Workshop on Strategy 118

1

• Workshop on Strategy 1/18
• Raj Echambadi

2
Effective strategies rest on three foundations
Markets
How will we create value?
Technologies
Do we have the organizational capabilities neces
sary to sustain it?
How can we capture this value in the face of
competition?
3
What is Marketing?

• Decisions involved in creating and keeping
  customers.
• Marketing is about manipulation of economic,
  social, and moral incentives to achieve optimal
  goals for the firm.
• Marketing in competitive contexts is a two-way
  street involves both buyers and sellers

4
Recap of Marketing Concepts!

• Marketing Strategy has two major components
• Segmenting markets, selecting a target market and
  positioning a product (STP)
• Marketing mix variables 4Ps

5
Why segment markets?
6
No Market Segmentation
7
Segmented by Gender
8
Segmented by Age
9
(No Transcript)
10
Goal of Strategy

• Competitive advantage when a firm implements a
  value creating strategy not being implemented by
  any current competitors.
• Sustainable Competitive Advantage (SCA) when a
  firm is implementing a unique value creating
  strategy and also when the competitors are unable
  to duplicate the benefits of this strategy.
  SUSTAINED UNIQUENESS.

11
Levels of Strategy

• Corporate Level
• Business Unit Level
• SBUs - a subgroup of a single business or
  collection of related businesses
• Functional Level
• Marketing

12
Higher Level Strategy Questions!

• Where are we?
• Where do we want to go?
• How do we get there?

13

• What are the fundamental building blocks for
  building SCA?

14
Recap of Strategy Concepts!

• Competitive strategy is about being different
  from others. A company can outperform rivals ONLY
  if it can preserve this difference.
• A good strategy rests on deliberately choosing a
  different set of activities to deliver a unique
  mix of value. Therefore, it is evident that
  strategy rests on unique activities.
• There are multiple roads to success. Hence, the
  act of choosing activities to deliver unique
  value becomes critical.

15
The Basic Value Chain
Margin
Margin
Service
Marketing Sales
Technological Development
Human Resource Mgmt.
Outbound Logistics
Support Activities
Firm Infrastructure
Procurement
Operations
Inbound Logistics
Primary Activities
16
For sustainable advantage, capabilities must be
non-imitable.
17
(No Transcript)
18
A Graphical View of Firm Success
firms ability to use the resources
STRATEGY
PERFORMANCE
COMPETENCIES
19
Positioning

• Positioning is about an integrated answer to
  three questions
• Who am I as a firm?
• For whom am I?
• Why buy me over the competition?
• Positioning is about placing a product in
  consumers minds. Limitations of physical
  positioning.

20

• Positioning is about identifying the relevant
  dimensions (for a specific segment) and to locate
  the positions of existing and potentially new
  products along these dimensions.

21
Example Pain Reliever Market
Effectiveness perceptions on the ability to make
headache pain go away fast Gentleness
perceptions that the product would not upset
ones stomach or cause heartburn
22
Is there a positioning opportunity along
gentleness and effectiveness?
Which opportunity is better?
23
Determine the Ideal Vector of your Segment

• Ideal vector is a fancy term for finding the
  importance weights (placed by consumers) of the
  dimensions.

24
Ideal Vector (contd)

• Prefij (0.35)effectiveness(0.65)gentleness

25
How to choose the best location of a new brand?
26
The Marketing Mix
27
(No Transcript)
28
Schematic of the Marketing Process
Based on Robert Dolans Note on Strategy, HBR
Press
Product
Place
Promotion
Price
PROFITS
29
Customer Acquisition vs. Retention
Customers
Acquisition
Retention
Increase
Expand
Switching
Customer
market share
market size
barriers
satisfaction
Quality
Advertising
New channels
Frequent flyer
Pricing
Advertising
Monopoly
Service
30
Strategy Recap!

• A sustainable position requires trade-offs.
• Two generic strategies are
• Cost Leadership
• Differentiation
• Getting stuck in the middle entails disaster!!

31
Prisoners Dilemma
32
Differentiation vs. Low Cost
Firm Bs Strategy
Maintain Price
Cut Price 5
Firm As Strategy
Share (50, 50)
Share (40, 60)
Maintain Price
Margin (30, 30)
Margin (30, 25)
Profit (10M, 10M)
Profit (4M, 20M)
Share (60, 40)
Share (50, 50)
Cut Price 5
Margin (25, 30)
Margin (25, 25)
Profit (20M, 4M)
Profit (6M, 6M)
Concept of reference price
33
Differentiation vs. Low Cost (Contd.)
Your Strategy
Maintain Price
Cut Price 5
My Strategy
Maintain Price
Profit (10M, 10M)
Profit (4M, 20M)
Cut Price 5
Profit (20M, 4M)
Profit (6M, 6M)
34
Differentiation vs. Low Cost Asymmetry in Size
Firm Bs Strategy
Maintain Price
Cut Price 5
Firm As Strategy
Share (80, 20)
Share (65, 35)
Maintain Price
Margin (30, 30)
Margin (30, 25)
Profit (10M, 2M)
Profit (6M, 3.5M)
Share (95, 5)
Share (80, 20)
Cut Price 5
Margin (25, 30)
Margin (25, 25)
Profit (14M, 0.5M)
Profit (8M, 1M)
Economies of scale / scope
35
Double Jeopardy Effect
Asymmetry in familiarity
1.0
Double jeopardy line
Repeated purchase probability
Market share
100
0
0
36
Average Share Change Across Penetration and
Loyalty Performance
37
Average Share Change Across Penetration and
Loyalty Performance
Low Share Brands
High Share Brands

• Takeaways
• The general pattern of results holds across brand
  sizes, but high share brands operate on a larger
  scale.
• Low share brands are uniformly positive on the
  right (high penetration performance), uniformly
  negative on the left (low penetration
  performance). High share brands are positive
  across the back (high loyalty performance),
  negative across the front (low loyalty
  performance).

38
Does Smallness Spell Doom?

• No.
• When you attack a dominant competitor head-on,
  odds are you may be crushed.

39
Some Strategies for Small Firms

• Define the competitive space carefully.
• Drypers and PG
• Dont invite attack. Keep a low profile.
• Remember the way to a mass market is almost
  always through a NICHE market. Focus.

40
What is the Key to Success for any Firm?

• Understanding the profit pool of your industry
  where your competitors make money can open your
  eyes to new opportunities.
• Think of your opponent's strengths and think of
  how compelling it would be to exploit that
  strength as a weakness. MIRROR WEAKNESS.

41
Are we Segmenting the Right Way?

• Traditional paradigm involves firms think of
  markets terms of products and services. WRONG.
• Christensen says think in terms of jobs that
  customers want done.
• Every job customers need has a social,
  functional, and emotional dimension. MORAL?

42
How do you decipher customer usage?

• Most times people dont know what they want.
  Sometimes they can show how they use the product.
• Qualitative techniques help you understand the
  voice of the consumers.
• Focus groups
• In-depth interviews
• Anthropological exercises
• ZMET
• Be cautious about disruptive innovations though.
  Dont listen too close to your current customers
  in this case.

43
Disruptive innovations
Performance
Maturity
Disruption
Takeoff
Ferment
Time
44
Waves in Retailing
First Innovation (Mom and Pop Store)
45
Types of Competition
Customer point of view is critical for the right
positioning.
46
Do not be mesmerized by your own glory!

• The notion of marketing myopia! Happens when
  marketers become product-focused and not
  customer-focused.
• What business are these firms in?

47
From Ted Levitts (1959) Classic Paper

• The railroads are in trouble today not because
  that need was filled by others (cars, trucks,
  airplanes, and even telephones) but because it
  was not filled by the railroads themselves. They
  let others take customers away from them because
  they assumed themselves to be in the railroad
  business rather than in the transportation
  business. The reason they defined their industry
  incorrectly was that they were railroad oriented
  instead of transportation oriented they were
  product oriented instead of customer oriented.

Remember markets evolve, consumers change. Define
your business with an eye towards the future.
48
First Mover Advantage

• A sometimes insurmountable advantage gained by
  the first significant company to move into a new
  market.

49
Me-too Strategies

• Through learning process, customers perceive the
  pioneer as a prototypical product in the
  product/service category.
• As late entrants position closer to the pioneer,
  they become less distinct and the pioneer more
  distinct, increasing the relative perceptual
  prominence of the pioneer.
• Being closer to the pioneer, the me-too products
  are less distinct than the pioneer, so any price
  reduction of the me-too products have a small
  impact.

50
What should Late Entrants do?

• Late entrants better move away (by
  differentiating) from the pioneer.
• The differentiated late entrants can
• Become more distinct relatively to the pioneer.
• Increase their relative prominence in the chosen
  segment.

51
Framework for Marketing Analysis
Dell
LOreal
TiVo
Perceptual mapping
Company Analysis Marketing Myopia
First mover advantages
1. Customer Analysis
2. Competitor
Analysis
Biopure
Segmentation
Positioning
Omnitel
3.Marketing Strategy
BD
Brita
Branding
Product
Colgate
Cumberland / Rohm Haas
Price
Promotion
H-E-B
Place
Market
52
Things to Do for 1/23

• Read the HBR article.
• Read the Dell New Horizons case.
• The questions for the Dell case will be posted in
  the class web site. www.bus.ucf.edu/echambadi/mar6
  816/slides
• Analytical notes will be posted too.
• The slides for next class will be posted by next
  Monday.