MKT3601

Marketing Strategy

Lecture Notes
2009

School of Marketing, Tourism & Leisure

Faculty of Business & Law

 MODULE 1A

INTRODUCTION & OVERVIEW I

1.0 PLAN OF THE UNIT

The organisation of this unit corresponds with the generic marketing management
process. Basically, marketing planning consist of just three major sections and within each
section, there are numerous sub-sections. It all depends on how elaborate, technical or
detailed one wants to be.

The output of the planning process is, of course, the Plan (marketing plan, strategic plan,
strategic marketing plan, and so on).

The three main sections are:

♦ Situational Analysis (External and Internal)

♦ Strategy Development using a combination of Strategic Models & Concepts

♦ Planning for Market-Orientation and Strategy Implementation.

This planning process applies well at the SBU level. The process is broader at the
corporate level with fewer strategic options. At the product-market level, this process takes
the form of marketing planning with a marketing plan (with various degree of detail) as the
output.

2.0 SITUATIONAL ANALYSIS

This is the starting point of all planning. A good situational analysis is thorough, accurate,
relevant, & useful.

The most popular method is the SWOT Analysis. The SWOT is the outcome of previous
analyses of the external environment (industry analysis, customer analysis, competitors
analysis, environmental trends analysis, etc.) and internal environment (company
resources, skills, assets, current & past strategies, performance, etc.).

The resulting SWOT Matrix is the matching of Strengths & Weaknesses with Opportunities
& Threats in order to assist in the formulation of marketing strategies.

1
It is not difficult to understand the purpose or importance of this stage. It is the basis for
business opportunities. Companies create products (and services) but it is the
environment what creates the opportunity for these products to be successful. Some
proactive companies even attempt to influence the environment to create the business
opportunity. All companies operate in a dynamic environment and marketers need to
constantly look into the ever-changing environmental forces to identify attractive business
opportunities.

♦ Module 2: Market & Environmental Analyses

♦ Module 3: Customer & Competitor Analyses

♦ Module 4: Internal Analysis

3.0 STRATEGY DEVELOPMENT

This section involves the formulation of strategies for specific marketing situations.
Because of the changes in both the external environment and internal aspects of a
business, as identified in the Analysis section above, the business faces different
marketing situations. Based on a given marketing situation, management will “consult” an
appropriate strategic model (or a combination of some) in order to formulate the right
strategy.

♦ Module 5: Strategies for Different Competitive Positions

(Market leaders, market challengers, market followers and nichers)

♦ Module 6: Product Life Cycle Strategies

(Strategies for new, growth, matured & declining markets)

♦ Module 7: Portfolio Analysis & Planning

(Entry, build, protect, harvest, divest, etc.)

♦ Module 8A: Concept of Sustainable Competitive Advantage

♦ Module 8B: Strategies for Sustainable Competitive Advantages

(Differentiation, low-cost, focus, pre-emptive, synergy)

♦ Module 9: Growth Matrix/Strategies

(Market penetration, market development, product development,
diversification, vertical integration)

2
4.0 PLANNING FOR MARKET-ORIENTATION
& STRATEGY IMPLEMENTATION

Planning is on “paper”. Implementation or execution is the action. The effective

implementation of a strategy is a critical determinant of the strategy’s success. There are
many factors that can contribute to (or hinder) success. One crucial element is the
organisational acceptance and practice of the marketing concept. Many organisations
continue to pay lip-service to the marketing concept and can show little proof of
possessing the essential systems to become marketing-oriented. A budgeting system,
information system and control system are some of those essential set-ups necessary to
achieve marketing-orientation.

♦ Module 10: Organisational Structure & Systems

(formal planning systems, etc.)

♦ Module 11: Implementing the Strategy

(Structure, marketing systems, culture, people, etc.)

3
 MODULE 1B

INTRODUCTION & OVERVIEW II

1.0 INTRODUCTION

Businesses operate within a fast-changing and unpredictable environment. These forces

include customer dynamics, competition & market dynamics, and environmental forces.
These forces affect the organisation at all levels, often threatening it but at times creating
business opportunities.

We need to look out for these external changes and understand the nature (direction &
intensity) of these changes. Armed with such vital information, the organisation will be in a
better position to decide on new strategic directions for each of its businesses or products.
Finally, a set of systems should be in place to ensure that these planned strategies are
implemented effectively.

2.0 DEFINITION & COMPOSITION OF STRATEGY

There are different levels (a hierarchy) of objective & strategy depending on the level of
analysis, such as, corporate, SBU, or product-market. The word strategy has different
definitions and interpretations. A simplistic view would regard a strategy as a
means/method to achieve a given objective. A good strategy is more encompassing.
Strategy formulation should include or address the following dimensions:

Objectives

Also include terms such as, aims, goals, targets, ends, mission, etc. A strategy without an
objective is like doing something without a reason and not knowing how well something is
being done.

Objectives (at the various levels) are set first and these provide directions for the business,
i.e., for the formulation of strategies. Business objectives are usually performance goals
such as sales growth, market share, profitability, return on investment (ROI), etc.

Objectives should be stated quantitatively or in measurable terms. This way, one can
“keep score” of the progress and adjust the strategy if needed. It must be realistic and
achievable, and reflects the dynamics of the environment and organisational strengths.

4
Scope

Refers to the number and types of businesses to enter or the product mix it plans to offer,
etc. The scope is usually stated in the company’s mission statement and basically answers
the question, “what business are we in?” Too narrow a scope runs the risk of precluding
viable business/product alternatives. Too broad a scope may result in the organisation
losing focus (diverted attention from core business)

Skills & Assets for Sustainable Competitive Advantage

A competitive strategy needs to be based on the business’s unique or distinct

competencies. One that is difficult to imitate. Such competency can be a skill (a process
such as distribution) or an asset (such as a strong brand name).

Resource Allocation

Refers to the acquisition of needed resources and their allocation across business units,
product-markets, functional departments, marketing activities, and so on. Typically
involves financial and human resources, etc. Remember, strategies have to be funded!

Synergy

Organisations with multiple business units or product-markets can achieve synergy if these
complement and reinforce each other. Businesses that are related often share resources
and the combined result can be greater than the sum of their parts. Therefore, a good
strategy attempts to take advantage of synergistic effects as the basis for competitive
advantage.

3.0 MULTIPLE LEVELS OF STRATEGY

Strategic planning applies to all levels of an organisation. For most large, multi product
organisations, there are at least three levels. They are: corporate level, SBU level and
product-market level. We shall attempt to understand the nature and characteristics of
strategy at each of these levels. This concept is also known as the hierarchy of strategies
and it allows the manager to work on different levels of analysis.

3.1 Corporate-level Strategy

The corporate strategy is the responsibility of top management and can be very wide in
scope depending on the diversity and size of the corporation. For large organisations with
multiple business units, the major emphasis of the corporate strategy involves decisions
about resource allocation across its portfolio of strategic business units or SBUs (see next
section). An SBU is usually industry-defined with its own environmental factors affecting its
growth attractiveness. The corporate strategy embodies the corporate mission, which in

5
turn dictates corporate-level goals and objectives. Therefore, top management needs to
constantly monitor the larger business environment to determine what proportion of the
corporate resources should be allocated to each of the SBU to meet corporate objectives.
Management also has to decide on resource allocation to corporate functional areas such
as research and development, information technology and personnel management. These
functional areas are different from their SBU-level counterparts in that they are shared by
the multiple businesses or divisions of the organisation while the latter are specific to each
SBU.

At this level, corporate objectives are usually concerned with the overall corporate sales
performance, profitability, contribution to shareholders’ wealth, return on investment (ROI),
earnings per share, etc. Top management is accountable to the board (of
directors)/shareholders.

In short, the recurring questions at the corporate-level are (a) what businesses are we in?
(b) why? (c) what businesses should we be in, and (d) how much to allocate to each of
these businesses to meet the corporation’s overall goals and objectives?

3.2 SBU-level Strategy

Before we discuss SBU strategies, let us attempt to define and identify a strategic
business unit. An SBU is not naturally created every time a corporation starts a new
business or enters a new market. Basically, an SBU can consist of a group of related
businesses or products at different level. For example, the various brands or types of ice-
cream sold by a company may come under an SBU. Even that may be considered too
narrow or myopic for it is also strategically important to include other similar or competing
products such as yogurt, frozen yogurt, frozen snack foods, etc. under the same SBU and
define it as the, say, frozen confectionery business. This becomes apparent when we
consider next the ideal characteristics of an SBU.

An SBU is ideally a single business or a group of highly related businesses that is

strategically independent, i.e., can be planned on its own and can stand on its own. Also,
an SBU should be a profit centre with its managers having much control over, and
responsible for, the factors contributing to performance such as sales, profits or market
share. The individual markets or businesses within an SBU share many common features
including strategies (for synergy), customers and competitors.

The point to remember here is that there is no hard-and-fast rule and much depends on
the nature of the company’s portfolio of businesses, their relatedness, size, etc.

At this SBU-level of analysis, we are concerned with a business, a business within a

marketplace. This is the heart-and-soul of the organisation. At the end of the day, it is the
success of these SBUs in their market that is going to determine the success of the entire
organisation. Think of an SBU as consisting of all the branches of a bank where “real”

6
business is being conducted with “real” customers. And think of the corporate-level as the
bank’s head office located in one of the city’s high-rises miles away from the customers.

An SBU strategy emphasises the development and maintenance of the business’s

sustainable competitive advantage. It concerns the identification of business strengths to
compete and to satisfy customers’ needs and expectations. In that sense, SBU strategies
are much richer and diverse than corporate strategies. Many of the strategic
models/alternatives are the topics of the second section of this unit.

This 3-level hierarchy would suggest that the corporate goals and objectives would, in turn,
direct SBU objectives. These objectives typically include sales growth, profitability, cash
flow, ROI and new product/market development—all at SBU level.

Let’s assume an SBU consists of multiple product-markets, which it usually does. In this
case, resource allocation will be concerned with the apportionment of resources to each of
the product-markets and to each of the SBU-level functional departments (R&D, research,
etc.) Again, each product-market has its own strengths or competencies and faces a
unique set of environmental factors, and these determine its growth attractiveness. An
SBU usually makes resource allocation based on these criteria.

3.3 Product-market Level Strategy

To all intent and purposes, this is a marketing strategy. A marketing strategy, which is
contained in a marketing plan, involves the allocation of resources to, and co-ordination of,
marketing activities such as the elements of the marketing mix (4 Ps), to achieve
marketing objectives specific to a product-market.

Marketing objectives are usually stated in terms of sales, profits, market share and
customer satisfaction level, at the product-market level. The target market(s) needs to be
identified and the marketing mix (4 Ps) strategies or tactics developed. Resource needs to
be allocated across the elements of the marketing mix to ensure overall marketing strategy
effectiveness in the specific product-market.

This is the level that most of you are familiar with. A specific product or range of products
aimed at a specific target market and involving product, pricing, placing and promotional
decisions.

[A final note: This three-level strategy concept only applies to an organisation with multiple
businesses and multiple products. Consider a rare case of company with just a single
product aimed at a single target market. In this case, the three levels are actually one, i.e.,
the there is no difference between corporate, SBU and product-market activities or
strategies. Therefore, forcing companies to pursue three levels of analysis is unrealistic. It
undermines the presence of many smaller companies with perhaps just two levels, e.g.,
corporate/SBU level and a product-market level. It all depends on the case study you are
examining or the company that you work for currently or in the future.]

7
 MODULE 2

MARKET & ENVIRONMENTAL ANALYSES

1.0 INTRODUCTION

The result of an external analysis is information in the form of a detailed, relevant and
accurate account of the scenario facing the business. Such information is needed for
business decision making especially strategy formulation. The often dynamic external
environment affects all businesses and a business will respond by formulating new
strategies or revising existing ones to capitalise on the environment-created opportunities
or to minimise the impact of threats. Therefore, attempting to formulate a strategy in the
absence of adequate information is like making decision without knowing why and without
knowing its consequences. Unfortunately, this practice is very common in business as
management values quick action and convenience. Gut-feel and past experience is
insufficient in today’s fast-changing and unpredictable environment.

We shall begin with external analysis of the market and the environment. In market
analysis, management would first need to determine market attractiveness as measured
by size, growth, and profitability. Also, industry dynamics need to be explored as these
impinge upon strategy formulation. Key competitors and their success factors, distribution
systems, and industry trends are examples of industry dynamics.

Environmental analysis examines the larger forces or trends that can affect the
organisation, its market, competitors, or customers. These forces are numerous and
management need only to attend to those relevant forces that affect strategy formulation.

2.0 MARKET (INDUSTRY) ANALYSIS

In market (or industry) analysis, management intends to understand the attractiveness of

the market or submarkets. Many investment decisions are based on market analysis. Such
analysis provides information on industry profitability, growth potential, key competitors
and their success factors, distribution systems and other industry dynamics.

The text identified seven areas of investigation for a market analysis. They include the
market size, growth, profitability, cost structure, distribution systems, trends, and key
success factors. We will now consider some of these areas in more details.

2.1 Which Market?

A market consists of actual and potential buyers of a product. Therefore, we will need to
define the relevant market for analysis. Because a company may have a wide range of

8
products catering for different product-markets within the larger market, analysis has to be
conducted at several levels.

For example, the passenger car division of Honda (an SBU), has cars ranging from those
selling for $18,000 to those in excess of $100,000. Therefore, at the SBU-level of analysis,
management would be concerned with a fairly large portion of the total car market which
includes all buyers seeking cars within this range and competitors offering cars in this
range.

On the other hand, at the product-market level, management will concentrate on a

particular car model and be concerned with submarket analysis and subsequently, the
strategy for this product. This submarket consists of the model’s target market and the
competing models.

It is unlikely that a customer has to decide between a $20,000 Honda car and a $60,000
BMW. Also, it is quite certain that the manufacturers will not regard these two models as
direct competitors. Moreover, the previous sections on customer and competitor analyses
would have had defined the relevant market.

2.2 Market Profitability

In the analysis of market or industry attractiveness, we need also to determine the

profitability of the market, which in turn, affects the profitability of the individual company.
Most investment decisions including allocation of resources are based on expected “return
on investment” (ROI).

Michael Porter’s Five-Factor Model of Market Profitability is a useful model to analyse the
profitability of the market which is influenced by the following factors:

♦ Intensity of Current Competition. Aggressive competition reduces prices and increases

costs, hence affects profitability.

♦ Threat of Potential Competitors. High barriers to entry limit the number of competitors,
discouraging potential competitors. Hence, affects profitability.

♦ Threat of Substitute Products. The emergence of substitute products, rather than

competing brands of the same product affect the profitability or size of the market.

♦ Bargaining Power of Customers. Customers’ ability to demand more or force prices

down affects profitability.

♦ Bargaining Power of Suppliers. Suppliers’ ability to influence cost of supplies or inputs

directly affects profitability.

9
2.3 Key Success Factors (KSF)

When management begins to examine industry dynamics, they soon appreciate the fact
that the success factors of one industry can be substantially different from those of
another. Even within the same industry, these factors vary from product-market to product-
market or even from region to region.

The text identified two types of competencies. The first of these are the “minimum” skill &
assets (strategic necessities) that a business must possess to even consider operating in
the chosen market/industry. Other competitors have similar competencies. Businesses
with only strategic necessities are usually market followers.

The other are those “superior” competencies (strategic strengths) possessed by a

business. These can provide the bases for competitive advantage. Often, market leaders,
challengers and nichers have strategic strengths.

Business competencies or skills & assets usually relate to financial resources, production
capabilities, research and development, management, and marketing know-how.

3.0 ENVIRONMENTAL ANALYSIS

Ideally, when conducting customer, competitor, and market analyses, the relevant
environmental trends/events/forces would have been addressed. In such a case, this
section would be redundant.

For example, socio-cultural and economic issues could be addressed in customer

analysis, political-legal issues in market analysis, and technological trends in market
analysis.

Nevertheless, in some cases, it may be more appropriate to treat these environmental

trends/events/forces separately.

When dealing with environmental forces, the “reactive approach” views these as largely
uncontrollable. Therefore, a business is at the "mercy" of these forces, and therefore, has
to respond according. A “proactive approach” regards some environmental forces as
controllable to a certain extent and, therefore, can be subjected to the manipulation of a
company or an industry. Consequently, some larger companies will attempt to influence
these forces to their benefit.

3.1 Socio- Cultural Trends (can be part of Customer Analysis)

This involves the understanding of cultural and demographic trends (both current and
emerging) relevant to the business. The most common observations include:

10
♦ the population age structure.
♦ the changing Australian family
♦ changing role of women in society
♦ the change in cultural values and subcultures
♦ consumer rights, environmental concerns, etc.

3.2 Technological Trends (can be part of Market Analysis)

The effect of technology on society and businesses is a major influence on the success of
a business. Decision to adopt new technology is affected by the firm's capacity to use it
and whether it will result in a competitive advantage for the firm. Technological maturity
occurs when the core technology behind most mainstream brands are the same because it
is easily accessed, resulting in product parity (commodity-like) at least in terms of form-
and-function. In this case, the business may have to rely more on perceived product
superiority through branding and promotion.

3.3 Economic Trends (can be part of Customer Analysis)

Economic forces in many cases, directly affect the size of the demand for a particular
product because they dictate the customers' ability to purchase. Of concern would be the
general economic conditions (prosperity, recession, depression and recovery stages), and
consumer demand & spending patterns (affected by inflation rate, interest rate, availability
of credit, confidence in the economy, etc.).

3.4 Political-legal Trends (can be part of Market Analysis)

This covers laws and government policies affecting businesses. Companies should be
particularly concerned with the various pro-competitive and consumer protection
legislation. Also, government economic and trade policies should be monitored for they
can have far-reaching effects on businesses, industries, and the economy. Such policies
would include fiscal and monetary policies, industry subsidies, and foreign trade policies.

11
 MODULE 3

CUSTOMER & COMPETITOR ANALYSES

1.0 INTRODUCTION

We continue our external analyses with Customer Analysis, followed by Competitor

Analysis.

2.0 CUSTOMER ANALYSIS

Customer analysis allows management to understand its current and future customers. By
knowing and predicting customer purchase behaviour such as need recognition,
information search, methods of product evaluation and so on, the business will be in a
better position to formulate marketing strategies that will assist the customer’s search and
evaluation process to perhaps, result in high customer satisfaction and loyalty.

The text provides a good summary of the various areas that need to be addressed when
conducting a customer analysis. It includes the elements of segmentation, customer
behaviour and motivation. All these are necessary information for the formulation of
strategies.

2.1 Market Segments

A business must recognise that it cannot appeal to all customers in the product-market. It
has to identify the groups of buyers with similar needs and requirements so that it can
serve each group separately and more effectively. Most major competitors compete in
mainstream markets, which are highly fragmented (segmentable). Non-mainstream
segments are often niches served by niche-marketers.

The market can be divided or segmented on several dimensions. The most popular is by
demographic classifications such as income, gender, age, or geographical location.
However, such straight-forward segmentation basis is dangerous for it often does not
result in a homogenous group. For example, not all 30 year old males with an income of
$60,000 will respond similarly to a given marketing strategy of a new sports car.
Increasingly more “behavioural-determining” dimensions are used to creatively identify a
segment of buyers who will respond well to a business’s offering. These dimensions
include life style, benefit sought, motivation, perception, attitude, and usage situation.

We often talk of creative marketing strategies but market segmentation is just as open to
creativity. For example, Reader’s Digest, the largest selling magazine in the world with 28
million copies sold each month, is positioned as a family magazine appealing to all readers
in a household. Most other magazines have a more narrowly-defined target market.

12
2.2 Customer Motivation & Unmet Needs

In any purchase situation, a customer must first enter the “need awareness” or “problem
recognition” stage. We would have to know the customer’s motivations (or reasons) for
this intended purchase, i.e., the set of needs that he or she is trying to satisfy. The
customer may be looking for various product features and have a certain way of evaluating
these features. All these, and others, must be taken into account when developing a
marketing strategy to facilitate the customer’s decision making process.

A customer’s decision making process is by no means static. Over time, the same
customer may develop a different purchase behavioural pattern. This is due to the various
influences on behaviour. We had identified motivation as one. Others include
psychological influences such as personality, lifestyle, perception, past experience, and
attitude. Include also, are social and demographic factors. These relevant factors must be
identified and analysed. It is especially important in the formulation of proactive marketing
strategies that attempt to influence these factors to shape customer behaviour.

3.0 COMPETITOR ANALYSIS

Customers today have many more product choices, which they themselves find hard to
differentiate. In other words, we have to compete with rival companies for the customer’s
business. Ironically, the more we compete, the more similar the competing products
become. For example, the intense competition between two leading family cars has
resulted in very little significant difference between the two models. The styling,
performance, feature, price, engine capacity, and the like are very similar. Hence, it is not
surprising that their respective market share is also about the same.

Knowing your competitors is just as important as knowing your customers. Competitor

analysis results in better information about the current and future offerings of competitors.
This allows the business to develop marketing strategies that will lead to a competitive
edge that can be sustained. In other words, a sustainable competitive advantage (SCA).

In a growth market, all the current competitors can enjoy increasing sales without having
to increase market share at the expense of each other. However, soon all markets will
mature or even decline. This means that sales increase can only come from an increase in
market share (offensive) at the expense of the competitors.

Being competitive does not necessarily involve offensive strategies only. Many less
aggressive companies are on the defensive — to protect their market share. Therefore,
either way, companies are drawn into war.

Moreover, there is no escape from competition because of the government’s commitment

to pro-competitive legislation through its watchdog, the Australian Competition and

13
Consumer Commission (ACCC). The rationale is that increased competition leads to better
products, more choices and lower prices — resulting in a higher standard of living for all
Australians. Such legislation forces businesses to compete by (a) becoming more
innovative, (b) offering a wider range of products and (c) becoming more efficient.

Competitor analysis involves (a) identifying the company’s competitors, (b) determining the
competitors’ strategies, and (c) evaluating the competitors’ strengths and weaknesses.

3.1 Identifying Competitors

The textbook provides two excellent approaches to identifying competitors. One is based
on customers’ perspective and the other, the strategic group approach. Before we
examine these two approaches, we will need to understand that the traditional approach to
identifying competitors involves an industry perspective. Here, a company’s competitors
are those from the same industry, i.e., selling the same product. Therefore, a soft drink
producer is concerned mainly with competing against rival soft drink makers. This, of
course, is short-sighted and is typical of production-oriented thinking. The company may
lose track of the marketing advances made by producers of other beverages such as
bottled water, fruit juice, flavoured milk — even tea & coffee!

The customer-based approach, on the other hand, suggests identifying competitors based
on customer choice or product substitution. This could involve simply asking customers to
list competing or substitute products. Also, the degree of competitiveness between two
products can be determined. Note those “no-frill” airlines such as Virgin Blue, compete
against interstate buses, railways, and self-drive, in addition to other airlines.

It’s now no longer Coke versus Pepsi (rather Coke versus other beverages), no longer
banks versus banks (rather banks versus credit unions, etc.), or no longer cinemas versus
cinemas (rather cinemas versus video libraries, pay-TV, etc.)

Again, it comes back to “what business are we in?” — the cinema business or the
entertainment business, etc.?

Another approach involves the strategic group concept. This approach not only allows one
to identify major competitors but also to predict or determine competitive behaviour as the
members of the group respond similarly to industry and market dynamics.

In a market with many competitors, it is usual to find groups of competitors that seemingly
are very similar. Some competitors are similar in size, have similar competencies and,
more importantly, are affected by the same set of environmental forces. Logic would
suggest that these competitors would also pursue very similar marketing strategies. These
companies make up a strategic group and the analysis of such a group allows
management to have an insight into the strategic behaviour of any one of the members of
the group.

14
Hence, it common to group hotels, banks, restaurants, telephone companies, internet
service providers, etc., by size or other criteria.

Although competition is expected to be more intense among competitors within a strategic

group, one should not discount other rivals. These rivals may the strategic intention to
develop new markets (market development), launch new products (product development),
diversify their business, or even pursue backward and forward integration strategies. In
doing so, these players may encroach on the “territory” of the strategic group in question.
A business should, therefore, regard these as potential direct competitors and plan or
respond accordingly.

3.2 Evaluating Competitors’ Strengths and Weaknesses

In practice, the methods of understanding or evaluating competitors should be similar to

those used for Internal Analysis. The difficulty, of course, would lie in the often inaccurate
or inaccessible information on the competitors.

Finally, the main objective of this stage is to assist in the formulation of competitive
strategies to either neutralise competitor's competencies or exploit its weaknesses, or
both. In other words, use your strengths against your competitor’s weaknesses.

15
 MODULE 4

INTERNAL ANALYSIS

1.0 INTRODUCTION

In this final instalment of situation analysis, we shall discuss internal or self analysis. The
objective of internal analysis is to understand the business in depth, especially identifying
organisational strengths, weaknesses and other issues. Combined with the opportunities
and threats arising from external analysis, the business will be in a better position to
formulate strategies which are more relevant, responsive, sustainable and more long-term
oriented.

The analysis is based on detailed and current information on both financial and non-
financial factors. Business performance can be measured or expressed financially in terms
of sales (& market share) and profitability. There are also non-financial measures or
indicators of performance. These include customer satisfaction, brand associations,
product quality, and so on.

2.0 FINANCIAL MEASURES OF PERFORMANCE (METRICS)

Many organisational objectives, from corporate to product-market level, are financial-

based. Sales, market share and profitability are the most common of financial measures.
These are “bottom-line” tests, easily accessible and easily understood. More importantly,
these are the most acceptable performance measures used by stakeholders of an
organisation.

2.1 Sales Analysis

Sales is expressed by value (dollar amount) or by volume (number of units). Basically,

sales volume X average selling price = sales value. It is often used as an indicator of how
customers regard a company’s product or service offerings. Moreover, the market size is
expressed in terms of sales and, therefore, is ideal to compare relative performance.

The sales of (demand for) a product is a function of the environment, competition, and the
business’s overall marketing inputs (4Ps, etc.).

In sales analysis, management should examine a detailed breakdown of the business’s

sales record. Sales can be broken down by product, geographic region, customer type,
order size, method of sale (say, direct or through retailers), etc. Such data is extremely
useful for strategy development including corrective actions.

16
Finally, sales can be expresses in absolute term, which is essentially historic and may not
be a good indicator of future performance. Also, sales that are "tactically" improved (say, a
knee-jerk reaction by both the business & its customers, e.g., price discounting) may not
be strategically sound if prolonged because these are easily copied by competitors or they
may cause customers to be more price conscious.

Relative sales measurements, such as, sales growth (over time) and market share
(percentage of market size) may be better indicators. We shall examine market share
next.

2.2 Market Share Analysis

Market share as a performance measure is more valued by marketing managers because

it is a measure of relative competitiveness. Regardless of the market size, any change in
market share is the result of competition. A share can only be gained at the expense of
competitors. Therefore, market share allows a business to compare its sales performance
with any one or all of its competitors.

As a predictive measure, market share size can be a good indication of the business’s
future survival in the market place. A business with a small share can easily be eliminated
by competition. Apart from survival, a large share can lead to improved economies of scale
— a source of sustainable competitive advantage (SCA).

2.3 Profitability Analysis

The most common profitability measure is the return on investment (ROI). Investment is
the monetary resources that a company had put into the operation of the business in order
to produce profits (returns). Resources can include both capital (say, plant and equipment)
and expenses (marketing, other overheads, etc.).

ROI, therefore, is a measure of how efficient resources are used to produce the net profit
(after tax). In other words, it is the ratio of net profit to the investment used to produce the
net profit.

Remember, one strategy consideration is the allocation of resources (or investment funds)
across businesses or product-markets. A business that has poor growth potential may find
itself having to use more resources to generate a desired level of sales or profit. This
produces a poor ROI. Also, a poor ROI can result even if sales have improved. This
occurs especially when the investment growth percentage exceeds the sales growth rate.

The text uses the return on asset (ROA) version. Conceptually, these two measures are
very similar. Some ROI calculations use only the company’s own “investment” while others
include borrowed funds. The ROA method eliminates such confusion being concerned with
assets used—whether company-owned, borrowed or both.

17
Finally, it is interesting to note that by expressing ROA (or ROI) as profit margin X asset
turnover, one can determine two ways that ROA can be increased:

♦ Increase profit margin (lower costs, or higher sales)

♦ Increase asset turnover (higher sales per asset employed, or maintain sales while
reducing asset employed))

2.4 Other Financial Analysis

You would recall from an introductory finance or accounting unit, the importance of the use
of financial ratios to measure business performance. Should any of these ratios present
itself in a case study, you would need to determine its relevance to the case. Otherwise
these ratios are non-examinable.

Key financial ratios are usually categorised into four classes, namely:

♦ Profitability Ratios (gross profit margin, ROA, etc.)

♦ Liquidity Ratios (current ratio, acid-test ratio, etc.)
♦ Leverage Ratios (debt to equity, debt to assets, etc.)
♦ Activity Ratios (inventory turnover, etc.)

3.0 NON-FINANCIAL AND OTHER MEASURES OF PERFORMANCE (METRICS)

There is no doubt that a company and its businesses survive because of its ability to
generate profits for growth. So far, we have discussed “bottom-line” measurements of
performance which are invariably profit-based.

From a strategy point of view, we need to identify and analyse the sources of these
financial goals especially long-term profitability. In other words, management has to
conduct an internal analysis of the business’s skills and assets that contribute to sustained
profitability. These performance areas include customer satisfaction, brand loyalty,
product/service quality, brand association, relative cost, new product activity,
management/employee capability, etc. Some refer to these and others as Key
Performance Indicators (KPIs).

3.1 Benchmarking

Ideally, performance should be measured over time, against selected competitors or

against an industry standard. A benchmark or a yardstick is defined as a standard by
which quality or competence is measured. Each functional area would then have a level of
quality or competence to achieve.

18
For example, the high brand loyalty among brand X owners could set the benchmark for
other manufacturers to evaluate against. IBM may benchmark itself against the best
company in each specific product category. Deficiencies are identified and improvement
plans developed. If IBM is already the “best” in a product category, an enhancement plan
gets implemented.

Benchmarking is ideal for the kind of analysis discussed so far, i.e., mainly individual
performance measures. However, it runs the risk of being used to monitor functional area
performance in isolation. Management would also need to evaluate the performance of a
whole marketing strategy. This can be done with a marketing audit that will be examined
next.

3.2 Marketing Audit

The marketing audit is a systematic review and evaluation of the objectives and strategies
of the marketing function. It also appraises the organisation and its systems and people
employed to implement the strategies.

It is, therefore, not concerned with just an individual element of performance but rather,
whole marketing programs where the individual elements are interrelated. It is very
comprehensive covering all the major marketing activities of a business and identifying
both problems and symptoms for needed attention.

A marketing audit is carried out systematically and to avoid bias, can be performed by an
outside organisation such as a management consulting firm. It examines planning as well
as implementation, i.e., how effective the planned actions are carried out and by whom.
Therefore, it goes beyond just interviewing employees. Customers, suppliers, trade
members, and even competitors may be sought for the audit.

The primary objective or outcome of a marketing audit is the determination of strategic

problem areas and opportunities, and a recommendation of a course of action to improve
marketing performance.

4.0 FROM ANALYSIS TO STRATEGY . . . . . . . . . .

As we approach the second part of this unit (Strategy Development), the "transition" from
analysis to strategy needs to be addressed. From the next module onwards, strategic
models for selected marketing situations will be our focus.

What factors determine strategic choices? This, of course, would depend on a specific or
given marketing situation. However, there are still some common factors that determine
strategic options & choices.

19
4.1 Past and Current Strategies

This perhaps is the most obvious consideration for strategy formulation. A comprehensive
analysis of current situation, which we had discussed so far, would have included an
investigation into past and current strategies employed by the business and their impact
on performance.

Because of the often dynamic environment and the changes in customer behaviour,
competition and industry, etc., it would be unlikely that current strategies can be
maintained indefinitely. We can expect different tactical responses to the day-to-day
competitive pressures but over time, these tactics may cause the original strategy to be
obsolete.

For example, Pepsi’s price and promotional tactics are constantly threatening Coca-Cola’s
market share in supermarket sales. Coca-Cola redirected its strategy by emphasising on
getting Coke within its customers’ “arm’s length of desire” — a distribution-oriented
strategy. The strategy was chosen mainly because of the increased consumption of soft-
drinks in Australia and it exploits Pepsi’s relative weakness in “route trade” distribution
(convenience stores, vending machines, etc.)

4.2 Strategic Problems

A significant change in the marketplace or an unfortunate event may permanently

incapacitate an existing strategy from performing successfully. Tactical or short-term
corrective actions may be insufficient. Such strategic problem must be addressed and
corrected even if it is difficult or costly.

In Australia, the deregulation of some industries (opening up to local & international

competition) such as, telecommunication and domestic air travel, has permanently and
drastically changed these industries. The incumbents had to face their biggest strategic
problem, i.e., “real” competition for the first time. Staff retrenchments, sizeable investment
in information technology, improvements to customer service and the adoption of
marketing-orientation were just some of the new strategic moves that were undertaken by
them in a relatively short period. The incumbents could not have just relied on continuous
minor adjustments to their original strategies.

4.3 Organisational Capabilities & Constraints (or Strengths and Weaknesses)

The text identified a set of four key constructs that describes an organisation: people,
systems, structure and culture. These elements determine how well a chosen strategy fits
into the organisation and, thereby, affect the implementation of the strategy.

20
These elements, as an important source of organisational strengths and weaknesses,
need to be considered in strategy selection and formulation.

Sony’s source of competitive advantage lies in its product innovation and marketing
philosophies, which the corporate culture has a big part in fostering. Sony’s “patriarch” was
co-founder, Akio Morita, who over the years shaped the corporate culture.

5.0 A FINAL NOTE . . . . . . . . .

NEVER separate analysis and strategy formulation. The textbook and this guide
present the materials as distinct sections for a logistic reason only. Situation analysis and
the application of strategic models are “part and parcel” of strategy formulation. One
cannot be conducted without the other. Analysis leads to strategy. In other words, a
strategy is based on analysis.

Many strategic models which we will present in the next section incorporate situation
analysis. For example, the product life cycle and portfolio models are tools for both
analysis (of a given situation) and strategy selection (prescribes a strategy given a
particular situation). The portfolio/growth-share matrix could have easily been presented in
the self analysis section (as in the textbook) as well as in the strategic model section (as in
this unit).

21
 MODULE 5

COMPETITIVE-POSITION STRATEGIES

1.0 INTRODUCTION

This is the start of a series on strategy formulation based on widely practised strategic
models. To some extent, some of these models represent different views or perspective of
the same idea. As such, they overlap in concepts. However, there are marketing situations
where a particular model is more appropriate, whereas at other times, a combination of
models is used.

A business needing a general strategic direction to help achieve a competitive edge may
“consult” the SCA model (Modules 8A & 8B). An organisation with a diverse range
(portfolio) of businesses or SBUs, or an SBU with a wide range of products, would find the
Portfolio Matrix (Module 7) useful especially in the allocation of funds across those units.

A business seeking growth directions has several alternatives under the Growth Matrix
model (Module 9). The Product Life Cycle model (Module 6) is appropriate to understand
the dynamics of an evolving industry and how one can respond. Competitive-Position
Strategy (Module 5) prescribes strategies for each of the major players within an industry,
i.e, the leader, challenger, follower, etc.

In a given product-market, a business and its competitors can have very diverse roles.
They have different goals and objectives, skills and assets, resource base and, therefore,
pursue different strategies. More importantly, each competitor’s strategies should take into
account the strategies of the other competitors. The competitive relationship among the
companies reflects each company’s competitive position within a product-market.

A competitive position is where the business stands, and what its role is, in relation to
other competitors. Generally speaking, every competitor in a product-market can see itself
in one of the four competitive positions. A market leader is the company with the most
dominant market share and plays a leading role in the mainstream market. A market
challenger is a growing force and has the intention of increasing market share. Market
followers are non-aggressors maintaining their relatively small market share in the
mainstream market. Market nichers or specialists occupy and dominate small sub-markets
left alone by larger competitors.

A business’s competitive position is fundamental to the selection of competitive marketing

strategies. Each of the four market positions has its corresponding marketing challenges
and strategies.

22
2.0 MARKET-LEADER STRATEGIES

In most markets/industries, there is a company that is regarded as the leader. The market
leader has the largest market share and leads all significant market moves such as pricing,
new product and advertising level. Therefore, the product life cycle strategies parallel that
of the leader’s. The leader dominates the mainstream market and usually avoids the
specialist ends (upmarket or budget). A market leader has multiple strategic tasks because
it is challenged by the market challenger, imitated by market followers, and avoided by
market nichers.

In Australia, well acknowledged market leaders include McDonald’s (fast-food), Speedo

(swimwear), Dell computers, Electrolux (electrical goods), Shell (petroleum), Coles Myer
(retailing), Arnotts (biscuits) and Gillette (razor blades). Toyota and Holden are joint-
leaders in the automobile market.

Leaders and other high market share companies are more exposed not only to business
risks but also to scrutiny and action by competitors, consumers, and the government
watchdogs. They are constantly on the defence against different forms of competitive
challenges and from different competitors. Consumers and the media are quick to point
their fingers at prominent market leaders for any irregularities. Dominant companies are
under close scrutiny by the government looking for any signs of market control. Market
control is illegal under pro-competitive legislation. The company may be prohibited from
gaining too high a market share because that contributes to its ability to control the market.

2.1 Expanding Total Market

Therefore, a dominant company with a lion’s share of the market, say in excess of 60%,
should not be seen as the aggressor, i.e., gain further market share. In this case, the
company is better off pursuing growth by expanding the total market rather than through
increase in market share. Levi’s, the market leader, will gain the most when the total blue
jeans market expands. Also, if more Australians can be convinced of the benefits of
mouthwash, Listerine stands to gain the most because it has over 70% of that market.
Market penetration and market development are ways of expanding the market.

Also, market leaders can pursue, at different times, both defensive and offensive
strategies to protect and enhance their leadership status in the market. Defensive
strategies are more of a response while the leader initiates offensive moves.

2.2 Defending Market Share.

While trying to expand the total market, the leader must continue to defend its position
against the various forms of competitors’ offensive moves. The best defence is one of
“pro-action”. Instead of getting attacked and then responding, the leader should erect

23
barriers against potential attacks. Here, the marketing mix tactics come into play. The
leader can pursue a multi-brand, multi-variety product strategy. This strategy not only
provides the target market with more choices, etc., but also severely limits the retail shelf
space available to competing brands. Levi’s has the most extensive range of blue jeans
and will never be far behind in offering any new popular styles. The 10-odd brands of
margarine found in most supermarkets are actually made by only 3 producers. Unilever
has more than 10 different brands of laundry detergent and that does not include variants
such as size and form (powder, liquid, etc.)

Market leaders will match or beat any price discounting and be determined to be the most
durable in a price war. Most leading brands command a premium price because of the
higher perceived quality normally associated with the number one brand. At the same
time, because of the higher volume, these brands also have the best scale economies in
the industry. This low cost—high price advantage is clearly the “best of both worlds”. In
such cases, it would be foolish to compete against the leader with a low-price strategy.

Market leaders can pre-empt competitors’ distribution moves by being first-in. Many small
retail outlets such as pharmacies, delis, newsagents, and convenience stores carry just
one or two brands within a product category. Once Coca-Cola is already in such outlets,
there would be difficult for Pepsi to get in. Most premises are not busy enough to support
two competing vending machines. Coke’s vending machines outnumber Pepsi’s. Also,
through contractual or informal arrangements, some retail outlets have a “preferred
supplier” policy. This is common in travel agencies, hotels/pubs and government
departments.

Most leading brands are heavily advertised to maintain top-of-mind awareness. The
intention is to enhance or maintain the already high share-of-mind—the idea behind the
importance of product positioning strategy. Lesser competitors will be hard pressed to win
over consumers.

2.3 Increasing Market Share.

This offensive move is appropriate for leaders who do not have a commanding or
dominant share of the market. Higher market share is profit-motivated. Recall that
profitability increases with higher production volume as unit costs falls—economies of
scale. In addition, leading brands are priced at a premium which more than covers the
costs of offering these products.

The acquisition of a competitor is yet another method of increasing market share.

Strategically, this makes sense because the market leader’s market share instantly
increases and there is one less competitor to have to deal with.

24
3.0 MARKET-CHALLENGER STRATEGIES

Because of their position and competitive intentions, market challengers can pursue all
known forms of offensive strategies. Therefore, this section simply presents most of these
attack strategies. Some of these will be discussed in later modules.

3.1 Head-to-Head

Head-on competition (or frontal attack) is found in situations where market leadership is
questionable or when the leader’s position is undermined. True head-on competition
involves attacking the opponent’s strengths rather than its weaknesses. Around the world,
Pepsi has been attacking Coca-Cola’s strength in supermarket sales. In fact, in the U.S.,
Pepsi actually leads Coke in that area. Subways outnumber McDonalds. Therefore, it is
obvious that the challenger possesses similar resource base or skills and assets to match
the leader on product quality, advertising level, distribution, price, etc.

3.2 Flanking (attacking the weakness)

Of course, the best move involves attacking the leader’s weakness inherent in its strength.
This is different from the usual weakness of a leader where is could be corrected or
defended quite easily. This weakness is borne out of a strength and is difficult to correct
without a compromise. For example, many large banks are impersonal, have long queues,
and offer fairly standard products. Even the town’s best car mechanic (strength) would
have his customers wait days for their cars to be repaired (weakness). Challengers should
be quick to exploits these areas. Radio advertising has a direct assault on television’s
inherent weakness, its high price. Its high price is the direct result of reach, the size of the
audience.

Flanking attempts to exploit the opponent’s weakness or blind side. Market leaders’
complacency is legendary. They may lose sight of changing market trends or customer
unmet needs, and these become the points of attack. McDonald’s “perfect and
standardised” Big Mac gave Hungry Jack’s (Burger King) the idea to promote its Whopper
as “have it your way”. Hungry Jack’s classic flank attack involved its promotion of its
burgers being flame-grilled for irresistible temptation. The strategy is deliberate because
McDonald’s burgers are fried! Kentucky Fried Chicken is now known only as KFC.
Apparently, the word “fried” is not a politically correct term today! KFC has only
superficially corrected its weakness. It could expect a flank attack from Chicken Treat or
Red Rooster, which has barbecued chicken.

For a flanking attack to be successful, it must lead to a sustainable differentiated offering.

Otherwise, the leader can counterattack and neutralise the strategy. McDonald’s cannot
change its cooking method easily as that will involve having all its thousands of outlets

25
around the world re-equipped. Similarly, KFC will have to continue with its deep frying
method.

Apart from flanking based on product form, a flanking move can also be based on any of
the marketing mix element. Toyota flanked Mercedes-Benz on price with its new Lexus
marque. Budget’s position on the low-end of the car rental market is a move against Avis
and Hertz. Casio flanked market leaders Seiko and Citizen on distribution by using
discount stores and pharmacies in addition to the more traditional watch/jewellery outlets.
Avon flanked other established forms of cosmetic distribution by going door-to-door.

As trends emerge, so do the opportunity to flank the leaders. Pepsi is attempting to flank
Diet Coke with its highly successful Pepsi Max, the first and only “male-oriented” diet soft
drink. Meanwhile, Diet Pepsi continues to go head-on against Diet Coke.

4.0 MARKET-FOLLOWER STRATEGIES

Market leaders and challengers tend to be more innovative in product development and
marketing. These major competitors bear the huge expense of R&D, distribution, building
primary demand, and stimulating the market.

Lesser competitors can be equally profitable because, although their shares may be low,
they normally do not incur such heavy product development and marketing costs.
Basically, they offer me-too products and are free-riders. They maintain their position by
copying or improving new products, and customers see their products as giving them a
wider choice.

In Australia, the leading brands of mainstream home electronic goods are Sony,
Panasonic and Philips. The lesser brands are those from market followers such as Sanyo,
Samsung and LG. These followers and others are by no mean passive competitors. They
have well defined growth objectives and strategies. They simply are not as aggressive and
avoid creating situations that attract competitive retaliation.

5.0 MARKET-SPECIALIST STRATEGIES

Niche marketing or focus strategy will also be covered in later modules. These are
interchangeable terms to describe a strategy that specialises in a narrowly defined
segment of the market. It is definitely not a mainstream market. These relatively small
companies intend to dominate a small part of the market, or a niche. A niche can be a
high-end of the market, low-end, or even a special segment.

Ideally, a niche should be overlooked by the major competitors and, although small, should
have growth potential or at least stability in size. Market specialists should have the
necessary skills and assets to be a major force in the segment. They concentrate all
available resources in the segment to build goodwill and high customer satisfaction.

26
From a customer’s perspective, many product offerings from niche marketers are highly
valued and brand loyalty is at the highest level, i.e., brand insistence. Well known market
specialists include Bose (speakers), Harley-Davidson (motorcycles), Leica (cameras) and
Apple (computers).

Niche strategies can be based on several dimensions. They include:

♦ Geographic. Here the company specialises in a certain location, region, suburb, etc.
For Example: BankWest in WA.

♦ Customer. A grocery wholesaler may specialise in selling and delivering goods only to
delis and convenience stores.

♦ Product/Service. The doctor can offer a specialised service such as low-intrusive, past-
recovery face lifts.

♦ High-end. Many designer labels are targeted at the high-end of the market having
superior quality and a premium price.

♦ Low-end. Some companies offer standard quality products at a low price for the budget
conscious customer.
♦ Product-feature. Some companies specialise in modifying existing product by adding
special features. There are firms which modify cars such as the Mercedes-Benz, BMW,
Holden Commodore and the VW Beetle.

Strategically, niche marketing is ideal for small to mid-size companies. They focus their
skills and assets to deliver high value, premium priced products to a select group of very
responsive and devoted customers. The goodwill built up is the basis for their survival and
prosperity. Better put, it is a barrier to potential entry by major competitors.

27
 MODULE 6

PRODUCT LIFE CYCLE

1.0 INTRODUCTION

Many will be familiar with this timeless model which not only describes the stages in the
sales pattern of a product or product category, but also offers some strategic directions for
each stage.

This model is concerned with the sales pattern & strategic directions for each stage of a
product’s life cycle. It is important to differentiate between a product's life cycle (home
loans), a product category's life cycle (variable, fixed, no-frill) and a brand's life cycle
(Westpac, St. George’s, BankWest, ANZ). With matured markets, the life cycle model, for
strategic planning, is appropriate at the product category level where one normally finds
different categories/variants at different stages of the cycle.

2.0 APPLICATION OF THE MODEL

The model can be used for analysis as well as for strategy formulation. We shall examine
the former first. The PLC concept attempts to provide managers with an understanding of
the characteristics of each stage of the life cycle and, therefore, can be used to predict
future sales and profit patterns.

Underlying the PLC concept is the theory of diffusion of innovation, which identifies
categories of buyers (adopters) of the innovation. By understanding these buyers,
marketers can plan for the appropriate target market strategies. The early buyers of a new
product are called innovators. The numbers are very small because the new product has
to prove itself. If the product is satisfactory, it will attract the next category of buyers, early
adopters. Later, mainstream buyers, early and late majority, will start adopting the product.
Over time, the market becomes saturated and sales come mainly from product
replacements. Eventually, sales decline as new products appear and the original product
becomes obsolete. This phenomenon gives rise to the distinct S-shaped pattern of a
typical product life cycle.

The PLC concept provides a framework for developing marketing strategies in each stage
of the product life cycle. Bear in mind that these strategies are appropriate for market
leaders whose behaviour parallel the industry. Lesser competitors may need different
strategies to compete.

In some ways, the PLC model can be used as a forecasting or predictive tool. It can
enable marketers to forecast the market characteristics of subsequent stages as well as
predict the strategies of the leading competitors. This, of course, assumes that the life

28
cycle exhibits the traditional pattern. Later, we will realise that many life cycle patterns are
more than traditional, and the stages are of varying duration.

In the following section, we shall examine the use of the PLC model both as an analytical
tool and as a planning tool. These will be divided into characteristics, objectives, and
strategies for each stage of the PLC.

3.0 INTRODUCTION STAGE

Characteristics

When the new product is first commercialised, it enters the introduction stage of the life
cycle. This stage is characterised by a slow sales growth and profits are usually negative
because of the high costs of marketing associated with the introduction. Many buyers are
unaware of the product and sales are limited to a category of buyers known as innovators.
These buyers tend to be more affluent, venturesome and from upper social classes.
Mobile phone innovators include company chief executives, sales representative, and
tradespersons. These adopt the product for business use while others may buy it as a
status symbol. Regardless, these buyers will be influential. There usually is no or little
competition at this stage.

Primary Objectives

The main objective here for the pioneer is market expansion by stimulating primary
demand, i.e., demand for the product category. For example, Apple has taken upon itself
to market its innovative personal MP3 player. Sony did likewise with its personal stereo,
the Walkman, in the late 1970s. The marketing objective at this stage is, therefore, to
create product awareness and encourage trial.

Strategic Emphases

With innovators as the target market, the pioneering company would emphasise customer
education/trial through advertising and sales promotion; and “push” for trade acceptance
(distribution support). The product design and function are usually very basic because of
the new technology involved. Price is often cost-based and tends to be very high reflecting
the “newness” of the innovation and its associated R&D and marketing costs.
Potential competitors, meanwhile, monitor the market closely for signs of customer
acceptance.

29
4.0 GROWTH STAGE

Characteristics

This stage is characterised by rapidly rising sales as the product receives wide acceptance
amongst the early adopters. The innovators, as opinion leaders, serve to “legitimise” the
innovation through product use and social interactions.
The arrival of major competitors and their combined marketing strategies fuel sales growth
and industry profit rises. These events necessitate different marketing objectives.

Primary Objectives

Facing competition, perhaps for the first time, the pioneering company and other leaders
will need to maximise their market shares by emphasising selective demand, i.e., demand
for a particular brand. Here, the brand’s product features and performance are stressed by
extensive promotion to both the trade and customers.

Stability of market shares of mainstream brands is a characteristic of the next stage,

maturity. Therefore, the size of the market share gained in the growth stage will tend to
persist in the maturity stage, the longest and most competitive stage of the life cycle. A
brand with a small share at the end of the growth stage will find it hard to survive in the
next phase.

Strategic Emphases

The competing brands are priced to penetrate the now mainstream market, both to secure
intensive distribution and build customer preference. The target market is broader in
demographic terms and the product range, therefore, has to be expanded to cater to the
diverse needs of the market.

The companies that enter at this stage of the PLC are often large and formidable
competitors with similar access to the core/basic technology. Technological advancement
is pursued vigorously for product superiority. This leads to improvements to a product’s
form and function, i.e., the physical attributes of a product that can be evaluated
objectively. Examples include frost-free refrigerators, digital mobile phones, ABS brakes
and stereo video cassette recorders.

5.0 MATURITY STAGE

Characteristics

This is, perhaps, the most important turning point of a market. Its potential indefinite
duration, together with its dynamism, makes this stage the most difficult to predict or plan
for. Consider the digital camera market. In the early days, they were targeted as a
computer multi-media accessory and as a status symbol. Today, they are marketed as a

30
replacement of the conventional film-camera for anyone and everyone. Is the market now
still growing or reaching maturity? Technically, a product matures when the market has
been saturated and further sales are mainly from replacements. In other words, most
potential customers already have one. Who are these potential customers?

Some indicators of maturity may be helpful to analyse the market:

Sales growth and market saturation — maturity is evident when sales growth
declines because the number of potential first-time buyers is decreasing. The market
is said to be saturated, or fully penetrated, and sales level is maintained mainly
because of replacement purchases.

Lower prices and profitability — oversupply and intense competition force prices to
fall resulting in lower industry profitability.

Technological maturity and product parity — the core technology used has matured
and this leads to mainstream brands all having similar product form and functions.
There are very little physical differences among the competing products’ key
features. Products are usually differentiated on brand name, image and perceived
quality, i.e., subjective dimensions.

Buyer knowledge — over time, buyers gain experience in the use and evaluation of
the product. They may eventually accept the reality of product parity and will buy on
price or convenience (economic-driven buyers) or simply on brand name (status-
driven).

Primary Objectives

The main objective for most competitors is market share protection. Because the industry
does not recognise the notion of a given market share starting point for each competitor,
any marketing strategies can be construed as either offensive or defensive. In a sense,
market share protection is a misnomer.
An aggressive competitor can claim that it is merely rebuilding lost market share (on the
defence) where, in fact, it could had lost share previously by letting its guard down.
Also, pro-competitive legislation may prevent businesses from having too high a market
share especially through corporate takeovers. These quasi-monopolists or functional
monopolists will always be under the scrutiny of the Trade Practices Commission because
of their ability to control the market.

Strategic Emphases

For the reasons mentioned above, it would be difficult to generalise marketing strategies
especially for the early maturity stage. The marketing mix strategies adopted in the growth
stage tend to persist in the early maturity stage but with greater intensity.
However, product strategies would usually involve multi-branding and an increased
number of product variants/models to appeal to an even broader market. The intention is

31
to revitalise or prolong the maturity stage through product quality improvements, functional
improvements, or style/design improvements. Recall that this stage can last indefinitely.

Strategies in the late maturity/decline stages will be presented in the next section.

6.0 DECLINE STAGE

Characteristics

This stage is characterised by declining sales and profits. However, the contributing
factors need to be identified and analysed so that the business can decide on the best
course of action.

It is important to note that we are not concerned here with the decline stage of a brand’s
life cycle. A brand may decline due to poor marketing, etc. Rather, we are concerned with
the fate of the product category’s decline such as those evident in the case of dial-up
internet connections, floppy disks, CD players, CRT TV sets, etc.

These products and others have declined because of obsolescence. There are even
products or models with planned obsolescence, being replaced with new models. Products
become obsolete because of substitutes and forward-planning companies are usually
prepared for with these product substitutes.

Buyers of these products are known as laggards. They tend to be older, more
conservative and from lower socio-economic backgrounds. Their numbers are usually very
small. Competition is less intense as some players are quick to exit the market (industry
shake-out).

Primary Objective

Since many businesses may have a sizeable infrastructure investment in the product, e.g.,
plant and machinery, a quick exit may not be the best solution. The more usual move is to
reduce expenditure and milk (harvest) the product. Therefore, the primary objective is to
maximise cash or profit generation as quickly as possible.

Another option is to maintain in, and dominate, the market when others are exiting—“a big
fish in a small pond”. There are also situations where a business can attempt to revitalise
the market to create growth.

Strategic Emphases

Some options are available at this stage.

Exiting the market involves either selling the business (divestment) or liquidating existing
assets such as plant and equipment. Sometimes there could be ready overseas buyers for

32
outdated equipment especially for third world or developing countries. This should be seen
as a last resort especially when milking or harvesting is not feasible.

Harvesting attempts to milk the business of all available profits or cash. This is usually
possible when there is still a loyal, but small, group of buyers (laggards) to maintain
sufficient sales to generate profits. All marketing and overhead expenses are kept at a
bare minimum in order to manage profitability and cash flow. The marketing of typewriters
is a classic example.

If exit barriers exist, the business may be motivated to continue business-as-usual. This
suggests allowing enough investment to maintain the business and sending a message to
the competitors of its determination. An industry shake-out, typical at this stage, will allow
the surviving businesses to reap additional market share and profits from the industry. Of
course, depending on the nature of the decline stage, this strategy may not be durable.

Finally, a more positive strategy would be to revitalise the market. This can be achieved by
creating new uses for the product (Teflon in paints), targeting new markets (baby shampoo
for adults) and product modifications/variants (breakfast cereal redeveloped and
repackaged as snack bars).

7.0 CRITIQUE OF THE MODEL

The model is not without its critics. The major criticisms of the concept can be summarised
as follows:

External versus internal impact on the life cycle

The model assumes that the pattern of a product or brand’s life cycle is influenced by the
chosen strategies (internal) of the business. There is enough empirical evidence to
suggest that many companies fail miserably in meeting forecast sales. We can only
conclude that environmental forces (external) can play an important role in shaping the
sales pattern of the product or brand.

Consider this. An unexpected turn in the environment may, in the short term, cause the
sales of a product to decline. Adhering to the PLC concept a manager may misread it as
the decline stage of the product’s life cycle and act accordingly. Marketing support gets
withdrawn and this will surely kill off the product. This creates a self-fulfilling prophecy that
the brand is at the end of its life.

It is, therefore, not clear how much influence a firm’s strategy has on the life cycle. One
way of resolving this argument is to consider whether pattern follows strategy or strategy
follows pattern. The former assumes that the chosen strategy is the primary influence on
the life cycle pattern. This is typical of proactive companies, which attempt to prolong both
the growth and maturity stages through some of the aggressive marketing strategies
discussed earlier.

33
Lesser competitors tend to be more reactive by accepting the pattern as given. They have
lesser control over environmental and competitive forces. They respond by adopting
strategies appropriate for each stage. In this case, strategy follows pattern.

Other PLC patterns

Not all products or brands exhibit the traditional S-shaped pattern.

Styles are common in clothing, home design and passenger cars. A style such as blue
jeans may last for decades, going in and out of vogue.

Fads come as quickly as they decline. They have a steep introduction stage followed by a
rapid decline and are found in toys and paraphernalia associated with hit movies.

Scalloped or staircase life cycles exhibit a series of upward growth-maturity stages. This
occurs when new applications of the product are found, as in nylon, Teflon, and
ScotchGuard.

Varying duration

So far it is not surprising to learn that life cycles do not have a fixed pattern and that the
duration of each stage varies. Also, it is not always evident when the turning point (from
one stage to the next) occurs. Only a sales history can provide the evidence. By then, it
may be too late for strategy development.

Within a product category life cycle, the product form and brand life cycles can exhibit
contrasting patterns. Brands tend to have the shortest life cycle with the exception of
“classics” such as Levi’s, Colgate, Coca-cola, Hill’s hoist, Speedo, etc. Product forms are
prone to style patterns. Moreover, there may be no clear delineation among product forms,
which could result in a strategic planning nightmare. For example, should pre-brush mouth
rinses be separate from traditional mouthwashes for analysis and strategy formulation?
Should product forms of passenger cars be based on price range, engine capacity (1.5
litres), body style (sedans), or body types (sports)?

Despite these limitations, the PLC model remains one of the most widely used (and
misused or abused) strategic tools. The concept is simple and many of its limitations can
be minimised or totally avoided through proper market definition, understanding of key
environmental forces, and careful dealing of exceptions. After all, there is no known model
that can predict the dynamic and erratic marketing environment.

34
 MODULE 7

PORTFOLIO PLANNING MATRIX

1.0 INTRODUCTION

As the title would suggest, this popular strategic model is concerned with the planning of a
company’s multiple businesses (SBUs). Equally, the model can be applied to a business
with multiple products which we shall assume throughout this discussion. The term product
portfolio means a set of products.

The most popular version, and the one that we shall emphasise on, is the Boston
Consulting Group’s Growth Share Matrix or simply, the BCG matrix/model. The model is
very simple to understand and is primarily concerned with the cash usage or generation of
each product within the same analysis. It helps the business decide on resource allocation
and to plan the idea mix of products for optimum profitability or cash flow.

Most product managers would like to think that funding for a new strategy or course of
action is automatic. In reality, this is never the case. Before a strategy at the product-
market level can be developed, top management has to first determine which products are
earmarked for growth, which need to be rebuilt, harvested, managed for their cash or
divested. The appropriate amount of funding is then made to the products depending on
their “fate”. Remember, products and businesses are developed, harvested or sold so that,
the combined contribution to corporate performance is optimised.

2.0 PRACTICAL APPLICATION OF THE MATRIX

As previously mentioned, the model can be used by top management to consider the
resource requirement and investment strategy for each of its products or business units.
Basic investment strategies include:

1. Entry — substantial resources are allocated to fund the entry into a new business

2. Build — this strategy uses resources to expand the market and gain leadership in
that market

3. Protect — resources are needed to defend the market position of a business unit or
product

4. Harvest — here, a business is milked of its cash to fund other growth or fund
consuming businesses. A businesses can be milked indefinitely but can also be
used to generate maximum short-term cash flow before exit

5. Exit or divest — liquidating or selling off a business.

35
Therefore, this model is prescriptive in that it helps managers make strategic investment
choices.

The matrix is also used as an analytical tool as in Internal Analysis. Completing the matrix
involves positioning all the products (or SBUs) in the matrix and labelling them. The
location of each product helps the manager to understand the factors that contributed to
such a position.

3.0 THE DIMENSIONS OF THE MATRIX

Central to this model is the growth-share matrix. The 2-by-2 matrix has four quadrants
labelled problem child or question mark, star, cash cow and dog. The vertical dimension is
market growth rate, and the horizontal, relative market share.

3.1 Market Growth Rate

Because the model is concerned with the allocation of resources among a portfolio (mix) of
products, some overall measure of market attractiveness is needed. The model uses
market growth rate as the summary measure based on the following assumptions:

1. The growth rate is a good measure of which product life cycle stage the product is
in. This has strategic implications.

2. Early entrants into a growth market will have an advantage in scale economies
because of the experience curve effect. The success of early entrants may
discourage potential entrants.

3. Profits are highest in a fast growing market where demand usually exceed supply.
Competition is less intense and prices high.

4. Market share is easier to gain in the growth market because it is easier to attract
new, first-time (inexperienced) customers than to get experienced ones to switch.

5. The market share gained during the growth stage is worth more over the remaining
period of the product’s life cycle, assuming the share can be maintained.

For simplicity, the mid-point of this dimension is usually set at a certain % annual growth
rate. Markets with a growth rate less than the mid-point% is considered low growth and
those in excess, high growth market. Also, the growth rate pertains to the market, and not
the growth of the individual product, which may be growing below or above this rate.

36
There is no hard-and-fast rule as to what constitute high growth. Some industries
(markets) have recorded continuous growth in excess of 10% each year, while matured
markets with a growth of even 2% are considered high growth!

3.2 Relative Market Share

This second dimension uses relative market share as an indicator of competitive strength.
This is not a product’s market share but rather, is its share relative to the leading
product/brand. This measure is used primarily because of the experience curve
assumption since a product with a larger share accumulates experience at a faster rate
over time and, therefore, can exploit the resulting cost advantage. The largest-share
product has the potential for the lowest unit costs and, therefore, greatest profits.

Another related assumption is that a large-share product typically will have lower
marketing costs per unit because of economies of scale in, say, distribution and promotion.
Also, the leading brand tends to be priced at a slight premium.

The intersection of these two scales would be the position that a product or SBU occupies
in the matrix and labelled according to the quadrant it falls in.

Warning: If a particular market does not follow most of the above assumptions or
conditions, then the BCG matrix should not be used. Some markets are not typical and
simply do not have the characteristics theorised by the BCG model.

4.0 THE QUADRANTS AND THEIR CONTRIBUTION

According to the matrix, each quadrant has a particular contribution to the business. Some
are net cash users while others are net cash generators. Assuming all the business’s
products have been positioned in the matrix, let us now consider each of their roles:

Cash Cows

These are high-share products in low-growth markets. These are usually established
products/brands at the maturity stage of the product life cycle. Their high shares give them
higher profits than other, and because the market growth is slowing, only minimal
additional investments are needed to maintain position.
Cash cows are, therefore, used to fund future products, or problem children to help them
gain share to become stars.

Stars

These are high-share products in high-growth markets. It is important for these stars to
receive heavy funding which can be internally generated (self-funding) to maintain their

37
high-share status. At the same time, they enjoy high good margins because of their
favourable position. The net cash usage is usually neutral.

Markets cannot grow infinitely and will soon slow down. These stars will then “fall” to the
lower quadrant to become cash cow if the dominant share can be maintained. Otherwise,
they would end up as dogs!

Problem Children

These are low-share products in fast growing markets. There is likelihood that these
products/brands were introduced during the growth stage of the product life cycle. These
require careful selection for funding. Those with high potential to become stars will require
very high investment for market share growth. They are net users of cash because they
have yet to achieve the necessary economies of scale for high profits.

Other problem children should be liquidated or divested (sold) quickly. Otherwise they will
end up as dogs and continue to drain the business of investment/resources.

Dogs

These are low-share products in low growth markets. They could have been losing share
while as cash cows or never grew when the market growth rate was declining.

These products are typically in the decline stage of the product life cycle and options
include immediate exit, harvesting (milking for whatever cash that can be generated) and
niche marketing. Niche marketing may involve moving into a small segment which it can
dominate and be profitable. Some mainstream markets can shrink to such a degree that
they become niche markets. Consider the market for carbon paper, manual typewriters,
and record (LP) players.

5.0 LIMITATIONS

As mentioned earlier, the market must meet the conditions assumed in the model. Other
limitations will be discussed next.

One of the weaknesses of this matrix/model is its seemingly oversimplification of real

business situations. It is basically suggesting that the two dimensions (market growth and
market share) dictate the product’s need for, or use of, investment funds. This, in turn, will
severely constrain the formulation of competitive strategies necessary to achieve an SCA.
One may even accuse the model of promoting a top-down management approach such
as, “Here are the funds. Now do the best you can with it.......”. In a highly volatile or
competitive product-market, some strategies simply have to be developed regardless of
the product’s position in the matrix, and funds are then sought to implement them.

38
Also, market definition is a major problem. The model will only work at the right level of
market analysis. If the market were too broadly defined, then the diversity of conditions
within that market would render the model useless. For example, the total passenger
market in Australia is simply too broad or mixed for any reasonably analysis to be
conducted. Categories of cars within that market have different growth rates and
averaging them does not make sense. Also, defining the market too narrowly, may
artificially inflate the product’s market share but, at the same time, indicating poor market
growth rate.

Another limitation is the tendency for the model to oversimplify the prescription of
strategies. For example, stars will be self-funding, cash cows are for milking, and dogs
should be divested. Not all cash cows should be milked for cash. Some well established
cash cows need additional reinvestment for to defend their position for long-term prospect.

In other words, there are not only strict assumptions underlying this matrix, but there are
also exceptions to its prescription of strategy. One may need to improvise where
necessary or at all, possible.

39
 MODULE 8A

CONCEPT OF SUSTAINABLE COMPETITIVE ADVANTAGE (SCA)

1.0 INTRODUCTION

It is important to know that, at the end of the day, all “substantial” strategies (not tactics)
should lead towards a sustainable competitive advantage. Competitive strategies are
expensive but necessary to reach and maintain a viable position in the marketplace. No
market can grow indefinitely, and increased sales will eventually have to come at the
expense of your competitors. Remember, being competitive does not necessarily involve
offensive strategies only. In fact, these are usually confined to a handful of big players in
the industry. The others are often forced into “war” when their positions are being
threatened. A defensive strategy is also competitive.

2.0 THE CONCEPT OF SCA

There are some businesses that are far more profitable than others within the same
industry. Some defy the industry’s average profitability. One would have to say that such
businesses not only have something “special” but that it is also hard to imitate. These
unique abilities (skills and assets) that allow the business to consistently and persistently
outperform its competitors are the sources of sustainable competitive advantage.

Competitive advantage, or edge, results from the execution of a strategy not pursued by
competing businesses. Sometimes, competitors may have the same strategy but a
competitive advantage is realised when one business implements it better than others. An
advantage that is durable is, therefore, an SCA.

Functional area strategies such as those involving the marketing mix (advertising, pricing,
distribution, etc.) and the application of skills, assets and capabilities, are all contributors to
a sustainable competitive advantage.

2.1 “Creating” New Product Categories

An often-overlooked strategy is the strategic selection of a product-market to compete in.

The choice of product category or target segment can just be as important as the
marketing mix strategies developed for that segment and, therefore, can lead to an SCA.
In fact, an "average" marketing mix strategy can be highly successful and durable in a
strategically chosen category. Such strategy usually redefines the mainstream market by
involving the "creation” of new product categories, which the business hopes to be a major
player in.

40
Conventional wisdom suggests that head-on competition should be avoided especially if it
is against an established market leader. The concept of product positioning theorised that
leading brands are so entrenched (positioned) in customer minds that it is very difficult to
"displace".

Product positioning suggests that it is not always the domination of marketing functions
(distribution, pricing, promotion, etc.) that counts. Rather it is the “domination” of the
customers' mind. The idea is to “create” a new category in the customers' mind — a
category that can be dominated by the new product or brand. A “new” university can
positioned itself as a “progressive, career-oriented” university in order to compete against
(or differentiate itself from) the more traditional, research-oriented universities.

The following products have been credited for “creating” or pioneering a new product
category. Many of these still dominate their respective segments.

♦ Toyota RAV4, Honda CRV — urban (compact) 4 WDs

♦ Sony — minidisc, video-8, personal stereo (Walkman)
♦ Johnson’s Acuvue — disposable contact lenses
♦ RAMS, Aussie Home Loans — no-frill home loans
♦ Red Bull, V — energy drinks
♦ iPod – portable MP3 players

3.0 CHARACTERISTICS OF SCAS

The text argues that an effective SCA has three main characteristics. Firstly, that an SCA
should be backed by unique skills and assets. It should be positioned in a market segment
that will value and be responsive to, its strategies. Finally, that an SCA be employed
against competitors who cannot easily match the SCA.

In addition, an SCA or the skills and assets used, should have the following
conditions/characteristics:

Valued and unique

Skills and assets are valued and used only if they can improve the efficiency or
effectiveness of key marketing activities. These competencies should be those which are
unique to the business.

Flexible and responsive

An SCA should not only resist competitors’ duplication, but also be flexible enough to face
environmental changes, etc.

41
Strategies requiring substantial investment are often “made to last” by management.
These tend to be rigidly implemented and unchanging in order to justify the heavy financial
commitment. Over time, these strategies can become outdated or even obsolete as the
market changes. The idea is not just to address the known in a substantial manner but
also to consider the unknown with a more adaptable strategy.

Substantial

The resulting product or service on the marketplace should be noticeably and substantially
different from those of the competitors. Also, the product’s attributes must be valued.

These product attributes are the key buying criteria or evaluative criteria. Customers must
be sold the criterion before the product’s feature. Japanese cars have never been known
for their safety and, therefore, had to be successful in “diverting” buyers’ attention to other
criteria such as economy and reliability.

Therefore, an SCA must lead to, or be supported by, a product that is different from
competing brands on key buying criteria. That difference must be durable and the criteria
can either be existing or new.

4.0 SCA IN SERVICES & RETAILING

Central to the concept of SCA is the idea of durability or non-imitability. The sustainability
of a strategic advantage depends on the size and nature of the “barriers to imitation”.
These barriers hinder the duplication of a strategy by a competitor and the key ones are
now discussed (some of these also apply to goods marketing):

Economies of Scale

In services marketing, lower unit cost of service provision can be achieved by having
multiple service locations in order to spread advertising and other marketing costs.

Proprietary Systems

A franchisor has a "winning formula" business that is highly valued and provides an
opportunity for individuals to own and operate the same business in another geographic
location. Many successful franchises today are service businesses with a proprietary and
proven product, brand name or service production systems.

Location

An SCA can be achieved by preempting a strategic location. Since most service outlets
must be located close to customers and that only one company can occupy a particular
site, location can have long-term strategic implications. Competitors can never "perfectly"
imitate a location and late entrants are forced into "second-best" sites.

42
Buyer Switching Costs

Some sellers of tangible products encourage brand loyalty by increasing the costs of
switching to another brand. Similar types of barriers can be found in services marketing.
Financial services (loan, investments, etc.) often have penalty for earlier withdrawal or
cancellation. A mid-term switch to another home loan provider will attract a host of legal
and administrative fees.

One of the best barriers involves buyer-seller relationships (relationship marketing). Other
switching costs include inconvenience and losing the rewards of loyalty. Cross-selling
other products to existing customers can be effective customer retention.

Buyer Evaluation Costs

While increasing buyer switching costs can improve customer retention, decreasing
evaluation costs can attract new users. Because of service intangibility, buyers cannot
directly evaluate service quality until after it has been consumed. Buyers will value some
visible, verbal or tangible assurances of quality before purchase. Service firms can enjoy a
sustainable competitive advantage by lowering buyers' evaluation costs. A generous
warranty, etc.

Other indicators of service quality include price, brand name, company reputation,
uniforms, physical layout of premises, and advertising level.

5.0 OBTAINING AN SCA

SCAs reflect superior skills and assets but they do differ from industry to industry and from
business to business. From a strategic planning point of view, many of these SCAs are the
result of some generic strategic directions. These generic strategies are known as
strategic thrusts in the text.

A generic strategy is all-encompassing, more like a game plan. Once that thrust is chosen,
it dictates and directs the more specific functional area strategies and tactics. The two
widely recognised generic strategies are differentiation and low-cost. Other have been
proposed and they include focus, synergy and preemptive. All these five will be discussed
in more details in the next module.

43
 MODULE 8B

OBTAINING SUSTAINABLE COMPETITIVE ADVANTAGES

1.0 INTRODUCTION

In his book, Competitive Advantage, Michael Porter (1985) proposed several generic
strategies for achieving an SCA. He suggested that all strategies will either provide a low-
cost or differentiation advantage. Since his writing, others have panded on his ideas. The
text identifies an additional three strategic thrusts, which are, focus, preemption and
synergistic strategies. A strategy can be based on a combination of these strategic thrusts.

2.0 DIFFERENTIATION

Differentiation strategies are value-adding that takes on numerous forms — product

quality, added features, service quality, convenience/availability, brand familiarity, brand
association, product range, and so on. These are SCAs especially if they are protected by
trade marks, patents, copyrights, trade secrets or registered designs.

It involves the development of distinctive competencies that will deliver unique benefits in
the product that are valued by the target market. The business attempts to monopolise its
chosen target market (monopolistic competition). The move encourages brand loyalty
instead of price loyalty. Price becomes secondary to superior product benefits and other
features. According to the text, a differentiation strategy should generate customer value,
provide perceived value, and be difficult to copy.

The concept of product positioning is central to the differentiation strategy where the
business seeks to emphasise a valued point of difference from the customer's perspective
of its brand or product offering.

3.0 LOW COST

In some markets, product differentiation is marginal (product parity) and a business can
only charge a price roughly equal to those of its competitors. The business then realises
higher profits because of its low-cost structure. Hence, the business may seek to achieve
an overall cost leadership (not low price) within a chosen product-market.

In some cases, the leading brands of packaged goods such as Vicks, Clearasil, Mr Sheen,
Milo and Heinz are well differentiate especially in perceived quality and, therefore, can
command a premium price. They are also low-cost producers because of their high
volume (& market share) — the best of both worlds.

44
Production Technology

The use of robotics and other efficient production techniques can substantially lower unit
production costs , and even more so when coupled with high production volume. Many
have shifted production to low labour cost countries of the Far East. High profits come
from lower production costs based on cheap labour costs and advanced production
technology - the best of both worlds.

Economies of Scale

A source of cost advantage where unit cost of production falls with accumulated volume.
The R&D investment in new drugs can run into the millions of dollars and, therefore, these
costs must be spread over a large number of units produced.

Experience Curve

Related to the concept of economies of scale. Here, costs are a function of cumulative
experience a company has not only in production but also in other functions such as
product design, marketing, and distribution. Usually this is enjoyed by long established
businesses that dominate mainstream product-markets.

Product Design

The success of standard, no-frill products are the result of the lack of substantial product
innovation in some mainstream product-markets. This allows a company to design
practical products, which continue to meet customers' basic needs. The low cost
advantage comes from designing products to minimise production costs. The range is
usually limited and product variants, marginal.

Reducing Overheads

Also known as “consolidation”, “efficiency drive”, “productivity”, “rationalisation”, etc. With

increased competition, many businesses became more concerned with costs reduction by
resorting to desperate cost savings measures - staff retrenchments, advertising
contraction, etc. These are usually short-term and can have disastrous long-term
implications. Product quality may fall and so can customer service. Any low-cost measures
must be part of the overall SBU's strategy and not just be a reactive tactic.

4.0 FOCUS

Focus strategies are often selected by small companies to compete in a small but high-
value market segment. The product is usually of high quality and innovative. Also, the
product may not lend itself to mass production because of market restriction, production
methods, or resource limitation — discouraging mainstream competitors.

45
Also known as niche marketing or concentrated marketing. The product has usually
achieved specialty brand status. The intention is to avoid mainstream competitors by
targeting and dominating a small segment of the larger market — a big fish in a small
pond. Customers are attracted to the superior or unique product benefits, and are
extremely loyal. The premium price charged in a function of this position and makes up for
the small volume.

Success (or profitability) results not only from functional area competencies but also from
selection of the right target market. Mainstream players are discouraged from entering
these markets because of the high brand loyalty and/or the segment is "too small" by their
standards.

5.0 PREEMPTIVE MOVE

This is a "first mover" strategy where a business implements a strategy ahead of its
competitors, e.g., a patented innovation, access to the best supplies, access to the best
locations, etc.

The preemptive strategy can lead to an SCA because it generates a skill or asset that a
competitor may find it hard to imitate. The best example is a patented product design or
even a trademark. Many of Polaroid's instant photography technologies are patented, and
Sony's Walkman is a trademark that cannot be used by others.

Other sources and benefits include:

Secured access to raw materials or supplies — through vertical integration, a meat

processing plant may control key poultry farms.

Prime retail location — a pioneer product will be the first to occupy prime shelf space
giving retailers very few reasons to offer more space to me-too brands. A retail outlet can
secure a long-term lease to secure the best location or premises.

Brand association (product positioning) — first mover has the added advantage of
quickly positioning its brand in the consumer's mind. Think of the personal MP3 players
and the iPod immediately comes to mind. Consider also Nike’s Air, Black & Decker’s
Dustbuster & Whipper Snipper, and Bostik’s Blu-Tack. These brands quickly become
strongly associated with the product category . Later entrants are disadvantaged by the
difficulty of having an brand with an equally strong association.

6.0 SYNERGY

Synergy is an essential dimension of a strategy especially for organisations with multiple

SBU's or product-markets. Synergy is achieved when these businesses or product-

46
markets complement and reinforce each other. Related businesses or businesses with
potentially common functions often share resources and the combined result can be
greater than the sum of their parts.

Synergy can occur when two or more products share the same distribution channel. Not
only is there a common carrier for physical distribution, the same sales force can be used
to promote the range of products.

R&D has potential synergistic benefit when several innovations-to-be have a common
basic technology. For example, video camera technology is based more on the basic
technology of video cassette recorders (VCRs) than on optics. It is, therefore, not
surprising that almost all video cameras are made by producers of VCRs. Unfortunately,
this booming market precluded traditional camera makers such as Nikon and Pentax.

The synergy is more likely to become an SCA if competitors find that they must possess
the same combination of functions in order to effectively compete with the business.

47
 MODULE 9

GROWTH STRATEGIES (MATRIX)

1.0 INTRODUCTION

This model involves the concept of the planning gap, which is the difference between
expected future sales or ROI based on existing strategies and the potential sales/ROI
based on market potential. In short, this matrix suggests several growth options ranging
from low risk to high risk but associated high returns. The options are market penetration,
market development, product development, and diversification. A fifth option, vertical
integration, can also be included to supplement the original model.

Within each basic option, there are more specific means of achieving these selected
growth objectives. The model is solely prescriptive and does not specifically address the
situations where each option is appropriate. Therefore, it needs to be considered in
conjunction with other more analytical models and applied after extensive external and
internal analyses.

2.0 MARKET PENETRATION

This strategy involves marketing existing products to existing customers or current target
market. This is the lowest risk option of the matrix because it does not involve investment
in new products. The term marketing penetration means to increase market share.
Basically, this strategy involves increasing marketing effort in the same marketplace and
against the same competitors. These marketing mix tactics such as price discounting,
advertising and promotion can be effective in gaining market share in the short-term but
maintaining it could be a problem. Some longer-term result can be achieved by developing
strategies to (a) increase product usage, (b) attract non-users, and (c) find new uses for
the product.

These strategies may not only increase the sales of a particular brand but also the
product, i.e., the competing brands. For example, Colgate may embark on an educational
promotion to encourage people to brush their teeth after each meal. If successful, this may
have the effect of boosting the sales of all brands of toothpaste with no change in the
market share of each brand.

2.1 Increase Product Usage

This strategy attempts to encourage existing customers to increase their usage of the
product or service. This can be achieved by:

48
Increasing the frequency of use - A telephone company may offer a 10% discount to
customers for calls made to nominated numbers and this encourages more frequent calls
to these numbers. Other strategies include the increasingly popular frequent-user plans as
in air travel, hotels, and credit card use.

Increasing the quantity consumed per occasion - Examples include package deals
where some incentives are given for buying a combination of products—also known as
product bundling. Fast-food restaurants frequently offer “combo-meals” consisting of a
main meal, side dish, and a drink, at a special price. Package deals are also found in
hotels, car servicing, and beauty treatments.

2.2 Attract Non-Users

Even in matured markets, there will be some who are non-users of a particular product for
variety of reasons. Company usually provide incentives to these potential adopters. There
are still a sizeable proportion of people who do not use mature products such as mouth
wash, fabric softener, hair conditioner, burglar alarms, and even sunscreen. And not many
of us give regularly to charities either. Market saturation occurs when almost all potential
customers have adopted the product and sales usually come from repeat purchases.

If non-users are considered a distinct segment capable of separate marketing attention,

then this strategy falls under market development.

2.3 New Uses

Frequently, new uses for existing products are identified. Properly marketed, these
products’ life cycle can be extended or even experience a re-cycle.

For example, WD-40, a spray lubricant commonly used to start a wet motor engine (by
displacing moisture), has recently been marketed to women for home use. The product
can clean, protect, stop squeaks, loosen rusted parts, and so on. The advertisement
encourages the purchase of two cans, one for the workshop and the other for the home.
Other examples include caustic soda (to unblock drains), soup mixes (as a cooking
sauce), and baking soda (fridge deodoriser, cleaner). The new applications for industrial
products such as nylon, Teflon, GoreTex, Lycra and ScotchGard are well known.

3.0 MARKET DEVELOPMENT

When marketing penetration options seem exhausted, businesses can pursue market
development strategies. This strategy involves the marketing of existing products to new
target markets, which can include a new geographic market or a new segment. It is a

49
relatively low risk option because no new products are involved. Products are usually
unchanged or slightly modified.

Any marketing overseas would be market development. Overseas marketing is

increasingly an attractive option as the relative small domestic market approaches
saturation for many consumer as well as industrial products.

A classic example is the marketing of Johnson’s baby products (shampoo, lotion, and baby
oil) to adults for adult use. In fact, the entire marketing mix was the same except for its
promotion.

4.0 PRODUCT DEVELOPMENT

Product development involves the marketing of new products to existing buyers. What
constitute “new” is debatable because there is always a degree of “newness”. For
consistency, we shall also regard a product as new if it has undergone a marked
improvement or refinement. Other new products include product variants, innovation and,
simply, new products.

This option is relatively high risk because of the costs of developing the new products
although sold to existing buyers. It is a good strategy to pursue if the new products are
somewhat related and sold through the same distribution channels. Brand reputation of the
original product can spill over to the new products and distribution synergy is likely.

Cross-selling, where other products are sold to existing customers, is common in finance,
banking, and insurance businesses. The costs of acquiring a new business from existing
customers are much lower and, moreover, customers with several products from the same
company tend to be more loyal because of the hassle involved in changing companies.

Line extension is found in producers of “supermarket goods” such as detergents and

packaged foods. Family branding (Heinz, Krafts, Kelloggs, etc.) and individual branding
are used to launched these new products. Other examples include Hill’s Industries, which
now sells wheelbarrows, ladders, TV antennas, trampolines and trolleys to its existing
buyers, i.e., home owners. These products are, of course, in addition to its famous Hill’s
hoists and are sold through hardware stores taking advantage of its reputation in metal
works.

5.0 DIVERSIFICATION

A diversification strategy involves venturing into a new business to exploit growth

opportunities in that area but is a high risk move because of the unfamiliarity with the new
business. It makes sense when attractive opportunities are found outside the present
businesses. There are two types of diversification, related and unrelated.

50
5.1 Related Diversification

Here, the new business has some commonalities with the company’s existing businesses.
These typically involve skills and assets (resources) that can be shared for synergy or
economies of scale. Related diversification is appropriate when any of the following
dimensions is present:

R&D/technology — Canon’s photographic and electronic technologies have successfully

allowed the company to diversify into photocopiers, video cameras, and printers. Saab-
Scania boasts of its association with passenger cars, trucks, and jet fighters.

Even a conglomerate like Pacific-Dunlop has many related businesses. Its tyre, rubber
glove, mattress, and, industrial foam and hose businesses are all rubber/latex-based.

Brand image/association — a strong brand name can help launch a new product
especially one that will directly benefit from the brand association.

Matsushita’s Panasonic brand now dons its host of consumer electrical and electronic
goods. However, its Technics’ brand is reserved for its upmarket sound systems. Levi’s
was successful when it marketed a range of casual wear but failed in the sportswear
business.

Some brands are so well positioned in a given product category that extending them to
other areas can be a disaster. Windex (window cleaners) lost out when the brand was
extended to other household cleaners. Xerox failed when it ventured into computers and
so did IBM when it attempted to diversify into photocopiers.

Marketing skills — the marketing functional areas most responsive to synergy are
distribution and promotion. Many good products failed due to the lack of adequate
distribution and are targets of takeovers. For example, a major pharmaceutical company
may diversify by taking over a failing toiletry company and relaunching the latter’s brands
through its existing distribution channels.

Traditional soft drink producers such as Coca-Cola & Pepsi have diversified into packaged
snack foods, mineral water and packaged fruit juices to take advantage of their distribution
and mass marketing strengths.

5.2 Unrelated Diversification

Unrelated diversification is the seeking of new businesses that have little or no relationship
with the company’s core business. By definition, unrelated diversification has few
opportunities to share or exchange skills and assets across businesses. It can be argued
that the motivations for such a strategy are primarily financial.

51
These conglomerates usually have a “parent” known aptly as a holding company. Because
some of these conglomerates are so diversified, the holding company or board of directors
are so removed from the daily operations of each business. These businesses operate
independently and are quick to be sold or new ones acquired depending on some financial
criteria.

Common financial criteria include cash flow, ROI, risk spreading, and tax benefits. The text
even suggested the enhancement of CEO’s personal power. Many Japanese
conglomerates have ventured into real estate, hotels, golf clubs, casinos, private colleges,
and holiday resorts in Australia.

6.0 VERTICAL INTEGRATION

Consider the full extent of the supply-distribution system from raw materials to components
to finished goods to wholesaling and, finally, to retailing. Each of these stages is a
business adding value to the final product for consumption. The integration of some of
these functions is known as vertical integration, either forward or backward.

6.1 Forward Integration (downstream)

From a manufacturer’s perspective, forward (vertical) integration involves gaining control

of its distribution by buying over a wholesaler or retailer, or by taking over
wholesaling/retailing functions. This downstream move is a growth strategy since it
produces higher revenue and if costs are managed well, a higher ROI may result. Also, it
gives the manufacturer better overall control over the “destiny” of its products. These two
major advantages are detailed as follow:

Economies of scale — if independent wholesalers or retailers are used, some distribution

and promotional functions are duplicated. Both the manufacturer and wholesaler may have
their own separate warehouses, sales force, and other operating resources. If these
duplications are eliminated or minimised, the operating costs savings can be passed on to
the end-customer through lower retail prices (or a higher margin can be realised).

Many white goods manufacturers/importers perform their own wholesaling and servicing
functions by operating distribution centres in major markets to physically distribute,
promote and service the independent retailers.

Other manufacturers/importers may resort to direct selling to end-customers or operate

their own retail outlets.

Channel control — the integration of distribution activities allow a manufacturer to obtain

channel leadership. They have full control over the promotion and pricing at each level of
distribution. The strategy also attempts to minimise channel conflict. Recall that resale
price maintenance law prohibits suppliers to control the retail prices of their products.

52
Independent retailer tend to heavily discount recommended retail prices to move the
goods which not only can stir a retail price war but may also affect the quality perception of
the goods in the long run.

Customer service and in-store promotion of a particular product/brand are often left to the
independent retailers who tend to ignore slow moving brands or those with poor margins.

6.2 Backward Integration (upstream)

Backward integration assumes control of the supply or source of products. This occurs
when a retail chain (franchise or buying group) performs its own wholesaling activities by
operating a distribution centre. This gives the retail chain more bargaining power when it
deals directly with manufacturers through bulk-buying.

Final-goods manufacturers can also go upstream by owning their own components or raw
materials production plants. These manufacturers are in a strong position to manage the
quality, price and supply reliability of the input products. They may even prevent
competitors from drawing from the same sources. Large electronic goods makers often
produce their own parts and components for their own use or even to sell to other
manufacturers. In the U.S., it is common for beer and soft drink producers to own and
operate their own can and bottle making plants.

Alternatives to integration include controlling the supply/source and distribution of the

products through administered and contractual vertical marketing systems. Recall from
Introductory Marketing that manufacturers, wholesalers and retailers can share some of
their supply-distribution and promotional functions through contractual arrangements such
as those found in franchise systems and buying groups. Technically, these are not the
vertical integration strategies presented here because they do not involve the ownership of
another value-adding operation. However, the benefits can be similar and many of the
inherent problems can be avoided. See next section.

Finally, vertical integration strategies are not without their problems. They are usually a
form of unrelated diversification since these operations are quite different and seldom have
synergistic advantages. Among the problems are the risk of managing a different
business, and reduced flexibility.

53
 MODULE 10

PLANNING FOR MARKET-ORIENTATION A

(ORGANISATIONAL STRUCTURE & OTHER SYSTEMS)

1.0 INTRODUCTION

A market-oriented company needs to be well organised to respond to the business

environment forces, and to plan & implement strategies for growth and profitability. In
Australia, many businesses appear to be adopting the marketing concept but failed to
realise that formulating a strategic plan and making it work in the marketplace are two
different processes.

A business should have some key systems in place in order to even consider adopting the
marketing concept. In other words, an organisation must be “set up for market-orientation”
before any developed strategy work in the marketplace.

2.0 ORGANISATIONAL STRUCTURE

Marketing plays a key, if not central role in business. Proponents even suggest that it is
the "driving force" of the modern business. Its precise role in product value-adding is
subjective and, therefore, debatable.

Marketing, as a discipline, is responsible for monitoring the environment for business

opportunities, understanding customer behaviour, obtaining feedback from customers, and
monitoring competitors' activities. Logically, for a company to claim to be market- or
customer-oriented, it has to give marketing a bigger role in new-product development
(NPD).

To embrace the marketing concept and achieve market-orientation, one must first consider
the role & function of marketing and its relationship with other functional departments. The
specific way of organising marketing departments depends on the history and nature of the
business, and its industry.

Most common observation is the separation of the selling and marketing functions or
departments, and their independence from each other. This may be due to historical
reasons.

Sales & marketing functions may include marketing planning, marketing research,
marketing communications (advertising, public relations, etc.), sales, logistics, website
design & operation, and so on.

54
3.0 NEW-PRODUCT DEVELOPMENT

How does the R&D team conduct its activities and contribute to the company's marketing
tasks and vice-versa? New-product development (NPD) is no longer solely the R&D’s sole
responsibility because of the changing nature of business and the environment.

How do competing brands compare on technology or form-and-function? Many new

products fail. The reasons would include pushing an innovation through without adequate
market research, poor product design, incorrect product positioning, inadequate market
testing, and poor marketing mix strategies. Competitors' actions or an unexpected change
in the environment could also be contribution factors.

Increasingly, companies are adopting a task force approach to NPD. A task force is a
team comprising of representatives from the various functional departments who are
responsible for the development of the new product from start to finish.

As NPD is a process involving several distinct stages (idea generation and screening,
concept development and testing, financial analysis, product development, market testing,
etc.), it is clear that various functional departments have to be involved.

4.0 MARKETING INFORMATION SYSTEM (MIS)

A marketing-oriented company should have some form of continuous tracking of the

environment including customers and competitors. Many companies boast of the
occasional marketing research projects but these are quite different from MIS.

All companies have some form of MIS with varying degree of sophistication. Some collect
"raw" information only to be mentally processed by managers using intuition or "gut feel" to
draw conclusions. Another may be too sophisticated or complex for general management
use.

Marketing is a continuous activity that produces results. It is an on-going performance

within the context of the business environment that is dynamic. Managers are constantly
on their toes, making decisions especially tactical ones everyday. Good decision is based
on a combination of pertinent information, judgement, and intuition. In fact, situational
analyses are nothing more than information/intelligence which are revealing, accurate,
pertinent and, more importantly, useful for management decision making..

Quality of a company's MIS suggests how much emphasis the company places on
externally and internally-sourced market information as the basis for its managers'
marketing decisions. It is a reflection on the company's actual commitment to market-
orientation.

55
5.0 BUDGETING

A budget is basically a projected profit-and-loss statement showing details such as

forecast sales, associated marketing and other expenses to arrive at the "bottom-line"
(profit).

The budget is used both as a planning and control tool. A marketing-oriented company
would ensure that forecasting is made by the marketing department. After all, inherent in a
marketing strategy are marketing objectives (sales or profit) and a course of actions (most
of which are expenses).

Many budgeted expenses such as advertising, sales promotion, sales force, new product
development, etc. are based on projected sales, i.e., percentage-of-sales methods. Sadly,
it is common that these are set by the accounting department without much input from the
marketing department.

It will be difficult to obtain funding during the planning period for activities or functions that
are not budgeted. Although funds can be found, the unplanned spending will affect the
actual profitability of the business. If not budgeted, the activity becomes ad hoc. This is
rather common especially for new-product development activities.

Also, the budgeting system can be used as a control measure — formal steps to check on-
going performance against planned and to apply corrective actions where needed.
Variances, i.e., the difference between actual and planned performance, are identified and
analysed to determine the seriousness of the performance gaps. Contingency plans may
be implemented in the event of a course of action falling short of expectation.

56
 MODULE 11

PLANNING FOR MARKET-ORIENTATION B

(IMPLEMENTATION OF STRATEGY)

1.0 Introduction

A strategy is a plan of a desired course of action, i.e., “what to do”. It is best written on
paper and worst, on someone’s mind. The difference between intended strategy and
realised strategy is well acknowledged. A planned strategy must be implemented or
executed by the company in order to be a realised strategy. Only realised strategies
matter ultimately.

A strategy is broken down or translated into finer, more specific tasks or tactics. These
tasks must be well carried out in order for the strategy to be realised, i.e., achieving
planned objectives. Therefore, a tactic is the “how to do it” and tactical implementation, the
“doing it”. The traditional management model suggests that a strategy is formulated by
management and tactics are developed and implemented by the rank-and-file members of
the organisation.

This final module will examine a model of strategy implementation. Before that, let us
consider some recent issues surrounding strategy and its tactical implementation.

2.0 STRATEGY VS TACTICAL IMPLEMENTATION

Many companies simply do not follow through their strategies. They consider a strategy as
something that is conceived and produced on paper, or the be-all and end-all of marketing.
Recall that a strategy has to be translated into actions and that these actions must be
carried out effectively. Through these actions, the company is adapting to the needs of the
new strategy (or direction). A new strategy, by definition, will require the company to
change in some manner. Change is always hard, and sometimes painful. However, it is a
must for the strategy to ever be realised.

Therefore, for a strategy to work, it must be formulated with practical implementation in

mind. Some would argue that marketers should stress marketing-as-practised, i.e., more
emphasis on tactics and tactical implementation, as opposed to marketing-as-conceived
(strategy). The argument is sound when one considers the following. In some industries, it
is not even clear whether firms can be strategically differentiated. Companies within the
same industry or more correctly, the same strategic group, tend to engage in similar
strategies because they are faced with basically the same set of environmental conditions.
These companies also tend to be similar in structure, size and resources. They may even
have access to the same “strategy” brains, i.e., managers, consultants and academics
from common business schools.

57
These companies may actual have similar strategies but the difference in performance is
due to the difference in tactical implementation. This imply going back to the basic, i.e.,
customer-orientation. Serve the customers’ needs and not the organisation’s wishes. For
example, many major banks have the same strategy along the lines of providing the best
customer service, being competitive, and diversifying the product range to meet market
segments’ needs, etc. However, these banks often end up with different results because
their strategies are delivered through different tactics and execution style. A bank that is
undergoing a major internal restructuring to improve profitability (the strategy), may
actually end up in a worse situation when its rank-and-file employees fail to deliver the
desired customer service (the tactical implementation) because of low morale and
uncertainty about job security.

Some companies may use external consultants to produce a strategy document but end
up not carrying it through because of various reasons such as costs, or simply, the hassle.
In this case, the company would have a different strategy, at least on paper, but end up
the same tactically. The “what’s the point, things here will never change” syndrome. In the
marketplace, how much has insurance marketing methods changed? Have used car
dealers really changed their selling methods? We can be sure that companies in these
industries all boast of strategic brilliance.

Long-term strategy, so valued by strategy purists, is a series of shorter term tactical build-
up. One cannot achieve a long term strategic goal with one giant leap. This reinforces the
need for time-related “sub strategies” and tactics.

3.0 MODEL OF STRATEGY IMPLEMENTATION

All we had done in the preceding section was to argue the importance of tactical
implementation as part and parcel of a strategy. We will now turn our attention to the four
sub-systems within an organisation which influence strategy implementation. These are
structure, culture, people, and systems.

3.1 Organisation Structure

To a certain extent this element had been discuss in Module 11. Structure is the formal
organisation of the company and is concerned with the relationship between the various
functional divisions within an organisation and how they interact with one another. It also
specifies roles and responsibilities of the personnel within each division and across
divisions. Strategists talk about the fit between an organisation’s structure and its strategy
and implementation.

The fit is seldom perfect because of the basic character of the different functional
divisions. For example, the production division tend to strive towards standardisation, R&D
is concerned with innovation, accounting and finance preoccupation with cost control and

58
marketing’s responsibility for customer satisfaction. These are seemingly conflicting
stances and must be overcome for a strategy to be effectively implemented.

The traditional view is that structure is dictated by strategy. A new strategy would, then,
make it necessary for the structure to be modified to accommodate change. However,
structural change (often known as reorganisation or restructuring) is disruptive and often
resisted. Managers tend to support the notion of minimal change or fine tuning, i.e.,
change just those necessary to see the new strategy through. However, by the time the
structure is fine tuned, yet another new strategy is presented. The view now is to consider
structural issues in more dynamic terms, i.e., as part of the strategy formulation process
from the start.

In dealing with structure, the text discusses the concept of centralisation versus
decentralisation, task force and internal communication.

3.2 Culture

According to the text, an organisational culture involves three elements: a set of share
values, a set of behavioural norms, and symbols and symbolic activities.

An organisation’s culture is similar to a society’s culture in that it is concerned with

unwritten policies of what is important, what can or should be done, and what will be done.
This culture has a direct impact on the effectiveness of the implementation of a strategy. In
a way, the people within the organisation must agree to the strategy and how it is to be
executed or even if it will be implemented at all. Because an organisational culture is
informal, natural, and developed over time, it is extremely durable and least amenable of
the four elements to change. Of course, management would attempt to reinforce or
change existing culture with mission statements and the like.

In cases where the new strategic direction is substantial, a cultural change must occur.
Consider each bank’s cultural “upheaval” that occurred but necessary when the banking
industry became deregulated and real competition introduced for the first time. Even
Telstra has not fully recovered from its “culture shock” when it had to start facing its first
competitors. A competitive culture is what is needed for these organisations.

3.3 People

People or human resources are often not directly considered in strategy formulation
because management tend to take their staff for granted. After all, employees are paid to
perform work given to them. Such attitude borders on the absurd. A large part of human
resource management, a as discipline, is concerned not only with task assignments but
more so on staff recruitment, selection, training, motivation and reward.

59
A strategy is based on an organisational skill that is, in turn, based on people. Strategies
and tactics are developed and implemented by people. Even a machine performs only as
well as the people programming or operating it. The text discusses the issue of skills
acquisition thorough recruitment and training, e.g., whether to hire experienced staff to
handle new skills or train existing ones. Apart from the skills and competencies of staff
members, the commitment to performance and organisational objectives needs to be
addressed.

Staff commitment to personal development and workplace performance is on-going way

after a skill has been acquired. Staff motivation comes to mind and companies have
different ways to deal with this issue. While many companies acknowledged the
importance of motivation for strategy implementation, few have yet to grasp this delicate
matter. There are many ways to motivate employees including financial incentives,
fear/punishment, job enrichment, and other intrinsic rewards. Recent practice promotes
the concept of empowerment, i.e., giving employees the authority to correct a problem
without having to check with management. The practice is consistent with total quality
management (TQM) principles. This acknowledges and reinforces an employee’s worth,
trust, and status which are powerful motivators.

3.4 Systems

Systems here refer to the management systems that are designed to facilitate managerial
activities such as analysis and decision making. Some of these (MIS, control & budgets)
were presented in the previous module (Module 10).

These systems are also known as managerial processes that involve strategy planning,
the translation of the strategy into a set of strategic programs, and the integration of these
programs into functional plans. The specific skills and resources are then developed to
carry out or implement these plans. Finally, the control-budget systems track and control
the performance of the tactics, and ultimately, the strategy itself.

Often, strategists talk about management implementation skills. These are managerial
skills necessary to facilitate the implementation of a marketing strategy. Managers must be
skilled in the allocation of resources such as time, money, effort and personnel to the
various functions or activities. Managers must be good organisers of the relationship
among marketing staff to accomplish company objectives. They must address the degree
of centralisation and formalisation of process that are built into the organisational structure.
Managers must also be skilled in the monitoring of external events as well at its internal
activities and performance through the MIS and control system. Finally, interpersonal skill
involves the ability to get things done by influencing others. This invariably involves staff
motivation towards effective implementation of strategies.

60