Marketing Strategy

Lec 3

Strategies for the SBU

Large firms with multiple businesses usually have Corporate growth strategy focusses on
a hierarchy of strategies extending from the corporate level down to the individual product-market entry. developing new products and new applicaitons for emerging technologies for 3M. How should we compete in this business?

The major strategic question to be addressed at the SBU level: One key reason for 3M's continuing success is that all three levels of strategy within the company have been characterized by
good internal and external consistency of Strategic Fit.

Each strategy

fits with those at other levels as well as with the unique competitive strengths and competencies of the relevant business unit and the company as a whole.

Strategic Fit
When there is a good fit between a business's competitive strategy and the strategic marketing programs of its various products or serfvice offerings,
businesses achieve better results in terms of
sales growth, market share and profitability than when the two levels are inconsistent.

Strategic Decisions at the BU level.

SBUs: The components of a firm engaged in multiple industries or businesses are called SBUs. Managers within each of this SBU decide which
objectives, markets and competitive strategies to pursue.

Top level corp managers reserve the right to

review and approve such decisions to ensure their ov erall consistency with the company's mission, objectives, and the allocation of resources across SBUs in its portfolio.

 However SBU level managers, especially those in Mktg and Sales bear the

These managers are more familiar with a given SBU's

primary responsibility for collecting and analysing relevant info and formulating appropriate strategies for their businesses. products, customers and competitors and are responsible for successfully implementing the strategy. move strategic decision making closer to the customers.

The rationale for breaking larger firms into SBU stems from a market oriented desire to

 The first step in developing BU level strategies is for the firm to decide how to divide itself into SBUs. The mgrs in each SBU must then make recommendations about

the units objectives the scope of its target customers and offerings which broad competitive strategy to pursue to build a competitive advantage in its product-markets how resources should be allocated across its productmarket entries and functional depts

HOW SHOULD SBUS BE DESIGNED?

An SBU should have the follg characteristics.
A homogeneous set of markets to serve with
a limited no of related technologies.

A unique set of product-markets in the sense that

no other SBU within the firm competes Thus the firm avoids duplicaiton of effort and maximises economies of scale within its SBUs.
for the same customers with similar products.

Minimising diversity across an SBUs product-market entries enables the units managers to better formulate and implement a coherent and internally consistent business strategy.

HOW SHOULD SBUS BE DESIGNED?

Control over those factors necessary for successful performance,
such as production , R&D, engineering, mktg and distribution. T

This does not mean an SBU should not share resources such as a mfg plant or a sales force with other SBUs. 4. Responsibility for their own profitability.

But the SBU should determine how its share of the joint resource is used to effectively carry out its strategy.

How product-markets should be clustered into a BU

What criteria should managers use to decide? Technical compatibility:
With respect to pdt technologies and operational requirements such as the use of similar production facilities and engg skills.

Similarity in the customer needs or the pdt benefits sought by customers in the target markets Similarity in the personal characteristics or behaviour patterns of customers in the target markets.

IN practice, the choice is between

Typically, SBUs are decided based on

technical / operational compatibility on the one hand and customer homogeneity on the other.
similar technologies, production facilities.

Sometimes mktg synergies gained from

co-ord technically diff products aimed at the same customer need or mkt segtment Outweigh operational considerations.

BUSINESS UNIT OBJECTIVES

Firms break down corp obj into subobjectives for each SBU.
Sub objectives vary across SBUs according to the
attractiveness of their industries, the strength of their competitive positions within those industries and resource allocaiton decisions by corp management.

For eg, managers may assign an SBU in a rapidly growing industry

Similarly overall SBU obj should be broken down into sub objectives for each product-mkt entry in the unit. Disc: Conflict between objectives of various pdt-mkts
Likewise these sub obj vary depending on the pdt mkt charcteristics.

relatively high volume and market share growth objectives but lower ROI objectives than an SBU with a large share in a mature industry.

ALLOCATING RESOURCES WITHIN THE BU. .

Once the budget and the objectives have been approved by the corporate, Firms use
resource allocation takes place amongst the various productmarkets. economic value, port folio analysis tools for such decisions.

At the SBU levels mgrs must determine the

attractiveness of individual target markets, the competitive position of their products within those markets and the customer equity and cash flows each product entry will likely generate rather than analysing industry attractiveness and overall competitive strengths of the firm.

HOW DO BUSINESSES COMPETE?

Essential strategic question at the SBU level is: Thus business strategies are primarily concerned with The units
How are we going to compete in this business?

allocating resources across functional activities and product markets to give the unit a substantial advantage over its competitors.

core competencies and resources alongwith the customer and competitive characteristics of its industry
determine the viability of the comp. strategy

Most SBUs generally pursue a single competitive strategy,

one that best fits their market environments and competitive strengths across all or most of the product markets in which they compete

Competitive Strategies
Porters 3 competitive positions
Cost leadership: Differentiation:
Building customer perceptions of superior product quality, design or service

Focus
The business avoids direct confrontation with its major competitors by concentrating on narrowly defined niches

Porters prediction: Firms that lack strategy get stuck in the middle and perform poorly.

Miles and Snow: Competitive Strategies

Based on the businesss intended rate of product-market development
New pdt development, penetration of new mkts.

Classify BUs into 4 strategic types:

Prospectors:
Growth through development of new pdts and mkts

Defenders
Concentrate on maintaining their positions in well established pdt-mkts while paying less attention to new pdt development

Miles and Snow: Competitive Strategies

Analyzer:
Falls between the above two. Attempts to maintain a strong position in its core product market And also seeks to expand into new, closely related product-markets

Reactors
Businesses with no clearly defined business strategy

How do Comp Strategies differ?

Diff in Scope:
Defenders:
Operate in relatively well defined, narrow and stable domains Product technology and customer segments are mature

Prospectors:
Operate in broad and rapidly changing domains Neither the technology nor customer segments are well established. The scope undergoes periodic redefinition. Prospectors are organized around a core technology which might evolve over a period of time or
Around a basic customer need that can be met with different technologies

 Analyzers:
Fall in between the two. Usually have a core business to defend Their domain is primarily focussed on that business. Often these are in industries that are still growing or experiencing technological changes. They must pay attention to the emergence of new customer segments or new product types. Managers must review and adjust the domain from time to time in such businesses.

Diff in Goals and Objectives

3 PERFORMANCE DIMENSIONS
Effectiveness:
Measures the success of businesss products and programs relative to those of its competitors in the market.
Sales growth vis a vis competition Changes in mkt share.

Efficiency:
The outcomes of a businesss programs relative to the resources used in implementing them. Measures are: profitability as a % of sales and ROI.

Adaptability:
Businesss success in responding over time to changing conditions and opportunities in the environment. Measures: no of successful new pdts introduced relative to competitors
% of sales from new products introduced in the last 3-5 years.

 Substantial trade offs even in achieving these 3 measures

New product development calls for large marketing budgets and high investments. Reduce ROI.

Thus mgrs must choose 1 or 2 performance parameter to work on. The chosen strategy should promised discounted cash flows that exceed the cost of capital Only then the shareholder value is enhanced.

 Prospectors outperform defenders on

New pdt development Market share growth

Defenders outperform on
ROI Differentiated defenders produce higher returns than low cost defenders. Because they avoid intense price competition due to differentiation.

Diff in Resource Deployment

Prospectors and Analysers
Large proportion of resources to development of new product-markets. These pdt-mkts take in more cash than they give out. They are generally ? Or Stars.

Defenders
Allot resources to preserve their existing domains. These are generally highly profitable pdt-mkts Generate excess cash to support pdt-mkt development efforts. They are cash cows.

Diff in source of synergy

Low cost defenders
Should seek operating synergies that will make them more efficient. Synergies should help to increase economies of scale Sharing of resources, facilities and functional activities across pdt market entries within the BU or across related BUs.

 Prospectors
Sharing of operating facilities not appropriate Reduces the SBUs ability to change quickly to changing market demands and competitive threats.

Analyzers:
Intermediate.

Deciding when a strategy is appropriate:

Fit between business strategies and the environment. Diff strategies pursue
Diff objectives in diff domains with diff competitive approaches. Do not work equally well under the same environment.

Conditions for Prospector Strategy

Suited to
Unstable and rapidly changing environments New technology Shifting customer needs

Industries tend to be at an early stage in their life cycles Offer many opps for new pdt-mkt entries. Industry structure is often unstable because few competitors are present and their relative mkt share can shift rapidly as new products and new markets develop.

 Prospectors
Devote substantial resources to
R&D, Pdt engg, and other areas that identify new technology and convert it into innovative pdts Mktg research, Mktg and Sales.

Even though firms might have strong pdt development and mktg skills, they might lack resources to maintain its early lead. New competitors enter and take away the market.

Conditions for Analyser Strategy

Hybrid strategy
they have to defend
With low costs or differentiation in one or more pdt-mkts

They also have to pay attention to new pdt dev and to avoid being leapfrogged by competitors with advanced technology.

This dual focus makes analyser strategy appropriate for well developed industries that are still experiencing growth and change as a consequence of evolving consumer needs. E.g., Automobile Industry.
Few competitors Well established Mature markets But technology continues to advance. Toyota, Honda invest millions in pdt development.

Difficult strategy to follow.

Lot of reources are needed as one needs to be good in all functional depts.

Conditions for a defender strategy

A business should have something worth defending. Relatively mature, stable industry Should have a profitable market share. Focus on incremental improvements like TQM, Process Improvement, Line extensions etc to protect their positions. Devote few resources to basic R&D or on the development of new pdts. Defender strategy works best in
Industries where the basic technology is not very complex

Differentiated defenders.
To defend its position by differentiation,
Business must be strong in the functional areas critical for maintaining its particular competitive advantage over time. If it is superior pdt quality,
Pdn, process engg, quality control and pdt engineering functions need to be strong.

Superior pdt quality has a positive effect on ROI Mktg is another important function for effective implementation of diff defender strategy.

Low cost defenders

For success here a firm should be more efficient than its competitors
Business should seek large volumes right from the beginning.
i.e., from the growth stage of the industry This gives lowest cost per unit. Can happen only by a combination of low price and promotional efforts
To gain economies of scale and experience

At the same time, they need to invest in more plant capacity and state of art pdn faciities to minimize pdn costs This need for efficiency forces standardization of product offerings and marketing programs.

All org have to look at operating efficiency

How Business Strategies influence Mktg Mix Decisions

BUs incorporate a no of distinct pdt-mkts. The mgrs freedom to design a mktg program constrained by the BUs competitive strategy. Diff strategies focus on diff objectives and seek to maintain a competitive advantage in different ways. Diff key success factors inherent in the various generic strategies constrain the mktg managers freedom of action in 2 ways.
SBUs strategy influences theamount of resources committed to mktg It also influences the kind of market and competitive situation that individual pdt-mkt entries are likely to face and the objectives they are asked to attain.

Both the above constraints impact the mktg programs for the individual mkts.

Product policies
Concerned with
the breadth or diversity of pdt lines Level of technical sophistication And the target level of pdt quality wrt the competition. Prospector businesses rely heavily on the devlpt of new products and penetration of new markets as their primary comp strategy. Various dimensions of quality
Reliability Technical features Upto the minute styling.

Pdt policies
Diff defenders compete by offering more or better choices to customers than their competitors
Should be focussed on the long term ROI

Low cost defenders cannot have broad and sophisticated prdt lines.
Calls for a lot of investments in pdt and processes

Also diff can happen based on the quality of service

Engg and design services, installation, training of customers, Appropriate for diff defenders For low cost defenders it is inappropriate. Higher costs of servicing might offset customer satisfaction benefits.

Pricing policies
Low prices can be a competitive weapon only for low cost defenders Disc: for Prospectors
For Diff Defenders
Diff provides customers

Higher prices needed to justify additional resources.

Distn policies
Prospectors:
More new products and new markets Need tighter control over the distn channel But also need flexibility of constructing new channels to move into new markets / pdts Rely on independent channel members

Defenders:
Controlling channels tightly is appropriate Esp defenders using service quality as a weapon. High degree of forward vertical integration

Promotion policies
Prospectors
Build primary demand Generate awareness Stimulate trial For new and unfamiliar products High advertising and sales promotion costs

Diff defenders
Maintaining the loyalty of customers
Need extensive and well trained salesforce especially in industrial pdts Higher sales force exp than competitors

Low cost defenders

High promotional exp would detract from their stated strategy Have a negative impact on their ROI.