Strategic Planning Chapter 5: The Company and The Market (5.1-5.9)

1. Strategic Planning and
Controlling
MODULE 5

2. MODULE 5
The Company and
The Market
5.2 The Demand Curve
5.3 The Competitive Reaction
5.4 Segmentation
5.5 Product Quality
5.6 Product Life Cycles
5.7 Portfolio Models
5.8 Supply
5.9 Markets and Prices
5.1 The Market

3. Learning Objectives
• To develop a framework for analysing market demand.
• To analyse product life cycles.
• To show why prices vary.
• To assess the importance of product quality.

4. The MARKET
A market is a place where two parties can gather to
facilitate the exchange of goods and services. The parties
involved are usually buyers and sellers.

5. The market establishes the prices for goods and other services.
These rates are determined by supply and demand.
Supply is created by the sellers, while demand is generated by
buyers.
The MARKET

6. The DEMAND CURVE
a graphic representation of the relationship between
product price and the quantity of the product demanded.

7. If the quantity changes by a large relative amount when price
is changed, the demand curve is said to be ‘elastic’,
if the quantity is not affected much by changes in price it is
said to be ‘inelastic’
The DEMAND CURVE
Revenue1 = P1 × Q1
Revenue2 = P2 × Q2

8. The Latin phrase ceteris
paribus means
"other things being equal."
It’s typically used to describe
an economic situation of cause
and effect while assuming that
all other factors stay the same.
Ceteris Paribus

9. Demand Factors
DETERMINANTS OF MARKET SIZE:
• Product life cycle
• Business cycle
• Exogenous shocks
• GNP elasticity
• Exchange rates
DETERMINANTS OF MARKET SHARE:
• Price
• Marketing

10. Demand Curve and Revenue & Market Share

11. The Competitive Reaction
The attempt to predict competitive reaction presents
many dilemmas, and the important point is to be aware
that such dilemmas exist, rather than attempt to
prescribe complex gaming rules.
Price setting can be used as a competitive tool and short
term revenue flows may be sacrificed in the pursuit of
wider strategic objectives.

12. The Competitive Reaction
A well known example is the ‘zero sum game’, where any
gain made by one party is at the expense of the other.
Game Theory

13. The Competitive Reaction
The Kinked Demand Curve
The idea of a sharp reduction in demand resulting from a price increase, and very
little increase in demand resulting from a price reduction.

14. The Competitive Reaction
Competitive Pricing
Price Leadership: the dominant firm in the industry announces its
price changes before all other firms, which then match the leader’s
price.
Limit Pricing: this is an attempt by a firm to erect an entry barrier by
charging a low price in order to deter entry.
Predatory Pricing: in this case a firm sets a price with the objective
of driving new entrants or existing firms out of business.

15. Segmentation
Segmentation allows a seller to closely tailor
his product to the needs, desires, uses and
paying ability of customers.
It allows sellers to concentrate on their
resources, money, time and effort on a
profitable market, which will grow in numbers,
usage and value.

16. Segmentation
Pricing in Segments
Price segmentation involves charging different prices to different
customers for a product or service that is the same or similar.
TIME OF PURCHASE LOCATION

17. Product Quality
Five approach to quality

18. Product Quality
Dimensions of Quality
performance
features
reliability
durability
overall perceived
quality
conformance
serviceability
aesthetics

19. Product Quality
Quality and Strategy
Managers must learn to think carefully about how their approach to quality
changes as a product moves from design to market, and they must devise
ways to cultivate these multiple perspectives. Attention must be focused on the
separate dimensions of quality; markets must be closely examined for any
untapped quality niches; and the organisation must be tailored to support the
desired focus.
Once these approaches have been adopted, cost savings, market share gains,
and profitability improvements can hardly be far behind.

20. Product Life Cycles

21. Product Life Cycles
INTRODUCTION
the product is
invented and
introduced to the
market; it can take
some time for
information about
the product to be
disseminated
GROWTH
the product
becomes
increasingly well
known, markets are
penetrated and it
possibly replaces
other products
MATURITY
all markets are
exploited and there
is no further
increase in sales
DECLINE
the product is
superseded by
technological
progress, or
substitutes
appear

22. Portfolio Models
The BCG Relative Share Growth Matrix
A BCG matrix helps businesses
analyze both the current and
future competitive landscape of
their industry, and then plan
accordingly.

23. Supply
The supply curve for an industry shows the amount
which companies in total would be willing to sell at different prices, holding
other factors constant. The position and shape of the supply curve depends
on production costs

24. Supply
Shifting the Industry Supply Curve
The leftward shift in the supply curve caused by an increase in the price of oil.
A shift to the right would occur if the opposite happened, i.e. if the price of oil fell.

25. Markets and Prices
The interaction of demand and supply
produces prices, which serve as signals to seller and buyers.

26. REFERENCES
Book
• Scott, A. (2003) Strategic Planning
Web page
• https://www.investopedia.com/terms/m/market.asp
• economictimes.indiatimes.com/definition/segmentation
• https://blog.pricebeam.com/
• http://bancothethanhcong.com/topic/introduction-to-quality
• https://www.businessnewsdaily.com/5693-bcg-matrix.html
Video
• https://www.youtube.com/watch?v=fccVLVEnjLw (slide 6)
• https://www.youtube.com/watch?v=27scYCyhd5o (slide 14)

27. Thank you