Strategic Marketing 2014-2015

Summary of the textbook “Strategic Market Management: Global Perspectives”

Table of Contents

Table of Contents .................................................................................................................. 2

Introduction ........................................................................................................................... 5
1 Strategic Market Management: An Introduction and Overview ....................................... 6
1.1 What is a business strategy? ................................................................................... 7
1.1.1 The product market investment strategy: where to compete? ........................... 8
1.1.2 The customer value proposition ....................................................................... 8
1.1.3 Assets and competencies ................................................................................ 9
1.1.4 Functional strategies and programs ................................................................. 9
1.1.5 Criteria to select business strategies ................................................................ 9
1.2 Strategic Market Management .............................................................................. 10
1.2.1 External analysis ............................................................................................ 10
1.2.2 Internal analysis ............................................................................................. 11
1.2.3 Strategic analysis outputs .............................................................................. 11
1.2.4 Strategy identification, selection, and implementation .................................... 11
1.2.5 Strategic market management: the objectives ................................................ 11
1.2.6 The planning cycle ......................................................................................... 12
1.3 Marketing and Its Role in Strategy......................................................................... 12
2 External and Customer Analysis ................................................................................... 13
2.1 External Analysis ................................................................................................... 13
2.2 When Should An External Analysis Be Conducted? .............................................. 15
2.3 Segmentation ........................................................................................................ 15
2.4 Customer motivations............................................................................................ 16
2.5 Unmet needs ......................................................................................................... 17
3 Competitor Analysis ..................................................................................................... 18
3.1 Identifying competitors: customer-based approaches ............................................ 18
3.2 Identifying competitors: strategic groups ............................................................... 18
3.3 Potential competitors ............................................................................................. 19
3.4 Competitor analysis: understanding competitors ................................................... 19
3.5 Competitor strengths and weaknesses .................................................................. 20
4 Market/Submarket analysis .......................................................................................... 22
4.1 Dimensions of a market/submarket analysis.......................................................... 22
4.1.1 Emerging submarkets .................................................................................... 22
4.1.2 Actual and potential market and submarket size ............................................ 22
4.1.3 Market and submarket growth ........................................................................ 23
4.1.4 Market and submarket profitability analysis .................................................... 24
4.1.5 Cost structure ................................................................................................. 25
4.1.6 Distribution systems ....................................................................................... 25
4.1.7 Market trends ................................................................................................. 25
4.1.8 Key success factors ....................................................................................... 25
4.2 Risks in high-growth markets ................................................................................ 26
5 Environmental analysis and strategic uncertainties ...................................................... 27
5.1 Identify trends........................................................................................................ 27
5.1.1 Technology trends .......................................................................................... 27
5.1.2 Consumer trends............................................................................................ 28
5.1.3 Government/economic trends ........................................................................ 28
5.2 Dealing with strategic uncertainty .......................................................................... 29
5.2.1 Impact analysis: assessing the impact of strategic uncertainties .................... 29
5.2.2 Scenario analysis ........................................................................................... 30
6 Internal analysis ........................................................................................................... 31
6.1 Financial performance: sales and profitability ........................................................ 31
6.2 Performance measurement: beyond profitability .................................................... 32
6.3 Strengths, Weaknesses, Opportunities and Threats .............................................. 33
7 Creating advantage, synergy, commitment vs. opportunism vs. adaptability ................ 34
7.1 The sustainable competitive advantage................................................................. 34
7.2 The role of synergy................................................................................................ 35
7.3 Strategic commitment, opportunism, and adaptability ............................................ 36
7.3.1 Strategic commitment..................................................................................... 36
7.3.2 Strategic opportunism .................................................................................... 37
7.3.3 Strategic adaptability ...................................................................................... 37
8 Alternative Value Propositions ...................................................................................... 38
8.1 Business strategy challenges ................................................................................ 38
8.2 Alternative value propositions ................................................................................ 39
8.2.1 Superior quality ........................................................................................... 8-41
8.2.2 Value .............................................................................................................. 42

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9 Building and managing brand equity............................................................................. 43
9.1 Brand equity .......................................................................................................... 43
9.1.1 Brand awareness ........................................................................................... 44
9.1.2 Brand loyalty .................................................................................................. 45
9.1.3 Brand associations ......................................................................................... 45
9.2 Brand identity ........................................................................................................ 46
10 Energizing the business ............................................................................................ 50
10.1 Innovating the offering ........................................................................................... 51
10.2 Energize the brand and marketing......................................................................... 52
10.3 Increasing the usage of existing customers ........................................................... 53
11 Leveraging the business ........................................................................................... 54
11.1 Which assets and competencies can be leveraged? ............................................. 54
11.2 Brand extensions .................................................................................................. 55
11.3 New markets ......................................................................................................... 56
11.4 Evaluating business leveraging options ................................................................. 56
12 Creating new businesses .......................................................................................... 57
12.1 The innovator’s advantage .................................................................................... 58
12.2 Managing category perceptions ............................................................................ 58
12.3 Creating new business arenas .............................................................................. 59
12.4 From ideas to market ............................................................................................ 60
13 Global strategies ....................................................................................................... 61
13.1 Motivations underlying global strategies ................................................................ 61
13.2 Standardization versus customization ................................................................... 62
13.3 Expanding the global market ................................................................................. 63
13.4 Strategic Alliances ................................................................................................. 64
14 Setting priorities: the exit, milk and consolidate options ............................................ 66
14.1 The business portfolio ........................................................................................... 66
14.2 Divestment or liquidation ....................................................................................... 67
14.3 The milk strategy ................................................................................................... 68
14.4 Prioritizing and trimming the brand portfolio .......................................................... 69

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Introduction

- What is marketing? Dealing with the 4 P’s

o Product (variety, quality, design, features, brand name, packaging, services)
o Promotion (advertising, personal selling, sales promotion, public relations)
o Price (list price, discounts, allowances, payment period, credit terms)
o Place (channels, coverage, assortments, locations, inventory, transportation,
logistics)
‫ﺗﺼﻮر‬
"Marketing is the process of planning and executing the conception, pricing, promotion,
and distribution of ideas, goods, services, organizations, and events to create and
maintain relationships that will satisfy individual and organizational objectives.“

- What is strategy?
o Answer to de question “how can I make an informed decision”
 Through internal analysis
 Trough external analysis (example SWOT analysis)
 De I have the capacities needed to capitalize on the opportunity?
through
“The organization’s goal directed decisions and actions in which its capabilities and
resources are aligned with the opportunities and threats in its environment”

- What is strategic marketing?

Process of making strategic decisions to satisfy the needs of the customer better than
competitors, and to achieve the organizational goals within the given constraints

o The added value of strategic marketing

based on CM and competitors ‫اﺳﺘﺒﺎﻗﯿﺔ‬ to divide the market based on regions, demography, altitudes etc
 Externally oriented and proactive (segmentation)
 Information based (learning organization) statistics and market info (competitors) and feedback (our products)
 A long term view
o Strategic market management had the potential to
1 Improve decision making
 Anticipate the consideration of strategic choices
 Force along-range view shape the long-range view
2 Provide a management and control system
beat = ‫ﯾﻮاﺟﮫ‬
 Help cope with change - face the change
o Empirical research has shown that
 Firms that use strategic market planning perform better financially
 Firms that have formalized strategic market planning in their business perform
better financially
 1. Strategic analysis
2. Innovation
3. Multiple businesses
4. Creating sustainable competitive
1 Strategic Market Management: An Introduction and Overview advantages
5. Developing growth platforms
‫ﺗﺸﻮش‬
- Markets today are not only dynamic but risky, complex, and cluttered
- Need to develop competencies around 5 management tasks 5 KEY MANAGEMENT TASKS
‫اﻟﻜﻔﺎءات‬
o Strategic analysis: resources need to be invested in competencies created in terms of
getting information, filtering it, and converting it into actionable analysis
 Getting information (e.g., customers, competitors, trends)
pure
 Filtering information (e.g., impactful trends vs. mere facts)
 Converting information into actionable analysis (e.g., Importance-Performance
analysis, allocating resources and creating competencies accordingly)
o Innovation: standing still = going backward This is equivalent to going forward, ex. reengineering
 Key to successfully winning in dynamic markets
 Multi-dimensional challenges
 Organizational challenge (create context that supports innovation)
 Brand portfolio challenge (own the innovation)
incremental is step wise
 Strategic challenge (right mix: incremental to transformational)
 Executional challenge (bring it to the market)
Short sightedness, focus on the product instead of the customer needs
 Marketing myopia: the “better mousetrap fallacy” myopia > ‫ﻗﺼﺮ اﻟﻨﻈﺮ‬

o Multiple businesses within one company (internal budget competition)

 Defined by channels/countries/product categories...
 Decentralization ( centralization)
 Pro: accountability, fast response, deep understanding, close to markets
 Contra: redundancies, lack of synergies, inefficiencies (lack of scale
economies), confused brands
 Aggregation motivation
o Creating sustainable competitive advantages
 3 conditions: valued, perceivable, hard to copy
our product should be more valuable than the other competitor's products
 How?
 Through internal analysis (assets, competencies, expertise)
 Organizational synergy
o Developing growth platforms (systematic tools)
 Revitalize core businesses
 Create new business platforms
 NB: sometimes ‘less is more’... (Cf. Ch. 14)
 Focus in positioning
 Focus allocation of resources and competences to core business
 4 main investment patterns: Grow – Maintain – Milk – Divest BCG

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1.1 What is a business strategy?

- A business is generally an organizational unit that has (or should have) a defined
strategy and a manager with sales and profit responsibility
o A business can be defined by a variety of dimensions
 Product line
 Country
 Channels
 Segments
o Organizational and strategic trade-off in deciding how many businesses should be
operated
o Businesses can be aggregated to create a critical mass, to recognize similarities in
markets and strategies, and to gain synergies

- Four dimensions define a business strategy

o The product-market investment strategy
o The customer value proposition
o The assets and competencies
o The functional strategies and programmes

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1.1.1 The product market investment strategy: where to compete?

- Where to compete? The product market investment decision

o Scope of the business
 Which products do we offer and which not?
 Which markets do we serve and which not?
 Which competitors do we challenge and which do we avoid?
 What do we do ourselves (make) and what do we outsource (buy)? (= level of
vertical integration)
o The dynamics within this scope: growth directions and investment strategies
 What products will we offer in the future?
 Bringing existing products to new markets (market expansion)
 Bringing new products in existing markets (product expansion)
 Entering new product markets (diversification)
 Which markets will we serve in the future?
 With whom do we want to compete?
 What shifts do we make regarding the make or buy decisions?

- Expanding the business scope

o Can help the organization achieve growth and vitality and can be a lever to cope with
the changing marketplace by seizing opportunities as they emerge
o Poses risks: as scope expansion ventures further from the core business, there will
be an increased risk that the firm’s offering will not be distinctive, there will be
problems in operations, or the firm’s brand will not support the expansion

- Alternatives in investment patterns

o Invest to grow (or enter the product market)
o Invest only to maintain the existing position
o Milk the business by minimizing investment
o Recover as many of the assets as possible by liquidating or divesting the business

1.1.2 The customer value proposition

- A customer value proposition is the perceived functional, emotional, social, or self-

expressive benefit that is provided by the organization’s offer.
o A good value proposition is relevant and meaningful to the customer
o A good value proposition is reflected in the positioning of the offering
o A good value proposition should differentiate the offering from the competition
o A good value proposition should be sustainable over time

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1.1.3 Assets and competencies

- A strategic competency and assets

o Elements that you do very well (competencies) or that you possess (assets) that
strengthen your position relative to the competition.
 Strategic competency: what a business unit does exceptionally well, that has a
strategic importance to that business (usually related to knowledge / process)
E.g., CRM programme, Manufacturing, Promotion, R&D expertise
 Strategic asset: a resource that is strong relative to that of competitors
E.g., Brand name, Synergies, Location, Symbol

- Power relative to competitors:

o Points of difference
o Points of parity: focus on avoiding a disadvantage

1.1.4 Functional strategies and programs

- Central question: How can we deliver the proposed value to the customer?
o Includes manufacturing strategies, distribution strategies, communication strategies,
brand-building strategies etc.

1.1.5 Criteria to select business strategies

- Is the ROI attractive?

- Is there a sustainable competitive advantage?
- Will the strategy have success in the future?
- Is the strategy feasible?
- Does the strategy fit with the other strategies of the firm?

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1.2 Strategic Market Management

- Strategic market management is a system designed to help management create, change

or retain a business strategy and to create strategic visions
o Strategic vision: projection of a future strategy or sets of strategies. Provides direction
and purpose for interim strategies and activities
o With a business strategy on hand, the task is to:
 Continuously challenge the strategy in order to make sure that it remains relevant
to the changing marketplace and responsive to emerging opportunities
 Ensure that the organization develops and retains the necessary skills and
competencies to make the strategy succeed
 Implement the strategy will energy and focus, the best strategy badly
implemented will be a failure

1.2.1 External analysis

- External analysis: examination of the relevant elements external to the organization

o Customer analysis: identify the organization’s customer segments and each
segment’s motivations and unmet needs
o Competitor analysis: identify competitors and describe their performance, image,
strategy, and strengths and weaknesses
o (Sub)market analysis: determine the attractiveness of the market and submarkets
and to understand the dynamics of the market so that threats and opportunities can
be detected and strategies adapted
o Environmental analysis: identify and understand emerging opportunities and threats
created by forces in the context of the business

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1.2.2 Internal analysis

- Internal analysis: aims to provide a detailed understanding of strategically important

aspects of the organization
o Performance analysis: Financial performance, nonfinancial performance and their
interrelations
o Determinants of strategic options: Have we got what it takes for a specific strategic
option or don’t we?

1.2.3 Strategic analysis outputs

- Strategic analysis outputs:

o Identify strategic alternatives
o Choose between strategic alternatives
o Implement the chosen strategy
o The ultimate goal is to create a sustainable competitive advantage

1.2.4 Strategy identification, selection, and implementation

- Strategy identification, selection, and implementation

o Choosing among various strategic options
o Strategic options are a building blocks for strategies
o A particular value proposition, for a specific product market with supporting assets
and competencies and functional strategies and programs.
o Possible strategic options include: quality (e.g. watches), value (e.g. Aldi), innovation
(e.g. Apple), design, and corporate social responsibility (e.g., The Body Shop).
o The individual strategic options are not mutually exclusive!
o Whatever strategic option or combination of strategic options you choose a crucial
issue will also be “does this choice pay off in terms of financial performance”

1.2.5 Strategic market management: the objectives

- Strategic market management is intended to

o Precipitate the consideration of strategic choices
o Help a business cope with change
o Force a long-range view
o Make visible the resource allocation decision
o Provide a strategic management and control system
o Provide both horizontal and vertical communication and coordination systems

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1.2.6 The planning cycle

- A strategy process should

o Start with the issues
o Bring together the right people
o Adapting cycles to the businesses
o Implement a strategy performance system

1.3 Marketing and Its Role in Strategy

- Marketing is being accepted as part of the strategic management of the organization

- Roles that marketing can and should play become clearer
o Be the primary driver of strategic analysis
o Develop business strategies
o Drive growth and strategy for the firm
o Deal with the dysfunctions of product and geographic silos

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2 External and Customer Analysis

2.1 External Analysis

- What is external analysis

o The process of scanning and evaluating an organization’s external environment
o Ultimately, the aim is to make better / more effective decisions regarding
 The investment decision (“Where to compete”)
 The selection of strategic options (“How to compete”)

- External analysis can contribute to strategy

o Directly: suggesting strategic decision alternatives or influencing choices among them
o Indirectly: identifying
 Significant trends and future events
 Threats and opportunities
 Strategic uncertainties that could affect strategy outcomes

- Strategic uncertainties: focus on specific unknown elements that will affect the outcomes
of strategic decisions (examples in book, p. 23)
o Objective of external analysis is to identify strategic uncertainties
o Strategic uncertainties must be ranked in order to focus analysis
o This rank is a function of impact and immediacy

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  Impact:
 Extent to which strategic uncertainty involves trends and events that will
impact current and future business (+)
 The importance of the involved business (+)
 The number of involved businesses (+)
 Immediacy
 The strategic uncertainty’s probability of occurrence (+)
 The time span in which the occurrence can be expected (-)
 Available reaction time; relative to need reaction time (-)
o Depending on impact and immediacy, external analysis can be direct or indirectwhat will the future
demand of cloud
o Asking “On what does that depend?” will usually generate additional strategic computing
competive technology over cloud computing
uncertainties => “second level strategic uncertainties”
what can happen in future like change of govt
- Analysis: three ways of handling uncertainties policies

o Decision is precipitated because logic for a decision is compelling and/or delay would
be costly or risky
o Reduce the uncertainty by information acquisition and analysis of an information-
needed area
o Uncertainty could be modelled by a scenario analysis
 Scenario: alternative view of the future environment that is usually prompted by
an alternative possible answer to a strategic uncertainty or by a prospective future
trend or event

- The level of analysis: defining the market

o Identify market or sub-market boundaries (business scope)
o Trade-off between narrow and broad scope definition
o Analysis needs to be conducted at several levels
 Segment level divide the market in homogenious sub group
 Layered analysis: primary level receiving the most depth of analysis
 Multiple analyses, consecutively conducted

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2.2 When Should An External Analysis Be Conducted?

- Annual planning cycle:

o Can provide a healthy stimulus to review and change strategies
o But: risky to maintain external analysis as an annual event

- Continuous need for strategic review!

2.3 Segmentation

- Segmentation: identification of customer groups that respond differently from other

groups to competitive offerings
o Identified segments are coupled with a programme to deliver an offering to them
o Development of successful segmentation strategy requires the conceptualization,
development, and evaluation of a targeted competitive offering
o Segmentation strategy should be judged on three dimensions
 Can a competitive offering be developed and implemented that will be appealing
to the target segment?
 Can the appeal of the offering and the subsequent relationship with the target
being maintained over time, in spite of competitive responses?
 Is the resulting business from the target segment worthwhile, given the
investment required to develop and market an offering tailored to it?

- How should segments be defined?

o Typically the analysis will consider five, 10 or more segmentation variables
o It is important to consider a wide range of variables
o Frequently used variables:
 Customer-approach: general characteristics unrelated to the product involved
 Geographic, type of organization, size of the firm, lifestyle, sex, age…
 B2C marketing: targeting a “consumer market” B2C xtic is geographic,
 B2B marketing: targeting a “business market” (biggest driver of turnover)
 Customer analysis: diamond of loyalty or Kotler’s CRM (see slides) revenue low and low cost
pets
 Product-related approach: revenue is high and low
 Most useful segmentation variable: benefits sought from a product cost sleeping giants
revenue is high and cost
(selection of benefits can determine a total business strategy) is high power traders
 Price sensitivity: trade-off between low price and high quality Revenue is low and high
cost deliquent
 Loyalty: using a loyalty matrix to justify a different programme (see slides)
 Applications: most likely segmentation criteria to lead to successful new
products and marketing programmes

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  Motivations-approach brand is positioned to safisy your needs, and satisfy a need
 = Activated state within a person that leads to goal-directed behaviour
 Motivation reflects the desire for a product, service, and/or experience
 Motivation is the drive to satisfy a need through the purchase/use of a
product, service and/or experience
 Thus, as motivation drives behaviour it is the ultimate segmentation variable &
it can help to define strategy

- Two distinct segmentation strategies are possible

o Single segment strategy
o Multiple segments strategy: costly, must be justified by enhanced aggregate impact

- Requirements of market segments

o Measurable: criteria must be measureable so that they can be identified.
o Accessible: must be reachable through communication and distribution channels
o Substantial: should be sufficiently large to justify resources required to target them
o Differentiable: to justify separate offerings, the segments must respond differently to
the different marketing mixes
o Durable: stability of the segments to minimize the cost of frequent changes
 Changing customer priorities…
o Actionable: do we have what it takes to serve this segment?
 Multiple segments vs. Focus strategy?
 Targeting: either we target one segment or we choose for differentiated marketing

2.4 Customer motivations

- After identifying customer segments, we need to consider their motivations

o Some motivations will help to define strategy
o Four steps in customer motivation analysis
 Identify motivations: get customers to discuss the product or service in a
systematic way using qualitative research for example
 Qualitative research is a powerful tool in understanding customer motivation
 E.g.: in-depth interviews, customer case studies, ethnographic research
 Search for real motivations that do not emerge from structured lists
 Groups and structure motivations: affinity charts developed by a managerial team
are commonly used, but customers can also be asked to group themselves
 Assess motivation importance: can also be done by management team or
customers (trade-off questions)
 Assign strategic roles to motivation

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- Customer priorities are not static: assuming customer priorities are not changing is risky
- Customers are increasingly becoming active partners in their relationship with the firm
and brand, to harness this change managers should:
o Encourage active dialogue: dialogue of equals
o Mobilize customer communities: become an extension of the brand experience
o Manage customer diversity
o Co-creating personalized experiences

2.5 Unmet needs

- An unmet needs is a customer need that is not being met by existing product offerings
o Unmet needs are strategically important because they represent opportunities
o They can also represent threats to established firms (disrupting)
o Sometimes customers may not be aware of their unmet needs => less obvious unmet
needs are difficult to identify but can also represent a greater opportunity

- How to identify an unmet need

o Using customers: get customers to detect and communicate unmet needs
 Structured approach or problem research: give customers a list of potential
problems and then let the customers prioritize the problems
 Lead users are particularly helpful in discovering unmet needs
 Internet is an effective and efficient way to access customers
o Ethnographic research: directly observing customers in as many contexts as possible
 Ethnographic research is particularly good at identifying breakthrough innovations
 Ethnographic research can also be used to improve existing products or services
o The conceptualization of an ideal experience
o ‘Critical incident technique’
 What product-use experience problems have emerged?
 What is frustrating?
 How does it compare to other product experiences?
 How can the product be improved?

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3 Competitor Analysis

- Competitor analysis is the second phase of external analysis

o Analysis should focus on the identification of threats, opportunities, or strategic
uncertainties created by emerging or potential competitor moves, weaknesses or
strengths
o First step: identifying current and potential competitors
 First approach: group competitors according to the degree to which they compete
for a buyer’s choice (customer perspective)
 Second approach: place customers in strategic groups on the basis of their
competitive strategy
o Second step: attempt to understand competitors and their strategies

3.1 Identifying competitors: customer-based approaches

- Product-use associations (identifies the direct competitors)

o Customer-choice approach ‘What would you choose if product X was unavailable?’
o Product-use approach:
 First group is asked to associate products with specific use contexts/applications
 Second group makes judgements about how appropriate the associations are
 Products are clustered according to the similarity of their appropriate use contexts

- Indirect competitors: harder to identify than direct competitors

o Customer priorities can change and indirect customers can offer alternatives that ate
strategically relevant

3.2 Identifying competitors: strategic groups

- Strategic group
o Similar competitive strategies (same distribution channel, communication strategy,
price-quality positioning…)
o Similar characteristics (size, aggressiveness…)
o Similar assets and competencies (brand associations, logistics, global presence…)

- Each strategic group has mobility barriers

o Exit and entry: prevent businesses from moving from one strategic group to another
(Competing across strategic groups is usually at a disadvantage)
o Assets and competencies (basis SCA) as protection and entry barrier for competitors
- Conceptualization of strategic groups can make the process of the competitor analysis
increases more feasible and usable
3.3 Potential competitors

- Identify potential competitors

o Market expansion
o Product expansion (Market and product expansion: see Ansoff matrix)
o Backward integration
o Forward integration
o Export of assets or competencies (mergers and acquisitions)
o Retaliatory of defensive strategies

3.4 Competitor analysis: understanding competitors

- Several benefits of understanding competitors and their activities

o Understanding the current strengths and weaknesses of a competitor can suggest
opportunities and threats that will merit a response
o Forecast competitive reaction on strategic alternatives
o Identify strategic uncertainties

- Competitor actions are influenced by eight elements

1. Financial measures: size, growth and profitability
 Level of growth of sales and market share provide indicators of the vitality of a
business strategy
 Profitability: affects access to investment funding capital for business operation
2. Image and positioning

Use image/brand personality of competitors to develop positioning alternatives example BIC is
stronger in
 Deduct competitor image and positioning via the firm’s products, advertising,
cheaper brands
website, actions and consumer research than premium
brands
3. Objectives and commitment
 Financial objectives helpful as indicator for that competitor’s willingness to invest
in that business even if the pay-out is relatively long term
 Non-financial objectives are a good indication of the competitor’s future strategy
 Level of business unit: what are the objectives of the parent company
4. Current and past strategies
 Learn from past failures
 Knowledge of a competitor’s pattern of new product or new market moves can
help anticipate it’s future growth directions
 E.g., low-cost strategy, manufacturing facilities, access to raw material…?
 E.g., focus strategy? => What is the business scope?

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 5. Organization and culture
 Knowledge about the background and experience of the competitor’s top
management can provide insight into future actions
 An organization’s culture supported by its structure, systems, and people, often
has a pervasive influence on strategy
6. Cost structure
 Indication of competitor’s likely future pricing strategy and its staying power
(especially for low-cost competitors)
 Indications:
 Number of employees
 Cost of raw materials and components
 Investments in plant, equipment, inventory
 Sales levels
 Outsourcing strategy
7. Exit barriers
 Assets (specialized and/or fixed costs)
 Relationships with other business units
 Government & social barriers
 Managerial pride/emotional attachment
8. Assessing strengths and weaknesses
 Knowledge of a competitor’s strengths and weaknesses provides insight that is
key to a firm’s ability to pursue various strategies
 Develop strategy to neutralize a competitor’s strength

3.5 Competitor strengths and weaknesses

- What are the assets and competencies that the competitor (strategic group) has/lacks
that are relevant to the industry?
- Four sets of questions can be helpful to identify competitor assets and competencies
o Which assets and competencies were drivers of business success and failure?
 Businesses that differ with respect to performance should also differ with respect
to their assets and competencies
o What are the key customer motivations?
o What assets and competencies represent industry mobility barriers?
o What are the significant value-added components in the value chain?
 - Area in which a competitor can have strengths and weaknesses?
o Innovation (patents, R&D…)
o Manufacturing/operations (cost structure, capacity, outsourcing…)
o Finance: access to capital: ability to generate or acquire funds
o Management (culture, strategic goals and plans, loyalty/turnover…)
o Marketing (product quality reputation, brand name recognition, sales force…)
o Customer base (size and loyalty, market share, growth of segments served…)

- Obtaining information on competitors

o Company website (strategic vision, portfolio, assets, global access, brand symbols…)
o Financial reports
o Technical reports (test aankoop…)
o Market research

- Scaling yourself and relevant competitors

o Competitive strength grid (see book for example)
o Importance-Performance (IP) charts (see article Martilla & James, 1977)

- Three main competitive strategy typologies

o Porter (1996)
 Cost leadership
 Differentiation
 Focus
 Stuck-in-the middle
o Treacy and Wiersema (1993)
 Operational excellence
 Customer intimacy
 Product leadership
o Kim & Mauborgne (2005)
 Red ocean strategy: very fierce competition, a lot of sharks
 Blue ocean strategy: search for a new customer market: radically change the way
things are done, demand for that service/product did not exist before
4 Market/Submarket analysis

- Market analysis:
o Builds on customer and competitor analysis to make some strategic judgements
about a (sub)market and its dynamics
o Determine the attractiveness of a market and understand its dynamics

- Strategic analysis
o Given your business’ product (offering) and skills (internal analysis)
o Is a particular market attractive? ((Sub)market analysis)
o Selecting an attractive product-market combination
 What do my customers want? (Customer analysis)
 Who are my competitors and how do they act? (Competitor analysis)
 Have I got what it takes? (Internal analysis)
=> Deciding on strategy and implementation

4.1 Dimensions of a market/submarket analysis

4.1.1 Emerging submarkets

- Characteristics of new business areas or submarkets:

o Provide a lower price point
o Serve non-users
o Serve niche markets
o Provide system solutions
o Serve unmet needs
o Respond to customer trend
o Leverage a new technology

4.1.2 Actual and potential market and submarket size

- Actual size
o Published financial analysis of firms, customers, government, trade magazines and
associations
o Survey of customers to project usage levels to the population

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- Potential size
o New use, new user group, more frequent use, ...
o Mind ‘ghost potential’: expansion of the market seems assured but some factors are
inhibiting or preventing its realization
o Small can be beautiful
 Micromarketing: much of the action are in smaller niche segments
 If a firm avoids small markets, it can lock itself out of much of the vitality and
profitability of a business area
 Many business areas start small
o  Too much niche offerings can cause too much costs and confusion

4.1.3 Market and submarket growth

- Growth rate: not as straightforward as one might think

o Growth
 More sales and profits but also risks (new entrants…)
 Potentially less price pressure (if growth rate demand > growth rate supply)
o Decline
 Not per definition ‘bad’
 E.g., less fierce competitive environment

- Identifying driving forces

o Sales projection of a market (strategic uncertainties ‘depends on...’)
o What forces will drive those sales?

- Forecasting growth
o Historical data (trends): useful perspective
o Identify prior market with similar characteristics
o Look at sales of related products
o More important: prediction of turning points when rate and direction of growth change

- Detecting maturity and decline

o Product life cycle
o Change in growth stage often accompanied with changes in key success factors
 Price pressure caused by overcapacity and the lack of product differentiation
 Buyer sophistication and knowledge (less willing to pay premium price)
 Substitute products or technologies
 Saturation
 No growth sources (market is fully penetrated)
 Customer disinterest
4.1.4 Market and submarket profitability analysis

- Why are some industries or markets profitable and others not?

o Estimate how profitable the average firm will be
o Use Porter’s Five Forces to get an idea of the attractiveness of the market, as
measured by the long-term return on investment of the average firm

- Five factors that influence profitability:

o Intensity of competition among existing firms
 Existing firms in the industry that produce and market products similar to yours.
 This rivalry can take many forms: price discounts, introduction new offerings,
service improvements, and advertising campaigns
 The more intense the rivalry, the more the industry’s profitability is suffering
 Analyse:
 The number of competitors, their size, and their commitment
 Whether their product offerings and strategies are similar
 The existence of high fixed costs
 The size of exit barriers
o Threat of potential entrants
 Recently started operating in an industry or threaten to do so in the near future
 Are motivated by the superior profits existing firms in the industry make
 New entrants to an industry put pressure on prices, costs, and ROI
 The threat of new entrants depends on the presence of entry barriers
 Analyse entry barriers
 E.g.: Patents, government policy, capital requirements, economies of scale,
brand equity, access to distribution, switching costs...
o Substitute products
 Performs same or similar function as an industry’s product by a different means
 The threat of substitutes puts a cap on industry profits
 A company should try to differentiate itself from possible substitutes
o Bargaining power of customers
 Purchase size, price sensitivity, customer federations, RFM analysis
 Alternative suppliers available (low switching cost)
 Backward integration possibilities (customer becomes competitor)
o Bargaining power of suppliers
 Concentrated supplier industry (no alternatives)
 Variety of customers in diverse markets
 Costs to customers of switching are high

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- Implications of Porters Five Forces
o Systematic overview of most common sources of local environment threat in industry
o Together the five forces provide an overall indication of an industry’s level of threat
and expected financial returns
o Ways to achieve competitive advantage according to Porter (1985)
 Cost leadership
 Differentiation
 Focus

4.1.5 Cost structure

- Value chain analysis: determine where value is added to the product or service
o Proportion of value added attributed to one value chain stage can become so
important that a key success factor is associated with that stage
o It may not be possible to gain advantage at high value-added stages, for example
when a raw material represents a high value added but is widely available

4.1.6 Distribution systems

- Three types of questions to analyze distribution systems

o What are the alternative distribution channels (e.g.: e-commerce)
o What are the trends? (e.g.: multichannel distribution: online, offline, mobile…)
o Who has the power in the channel? (e.g.: retailer vs. manufacturer)

4.1.7 Market trends

- Trends versus fads:

o Real trends will drive growth and reward those who develop differentiated strategies
o Fads will only last long enough to attract investment (which can subsequently be lost)

- Three questions to help detect a real trend, as opposed to a fad

o What is driving it? (Trends can be driven by demographics, values, lifestyle or techn.)
o How accessible is it in the mainstream?
o Is it broadly based?

4.1.8 Key success factors

- KSF: assets and competencies that provide the basis for competing successfully
o Strategic necessities (tickets to ride)
 Point of parity: their absence will create a substantial weakness
o Strategic strengths: provide a base of advantage (tickets to heaven)
 Point of difference

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4.2 Risks in high-growth markets

- Strategist should seek out growth areas but must be aware of substantial set of
associated risks in that growth area
o Competitive risks
 Overcrowding: too many competitors could be attracted by a growth situation
 Conditions found in markets in which a surplus of competition is likely to be
attracted and a subsequent shakeout is highly probable:
- The market and its growth rate have high visibility
- Very high forecast and actual growth in the early stages
- Threats to the growth rates are not considered or are discounted
- Few initial barriers exist to prevent firms from entering the market
- Some potential entrants have low visibility and intentions are uncertain
 Superior competitive entry: competitor that enters the market late with a product
that is demonstrably superior or that has an inherent cost advantage
o Market changes (scenario analysis!)
 Changing key success factors
 Changing technology
 Disappointing market growth
 Price instability
o Firm limitations
 Resource constraints
 Distribution unavailable

- Choosing a particular strategy

o Company characteristics (more in subsequent chapters)
 Absolute
 Relative
o Customer wants and needs
o The position of the company
 Market leader
 Challenger
 Follower
 Niche player

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5 Environmental analysis and strategic uncertainties

- Being curious about the area outside the business:

o One route to generate creative ideas that could
lead to products and strategies
o Anticipate threats and put a strategy in place
o The goal is to identify and evaluate trends and
events that will affect strategy either directly or
indirectly

5.1 Identify trends

5.1.1 Technology trends

- Technological trends or events occurring outside the market or industry that have the
potential to impact strategies
o Transformational, substantial and incremental innovations
 Incremental innovation: makes the offering more attractive or profitable but does
not fundamentally change the value proposition or the functional strategies
 Transformational innovation: fundamental change in the business model, it is
likely to make the assets and competencies of established firms irrelevant
 Substantial: in between newness and impact, often represent a new generation of
products that make existing products obsolete for many. The basic value
proposition and business model can be enhances, but will not change
o Forecasting technologies: guidelines to separate winners from losers
 Use technology to create an immediate, tangible benefit for consumers
 Make the technology easy to use
 Execution matters: prototype, test, and refine
 Recognize that customer response to technology varies
o Impact of new technologies:
 A new technology may not signal the end of the growth phase of an existing one
 Time to respond!
 It is difficult to predict the outcome of a new technology: possibly complementary
new market than replacing the existing market

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5.1.2 Consumer trends

- Consumer trends can present both threats and opportunities for a wide variety of firms
o Cultural trends
 Consumer trends: cocooning, fantasy adventure, down ageing…
 Tribing: affinity towards a social unit that is centred around an interest/activity and
is not bound by conventional social links
 Social media: interactivity and connectivity
o Being green:
 Concern for the environment is important to businesses for 3 reasons
 More concern about the impact of society and business on global ecosystem
 Every business needs to be assured of supply of essential raw materials
 Increasing willingness of governments to intervene & impose sanctions/taxes
 Depends on the nature of the business
 “Branding” and “greenwashing” instead of really going green
o Demographics: powerful (and predictable) underlying force in a market
 Age, income, education, geographic location…
 Its impact depends on the nature of the industry

5.1.3 Government/economic trends

- Economic trends
o Economic forecasts will affect strategy
o Important to forecast and adjust to recessions
 Correlation (marketing budget & business performance)
 Being aggressive rather than defensive may pay off!
o Threats and opportunities
 Less clutter in media environment
 ROMI analysis  effectiveness improves (‘what to spend’)
 Communicating value without discounting the brand
 Reallocation of what is spent (‘how’ to spend)

- Government regulations
o The addition or removal of legislative or regulatory constraints can pose major
strategic threats and opportunities (Facilitating factor  restricting factor)

- Global events (political risks)

o Prudent strategy is one that is both diversified and flexible so that a political surprise
will not be devastating
o Short- and long-term perspective
- Cultivating vigilance
o Strong tendency to fail to understand important trends or predict future events
 Execution focus versus identifying and assessing trends
 Natural bias towards information supporting the present strategic model
o How to improve vigilance?
 Be curious, externally focused, and connected
 Look to secondary as well as primary effects
 Create discovery mechanisms
 Force a long-term perspective

5.2 Dealing with strategic uncertainty

- Strategic uncertainty is an uncertainty that has strategic implications

o Impact analysis: general external analysis questions
 Grouping strategic uncertainties into clusters
 Assess importance of each cluster of strategic uncertainty
 Set priorities regarding information gathering and analysis
o Scenarios analysis:
 When the uncertainty pertains to future trend that is inherently unpredictable
 Accept the uncertainty as a given, and describe 2 or more future scenario’s with
corresponding strategies
 Outcome = decisions to create organizational and strategic flexibility

5.2.1 Impact analysis: assessing the impact of strategic uncertainties

- The extends to which a strategic uncertainty should be monitored and analyzed depends
on its impact and immediacy:
o The impact of a strategic uncertainty is related to
 Impact on existing/potential businesses
 The importance of businesses involved
 The number of businesses involved
o The immediacy of a strategic uncertainty is related to
 The probability that the trends or events involved will occur
 The timeframe of the trends or events
 The reaction time available and needed to react

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- Manage strategic uncertainties:

5.2.2 Scenario analysis

- To types of scenario analysis:

o Strategy-developing scenarios
 Provide insights into future competitive contexts
 Evaluate existing business strategies
 Stimulate creation of new business strategies
o Decision-driven scenarios
 Strategy is proposes and tested against several developed scenario’s
 Goal is to challenge strategies
 Help with go/no go decision
 Suggesting ways to make the strategy more robust

- Three steps of a scenario analysis

o Creation/identification of scenarios
 Probable outcomes: optimistic / pessimistic / most likely
 Combination of strategic uncertainties in a single scenario analysis
 2 or 3 = ideal number of scenario’s to work with
o Relating those scenarios to existing or potential strategies
o Assessing the probability of the scenarios (ask experts: e.g., Delphi method)
6 Internal analysis

- The goals is to identify organizational strengths, weaknesses, and constraints and,

ultimately, to develop responsive strategies, either exploiting strengths or correcting or
compensating for weakness

6.1 Financial performance: sales and profitability

- Analysis of current financials

o Sales and market share
 Increased sales can mean that the customer base has grown
 Increased share can provide the potential to gain SCAs (e.g.: Economies of scale)
 Necessary to separate changes in sales caused by tactical actions from those
that represent fundamental changes in the value delivered to the customer
o Profitability (return on assets)
o Measuring performance: shareholder value analysis
 Be careful with short term results at the expense of investment in strategy
 Shareholder analysis reduces the priority given to other stakeholders

- Financial aspects of marketing management

o Profit = revenues (sales*price) – costs (variable and fixed)
o Contribution analysis: total sales revenues – total variable costs
 Useful to gain insight in the relationships among costs, prices and volumes with
respect to profit
 Some key analyses:
 Break-even analysis: useful too in assessing the company’s profit goals and
feasibility of actions (total costs = total revenue)
 Sensitivity analysis: assess impact of changes in costs/revenues on the
expected outcome (“what if…”)
 Profit impact:
- Operating at break-even is not sufficient
- Profit goal = (total fixed costs + profit goal)/unit contribution margin
o Put things into perspective
 Market size: figures are only meaningful when compared to potential market size
 Cannibalization: process by which one offering sold by a firm gains a portion of its
revenues by another product sold by the firm

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6.2 Performance measurement: beyond profitability

- Financial performance is important and cannot be ignored

- Drawbacks financial performance measures
o Historically oriented and short-term focus

- The main focus should be on the non-financial performance elements (valuable

resources) that drive financial performance
o Customer satisfaction / Brand loyalty
 Identify causes of dissatisfaction
 Critical incident technique  Ghost/mystery shopper
 Complaint and suggestion  Lost customer analysis (exit interviews)
systems  Customer satisfaction surveys (IP-chart)
 Size and intensity of the customer group that truly likes a brand should be known
 Just solving problems and satisfying customers is not enough, a firm needs to
move beyond satisfaction to customer delight
 In markets where there are many substitutes, higher levels of satisfaction are
required to attain a high level of customer loyalty and retention
 Lifetime vale
 Measures should be tracked over time and compared with those of competitors
o Product/Service quality
 Compare with the competition and with customer expectations and needs
 Quality can usually be identified and measured over time
o Brand/Firm associations
 Perceived quality  actual quality
 Monitor associations by asking customers their experiences regularly
o Relative cost
 Tearing down competitors’ products and analysing their system in detail
 Compare relative cost with relative performance
o Innovation
o Manager/Employee capability and performance: are the HR in place to support
current and future strategies
o Values and heritage: well-defined set of values that are both known and accepted
within the organization, enhanced by a well-known and relevant heritage

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6.3 Strengths, Weaknesses, Opportunities and Threats

- Important to identify assets & competencies that represent areas of strength & weakness
o Successful strategy needs to be based on assets and competencies
o Current assets and competencies can be leveraged to create new businesses
o Each asset or competence relevant to the business should be evaluated as to its
strength and impact

- Benchmarking: comparing the performance of a business component with others (define

standards at which to aim)
- Determine which potential threats and opportunities are most relevant for a firm’s
business and prioritize them (immediacy and impact)

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7 Creating advantage, synergy, commitment vs. opportunism vs. adaptability

- Shift from strategic analysis to developing a business strategy

o What strategic alternatives should be considered?
o What assets and competencies, target segments, VP’s and functional strategies?
o What investment and disinvestment decisions will be raised?

7.1 The sustainable competitive advantage

- = Element(s) of the business strategy that provide a meaningful advantage over both
existing and future competitors
- Conditions to an SCA
o Visible
o Need to be both meaningful and sustainable
o It should be substantial enough to make a difference

- Involves multiple aspects of the business strategy to be involved

o The way you compete
 Product strategy
 Positioning strategy
 Manufacturing strategy
 Distribution strategy
o Basis of competition: assets and competencies
 Most sustainable element of a business strategy (difficult to copy)
 Key questions to ask to identify relevant assets and competencies:
 What are key motivations of major market segments?
 What are large value-added components?
 What are mobility barriers?
 What elements of value chain can generate advantage?
 What assets and competencies do successful firms possess?
o What you offer: value proposition
 Make your SCA visible to customers (reputation!)
 Link value proposition with business positioning
 E.g.: quality, low price, social value
o Where you compete
 Product market selection: create marketplace value by being relevant to customer
 Competitor selection: engage in a strategy that will match up with competitors’
weak points in relevant areas

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- What business managers name as their SCA’s
o ‘Meaningful’ = differs depending on the industry e.g. high-tech: technical superiority
vs. service: name recognition
o Usually managers agree on what their firm’s SCA(s) are
o Average number of SCAs per business = 4 to 5

7.2 The role of synergy

- Synergy
o When one SBU alone does not suffice for a SCA
o Between business units (internal) // businesses (external)
o Can provide truly sustainable SCA, as it is based on unique firm characteristics
o Whole > sum of the parts: two or more businesses operating together will be superior
to the same two businesses operating independently

- Results of synergy
o Increased customer value and sales
o Lower operating costs
o Reduced investment (‘a burden shared is a burden lifted’)

- How to create synergy

o Leveraging commonality in two operations, e.g.:
 Customers and customer applications (potentially creating a systems solution)
 Sales force / distribution channel
 Brand name and image
 Facilities and methods for manufacturing, warehousing, offices
 R&D
 Staff and operating systems
 Marketing & marketing research
o Mind:
 Implementation!
 Potential of alliances (e.g., in successful internet strategy)
 E.g., In November 2006, YouTube, LLC was bought by Google for US$1.65
billion, and now operates as a subsidiary of Google.

35
- Core assets and competencies
o = A firm’s asset or competency that is capable of being the competitive basis of many
of its businesses e.g.,
 Sony – miniaturization
 Ryanair – long-term cost reduction in operations
 Philips – design of consumer electronics
 Volvo – vehicle safety
 Zara – highly effective business processes (time-to-market)
o Each underlies a large set of businesses and has the potential to create more
o Keep work related to core competency in-house!
o Strategic investment in (cross-functional) people (teams), infrastructure, and setting
performance targets

7.3 Strategic commitment, opportunism, and adaptability

Not mutually exclusive, most firms use a combination

7.3.1 Strategic commitment

- Strategic commitment: loyal to clearly defined business strategy

o Assumption: future will be like past (so current business model will remain successful)
o Long-term perspective
o Vision that inspires entire corporate culture
o Charismatic leader
o Incremental rather than transformational/substantial innovations (‘kaizen’: continuous
improvement rather than creating new, disruptive innovations)
o Centralization
o More than financial objectives (valued purpose)

- Risk of strategic commitment: strategic stubbornness

o Vision may become obsolete
o Implementation barriers
o Faulty assumptions of the future
o A paradigm shift
7.3.2 Strategic opportunism

- Strategic opportunism: driven by a focus on the present

o Environment is too dynamic to predict the future and invest in those predictions
o Focus on immediate profits
o Decentralization & empowered, entrepreneurial people (it’s ok to fail!)
o Quick response
o Close to the market (information gathering)!
o Reduces risk of missing opportunity
o Economies of scope (assets & competencies supported by multiple product lines)

- Risk of strategic opportunism: strategic drift

o Lack of vision (Lack of support by assets and competencies, synergies?)
o Overestimating opportunity (e.g. short-lived) – cf. ‘ghost potential’ Ch. 4
o Divert resources away from the core business
o Implementation problems

7.3.3 Strategic adaptability

- Strategic adaptability: market is dynamic but it is possible to understand, predict and

manage responses to these dynamics
o Adapt the offering so that it maintains its relevance
o Seize opportunities to influence (sub)market creation
o Beyond incremental to substantial/transformational innovations
o Conditions:
 Identifying & evaluating trends (e.g., fad/trend; close to customer)
 Adaptation-supporting culture (e.g., responsiveness, innovation;
entrepreneurship; experimentation)
 Strategic flexibility (i.e., ability to adjust/develop strategies to respond to
External/internal changes) (e.g., participate in multiple product markets,
technologies, flexible brand portfolio, resource slack)

- Risk of strategic adaptability: strategy blunders (misreading trends)

o Risk of trends and emerging submarkets
o Resources being wasted
o Execution issue

(See slides for examples!)

8 Alternative Value Propositions

- 4 components of a business strategy

o Product market investment decision
o Customer value proposition
o Organization’s assets and competencies
o Functional strategies and programmes

- Value propositions = ways to compete

o Focusing on VP rather than on strategies, enlarges your scope and allows for
preliminary evaluative judgements
o A business may select more than 1 value proposition
 Ideally 2 or 3, more would no longer be credible
 E.g.: a superior attribute or benefit, appealing design, social responsibility…

8.1 Business strategy challenges

- Which value propositions should form the basis for a business strategy?
o Identify the potential impact of strategic option but also its limitations and feasibility
o Ask yourself the following 5 questions:
 Is there a real customer value proposition?
 Real vs. ‘assumed’
 Value is more likely to be real if driven from customer’s perspective rather
than from business operation (cf. unmet needs and marketing myopia)
 Is there a perceived customer value proposition?
 VP must be recognized and perceived as worthwhile by customers
 Customers must know about it and believe it
 Manage signal or cues that imply added value if customers cannot evaluate
asset/competency
 Is the strategy feasible?
 It is one thing to create the perfect strategy with respect to customers,
competitors and marketplace. It is another to execute that strategy effectively
 Do we have what it takes? (assets and competencies)
 Is the value proposition relevant to the customers?
 Offering superior customer value is only worthwhile of the value you offer is
deemed relevant by customers
 E.g.: no one is looking for the best performing typewriter machine nowadays

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  Is the value proposition a point of difference that is sustainable?
 Is the VP representing a (sustainable) point of superiority over competitors?
 Is the VP hard to copy?
- One route to a sustainable competitive advantage is to own an important
product dimension
- Second route would be to create a programme of continuous investment
and improvement that enables the strategy to remain a moving target
- Third, companies could create points of differentiations that are based on
unique assets and competencies of the company
- Overinvestment might pay off by discouraging competitors

8.2 Alternative value propositions

- Most commonly used value propositions

o Customer value (1) and quality (2): key factor in the success of organizations
 Definition of customer value:
 Is a trade-off between benefits and costs
 Associated with a product or service and perceived by the customer
 Consequences of customer value
 Customer satisfaction
 Customer loyalty
 Behavioural intentions
o A superior attribute or benefit (3)
 Is the attribute relevant to customers?
 Is the brand clearly positioned on that attribute?
 I it sustainable? (e.g.: patents, investment strategy, branding)
o Branding (4) and self-expressive benefits (5)
 A superior and more relevant value proposition is often found by broadening the
perspective beyond raw attributes and benefits
o Appealing design (6)
 Provides self-expressive as well as functional benefits
 Requires passion for design in-house/alliance with exclusive ownership
o System solutions (7)
 Selling products => selling system solutions
 Especially in B2B
 More likely to generate customer relationships
 Greater margins in commodity markets of components
 Requires customer service orientation (not enough to bundle products)
o Corporate social programs (8)
 Use your involvement with society to express corporate values and enhance
corporate image
 Why?
 Customers want relationship with someone trustworthy
 Delivers customer self-expressive benefits
 Adds energy to brand (cf. Ch. 10)
 Defensive (e.g., after accident/crisis – e.g., BP oil spill)
 How?
 Focused, meaningful, consistent over time, branded
 Visible, linked to the firm, relevant to customers (cf. Ch. 10)
 Feasible expectations
o Superior customer relationship (9)
 Customer intimacy as a strategic option
 Understanding customers at a deep level
 Delivering unexpected experiences that are satisfying with relation to functional,
emotional, social, and self-expressive benefits
 Resolving unmet needs
 Active programmes for nurture and support
o Niche specialist (10)
 Focus strategy
 Strategic commitment (avoid strategy dilution/distraction)
 Source of SCA:
 Credibility
 Bond with users (focused, passionate brand)
 Sometimes ‘small can be beautiful’ (e.g., maintaining dog ‘vinyl records’ in
your music store portfolio because of the strategic value)

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8.2.1 Superior quality

- Quality strategy = brand is perceived as superior to other brands in its reference set
o Superiority in quality
o Often associated with price premium
o Note that “superiority “= defined by customers
o Consequences of a quality value proposition
o Opportunity to become category leader
o Halo-effect on perceptions of wide variety of attribute dimensions
o Motivates employees
o Fosters innovation
o Drives financial performance

- Service quality
o People: perceived competence, responsiveness, empathy
o Organizational culture: motivating employees
o Creating: TQM; Quality signals; Managing missteps
 Total quality management: quality-focused management system that is
comprehensive, integrative and supported throughout the organization
 Signals of high quality: most quality dimensions are difficult if not impossible for
buyers to evaluate, as a result, consumers tend to look for attributes that they
believe indicate quality
 Managing quality missteps: negative experiences are more salient than positive
 Building trust creates expectations!
 Avoid frustration, and facilitate accessing the service
 Create contingency plan
o Measuring: SERVQUAL

- SERVQUAL is a disconfirmation model and is based on the difference between the

expected services and the actual perceived service.
o Using this “gaps” approach, five different dimensions of service-quality have been
established
 Reliability: accuracy & dependability of repeated performances of service delivery
 Responsiveness: helpfulness and willingness of staff to provide prompt service
 Assurance: the courtesy, confidence and competence of employees.
 Empathy: the ease and individualised care shown towards customers.
 Tangibles: the appearance of employees, the physical location and any facilities
and equipment, and the communication materials.
8.2.2 Value

- In nearly every market, there will be a segment that is motivated by price

o ‘Value segment’ in recessionary times!
o Overcapacity

- To compete successfully in the value arena it is necessary to have:

o Cost advantage
o Low-cost culture
o Perception of value (without eroding quality perception)

- How to achieve these ‘value option’ imperatives (perceived value)?

o Creating a cost advantage
 No frills product/service
 Efficiency in operations (look at the value chain)
 Scale economies
 The experience curve: as a firm accumulates experience in building a product, its
costs will decline at a predictable rate (not automatic!)
 A low-cost culture
o Risk: price = quality cue, particularly for categories that are difficult to judge in terms
of quality (e.g., perfume)
o Suggestions:
 Communicate substance behind the cost advantage (e.g. no frills product/service)
 Highlight affordability of apparently expensive products (e.g., Dreft)
 Demonstrate the value and relevance by focus on quality (e.g., Dreft)
 Bundle products rather than reducing price (i.e., extra value at same price)
 Manage visible price points (e.g., bestsellers – Coca Cola six-pack): those are
competitively priced because they often serve as benchmark for other products
 Divert attention to sub brands (e.g., BMW 1)
9 Building and managing brand equity

- Business strategy is enabled by brand assets

o A brand gives a firm permission to compete in product markets and services
o It represents the value proposition of the business strategy
o It is strategically crucial to develop, refine, and leverage brand assets

- Defining a “brand”: expert interpretations

o Legal instrument o Identity system o Relationship
o Logo o Image in o Added value
o Company consumer minds o Evolving entity
o Shorthand o Value system
o Risk reduction o Personality
- Intrinsic vs. extrinsic brand attributes
o Intrinsic: functional characteristics of an offering
 E.g.: shape, performance, physical capacity
 Change these and you directly alter the product
o Extrinsic: non-functional core characteristic of an offering
 E.g.: brand name, brand personality, marketing communications…
 Buyers often use extrinsic attributes to help them distinguish one brand from
another, because in certain categories it is difficult to make decisions based on
the intrinsic attributes alone

9.1 Brand equity

- Brand equity is the set of assets and liabilities linked to the brand
o Before: brand image could be delegated to an advertising manager
o Now: brand equity (as a key asset of the firm) needs to be elevated to part of the
business strategy
o Brand assets represent up to 70% of the value of a firm
o There are 3 types of brand equity
 Brand awareness
 Brand loyalty
 Brand associations
9.1.1 Brand awareness

- Brand awareness is often taken for granted but can be a key strategic asset
o Competitive advantages provided by brand awareness:
 Provides the brand with a sense of familiarity (people like the familiar)
 Name awareness can be a signal of presence, commitment, and substance
(“if the name is recognized, there must be a reason”)
 The salience of a brand will determine if it is recalled at a key time in the
purchasing process
 Brand awareness is an asset that can be extremely durable and thus
sustainable
o Recognition versus Recall
 Recognition: have you ever heard of Brand X?
 Recall: What brands of cars can you name?
 Name dominance: when brand is only one recalled when a product class is
cued
o Clutter and information overload, how to stay visible:
 Brand extension over product categories
 Beyond traditional mass media (event promotions, publicity, sampling…)

- The Aida model

o Awareness: attract the attention of the customer
 Unexpected content, situation, animation Awareness
 Surprise
 Attractive graphics or titles Interest
o Interest: raise interest for the product
 Relevant message Desire
 Promise of reward or satisfaction
o Desire: create a desire to own the product Action
 Special offer, urgency, feeling of special
situation
 Communicating unique benefits
 Building unique brand-image and must-to-have effect
o Action: make customers buy the product
 Purchase, order or subscription
9.1.2 Brand loyalty

- Brand loyalty or resistance to switching:

o Based on simple habit (e.g., there is no motivation to change from supermarket)
o Based on preference (e.g. people like one brand over the other based on
experience)
o Based on switching costs (e.g., sunk costs in software)

- Competitive advantages provided by brand loyalty:

o Reduction of marketing costs (i.e., cost customer acquisition>cost customer
retention)
o Entry barrier to competitors (i.e., less attractive profit potential)
o Beneficial for brand image (i.e., reassuring that others use the brand)
o Breathing room in case of competitive moves

- Management of brand loyalty is key to achieving strategic success

o Measure loyalty and customer lifetime value
o Exit interviews
o Reward loyal customers
o Communicate with customers
o Empower employees

9.1.3 Brand associations

- Associations can be key enduring assets as they reflect the strategic position of brand
o = Anything that is (in)directly linked in the consumer’s memory to a brand
o Product attributes/customer benefits: a reason to buy and a basis for brand loyalty
o Several problems with shouting matches between brands
 Position based on some attribute is vulnerable to an innovation that gives your
advantage more speed, more fibre, a greater range…
 When firms start a specification shouting match they all eventually lose credibility
 People do not always make decisions based upon a particular specification
 Strong brands go beyond product attributes to develop associations on other
dimensions that can be more credible and harder to copy

(See slides for VUB research on brand associations)

- Examples of brand associations:
o Value propositions (e.g., design, systems solutions, social programmes, …
o Product category
 Define product (sub)category in which you work (cf. Levitt, Marketing Myopia)
 Stay relevant (trend neglecters/trend responders/trend drivers)
o Breadth of product line
 Broad product offering signals substance, acceptance and leadership
 Brand extension risk: do we have what it takes? (erosion of resources)
o Organizational intangibles
 Less easy to copy
 Values, culture, people, strategy, programmes (e.g. Steve Jobs, Google culture)
o Emotional and self-expressive benefits
 Emotional benefits = the ability of the offering to make the customer feel
something during the purchase/use experience (“I feel…” => safe, important…)
 Self-expressive benefits = the ability of the purchase and use of an offering to
provide a vehicle by which a person can express him-/herself (“I am…” => hip…)
o The experience: broader and more rewarding than previous
o Being global: Provides prestige and assurance (e.g. MasterCard)
o Being contemporary: brand with long heritage:
 Positive side: reliable, safe, a friend
 Negative side: perception as “your (grand)father’s brand”
 Stay relevant, part of the contemporary scene, having energy & vitality
o Brand personality: as with human being, a business with a personality tends to be
more memorable and better liked than one that is just the sum of its attributes

9.2 Brand identity

- Brand identity: set of associations that the firm aspires to to create or maintain
(i.e., aspirational external brand image)
o Critical strategic analysis in developing brand identity: customer, competitor and
internal analysis
o The role of brand identity
 Clarity into the strategy formulation process
 Drive strategic initiatives
 Drive communication programme
 Express organization’s values and culture to employees and partners
o Multiple brand identities: Context-specific (Honda: sports cars Japan/family cars US)
- The brand identity can best be explained in terms of three steps
o What the brand stands for
 Set of 6-12 distinct, desirable associations for the brand
o The core identity
 Core vs. extended identity
 Prioritize brand identity elements (drivers of brand-building programmes)
 Criteria:
 Resonate with target market
 Differentiate from competitors
 Provide parity to competitor’s advantage
 Reflect business strategy & culture
o The brand essence
 Single thought that captures the heart of the brand
 To communicate the brand internally

- Proof points and strategic initiatives

o Firm needs to be willing to invest behind a brand identity and create products and
programmes that will deliver on the promise
o Each identity element should have proof points/strategic initiatives associated with it
 E.g., historical reputation, a modern fleet, a compensation programme, …
o Strategic imperative: an investment in an asset or programme that is essential if the
promise to customers is to be delivered

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- Brand identity is not brand image
o That which is communicated vs. the interpreted result of communication
o Sender’s perspective vs. receiver’s perspective
o If the two are similar, the brand will be strong
o Closing the gap...

- Kapferer’s brand identity prism: a tool to position a brand

o Brand identity = prior to ‘brand image’

o Consists of six elements

 3 internalized (personality, culture, self-image)
 Personality
- If the brand was a human, what kind of person would it be?
- E.g., George Clooney as endorser of Nespresso
 Culture
- The set of corporate values that feed the brand’s inspiration
- E.g., even at 2 mph Mercedes embodies ‘Deutsche Gr ndlichkeit’
 Self-image
- The internal mirror of the target user
- Our attitude towards a brand develops inner relationship with ourselves

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 3 externalized (physique, relationship, reflection)
 Physique
- Salient objective features which immediately come to mind when brand is
quoted
- The backbone and tangible value of the brand
- E.g., logos, punch lines, colors, shapes, etc.
 Relationship
- Dependency bond between consumer and product
- E.g., Tesco customer loyalty card
 Reflection
- The typical brand user: what identity a consumer can build by using the
brand
- The reflection of the brand should match the outward image of the target
market (i.e., ‘self-congruity’)

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10 Energizing the business

- Four ways to grow as a business

o Leveraging the current business (chapter 11)
o Creating a new business (chapter 12)
o Going global (chapter 13)
o Energize the existing business (chapter 10)
 Positive sides:
 Established firm has market and operating experience, assets, competencies
and customer base on which to build
 Less risky than developing new product/entering new market
 How to energize an existing business:
 Innovate to improve the offering
 Energize the brand and marketing
 Increase existing customers’ usage
10.1 Innovating the offering

- Ultimate business energizer is to improve the offering through innovation

o Innovation, whether incremental, substantial or transformational, will serve to create a
dynamic around the business
o Focus of innovation
 Improve the customer experience (e.g., Starbucks, Oil & Vinegar)
 Enhance the product through innovation (e.g., Gillette)
 Introduce line extensions (e.g., new flavour, package, size, service...)
 Mind the trap of line extensions: brand dilution
 Brand extensions need to balance their value with the risk that the added cost
might become a burden and that customers might rebel over added confusion
o Continuous rather than sporadic innovation
 Creation: organizational culture that builds innovation into the business strategy
 Why “brand” the innovation?
 Add credibility and legitimacy to a claim (benefit is worth branding; WTP)
 Facilitate communication (audience willingness to do effort...)
 Basis for sustainable competitive advantage (‘own’ the differentiator by
branding it)

- Branded differentiators
o An actively managed, branded feature, ingredient, technology, service, or
programme, that creates a meaningful, impactful POD for a branded offering over an
extended time period
o Example: Pantene ProV: pro-vitamins as branded ingredient and innovation
10.2 Energize the brand and marketing

- Energizing the brand

o Why would you? Because innovations that really make a difference (i.e., rising above
simply maintaining market position) are rare
o Therefore, need to look beyond the offering:
 Make the brand/business interesting or involving
 Involve the customer (e.g., cause related marketing)
 Go retail (e.g., Apple flagship store NY 5th Av.)
 Publicity events (e.g., Colruyt-Westvleteren)
 Promotions to attract new customers (e.g., Groupon)
 Find something with energy to attach your brand to and build marketing
programme around this connection (= a brand energizer)

- Brand energizer is a branded product, promotion, sponsorship, symbol, program or other

entity that - by association - significantly enhances and energizes a target brand
o Note: Unlike ‘branded differentiator’, a ‘branded energizer’ is NOT part of the master
brand offering, nor does it promise functional benefits
o Conditions:
 It should itself have energy and vitality
 It should be connected to the master brand
 It should enhance and energize the target brand without being ‘off-brand’
 It should be manageable (linked to customer lifestyle without link to competitors)
 It should represent a long-term commitment
o Examples of brand energizers:
 Sponsorships (e.g., Rabobank cycling sports)
 Endorsers (e.g., George Clooney & Nespresso)
 Promotions (e.g., Red Bull Mini promotion vehicles)
 Symbols (e.g., Ferrari logo)
 Social programs (e.g., Pant ne donations of hair to cancer funds)
 CEO (e.g., Richard Branson – Virgin)
10.3 Increasing the usage of existing customers

- Increasing usage among current customers is less threatening to competitors than

attempts to increase market share
o How?
 Increase frequency of use
 Increase quantity use
o Approaches:
 Motivate heavy users to use more (e.g., 1 year subscription zoo visits)
 Make the use easier (e.g., wider soft drink can opening)
 Provide incentives (e.g., quantity discounts)
 Remove/reduce the reasons not to buy (e.g., cola as breakfast drink)
 Provide reminder communications (cf. brand recall/recognition)
 Position for regular use (e.g., Special K dietary campaign)
 Find new uses for the same product (e.g., computer) (Customer analysis; sponsor
scientific research in search of new applications...)
11 Leveraging the business

- There are limits to growth in an existing market

o Growth avenues outside the existing business need to be explored
o While it is risky to leave the comfort of the familiar and the tested
o It also removes the ceiling on the firm’s growth potential

- Leverage the existing business into new product markets with creative thinking:
o Which assets and competencies can be leveraged?
o What brand extensions are possible?
o Can the scope of the offering be expanded?
o Do viable new markets exist?

11.1 Which assets and competencies can be leveraged?

- A focus on assets and competencies starts by creating an inventory in order to identify

the real strengths of the business
1. Identify strengths of the business
2. Find a business area where these can be applied to generate advantage
 Look for excess capacity (create advantage & cost efficiencies)
3. Address implementation problems
 Different application may require adaptation to assets & competencies
 Different application may require new capabilities

- Wide range of exportable assets and competencies

o Marketing skills
o Capacity of sales or distribution
o Design and manufacturing skills
o R&D skills
o Achieving economies of scale

- Where to expand your underleveraged asset/competency?

o Consider the broader context in which the offering is used
 E.g. orange juice business  breakfast business
o Analyse customer’s entire path-to-purchase and usage experience
 Walk through what the customer needs to do to use the product/service and
combine/replace parts to add value & differentiate
 E.g., buying, paying, transporting, storing, preparing for use, using, disposal...
o Serve additional customer needs
 E.g., McDonald’s breakfast/coffee (off-peak capacity)
11.2 Brand extensions

- The asset of a strong, established brand name, with visibility, associations, and loyalty
can be used to enter new product markets and facilitates development of awareness,
trust, interest and action

o The evaluation of each extension alternative is based on three questions:

 Does the brand fit the new product context?
 Credibility or expertise
 Associations (from margarine to dressing olive oil)
 Note: a brand that is strongly linked to a product class and attributes will be
more difficult to extend than a brand that is associated with intangibles such
as brand personality (e.g., Pampers vs. Samsung)
 Does the brand add value to the offering in a new product class?
 Customer should be able to express why the brand would be preferred in its
new context
 If the brand name does not add perceived value, the extension is vulnerable
to competition
 Note: avoid ‘overuse’ of a brand’s value for extension
 Will the extension enhance the brand name and image?
 Provide visibility, energy and associations that support the brand �
 Help to attract new customer segments to the brand
 Note: do not damage the brand (better to find another brand option)
- But, what if...
o Existing brands have wrong associations
o Risk being damaged by extension,
o Organization does not have the resources to build an entire new brand
- Subbrands or endorsed brands! (e.g. PlayStation-Sony)
o Extending the scope of the offering: identify and serve customer needs that emanate
from the use of existing products (see above)

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11.3 New markets

- Move existing products into new markets by duplicating the business offering to grow
o Potential for synergy and cost reductions �
o Expanding:
 Geographically
 Regional to national
 Region 1 to Region 2 �
 National to international
 Into new market segments
 New distribution channel (single-brand store, multi-brand retailers, online...)
 Age; home vs. office, ...

11.4 Evaluating business leveraging options

- Evaluate whether one or more ways to leverage the business should be pursued
o Is the product market attractive? (Five forces model Porter)
o Is the core business you want to leverage successful? (Why extend mediocrity?)
o Can the core business be transferred to the new product market? How much of a
stretch is it? (The closer to the core business, the better the chances)
o Will the new business be successful and become a market leader? (Failure rate of
new products is very high due to lack of POD, perceived value...)
o Is the leverage strategy repeatable? (Learning curve effects)

- The mirage of synergy: synergy is often assumed when in fact it does not exist, is
unattainable, or vastly overvalued
o Potential synergy does not exist: strategists often manipulate semantics to delude
themselves that a synergetic justification exists
o Potential synergy exists but is unattainable: when to organizations have different
cultures, strategies, and processes, there are significant issues to overcome
o Potential synergy is overvalued
 Few companies do a rigorous risk analysis looking at least favourable outcomes
 It is useful to set a price over which you will not pay

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12 Creating new businesses

- Creating new business involves changing what the customer is buying by creating a new
market or submarket (transformational innovation)
o To bypass established business areas with their fixed boundaries
o By definition there will be no direct competitors
o Why? Because there are barriers to long-term success in existing product markets
 Competitors respond faster and more vigorously than ever: hard to turn product
advantage into point of difference and sustainable market position
 Cannot hide incremental innovations: apparent and open to copy �
 Markets are so dynamic it is easy to get behind or become less relevant
 Overcapacity resulting in price and margin pressures
o Despite of their risk, new business models offer better hope for sustainable growth

- Kim and Mauborgne: new businesses enter “blue oceans”

o Blue oceans: unknown market space, business arenas not in existence
 Create demand where it does not exist and make competition irrelevant
o Red oceans: established markets where boundaries and operating parameters are
established and accepted
 Challenge is to beat competition and improve market share
 As space gets crowded, firms face overcapacity, commoditization, low margins...

- Successful blue ocean business

o Success based on significant innovations that create a new business model
o Innovation that is more often conceptual than technological
 E.g., innovative idea, new product form, new benefit, new concept
o Transformational innovation involves qualitative leap and different business strategy
 Blue ocean: low cost and differentiation �
 Red ocean: low cost or differentiation

- Spectrum of newness: indicators

o Competitive climate: length of time in which there is no/little competition after the
launch of the new business model
o Degree of being different: market, products, value proposition, assets &
competencies, functional strategies

- Links to financial return

o New entrants have higher shareholder return than industry average
o Industry newness is positively correlated to profitability
o After all, there is no direct competition (often for a long time)
12.1 The innovator’s advantage

- Innovation can create a first-mover advantage based on several factors

o Competitors often don’t respond timely because they fear the new business may
cannibalize their existing business
o Competitors often unable to respond due to patents, organizational culture, natural
monopolies, scale efficiencies...
o Innovator is able to create customer loyalty based on exposure to and experience
with its product/service (i.e., ‘earn’ the valuable authentic label)

- To capture a first-mover advantage, it is important to hit the market first and build position
o Penetration pricing strategy: build up share and increase barrier to followers
o Price skimming strategy: capture margin and recover development costs
o Certain traits common to successful early market leaders:
 Envisioning the mass market (penetration pricing strategy)
 Managerial persistence
 Financial commitment
 Relentless innovation
 Asset leverage (dominant position in a related category)

12.2 Managing category perceptions

- Innovators need to be aware that their challenge is not only to create an offering and a
brand but also to manage the perception of the new (sub)category
o For a business innovator, the focus is no longer just on what brand to buy (preference
question), but rather what product category to buy (relevance question)
o Manage perceptions of a category while linking your brand as leader to that category
 There may be a need to focus first on functional rather than emotional attributes
 1st mover can become the de facto subcategory label (e.g., Kodak, jeep, pampers
became generic brand names)

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12.3 Creating new business arenas

- Leveraging the business: starts from assets and competencies �

 Creating new business: starts from the customer-offering
- The history of blue ocean ventures contains patterns and can suggest possibilities
o Technological innovation: a new technology can drive the perception of a submarket
o From components to systems: look at the system in which the product/service is
embedded and expand perceptions horizontally (e.g., flower delivery)
o Unmet needs: ethnographic research (observation of customers; iPod/Walkman)
o Niche markets: application, unique position for a submarket (e.g., soda)
o Customer trends: e.g., dual trend towards wellness and naturalness (Tao)
o Dramatically lower price point: simpler and cheaper offering
 Low-end disruptive innovation: aimed at non-served customers
 Industries are altered by emerging products whose price appears low
 Drive to service most profitable customers provides an opening in the form of
the low-end customer
 New-market disruptive innovation: aimed at non-customers
 Large group of non-customers
- Products or services are considered too expensive or complex
- Buy less than they would like because the process is inconvenient
 More accessible offering that is priced right can open up the market
 Attractively priced option appeal to both low-end and non-customer segments

- “Real, win, worth it” structure of George Day

o Is the market real? (Is there a need or desire for the product)
o Is the product real? (Can the product be made?)
o Can the product be competitive? (Sustainable competitive advantage?)
o Can our company be competitive? (Superior assets and competencies?)
o Will the product be profitable at an acceptable risk? (ROI)
o Does launching the product make strategic sense? (Overall strategy fit?)
12.4 From ideas to market

- Challenge is to create an organization that can excel in existing businesses and still allow
a new business to survive/thrive
o Strategic adaptability
 In addition to or in place of strategic commitment/opportunism
 Excel in existing business – allow transformational business to thrive
 Create a separate (free) organization
 Create dual organization with the same firm
o Fatal biases inhibiting new business creation
 Short-term financial pressure curse (new firms vs. existing ones)
 Silo curse (accountability – individual business units separately)
 Curse of success (complacency – why change a winning team?)
 Incumbent curse (fear of cannibalism)
 Commitment curse (strategic commitment, Ch. 7 => tunnel focus)
 Size curse (size of core business not to be met by smaller growth areas)
13 Global strategies

- A global strategy is not the same as a multinational strategy:

o Global strategy
 Worldwide perspective
 Interrelationships between country markets
 Synergies, economies of scale, strategic flexibility, leverage programmes…
o Multidomestic/multinational strategy
 Separate strategies for different countries
 Portfolio of independent businesses with separate investment decisions
o Note: Even if global strategy is not appropriate for firm, making the external analysis
global can still be useful

- A global strategy requires a set of issues to be addressed:

o What are the motivations (objectives) for a global strategy?
o To what extend should products/service offerings be standardized across countries?
o To what extend should the brand name and marketing activities be standardized?
o How can the global footprint be expanded successfully?
o To what extend should strategic alliances be used to enter new countries?
o How should the brand be managed globally?

13.1 Motivations underlying global strategies

- A global strategy can result from several motivations in addition to simply wanting to
invest on attractive foreign markets
o Obtaining scale economies
 Can occur from product standardization
 Standardization of the development and execution of a marketing programme
 Standardization of marketing operations and manufacturing programmes
o Global brand associations: prestige of being global and social responsibility
o Global innovation: innovation can be sourced anywhere
o Access to low-cost labour or materials
o Access to national investment incentives
o Cross-subsidization: use resources accumulated in one part of the world to fight a
competitive battle in another
o Dodge trade barriers
o Access to strategically important markets
13.2 Standardization versus customization

- Reasons for standardization (Levitt, 1983)

o Homogeneity of consumer tastes and wants (world as village)
o Economies of simplicity = competitive advantage
o Customers’ willingness to sacrifice preference for high quality at lower price
 E.g., Redbull, Bodyshop
 However, ‘standardized’ products not identical worldwide (e.g., McDonald’s)

- Advantages of global ‘standardized’ brands

o Economies of scale (e.g., advertising)
o Effectiveness due to better resources
o Easier brand image management
o BUT:
 Not all brands, even high end, or with functional benefit, can be global
 Another risk is that the result is a compromise (‘not exactly right anywhere’)
 Another strategy is to work with lead country and then export (perhaps with
minor modifications or refinements)

- Standardized global brand is not always optimal/feasible

o Absence of economies of scale/scope (e.g., ‘dubbing’ in commercials…)
o Lack of strategy to support global branding
o Fundamental differences across markets make standardized brand suboptimal
 Different market share positions (e.g., Google in Russia)
 Different government contexts (e.g., alcohol consumption regulation)
 Different brand images (e.g., Heineken)
 Different customer motivations (e.g., tanning vs. whitening crèmes)
 Different distribution channels (e.g., population density difference)
 Different stages in customer trends (e.g., adoption of e-commerce)
 Different social economic stage (e.g., BRIC, West, bottom of pyramid)
 Strong local heritage (e.g., Coca Cola US…)
 Different customer responses to executions and symbols (e.g., Ikea depicting
women)

- The priority in a global business strategy should not be to develop standardized brands
(although such brands might result), but global brand leadership, or strong brands in all
markets.

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13.3 Expanding the global market

- Global strategy challenges

o Different language
o Unfamiliar culture
o New competitors and channels
o Different set of market trends and forces…

- 4 conditions to success:
o A strong core: a home market provides resources and experience
o A repeatable formula for expansion (reduces risk of entry)
o Customer differentiation that travels (same position working for same segments)
o Industry economics: some industries provide cost advantage for global scale (e.g.,
razors); others reward local share (e.g., beer)

- What country (countries) to enter?

o Global strategy may put resources investment for the home market at risk
o Choose carefully!
 Is the market attractive in size and growth?
 Can the firm add value to the market?
 How intense is competition?
 Can firm implement its business model or are there operational/cultural barriers?
 Are there political uncertainties that will add risk?
 Can a critical mass be achieved?

- Sequential/simultaneous entering?
o Sequential
 Reduces initial commitment
 Allows for continuous improvement
o Simultaneous
 Economies of scale realized more quickly
 First-mover advantage in more markets
 Standardization more feasible

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13.4 Strategic Alliances

- Why do strategic alliances play an important role in global strategies?

o Because it is common for a firm to lack a KSF for a market (e.g., distribution, brand
name, R&D, manufacturing…)
o The time and money required to create them internally would be excessive
 Strategic alliance as a natural alternative for reducing investment en the
accompanying inflexibility and risk

- What is a strategic alliance?

o A collaboration leveraging the strengths of two or more organizations to achieve
strategic goals
o Involves long-term commitment
o Provides the potential of accomplishing a strategic objective/task (combining rather
than creating assets and competencies)
o A strategic alliance can take many forms: from loose informal agreement to formal
joint venture (e.g. Whatsapp & Facebook)

- Motivations for strategic alliances

o Strategic alliances can be motivated by a desire to achieve some of the benefits of a
global strategy like economies of scale, access to strategic markets, …
o Particular to strategic alliance: to compensate for the absence of / weakness in a
needed asset or competency
 Fill out a product line to serve market niches
 Gain access to a needed technology (e.g., Google & YouTube)
 Use excess capacity (e.g., private labels by national brand manufacturers)
 Gain access to low-cost manufacturing capabilities (e.g., manufacturing in China)
 Access a name or customer relationship
 Reduce the investment required (e.g., technology instead of money)

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- The key: maintaining strategic value for collaborators
o Relative contribution of partners becomes unbalanced over time
 One partner no longer has any proprietary assets and competencies to contribute
 e.g., outsourcing assembly, components, value-added components, product
design, core technologies to China…
- Onshore firm gets hollowed out,
- Wins cost advantages
- But in the end is left with just distribution function
 Solution/prevention
 Structure the situation so that operating management is shared and assets &
competencies are protected
 Protect assets from a partner by controlling access
o Execution of the alliance
 At least 2 sets of business systems, people, cultures, structures need to be
reconciled
 Success for joint ventures
 Let the joint venture evolve with its own cultures and values
 Balance management and power structure from the 2 partners
 Venture champions are on board to carry the ball during difficult times
 Stick to each other, even in hard times
 Develop methods to resolve problems and change over time
 Actively manage the strategic alliance

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14 Setting priorities: the exit, milk and consolidate options

- All firms should view their business units as a portfolio

o Some BUs should receive investment to keep them healthy: Star
o Some BUs need investment because they have a lot of potential for the future:
Question Mark
o Some BUs should no longer absorb investments aimed at growing: Cash cow
o Some BUs should be divested/closed/merged: Dogs

=> Too many brands, like too many BUs, may result in confusion and inefficiency

14.1 The business portfolio

- The BCG growth-share matrix

o Position each BU of a firm on 2 dimensions:
 Market-share (ratio of share to that of the largest competitor): relative strength &
cost advantages resulting from scale economies and manufacturing experience
 Growth = indicator of market attractiveness

o Positions:
 Star = important to business & deserve the needed investment
 Cash cow = source of cash
 Dog = potential cash trap and candidate for liquidation
 Question mark = heavy cash needs but will eventually convert into stars
o Investment decision is suggested by the position on a matrix

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14.2 Divestment or liquidation

- Drivers of a divestment decision

o Current and expected profit drain
o Market demand (matured / overestimated / …)
o Competitive intensity (new competitors / underestimated /…)
o Change in strategic thrust of the organization
o A business may not only be a resource drain but also a distraction to the internal
culture and the external brand image

- Benefits of divestment/liquidation
o Opportunity cost of overinvesting in a business
o Safeguarding those businesses that do represent the firm’s future
o To benefit the divested business itself (move into more supportive environments)
o How?
 Have a process and the will to terminate business units that are not going to fuel
growth in the future
 Ask yourself: ‘If we were not in this business now, would we go into it’?

- How to decide when exit barriers needs to be considered?

o Business position (e.g., assets and competencies inadequate, value proposition
losing relevance, declining market share)
o Market attractiveness (e.g., category demand declines, price pressures)
o Strategic fit (e.g., change in strategic direction of the firm, resources could be
employed more effectively elsewhere)

- Despite the fact that delaying divestment can cause waste of resources and lower prices
obtained for the business, many firms avoid this decision…
o Exit barriers
 Termination costs (e.g., long term contracts, BU part of the system, …)
 Fear of effect on company businesses’ reputation
o Biases
 Psychological biases (e.g., reluctance to give up, emotional attachment,
managerial pride)
 Confirmation bias (seek information that supports your position and discount
disconfirming information)
 Escalation of commitment bias (rather than regarding prior investments as sunk
costs, there is a bias towards linking them to future decisions)

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- How to increase objectivity of divestment decisions?
o Process
 Transparent and persuasive
 Applied to spectrum of business units instead of just the marginal ones
 Let process identify weakest links
o People: Internal/external party to analyse the situation without prejudices

=> Note: if there is reason to believe the market may change, making the business more
attractive again, the exit decision could be delayed or changed to a milk/hold decision

14.3 The milk strategy

- The milk/harvest strategy aims to generate cash flow by reducing investment and
operating expenses to a minimum, even if that causes a reduction in sales, why?
o The firm has better uses for the funds
o The involved business is not crucial to the firm
o Milking is feasible because sales are stabilizing/declining in an orderly way

- Variants of milking strategies

o Fast milking (min. expenditures and max. short-term cash flow form the brand)
o Slow milking (continue supporting operating areas such as marketing and service, but
reduce investments in long-term)
o Hold strategy
 Enough product development, ... to hold market position, but no growth intentions
 Chosen if the market prospects and/or business position are not as grim
 Industry lack growth opportunity and increasing share would trigger retaliation
 Hold strategy can result in a profitable “last survivor” of a market

- When to select milking over growth strategy?

o The business position is weak but there is enough customer loyalty to generate sales
and profits in a milking mode
o Market attractiveness (demand, price structure)
o Business strategy (and manageability of a milking strategy)

- Advantage of milking over divesting: can still be reversed

- Implementation problems
o Culture (e.g., disruptive centralized decision on to decentralized BU...)
o Managerial (e.g., reward systems to encourage funding one’s BU’s growth…)
o Market related (e.g., loss of customer confidence / employee morale)
o Keep the milking strategy as inconspicuous as possible

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14.4 Prioritizing and trimming the brand portfolio

- Brands are the face of a business strategy

o One element of brand strategy is to set priorities within the brand portfolio
o Why?
 Prioritizing brands is a good exercise to prioritize business portfolio
 Most firms have too many brands and prioritizing and trimming can correct that
 Many firms are strategically paralyzed by an overbranded, confused brand
portfolio without priorities

- Solution/prevention
o Be more disciplined in introducing new businesses/brands
o Use an objective process to trim redundant brands out of the portfolio

- 5 steps to prioritize/trim brand portfolio

1. Identification of relevant brand set (e.g., different/within a given context – e.g., Diesel)
2. Brand assessment
 Brand equity: awareness, reputation, differentiation, relevance, loyalty
 Business prospects: sales, market share, profits, growth
 Strategic fit: extendibility as master brand, business fit
 Branding options: brand equity transferability, merging with other brands
3. Brand prioritization to allocate budgets more wisely
 Top tier: strategic power brands
 Second tier: brand involving in smaller businesses (e.g., niche)
 Third tier: cash cow brands
 Remaining brands should be assigned descriptor roles, eliminated, placed on
notice or restructured
4. Brand portfolio strategy revision: create several brand portfolio structures
5. Implementing the migration strategy (e.g., gradual/abrupt)

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