Strategic Planning

Developing Marketing Strategies and Plans

Reasons for Planning If we do not know where we are going any road will take us there. The future is unpredictable but it is not a random walk. The essence of strategic planning is the consideration of current decision alternatives in the light of their probable consequence over time.

Strategic Planning Successful companies know how to adapt to a continuously changing market place. They practice the art of market – oriented strategic planning.

Strategic planning is the process of developing and maintaining a feasible fit between the organization’s objectives, skills, and resources and its changing marketing opportunities.

Strategic Planning Calls for action in three key areas : (i) Managing the company’s businesses as an investment portfolio (ii) Assessing each business’s strength by considering the market’s growth rate and the company’s position and fit in that market. (iii) Making the strategy

THE STRATEGIC PLANNING, IMPLEMENTATION AND CONTROL PROCESS

Planning Corporate Planning Division Planning Business Planning Product Planning

Implementing Organizing Implementing

Controlling Measuring results Diagnosing results Taking corrective action

Corporate and Division Strategic Planning–Four Planning Activities • • • •

Defining the corporate mission. Establishing strategic business units. Assigning resources to each SBU. Developing growth strategies

Corporate Strategic Planning (cont.) Defining the corporate mission To define mission, a company should address Peter Drucker’s classic question: – What is our business? Who is the customer? What is of value to the customer? What will our business be? What should our business be?

A clear, thoughtful mission statement provides employees with a shared sense of purpose, direction and opportunity. – What do we do best? What are the values/ethics of the firm? – Define business by need rather than product. Lodging vs hotel Quick service restaurants vs fast food hamburgers – Marketing myopia - Transportation vs railroad

Corporate Strategic Planning (cont.) Defining the corporate mission Good mission statements have three major characteristics : - focus on a limited number of goals - stress the major policies and values that the company wants to honor - define the major competitive scopes within which the company will operate The mission should define the competitive scopes within which the company will operate. Industry scope, products and applications scope, competencies scope, market-segment scope, vertical scope and geographical scope. • Mission statements are at their best when they are guided by a vision, an almost “impossible dream” that provides a direction for the company for the next 10 to 20 years.

ESTABLISHING STRATEGIC BUSINESS UNITS Most companies operate several businesses. They often define their businesses in terms of products. But according to Levitt, a business must be viewed as a customersatisfaction process, not a goods-producing process. Products are transient, but basic needs and customer groups endure forever. A business can be defined in terms of three dimensions : Customer groups, Customer needs, and Technology.

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

Corporate Strategic PlanningAssigning resources to each SBU. The purpose of identifying the company’s SBUs is to develop separate strategies and assign appropriate funding. Managers need some analytical tools for classifying their businesses by profit potential. Two models (analytical tools) are best known models for portfolio analysis.

PORTFOLIO ANALYSIS One of the tools used in analyzing market scenarios and strategic decisions concerning product mix is the portfolio analysis. (A) The B C G Model ( Boston Consulting Group’s Model ) (B) The G E Approach ( General Electric Approach )

Analyzing Current SBU’s: Boston Consulting Group Approach

Low

10%

Market Growth Rate

High

Relative Market Share High 1.0X Stars • High growth & share • Profit potential • May need heavy investment to grow

Cash Cows

Low Question Marks

?

• High growth, low share • Build into Stars or phase out • Require cash to hold market share

Dogs

• Low growth, high share • Low growth & share • Established, successful • Low profit potential SBU’s •Produce cash

(BCG

Model assumes a market growth rate of 10% as the cut-off point. The market share is expressed in log scale and 1.0 is taken as a cut-off point.)

PORTFOLIO ANALYSIS (B) THE G E APPROACH The problem with the BCG model is that the cut-off point taken on the market growth rate to classify high growth and low growth markets is arbitrary, and in most cases 10 % is too high a growth rate. To overcome this problem and also to consider factors contributing to market growth and share, the GE (General Electric) approach comes in handy. ( Contd.. )

PORTFOLIO ANALYSIS (B) THE G E APPROACH

Market Attractiveness

High

GREEN

Medium

YELLOW

Low

RED High

Medium Firm’s Strengths

Low (Contd..)

PORTFOLIO ANALYSIS (B) THE G E APPROACH Market attractiveness is measured by factors like market size, annual growth rate, competitive intensity, rate of technological development, government policy and influence of other interest groups. Competitive position is assessed by factors like market share, annual growth in market share, customer loyalty or brand loyalty, product quality, brand image, distribution network, productivity, R&D, financial position etc.

PORTFOLIO ANALYSIS (B) THE G E APPROACH On examining the product portfolio of a firm, one may find that some SBUs/Products may fall in the green segment, some in the yellow and some in the red segment. SBUs/Products in green segment require to be developed and supported, in yellow segment require to be monitored carefully, and in red segment are to be harvested or divested for obvious reasons of moderate to weak competitive position in an unattractive market. Thus in evaluating the product mix of a firm, we have to examine each product or product line from the point of view of market attractiveness and its competitive position.

Corporate Strategic PlanningAssessing Growth Opportunities The company’s plans for its existing businesses allow it to project total sales and profits. Often, projected sales and profits are less than what corporate management wants them to be. If there is a strategic planning gap between future desired sales and projected sales, corporate management will have to develop or acquire new businesses to fill it.

GROWTH OPPORTUNITIES ( winning markets through marketoriented strategic planning )

Desired Sales Diversification growth Integrative growth

Sales

Intensive growth

Current Portfolio

Time (Years)

Strategic Planning Gap

HOW CAN THE COMPANY FILL THE STRATEGIC PLANNING GAP ? (GROWTH OPPORTUNITIES) Three options are available : Intensive Growth Opportunities Integrative Growth Opportunities Diversification Growth Opportunity

(GROWTH OPPORTUNITIES)

INTENSIVE GROWTH Identify opportunities to achieve further growth within the company’s current business. Ansoff has proposed a useful framework for detecting new intensive growth opportunities called a product / market expansion grid.

(GROWTH OPPORTUNITIES)

INTENSIVE GROWTH Product/ Market Expansion Grid Existing Products Existing Markets

1. Market Penetration

New Markets

2. Market Development

New Products 3. Product Development 4. Diversification

Corporate Strategic PlanningDeveloping Growth Strategies – Intensive growth opportunities: Identify further opportunities to achieve growth within the company’s current business. Market penetration strategy seeks to increase current products in current markets. Market development strategy looks for new markets in which current products can expand. Product development strategy considers new product possibilities

(GROWTH OPPORTUNITIES) DIVERSIFICATION GROWTH - Diversification growth opportunities: Identify opportunities to add attractive businesses that are unrelated to the company’s current businesses. Concentric diversification strategy: Company seeks new products that have technological and/or marketing synergy with existing product lines, even though the product may appeal to a new class of customers

Corporate Strategic Planning (cont.) Horizontal diversification strategy: Company searches for new products that could appeal to its current customers though technologically unrelated to its current product line. Conglomerate diversification strategy.

(GROWTH OPPORTUNITIES)

INTEGRATIVE GROWTH - Integrative growth opportunities. Backward integration: A hotel company acquiring one of its suppliers. Forward integration: A hotel company acquiring travel agents. Horizontal integration: A hotel company acquiring one or more competitors, provided the government does not bar the move.

Business Strategy Planning – Planning at the SBU Level Business mission External environment analysis– opportunities and threats Internal environment analysis– strengths and weaknesses 4.Goal Formulation (What do we want?)– The vision

Business Strategy Planning (cont.) 5.Strategy Formulation (How do we get there?) - Michael Porter’s three generic types of strategy: Overall cost leadership Differentiation Focus – Strategic Alliances: companies need to form strategic alliances with domestic or multinational companies that complement or leverage their capabilities and resources to achieve leadership nationally or globally.

Business Strategy Planning (cont.) 6.Program formulation. A company must develop hiring, training, advertising, and other programs to support its strategy. 7. Implementation. A firm must communicate its strategy to its employees and it must have the resources to carry out its strategy. 8. Feedback and control are absolutely necessary to track results and monitor new developments in the environment.