Marketing Strategy

Marketing Strategies

1. BCG Matrix has become integral part of business strategy for investment, Joint venture,

franchising and market entry in any part of the world.

Apply this concept in any one of the following Indian companies for making strategic decision

for survival and growth.

i) Videocon International

ii) Dabur Ltd.

iii) Tata Motors.

ANS: BCG’s Portfolio Analysis is based on the premise that majority of the companies carry out

multiple business activities in a number of different product-market segments.

Together these different businesses form the Business Portfolio, which can be characterized by two

parameters:

1) Company’s relative market share for the business, representing the firms competitive positions;

and

2) The overall growth rate of that business.

The BCG model proposes that for each business activity within the corporate portfolio, a

separate strategy must be developed depending on its location in a two-by two-portfolio matrix of

high and low segments on each of the above-mentioned axes. Relative Market Share is stressed on

the assumption that the relative competitive position of the company would determine the rate at

which the business generates cash. An organization with a higher relative share of the market

compared to its competitors will have higher profit margins and therefore higher cash flows.

Relative Market Share is defined as the market share of the relevant business divided by the

market share of its largest competitor. Thus, if Company X has 10 per cent, Company Y has 20 per

cent, and Company Z has 60 per cent share of the market, then X’s Relative Market Share is 1/6m,

Y’s Relative Market Share is 1/3, and Z’s Relative Market Share 60/20 = 3. Company Z has

Company Y as its leading competitor, whereas Companies X and Y have Company Z as their lead

competitor.

The selection of the Rate of Growth of the associated industry is based on the

Understanding that an industrial segment with high growth rate would facilitate expansion of the

operations of the participating company. It will also be relatively

Marketing Strategy

easier for the company to increase its market share, and have profitable investment opportunities.

High growth rate business provides opportunities to plough back earned cash into the business and

further enhance the return on investment. The fast growing business, however, demands more cash

to finance its growth.

If an industrial sector is not growing, it would be more difficult for the participating

Company to have profitable investments in that sector. In a slow growth business, increase in the

market share of a company would generally come from corresponding reduction in the competitors’

market share.

The BCG matrix classifies the business activities along the vertical axis according to the

‘Business Growth Rate” (meaning growth of the market for the product), and the ‘Relative Market

Share’ along the horizontal axis. The two axes are divided into Low and High sectors, so that the

BCG matrix is divided into four quadrants

Implementation and Control

Businesses falling into each of these quadrants are classified with broadly different strategic

categories, as explained below:

Cash Cows

The businesses with low growth rate and high market share are classified in this

Quadrant. High market share leads to high generation of cash and profits. The low rate of growth of

the business implies that the cash demand for the business would be low.

Thus, Cash Cows normally generate large cash surpluses. Cows can be ‘milked’ for cash to help to

provide cash required for running other diverse operations of the company. Cash Cows provide the

financial base for the company. These businesses have superior market position and invariably low

costs. But, in terms of their future potential, one must keep in mind that these are mature businesses

with low growth rate.

Dogs

If the business growth rate is low and the company’s relative market share is also low, the business

is classified as DOG. The low market share normally also means poor profits. As the growth rate is

also low, attempts to increase market share would demand prohibitive investments. Thus, the cash

required to maintain a competitive position often exceeds the cash generated, and there is a net

negative cash flow.

Marketing Strategy

Under such circumstances, the strategic solution is to either liquidate, or if possible Evaluation of

Strategy harvest or divest the DOG business.

Question Marks

Marketing Strategy

Like Dogs, Question Marks are businesses with low market share but the businesses have a

high growth rate. Because of their high growth, the cash requirement is high, but due to their low

market share, the cash generated is also low.

As the business growth rate is high, one strategic option is to invest more to gain

market share, pushing from low share to high. The Question Mark business then

moves to a STAR (discussed later) quadrant, and subsequently has the potential to become cash low,

when the business growth rate reduces to a lower level.

Another strategic option is when the company cannot improve its low competitive

position (represented by low market share). The management may then decide to divest the Question

Mark business.

These businesses are called Question Marks because they raise the question as to whether

more money should be invested in them to improve their relative market share and profitability, or

they should be divested and dropped from the portfolio.

Stars

Businesses, which have high growth rate and high market share, are called Stars. Such

businesses generate as well as use large amounts of cash. The Stars generate high profits and

represent the best investment opportunities for growth.

The best strategy regarding Stars is to make the necessary investments and consolidate the

company’s high relative competitive position.

Methodology for Building BCG Matrix

The Boston Consulting Group suggests the following step-by-step procedure to

develop the business portfolio matrix and identify the appropriate strategies for

different businesses.

- Classify various activities of the company into different business segments or Strategic

Business Units (SBUs).

- For each business segment determine the growth rate of the market. This is later plotted on a

linear scale.

- Compile the assets employed for each business segment and determine the relative size of the

business within the company.

- Estimate the relative market shares for the different business segments. This is generally

plotted on a logarithmic scale.

Marketing Strategy

- Plot the position of each business on a matrix of business growth rate and relative market

share.

Strategic Implications

Most companies will have different segments scattered across the four quadrants of BCG matrix,

corresponding to Cash Cow, Dog, Question Mark and Star businesses.

The general strategy of a company with diverse portfolio is to maintain its competitive position in

the Cash Cows, but avoid over-investing. The surplus cash generated by Cash Cows should be

invested first in Star businesses, if they are not self-sufficient, to maintain their relative competitive

position. Any surplus cash left with the company may be used for selected Question Mark businesses

to gain market share for them.

Implementation and Control

Those businesses with low market share, and which cannot adequately be funded, may be considered

for divestment. The Dogs are generally considered as the weak segments of the company with

limited or now new investments allocated to them.

The BCG Growth-share matrix links the industry growth characteristic with the

company’s competitive strength (market share), and develops a visual display of the company’s

market involvement, thereby indirectly indicating current resource

deployment. (The sales to asset ratio is generally stable over time across industries).

The underlying logic is that investment is required for growth while maintaining or

building market share. But, while doing so, a strong competitive business in an

industry with low growth rate will provide surplus cash for deployment elsewhere in the

Corporation. Thus, growth uses cash whereas market competitive strength is a potential source of

cash.

Cash Positions of Various Businesses

Type Source Use

1. COW More Less Funds available, so milk and deploy

2. STAR More More Build competitive position and grow

3. DOG Less More Divest and redeploy proceeds

4. QUESTION Less More Funds needed to invest selectively to improve competitive position

Marketing Strategy

EXAMPLE: Dabur India Ltd.

Dabur India Limited is the fourth largest FMCG Company in India with interests in Health care,

Personal care and Food products. Building on a legacy of quality and experience for over 100 years,

today Dabur has a turnover of Rs.2396 crore with powerful brands like Dabur Amla, Dabur

Chyawanprash, Vatika, Hajmola & Real.

Star:

Dabur health care range is in growth stage.

This includes Chyavanprash, Hajmola,

Bhringraj hair oil, Pudin Hara G, Active

blood purifier,etc

Question mark:

Dabur international range is in infancy

stage as their exports are still not much and

the revenue from domestic market is far

higher than international

Cash cows:

Dabur home care product range is in

maturity stage which includes

odomos,sanifresh,odonil, odopic,etc

Dog:

Dabur food portfolio consists of packaged

fruit juices, cooking pastes, sausages that is

not doing well.

Business growth rate

Relative market share

Marketing Strategy

Limitations of BCG Matrix

The Growth-share BCG Matrix has certain limitations and weak points which must be kept in

mind while using portfolio analysis for developing strategic alternatives. These are now briefly

discussed.

- Predicting Profitability from Growth and Market Share

BCG analysis assumes that profits depend on growth and market share. The attractiveness of an

industry may be different from its simple growth rate, and the firm’s competitive position may not

be reflected in its market share. Some other sophisticated approaches have been evolved to

overcome such limitations.

There have been specific research studies, which illustrate that, the well managed

Dog businesses can also become good cash generators. These organizations

relying on high-quality goods, with medium pricing and judicious expenditure on R& D and

marketing, can still provide impressive return on investment of above

20 per cent.

- Difficulty in Determining Market Share

There is a heavy dependence on the market share of a business as an indicator of its competitive

strength. The calculation of market share is strongly influenced by the way the business activity and

the total market are defined. For instance, the market for helicopters may encompass all types of

helicopters, or only heavy helicopters or only heavy military helicopters. Furthermore, from

geographical point of view the market may be defined on worldwide, national or an even regional

base. In case of complex and interdependent industries, it may also be quite difficult to determine the

market share based on the sales turnover of the final product only.

- Consideration for Experience Curve Synergy Evaluation of Strategy

In the BCG approach, businesses in each of the different quadrants are viewed

independently for strategic purposes. Thus, Dogs are to be liquidated or divested. But, within the

framework of the overall corporation, useful experiences and skills can be acquired by operating

low-profit Dog businesses which may help in lowering the costs of Star or Cash Cow businesses.

And this may contribute to higher corporate profits.

- Disregard for Human Aspect

Marketing Strategy

The BCG analysis, while considering different businesses does not take into consideration the

human aspects of running an organization. Cash generated within a business unit may come to be

symbolically associated with the power of the concerned manager. As such managing a Cash Cow

business may be reluctant to part with the surplus cash generated by his unit. Similarly, the workers

of a Dog business which has been decided to be divested may react strongly against changes in the

ownership. They may deem the divestiture as a threat to their livelihood or security. Thus, BCG

analysis could throw up strategic options which may or may not be easy to implement.

2. Explain with examples:

1. Generic strategy

2. Cost Leadership

3. Segmentation

4. Differentiation

5. Positioning

6. PLC and Strategic decision

7. Niche market strategy

8. Follower strategy

9. Leader strategy

10. Challenger strategy

11. Brand equity

i) GENERIC STRATEGY :

ANS: The root of generic strategy is POSITIONING.

POSITIONING can be defined as an objective measurement of perceptions that buyers are

likely to hold about a product with reference to other similar alternative market offerings & it

determines whether a firm’s profitability is above or below average. It also helps to generate ROI>

average returns of industry even in bad times.

Positioning gives firm a COMPETITIVE ADVANTAGE in terms of PRICE and PRODUCT

QUALITY.

Firms deliver competitive advantage by being in

Marketing Strategy

Very broad market very narrow market

Cost Differentiator Focus Leader

Broad segment Cost Leadership Differentiated Leadership

Narrow Segment Cost Focus Differentiated focus

NICHE

Niche is an USP, which carves out a key result area imparting success to business

1. COST LEADERSHIP:

A firm is a low cost producer.

Characteristics of cost leader:

1. EOS (scale) + EOS(scope)

Economies of scale can be achieved when production cost decreases as volume of production

increases.

1. Appropriate technology

Cycle time is low

Accuracy is great

Scraps and wastages are low

Precision is high

Competitive Advantage

Competitive Scope

Marketing Strategy

2. Assess ability to raw material

3. Effective production system

4. Effective process control

5. Cost leader should have

Parity in price

Proximity in value

6. Cost leadership should not be at the cost of quality.

EXAMPLES:

1. Parle gluco Biscuit

2. Nirma

3. Maruti

4. Carrier air conditioners

2. DIFFERENTIATOR:

A firm adopting differentiator strategy maintains its uniqueness in the features offered which the

buyers assumes to have specific and special value and do not mind to pay premium.

Product differentiation – It is a process of generating uniqueness in features by providing special and

specific values customer don not mind to pay a premium price.

- Differentiation could be product specific, distribution, durability, after sale service, spare

parts or may be any other marketing parameter.

- A differentiated product must have parity in areas other than differentiation and proximity in

value, benefits desired by customers.

- A firm can sustain differentiation and have competitive edge if premium price exceeds the

extra cost incurred in being unique.

EXAMPLES:

1. Park Avenue

2. Pepsodent Germicheck

3. Oxyrich

Marketing Strategy

4. Savlon antiseptic

3. FOCUS

It evolves deliberately limiting potential sales volume by adopting concentrated segmentation

approach through which firm’s select some target market segment or achieve competitive advantage

although it may not posses same advantage in entire market.

- Niches can be low cost focus

- Cost focus exploits the differentiation in the cost in some segment and differentiator focus

exploits the special needs of customer in same segment.

- thus, a focused strategy takes advantage of sub-optimization by broadly targeted competitors

who may underperforming in meeting the need of particular segments or may be over performing

in maintaining their shares and sales in other segments at higher costs.

Cost focus

EXAMPLES:

1. Sterling properties

2. Wada pao

3. Chamak

Differentiated focus

EXAMPLES:

1. Irani Chai

2. Toyota Lexus

3. Club Mahindra

4. STUCK IN THE MIDDLE

A firm that engages in each of the generic strategy but fails to achieve any one of them is stuck in

the middle and in the long run will be a below average performer.

Marketing Strategy

ii) COST LEADERSHIP

The business works hard to achieve the lowest production and distribution cost so that it can priced

lower than its competitors and win a large market share. Firms pursuing this strategy must be good at

purchasing, engineering, manufacturing and physical distribution. They need less skill in marketing.

The problem with this strategy is that other firms will usually compete with still lower costs and hurt

he firm that rested its whole future on cost.

EXAMPLE:

In online travel industry, LOWEST FARE, is pursuing low cost strategy

iii) SEGMENTATION

a marketer can rarely satisfy everyone in a market. Therefore he divides the market into segments.

They identify and profile distinct group of buyers who might prefer or require varying products and

services mixes by examining demographic, psychographic and behavioral differences among buyers.

Segmenting consumer markets

1. Geographic- Region, city

2. Demographic- Age, family size, gender, income, occupation, education, etc

3. Psychographic- lifestyle, personality

4. Behavioral- user status, occasions, usage rate, loyalty status, etc

Segmenting business markets

1. Demographic- industry, company size, location

2. Operating variables- technology, power structure, purchasing criteria

3. Situational factors- urgency, specific applications, size of order

4. Personal characteristics- buyer, attitude, loyalty

EXAMPLES

1. Arvind EYE care system, a group of institutions offering world class eye care to poor strata of

the society

2. DELL- t is divided into two direct sales divisions: one sell to consumers and small businesses;

another manages the company’s corporate accounts

Marketing Strategy

iv) Differentiation

The business concentrates on achieving superior performance in an important customer benefit area

valued by a large part of the market. The firms cultivate those strengths that will contribute t their

intended differentiation. This, the firm seeking quality leadership for example, must make products

with the best components pt them together expertly, inspect them carefully and effectively

communicate their quality.

EXAMPLES:

1. Travelocity is performing a differentiation strategy by offering the most comprehensive

range of services to the travelers.

v) POSITIONING

Positioning is an act of designing the company’s offering and image to occupy a distinct place in the

mind of the target market to maximize the potential benefit to the firm.

EXAMPLES:

1. MOOV-it was launched as a balm for relieving joint pains in older people but subsequently it was

repositioned as “backache specialist”

Points-of-difference: these are the attributes or benefits consumers strongly associate with the

brand, positively evaluated, and believed that they could not find the same extent with a competitive

brand

EXAMPLES:

1. FedEx- guaranteed overnight delivery

2. Nike- performance

3. Lexus- quality

Points-of-parity: these are the associations that are not necessarily unique to the brand but may in

fact be shared with others. These are viewed as essentials for a legitimate and credible product

offering.

Marketing Strategy

EXAMPLES:

1. Dettol and Savlon

2. Prudent mint mouthwash and Listerine with a strong medical taste.

vi) PLC AND STRTEGIC DECISION

Product Life Cycle (PLC) is based upon the biological life cycle. For example, a seed is planted

(introduction); it begins to sprout (growth); it shoots out leaves and puts down roots as it becomes an

adult (maturity); after a long period as an adult the plant begins to shrink and die out (decline).

In theory, it is the same for a product. After a period of development it is introduced or launched

into the market; it gains more and more customers as it grows; eventually the market stabilizes and

the product becomes mature; then after a period of time the product is overtaken by development and

the introduction of superior competitors, it goes into decline and is eventually withdrawn.

To say that a product has a life is to asset 4 things:

- Product have a limited life

- Product sales pass through distinct phases, each posing different challenges, opportunities

and problems to the seller

- Products rise and fall at the different stages of PLC

- Products require different marketing, financial, manufacturing, purchasing in each life cycle

stage.

Marketing Strategy

1. Introduction - a period of slow sales growth. profits are non-existent because of heave

expenses on product launch.

- cost high

- sales volume low

- no/little competition - competitive manufacturers watch for acceptance/segment

growth losses

- demand has to be created

- customers have to be prompted to try the product

2. Growth - a period of rapid market acceptance and substantial profit improvement

- costs reduced due to economies of scale and

- sales volume increases significantly

- profitability

- public awareness

Marketing Strategy

- competition begins to increase with a few new players in establishing market

- prices to maximize market share

3. Maturity - a slowdown in sales because the product have achieved acceptance by most of the

buyers. Profits stabilize or decline because of increase competition.

- Costs are very low as you are well established in market & no need for publicity.

- sales volume peaks

- increase in competitive offerings

- prices tend to drop due to the proliferation of competing products

- brand differentiation, feature diversification, as each player seeks to differentiate from

competition with "how much product" is offered

- Industrial profits go down

4. Declin e- sales show a downward drift and profits erode.

- costs become counter-optimal

- sales volume decline or stabilize

- prices, profitability diminish

- profit becomes more a challenge of production/distribution efficiency than increased

sales

However, most products fail in the introduction phase. Others have very cyclical maturity phases

where declines see the product promoted to regain customers.

Marketing Strategy

Strategies for the differing stages of the Product Life Cycle

Introduction

The need for immediate profit is not a pressure. The product is promoted to create awareness.

If the product has no or few competitors, a skimming price strategy is employed. Limited numbers of

product are available in few channels of distribution.

Growth

Competitors are attracted into the market with very similar offerings. Products become more

profitable and companies form alliances, joint ventures and take each other over. Advertising spend

is high and focuses upon building brand. Market share tends to stabilize.

Maturity

Those products that survive the earlier stages tend to spend longest in this phase. Sales grow

at a decreasing rate and then stabilize. Producers attempt to differentiate products and brands are key

to this. Price wars and intense competition occur. At this point the market reaches saturation.

Producers begin to leave the market due to poor margins. Promotion becomes more widespread and

uses a greater variety of media.

Decline

At this point there is a downturn in the market. For example more innovative products are

introduced or consumer tastes have changed. There is intense price-cutting and many more products

are withdrawn from the market. Profits can be improved by reducing marketing spend and cost

cutting.

Problems with Product Life Cycle

In reality very few products follow such a prescriptive cycle. The length of each stage varies

enormously. The decisions of marketers can change the stage, for example from maturity to decline

by price-cutting. Not all products go through each stage. Some go from introduction to decline. It is

not easy to tell which stage the product is in.

Marketing Strategy

vii) NICHE MARKET STRATEGY

A niche is a narrowly defined customer group seeking a distinctive mix of benefits. Marketers

usually identify niches by dividing segments into sub segments.

An attractive niche is characterized as follows:

The customers have distinct set of needs

They will pay a premium to a firm that best satisfies their needs.

The niche gains certain economies through specialization and the niche has size, profit and

growth potential.

Segments are fairly small and normally attract only one or two competitors.

EXAMPLES:

1. Crack, an ointment from Paras pharmaceuticals it is targeted to women for prevention and

treatment of cracked heels

2. Ezee, a liquid detergent from Godrej is a fabric washing product for woolen cloths

3. Himalaya, ayurvedic medicines

viii) FOLLOWER STRATEGY

The follower can achieve high profits, as it did not bear any of the innovation expenses.

Patterns of “conscious parallelism” are common in capital intensive, homogeneous product

industries such as steel, fertilizers. The opportunities for product differentiation, image

differentiation are low; service quality is often comparable and price sensitivity runs high.

Four broad strategies are identified:

1. Counterfeiter - the counterfeiter duplicates the leader’s products and packaging and sells it on

the black market or through disreputable dealers.

Marketing Strategy

EXAMPLE:

a. many music record companies

b. Apple computer and Rolex have been plagued with counterfeiter problem

2. Imitator - the imitator something from the leader but maintains differentiation in terms of

packaging, advertising, pricing or location.

3. Cloner - the cloner emulates the leader’s products, name and packaging with slight variations.

4. Adapte r- the adapter takes the leader’s products and improves them.

ix) LEADER STARGEGY

The leader should adopt the following strategies to maintain its share and sales.

a. Expanding the total market:

The dominant firm must gain new users, new uses and usage of its products.

b. Defending the market share

The leader leads by developing new products and customer services , distribution effectiveness

and cost cutting.

b.1) position defense: building superior brand power and making the brand almost impregnable.

b.2) flank defense: serve as an invasion base for counterattack

b.3) preemptive defense: attack before your enemy attacks

b.4) counteroffensive defense: can meet the attacker frontally or hits his flank or launch a pincer

movement.

b.5) mobile defense: the leader stretches its domain over new territories that can serve as future

centers for defense and offense through market broadening.

Marketing Strategy

c. Expanding market share

Market leader can improve their profitability by increasing market share.

x) CHALLENGER STARTEGY

Examples: LG, Google

1. It can attack the market leader.

2. It can attack he firms of its own size that are underfinanced.

3. It can attack small , local firms

Strategies:

1. Frontal attack: attacker matches its opponent’s products, advertising, price and distribution.

2. Flank attack: it can geographic or segmental.

3. Encirclement attack: attempt to capture a wide slice of the enemy’s territory through ‘blitz”

4. Bypass attack: bypassing the enemy and attacking easier markets to broaden one’s resources

base

5. Guerrilla warfare: waging small, intermittent attacks to harass and demoralize the opponent

and eventually secure permanent footholds.

xi) BRAND EQUITY

It is a set of assets (and liabilities) linked to a brand’s name and symbol that adds to (or subtracts

from) the value provided by a product or service to a firm and/or that firm’s customers.

Brand Equity is an Asset in terms of:

a). Brand name awareness

b). Perceived quality

c). Brand loyalty

Marketing Strategy

d). Brand associations

The management of brand equity involves investment to create and enhance these assets.

Each brand equity asset creates value. In order to manage brand equity and brand building activities

effectively, it is important to be sensitive to the ways in which strong brands create value

a. Brand awareness

It refers to the strength of a brand’s presence in the mind of the consumer.

Brand Awareness is measured according to the different ways in which consumers

remember a brand, ranging from recognition, recall, dominant recall, familiarity, to

perceived quality.

The strongest brands are managed not for general awareness but strategic awareness.

b. Perceived quality

It is a brand association which is a brand asset for the following reasons:

Among all brand associations, only perceived quality has been shown to drive financial

performance.

Perceived quality is often a major strategic thrust of a business.

It is linked to and often drives other aspects of how a brand is perceived.

c. Brand loyalty

It is a key consideration when placing a value on a brand that is to be bought or sold, because

a highly loyal customer base can generate predictable sales.

Also the impact of brand loyalty on marketing costs is substantial. It is simply to retain

customers than to attract new ones.

d. Brand Associations

It can be achieved by

Marketing Strategy

Being different

Slogans. Jingles

Symbol exposure

Event sponsorship

Brand extension

Repetition

3. The five-force model combined with value chain will help achieve better

performance in today’s competitive world. Discuss how performance can be

improved by adopting both concepts?

Ans: The Five Forces model of Porter is an Outside-in business unit strategy tool that is used to

make an analysis of the attractiveness (value) of an industry structure. The Competitive Forces

analysis is made by the identification of five fundamental competitive forces:

1. Entry of competitors. How easy or difficult is it for new entrants to start competing,

which barriers do exist.

2. Threat of substitutes. How easy can a product or service be substituted, especially

made cheaper.

3. Bargaining power of buyers. How strong is the position of buyers. Can they work

together in ordering large volumes.

4. Bargaining power of suppliers. How strong is the position of sellers. Do many

potential suppliers exist or only few potential suppliers, monopoly?

5. Rivalry among the existing players. Does a strong competition between the existing

players exist? Is one player very dominant or are all equal in strength and size.

Sometimes a sixth competitive force is added:

Marketing Strategy

6. Government.

Porter's Competitive Forces model is probably one of the most often used business strategy tools. It

has proven its usefulness on numerous occasions. Porter's model is particularly strong in thinking

Outside in.

 

Threat of new entrants depends on:

Economies of scale.

Capital / investment requirements.

Customer switching costs.

Access to industry distribution channels.

Marketing Strategy

Access to technology.

Brand loyalty. Are customers loyal?

The likelihood of retaliation from existing industry players.

Government regulations. Can new entrants get subsidies?

Threat of substitutes depends on:

Quality. Is a substitute better?

Buyers' willingness to substitute.

The relative price and performance of substitutes.

The costs of switching to substitutes. Is it easy to change to another product?

Bargaining power of suppliers depends on:

Concentration of suppliers. Are there many buyers and few dominant suppliers?

Branding. Is the brand of the supplier strong?

Profitability of suppliers. Are suppliers forced to raise prices?

Suppliers threaten to integrate forward into the industry (for example: brand

manufacturers threatening to set up their own retail outlets).

Buyers do not threaten to integrate backwards into supply.

Role of quality and service.

The industry is not a key customer group to the suppliers.

Switching costs. Is it easy for suppliers to find new customers?

Bargaining Power of Buyers depends on:

Concentration of buyers. Are there a few dominant buyers and many sellers in the

industry?

Differentiation. Are products standardized?

Marketing Strategy

Profitability of buyers. Are buyers forced to be tough?

Role of quality and service.

Threat of backward and forward integration into the industry.

Switching costs. Is it easy for buyers to switch their supplier?

Intensity of Rivalry depends on:

The structure of competition. Rivalry will be more intense if there are many small or

equally sized competitors; rivalry will be less if an industry has a clear market leader.

The structure of industry costs. Industries with high fixed costs encourage

competitors to manufacture at full capacity by cutting prices if needed.

Degree of product differentiation. Industries where products are commodities (e.g.

steel, coal) typically have greater rivalry.

Switching costs. Rivalry is reduced when buyers have high switching costs.

Strategic objectives. If competitors pursue aggressive growth strategies, rivalry will

be more intense. If competitors are merely "milking" profits in a mature industry, the degree

of rivalry is typically low.

Exit barriers. When barriers to leaving an industry are high, competitors tend to

exhibit greater rivalry.

Strengths of the Five Competitive Forces Model: Benefits

The model is a strong tool for competitive analysis at industry level. Compare: PEST

Analysis

It provides useful input for performing a SWOT Analysis.

Limitation of Porter's Five Forces model

Care should be taken when using this model for the following: do not underestimate

or underemphasize the importance of the (existing) strengths of the organization (Inside-out

strategy).

Marketing Strategy

The model was designed for analyzing individual business strategies. It does not cope

with synergies and interdependencies within the portfolio of large corporations.

From a more theoretical perspective, the model does not address the possibility that

an industry could be attractive because certain companies are in it.

Some people claim that environments which are characterized by rapid, systemic and

radical change require more flexible, dynamic or emergent approaches to strategy

formulation. See: Disruptive Innovation

Sometimes it may be possible to create completely new markets instead of selecting

from existing ones

VALUE CHAIN

Tool for identifying ways in which value could be created/enhanced by a firm

Used for competitor analysis - to analyze competitive position within the industry

( compare value chain - own vs. Competitors)

1. Support activities:

Marketing Strategy

Firm Infrastructure - General management, accounting, finance, strategic planning

HRM - recruiting, training, development

Technology development - R&D, Product & process improvement

Procurement - Purchasing of raw materials, machines, supplies

4 support activities occur through all primary activities

2. Primary activities:

Inbound logistics - raw material handling & warehousing

Operations - Machining, assembling, testing

Outbound logistics - Warehousing & distribution of finished product

Marketing & Sales - Advertising, promotion, pricing, channel relations

Services - Installation, repair, parts

3. VALUE CREATION - FUNCTION

Performance of each department

Coordination of activities within a department

4. BUSINESS PROCESS

Value creating & value delivering process

Locate activities which would add value

Customers patronage - organizations - highest delivered value

Examine cost & performance

Value chain - own vs. competitors

4. Explain the concept of STPD (Segmentation, Targeting, Positioning and Differentiation) for marketing in Indian business environment taking examples of:

a) LG LCD TV

b) Sony MP3

Analyze all the four concepts.

Marketing Strategy

The process of grouping a market (i.e. customers) into smaller subgroups. This is derived

from the recognition that the total market is often made up of submarkets (called 'segments'). These

segments are homogeneous within (i.e. people in the segment are similar to each other in their

buying behavior or parts thereof). Because of this intra-group similarity, they are likely to respond

somewhat similarly to a given marketing strategy.

Product differentiation (also known simply as "differentiation") is the process of

distinguishing the differences of a product or offering from others, to make it more attractive to a

particular target market. This involves differentiating it from competitors' products as well as one's

own product offerings.

Differentiation is a source of competitive advantage. Although research in a niche market

may result in changing your product in order to improve differentiation, the changes themselves are

not differentiation. Marketing or product differentiation is the process of describing the differences

between products or services, or the resulting list of differences. This is done in order to demonstrate

the unique aspects of your product and create a sense of value. Marketing textbooks are firm on the

point that any differentiation must be valued by buyers. The term unique selling proposition refers to

advertising to communicate a product's differentiation.

In economics, successful product differentiation leads to monopolistic competition and is

inconsistent with the conditions for perfect competition, which include the requirement that the

products of competing firms should be perfect substitutes.

The brand differences are usually minor; they can be merely a difference in packaging or an

advertising theme. The physical product need not change, but it could. Differentiation is due to

buyers perceiving a difference; hence, causes of differentiation may be functional aspects of the

product or service, how it is distributed and marketed, or who buys it. The major sources of product

differentiation are as follows.

Differences in quality which are usually accompanied by differences in price

Differences in functional features or design

Ignorance of buyers regarding the essential characteristics and qualities of goods they are

purchasing

Sales promotion activities of sellers and, in particular, advertising

Differences in availability (e.g. timing and location).

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The objective of differentiation is to develop a position that potential customers see as unique.

Differentiation primarily impacts performance through reducing directness of competition: As

the product becomes more different, categorization becomes more difficult and hence draws fewer

comparisons with its competition. A successful product differentiation strategy will move your

product from competing based primarily on price to competing on non-price factors (such as product

characteristics, distribution strategy, or promotional variables).

Most people would say that the implication of differentiation is the possibility of charging a price

premium; however, this is a gross simplification. If customers value the firm's offer, they will be less

sensitive to aspects of competing offers; price may not be one of these aspects. Differentiation makes

customers in a given segment have a lower sensitivity to other features (non-price) of the product.

Marketing Strategy

5. Explain the concept of “Value Chain” in different stages of PLC with example. How can

value chain be inter-linked with SCM and CRM?

ANS: Value Chain is a basic discrete building block of competitive advantage in a firm operating in

competitive scenarios. The value chain for the Industry could include:

Competitive advantage of firm cannot be looking at a firm in isolation; since it performs many

discrete activities like designing, producing, marketing and supporting its products. Each of these

activities can contribute to a firm’s relative cost and create basis for differentiation. A company may

have a cost advantage due to low cost distribution. Superior sales force utilization and Value

Engineered Superior Product Design.

Different stages of PLC:

1. Infancy:

The main idea in this stage is to develop the product such that it results in generation of higher

sales. A constant emphasis on to promote the product, sell and to simply exploit the ID

customers. Thus in the first part of the PLC, Marketing & Sales becomes more important than

anything else does. No errors and the company should do things right on the first time. This

implies that the task is to create the market for your product and also make the product available

to the customers. This means concentrate on the exclusive distribution of the products.

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The marketing & sales acts as a cost saver for the coming stage of PLC because the company is

spending today for tomorrow. This will further result in no additional spending in the next stages of

PLC.

Example: Binacas came up with an Angular Toothbrush, which was not offered, by any of the

competitors. However there was a confusion of the communication aspect and they over promised

and under delivered. At this time, Promise launched the angular toothbrush in all the three types i.e.

soft, medium & hard and worked well on the distribution, thus making all the three available to all

the customers.

2. Growth:

The customers who tried our product in the infancy stage have a high probability to repeat the

purchase in the growth stage. Moreover, there are many new trials as well. Thus, the sales increase

largely. In this stage, inbound logistics plays a vital role. If inbound logistics is done in an efficient

manner, it would act as a cost saver. It is in this stage of the PLC that one must develop strong

relationship with the suppliers.

3. Maturity:

In this stage of Maturity, it of paramount importance to make the product available for Sale to the

customers thus making operational efficiency & productivity very important

4. Decline:

While moving on from one stage to another, the company should not forget to take care of the

activities done in the previous stage. Thus, keep doing the activities and work on the strategies

rightly.

Entry point of Value Chain is Inbound Logistics, today very well known as, Supply Chain

Management, and SCM.

The concept has been extended beyond individual organizations. It can apply to whole supply

chains and distribution networks. The delivery of a mix of products and services to the end customer

will mobilize different economic factors, each managing its own value chain. The industry wide

synchronized interactions of those local value chains create an extended value chain, sometimes

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global in extent. Porter terms this larger interconnected system of value chains the "value system." A

value system includes the value chains of a firm's supplier (and their suppliers all the way back), the

firm itself, the firm distribution channels, and the firm's buyers (and presumably extended to the

buyers of their products, and so on).

Capturing the value generated along the chain is the new approach taken by many

management strategists. For example, a manufacturer might require its parts suppliers to be located

nearby its assembly plant to minimize the cost of transportation. By exploiting the upstream and

downstream information flowing along the value chain, the firms may try to bypass the

intermediaries creating new business models, or in other ways create improvements in its value

system.

Supply chain management is a cross-functional approach to manage the movement of raw

materials into an organization, certain aspects of the internal processing of materials into finished

goods, and then the movement of finished goods out of the organization toward the end-consumer.

As organizations strive to focus on core competencies and becoming more flexible, they have

reduced their ownership of raw materials sources and distribution channels. These functions are

increasingly being outsourced to other entities that can perform the activities better or more cost

effectively. The effect is to increase the number of organizations involved in satisfying customer

demand, while reducing management control of daily logistics operations. Less control and more

supply chain partners led to the creation of supply chain management concepts. The purpose of

supply chain management is to improve trust and collaboration among supply chain partners, thus

improving inventory visibility and improving inventory velocity.

Strategic

• Strategic network optimization, including the number, location, and size of warehouses,

distribution centres and facilities.

• Strategic partnership with suppliers, distributors, and customers, creating communication

channels for critical information and operational improvements such as cross docking, direct

shipping, and third-party logistics.

• Product design coordination, so that new and existing products can be optimally integrated

into the supply chain, load management

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• Information Technology infrastructure, to support supply chain operations.

• Where-to-make and what-to-make-or-buy decisions

• Aligning overall organizational strategy with supply strategy.

Tactical

• Sourcing contracts and other purchasing decisions.

• Production decisions, including contracting, scheduling, and planning process definition.

• Inventory decisions, including quantity, location, and quality of inventory.

• Transportation strategy, including frequency, routes, and contracting.

• Benchmarking of all operations against competitors and implementation of best practices

throughout the enterprise.

• Milestone payments

• Focus on customer demand.

Operational

• Daily production and distribution planning, including all nodes in the supply chain.

• Production scheduling for each manufacturing facility in the supply chain (minute by

minute).

• Demand planning and forecasting, coordinating the demand forecast of all customers and

sharing the forecast with all suppliers.

• Sourcing planning, including current inventory and forecast demand, in collaboration with all

suppliers.

• Inbound operations, including transportation from suppliers and receiving inventory.

• Production operations, including the consumption of materials and flow of finished goods.

• Outbound operations, including all fulfilment activities and transportation to customers.

• Order promising, accounting for all constraints in the supply chain, including all suppliers,

manufacturing facilities, distribution centers, and other customers

Customer relationship management (CRM) is a term applied to processes implemented by a

company to handle its contact with its customers. CRM software is used to support these processes,

storing information on current and prospective customers. Information in the system can be accessed

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and entered by employees in different departments, such as sales, marketing, customer service,

training, professional development, performance management, human resource development, and

compensation. Details on any customer contacts can also be stored in the system. The rationale

behind this approach is to improve services provided directly to customers and to use the

information in the system for targeted marketing and sales purposes.

While the term is generally used to refer to a software-based approach to handling customer

relationships, most CRM software vendors stress that a successful CRM strategy requires a holistic

approach. CRM initiatives often fail because implementation was limited to software installation

without providing the appropriate motivations for employees to learn, provide input, and take full

advantage of the information systems.

Analytical CRM analyzes customer data for a variety of purposes:

• Designing and executing targeted marketing campaigns

• Designing and executing campaigns, e.g. customer acquisition, cross-selling, up-selling

• Analysing customer behaviour in order to make decisions relating to products and services

(e.g. pricing, product development)

• Management information system (e.g. financial forecasting and customer profitability

analysis)

Analytical CRM generally makes heavy use of data mining.

6. “Pricing is a key issue in competitive markets”. Discuss this statement in the context of

factors affecting pricing decisions. What pricing objectives are open to “Kingfisher Airlines”?

Suggest pricing strategy.

ANS: Factors affecting Pricing strategies:

1. Pricing objectives

Pricing Objectives:

1) Profit oriented objectives (ROI)

2) Volume oriented objectives (Market share)

3) Competition orientation

Potential Pricing Objectives:

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2. Maximum long-run profits

3. Maximize short run profits

4. Growth

5. Stabilize market

6. Desensitize customers to price

7. Maintain price-leadership arrangement

8. Discourage new entrants

9. Speedy exit of marginal firms

10. Maintain loyalty

11. Building brand and company image.

Example: Apple Computers pricing objectives

1) To make the product affordable and give value for money to college students.

2) To get certain target market segments of IBM PC. (Switch from IBM to Apple )

3) To encourage retailers to store and make strong efforts to sell Apple Computers.

to achieve all in 18 months.

2. Cost- impact on Pricing:

Major cost components are:

- Fixed cost

- Variable cost

It leads to three possibilities.

Ratio between Fixed and Variable cost

Economies of Scale

Firms cost structure vis-à-vis competitors cost structure.

If the fixed cost is high then increased sales volumes are required. In that case charge high price

initially and once Break even is achieved, lower the price.

Marketing Strategy

EXAMPLE: Airlines have 65% cost fixed. Sale at high price until break-even is achieved, and then

reduce the price. If variable cost is high then, do marginal change (lower) the price it will add to

earnings (High turnover).

Economies of Scale:

We can afford to sell at lower price and gain higher market share.

Cost Structure vis-à-vis competitors:

If cost structure is lower-one can offer competitive price to gain market share.

Manage cost – structure at low level.

Company needs to have following information about competitors:

1. Published competitive price lists and advertising.

2. Competitive reaction to price moves in the past.

3. Timing of competitor’s price changes and initiating factors.

4. Information on competitor’s special companies.

5. Competitive product line comparison.

6. Assumptions about competitors pricing / marketing objectives.

7. Financial reports of competitors.

8. Estimates of competitors. Cost- Fixed and Variable.

9. Expected pricing retaliation.

3. Competition:

Monopoly – No issues

Oligopoly - Follow the leader’s style of leading firm adopts cost plus method.

Product differentiation is practiced.

Competitive industry – Takes into consideration

1) Capital intensiveness

2) Technology know-how

3) Break even and economies of scale

4) Marketing experience.

4. Demand:

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Demand is based on following considerations:

1) Ability of customers to buy

2) Willingness to buy

3) Necessity of customer to buy the product.

4) Benefits that product provides.

5) Price of substitute products.

6) Potential market for the products.

7) Customer behavior in general.

8) Segments in the market.

Price inelasticity of demand

Law of Demand – Survey of 30 items has shown that when price increased by 10% sales decreased

by 25% and 5% increase led to 13% decrease.

When price lowered by 5% sales increased by 12% and lowered by 10%, Sales increased by 26%.

Price = Material + Labour + Overhead + Other expenses +

Cost of emotional benefits + Margin

Kingfisher Airline: Pricing Strategy

New low cost carriers (LCCs) like SpiceJet and GoAir entered the market after KINGFISHER

AIRLINES's launch and they started an all-out price war by slashing down on fares. For instance, in

December 2005, GoAir started offering 10,000 free air tickets on four new routes (Hyderabad,

Chennai, Jaipur, and Bangalore). Established players like Jet Airways (India) Ltd., (Jet Airways) too

looked to consolidate their market positions.

In January 2006, Jet Airways announced that it would acquire Air Sahara (Sahara) for US$

500 million. This acquisition would make Jet Airways India's largest airline with an almost 45%

market share. Jet Airways was also expected to gain control of Sahara's 22 parking bays spread

across many domestic airports. In February 2006, the Jet-Sahara combine brought down their

airfares to compete against KINGFISHER AIRLINES, and LCCs like Air Deccan and SpiceJet.

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Recently Kingfisher & Jet Airways made an alliance to mainly cut cost.

The Low Cost Carriers faced a bloodbath while seeking to convert the railway passenger into airline

passenger. Kingfisher Airline is positioned extremely differently. Kingfisher Airline targeted the

growing middle class segment that was net savvy, young and upwardly mobile, with a propensity to

spend.

Kingfisher falls into a good service and low cost airlines. Thus, the basic pricing strategy

followed by Kingfisher Airlines is Penetration Pricing by offering a good service to the middle class

segment at a reasonable cost.

As per the pricing policy of Kingfisher Airlines, it would not be positioned as a low cost

carrier as passengers would attribute the features of low cost carriers like low quality of service,

delayed flight timings, etc., to Kingfisher Airline as well.

Hence, the airline was called a budget airline and not a Low Cost Carrier. Fares were above

those of LCCs but lower than the economy class fares of Jet, Sahara, and Indigo Airline. Kingfisher

Airline also allowed multiple fare options and auctioning of tickets on all traffic routes...

Kingfisher Airline has a single class, which combines the experience of business class with

economy. Having a single class freed up more space and legroom for passengers when compared to

normal economy class seats. KINGFISHER AIRLINES was also the only airline in India to address

its passengers as 'guests'.

7. Using Porter’s Generic strategies model analyze options open to various players in two

wheelers industry.

As Porter's 5 Forces analysis deals with factors outside an industry that influence the nature of

competition within it, the forces inside the industry (microenvironment) that influence the way in

which firms compete, and so the industry’s likely profitability is conducted in Porter’s five forces

model. A business has to understand the dynamics of its industries and markets in order to compete

effectively in the marketplace.

Main Aspects of Porter’s Five Forces Analysis

The competitive forces model identified five forces, which would impact on an organization’s

behavior in a competitive market. These include the following:

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• The rivalry between existing sellers in the market.

• The power exerted by the customers in the market.

• The impact of the suppliers on the sellers.

• The potential threat of new sellers entering the market.

• The threat of substitute products becoming available in the market.

Understanding the nature of each of these forces gives organizations the necessary insights to enable

them to formulate the appropriate strategies to be successful in their market

F orce 1: The Degree of Rivalry

The intensity of rivalry, which is the most obvious of the five forces in an industry; helps determine

the extent to which the value created by an industry will be dissipated through head-to-head

competition.

Competitors in the two-wheeler industry:

After facing its worst recession during the early 1990s, the two-wheeler industry bounced back with

a 25% increase in volume sales in February 1995. The scooters are considered as family vehicles.

There are many two-wheeler manufacturers in India. Major players in the 2-wheeler industry are

Hero Honda Motors Ltd (HHML), Bajaj Auto Ltd (Bajaj Auto) and TVS Motor Company Ltd

(TVS).

The other key players in the two-wheeler industry are Kinetic Motor Company Ltd (KMCL), Kinetic

Engineering Ltd (KEL), LML Ltd (LML), Yamaha Motors India Ltd (Yamaha), Majestic Auto Ltd

(Majestic Auto), Royal Enfield Ltd (REL) and Honda Motorcycle & Scooter India (P) Ltd (HMSI).

Force 2: The Threat of Entry

Both potential and existing competitors influence average industry profitability. The threat of new

entrants is usually based on the market entry barriers. The entry barriers are high in two-wheeler

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industry.

• Economies of scale: here in this two-wheeler industry economies of scale is required to cater to

vast target group and to be cost effective at the same time. So the new entrant needs to produce in

huge quantities which wont be possible at the initial stage for a small players, the entrant needs to

have ‘deep pockets’ to absorb the initial losses.

• Cost of entry: The initial investment in machinery, fixed equipment and working capital would be

tremendously high.

• Distribution channels: The entrant needs to have a good distribution network to reach the target

group but it happens many a times that the distribution channel members do not entertain new

players. It also happens that the players may find the distribution member is too expensive.

• The new entrant needs to have good contacts and relationships with the industry people before

entering.

Force 3: The Threat of Substitutes

The threat that substitute products pose to an industry's profitability depends on the relative price-to-

performance ratios of the different types of products or services to which customers can turn to

satisfy the same basic need. The threat of substitution is also affected by switching costs – that is, the

costs in areas such as retraining, retooling and redesigning that are incurred when a customer

switches to a different type of product or service. It also involves:

Two wheelers can have cost effective substitutes like bus, local trains etc.

Two wheelers can be substituted by comfort and luxurious cars.

Force 4: Buyer Power

Buyer power is one of the two horizontal forces that influence the appropriation of the value created

by an industry . The most important determinants of buyer power are the size and the concentration

of customers. Other factors are the extent to which the buyers are informed and the concentration or

differentiation of the competitors.

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Since the number of players and models available in the market is very high, therefore the

option available to the customer is also high, so the bargaining power of the customer is high.

So the entrant has to be careful while making the offering, because it should appeal to the

needs of the customers or else customer wont revert to the offering and it could be a big

failure, the options available to the customers are many.

Force 5: Supplier Power

Supplier power is a mirror image of the buyer power. As a result, the analysis of supplier power

typically focuses first on the relative size and concentration of suppliers relative to industry

participants and second on the degree of differentiation in the inputs supplied. The ability to charge

customers different prices in line with differences in the value created for each of those buyers

usually indicates that the market is characterized by high supplier power and at the same time by low

buyer power. Bargaining power of suppliers exists in the following situations:

The switching costs are high. Switching from one supplier to another is easy hence; the

bargaining power of supplier is less.

High power of brands. If the entrant has already existing good brand image then the supplier

is not much.

8. Describe the process of developing an advertising strategy for a new brand of “Mobile

phone” and discuss the importance of creating the advertising message that has linkages with

marking goals and consumers readiness to accept the product with some examples.

Advertising is a way to get your message to your desired audience. But in order to do that,

you must first have a plan. This plan has many facets, including your marketing goal,

advertising strategies creative and media, implementation, evaluation, and budget.

Marketing Strategy

Marketing goal: - India’s subscriber base is around 200mn.we are aiming at around 35 mn in the 1st

year and 55 in the second year.

Building advertising strategy

The first four questions to ask are:

Whom are you trying to reach?

What do you want to say to them?

How, when and where are you going to reach them?

Why have you chosen the steps you have selected?

Whom are you trying to reach?

Determine your target market. In order to determine your target market segmentation and targeting is

done.

Location – Our target group will be primarily from urban environment. All the metropolitan,

tier I and tier II cities will be targeted.

Age – No specific age bar because our mobile phone would be for all age groups. But our

advertising would be made with the youths on the target.

Income – consumer must make Rs.3 lacs p.a.

What do you want to say?

After narrowing target audience, begin the process of deciding what it is you want the consumer to

know or think about you. This is called the creative process or strategy. Basically at this stage

positioning is done.

A mobile phone that has

All the desired features (e.g. SMS, MMS, Bluetooth etc).

a status symbol

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value/quality proposition

Comparatively reasonable.

Developing Your Creative Strategy

In its simplest form, your creative strategy needs three things:

Ads will target people of all age groups from 15 to 55, and persuade them that this cell phone is a

complete package providing all the features with style and elegance at affordable prices.

Where, How and when to you reach the target audience?

Since our target audience is located in urban areas, we should use advertising media that would

reach our target audience through

Newspaper

Handouts or Flyers

Radio

Magazines

TV

Outdoor, such as billboards

Special promotions or packages

Partnering with any service provider(like nokia and reliance)

Internet Marketing

Television

Television is a powerful medium because it communicates with both sight and sound. We would

place your advertisement spots on the most viewed channels like Star TV, Zee TV, Colors and

MTV.ad spend on the television media will be around 10 crores. The duration of the ad will be

around 60 secs at the prime time from 8p.m. to 10p.m.

Radio

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For radio advertising, we would go for radio 93.5 fm. the slots for it will be of 45 secs and the

frequency will be around 4 in a week and the timing will be from 6p.m. to 8 p.m.the budget would

be approximately 4 crores.

Magazine

The magazines would be ‘CHIP’ and ‘think digit’.

Newspaper: Newspapers are an important local medium with excellent reach potential. Because of

the daily publication of most papers, we place an ad in the DNA, Hindustan times on the day before

the launch. The budget would be approximately around 6 crores.

Outdoor

The most cost-effective advertising vehicle is outdoor . The visibility of this medium is good

reinforcement for products, and it is a flexible alternative. Outdoor media vehicle selected are

billboards, bus queue shelters and pole kiosks and in ambient media mall murals will be used. The

display duration will be around one month will a budget of 1.24 crores.

How to time the advertising?

Pulsing schedule - Advertising of a product runs throughout the year, when demand and seasonal

factors are unimportant.

Who purchases the media, creates the ad, and produces the ad?

The responsibility for actually carrying out the advertising program can be handled in one of four

ways:

TYPE OF AGENCY SERVICES PROVIDED

Full-service agency Research, selects and purchases media, develops ad copy and produces artwork.

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What will this cost?

Your budget will determine when and where you can advertise. There are four basic ways to

determine what your budget should be. And don’t forget, your budget doesn’t just include media

costs, but production costs as well.

Task Objective Method - how much to spend to reach your objective. To reach aprrox 35 mn

subscribers an advertising budget of around 24 crores would be required.

9. “Strategic options open to a company is largely dependent on their competitive position and

stages at which they are”. Discuss this statement in relation to strategies of market leaders,

market challengers, followers and nichers in soap industry.

Let’s begin by understanding what competitive position is:

Positioning is an objective measurement of perception (subjective), that buyers are likely to hold

about the product with respect to other similar alternative market offering and it determines whether

the firm’s profitability is above or below the industry average.

Competitor Frameworks:

These frameworks focus on competitor factors to derive strategy.

Thus, the following model as developed by Michael Porter is apt here

Porter's Generic Strategies

Choosing Your Route to Competitive Advantage

They can be applied to products or services in all industries, and to organizations of all sizes. They

were first set out by Michael Porter in 1985 in his book Competitive Advantage: Creating and

Sustaining Superior Performance. Porter called the generic strategies "Cost Leadership" (no frills),

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"Differentiation" (creating uniquely desirable products and services) and "Focus" (offering a

specialized service in a niche market). He then subdivided the Focus strategy into two parts: "Cost

Focus" and "Differentiation Focus". These are shown in Figure 1 below.

The Cost Leadership Strategy

Porter's generic strategies are ways of gaining competitive advantage - in other words, developing

the "edge" that gets you the sale and takes it away from your competitors. There are two main ways

of achieving this within a Cost Leadership strategy:

Increasing profits by reducing costs, while charging industry-average prices.

Increasing market share through charging lower prices, while still making a reasonable profit

on each sale because you've reduced costs.

Companies that are successful in achieving Cost Leadership usually have:

Access to the capital needed to invest in technology that will bring costs down.

Very efficient logistics.

A low cost base (labor, materials, facilities), and a way of sustainably cutting costs below

those of other competitors.

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The greatest risk in pursuing a Cost Leadership strategy is that these sources of cost reduction are

not unique to you, and that other competitors copy your cost reduction strategies

The Differentiation Strategy

Differentiation involves making your products or services different from and more attractive those of

your competitors. To make a success of a generic Differentiation strategy, organizations need:

Good research, development and innovation.

The ability to deliver high-quality products or services.

Effective sales and marketing, so that the market understands the benefits offered by the

differentiated offerings.

The Focus Strategy

Companies that use Focus strategies well concentrate on particular niche markets and, by

understanding the dynamics of that market and the unique needs of customers in it, develop uniquely

low cost or well-specified products for the market.

But whether you use Cost Focus or Differentiation Focus, the key to making a success of a generic

Focus strategy is to ensure that you are adding something extra as a result of serving only that

market niche. It's simply not enough to focus on only one market segment because your organization

is too small to serve a broader market

So, from here we can move on to the application of this strategy to the market leaders, market

challengers, followers and nichers in soap industry

Kotler classifies firms by the role they play in the target market:  leader, challenger, follower, or

nicher.

Market Leader Strategies:  The market leader generally leads the other firms in price changes,

new-product introductions, distribution coverage, and promotional intensity.  The market leader

must maintain a constant vigilance as other firms keep challenging its strength or trying to take

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advantage of its weaknesses.  To remain number one, dominant firms must find ways (1) to expand

total market demand, (2) to protect its current market share through good defensive and offense

actions, and/or (3) try to increase its market share further, even if market size remains constant

Example: LUX …

PLC Stage: Maturity

Market Challenger Strategies:  Challengers can attack the leader and other competitors in an

aggressive bid for further market share.  The strategic objective of most challengers is to increase

their market shares.  An aggressor can choose to attack the market leader, to attack firms of its own

size that are not doing the job or are under-financed, or attack small local and regional firms that are

not doing the job or are under-financed.  The attack strategies include frontal attack, flank attack,

encirclement attack, bypass attack, and guerilla attack.

Example: Nirma…

PLC Stage: Decline

Market Follower Strategies:  Followers tend not to want to steal others’ customers, but instead

they present similar offers to buyers, usually by copying the leader.  Follower market shares show a

high stability.  Each follower tries to bring distinctive advantages to its target market.  The follower

is a major target of attack by challengers.  Therefore the follower must keep its manufacturing costs

low and its product quality and service high.  Following does not mean the firm is passive or a

carbon copy of the leader.  The specific strategies are: the cloner, which lives parasitically off the

leader; the imitator, which copies some things from the leader but maintains differentiation in terms

of packaging advertising, pricing, etc; and the adapter, which takes the leader’s products and adapts

and often improves them.   

Example: Breeze, Lifebuoy Skinguard…

PLC Stage: Growth

Market Nicher Strategies:  An alternative to being a follower in a large market is to be a leader in a

small market or niche.  Smaller firms normally avoid competing with larger firms by targeting small

markets of little or no interest to the larger firms.  Firms with low shares of the total market can be

highly profitable through small niching.  The nicher ends up knowing the target customer group so

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well that it can meet their needs better than other firms casually selling to this niche could.  The

nicher receives high margins in contrast to the high volume of the mass marketer.  The key idea is

specialization.  Nichers need to create niches, expand niches, and protect niches.

Example: Dove…

PLC Stage: Between Maturity and Decline.

10. “Quality of product is determined by the customers in the market and in the factory”.

Discuss this statement in relation to “product strategies with reference to product features and

quality”.

ANS:

Product Strategies:

Marketing Strategy

1) Product Positioning Strategy

“Positioning tells what the product stands for, what it is and how customers should evaluate it.”

Therefore, the product should be placed

- In right segment

- To receive favorable reception

- The product should be designed to match the segment.

- Right communication should be planned.

Process of Positioning:

Example : 1) Beer: Light, strong, bitter, and mild.

Kingfisher v/s Haywards

2) Vicks Vapourub v/s Tiger Balm

3) Calcium Sandoz for women & children.

2) Product Re-positioning Strategy

Reasons for Repositioning:

a. A mistake is made in original positioning.

Example: Kinetic Scooter, Vicks Vaporub, Maggi Noodles.

b. New and attractive segments :

Example:

1. Shampoo Sachets

2. FMCG products for rural markets

3. Babool Toothpaste

c. Changing Customers Preferences :

Marketing Strategy

Examples:

1) Cadbury Chocolates

2) Hair oil brands

3) Two wheelers for rural segments

4) Atlas Cycles.

d. To compete with new entrants.

Examples:

1) Coca Cola

Tanda Matlab

Sir utake piyo

Safe drinks

‘Purpose is to increase Market share and profitability.’

3) Product-Overlap Strategy

Product overlap strategy refers to a situation where a company decides to compete against its

own brand. ‘This happens in India in the product range where clear segmentation of market is not

possible.’

Examples:

1. Detergent soaps and powders.

2. Bath soap

3. Luggage / Bag markets.

Companies try to do:

- Upward stretch

- Downward stretch

Marketing Strategy

- Both way stretch

Examples:

a. Contract Mfg. Emcure

b. Own brands Contract Mfg. Blue Cross

c. Godrej Soap – Contract Mfg. and Own brands

d. Peter England Shirts

4) Product-Scope Strategy

a) Single product

b) Multiple product

c) System product

1) Single Product:

One Brand Company selling to various segments.

Examples: Medical insurance, Pan Parag, Vitamin-C.

2) Multi-Brand Strategy:

Offering two or more products

Examples :

i. Proctor & Gamble

ii. Food line companies – Pizzas, Cheese etc.

iii. Amul Dairy products

It helps to grow faster and better and risk is evenly divided.

3) Systems of Product:

Offering a system of products relates to providing a product mix that is having very close

consistency with each other.

Examples:

i. Oral cavity products

ii. Oncology products

Marketing Strategy

iii. Range of cardiac product

iv. Range of car accessories.

v. IBM – Softwares, Hardwares, Maintenance.

5) Product-Design Strategy

a. Standard products

b. Customized products

c. Standard product with modification

Standard Product:

1) Leads to similar experience to all customers.

2) Better cost benefits. [ECS and Learning curve]

3) Standard distribution channels can be used.

Example:

Coca Cola

Lux

Lifeboy

Customized Product:

1) Products made to order.

Example: Dell Computers

2) Can charge premium for customization.

3) Suitable for small companies.

Example: Dell Computers, GE, Military division.

Standard products with modification:

Marketing Strategy

1) Compromise between above two.

2) Core product is standardized.

3) Features are customized.

Example:

Car – Power breaks, Air conditioning, Color, Tape, and CD

Player etc

6) Product-Elimination Strategy

Reasons for elimination strategy

1) Low profitability

2) Stagnant sales volume

3) Risk of technology obsolescence.

4) Entry into declining phase.

5) Poor profit with business strengths.

Options available are:

1) Harvesting e.g. Empress Mill, Nagpur.

2) Line simplification e.g. HLL, Noga, GRL.

3) Total Line Divestment e.g. Tata- Radio business, textile business, electricity, cosmetics.

7) New Product Strategy

1) Product Modification / Improvement

Marketing Strategy

2) Product Imitation

3) Product Innovation

Product Modification / Improvement:

To introduce a new version of improved versions of product are achieved by adding new features to

products.

Examples: TV, Refrigerators, Washing Machines, PC’s etc

Product Imitation:

- Me too products

- Indian pharma industry

- Indian chemical industry

Product Innovation:

New innovation, replacing the old way of need satisfaction.

Examples: Baggi – Car

Tape – VCR – VCD – DVD

Fountain pen – Ball pen etc.

US & German’s are the leading country in this business.

8) Value-Marketing Strategy

a. Quality Strategy

b. Customer Service Strategy

c. Time Based Strategy

“Today customers are demanding combination of product

Quality, good service and timely delivery in right amount”.

Quality Strategy:

Marketing Strategy

Quality is defined by customer and not by in-house quality control department / internal evaluations.

Ultimate objective of quality should be to delight the customers in every possible way i.e. Service,

Support beyond his / her experience.

Catching up – Filling the gap E.g. Washing Machines

Pulling ahead – Giving more than competitors.

E.g. TV Models, Microwaves.

Leapfrogging – Coming from behind and going ahead.

E.g. Videocon, Japanese cars.

Time Based Strategy:

Response Time

Delivery Time

E.g. MTNL, Dominos Pizza, MSEB, BSES etc.

Six Sigma

Administrative approval area

Teamwork

“Speed”, “Courtesies way”, “Empathy”.

11 “Basically all products are the same; it is marketing strategy that leads to differentiation

among the products”. Explain with suitable examples.

MARKETING STRATEGY

A marketing strategy is a process that allows an organization to concentrate its limited resources on

the greatest opportunities to increase sales and achieve a sustainable competitive advantage. A

marketing strategy should be centered around the key concept that customer satisfaction is the main

goal.

PRODUCT DIFFERENTIATION

Marketing Strategy

Product differentiation (differentiation) is the process of distinguishing the differences of a product

or offering from others, to make it more attractive to a particular target market. This involves

differentiating it from competitors' products as well as one's own product offerings. Differentiation is

a source of competitive advantage

Marketing or product differentiation is the process of describing the differences between

products or services, or the resulting list of differences in order to demonstrate the unique aspects of

your product and create a sense of value for the customer so as to make it more attractive to the

target market.

The objective of a marketing strategy is to develop a position that potential customers will

see as unique. If your target market sees your product as different from the competitors', you will

have more flexibility in developing your marketing mix. Successful product differentiation creates a

competitive advantage for the seller, as customers view these products as unique or superior

A successful product differentiation strategy will move your product from competing based

primarily on price to competing on non-price factors (such as product characteristics, distribution

strategy, or promotional variables). In marketing, positioning is the technique by which marketers try

to create an image or identity in the minds of their target market for its product, brand, or

organization

“Successful companies don’t market products, they market offerings.”

An offering encompasses the benefits or satisfaction provided to your target markets, tangible and

intangible. To successfully market your product, you must understand its benefits from the buyer’s

perspective. This approach allows you to think beyond the tangible “product” entity and consider

what the consumer is actually buying and their reasoning behind that purchase.

Your offering includes a tangible product or service, plus any related services, such

as installation, warranties, guarantees, and packaging. It also includes intangible benefits, from peace

of mind, to validating an identity, to showing off to the neighbors.

Marketing Strategy

Focusing on the offering, rather than on the actual product or service itself, can be

valuable for analyzing consumers’ alternatives, to better identify unmet needs and wants of your

target markets, and to enhance development of new products or services.

In a larger sense, an organization’s offerings are a part of who they are as a business. Your

marketing strategy should address what types of customers you seek, what the buyers need, and how

your offerings meet their needs. It should also describe how your offering is communicated and what

value it holds for the consumer.

While a company can create many differences, each difference created has a cost as well as

consumer benefit. A difference is worth establishing when the benefit exceeds the cost. More

generally, a difference is worth establishing to the extent that it satisfies the following criteria.

Important: the difference delivers a highly valued benefit to a sufficient number of buyers.

Distinctive: the difference either isn't offered by others or is offered in a more distinctive way by the

company.

Superior: The difference is superior to the ways obtaining the same benefit.

Communicable: The difference is communicable and visible to the buyers.

Preemptive: The difference cannot be easily copied by competitors.

Affordable: The buyer can afford to pay the higher price

Profitable: The Company will make profit by introducing the difference.

POSITIONING

Positioning is the result of differentiation decisions. It is the act of designing the company's

offering and identity (that will create a planned image) so that they occupy a meaningful and distinct

competitive position in the target customer's minds.

The end result of positioning is the creation of a market-focused value proposition, a simple

clear statement of why the target market should buy the product.

Marketing Strategy

Example:

1) Volvo (station wagon)

Target customer-Safety conscious upscale families

Benefit - Durability and Safety,

Price - 20% premium,

Value proposition - The safest, most durable wagon in which your family can ride.

2) Dominos Pizza

Promise to deliver the Pizza anywhere within 30 min

3) McDonald’s

Zero Defect Quality, Standardization

12. Explain the relationship between industry attractiveness and competitive strength quoting

an Indian example.

GE / McKinsey Matrix

In consulting engagements with General Electric in the 1970's, McKinsey & Company

developed a nine-cell portfolio matrix as a tool for screening GE's large portfolio of strategic

business units (SBU). This business screen became known as the GE/McKinsey Matrix and is shown

below:

GE / McKinsey Matrix

 

Business Unit Strength

    High      Medium      Low    

Marketing Strategy

High      

Medium      

Low      

The GE / McKinsey matrix is similar to the BCG growth-share matrix in that it maps strategic

business units on a grid of the industry and the SBU's position in the industry. The GE matrix

however, attempts to improve upon the BCG matrix in the following two ways:

The GE matrix generalizes the axes as "Industry Attractiveness" and "Business Unit

Strength" whereas the BCG matrix uses the market growth rate as a proxy for industry

attractiveness and relative market share as a proxy for the strength of the business unit.

The GE matrix has nine cells vs. four cells in the BCG matrix.

Industry attractiveness and business unit strength are calculated by first identifying criteria for

each, determining the value of each parameter in the criteria, and multiplying that value by a

weighting factor. The result is a quantitative measure of industry attractiveness and the business

unit's relative performance in that industry.

Factors that Affect Market Attractiveness

Whilst any assessment of market attractiveness is necessarily subjective, there are several

factors which can help determine attractiveness. These are listed below:

Marketing Strategy

- Market Size

- Market growth

- Market profitability

- Pricing trends

- Competitive intensity / rivalry

- Overall risk of returns in the industry

- Opportunity to differentiate products and services

- Segmentation

- Distribution structure (e.g. retail, direct, wholesale

Factors that Affect Competitive Strength

- Strength of assets and competencies

- Relative brand strength

- Market share

- Customer loyalty

- Relative cost position (cost structure compared with competitors)

- Distribution strength

- Record of technological or other innovation

- Access to financial and other investment resources

Business Unit Strength

The horizontal axis of the GE / McKinsey matrix is the strength of the business unit. Some factors

that can be used to determine business unit strength include:

Market share

Growth in market share

Brand equity

Distribution channel access

Production capacity

Profit margins relative to competitors

Marketing Strategy

The business unit strength index can be calculated by multiplying the estimated value of each factor

by the factor's weighting, as done for industry attractiveness.

Plotting the Information

Each business unit can be portrayed as a circle plotted on the matrix, with the information conveyed

as follows:

Market size is represented by the size of the circle.

Market share is shown by using the circle as a pie chart.

The expected future position of the circle is portrayed by means of an arrow.

The following is an example of such a representation:

The shading of the above circle indicates a 38% market share for the strategic business unit. The

arrow in the upward left direction indicates that the business unit is projected to gain strength

relative to competitors, and that the business unit is in an industry that is projected to become more

attractive. The tip of the arrow indicates the future position of the center point of the circle.

Strategic Implications

Resource allocation recommendations can be made to grow, hold, or harvest a strategic business unit

based on its position on the matrix as follows:

Grow strong business units in attractive industries, average business units in attractive

industries, and strong business units in average industries.

Hold average businesses in average industries, strong businesses in weak industries, and

weak business in attractive industries.

Marketing Strategy

Harvest weak business units in unattractive industries, average business units in unattractive

industries, and weak business units in average industries.

There are strategy variations within these three groups. For example, within the harvest group the

firm would be inclined to quickly divest itself of a weak business in an unattractive industry,

whereas it might perform a phased harvest of an average business unit in the same industry.

While the GE business screen represents an improvement over the more simple BCG growth-

share matrix, it still presents a somewhat limited view by not considering interactions among the

business units and by neglecting to address the core competencies leading to value creation. Rather

than serving as the primary tool for resource allocation, portfolio matrices are better suited to

displaying a quick synopsis of the strategic business units.

The Five Forces model of Porter

Porters fives forces model is an excellent model to use to make an analysis of the

attractiveness (value) of an industry structure. So for example, if we were entering the PC industry,

we would use Porters model to help us find out about:

1) Competitive Rivalry

2) Power of suppliers

3) Power of buyers

4) Threats of substitutes

5) Threat of new entrants.

Sometimes, a sixth force is added i.e. Government.

The above five main factors are key factors that influence industry performance, hence it is common

sense and practical to find out about these factors before you enter the industry. These factors are

discussed below in detail:

Competitive Rivalry

Marketing Strategy

A starting point to analyzing the industry is to look at competitive rivalry. If entry to an

industry is easy then competitive rivalry will likely to be high. If it is easy for customers to move to

substitute products for example from coke to water then again rivalry will be high.

Generally competitive rivalry will be high if:

• Degree of product differentiation: If there is little differentiation between the products sold

between customers, the rivalry will be high.

• Switching Costs: Rivalry is reduced if buyers have high switching costs.

• Structure of competition: If competitors are approximately the same size of each other the rivalry

will be greater.

• Strategic Objectives: If competitors pursue aggressive growth strategies, rivalry will be more

intense. If competitors are merely ‘milking’ profits in a mature industry, the degree of rivalry is

typically low.

• Exit barriers: It is costly to leave the industry hence they fight to just stay in.

Power of suppliers

Suppliers are also essential for the success of an organization. Raw materials are needed to complete

the finish product of the organization. Suppliers do have power. Bargaining power of suppliers

comes from:

• If they are the only supplier or one of few suppliers who supply that particular raw material.

• If it costly for the organization to move from one supplier to another (known also as switching

cost)

•If the brand of the supplier is very strong

•Suppliers threaten to integrate forward into the industry (for eg. Brand manufacturers threatening to

set up their own retail outlets)

•Buyers do not threaten to integrate backward into supply

Marketing Strategy

•The industry is not a key customer group to the suppliers

•Role of quality and service

• If there is no other substitute for their product.

Power of buyers

Buyers or customers can exert influence and control over an industry in certain circumstances. This

happens when:

• There is little differentiation over the product and substitutes can be found easily.

• Customers are sensitive to price.

• Switching to another product is not costly.

•There are few dominant buyers and many sellers in the industry.

Threat of substitutes

Are there alternative products that customers can purchase over your product that offer the same

benefit for the same or less price? The threat of substitute is high when:

• Price of that substitute product falls.

• Performance of that substitute becomes better.

• It is easy for consumers to switch from one substitute product to another.

• Buyers are willing to substitute.

Threat of new entrant

The threat of a new organization entering the industry is high when it is easy for an organization to

enter the industry i.e. entry barriers are low. Threat of new entrants depends on:

•Economies of scale

Marketing Strategy

•Capital/ Investment requirements

•Customer switching costs

•Access to industry distribution channels

•Access to technology

•Brand loyalty

•The likelihood of retaliation from existing industry players

•Government regulations

An organization will look at how loyal customers are to existing products, how quickly they can

achieve economy of scales, would they have access to suppliers, would government legislation

prevent them or encourage them to enter the industry.

Marketing Strategy

Both these models help us to understand the relationship between industry attractiveness and

competitive strength

EXAMPLES

 

PVC insulation Tapes

PORTER’S FIVE FORCES ANALYSIS

THREAT OF INTENSE SEGMENT RIVALRY

The adhesive tape industry consists of the major players Pidilite (acquired Bhor Industries), Morgan,

Sanghi, Paramount, Chetna Polypack, Fourpillar Corporation, Asia Chemicals and Tesa. The product

types are used for packaging, insulation, mounting, protection, medical, stationery or cellotapes).

All-India market size is Rs. 600 Crores and is growing at 10% p.a.

Insulation tapes have a market size of Rs. 40 Crores (approx.). These are made of PVC, Polyester,

Teflon, Kapton etc. The major brands in the PVC insulation tapes segment are Magic, Miracle,

Steelgrip, Anchor, Wonder and Deer.

Including the unorganized sector, there are around 200 players in the market (even though most are

regional). The industry is experiencing decreased margins on production and faces the threat of

cheap imports (especially from China). Price warring occurs in the segment among the organized

sector, though fluctuations are infrequent as most large players stick to their respective price bands

to maintain premium imagery. Advertising battles are not a current phenomenon, though are liable to

play a major part in the future. As of now, only Miracle and Steelgrip brands have launched

advertisements, both within the last to years.

THREAT OF NEW ENTRANTS

Marketing Strategy

Entry and exit barriers do exist, but essentially curtail the larger players. Among the smaller players,

firms frequently enter and leave the market and thus returns are stable and low. A multi-brand

market exists, with distinct rungs differentiable by price and quality. On the whole, the market

exhibits the qualities of an oligopoly. There are a large number of buyers and sellers with distinct

market leaders. Most retailers’ stock select multiple brands but tend to push specific preferred brands

(based usually on their margins on different brands). 

Future entry barriers could be patents and licensing requirements. However, the lack of legal

implementation (given the large number of unorganised players) negates this. Mobility barriers exist

only in terms of distribution chain setup and building relationships with the retailers.

THREAT OF SUBSTITUTE PRODUCT 

There is no distinct brand preference. The brand is rarely demanded at time of purchase, as the

consumer typically asks for ‘PVC tape’ or ‘electric tape’. The threat of substitutability exists in the

generic category from packaging and cellotapes for household use. However, as final household

consumption is minimal and most use is by electricians and auto-mechanics, this may be ignored.

Within the specific segment, industrial buying takes place on established quality parameters and

supplier relationships, thus substitutability by lower rung players is not a threat, the corporates being

brand and quality conscious. With non-industrial buyers, prices need to be monitored closely, as due

to largely undifferentiated brands and non-existence of brand loyalty, ‘quality’ tapes may be

substituted by local tapes. The threats are of advanced technology which may sway the market,

given that prices do not increase significantly, as the consumer is price-sensitive to an extent.

THREAT OF BUYER’S GROWING BARGAINING POWER

The main differentiator in the PVC electrical insulation tapes market is the buyers and their

consumption patterns. Thus, it is imperative that a comprehensive analysis be done of the consumer.

Buyers may be divided into the various segments based on their use. PVC insulation tape is

essentially used in the following -   

o Sectors : Electrical, Telecom, Automobile, Defence services, State Electricity boards, State

Transports

o Electrical wiring :

Marketing Strategy

Protecting electrical conductors from corrosion

Electrical wire insulation

o Edge protection, Handle wrapping, Pipe joining

Industrial purchase follows the B2B model, is taken on a case-by-case basis, and is restricted to the

few organised players in the market. The product is used as a part of the manufacturing process of

industrial buyers. However, as it does not form a large portion of input cost, buying usually follows a

‘straight rebuy’ pattern and is based on salesperson-customer relationships, as it is a routine product

(standardised, with low value and cost and little risk). The end user is rarely the decider or even the

influencer in this case, and the purchase department acts as the key-point of contact which is wooed

by the salespeople.

o With respect to non-industrial buyers, which are the prime focus of competition, the product

may be sold to the retailers and then onward through seller-push or to the end consumer (the

electricians, auto mechanics etc.) in an attempt to generate demand-pull.

THREAT OF SUPPLIER’S GROWING BARGAINING POWER

The raw materials require in the manufacturing process are PVC Films, Synthetic Rubber,

Antioxidants, Plastic Resins, Paper Core, Primers, Master Batches etc. Supplier’s bargaining power

does not form a significant threat as suppliers are not in a position to leverage their status and raise

prices or reduce quantity supplied. Supply of the inputs is essentially in the open market and specific

parameters for supply to this industry are negligible, thus reducing supplier differentiation and

negotiating power. Moreover, the suppliers are not of a colluding nature, and the cost of switching

suppliers is not significantly high.

The players in the industry retain the option of multiple supply sources and thus organisation and

concentration on the part of certain suppliers does not affect the market price. Long-term

relationships also ensure that frequent variations do not take place and affect the input costs.

Example 2

Structure of Industry

Background

Marketing Strategy

The origin of the Indian Tyre Industry dates back to 1926 when Dunlop Rubber Limited set up

the first tyre company in West Bengal. MRF followed suit in 1946. Since then, the Indian tyre

industry has grown rapidly.

Transportation industry and tyre industry go hand in hand as the two are interdependent.

Transportation industry has experienced 10% growth rate year after year with an absolute level of

870 billion ton freight. With an extensive road network of 3.2 million km, road accounts for over

85% of all freight movement in India.

Market Characteristics

Demand

Demand for tyres can be classified in terms of:

Type: Bus and Truck; Scooter; Motorcycle; Passenger Car; Tractor

Market: OEM; Replacement; Export

Environment Analysis - Porter's Model

Bargaining Power of the

Suppliers: High

The tyre industry consumes nearly

50% of the natural rubber produced

in the country. The price of natural

rubber is controlled by Rubber

Control Board and the domestic

prices of natural rubber have

registered a significant increase in

recent times.

Bargaining Power of the

Buyers: High

The OEMs have total control

over prices. In fact, the OEMs

faced with declining

profitability have also reduced

the number of component

suppliers to make the supply

chain more efficient.

Entry Barriers: High

the entry barriers are high for the tyre industry. It is a highly capital intensive industry. A plant with an annual capacity of 1.5 million cross-ply tyres costs between Rs. 4,000 and Rs. 5,000 million. A similar plant producing radial tyres costs Rs. 8,000 million.

Inter Firm Rivalry: Low

The tyre industry in India is fairly concentrated, with the top eight companies accounting for more than 80% of the total production of tyres.

Marketing Strategy

13. Suggest the distribution strategy for marketing following products in urban and rural

markets of India.

iv) Bath soap for human beings

v) Bath soap for dogs / pets

vi) Toothpaste

vii) Washing machine

viii) Mobile phone (Handset)

DISTRIBUTION - CHANNEL STRATEGY

Distribution Intensity

There are three broad options - intensive, selective and exclusive distribution:

Intensive distribution aims to provide saturation coverage of the market by using all available

outlets. For many products, total sales are directly linked to the number of outlets used (e.g.

cigarettes, beer). Intensive distribution is usually required where customers have a range of

acceptable brands to choose from. In other words, if one brand is not available, a customer will

simply choose another.

Selective distribution involves a producer using a limited number of outlets in a geographical area to

sell products. An advantage of this approach is that the producer can choose the most appropriate or

best-performing outlets and focus effort (e.g. training) on them. Selective distribution works best

Threat of Substitutes: Low but Increasing

During the FY2002, over 1,10,000 passenger car tyres were imported. This constitutes over 2% of total radial passenger car tyre production in the country. However, with the reduction of peak custom duty, the import of tyres is likely to increase.

Marketing Strategy

when consumers are prepared to "shop around" - in other words - they have a preference for a

particular brand or price and will search out the outlets that supply.

Exclusive distribution is an extreme form of selective distribution in which only one wholesaler,

retailer or distributor is used in a specific geographical area.

Distribution strategy for Bath soap for human beings

Urban and Rural:

Eg: HLL - Toilet Soaps

As the marketing channels of the company are already established I would try to increase the

penetration in the rural sector to the extreme remote areas which are not touched till now. I would try

to reduce the delivery time of the products by choosing and increasing the strategic locations of

warehouses. I would also track the distribution path of the wholesalers in small cities through

marketing team and would establish a platform or team at a zonal level for all the wholesalers and

would try to take their feedback on the market developments. These kinds of congregations could

also increase the brand loyalty in the wholesalers and they would be motivated to push HLL

products.

Distribution strategy for Bath soap for dogs and pets

Urban and Rural:

The strategy would be to develop the marketing channels as strong and penetrated as that of

HLL. The national coverage would be dealt with by increasing the company's warehouses and

creating C&F agents in the smaller cities.

Rural penetration on the lines of competitor would be better strategy. Emphasis would also

be on increasing wholesale dealer in small towns and tehsils who can cover the nearby villages. In

this context my strategy would be to provide the wholesalers a scheme for buy delivery vans by

funding 50% of the price of delivery vans and rest to be paid by wholesalers in installments. The

Marketing Strategy

number of distribution van would again depend upon the distribution path covered by each

individual wholesaler, the number of villages nearby a small town and certain demographic factors.

Distribution strategy for Toothpaste

Urban and Rural:

Rural: I would try to increase product penetration to rural population as by 2006-07 the rural

population who is rich and consuming class would be 209Mn which is not much lesser than urban

rich and consuming population of 253Mn people. I would try to increase the wholesalers to smaller

towns and would track the distribution path so that they are covering all the village areas around the

towns.

Urban: Toothpaste is a FMCG item and has almost 100% demands in the urban areas and hence the

distribution strategy to be adopted here would be the one of exclusive distribution as we want to

cover the maximum possible portion of India.

Distribution strategy for Washing Machine

Urban and Rural:

The type of distribution system would be largely related to the marketing strategy of the company.

Looking at the company as a general manufacturer of consumer goods the most likely system would

be one of "selective distribution." In selective distribution the company would target their products

to specific outlets where their products would best fit.

Other types of distribution would be "intensive distribution" where the company would try to sell

their products to as many different outlets as possible and "exclusive distribution" whereby the

company would look to a very limited number of outlets that would most likely specialize in a

specific niche. "Selective distribution" falls in between these two types.

Marketing Strategy

Distribution strategy for Mobile Phones

Urban and Rural:

In the urban areas prominently we would use exclusive distribution strategy. The goods would be

made available to the entire India through use of all the channels as explained earlier.

The rural areas again we would be using our own agents to sell and also the handsets would be made

available in the haats and the melas in the rural areas as that is where the major buying of the

products by the customers takes place.

Hence our main strategy would be to use:

Extensive distribution: For cheap handsets in urban and rural areas

Intensive: For the average and little more expensive ones

Exclusive: For the most premium ones that wouldn’t be afforded by all

14. “Product Mix” strategies are essential for a multi-product company”. If so, apply the

concept of product mix strategies to enhance the competitive advantage of P&G?

Product Mix

The product mix is the set of all products offered for sale by a company.

• A product mix has two dimensions:

• Breadth - the number of product lines carried.

• Depth - the variety of sizes, colours, and models offered within each product line.

Major product-mix strategies:

Marketing Strategy

• Positioning, expansion, alteration, contraction, trading up and trading down

Product Mix Strategies

Positioning the Product

• In Relation to a Competitor

• In Relation to a Product Class or Attribute

• In Relation to a Target Market

• By Price and Quality

Product-Mix Expansion

• Line Extension

• Mix Extension

Expanding the Product Mix

Mix-extension strategies include:

• Same brand, related product (Tim Horton coffeemaker)

• Same brand, unrelated product (Swiss Army watch)

• Different brand, unrelated product (Pepsi & KFC)

• Different brand, related product (P&G adds Luvs diapers; already makes Pampers)

Trading Up and Trading Down

• Trading up: Adding a higher-priced product to a line to attract a higher-income market and

improve the sales of existing lower-priced products.

• Trading down: Adding a lower-priced item to a line of prestige products to encourage

purchases from people who cannot afford the higher-priced product, but want the status

Other Product Mix Strategies

Marketing Strategy

• Alteration of Existing Products:

• Improve an established product with new design, new package, and new uses.

• Product-Mix Contraction:

• Eliminate an entire line or reduce assortment within it.

• Pruning to reduce similar brands.

• Dump unprofitable or indistinct brands.

•

P&G Product Mix Width and Depth

P&G has an array of detergent brands under its patronage, but all have different brands like

Crest, Tide, Duncan, Hines, Charmin, and Ariel etc. Even while the market of Ariel fell, the sales of

Tide had compensated the net sales of P&G in the detergent segment. Despite the disadvantages &

disregarding the cannibalization of brands, this works as an advantage to the parent company. A

strategic decision to face external competition does not eat up the company's overall market share.

Procter & Gamble's Head & shoulders is considered among the top brands in Indian Anti-

Dandruff Shampoos, H & S differentiates itself from its close competitor Clinic All Clear Anti-

Dandruff Shampoo in the sense that it is available in different varieties like Menthol, Lemon &

Strawberry as well as having a ZPTO factor in it which makes a USP of H & S and positioning it as

one of the best brands in the Anti Dandruff Shampoo market.

All these factors act as a competitive advantage for Proctor & Gamble.

15. Compare and contrast between “Competitive Advantage and Competitive Strategy”? How

one can achieve ‘Sustainable competitive advantage’? Taking a company of your choice in

automobile industry, illustrate how this company can develop competitive advantage?

COMPETITIVE ADVANTAGE

Competitive advantage is a position a firm occupies against its competitors.

Marketing Strategy

The competitive advantage model of Porter learns that competitive strategy is about taking

offensive or defensive action to create a defendable position in an industry, in order to cope

successfully with competitive forces and generate superior return on investment. According to

Porter, the basis of above average performance within an industry is sustainable competitive

advantage. There are two types of CA

Cost leadership

Differentiation

Cost advantage occurs when a firm delivers the same services as its competitors but at a

lower cost. Differentiation advantage occurs when a firm delivers greater services for the same price

of its competitors. They are collectively known as positional advantages because they denote the

firm's position in its industry as a leader in either superior services or cost.

The primary factors of competitive advantage are innovation, reputation and relationships

COMPETITIVE STRATEGY

A firm's relative position within its industry determines whether a firm's profitability is above

or below the industry average. The fundamental basis of above average profitability in the long run

is sustainable competitive advantage. There are two basic types of competitive advantage a firm can

possess: low cost or differentiation. The two basic types of competitive advantage combined with the

scope of activities for which a firm seeks to achieve them, lead to three generic strategies for

achieving above average performance in an industry: cost leadership, differentiation, and focus. The

focus strategy has two variants, cost focus and differentiation focus.

Marketing Strategy

1. Cost Leadership

In cost leadership, a firm sets out to become the low cost producer in its industry. The

sources of cost advantage are varied and depend on the structure of the industry. They may include

the pursuit of economies of scale, proprietary technology, preferential access to raw materials and

other factors. A low cost producer must find and exploit all sources of cost advantage. If a firm can

achieve and sustain overall cost leadership, then it will be an above average performer in its industry,

provided it can command prices at or near the industry average.

2. Differentiation

In a differentiation strategy, a firm seeks to be unique in its industry along some dimensions

that are widely valued by buyers. It selects one or more attributes that many buyers in an industry

perceive as important, and uniquely positions itself to meet those needs. It is rewarded for its

uniqueness with a premium price.

3. Focus

The generic strategy of focus rests on the choice of a narrow competitive scope within an

industry. The focuser selects a segment or group of segments in the industry and tailors its strategy

to serving them to the exclusion of others.

The focus strategy has two variants.

(a) In cost focus a firm seeks a cost advantage in its target segment, while in

(b) Differentiation focus a firm seeks differentiation in its target segment.

Both variants of the focus strategy rest on differences between a focuser's target segment and

other segments in the industry. The target segments must either have buyers with unusual needs or

else the production and delivery system that best serves the target segment must differ from that of

Marketing Strategy

other industry segments. Cost focus exploits differences in cost behaviour in some segments, while

differentiation focus exploits the special needs of buyers in certain segments.

SUSTAINABLE COMPETITIVE ADVANTAGE

A firm possesses a sustainable competitive advantage when its value-creating processes and

position have not been able to be duplicated or imitated by other firms. Sustainable competitive

advantage results, according to the Resource-based View theory, in the creation of above normal (or

supernormal) rents in the long run.

Sustainable competitive advantage allows the maintenance and improvement of the

enterprise's competitive position in the market.

The goal of much of business strategy is to achieve a sustainable competitive advantage.

It is an advantage that enables business to survive against its competition over a long period of time.

EXAMPLE:

Tata Motors Limited is a multinational corporation headquartered in Mumbai, India. It is

India's largest passenger automobile and commercial vehicle manufacturing company. It is part of

the Tata Group, and one of the world's largest manufacturers of commercial vehicles. The OICA

ranked it as the world's 20th largest automaker, based on figures for 2006

Tata Motors have some distinct advantages in comparison to other multi-national

competitors. There is definite cost advantage as labor cost is 8-9 percent of sales as against 30-35

percent of sales in developed economies. Tata motors have extensive backward and forward linkages

and it is strongly interwoven with machine tools and metals sectors. Tata Group's strong expertise in

the IT based engineering solution for products and process integration has helped Tata Motors. India

has a large auto component industry noted for its world-class capabilities. There is huge demand in

domestic markets due to infrastructure developments and Tata Motors is able to leverage its

knowledge of Indian market. There are favorable Government polices and regulations to boost the

auto industry.

Marketing Strategy

In India, it has focused on providing economical transport solutions in consonance with its

values of safety, quality, and environmental care. Its competitive advantage is its high technology,

which makes the vehicle a very comfortable option to travel through. Tata's trucks have long been

reputed for their unmatched performance, build, and technological advancements that are the flag

bearers in their production activities in India. It is still operating in the niche market of high-end

buses

Tata Motors would become the cost leaders soon after the launch of Tata Nano. So much so

that it was already made its competitors struggle on deciding how to beat them with their one-lakh

wonder. The demand of Nano would be immense due to the wide spread middle-income population

in India. Tata Motors have also received huge demand from the international market as well.