5 Reasons Why Foxconn Wants Sharp

1] iPhones
Foxconn already assembles most of Apple Inc.’s iPhones and supplies some components such as metal casings for the devices. It’s
also seeking to supply iPhone screens, as they are the most expensive parts of the devices and provide better profit margins
than assembly work. Sharp is one of Apple’s iPhone screen suppliers.

2] Diversification
Foxconn has been seeking to diversify from contract manufacturing, a low-margin business, into high-end component production.
Sharp’s display technology can help Foxconn make inroads in screen-production and reduce its reliance on contract
manufacturing.

3] Brand
While Foxconn doesn’t make products under its own brand, it has been seeking alternative paths to boost its brand. The Sharp brand
is well-known and could be valuable if Foxconn can stem the company’s losses.

4] Compete with Samsung

Foxconn wants in on next-generation displays which Apple is expected to begin using in future iPhones. Samsung is a primary
supplier of organic light emitting diode screens, which are thinner and brighter. With a Sharp purchase, Foxconn could invest in
next-generation technology and become a key supplier.

5] History
In 2012, Foxconn Chairman Terry Gou personally invested in one of Sharp’s production facilities in Japan. The plant has since
become profitable, and Foxconn wants closer collaboration.

7-1
 Chapter 7

Strategic
Relationships

McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
 Strategic relationships at IBM

* Collaborative projects across all major parts of

business services
* Funding universities in services science
* Partnership with Sony and Toshiba to produce new
processor
* Computer code shared with Apache open-source
web-server
* IBM programmers work on Linux projects
* Collaborating with customers and competitors to
invent new technologies
* Strategy of openess
7-3
 Goals of Strategic Relationships
•Gaining access to markets
•Enhancing value offerings
•Reducing the risk caused by rapid environmental
change
•Sharing complementary skills
•Acquiring new knowledge
•Building sustained close relationship with major
customers
•Obtaining resources beyond those available to a
single company
7-4
 Increasingly ,
Business & Marketing strategies
involve
more than
a single organization

7-5
 Strategic relationships
End-User
Customers Intermediate
Suppliers
Customers

Joint Strategic Competitors

Ventures Relationships

Strategic Internal
Alliances External Partners
Partners

7-6
 Strategic Relationships

1. The rationale for interorganizational relationships

2. Forms of organizational relationships
3. Managing interorganizational relationships
4. Global relationships among organizations

7-7
 1) The rationale for interorganizational
relationships
Classical relationship between organizations was Tactical or Transactional
Value-enhancing
opportunities

Rationale for
Skills and Environmental
Forming Strategic
resource complexity
gaps Relationships

Competitive
strategy

7-8
The rationale for interorganizational
relationships (1)
* Opportunities to enhance value
* Environmental complexity
* Competitive strategy (Hollow org.)
* Skills and resource gaps
* Technology constraints
* Financial constraints
* Market access
* Information technology

7-9
 Collaborations in open-source software

* IBM and Sun aggressive supporters of Linux open-

source software
* Technology sharing and partnerships
* Rebuilding the technology “ecosystem”
* Reducing dependence on Microsoft

7-10
 Airline Alliances

* Major global alliances

* Oneworld
* Skyteam
* Star Alliance http://www.staralliance.com/en/
* Contain 18 of the world’s largest airline
* Account for 60% of total world airline capacity
* But a history of alliance failures and desertions

7-11
The rationale for interorganizational
relationships (1)
* Evaluating the potential for
collaboration
* What is the strategy?
* The costs of collaboration
* Is relationship strategy essential?
* Are good candidates available?
* Do relationships fit our culture?
* BT and AT&T Failure

7-12
 Mapping the Path to Market
Leadership
Market-Oriented
Culture and
Process

Superior
Organizational Relationship Customer
Change Strategies Value
Proposition

Positioning
with Distinctive
Competencies

7-13
2) Forms of organizational relationships

Supplier
relationships

Internal Firm Lateral

partnerships partnerships

Customer
relationships

7-14
Illustrative interorganizational
relationships
Strategic Alliance

S\M M M
Supplier/
Manufacturer
Collaboration M JV
Joint Venture
W
Distribution
Channel
R Relationship

EU
7-15
 Supplier relationships:

1) Strategic suppliers
2) Outsourcing

7-16
7-17
7-18
Forms of organizational relationships (2)

* Intermediate customer relationships

KFC >Transcom Foods Ltd.

7-19
Forms of organizational relationships (2)
* End-user customer relationships

7-20
7-21
Forms of organizational relationships (2)

* Strategic customers
* Dominant customers
* Strategic account management (SAM)

7-22
 Forms of organizational relationships (2)

* Strategic alliances
* Alliance success
* Alliance weaknesses
* Types of alliance
* Requirements for alliance success
* Alliance vulnerabilities

7-23
Forms of organizational relationships (2)
* Joint venture

7-24
 Forms of organizational relationships (2)

* Internal partnering
* Business Units
* Functional Departments
* Individual Employees

Internal Partnership is very important for

Microsoft OS/ Microsoft Mobile Handset

7-25
 CostCo Versus Wal-Mart

* CostCo has achieved major position in U.S. warehouse club

business against strong competitors
* Success based on customer choice and constant
innovation and productivity improvement
* CostCo compensates employees more generously than
competitors - to motivate and retain good workers - they get
lower staff turnover and higher productivity

7-26
 Managing interorganizational
relationships (3)
* Objective of the relationship
* New technologies and competencies
* Developing new markets and building
market position
* Market selectivity
* Restructuring and cost reduction

7-27
 Managing interorganizational
relationships (3)
* Relationship management
* Planning
* Trust and self-interest
* Conflicts
* Reputational Risk
* Leadership structure
* Flexibility
* Cultural differences
* Technology transfer
* Learning from partner’s strengths
7-28
 Managing interorganizational
relationships (3)
* Partnering capabilities
* Control, evaluation and review
* Exiting from alliance
* Identify/agree what triggers exit
* Detail rights of each partner to
assets/products
* Design disengagement process
* Communication plan for all involved
parties
7-29
Managing Interorganizational relationships

Objective
of the
Relationship
Control and
Evaluation
Relationship
Management
Managing
Inter-Organizational Exiting from
Relationships Alliance
Partnering
Capabilities

7-30
7-31
4) Global relationships among organizations

* The Global Integrated Enterprise (Next Slide)

* Inter-nation collaborations (bd-japan)
* The strategic role of government
* Government interventions (aircraft-building
* Mitsubishi & JP Govt 1/3 cost by govt.)
* Competing with state-owned enterprises
(Teletalk)
* Collaborating with state-owned enterprises
(**Next Slide)
* Government regulation > unholy alliance 7-32
 CHAPTER 8

Innovation and New Product

Strategy
The Innovation Mandate
* Personally How Innovative I am?
* Self assessment

8-2
Original model of three phases of the process of
Technological Change

8-3
 INNOVATION AND NEW PRODUCT STRATEGY

* Innovation as a Customer Driven Process

* New Product Planning
* Idea Generation
* Screening, Evaluating, and Business Analysis
* Product and Process Development
* Marketing Strategy and Market Testing
* Commercialization
* Variation in the Generic New Product
Planning Process
8-4
8-5
8-6
 INNOVATION FEATURE
Managing Google’s Idea Factory

As director of consumer Web products Marissa Mayer is a champion of

innovation. She favors new product launches that are early and often.
She joined Google in early 1999 as a programmer when the workforce
totaled 20. By 2007 Google had 5,700 employees with expected sales of
$16 billion.
How Google Innovates
The search leader has earned a reputation as one of the most innovative
companies in the world of technology. A few of the ways Google hatches
new ideas:
▪ FREE (THINKING) TIME
Google gives all engineers one day a week to develop their own pet
projects, no matter how far from the company’s central mission. If
work gets in the way of free days for a few weeks, they accumulate.
Google News came out of this process.
8-7
 ▪ THE IDEAS LIST
Anyone at Google can post thoughts for new technologies of businesses on
an ideas mailing list, available companywide for input and vetting. But
beware: Newbies who suggest familiar or poorly thought-out ideas can face
an intellectual pummeling.
▪ OPEN OFFICE HOURS
Think back to your professors’ office hours in college. That’s pretty much
what key managers, including Mayer, do two or three times a week, to discuss
new ideas. One success born of this approach was Google’s personalized
home page.
▪ BIG BRAINSTORMS
As it has grown, Google has cut back on brainstorming sessions. Mayer still
has them eight times a year, but limits hers to 100 engineers. Six concepts
are pitched and discussed for 10 minutes each. The goal: to build on the
initial idea with at least one complementary idea per minute.
▪ ACQUIRE GOOD IDEAS
Although Google strongly prefers to develop technology in-house, it has also
been willing to snap up small companies with interesting initiatives. In 2004
it bought Keyhole, including the technology that let Google offer sophisticated
maps with satellite imagery.

Source: “Managing Google’s Idea Factory,” BusinessWeek, October 3, 2005, 88-90. 8-8
FINDING CUSTOMER VALUE OPPORTUNITIES

Customer value analysis

Objective is to identify needs for:

1. New products
2. Improvements to existing
products
3. Improvements in production
processes
4. Improvements in supporting
services
8-9
 Customer
Expectations
Customer
Satisfaction Gap
OPPORTUNITIES
Actual
(1) New Products
Product (2) Improvements
Performance (3) New and Improved
Processes

8-10
TRANSFORMATIONAL
Break-through innovation
Digital photography
NEW PRODUCT CATEGORY

Dell Printers

Nike Apparel
Golf clubs
LINE EXTENSION
New color/package/style
INCREMENTAL IMPROVEMENTS
Software updates
8-11
 The Evolution of the Creative Company

STEP 1
Technology and information become commoditized and globalized.
Suddenly, the advantage of making things “faster, cheaper, better” diminishes, and
profit margins decline.

STEP 2
With commoditization, core advantages can be shipped abroad.
Outsourcing to India, China, and Eastern Europe sends a growing share of
manufacturing and even the Knowledge Economy overseas.

STEP 3
Design Strategy begins to replace Six Sigma as a key organizing
principle. Design plays a key role in product differentiation, decision-making,
and understanding the consumer experience.

Source: Bruce Nussbaum, “How to Build Innovation Companies,” BusinessWeek, August 1, 2005, 62-63.
8-12
STEP 4
Creative innovation becomes the key driver of growth.
Companies master new design thinking and metrics and create
products that address consumers’ unmet, and often unarticulated,
desires.

STEP 5
The successful Creative Corporation emerges, with new
Innovation DNA. Winners build a fast-moving culture that
routinely beats competitors because of a high success rate for
innovation.

8-13
 Characteristics of Successful Innovators

Creating an
Innovative Culture

Leveraging STRATEGIC Selecting the

Capabilities Right
INITIATIVES Innovation
Strategy

Making Resource Developing and

Commitments Implementing Effective
New Product Processes

8-14
 Creating an Innovation Culture

❑ Innovation Workshop for top executives to

develop an innovation plan.
❑ Innovation Statement highlighting objectives
and senior management’s role and responsibilities.
❑ Training programs for employees and
managers.
❑ Communicate the priority of innovation.
❑ Speakers to expose employees to innovation
authorities.

Source: Thomas D. Kuczmarski et al., “The Breakthrough Mindset,” Marketing Management, March/April 2003, 43.

8-15
 The Innovation Strategy Spells Out Management’s Priorities for
New Product Opportunities

1. Set specific New Product Objectives.

2. Communicate the role of New Products
throughout the organization.
3. Define the areas of strategic focus:
Product Scope
Markets
Technologies
4. Include longer term discontinuous projects
in the portfolio along with incremental
projects.

Source: Robert Cooper, “Benchmarking New Product Performance,” European Management Journal, Feb. 1998, 1-7.
8-16
NEW PRODUCT PLANNING PROCESS

Customer
Needs
Analysis
Screening
Business
Idea and
Analysis
Generation Evaluation

Marketing Product
Strategy Development
Development

Testing

Commercialization
8-17
 Achieving Cross-Functional
Interaction and Coordination

R&D

Operations Marketing

Finance

8-18
 Responsibility for New Product
Planning

* Coordination of new product activities by a high-level

general manager
* Inter-functional coordination by a team of new
product planning representatives
* Creation of a project task force responsible for new
product planning
* Designation of a new products manager to
coordinate planning between departments
* Formation of matrix structure for integration new
product planning with business functions
* Creation of a permanent design center

8-19
 IDEA GENERATION

* Idea search: targeted or open-ended?

* How extensive and aggressive?
* What specific sources are best for generating a
regular flow of new product ideas?
* How can new ideas be obtained from
customers?
* Where will responsibility for the new product
ideas search be placed?
* What are potential threats from alternative (or
disruptive) technologies?
8-20
 Direct
Alliances/ Search
Technological
Acquisition/
Innovation
Licensing
METHODS
National OF Exploratory
Policy GENERATING Customer
IDEAS Studies

Creative Facilitating
Methods Lead User
Linking
Analysis
Marketing
and Technology

8-21
 An Innovation Champion
in Action at GE
Beth Comstock calls herself “a little bit of the crazy, wacky one” at corporate
headquarters. And it’s an apt description when you realize she works at General Electric
Co. Comstock, 44, is charged with transforming GE’s culture, famously devoted to
process, engineering, and financial controls, to one that’s more agile and creative.
Chairman and CEO Jeffrey R. Immelt tapped the former communications chief to become
GE’s first-ever chief marketing officer almost three years ago. The job came with a
critical twist: the goal of driving innovation through the company’s 300,000 plus ranks.

“Creativity is still a word we’re wrestling with,” Comstock concedes. “It seems a bit
undisciplined, a bit chaotic for a place like GE.” More comfortable territory is the term
“imaginative problem-solving” – encouraging people to think “what if” – yet always with
the aim of driving growth. One of Comstock’s first moves was to bring in anthropologists
to audit GE’s culture. They came back with praise for GE’s famous work ethic but noted
that employees wanted more “wow” – more discoveries from the company founded by
Thomas Edison.

8-22
Comstock has a role whose importance is spreading throughout Big Business – that of
innovation champion. She began by studying the best practices at companies such as
Procter & Gamble, FedEx, and 3M. She brought in a raft of creativity consultants,
futurists, and design gurus to lead sessions with different operations. Their names were
jolting for GE types: Play, a Richmond (VA.) group that helps execs think differently, and
Jump, based in San Mateo, CA., which researches how people use things. GE is
expanding its army of designers to bring businesses closer to customers. And Comstock
is staging “dreaming sessions” where Immelt, senior execs, and customers debate future
market trends. Comstock concedes some managers view the workshops as a waste of
time. “We have a long way to go,” she says. But for GE, there’s no turning back.

Source: Bruce Hussbaum, “How to Build Creative Companies,” BusinessWeek, August, 2005, 77.

8-23
SCREENING, EVALUATING, AND
BUSINESS ANALYSIS

IDEA GENERATION

SCREENING
(fit/feasibility)

CONCEPT EVALUATION

BUSINESS ANALYSIS
8-24
 Business Analysis

* Revenue Forecasts

* Preliminary Marketing Plan

* Cost Estimation

* Profit Projections

* Other Considerations
8-25
 PRODUCT AND PROCESS
DEVELOPMENT

NEW
PRODUCT
CONCEPT

PRODUCT MARKETING
DEVELOPMENT STRATEGY
AND USE DEVELOPMENT
TESTING
MARKET
TESTING

LAUNCH
8-26
 Product and Process Development

* Development of the new product includes:

* Product design
* Packaging design
* Decisions to make or purchase product components
* Product Development Process:
* Product Specifications
* Industrial Design
* Prototype
* Use Tests
* Process Development
* Collaborative Development

8-27
 Does it have the
required attributes?

Verify PURPOSE OF Ideas for

claims USE TESTS improvements

Identify use
situations

8-28
 MARKETING STRATEGY AND MARKET TESTING

▪ Marketing Strategy Decisions

* Market Targeting
* Positioning Strategy
▪ Market Testing Options
* Simulated Test Marketing
* Scanner – Based Test Marketing
* Conventional Test Marketing
* Testing Industrial Products
* Selecting Test Sites
* Length of the Test
* External Influences
8-29
 COMMERCIALIZATION

The Marketing Plan

* Complete marketing strategy
* Responsibilities for execution
* Cross – functional approach
Monitoring and Control
* Real – time tracking
* Role of the Internet
* Include product performance metrics with performance
targets
8-30
 Marketing Strategy

Market Target(s)

Marketing
Objectives
Program(s)

8-31
 Chapter 9

Strategic Brand
Management
 STRATEGIC BRAND MANAGEMENT

 Strategic Brand Management

 Strategic Brand Analysis

 Brand Equity Measurement & Management

 Brand Identity Strategy

 Managing Brand Strategy

 Managing the Brand Portfolio

 Brand Leveraging Strategy

9-2
 1) STRATEGIC BRAND MANAGEMENT

A product is anything that is potentially

valued by a target market for the benefits
or satisfaction it provides, including
objects, services, organizations, places,
people, and ideas

1) 9-3
 A brand is a name, term, design, symbol, or any
other feature that identifies one seller’s good or
service as distinct from those of other sellers.
American Marketing Association

A compelling logic has been proposed that the

distinction between goods and services should be
replaced by a view that services are the dominant
perspective in the 21st century, consisting of both
tangible and intangible components.*

1) *Stephen LVargo and Robert F. Lusch, “Evolving to a New Dominant Logic for Marketing,” Journal of Marketing, January 2004, 1-17. 9-4
 Strategic Role of Brands

A strategic brand perspective requires managers to be clear about what role

brands play for the company in creating customer value and share-
holder value.
FOR BUYERS, BRANDS CAN:

• reduce customer search costs by identifying products quickly & accurately,

• reduce the buyer’s perceived risk by providing an assurance of quality and

consistency (which may then be transferred to new products),
AVATAR>> incarnation (ex: Gandhi Family)

• reduce the social and psychological risks associated with owning and using
the “wrong” product by providing psychological rewards for purchasing
brands that symbolize status and prestige.

1) 9-5
 FOR SELLERS, BRANDS CAN FACILITATE:

• repeat purchases that enhance the company’s financial performance

because the brand enables the customer to identify and re-identify the
product compared to alternatives,
• the introduction of new products, because the customer is familiar with the
brand from previous buying experience,
• promotional effectiveness by providing a point of focus,
• premium pricing by creating a basic level of differentiation compared to
competitors,
• market segmentation by communicating a coherent message to the target
audience, telling them for whom the brand is intended and for whom it is
not,
• brand loyalty, of particular importance in product categories where loyal
buying is an important feature of buying behavior.

1) Source: Marketing Science Institute Report No. 97-422, 1997

9-6
 Brand Management Challenges*

Internal and external forces create hurdles for product

brand managers in their brand building initiatives:
Intense Price and Other Competitive Pressures

Fragmentation of Markets and Media

Complex Brand Strategies and Relationships (Next Slide)

Bias Against Innovation (Innovative Pdt may cannibalize the existing

pdt.)

Pressure to Invest Elsewhere

Short-Term Pressures
1) *David A. Aaker, Building Strong Brands, 1996, 26-35. 9-7
 Brand Management Responsibility

Product/Brand Management
▪ Planning, managing, and coordinating the
strategy for a specific product or brand
Product Group/Marketing Management
▪ Product director, group manager, or
marketing manager
Product Portfolio Management
▪ Chief executive at SBU
▪ Team of top executives
1) 9-8
 Strategic Brand Management

Brand Identity Strategy

BRAND
EQUITY
Identity Implementation
MANAGEMENT

Brand Strategy Over

Time
STRATEGIC
BRAND
ANALYSIS Managing the Brand
Portfolio

Leveraging the Brand

1) 9-9
 A) STRATEGIC BRAND ANALYSIS

Analyses Product Product Line Portfolio of

Product Lines

□ Market and
Customer

□ Competition

□ Brand(s)

9-10
 Tracking Brand Performance

Performance
Objectives

Select Method(s) for

Evaluation

Identify Problem
Products

Decide How to
Resolve the
Problem
9-11
 Product life cycle
analysis
Financial Product
analysis performance
analysis
Analyzing Brand
Performance

Brand
Research positioning
studies Standardized analysis
information
services
9-12
 Product Life Cycle Analysis

Relevant issues in PLC analysis include:

* Determining the length and rate of change of the PLC

* Identifying the current PLC stage and selecting the

product strategy that corresponds to that stage

* Anticipating threats and finding opportunities for altering

and extending the PLC

9-13
* Product Performance Analysis
▪ Management’s performance criteria
▪ Strengths and weaknesses relative to portfolio

* Brand Positioning Analysis

▪ Perceptual maps for brand comparison
▪ Buyer preferences

* Other Product Analysis Methods

▪ Information Services
▪ Research studies
▪ Financial analysis

9-14
B) Brand Equity Measurement &
Management

9-15
 BRAND EQUITY

Company/Customer Value
of Brand Name and
Symbol of
a Product

Determined by the
brand’s set of
assets (and liabilities)

9-16
 Brand Equity

Effective strategic brand management requires that we

understand brand equity and evaluate its impact when
making brand management decisions:
“Brand equity is a set of brand assets
and liability linked to a brand, its name,
and symbol, that add to or subtract
from the value provided by a product or
service to a firm and/or to that firm’s
customers.*

* David A. Aaker, Managing Brand Equity, The Free Press, 1991, 15.
**Ibid, 102-120.

9-17
Measuring Brand Equity. Several measures are needed
to capture all relevant aspects of brand equity.**
* loyalty (price premium, satisfaction/loyalty),
* perceived quality/leadership measures (perceived
quality, leadership/popularity),
* associations/differentiation (perceived value, brand
personality, organizational associations),
* awareness (brand awareness), and
* market behavior (market share, price and
distribution indices).
These components provide the basis for developing
operational measures of brand equity.

9-18
 C )BRAND IDENTITY STRATEGY

Brand identity is a unique set of brand associations

that the brand strategist aspires to create or
maintain. These associations represent what the
brand stands for and imply a promise to customers
from the organization members.*

Four Brand Identity Perspectives

Product
Organization
Person
Symbol
* David A. Aaker, Building Strong Brands, 1996, 68. 9-19
 Specific
Product
Private Line
Branding of
Products
BRAND FOCUS

Combination Corporate
Branding Branding
9-20
D) MANAGING BRAND STRATEGY

Proactive efforts
should be devoted to
managing each brand
over time.

9-21
Strategies for Improving Product Performance

Product
Cost improvement Alter
reduction marketing
strategy
Add Product line Eliminate
new Strategy specific
product(s) product(s)

9-22
E) MANAGING THE BRAND PORTFOLIO

Leverage
Commonalities to
Generate Synergy

Allocate Reduce
Resources Brand
BRAND PORTFOLIO Identity
OBJECTIVES Damage

Facilitate Change Achieve Clarity

and Adaptation of Product
Offerings

Source: David A. Aaker, Building Strong Brands, New York: The Free Press, 1996, 241-242.

9-23
 Strategies for Brand Strength

▪ Brand-Building Strategies
* Developing the brand identification strategy
* Coordinate identity across the organization
▪ Brand Revitalization
* Find new uses for mature brands
* Add products related to heritage
▪ Strategic Brand Vulnerabilities
* Brand equity can be negative
* Retailer private brands compete with manufacturer brands
* Major shifts in consumer tastes
* Competitive actions
* Unexpected events

9-24
 Product Mix Modifications

Motivation for changing the product mix:

* Increase the growth rate of the business
* Offer a more complete range of products
to wholesalers and retailers
* Gain marketing strength and economies
in distribution, advertising, and personal
selling
* Leverage an existing brand position
* Avoid dependence on one product line or
category
9-25
F) Brand Leveraging Strategy

9-26
27
9-27
 LEVERAGING ALTERNATIVES

LINE EXTENSIONS BRAND/Category

EXTENSIONS

Horizontal Vertical Another Range Co-

Extension Extension Product Brand Branding
Class
* A brand
Up from Down from which
Core Core extends
Brand Brand across
several
categories,
usually
related
Ex: Oral-
B 9-28
BRAND LEVERAGING IN UPSCALE AND VALUE
MARKETS

Vertical Brand Extensions*

New
Core Up-Market
Brand Brand

New Core
Down-Market Brand
Brand
Ex: Pepsodent Powder
* ONE OF THE MOST DIFFICULT
BRAND PORTFOLIO CHALLENGES
9-29
 MOVING DOWN IS EASY BUT RISKY

❑ Affects perceptions of the brand –perhaps even more

significantly than other brand management options.
We are influenced more by
unfavorable information than by favorable
information.
❑ The brand’s ability to deliver self-expressive benefits
may be reduced.
❑ Potential cannibalization problem.
❑ Potential failure risk.
❑ Problem when the value entry is perceived to be
inconsistent with the quality expected from the
brand.
9-30
 MOVING A BRAND UP

THE DRIVERS
•Enhanced Margins at the High End
•Energy & Vitality
•Enhance Credibility and Prestige of the Brand

THE RISKS OF DAMAGING THE CORE

BRAND
•Lacks Credibility
•Lacks Self-Expressive Benefits
•Falls Short of Expectations
9-31
 BRAND EXTENSION DECISIONS

Extending into Different Product Classes

THE PROCESS
◊Identify product categories for which the product fits and
adds value.
Determine existing brand associations and the
brand identity.
◊Identify related product category opportunities
Screening should be limited
◊Evaluate each category
Attractive
Growing
Good margins
Competition
Assets/Capabilities
◊Select the most promising extension concept
◊Develop a viable Brand Strategy
9-32
 CO-BRANDING

Co-branding (dual branding) involves two or more established

brands making a joint offer of their product brands —

The participant’s brand names

are identified on the good or
service.

Several different forms –

Component co-branding
(Volvo and Michelin)
Same company co-branding
Alliance co-branding
(Delta and American Express)
Ingredient co-branding
9-33
 BRAND LEVERAGING EVALUATION
CRITERIA
▪Brand Relevance/Differentiation
▪Capabilities/Perceived Value Match
▪Market/Segment Opportunity
▪Cannibalization Risks
▪Potential for Core Brand Damage
▪Clarity of Product Offerings
▪Estimated Financial Performance
▪Brand Equity Impact
9-34
 SEVEN DEADLY SINS OF BRAND
MANAGEMENT*

▪Failure to fully understand the meaning of the

brand.
▪Failure to live up to the brand promise.
▪Failure to adequately support the brand.
▪Failure to be patient with the brand.
▪Failure to adequately control the brand.
▪Failure to properly balance consistency and
change with the brand.
▪Failure to understand the complexity of brand
equity measurement and management.
*Kevin Lane Keller, Strategic Brand Management, Prentice Hall, 2003, 736. 9-35
Chapter 10

Value
Chain
Strategy
 Value Chain Strategy

* Strategic role of value chain

* Channel strategy
* Managing the channel
* International channels

10-2
 Dell’s dilemma

* Business built around powerful direct business model

* Direct model poor fit with customer preferences in new
target markets and weak on service
* Dell is braodening business model
* Targeting computer re-sellers
* Global retail strategy (including Wal-Mart, Dell-branded stores,
kiosks in malls)
* Redesigning value chain is critical strategic move

10-3
 Strategic role of value chain (A)

Distribution functions
* Buying and selling
* Assembly
* Transportation
* Financing
* Processing and storage
* Advertising and sales promotion
* Pricing
* Reduction of risk
* Personal selling
* Communications
* Servicing and repairs
10-4
Value chain structures - consumer products
Consumer Products

Producers

Supply Chains

Sales
Agents

Direct Wholesalers Wholesalers

Channel

Retailers Retailers Retailers

Consumers

10-5
Value chain structures - organizational
products
Organizational Products

Producers

Supply Chains

Sales Sales
Agents Agents

Direct Distributors Distributors Distributors

Channel

Re-sellers

Organizational Customers

10-6
 Strategic role of value chain (2)

* Channels for services

* Direct distribution by manufacturers
* Buyer considerations
* Competitive considerations
* Product characteristics
* Financial and control considerations

10-7
Factors Favoring Distribution by Manufacturer

Profit margins Opportunity for

adequate to support competitive
Rapidly changing
distribution advantage
market environment
organization
Complete line Early stages of
of products Distribution product life cycle
by the
manufacturer
Purchases are Complex product
large and application
infrequent
Extensive
Small number of
purchasing
geographically Supporting
process
concentrated services are
buyers required
10-8
 Branded manufacturers enter retail

* Nespresso (Nestle) “coffee boutiques” to establish lifestyle

brand
* Heineken branded beer bars in airports and retail
* Strategic logic is to avoid control of third-party retailers
over brand
* Move from selling “A product in a box” to offering a
superior service experience for the brand

10-9
 Agent Banking Alternative Channel
Brac Bank has decided to go big with agent banking in a bid to get business by providing financial services to the unbanked.

“Time will come when there will be no villages in the country out of the range of agent banking,” Sir Fazle Hasan Abed, chairman of the bank, said at the launch of its agent banking
services at the lender's head office in Dhaka yesterday.

As part of the move, the SME-focused bank plans to recruit 5,000 agents in the next five years.

Abed, also founder and chairperson of microfinance institution Brac, inaugurated the new banking window simultaneously at all eight divisions through a video conference. The bank has
initially started the service recruiting 10 agents and will increase the number to 50 within the next three months, he said. Abed said Latin American countries introduced the model 20-25
years ago but the Bangladesh Bank commenced the service just five to six years earlier.

The MFI had placed a proposal at the central bank to allow it to run agent banking through its branches just three months after the service was introduced in the country. But the offer
was rejected, he said.

The BB had feared that Brac will sprint ahead leaving others behind if it managed to get the permission to operate the service, he said. Under the existing agent banking services, both
banks and agents are not gaining the desirable profit. But the model of Brac Bank will offer good profits for agents by sharing its income, he said. The customers living in remote areas
will be able to access many services at the agent banking outlets of the bank.

They will be able to open accounts, deposit and withdraw cash, avail deposit premium scheme and fixed deposit receipt, transfer funds, receive foreign
remittance, pay utility bills and insurance premiums and get disbursed loans . Selim RF Hussain, managing director of Brac Bank, said the bank's new window, which
includes biometric verification and digital capabilities, would bring convenience to people, providing them round-the-clock banking services.

The bank will leverage its expertise in SME banking to make agent banking a widely expansive distribution channel, he said. The agent banking service will create new jobs and
contribute significantly to uplift the rural economy, Hussain said.

10-10
 Channel strategy (B)

* Types of channel
* Conventional channel
* Vertical marketing systems
* Ownership VMS
* Contractual VMS
* Administered VMS
* Relationship VMS
* Horizontal marketing systems
* Digital channels
* Product digitization
* Channel digitization
10-11
 Channel strategy selection

1. Type of distribution channel

Conventional Vertical marketing system Horizontal

marketing system
Administered/
Ownership Contractual Relationship

2. Intensity of distribution

Intensive Selective Exclusive

3. Channel configuration

10-12
 Channel strategy (2)

* Distribution intensity
* Intensive
* Exclusive
* Selective
* Channel configuration
* End-user considerations
* Product characteristics
* Manufacturer's capabilities and resources
* Required functions
* Availability and skills of intermediaries

10-13
 Channel strategy (3)

* Channel maps
* Selecting the channel strategy
* Market access
* Value-added competencies
* Financial considerations
* Flexibility and control considerations
* Channel strategy evaluation

10-14
 Illustrative channel map for heating units

Production = Consumption =
100,000 units Direct sales = 10,000 units
100,000 units
Commercial
Construction Construction
84,000 units Independent 42,000 units 75,000 units Companies
Distributors Sub-
Contractors (85,000 units)
42,000 units 7,000
Production Small 40,000 units
Of Central Hardware units
Heating Retailers 2,000
Boilers units
Large
5,000 units 5,000 units
Hardware Domestic
Retailers Customers
Direct sales = 1,000 units (15,000 units)

10-15
 Channel strategy (4)

* Changing channel strategy

* Channel strategy modification
* Channel migration
* Channel audit

10-16
 Illustrative Channel Strategy Evaluation

Evaluation Manufacturer’s Company

Criteria Representatives (agents) Salesforce

Market access Rapid 1 to 3 year

development

Value-added competencies Medium High

Sales forecast (2 years) $20 million $30 million

Forecast accuracy High Medium to low

Estimated costs $2 million* $3.6 million**

Selling Expense (cost/sales) 10% 12%

Flexibility Good Limited

Control Limited Good

* Includes 8% commission plus management time for recruiting and training

representatives.

** Includes $150,000 for 10 salespeople, plus management time.

10-17
 Managing the Channel (C)

* Channel leadership
* Management structure and systems
* Physical distribution management
* Supply chain strategy
* The impact of supply chain management on marketing
* E-procurement

10-18
 Efficient Consumer Response

 Traditional channel problems

* Forward buying and diverting
* Excessive inventories
* Damages and unsaleable goods
* Complex deals and deductions
* Too many promotions and coupons
* Too many new products
 Efficient Consumer Response
* Category management
* “Value” pricing replaces promotions
* Continuous replenishment and cross-docking
* Electronic data interchange
* New performance measures
* New organizational processes and structures
* Internet-based network for supplier-buyer trading
10-19
Lean Supply Chain Elements

1. Definition of Value

2. Identification of Value Streams and

Removal of Muda (Waste)

3. Organizing Around Flow, Instead

of “Batch and Queue”

4. Responding to Pull Through

the Supply Chain

5. The Pursuit of Perfection

10-20
 Marketing/supply chain relationship

* Focus on real drivers of customer value not just

technical
* Do not create inflexibility and inability to respond to
change
* Protect brands and competitive strength over short-
term cost savings
* Do not confuse supply chain strategy with
competitive advantage

10-21
 Managing the channel (C)

* Channel relationships
* Degree of collaboration
* Commitment and trust among channel members
* Power and dependence
* Channel globalization
* Multichanneling
* Conflict resolution
* Channel performance
* Legal and ethical considerations

10-22
 Channel metrics

Performance Possible Measures Applicable Product and

Objective Channel Level

PRODUCT AVAILABILITY

Coverage of relevant Percent of effective Consumer products at

retailers distribution retail level

In-store positioning Percent of shelf Consumer products at

facings or display retail level
space gained
by product,
weighted by store
importance

Coverage of Frequency of sales Industrial products;

geographic markets calls by customer consumer goods at
type; average wholesale level
delivery time

10-23
 Channel metrics

Performance Possible Measures Applicable Product and

Objective Channel Level

PROMOTIONAL EFFORT

Effective point-of- Percent of stores Consumer products

purchase (POP) using special at retail level
promotion displays and POP
materials, weighted
by importance of store

Effective personal Percent of Industrial products;

selling support salespeople’s time consumer durables at all
devoted to product; channel levels; consumer
number of salespeople convenience goods at
receiving training on wholesale level
product’s characteristics
and applications

10-24
 Channel metrics

Performance Possible Measures Applicable Product and

Objective Channel Level

CUSTOMER SERVICE

Installation, Number of service Industrial products,

training and technicians receiving particularly those involving
repair technical training; high technology; consumer
monitoring of durables at retail level
customer complaints

MARKET INFORM,ATION

Monitoring sales Quality and All levels of

trends, inventory timeliness of distribution
levels, competitors’ information
actions obtained

COST-EFFECTIVENESS

Cost of channel Middleman margins All levels of

Functions relative and marketing costs distrbution
To sales volume as percent of sales
10-25
 Value chain ethics

* Retailers’ Global Social Compliance Program

* Growing “green consumer” pressure
* B2B suppliers increasingly mandated to meet
customer’s values in employment practices,
environmental standards, ethical behavior

10-26
 International channels (D)

* Examining international distribution patterns

* Factors affecting global channel selection
* Global issues regarding multichannel strategies

10-27
 International Channel of
Distribution Alternatives

Home country Foreign country

The foreign marketer or
producer sells to or through

Domestic Open Exporter Importer Foreign Foreign Foreign

producer or distribution agent or retailer consumer
marketer sells via domestic merchant
to or through wholesale wholesalers
middlemen

Export management company

or company
sales force

Source: Philip R. Cateora, International Marketing, 7th ed., Homewood, Ill.: Richard D. Irwin, Inc., 1990, 572. 10-28