareholder value.
112

113. •Although EVA is couched in financial analysis, its primary
purpose is to shape management behavior.
•EVA can be used as a performance measure to evaluate an
overall company, a division within a company, a location
within a division, or an individual manager.
•By setting goals, EVA can become a motivational tool at
various levels of management.
•EVA can also be used in downsizing decisions.
113

114. EVA and Corporate Culture
Paying managers for performance is a backward-looking practice,
but the capital markets assign value on a forward-looking basis.
Therefore, companies that pay for past performance may be
unwittingly paying their managers to undermine value creation.
When EVA-related performance measurement process is
implemented throughout your company, all affected employees need
to understand the goal, as well as how their actions contribute to
meeting it.
In this respect, the EVA’s popularity parallels the 1980s “total
quality management” trend. Like quality, value is every employee’s
responsibility. To this end, management and employee training
programs are a crucial component of any EVA plan.
114

115. What is Needed to Calculate Company’s Economic
Value Added (EVA)?
Only following the information is needed for a
calculation of a company’s EVA:
•Company’s Income Statement
•Company’s Balance Sheet
115

116. Illustration: Income Statement ( P/L statement )
Net Sales 2,600.00
Cost of Goods Sold 1,400.00
SG&A Expenses 400.00
Depreciation 150.00
Other Operating
Expenses - 100.00
Operating income 550.00
Interest : 200.00
Income Before Tax 350.00
Income Tax (40%) 140.00
Net Profit After Taxes 210.00
116

117. Illustration: Balance Sheet
Current Assets Current Liabilities
Cash 50.00 Accounts Payable 100.00
Non
Receivable 370.00 Accrued Expenses 250.00 Interest
Inventory 235.00 Short-Term Debt 300.00 Bearing
Liabilities
Other Current
Assets 145.00
Total current Assets 800.00 Total Current Liabilities 650.00
Fixed Assets Long-Term Liabilities
Long-Term Debt 760.00
Land 650.00 Total Long-Term Liabilities 760.00
Equipment 410.00 Capital (Common Equity)
Other Long
Term Assets 490.00 Capital Stock 300.00
Total Fixed Assets 1,550.00 Retained Earnings 430.00
YTD Profit/Loss 210.00
Total Equity Capital 940.00
TOTAL ASSETS 2,350.00 TOTAL LIABILITIES 2,350.00
117

118. CCRDebt = [Debt/(Debt+Equity)](1-t) Where t represents the
company’s tax rate.
+
CCREquity = Equity/(Debt+Equity)
Capital Cost Rate (CCR) will be :
Assume owners expect 13 % return* for using their money
because less are not attractive to them, therefore, company
has 940/2350 =40% (or 0.4) of equity with a cost of 13%.
Company has also 60% debt and assume that it has to pay
8% interest for it. So the average capital costs would be:
CCR ** = Average Equity proportion * Equity cost +
Average Debt proportion * Debt cost = 40% * 13% + 60% *
8% = 0.4 * 13% + 0.6 * 8% = 10%
118

119. ** Note: if tax savings from interests are included (as they
should if), then CCR would be:
CCR = 40% * 13% + 60% * 8% *(1- tax rate) =
0.4 * 13% + 0.6 * 8% * (1 - 0.4) = 8.08 % (Using 40 % tax
rate)
Companies paying high taxes and having high
debts may have to consider tax savings effects, by
adding the tax savings component later in the
capital cost rate (CCR)
119

120. Identify Company’s Capital (C)
Company’s Capital (C) are
Total Liabilities less Non-Interest Bearing Liabilities:
Total Liabilities 2,350.00
less
Accounts Payable 100.00 [ No interest cost incurred on these
Accrued Expenses 250.00 Liabilities. ]
----------------------------------
Capital : 2,000.00
120

121. EVA = NOPAT - C * CCR
= 210.00 - 2,000.00 * 0.10
= 10.00
Note: this is the EVA calculation for one year.
If a company calculates & reports EVA in its quarterly report
,then it’s capital costs will be :
Q1 Capital costs for 3 months: 3/12 * 10% * 2,000 = 50
Capital costs for 4 months: 4/12 * 10% * 2,000 = 67
Q2 Capital costs for 6 months: 6/12 * 10% * 2,000 = 100
Q3 Capital costs for 9 months: 9/12 * 10% * 2,000 = 150
EVA for Q1, Q2 , Q3, Q4
160 143 110 60
121

122. Growth market strategies for Market leaders.
It is a strategic objective a market leader to maintain its leading
relative market share in the face of increasing competition. The
marketing strategies followed to maintain leading share position
are :
1Fortress or defense position strategy.
2Flanker strategy
3Confrontation strategy
4Market expansion or Mobile strategy
5 Contraction or strategic withdrawal strategy.
An organization will deploy these strategies singly or in
combination to maintain it s leading position.
122

123. 123

124. . Missionstatement of Boeing : “People working
together as a global enterprise for aerospace
leadership by 2016.”
GE : Be No.1 or No2 in all the businesses it
venture into.
Microsoft: Empower people through great
software any time , any place & in any device.
124

125. Secrets of success of business corporation.
Dell computer is one of the most extraordinary success story in
business . Michael Dell started in 1984 , became the highest
performer & largest producer of computer’s system .The
company is quoted as the best example for logistic & supply chain
system. How did Dell register persistently high profitability?
South West Airlines has long been a high performer in U.S airline
industry , known for low fares ( 30% below its rivals) low cost
structures & superior profitability.
Cisco Systems started in 1984 as a networking product
company ,went public in 1990 with annual sales of $ 70 Mn, &
evolved as $19 bn organization having no debt & ROI of 22 % by
1999.
The success of these organization lies in strategically planned, executed
& monitored business with strong leadership quality which exhibited
willingness to change with environment. 125

126. Strategic Planing & Control in an organization.
Corporate
level
planing
Control Strategic
Business
Unit level
planing
Operational Control
level
planing &
Control
126

127. Measure financial & non financial performance of activities .
Identify the functions deviating from the organizational goal &
objective.Take corrective action .
( Financial : Top line revenue , Bottom line profit , ROI , EVA , PAT
ROCE Working capital, Budget , Debt control , NPA etc)
Non Financial : Customer satisfaction , Employee satisfaction &
retention, Productivity & efficiency of the employee , Technology
& processes . Market share maximization. Business integrity &
commitment . ( Corporate Governance ) Supplier integration
Conducting Management Audit : Employee (People) audit , process
audit , Financial audit, Infrastructure audit , Supplier audit
127

128. 128

129. 129

130. 130

131. 131

132. Competitive strategy in a declining industry .
Leadership through Process, quality etc.
Niche strategy through differentiated level of product & service
Harvest strategy by optimizing the cash flow
Divest strategy by selling off the business
The choice of the strategy depends upon intensity of the competition
& the firm’s ability to address it.
132

133. Corporate performance :
Why divide business in to responsibility centers.
Is performance affected by governance & business ethics.
What made the collapse of Enron ,a principal player in the
natural gas pipe line operator in 90’s
The causes of poor performance.
Lack of ownership & responsibility at various management
levels .
High cost structure
lack of integrity & Business ethics.
Improper mechanism for measuring the business
performance.
Poor organizational culture
133

134. Economic Value Added.
Why EVA ?
Performance measures like ROI, ROCE , ROE ,EPS Net profit ,
operating profit evaluate the performance of the business .
They lack proper bench mark for comparison . Shareholders
require minimum rate of return on their investment depending
on the risk in the investment. Their wealth is measured in terms
of capital appreciation reflected in the market value of shares &
dividends . Management’s ability to meet the expectation of the
share holders are reflected in terms of the share value.
EVA helps to focus the share holder’s return & mould the
managers of the organization to work like a owners of their
business.
134

135. Concept of EVA : Started by US financial advisory ; Stern Stewart
& Co.Called Economic Income. Subsequently called EVA.
An organization creates hare holder’s value only if it generates
return in excess of the cost of capital.
Net profit > the cost of capital
Hence EVA = NOPAT -( Total Capital Employed X average cost of
Capital)
= Excess of return over CoC
If the EVA is negative , it implies that the organization is destroying
the shareholder’s wealth , even though organization reports positive
& growing EPS, or ROCE. .
ROI verses EVA : 1. EVA measures the real profitability . It
indicates the shareholder’s wealth for the risk they take in investing
the capital in the organization. 135

136. 2.EVA encourages growth in new products, new equipment , market,
quality measures etc
3.Builds sensitivity towards the resource mobilization , allocation &
investment decision.
4.It measures the effective productivity of all factors of production.
Increasing EVA :
1. Increase NOPAT with the same amount of capital
2. Reduce the capital employed without affecting the earning.
( Discard the unproductive assets)
3. Investing in the projects , products etc where the earning is more
than the CoC .
EVA & Managerial performance
1.Builds the competitive spirit among the managers to create value
for the share holders , by focusing how capital is being used to create
higher cash in flow. 136

137. 2. Develops the overall competency of the organization to earn
higher
return operating in a similar risk seeking business environment.
3. Makes the mangers to care about the assets & income & helps
them to assess properly the trade off between the two.
4. It helps the managers to focus on the value creating activities
rather than wasting time & energy with accounting principles.
5 EVA linked Incentive : There is no upper limit of incentive for
performing managers who helps to increase the EVA . It creates
tremendous peer pressure.
137

138. Who is using EVA in Indian corporate sector
TCS
TATA Motors
TISCO
ICICI bank
Eureka Forbes
Godrej group( GCPL, Godrej Properties , Godgej Sara Lee , Godrej
Agrovet Godrej Food )
NIIT
Insights : Godrej recorded an EVA improvement of 35 Cr (FY01-02)
Sales grew 24%, Profit grew 71%
The EVA target set by the organization was not only met but
exceeded . ED & President
EVA has no only helped the Godrej Group reward richly
outstanding performance but also build entrepreneurial spirit.
138

139. Implementing EVA in an organization
4 Step process :Known as 4 M approach
1 Measurement
2 Management system
3. Motivation
4. Mindset
139

140. Evaluation & Management Control
Management audit Process.
Strategic
People Process Financial Infrastructure
plan
audit audit audit audit
Work audit
Compensation Policy environment BSC
competency Quality process
performance IT process (ERP)
productivity CSI
B/M Supplier rating
LTQ
Operation audit versus & management audit
140

141. Performance measures are split in four categories
I Financial Factors Soundness of the organization to
share holders
II Customer Factors Quality , Speed effectiveness, efficiency
with which the organization
deliver the customer satisfaction
III Internal Business Internal business process support the
organization or Process not ?
IV learning & Growth Continuos improvement & building
capability to sustain change & achieve
competitive dominance
141

142. BSC Frame work
Financial
perspective
Strategic Internal business
Customer & process
goals &
perspective perspective
objectives
Learning &
growth
142