Lecture Two

value-delivery network

(also called a supply chain): competitive advantages with suppliers, distributors, and customers

Business realignment may be necessary to maximize core competencies. - steps?

(re)defining the business concept or "big idea," (re)shaping the business scope, (re)positioning the company's brand identity.

PORTER'S GENERIC STRATEGIES

*Overall-cost leadership.* must be good at engineering, purchasing, manufacturing, and physical distribution. less skill in marketing. Problem: other firms will compete with still-lower costs *Differentiation.* superior performance in an important customer-benefit area valued by a large part of the market. *Focus.* the business focuses on one or more narrow market segments, pursues either cost leadership or differentiation within the target segment.

Strategic marketing alliances

*Product or service alliances.* One company licenses another to produce its product, or two companies jointly market their complementary products or a new product. For instance, Bell Canada and Microsoft—two service businesses—have joined together in a marketing alliance, Sympatico/MSN. *Promotional alliances.* One company agrees to carry a promotion for another company's product or service. For example, the Aeroplan rewards program promotes the products and services of its partners, including Fairmont hotels, *Logistics alliances.* One company offers logistical services for another company's product. For example, Warner Music Group and Sub Pop Records created the Alternative Distribution Alliance (ADA) in 1993 as a joint venture to distribute and manufacture records owned by independent labels. *Pricing collaborations.* One or more companies join in a special pricing collaboration. Hotel and rental car companies often offer mutual price discounts.

Assigning resources to each SBU methods

*The GE/McKinsey Matrix* classifies each SBU by the extent of its competitive advantage and the attractiveness of its industry. Management can decide to grow, "harvest" or draw cash from, or hold on to the business. *BCG's Growth- Share Matrix*, uses relative market share and annual rate of market growth as criteria to make investment decisions, classifying SBUs as dogs, cash cows, question marks, or stars. *Newer methods rely on* shareholder value analysis, and on whether the market value of a company is greater with an SBU or without it (whether it is sold or spun off). -These value calculations assess the potential of a business based on growth opportunities from global expansion, repositioning or retargeting, and strategic outsourcing.

nine strategically relevant activities that create value and cost in a specific business.

*The primary activities are* -Inbound logistics, or bringing materials into the business -Operations, or converting materials into final products -Outbound logistics, or shipping out final products -marketing, which includes sales service. *Specialized departments handle the support activities* -Procurement -technology development -human resource management -firm infrastructure. (Infrastructure covers the costs of general management, planning, finance, accounting, legal, and government affairs.)

3 Strategic business units (SBUs) characteristics:

1. It is a single business or collection of related businesses that can be planned separately from the rest of the company. 2. It has its own set of competitors. 3. It has a manager who is responsible for strategic planning and profit performance and who controls most of the factors affecting profit.

The business unit sets these objectives and then manages by objectives (MBO). MBO system to work, must meet four criteria:

1. They must be arranged hierarchically, from the most to the least important. 2. Objectives should be stated quantitatively whenever possible. 3. Goals should be realistic. 4. Objectives must be consistent. It is not possible to maximize both sales and profits simultaneously. -Trade-offs include short-term profit versus long-term growth, deep penetration of existing markets versus development of new markets, profit goals versus nonprofit goals, and high growth versus low risk

Strategic planning

1. managing a company's businesses as an investment portfolio 2. assessing each business's strength by considering the market's growth rate and the company's position and fit in that market. 3. establishing a strategy.

Opportunities ex

1.A company may benefit from converging industry trends and introduce hybrid products or services that are new to the market. Example: At least five major cell phone manufacturers released phones with digital-photo capabilities. 2. A company may make a buying process more convenient or efficient. Example: Consumers can now use the Internet to find more books than ever and search for the lowest price with a few clicks. 3.A company can meet the need for more information and advice. Example: Guru.com facilitates finding professional experts in a wide range of fields. 4.A company can customize a product or service that was formerly offered only in a standard form. Example: P&G's Reflect.com website is capable of producing a customized skin-care or hair-care product to meet a customer's need. 5.A company can introduce a new capability. Example: Consumers can now create and edit digital iMovies with the iMac and upload them to an Apple web server to share with friends around the world. 6.A company may be able to deliver a product or a service faster. Example: FedEx discovered a way to deliver mail and packages much more quickly than the U.S. Postal Service. 7.A company may be able to offer a product at a much lower price. Example: Pharmaceutical firms have created generic versions of brand-name drugs.

The customer relationship management process

All the activities involved in building deeper understanding with, relationships with, and offerings to individual customers.

The customer-acquisition process

All the activities involved in defining target markets and prospecting for new customers.

The market-sensing process

All the activities involved in gathering market intelligence, disseminating it within the organization, and acting on the information.

The fulfillment management process

All the activities involved in receiving and approving orders, shipping the goods on time, and collecting payment.

The new offering-realization process.

All the activities involved in researching, developing, and launching new high-quality offerings quickly and within budget.

Vision

Aspirational statement/description of what an organization is trying to become, in an ideal world, within a given category, including its desired market position State what are you trying to accomplish from a business and financial perspective

Assessing growth opportunities

Assessing growth opportunities planning new businesses, downsizing, or terminating older businesses. If there is a gap between future desired sales and projected sales, corporate management will have to develop or acquire new businesses to fill it. process planning: corporate planning -> division planning -> business planning -> product planning Implementing: Organizing -> implementing Controlling: Measuring results -> Diagnosing Results -> taking corrective action

Strategic levels

Corporate headquarters is responsible for designing a corporate strategic plan to guide the whole enterprise; it makes decisions on the amount of resources to allocate to each division, as well as on which businesses to start or eliminate. Each division establishes a plan covering the allocation of funds to each business unit within the division. Each business unit develops a strategic plan to carry that business unit into a profitable future. each product level (product line, brand) within a business unit develops a marketing plan for achieving its objectives in its product market.

Market-oriented strategic planning

Develop and maintain a fit between An organizations objectives, skills, and resources The changing opportunities in the marketplace

The Business Mission

Each business unit needs to define its specific mission within the broader company mission.

successful business practice (seven Ss)

The first three elements—strategy, structure, and systems—are considered the "hardware" of success. The next four—style (employees share common way of thinking) , skills, staffing, and shared values—are the "software."

product orientation vs market orientation

we run a railroad vs we are a ppl mover

Establishing strategic business units (SBUs)

Viewing businesses in terms of customer needs can suggest additional growth opportunities. *A target market definition* tends to focus on selling a product or service to a current market. -ex. Pepsi target market is everyone who drinks carbonated soft drinks, and competitors are other carbonated soft drink companies. *A strategic market definition*, however, also focuses on the potential market. -ex. Pepsi considered everyone who might drink something to quench his or her thirst, its competition would include noncarbonated soft drinks

Defining the corporate mission

accomplish something: to make cars, lend money Define the *category / category structure* in which you compete (within cola drinks or soft drink category) Define your *geographical boundaries* (Canada, or global) Define your *relative market position* (links to your overall financial objectives) • *Dominant* - #1 share position (Coke) • *Competitive* - #2 significant player (Pepsi) • *Convenient* - not a dominant force, can carve out a niche (PC)

diversification opportunities:

add attractive businesses that are unrelated to current businesses Disney adding commercial goods and theme parks (beyond film producing)

Mission statements

are at their best when they are guided by a vision, an almost "impossible dream" that provides a direction for the company for the next 10 to 20 years. -A short, simple statement of what the brand/organization is in the business of doing right now (vs. Vision - aspirational or future focus) -Core purpose and focus right now -Usually related to the specific sector it operates in 1. They focus on a limited number of goals. 2. They stress the company's major policies and values. 3. They define the major competitive spheres within which the company will operate. - Industry, product and applications, competence (range of tech), market segment (high performing sport cars), vertical (number of channel levels from raw material to final product and distribution), geographical 4. They take a long-term view. 5. They are as short, memorable, and meaningful as possible.

Integrative opportunities

build or acquire businesses that are related to current businesses Backward, forward or horizontal integration

product-market expansion grid.

considers the strategic growth opportunities for a firm in terms of current and new products and markets. *Market-penetration strategy:* could gain more market share with its current products in their current markets *market-development strategy:* find or develop new markets for its current products *product-development strategy:* develop new products of potential interest to its current markets *diversification strategy:* opportunities to develop new products for new markets

organization

consists of its structures, policies, and corporate culture

A business can be defined in terms of three dimensions:

customer groups, customer needs, and technology. Ex. a small company that defines its business as designing incandescent lighting systems for television studios. Its customer group is television studios; the customer need is lighting; and the technology is incandescent lighting.

significant microenvironment actors

customers, competitors, suppliers, distributors, dealers

key macroenvironment forces

demographic-economic, natural, technological, political-legal, social-cultural

scenario analysis

develops plausible representations of a firm's possible future using assumptions about forces driving the market and different uncertainties.

Senior management should identify and encourage fresh ideas from three groups who tend to be underrepresented in strategy making:

employees with youthful perspectives employees who are far removed from company headquarters employees who are new to the industry

the value chain

every firm is a synthesis of activities performed to design, produce, market, deliver, and support its product.

strategic group

firms pursuing the same strategy directed to the same target market

intensive opportunities

further growth within current businesses

goal formulation

goals to describe objectives that are specific with respect to magnitude and time. mix of objectives, including profitability, sales growth, market share improvement, risk containment, innovation, and reputation.

Competitive advantage ultimately derives from

how well the company has fitted its core competencies and distinctive capabilities into tightly interlocking "activity systems."

holistic marketing

integrating the value exploration, value creation (for the customer), and value-delivery activities (for the customer) with the purpose of building long-term, mutually satisfying relationships and co-prosperity among key stakeholders. Framework -Value exploration. How can a company identify new value opportunities? -Value creation. How can a company efficiently create more promising new value offerings? -Value delivery. How can a company use its capabilities and infrastructure to deliver the new value offerings more efficiently?

Risk analysis

involves obtaining three estimates (optimistic, pessimistic, and most likely) for each uncertain variable affecting profitability, under an assumed marketing environment and marketing strategy for the planning period. A computer simulates possible outcomes and computes a distribution showing the range of possible rates of return and their probabilities.

environmental threat

is a challenge posed by an unfavourable trend or development that would lead, in the absence of defensive marketing action, to lower sales or profit. Threats should be classified according to seriousness and probability of occurrence

A marketing plan

is a written document that summarizes what the marketer has learned about the marketplace and indicates how the firm plans to reach its marketing objectives

A marketing opportunity

is an area of buyer need and interest in which there is a high probability that a company can profitably satisfy that need. - supply something in short supply. -supply an existing product or service in a new or superior way. -- uncover possible product or service improvements: ---*Problem-detection method* by asking consumers for their suggestions ---*Ideal method* by asking consumers to imagine an ideal version of the product or service ---*consumption-chain method* by asking consumers to chart their steps in acquiring, using, and disposing of a product. often leads to a totally new product or service.

The traditional view of marketing:

is that the firm makes something and then sells it, with marketing taking place in the selling process. best chance of succeeding in economies marked by goods shortages where consumers are not fussy about quality, features, or style—for example, with basic staple goods in developing markets. The traditional view will not work in economies with many different types of people

The marketing plan

is the central instrument for directing and coordinating the marketing effort. Defines goals, guides company actions (cost, timing), guidelines for evaluating company's progress two levels: strategic and tactical. *The strategic marketing plan* lays out the target markets and the value proposition that will be offered, based on an analysis of the best market opportunities. *The tactical marketing plan* specifies the marketing tactics, including product features, promotion, merchandising, pricing, sales channels, and service.

The purpose of identifying the company's SBUs

is to develop separate strategies and assign appropriate funding.

A core competency

it is a source of competitive advantage in that it makes a significant contribution to perceived customer benefits it has applications in a wide variety of markets it is difficult for competitors to imitate. Competitive advantage also accrues to companies that possess distinctive capabilities or excellence in broader business processes. Whereas core competencies tend to refer to areas of special technical and production expertise, distinctive capabilities tend to describe excellence in broader business processes. SickKids core competencies: patient care, research, and education

Strategy Formulation

marketing strategy, compatible technology strategy and sourcing strategy.

Vision statements vs mission statement

may be state in terms of revenue, profit, volume, share goals or they may be conceptual Vision - describes a future state -Vs. Mission - statement of why an organization exists now

Feedback and control

more important to "do the right thing" (effectiveness) than "to do things right" (efficiency).

new view of business processes

places marketing at the beginning of planning. Instead of emphasizing making and selling, companies now see themselves as part of a *value-delivery process*. *choosing the value*, represents the "homework" marketing must do before any product exists. The marketing staff must segment the market, select the appropriate market target, and develop the offering's value positioning. The formula "segmentation, targeting, positioning" is the essence of strategic marketing. *Providing the value*. Marketing must determine specific product features, prices, and distribution *Communicating the value* by utilizing the sales force, sales promotion, advertising, and other promotional tools to inform and promote the product. Each of these value phases has cost implications.

Activity-based cost (ABC) accounting

should be applied to each marketing program to determine whether it is likely to produce results sufficient to justify the cost.

Market Opportunity Analysis (MOA)

to determine the attractiveness and probability of success, asking themselves the following questions: Can the benefits involved in the opportunity be articulated convincingly to a defined target market(s)? Can the target market(s) be located and reached with cost-effective media and trade channels? Does the company possess or have access to the critical capabilities and resources needed to deliver the customer benefits? Can the company deliver the benefits better than any actual or potential competitors? Will the financial rate of return meet or exceed the company's required threshold for investment?