imcost lecture

8/14/2019 Imcost Lecture

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STRATEGY FORMULATION

STARTING POINT- ----MARKET ANALYSIS

CONSUMER

COMPANYCOMPETITION

CONDITION


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MARKET SEGMENTATION-THE2ND STEP

THE THREE MAJOR SEGMENTS COULD BE

1. THE GEOGRAPHIC SEGMENT2. THE DEMOGRAPHIC SEGMENT3. THE PSYCHOGRAPHIC SEGMENT

4. BEHAVIORAL SEGMENT


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Cont..

MARKET ANALYSIS

COMPETITION:-Michael Porters Five Forces Analysis-Value Chain Analysis

-SWOT Analysis


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Michael Porters Five Forces Model


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THREAT OF NEW ENTRANT DEPENDS UPON:-economies of scale-Capital /investment requirement

-Customer switching costs-Access to distribution channel-Access to technology

-Brand loyalty-Degree of retaliation from existing players-Government policies


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THREAT OF SUBSTITUTES DEPENDSUPON:

-quality of the substitute-Buyers willingness to substitute-Relative price and performance of

substitutes-Switching costs to substitutes


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BARGAINING POWERS OF SUPPLIERSDEPENDS UPON:

-concentration of suppliers Vs the buyers-branding of the supplier -suppliers threat to integrate forward

-quality n service-switching cost of the suppliers


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BARGAINING POWER OF BUYERS DEPENDSUPON:

-concentration of buyers VS the suppliers

-products represents a significant amount of buyers costs or purchases

-differentiated/undifferentiated product

-switching costs to the buyers-buyers threat of backward integration-information update of the buyers


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INTENSITY OF RIVALRY DEPENDSUPON:

-structure of competition;numerouscompetitors vs clear cut market leader

-degree of product differentiation

-structure of industry costs;high fixed costsleading to price cutting-exit barriers; high leads to intense rivalry


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VALUE CHAIN MICHAELPORTER

IDENTIFIES 9 WAYS TO CREATE MORE CUSTOMERVALUES THROUGH PRIMARY AND SECONDARYACTIVITIES

PRIMARY ACTIVITIES :1. INBOUND LOGISTICS2. OPERATIONS3. OUTBOUND LOGISTICS

4. MARKETING AND SALES5. SERVICE


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Cont.

SECONDARY ACTIVITIES:6.FIRM INFRASTRUCTURE

7.HUMAN RESOURCE MANAGEMENT8.TECHNOLOGICAL DEVELOPMENT9.PROCUREMENT


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Framework for competitor analysis

Future goals current strategy

competitors response profile

Assumptions capabilities


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FUTURE GOALS:Business Unit Goals

-financial goals-values and beliefs-organisational structure

-control and incentive system


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Parent Company -current sales of the parent company -overall goals-strategic relevance of the business unit to the parent

company -diversification plansPORTFOLIO ANALYSIS -BCG-GE


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ASSUMPTIONS Competitors assumptions about itself Competitors assumptions about the industryCURRENT STRATEGY-competitors key

operating policies in each functional area of thebusiness


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CAPABILITIES-assessment of competitors strengths and

weakness in varied areas

-core capabilities of the competitors in each of thefunctional areas

-Ability to grow

-quick response capability-Staying power


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COMPETITORS RESPONSE PROFILE-is the competitor satisfied with its current

position?-what likely moves or strategy shifts will the

competitor make?

-where is the competitor vulnerable?-what will provoke the greatest and mosteffective retaliation by the competitor?


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CONDITION

MACRO ENVIRONMENT

DEMOGRAPHIC ENVIRONMENT

SOCIO-CULTURAL ENVIRONMENTECONOMIC ENVIRONMENTPOLITICAL ENVIRONMENTNATURAL ENVIRONMENT

TECHNOLOGICAL ENVIRONMENTLEGAL ENVIRONMENT


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COMPANY

Internal Appraisal -BCG-GE McKinsey-SWOTStrategies in terms of 4 Ps:-Product

-Price-Place-Promotion


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PRODUCT

AN OFFERING THAT SATISFIES THENEEDS OF THE CUSTOMER


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Major tasks in ProductManagement

I. MANAGING THE PLC :--

STAGES:-INTRODUCTIONGROWTH

MATURITYDECLINE


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NEW PRODUCT DECISIONS

SIGNIFICANCE OF NEW PRODUCT: MEETING CHANGES IN CONSUMER

DEMAND

MAKING NEW PROFITS COMBATING ENVIRONMENTAL THREATSNEW PRODUCTS CAN BE : NEW ARISING OUT OF TECHNOLOGICAL

INNOVATION NEW DUE TO MARKET-ORIENTED

MODIFICATIONS


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STAGES IN NEW PRODUCTDEVELOPMENT

IDEA GENERATION IDEA SCREENING

CONCEPT TESTING MARKETING STRATEGY BUSINESS/MARKET ANALYSIS

PRODUCT DEVELOPMENT MARKET TESTING COMMERCIALISATION


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STRATEGIES AT VARIOUSSTAGES

INTRODUCTION:-strategies to be aimed at Attracting customers by raising awareness of, and

interest in the product through advertising, publicrelations and publicity efforts that stress key productfeatures and benefits.

Inducing customers to try and buy the product throughthe use of various sales tools and pricing activities.

Strengthening and expanding channel and supplychain relationships to gain sufficient product

distribution to make the accessible to target market.


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Setting pricing objectives that will balance the firms needto recoup the investment with the competitive realities of the marketplace

GROWTH strategies to be aimed at Improving product quality,adding new product features

and style Entering new market segments Increasing distribution coverage

Shift from product awareness advertising to productpreference advertising


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Finding an ideal balance between price and demand asthe price elasticity becomes more important as productmoves towards the maturity stage

MATURITY strategies to be aimed at Generating cash flow Holding market share Stealing market share Increasing share of customers


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DECLINE options available are Postpone the decline

Accept its decline


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II. APPRAISAL OF THE PRODUCTLINE

ALTERING THE LENGTH OF THE LINETHROUGH: STRETCHING THE LINE -UP or DOWN

LINE FILLING LINE PRUNNING


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NAMING THE BRAND INDIVIDUAL BRAND NAMES

ex: Breeze, Camay FAMILY/UMBRELLA BRAND

ex: Lakme, Ponds COMPANY NAME AS BRAND NAME

ex: Godrej, Tata , BPL

MIDDLEMENS/STORE BRAND/PRIVATE LABELex: Shoppers Stop, Pantaloons


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NEED FOR BRANDING MARKET IDENTITY LEGAL PROTECTION CUSTOMER LOYALTY PROFIT MARGINS SEGMENTATION

BARGAINING CAPACITY CORPORATE IMAGE


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PRICING

MONETARY VALUE IN RETURN OFPRODUCT/SERVICE

OCCASIONS OF PRICING:-1. SETTING A PRICE OF A NEW PRODUCT2. INTRODUCTION OF EXISTING PRODUCT IN A

NEW MARKET3. RESETTING /ADJUSTING THE CURRENT PRICE


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THE PROCESS..

SELECTING THE PRICING OBJECTIVES DETERMINING THE DEMAND

ESTIMATING COST ANALYSING COMPETITORSCOSTS,PRICES AND OFFERS

SELECT A PRICING METHOD SELECTING THE FINAL PRICE


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SELECTING THE PRICINGOBJECTIVES

THE COMPANY FIRST DECIDES WHERE IT WANTS TO POSITION ITS MARKET OFFERING.THE CLEARER A FIRMS OBJECTIVES, THE EASIER IT IS TO SET PRICE.

Survival. Maximum current profit. Maximum market share.

Maximum market skimming. Product-quality leadership


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Demand estimation

Factors contributing to Price sensitivity: Unique Value effect Substitute Awareness effect

Difficult Comparison effect Total expenditure effect End-Benefit effect Shared Cost effect

Sunk Investment Effect Price Quality effect Inventory effect


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Measuring demand curves :-controlled experimentation-Direct probing-Statistical analysis of past data

Demand is likely to be less elastic under the followingconditions: There are few or no substitutes or competitors. Buyers do not readily notice a higher price. Buyers are slow to change their buying habits.

Buyers think the higher prices are justified.


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Costs set the floor to the price. Competitors prices and the price of substitutes provide

an orienting point. Customers assessment of unique features establish the

price ceiling.

There are five price-setting methods: Markup pricing. Target-return pricing. Perceived-value pricing. Value pricing. Going-rate pricing.


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Other price adaptations

a) Price discriminationcustomer segment pricingTrade discriminationLocation pricingTime pricing

b) DiscountsCash discountQuantity discountTrade discountSeasonal discount


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c) Promotional pricingLoss Leader pricingSpecial event pricingLonger payment termsLow interest financing

Warranties and service contracts

d) Product mix pricing Product line pricingCaptive product pricing

Two part pricingProduct bundling pricing


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DISTRIBUTION NETWORK

Know what work marketing channelsperform

Know how channels should be designed Know what decisions companies face in

managing their channels Know how companies should integrate

channels and manage channel conflict


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NEED FOR A DISTRIBUTIONSYSTEM

GENERAL DISCREPANCY EXISTING : SPATIAL DISCREPANCY

TEMPORAL DISCREPANCY NEED TO BREAK THE BULK NEED TO PROVIDE ASSORTMENT

INFORMATION GAP


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ENTITIES

1)PHYSICAL DISTRIBUTION

2) MARKETING CHANNELS


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PHYSICAL DISTRIBUTION

1.TRANSPORTATION-MODE:air,rail,road,water,pipeline

-ROUTING

-COST


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.cont.

2. WAREHOUSINGa. Critical storage points

nos. Location

b. Inventory control-costs

ordering carrying stockout


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MARKETING CHANNELS

MOST PRODUCERS DO NOT SELL THEIR GOODS DIRECTLYTO THE FINAL USERS; BETWEEN THEM STANDS A SET OFINTERMEDIARIES PERFORMING A VARIETY OF FUNCTIONS

These intermediaries constitute a marketing channel

SET OF INDEPENDENTORGANISATIONS INVOLVED IN THEPROCESS OF MAKING A PRODUCTOR SERVICE AVAILABLE FORUSE/CONSUMPTION.


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INTERMEDIARIES:

TYPES OF MARKETING INTERMEDIARIES CFAs

Distributor/wholesaler Retailer

exclusive:owned or franchiseshop in shop

commission agents


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FUNCTIONS

a)Information-Potential & current customers-Competitors-Forces in the mktg. environment

b)Promotionc)Negotiationd)Risk taking(financial,credit terms,storage,pilferage)e)Transactional efficiency

financing to the manufacturer

service provider presale post sale

assist in introducing new product


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LEVELS OF CHANNEL ZERO LEVEL

manufacture consumer eg: EUREKA forbes

ONE LEVEL Presence of one intermediaryManufactures---- retailer agents distributor --- consumer Eg. Automobiles

TWO LEVELSManufacture wholesaler- retailer- consumer Eg. FMCG products

THREE LEVELS Manufacture agents wholesaler- retailer- consumer

Eg. agricultural products


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CHANNEL DESIGNDECISIONS

1. ESTABLISH CHANNEL OBJECTIVE-market coverage

-control objectives-ensuring minimum effort exerted by the

consumer in procuring the product

-quality objective


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cont.

2. DETERMINING THE TYPES OFCHANNELS TO BE USED .

- Largely depends on the channel objectives of thefirm.

3. IDENTIFY CHANNELALTERNATIVES

i)Intensity of distribution Exclusive( one area, one shop ) Selective ( products available in few shops) Intensive ( every retail shop has the product )


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ii) Proximity to end users.iii) Existing distribution practices (by competitive

analysis).

4. EVALUATE THE ALTERNATIVES. Economic criteriacost Vs value

time period taken by a channel to deliver control criteria channel availability


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5. SELECTING THE FINAL CHANNELMEMBER

they should stick to your terms andconditions. Motivate them Train them Resolve channel conflicts.


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CHANNEL CONFLICTS

TYPES OF CONFLICT AND COMPETITION Vertical channel conflict means conflict

between different levels within the samechannel.

Horizontal channel conflict involvesconflict between members at the same level

within the channel. Multi-channel conflict exists when the

manufacturer has established two or morechannels that sell to the same market.


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CAUSES

Goal incompatibility. Unclear roles and rights. Improper communication. Lack of autonomy

CONFLICT MANAGEMENT


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CONFLICT MANAGEMENTMETHOD

1. INSTITUTIONAL APPROACHESJOINT MEMBERSHIP OF ASSOCIATIONEXCHANGE OF EXECUTIVESCOOPTATION

2. THIRD PARTY MECHANISMMEDIATIONARBITRATION


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Integration of channels

VMSHMSMULTI-CHANNEL MARKETING


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PROMOTION:- PERSONAL SELLING PUBILC RELATIONS ADVERTISING SALES PROMOTION


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PERSONAL SELLING - PAID PERSONALCOMMUNICATIONTHAT ATTEMPTS TO INFORMCUSTOMERS ABOUT PRODUCTS ANDPERSUADE THEM TO PURCHASE THOSEPRODUCTS.

FACE TO FACE TRANSACTION BETWEEN ASALESMAN AND A PROSPECTIVE CUSTOMERFACTORS SUPPORTING PROMOTION

KNOWLEDGE& EXPERTISE BETTER OUTLOOK & PERSONALITY EFFECTIVE COMMUNICATION SKILLS A CONVINCING MESSAGE


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PUBLIC RELATIONS- TRACKS PUBLIC ATTITUDES,IDENTIFIES ISSUES THAT MAY ELICIT PUBLICCONCERN, AND DEVELOPS PROGRAMMES TOCREATE AND MAINTAIN POSITIVE RELATIONSHIPBETWEEN A FIRM AND ITS STAKEHOLDERS.

CAN WIN IN YOUR FAVOUR THROUGH SPONSORSHIP NEWS(PRESS RELEASE) FEATURE ARTICLE PRESS CONFERENCE EVENT MANAGEMENT SOCIAL CAUSE

ADVERTISING TELLING &


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ADVERTISING TELLING &SELLING

ANY PAID FORM OF NON-PEROSNALCOMMUNICATION OR PROMOTION BYAN IDENTIFIED SPONSOR.

5 Ms OF ADVERTISING


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MISSION ADVERTISING OBJECTIVES

AREAS WHERE OBJECTIVES CAN BE SET: INTRODUCTION OF NEW PRODUCTS MARKET EXPANSION REMINDING TO CUSTOMERS BUILDING UP CORPORATE & BRAND

IMAGE AIDING THE TOTAL SELLING FUNCTION STIMULATING IMPULSE BUYING


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MONEY ADVERTISING BUDGET

DIFFERENT METHODS:

COMPETITIVE PARITY METHOD AFFORDABILITY PERCENTAGE OF SALES/TURNOVER

OBJECTIVE- TASK METHOD PAST SALES ADVERTISING EXPENDITURE


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MESSAGE

SHOULD BE SIMPLE CREATE A BANDWAGON EFFECT


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MEDIA

REACH FREQUENCY EXPOSURETYPES:-

PRINT NEWSPAPER MAGAZINES TRADE JOURNALS DIRECT MAILS

AUDIO/VISUAL/ELECTRONIC RADIO TV INTERNET CINEMA CASSETTES AUDIO/VISUAL


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MEASUREMENT : DAR TEST-DAY AFTER RECALL TEST MARKET METHOD


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SALES PROMOTION :-DIRECT AND IMMEDIATE INDUCEMENT.MARKETING NEEDS SERVED BY SALES

PROMOTION:- NEW PRODUCT INTRODUCTION UNLOADING ACCUMULATED INVENTORY GETTING NEW ACCOUNTS GETTING BACK LOST ACCOUNT PERSUADING DEALERS TO BUY MORE


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TOOLS AND TECHNIQUES OFSALES PROMOTION:- DEMONSTRATIONS TRADE FAIRS AND EXHIBITIONS COUPONS AND FREE SAMPLES CONTESTS MERCHANDISING /DISPLAY SALES PROMOTION ON INTERNET


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STDP

STDP-SEGMENTINGTARGETINGDIFFERENTIATINGPOSITIONING


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SEGMENTATION

MASS MARKETINGThe process in which the seller engages in the

mass production, mass distribution, and mass

promotion of one product for all buyers.SEGMENT MARKETINGServing to a group of customers who share a

similar set of needs and wants.


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Basis of identifying segments

1. Geographic Segmentation2. Demographic Segmentation3. Psychographic Segmentation4. Behavioral Segmentation


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GEOGRAPHIC SEGMENTATIONIt calls for dividing the market into different geographical units.Geographic variables

region of the world or country, East, West, South, North, Central, coastal,hilly, etc.

country size/country size : Metropolitan Cities, small cities, towns. Urban, Semi-urban, Rural.

climate Hot, Cold, Humid, Rainy.
http://en.wikipedia.org/wiki/Geographyhttp://en.wikipedia.org/wiki/Regionhttp://en.wikipedia.org/wiki/Countryhttp://en.wikipedia.org/wiki/Climatehttp://en.wikipedia.org/wiki/Climatehttp://en.wikipedia.org/wiki/Countryhttp://en.wikipedia.org/wiki/Regionhttp://en.wikipedia.org/wiki/Geography


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DEMOGRAPHIC SEGMENTATIONDemographic variables age gender Male and Female family size

family life cycle education Primary, High School, Secondary, College,Universities.

income occupation socioeconomic status religion nationality language
http://en.wikipedia.org/wiki/Demographicshttp://en.wikipedia.org/wiki/Ageinghttp://en.wikipedia.org/wiki/Genderhttp://en.wikipedia.org/wiki/Familyhttp://en.wikipedia.org/wiki/Educationhttp://en.wikipedia.org/wiki/Incomehttp://en.wikipedia.org/wiki/Employmenthttp://en.wikipedia.org/wiki/Socioeconomicshttp://en.wikipedia.org/wiki/Religionhttp://en.wikipedia.org/wiki/Nationalityhttp://en.wikipedia.org/wiki/Languagehttp://en.wikipedia.org/wiki/Languagehttp://en.wikipedia.org/wiki/Nationalityhttp://en.wikipedia.org/wiki/Religionhttp://en.wikipedia.org/wiki/Socioeconomicshttp://en.wikipedia.org/wiki/Employmenthttp://en.wikipedia.org/wiki/Incomehttp://en.wikipedia.org/wiki/Educationhttp://en.wikipedia.org/wiki/Familyhttp://en.wikipedia.org/wiki/Genderhttp://en.wikipedia.org/wiki/Ageinghttp://en.wikipedia.org/wiki/Demographics


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BEHAVIORAL SEGMENTATION

Behavioral variables benefit sought product usage rate User status brand loyalty readiness to buy stage

REQUIREMENTS OF A
http://en.wikipedia.org/wiki/Behaviorhttp://en.wikipedia.org/wiki/Behavior


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REQUIREMENTS OF ASEGMENT

D A M A SDifferentiableActionableMeasurableAccessible

Substantial


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Effective Targeting Requires

Identify and profile distinct groups of buyers who differ in their needs andpreferences.

Select one or more market segments toenter.

Establish and communicate the distinctivebenefits of the market offering.

PATTERNS OF SELECTING THE


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PATTERNS OF SELECTING THETARGET MARKET

Single-segment concentration.Selective specialization.Product specialization.Market Specialization.Full market coverage.


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DIFFERENTIATION

THE PROCESS OF ADDING A SET OFMEANINGFUL AND VALUEDDIFFERENCES TO DISTINGUISH THE

COMPANYS OFFERINGS FROMCOMPETITORS OFFERINGS


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Differentiation Strategies

Product Channel Image Price


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POSITIONING

Act of designing the companys offering andimage to occupy a distinctive place in themind of the target market


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CORPORATE STRATEGY


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CORPORATE STRATEGY

1. STABILITY -THE FIRM STRIVES TO MAINTAIN ITS STATUSQUO.

2. EXPANSION- THROUGH INTENSIFICATION,INTEGRATIONAND DIVERSIFICATION

3. DIVESTMENT - SELL OFF OR LIQUIDATE THE NON-DESIROUS BUSINESS

4. COMBINATION - TWO OR THREE STRATEGY AT A TIME


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Stability strategy

Firm stays with the same businesss,samemarket-product posture

Does not involve redefinition of the of thebusiness of the corporation

Does not warrant much of fresh investment Risk is lessConditions under which firms adopt this strategy:


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Cont

When the firm feels it enjoys a comfortableposition in its current business

When the firms growth ambitions are modest

When the industry concerned is mature and thefirm enjoys a profitable position

This is often adopt this strategy after rapidgrowth or diversifiation to consolidate itsposition.

Business that have just come through turmoil.


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Expansion strategy

Conditions under which the strategy is adopted: Corporate ambitions are high

When enormous new opportunities are coming up in theenvironment.

For fighting competition in the growing business. When the firm has strong resource base

To counter the vulnerability of a single business position or theposition on the PLC.


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Routes to expansion : Intensification

-firm tries to grow in the related areas.

best described by Ansoff product-market grid Integration

forward

backwardhorizontal


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Di


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Divestment strategy

Conditions under which the strategy is adopted: When the firm finds that some of its businesses

have become unattractive, unprofitable andunviable

Obsolesence Firms unable to compete in the competitive

market

When the business is in the decline stage of PLC.

Generic Strategies


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Generic Strategies

Differentiation

Low-costleadership

Focus


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PORTERS GENERIC STRATEGIES

1. CostLeadership

2.Differentiation

3 A. Cost Focus 3 B.Differentiation

Focus

Narro

w Target

Broad Target

DifferentiationLower Cost

CompetitiveAdvantage

Competitive Scope


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Cost leadership- achieving leadership in theindustry by providing the product at the mostreasonable cost.

Differentiation:Basis of differentiation- Product itself Delivery system Credit facilities Service factor

REQUIREMENTS FOR GENERIC COMPETITIVE


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REQUIREMENTS FOR GENERIC COMPETITIVESTRATEGIES

Generic Commodity RequiredStrategy Skills and Resources

Overall cost Sustained capital investment and access to capital

leadership

Process engineering skills

Intense supervision of labour Products designed for ease

in manufacture

Low-cost distribution system

Differentiation Strong marketing abilities

Product engineering Creative flare

REQUIREMENTS FOR GENERIC COMPETITIVE


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QSTRATEGIES

CONTD

Strong capability in basic research

Corporate reputation for quality or technologicalleadership

Strong cooperation from channelFocus Combination of the above policies directed at the

particular strategic target

Risks associated with each of the


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generic strategiesCost leadership : Competitors imitation Technological changes Threat of differentiation Inability to see changes in the market due

to over attention paid to cost inflation


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imcost lecture

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