STRATEGIC BUSINESS ANALYSIS

TOPIC 2- STRATEGIC MARKETING ANALYSIS AND BUDGETING

Marketing Management: the Terminology and an Overview

Production Sales Era

 Production Oriented Industry
 Sources and Supply of goods were limited
 The customer demands were relatively unsophisticated
 Limited competition meant that goods were generally bought and not sold.
 People dealing in such products were termed to have a “Sales Orientation”
Theodore Levitt- Marketing Myopia
He coined the word Globalization

The Marketing Concept

Marketing Oriented Industry
 Competition intensified.
 More attention paid to needs of customers
o Start with customer
o Work towards product
Steps in the Marketing Concept
1. Define the customer “needs” (marketing research needed)
-How are products bought?
-Who is doing the buying?
-Why do people buy?
2. Define “Target Segments”
- Broad market (size, growth rate vs. company capability)
- Market Segment (similarity of needs)
-Economy – Income Function - Use
- Quality – Taste Use- Image
- The above is known as psychographic segmentation
3. Create a Differential Advantage (Competitive Advantage)
Advantage - Customers – by market segmentation thru demographic,
geographic and psychographic
Differentiation – Competitors – 4Ps- Price, Product, Promotion and
Place
 The Company must have an advantage (look at the Consumers)
 The Company must be able to create a Differential (look at the
Competition)
Creating a Differential Advantage in the Target Segments of the Mobile Phone Market
Target Market Differential Advantage Advertising Mix Distribution Method
General Adult Price (Credit Discounts) TV; Newspapers Chain Stores
Public
Teenagers Product –(Functions; Internet Exhibitions
Programmability)
 Offices and Product- (Reliability; Direct Mail; Journals Distributors; Agents
Business Service

4. Formulate Company’s Competitive Positioning Strategy

- Look at all possible “differential advantages”
- Make a choice of exactly where it hopes to specialize in
- This will depends on the company’s product market combination

Product Life Cycle (PLC)

Growth Period- Use CVP Analysis – good for short term decisions tool
Concept evolved due to the changes that take place in the product market combination of
a firm.

Strategic Focus of the Product-Market Mission

The Main Decision:
o Whether to aim for:
-Increased Productivity, or
- Increased Volume
o Each has a very clear cut Financial Implications
Increasing Productivity
o This decision is usually required for existing products
o Productivity increases may be obtained by:
- Increasing Prices
- Improving Sales Mix
- Reducing Costs
Increasing Volume
o This decision could pertain to both existing and new products.
o The main volume-growth alternatives for achieving long term profitability are
given in the following model.
 The Model
New Market Market Development Diversification
Present Markets Market Penetration Product Development
Present Products New Products

A Detailed look at the Strategic Focus of Present Products.

The strategic focus shifts along with the Product life cycle.
o As the focus shifts- the various combinations of marketing mix must also change.
o (usually the focus shifts from LEFT to RIGHT as one moves from one stage of
the life cycle to the next)

Illustrates the hierarchy of Objectives and Strategy

The Financial Dimensions of Marketing Planning
The factors that affect Profitability in a Business
o Extending the Learning Curve phenomenon
 If costs decline predicably with units produced, the competitor who has
produced the most units will probably have the lowest costs.
  Thus, since products of all competitors in a certain segment have about the
same market price – the competitor with most “unit experience” should
enjoy the greatest profit.(thus, highest ROI)
This can lead to the hypothesis that there is a close relationship between market share and
profitability.
The larger market share the higher ROI
The Maximize-Market Share Goal
 For the Controller, the implication of PIMS (Profit Impact of Market Strategy)
study seem to be – Forget all controls initially and allow the new product manager
to go for market share at all costs.
The Profit Impact of Market Strategies (PIMS) is a comprehensive, long-term
study of the performance of strategic business units (SBUs) in 3,000 companies in
all major industries.

The PIMS database is "a collection of statistically documented experiences

drawn from thousands of businesses, designed to help understand what kinds of
strategies (e.g., quality, pricing, vertical integration, innovation, advertising)
work best in what kinds of business environments. The data constitute a key
resource for such critical management tasks as evaluating business performance,
analyzing new business opportunities, evaluating and reality testing new
strategies, and screening business portfolios."

The main function of PIMS is to highlight the relationship between a business's

key strategic decisions and its results. Analyzed correctly, the data can help
managers gain a better understanding of their business environment, identify
critical factors in improving the position of their companies, and develop
strategies that will enable them to create a sustainable advantage.

 Reasons why this would be a “recipe for disaster”:

o Investment in Market Share generally requires large resources.
 Such cash is usually internally generated
 Therefore, must have a balanced product portfolio
 i.e have cash generating products that are able to finance new
products that are usually cash absorbers.
 The nature of the Competition and the Structure of the Market must be considered.
o It is easier to obtain leadership in a growth market than take it away from
someone who owns it in a non-growth market.
o E.g. if a company maintains volume when the market is growing, it will be
losing market share.
o Therefore, before segment managers go about blindly seeking Maximum
Market Share – the Controller must make them aware of the relationship
among: Market Share, Market Growth and Cash Flow.
o This relationship is very clearly displayed in chart that is known—Product
Portfolio Matrix
Problem Child Star (Cash
High (Cash Absorber) absorber or Cash
 Market Generator
Growth Rate Dog (Modest Cash Cow
Low Cash Generator (Large Cash
or Absorber Generator)
Low High
Market Share Relative to Largest
Competitor

High market share-high market growth – Star – still keeps spending

cash to maintain market share
 Potential market must be grown into
 Must at least hold market share in a growing market
High market share- Low Market Growth – Cash Cow- maintained
market share but the problem is that it is in the end of product life cycle
and the rest are declining with high cash flow
 Position of some strength
 Large generation of cash
 Must maintain market share
Problem Child- spending money to grab market share but you don’t
spend money on a product that has no differential advantage.
 Need investment to keep a foothold in a market dominated by
others
 Expand a few (having differential advantage?)
Dog- the business will not get market share nor market growth
 Product very little cash, if any
 Expansion possible only by improving efficiency and cutting
prices
 Put on milking status if they don’t use valuable resources
 If they do- slaughter