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Corporate Strategy Decisions and Corporate Strategy Decisions and Their Marketing ImplicationTheir Marketing Implication

Chapter 2Chapter 2

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Ryanair : Low Prices, High Profits

Competitive Strategy1.The firm owns rather than leases its airplanes2.Concentrates its flight to and from regional airports

The expenses of customer comfort and convenience1.Customer have to find their way to and from small airport far from the big cities.2.They have to carry their own bags3.No meals, drinks and other services4.Not much room to strecth out and relax

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Ryanair : Low Prices, High Profits

The firm’s growth objectives was to double in size to over 84 million passengers by 2012.

Some expert doubt that the segment of travelers willing to sacrifice comfort and convenience for low fares is sufficiently large

Some customer may see those low fares as a low value.

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Corporate Strategy Components

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Corporate Scope – Defining The Firm’s Mission

A clearly stated mission can help instill a shared sense of direction, relevance and achievement among employees, as well as a positive image of the firm among customers, investors, and other stakeholders.

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Corporate Scope – Defining The Firm’s Mission

To provide a useful sense of direction, a corporate mission statement should clearly define the organization’s strategic scope :

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PepsiCo Mission

Old mission : Focus on Marketing superior quality food and beverage product for households and consumers dining out.

New mission : Focus on response to a changing global competitive environment, PepsiCo narrowed its scope to focus primarily on package foods and beverages distributed through supermarket and convenience store channels.

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PepsiCo Mission

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Market Influences on the Corporate Missionorganization mission should :

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Criteria for Defining the Corporate Missionex : Penn Central Misssion

Broad Specific

FunctionalBased on customer needs

PhysicalBased on existing product or technology

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Social Values and Ethical Principles

Sustainibility : meeting humanity’s needs without harming future generations. CEO Patrick Cescau : “You can’t ignore the impact your company has on the community and the environment.” In the future, it will be the only way to do business”

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Social Values and Ethical Principles

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Social Values and Ethical Principles

Thus, crafting mission statements that specify explicit social values, goals and programs is becoming a more important part of corporate strategic planning.

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Social Values and Ethical Principles

Ethics is concerned with the development of moral standards by which actions and situations can be judged.

Our product is far superior to Brand X

(white lies)

Actions that may result potential harm of some kind to an individual, group and organization.Ethical standards attempt to anticipate and avoid social problems

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Why Are Ethics Important?The Marketing Implications of Ethical Standards

Unethical practises can damage the trust between a firm and its suppliers or customers, disrupting the development of long-term exchange relationships and resulting in the likely loss of sales and profits over time.

• A survey of 59 top marketing and sales executive attempts to influence a potential customer by giving gifts of kickbacks.

• 2/3 of the executives considered bribes and unethical• 88% felt that by giving gift or kickback might put their firms at a competitive

adavantage

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Corporate Objectives

“For one who has no objective, nothing is relevant” ~ Confucius

Corporate objectives must be spesific and measurable :1. A performance dimension or attribute sought2. A measure or index for evaluating progress3. A target level to be achieved4. A time frame within which the target is to be

accomplished

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Common Performance Criteria and Measures That Specify Corporate, Business-Unit, and Marketing Objectives

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Common Performance Criteria and Measures That Specify Corporate, Business-Unit, and Marketing Objectives

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Enhancing Shareholder Value : The Ultimate Objective

Organization’s ultimate objective should be to increase its shareholders’ economic returns. Management must balance the interest of various corporate constitucies.

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Enhancing Shareholder Value : The Ultimate Objective

People willingly invest in a firm only when they expect a better return on their funds.

Management’s primary objective should be to pursue capital investments, acquisitions, and business strategies that will produce sufficient future cash flow to return positive value to shareholders.

Economic value added or market value added (MVA)Combining its debt and the market value of its stock, then substracting the capital that has been invested in the

company. Show how much wealth the company has created.

Economic value added or market value added (MVA)Combining its debt and the market value of its stock, then substracting the capital that has been invested in the

company. Show how much wealth the company has created.

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The Marketing Implications of Corporate Objectives

Most organizations pursue multiple objectives. Study of the stated objectives of 82 large corporations.• 89% had explicit profitability objectives :

• 82% reported growth objective• 66% had specific market-share goals• 60% mentioned social responsibility, employee walfare and customer

service objectives• 54% of the companies had R&D / new product development goals

Break them down into subobjectives, reconcile conflicting goals by prioritizing them.

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The Marketing Implications of Corporate Objectives

Two marketing managers responsible for different products may face very different goals and expectations even though they work for the same organizations

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The Marketing Implications of Corporate Objectives

Customer-focused-objectivesSuch as satisfaction, retention, and loyalty are being given greater importance

Customer-focused-objectivesSuch as satisfaction, retention, and loyalty are being given greater importance

Given the huge profit implications of a customer’s lifetime value.Given the huge profit implications of a customer’s lifetime value.

Satiesfied, loyal customer of one product can be leveraged to provide synergies for other company product or services.Satiesfied, loyal customer of one product can be leveraged to provide synergies for other company product or services.

Customer satisfaction and loyalty are influenced by factors other than the product itself or the activities of the marketing department.Customer satisfaction and loyalty are influenced by factors other than the product itself or the activities of the marketing department.

A study found : 80% customers’ satisfaction scores were accounted for by nonproduct factors, such as ordering processing, delivery, and postsale servicesA study found : 80% customers’ satisfaction scores were accounted for by nonproduct factors, such as ordering processing, delivery, and postsale services

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Gaining A Competitive AdvantageThere are many ways a company might attempt to gain a competitive advantage over

competitors within the scope that other firm do not have. But, the fact that a company possesses resources that its competitors do not have is not sufficient to guarantee superior perfromance.

The trick is to convert one or more of the company's unique resources into something of value to customers

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Corporate Growth StrategiesA firm can go in two major directions in seeking future growth: expansion of its current

businesses and activities of diversification into new businesses.

Current products New products

Current markets

New markets

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Expansion by Increasing Penetration of Current Product-Markets

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Expansion by Developing New Products for Current Customers

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Expansion by Selling Existing Products to New Segments or Countries

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Expansion by Diversifying

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Expansion by Diversifying through Organizational Relationship or Networks

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Portfolio ModelsBCG’s Market Growth Relative Share Matrix

Relative market share

Stars Question marks

Cash cows Dogs

Market growth rate (in constant dollar)

High

Low1 0,110

10%

6655

99

77

1144 22

8813131010

1211

It analyzes the impact of investing resources in different business on the corporation’s future earnings and cashflow. Circle = representing uni’s sales volume

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Cashflow across Business in the BCG Porfolio Model

Broad Specific

Relative market share

Stars Question marks

Cash cows Dogs

Cashflows

Gro

wth

ra

te (

ca

sh

us

e)

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Alternative Portfolio Models

11 22 33

22 33 33

11 11 22

High Medium Low

High

Medium

Low

Industry attractiveness

Bu

sin

ess’

s co

mp

etit

ive

po

siti

on

1. Invest/grow2. Selective investment/maintain position3. Harvest/divest

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Value-Based PlanningDiscounted Cash Flow Model (Alfred Rappaport and The Alcar Group, Inc.)

Crating shareholder

value

Crating shareholder

value

Shareholder return•Dividen•Capital gains

Shareholder return•Dividen•Capital gains

Cashflow from operations

Cashflow from operations Discount rateDiscount rate DebtDebt

Value growth duration

Value growth duration

• Sales growth• Operating

Profit margin• Income tax rate

• Sales growth• Operating

Profit margin• Income tax rate

• Working capital investment

• Fixed capital investment

• Working capital investment

• Fixed capital investment

• Cost of capital• Cost of capital

OperatingOperating InvestmentInvestment FinancingFinancing

Corporate Objective

Valuation components

Value drivers

Management decisions

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Knowledge-Based Synergies

The performance of one business can be enhanced by the transfer of competencies, knowledge, or customer-related intangibles – such as brand-name recognition and reputation – from other units within the firm.

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Corporate Identity and the Corporate Brand as a Source of Synergy

Corprate identity can help a firm stand out from its competitors and give it a sustainable advantage in the market.

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Corporate Branding StrategyWhen Does a Strong Corporate Brand Make Sense

Essentially, a firm might pursue on of three options concerning the corporate brand :

Study based on interviews with managers in 11 Fortune 500 Companies :

A firm is more likely to emphasize a strong corporate brand that might be leveraged to encourage customers to buy product from the firm.1. The corporate brand1. The corporate brand

2. A dual branding strategy2. A dual branding strategy

3. A unique brand and identity3. A unique brand and identity

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Synergy from Shared ResourcesInherent in sharing operational resources, facilities, and functions across business units.

Produce product in a common plant or use a single salesforce to contact common customers.

Frito-Lay attempted to enter the packaged cookie market with its Grandma’s line of soft cookies.

Ex : 1. An oil company acquisitions an insurance company2. An food packaging company acquisitions an fast-food company

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Thanks For ListeningThanks For Listening21 Februari21 Februari 201 20133