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Mmi strategy 2
- 1.
- 2. Purpose of SituationAnalysis Creates a shared understanding of the company and the environment in which it operates, including: Industry structure Basic facts about competitors Basic facts about customers Assess Company’s core capabilities Forces shaping the industry FOUNDATION for STRATEGY DEVELOPMENT
- 3. 1. Industry structureThe fundamental unit of strategic analysis is the industry Industry Structure Relative Position Within the Industry STRATEGY Company economic performance
- 4. Industry Structure –Porter’s five forces BARGAINING POWER OF SUPPLIERS BARGAINING POWER OF CUSTOMERS THREAT OF SUBSTITUTES THREAT OF NEW ENTRANTS RIVALRY AMONG EXISTING COMPETITORS
- 5. Industry Structure –Porter’s Six Forces BARGAINING POWER OF SUPPLIERS BARGAINING POWER OF CUSTOMERS THREAT OF SUBSTITUTES AVAILABILITY OF COMPLEMENTS RIVALRY AMONG EXISTING COMPETITORS THREAT OF NEW ENTRANTS
- 6. Rivalry Determinants Industrygrowth Fixed costs/value added Intermittent overcapacity Product differences Brand identity Switching costs Concentration and balance Informational complexity Diversity of competitors Corporate stakes Exit barriers RIVALRY AMONG EXISTING COMPETITORS
- 7. Entry Barriers Economiesof scale Proprietary product differences Brand identity Switching costs Capital requirement Access to distribution Absolute cost advantages Government policy Expected retaliation THREAT OF NEW ENTRANTS
- 8. Determinants of SupplierPower Differentiation of inputs Switching costs of suppliers and firms in the industry Presence of substitute inputs Supplier concentration Importance of volume to supplier Cost relative to total purchases in the industry Impact of inputs on cost or differentiation Threat of forward integration relative to threat of backward integration by firms in the industry BARGAINING POWER OF SUPPLIERS Supplies
- 9. Determinants of SubstitutionThreat Relative price performance of substitutes Switching costs Buyer propensity to substitute THREAT OF SUBSTITUTES
- 10. Determinants of BuyerPower Bargaining Leverage Buyer concentration vs. firm concentration Buyer volume Buyer switching costs relative to firm switching costs Buyer information Ability to backward integrate Substitute products Pull-through Price sensitivity Price/total purchases Product differences Brand identity Impact on quality/performance Buyer profits Decision makers’ incentives BARGAINING POWER OF CUSTOMERS
- 11. A Sixth Force- Complements … Crucial for a successful strategy is to establish: Who are your complementors What is your strategy with respect to them … pay more for your two products together than for your product alone plus the other firm’s product alone Your Complementor … accept less to serve both of you together than they would if supplying you alone plus the other firm alone With respect to clients With respect to suppliers
- 12. 2. Basic factsabout Competitors Develop the competitors profile including: Economic performance Current market position – such as share Core capabilities Strengths and weaknesses Aspirations Strategies going forward Determine the relative value proposition of the client’s and competitors’ products and services as perceived by the customer
- 13. Basic facts aboutCompetitors - Example TVR 1 PRO TV Antena 1 Acasa TV Prima TV Realitatea TV Overall share Investments Awareness Strength of relation-ships Coverage 20% 16% 14% 8% 5% 3.4% Strong Weak Growth (CAGR 2005-2003) 15% 9% 7% 6% 5% 3% Profitability (ROIC) 20% 13% 11% 14% 10% 8% Strengths Weakness
- 14. Defining Value Proposition… clear, simple statement of the perceived benefits a product or service will provide to its target customers and the perceived price (cost) of those benefits What Customers? Which Needs? What Relative Price Which products? Which features? Which services? What end users? What channels?
- 15. 3. Basic factsabout Customers A. Understand customer behavior Focus Groups Industry quantitative studies (e.g. SNA for Media) B. Segment the customer Base Is important especially for your business clients (advertisers) C. Assess attractiveness of different segments
- 16. A. Understand Customerbehavior Personal spending on press in the last month (000 persons) % of total urban population More than RON 50 324 3.6 20.1-50 RON 1164 12.9 10.1-20 RON 1912 21.1 6.1-10 RON 1974 21.8 2.1-6 RON 1560 17.3 0.1-2 RON 678 7.5 0 RON 1292 14.3
- 17. B. Segment theCustomer Base Segmentation approaches Constraints Perceptions Needs Behaviors Relationship Occasions Firmographics Profitability Attitudes How is the customer's organization characterized? What does the customer do in the marketplace? Which key aspects have defined the customer's lifecycle? How financially sound is the relationship with the customer? How does the customer respond to different situations? Which limitations are impacting the customer's actions? What does the customer believe about the marketplace? What underlying beliefs are shaping the customer's mindset? What value does the customer require or want?
- 18. Segmentation Techniques (1)Approach Firmographics Behaviors Relationship Profitability As a “first cut” to understand relative penetration across business categories During sales process As a first-level segmentation in business-to-business markets As a “quick proxy” to test range of customer needs As a test of marketing effectiveness To identify likely cross-selling targets As a broad tool for classifying opportunities with customers To anticipate needs across life-cycle To pinpoint retention problems across tenure groups As a key tool to target a more profitable mix of customers To upgrade the profitability of customer accounts To quantify the impact of marketing programs over time When to use Key insights Data easy to obtain Companies with similar firmographics can have very different needs and relationship profitability One of the best methods for segmentation in business-to-business Do not place too much emphasis on internal client behavioral information Accurate data can be hard to find Key drivers of customer profitability are loyalty and retention Account relationship segmentation can yield quick insights that can boost sales force productivity Back-of-the-envelope profitability can be wrong or misleading Building solid customer economics takes time Data can be hard to find Data source Third party databases Industry trade assoc. Customer information files Customer information files Custom market research Customer information files Custom market research Customer information files Custom market research
- 19. Segmentation Techniques (2)Approach Needs Attitudes Perceptions Constraints Occasions As a primary input into the development of the value required or wanted As a supplement to needs-based segmentation As a means to uncover latent needs that the customer cannot articulate To identify customers who are at different satisfaction levels To generate key insights into brand strategy In combination with behavioral and needs-based segmentation approaches to fully understand factors which may be limiting a customer’s market actions When customers are likely to behave differently in different situations When the marketer is interested in creating multi-mode marketing programs Key insights Must consider needs of multiple decision-makers and influencers Most useful when high emotional components are present (consulting) A customer’s perception is their reality Can provide useful insights into market opportunities, but should not provide the basis of segmentation Some constraints are more evident than others – defining constraints is a powerful tool for business expansion Popular in consumer marketing Can surface insights for product development/marketing communications Custom market research Custom market research Custom market research Custom market research Team brainstorming Account rep interviews Historical account data Custom market research Data source When to use
- 20. C. Assess attractivenessof different segments Relative price points ROICs per segment Cost to serve Size of addressable customer base Volume usage Price Customer demographics Unit volume growth Price trends Segment attractiveness How large are the segments? What are the growth expectations? How profitable are the segments?
- 21. 4. Assess Company’sCore Capabilities CORE CAPABILITIES Operational skills Privileged assets Growth-enabling skills Special relationships
- 22. Operational Skills STEP1 Generate an initial list of specific skills and knowledge needed to drive the business system STEP 2 Validate each item against three measures: Drives value Superiority Sustainability
- 23. Privileged Assets -Examples Example Distribution network Brands and reputations Customer information Conferred advantage Increase sales of existing products and services Reduce the cost of new product launches Extend brand to launch products without threatening credibility of current business Maximize sales
- 24. Growth-enabling Skills ExampleAcquisition and post-merger management Financing and risk management Capital management People development Conferred advantage Save costs Accelerate growth Advance along promising growth paths that are too costly or risky for competitors to follow Enables managers to make a commercial success of projects that other companies might reject because of poor returns Consistently develop managers who build new businesses
- 25. Special Relationships Rightto bid Access Right to match Right to win Efficiency Influence/ power Source of privilege Degree of privilege Stronger advantage
- 26. 5. Forces Shapingthe Industry INDUSTRY DEMAND REGULATION TECHNOLOGY
- 27. Demand Demand Latentdemand Existing demand Future demand Time Today
- 28. Regulation … beaware of your industry governmental regulation State commissions set rates, approve investments, and affect number and size of competitors Government licenses delivery channel and regulates content
- 29. Technology … technologicalchange implies INNOVATION Costs Total costs Variable costs Total costs Variable costs Time New technology Old technology Abandonment of old technology Likely time of introduction “ Blitzkrieg” with new technology Earliest time of introduction
Editor's Notes
- #3 The purpose of situation analysis is to create a shared understanding of the company and the environment in which it operates. While aspirations provide a context and focus, a shared understanding of the company’s situation and industry environment creates the foundation for strategy development. This chapter lays out an approach for building this fact base including the company’s baseline economics, basic facts about customers and competitors, forces shaping the industry, nature and level of uncertainty, industry structure and basis of competition.
- #4 The fundamental unit of strategic analysis is the industry Defining the relevant industry is essential to strategy Company economic performance results from two distinct causes: Industry Structure (including overall rules of competition) Relative Position Within the Industry (generating sources of competitive advantage) Strategy must encompass both!
- #5 The first determinant of a firm’s profitability is industry attractiveness. In any industry, the rules of competition are embodied in five competitive forces: The entry of new competitors The threat of substitutes The bargaining power of buyers The bargaining power of suppliers The rivalry among existing competitors The five forces determine industry profitability because they influence the prices, costs, and required investment of firms in an industry- the elements of ROI. In a particular industry, not all of the five forces will be equally important, but the five-forces framework allows a firm to see through the complexity and pinpoint those factors that are critical to competition in its industry, as well as to identify those strategic innovations that would most improve the industry’s – and its own – profitability.
- #7 All the above factors must be considered when you develop de situation analysis.
- #8 All the above factors must be considered when you develop de situation analysis.
- #9 All the above factors must be considered when you develop de situation analysis.
- #10 All the above factors must be considered when you develop de situation analysis.
- #11 All the above factors must be considered when you develop de situation analysis.
- #12 Definition: A firm is your complementor with respect to customers if customers are willing to pay more for the two products together than they would for your product alone plus the other firm’s product alone A firm is your complementor with respect to suppliers if suppliers are willing to accept less to serve both of you together than they would if supplying you alone plus the other firm alone Complementors can be critical for your business success. Example of complementors: – JVC vs. Sony in VCRs – PCs and application software When creating a strategy is essential to establish: Who are your complementors What is your strategy with respect to them?
- #13 Now we move onto looking at the competitors. The first step is to create a competitor profile, from which the team can make important inferences. For instance, from the example summary above, the team might infer that one third of the market is held by weak or uncommitted players. There is no classic or standard way for developing these profiles. However, teams should endeavor to include all major competitors and the following facts in the profile: Economic performance Current market position – such as share Core capabilities Strengths and weaknesses Aspirations Strategies going forward Information to compile such a chart can be often found in annual reports, analyst reports, trade press or interviews where confidentiality issues do not exist.
- #14 In media useful information about your competitors can be found in annual reports, analyst reports, trade press or interviews. The information related to your competitors end-consumers behavior is available through specialized media studies such as SNA-Focus (developed by Romanian Audit Bureau of Circulation), offering most detailed information related to all media end-consumers profile.
- #15 The second part of the competitor analysis is to determine the relative value proposition of the client’s and competitors’ products and services as perceived by the customer. A value proposition is a “clear, simple statement of the perceived benefits a product or service will provide to its target customers and the perceived price (or cost) of those benefits.” For example: Canon Camera : an easy-to-operate, quality 35mm camera that retails for under $200 Volvo : the safest station wagon your family can ride in at a 20 percent premium to American wagons Value can be defined as perceived benefit(s) minus perceived price. There are several potential approaches for measuring the relative value proposition : relative price for similar product/service market share trends for a similar product/service relative brand position direct customer feedback the economic value to the customer Teams can use one, or a combination of several, of these approaches to determine the relative competitiveness of their client’s value proposition.
- #16 One of the key steps of situation analysis is to look at the customer base, beginning with understanding customer buying behavior . By understanding key drivers of a buying process, teams can more easily segment the market and identify opportunities to maximize the potential of a client’s product or service offering. Customer interviews are often useful for generating qualitative hypotheses on buying behaviors, but the sample sizes tend to be too small to be conclusive. For media industries, the end-consumer behavior can be easily analyzed using special media studies like SNA-Focus (developed by Romanian Audit Bureau of Circulation), that enables the creation of your media (TV, newspaper, magazine, internet, etc) consumer general profile including: socio-demographics (age, sex, ESOMAR, average salary, region, etc), media digest behavior (product, frequency, duration, etc), general interests, free time activities, consuming behaviors (all brands on the market), etc. Focus groups are also a good method to test a new product/service or simply check the quality of existing ones with your consumers. Segment your customer Base is important particularly with your business clients (advertisers), while assessing attractiveness of each segment may help you deduce the segments with high potential and concentrate your attention on this specific categories
- #17 There are several methods to analyze your customers. This methods include focus groups (customer interviews), surveys and industry special studies/surveys. Customer interviews are often useful for generating qualitative hypotheses on buying behaviors, but the sample sizes tend to be too small to be conclusive. Surveys are very useful in testing products portfolio and can be organized in-house or by contracting specialized marketing and researchinstitutes (e.g. Imas, Metromedia, GFK Romania, Irsop, etc. For media industries, the end-consumer behavior can be easily analyzed using special media studies like SNA-Focus (developed by Romanian Audit Bureau of Circulation), that enables the creation of your media (TV, newspaper, magazine, internet, etc) consumer general profile including: socio-demographics (age, sex, ESOMAR, average salary, region, etc), media digest behavior (product, frequency, duration, etc), general interests, free time activities, consuming behaviors (all brands on the market), etc. Is important to remember SNA-Focus study’s universe: urban Romanian population, 14-64 y.o. An example of media consumers behavior available with SNA-Focus Study is given in the table above. The study shows that only 3.6% of universe spend more than RON 50 on press every month. Over 43% spend between 6 and 20 RON monthly on newspapers and magazines.
- #18 Individual customers do not always fall into the same segment when buying a product (advertising for example); when buying advertising a customer may fall into a “brand segment”, looking for the most visible place for its advertisement, and a “price segment”, trying to spend less. There is no absolutely correct approach to segmenting customers. Often multiple approaches are used in combination to get a good solution. Teams should ensure the segments they develop are distinct from each other, and fairly homogeneous internally.
- #19 Both business-to-business and consumer segmentation can be performed using the techniques outlined above. However, teams performing a business-to-business segmentation often face additional challenges: Multiple decision makers . Often many different individuals are involved in the purchase decision, each looking to satisfy his or her own needs Different buying processes . Different business enterprises have different structures and operating procedures. Therefore, different businesses purchasing the same product may approach that purchase in radically different ways Organizational change . Constant changes in organizational structures and operations can often change the “rules of the game” Complex product packages and pricing . Negotiated contracts and pricing further escalate the complexity of getting clear customer information Sales force . Often the main lever for building a customer relationship is the salesperson. The salesperson can help cement personal relationships. Their role, however, usually precludes in-depth customer understanding
- #20 The “best” segmentation approach will ideally meet these seven criteria: Actionable – the segmentation must address the business objective Differentiable – segments should be different between and similar within Defensible – there is potential for a first mover advantage; competitors cannot as easily serve these segments or follow immediately Profitable – there are profit opportunities identified in the segments, reflecting segment size, cost to serve, openness to new product ideas and insulation from competition Identifiable – segments can be targeted or identified either by descriptive data, such as demographics, or by answers to several classification questions Reachable – the company must be able to reach the segments with the appropriate communication messages and the product/services Executable – the company has the skills and systems to implement the solution or can develop them – simpler segmentations are easier to implement than complex ones
- #21 Segment attractiveness is a function of current and future segment size and profitability. How large the segment is, how much that segment is changing – such as customer churn – how easy it is for the client to serve that segment and how much that segment is willing to pay for the product are all analyses a team should perform to understand attractiveness. The best way to compare profitability per segment is to collect data on average ROIC for a representative group of players in the industry. The data must be collected for a period covering at least one full business cycle in order to give a basis for solid conclusions.
- #22 An important element of the company profile are the organization’s core capabilities. Core capabilities reside in one of the following four areas: Operational skills – superior, sustainable and valuable competency at managing the business system Privileged assets – physical or intangible assets that are hard to replicate and confer competitive advantage on their owner 3.Growth-enabling skills – general growth-enabling skills such as acquisition, deal structuring, financing, risk management, and capital management 4.Special relationships – relationships that can facilitate entry into new industries and geographies as well as bring deals to the table – for example, ties with existing customers and suppliers that could provide growth opportunities or ties to powerful businesses, and governments that could unlock opportunities not accessible to others
- #23 To help a client determine its core competencies, we suggest a two-step process. In the first step, we generate an initial list of specific skills and knowledge needed to drive critical subprocesses across the company’s business system. The second step is to take that list and validate each item against three measures: 1. Drives value – The competency must drive value creation. This test must be satisfied at Drives significant value relative to other competencies and/or structural factors Is consistent with the firm’s strategic objectives 2. Superiority – The competency should produce demonstrably and consistently superior results when measured against competitive benchmarks 3. Sustainability – A competency must convey a sustainable advantage, at least in the medium term. An additional check is to determine whether the competency is leverageble, that is, it can be leveraged across more than one business unit or potential growth area.
- #24 Privileged assets are physical or intangible assets that are hard to replicate and confer competitive advantage on their owner. They include infrastructure in privileged locations, intellectual property, regulatory rights, distribution networks, brands and reputations, and customer information.
- #25 These are general skills, such as acquisition, deal structuring, financing, risk management, and capital management that create and sustain growth. While operational skills tend to be specific to each of a company’s business, these growth-enabling skills are transferable from one market or business unit to another. Because of their broad applicability, they usually reside in the corporate center and/or business group level, from where they can be targeted at specific growth opportunities.
- #26 Relationships have mattered for as long as people have done business. Special relationships can be in any part of the value chain – customers, suppliers, regulators, capital providers, technology development partners – but to be considered a core capability it must be: Unique to the client and hard to replicate Confer some competitive advantage Be leveragable into new areas The graphic above develops a valuation matrix to assess the value of existing and/or possible privileged relationships. On the vertical axis is the degree of privilege – the right to bid, match, win – and on the horizontal access is the type of privilege – access, efficiency, influence/power. In this matrix, a relationship in the upper right-hand corner is in a position of strongest advantage. However, it is important to understand that privileged relationships are often quite complex and constantly changing.
- #27 There are three key external forces that can drive change in any industry and must be taken into account when developing a strategy: Demand Regulation Technology Many people have asked “why just these three forces?” If you consider these forces broadly you will see that they cover a breadth of potential change. For example, demographic and macroeconomic shifts such as market convergence or depression drive changes in demand, and government policies which could result in trade wars or trade agreements are part of regulation forces.
- #28 A good strategy must analyze all forms of demand an their future possible trajectory: Existing demand Latent demand is the demand for products and services that offer previously unavailable benefits and/or require new customer behaviors. For example, the original Sony Walkman unleashed latent demand for personal music systems that had not existed before. Recognizing latent demand is important because these situations often involve substantial financial risks. Future demand is the extension into the future of the demand for existing products. Total market demand requires a broad definition of the market. A forecast of total market demand could prove wrong if significant product substitution exists but is excluded from the definition of the market. Changes in the relative prices of potential substitutes can easily lead to changes in customer behavior. Similarly, completely new products can displace an existing product, which was assumed to comprise the entire market. The future demand forecasting must consider all this variables.
- #29 Regulation is a factor to consider in every industry where a governmental body determines policies on prices, investment levels, and/or profits. Influences on your industry: State commissions set rates, approve investments, and affect number and size of competitors Government licenses delivery channel and regulates content
- #30 Technological change is present in almost every industry. The question companies consistently face is not whether innovation is occurring, but rather, when will innovation be so significant as to alter the course of the industry? It is usually difficult to discern at early stages whether a certain innovation or change is a minor development or evolution within the current state of the business system or a true technological discontinuity that fundamentally changes the game for all players. A way to think about the timing of technological discontinuities is illustrated in the above graph. Analyzing the cost structure and dynamics of a new product/system/process and competitive reaction relative to current products/systems/processes often allows a company to identify the period of transition in which the adopter of the new technology – “attacker” – is vulnerable to price reductions by competitors and the timing of obsolescence of old technology. As part of developing and maintaining a technology strategy, companies should evaluate specific technologies at four levels. Technological issues – Which technology could yield a commercially viable product? Does the company have a relative competitive advantage in pursuing this technology? Business issues – Is there potential for new products/capabilities, or just for incremental modifications? What is the best mechanism to invest in this technology? Operational issues – What changes does this technology imply? What related assets will management require to effectively deploy this technology? New technologies and trigger events – Are new technologies emerging or developing at a rate that alters the road maps? What events/milestones pace investments to either stop or step up efforts for a given technology? Who are the top people developing the new technologies and what will it take to hire them?