The Marketing Implications of Corporate and Business Strategies

What Is Marketing’s Role in Formulating and Implementing Strategies? The primary strategic responsibility of any manager is to look outward continuously to keep the firm or business in step with changes in the environment Marketing managers are primary participants and contributors to the planning process at the business and corporate level

Market-Oriented Management Marketing concept: Holds that the planning and coordination of all company activities around the primary goal of satisfying customer needs is the most effective means to attain and sustain a competitive advantage and achieve company objectives over time

Exhibit 2.2 - Guidelines for Market-Oriented Management

Does Being Market-Oriented Pay? An organization’s success over time hinges on its ability to provide benefits of value to its customers and to do that better than its competitors Organizations should be able to enhance, accelerate, and reduce the volatility and vulnerability of their cash flows: By paying careful attention to customer needs and competitive threats By focusing activities across all functional departments on meeting those needs and threats effectively

Factors That Mediate Marketing’s Strategic Role Competitive conditions may enable a company to be successful in the short run without being particularly sensitive to customer desires Different levels of economic development across industries or countries may favor different business philosophies Firms can suffer from strategic inertia

Exhibit 2.3 - Differences between Production-Oriented and Market-Oriented Organizations

Three Levels of Strategy: Similar Components, but Different Issues Strategy: A fundamental pattern of present and planned objectives, resource deployments, and interactions of an organization with markets, competitors, and other environmental factors

Three Levels of Strategy: Similar Components, but Different Issues The components of strategy Scope Goals and objectives Resource deployments Identification of a sustainable competitive advantage Synergy

Three Levels of Strategy: Similar Components, but Different Issues The hierarchy of strategies Corporate strategy Business-level strategy Functional strategies

Exhibit 2.5 - Key Components of Corporate, Business, and Marketing Strategies

Exhibit 2.5 - Key Components of Corporate, Business, and Marketing Strategies

Corporate Scope—Defining the Firm’s Mission A good mission statement guides an organization’s managers as to which market opportunities to pursue and which fall outside the firm’s strategic domain Market influences on the corporate mission Criteria for defining the corporate mission Social values and ethical principles Ethics: Concerned with the development of moral standards by which actions and situations can be judged

Exhibit 2.6 - Characteristics of Effective Corporate Mission Statements

Corporate Objectives A performance dimension or attribute sought A measure or index for evaluating progress A target or hurdle level to be achieved A time frame within which the target is to be accomplished

Exhibit 2.8 - Common Performance Criteria and Measures That Specify Corporate, Business-Unit, and Marketing Objectives

Exhibit 2.8 - Common Performance Criteria and Measures That Specify Corporate, Business-Unit, and Marketing Objectives

Corporate Objectives The marketing implications of corporate objectives: Most organizations pursue multiple objectives Trying to achieve many objectives at once leads to conflicts and trade-offs Managers can reconcile conflicting goals by prioritizing them Another approach is to state one of the conflicting goals as a constraint or hurdle

Corporate Sources of Competitive Advantage A sustainable competitive advantage at the corporate level is based on company resources - resources that other firms do not have, that take a long time to develop, and that are hard to acquire

Corporate Growth Strategies A firm can go in two major directions in seeking future growth Expansion of its current businesses and activities Diversification into new businesses, either through internal business development or acquisition

Exhibit 2.9 - Alternative Corporate Growth Strategies

Corporate Growth Strategies Expansion by increasing penetration of current product-markets Expansion by developing new products for current customers Expansion by selling existing products to new segments or countries

Corporate Growth Strategies Expansion by diversifying: Vertical integration Forward vertical integration occurs when a firm moves downstream in terms of the product flow Backward integration occurs when a firm moves upstream by acquiring a supplier Related (or concentric) diversification Unrelated (or conglomerate) diversification

Allocating Corporate Resources To exploit the advantages of diversification Corporate managers must make intelligent decisions about how to allocate financial and human resources across the firm’s various businesses and product-markets Two sets of analytical tools have proven useful in making such decisions Portfolio models Value-based planning

Portfolio Models Enable managers to classify and review their current and prospective businesses by viewing them as portfolios of investment opportunities and then evaluating each business’s competitive strength and the attractiveness of the markets it serves The Boston Consulting Group’s (BCG) growth-share matrix

Exhibit 2.10 - BCG’s Market Growth Relative Share Matrix

Exhibit 2.11 - Cash Flows across Businesses in The BCG Portfolio Model

Limitations of the Growth-Share Matrix Market growth rate is an inadequate descriptor of overall industry attractiveness Relative market share is inadequate as a description of overall competitive strength The outcomes are highly sensitive to variations in how growth and share are measured It provides little guidance on how best to implement investment strategies for each business It assumes that all business units are independent of one another except for the flow of cash

Value-Based Planning A resource allocation tool that attempts to address such questions by assessing the shareholder value a given strategy is likely to create Economic value added: The amount of return a strategy or operating program generates in excess of the cost of capital Discounted cash flow model

Exhibit 2.12 - Factors Affecting the Creation of Shareholder Value

Value-Based Planning Some limitations of value-based planning It is not a substitute for strategic planning Good forecasts that are critical to the validity of value-based planning are difficult to make There are natural human tendencies to overvalue the financial projections associated with some strategy alternatives and to undervalue others Value-based planning can only evaluate alternatives, but it cannot create them

Sources of Synergy Knowledge-based synergies Performance enhancement through transfer of competencies, knowledge, or customer-related intangibles from other units within the firm Corporate identity and the corporate brand Corporate identity flows from the communications, impressions, and personality projected by an organization

The Marketing Implications of Business-unit Strategy Decisions Strategic business units: Components of a firm engaged in multiple industries or businesses Steps in developing business-level strategies Deciding how to divide into SBUs Managers must recommend: The unit’s objectives The scope of its target customers and offerings Which broad competitive strategy to pursue How resources should be allocated

How Should Strategic Business Units Be Designed? Characteristics of strategic business units A homogeneous set of markets to serve with a limited number of related technologies A unique set of product-markets Control over those factors necessary for successful performance Responsibility for their own profitability

How Should Strategic Business Units Be Designed? Dimensions that define the scope and mission of the entire corporation also define individual SBUs Technical compatibility Similarity in the customer needs Similarity in the personal characteristics

The Business Unit’s Objectives Corporate objectives typically broken down into subobjectives for each SBU Breaking down an SBU’s objectives into subobjectives for each of its productmarket entries is often a major part of developing business-level strategy

The Business Unit’s Competitive Strategy Decisions about an SBU’s scope Allocating resources within the business unit Gaining a competitive advantage Marketing resources and competitive advantage

Exhibit 2.13 - Three Competitive Strategies and the Traits and Competencies of Businesses That Implement Them Effectively