Professional Documents
Culture Documents
packaging for the item delivered by a delivery service, or a scar left by a surgeon. This
evidence
reminds or reassures the consumer that the service took place, positively or
negatively.
People
Process
The employees that execute the service, chiefly concerning the manner and skill in
which they do so.
The processes and systems within the organization that affect the execution of its
service, such as job queuing or query handling.
9. Take a new product of your choice and strategize the 4ps for it.
10. Explain product life cycle.
11. Product v/s Service
12. Product Management v/s Brand Management
13. What is a brand?
14.
What do we do?
How are our actions restrained and constrained by the means at our disposal?
What risks are involved and which ones are serious enough that we should plan for them?
What is happening in the larger, social, political, technical and financial environments?
In which businesses?
What will we make, what will we buy, and what will we acquire through alliance?
Summary
The preceding discussion asserts that strategy in general is concerned with how particular objectives are achieved, with
courses of action. Corporate strategy is concerned with choices and commitments regarding markets, business and the
very nature of the company itself. Competitive strategy is concerned with competitors and the basis of competition.
20.
The total dollar market value of all of a company's outstanding shares. Market
capitalization is calculated by multiplying a company's shares outstanding by the
current market price of one share.
If a company has 35 million shares outstanding, each with a market value of $100,
the company's market capitalization is $3.5 billion (35,000,000 x $100 per share).
Tata Consultancy Services (TCS) crossed the Rs 5 lakh crore mark in market
capitalization
Psychological Pricing
Psychological pricing strategy is commonly used by marketers in the prices
they establish for their products. For instance, $99 is psychologically "less" in
the minds of consumers than $100. It's a minor distinction that can make a
big difference.
24.
Push Marketing
Push marketing is a promotional strategy where businesses attempt to take their products to
the customers. The term push stems from the idea that marketers are attempting to push
their products at consumers. Common sales tactics include trying to sell merchandise
directly to customers via company showrooms and negotiating with retailers to sell their
products for them, or set up point-of-sale displays. Often, these retailers will receive special
sales incentives in exchange for this increased visibility.
Pull Marketing
Pull marketing, on the other hand, takes the opposite approach. The goal of pull marketing is
to get the customers to come to you, hence the term pull, where marketers are attempting
to pull customers in. Common sales tactics used for pull marketing include mass media
promotions, word-of-mouth referrals and advertised sales promotions. From a business
perspective, pull marketing attempts to create brand loyalty and keep customers coming
back, whereas push marketing is more concerned with short-term sales.
You can often recognize pull marketing campaigns by the amount of advertising that's being
used. Pull marketing requires lots of advertising dollars to be spent on making brand and
products a household name. One example includes the marketing of children's toys. In the
first stage, the company advertises the product. Next, the children and parents see the
advertisement and want to purchase the toy. As demand increases, retailers begin
scrambling trying to stock the product in their stores. All the while, the company has
successfully pulled customers to them.
25.
If the perceived costs of a service are greater than the perceived benefit
then the service in question will possess negative net value, and the
consumer will not buy. You can think of calculations customers make in their
minds as similar to weighing materials on a pair of old-fashioned scales, with
product benefit in one tray and the costs associated with obtaining those
benefit in the other tray. When customers evaluate competing services, they
are basically comparing the relative net values .A marketer can increase the
value of a service by adding benefit to the core product and by improving
supplementary services.
Competition-based Pricing
The last leg of the pricing tripod is competition. Firms with relatively
undifferentiated services need to monitor what competitors are charging and
27.
While there are many similarities between B2C and B2B marketing in
general, there are some key differences, especially on social media.
1. Marketers can use industry jargon to excellent effect on B2B platforms,
but on B2C, the voice must be at least relatable to the majority of consumers
meaning fewer buzzwords and (usually) simpler language.
2. Drivers matter. The B2B audience is seeking efficiency and expertise,
while the consumer audience is more likely to be seeking deals and
entertainment. Accordingly, the B2B purchase process tends to be rationally
and logically driven, while consumer choices are typically emotionally
triggered (whether by hunger, desire, status or cost).
3. B2B clientele want to be educated and provided with expertise. They often
want to look like the workplace rock stars or heroes thanks to their excellent
decisions. B2C customers just want to enjoy themselves, be happy with their
purchase and have it adequately fulfill the needs mentioned in No. 2.
4. Highly detailed content is required for B2B marketing. Its an audience
that expects to be catered to by a sales and marketing team. On the other
hand, B2C social media activities simply need to meet the basic needs of
being useful, humorous and shareable, which admittedly, can be just as
complicated.
5. Lengthy content tends to work for B2B since a brand or business has to
prove its expertise and give its target audience a reason to buy in.
Consumers tend to prefer something short and snappy, especially for lowerpriced B2C products.
6. A B2C consumer following your brand isnt necessarily looking to build a
close relationship with it. Inversely, the B2B crowd wants information and the
ability to build a close relationship with brands.
7. B2B marketers have a much longer chain of command to deal with since
procurement, accounting and their superiors often need to approve
purchases. On the other hand, an individual typically makes their own
speedy B2C purchase choices possibly with the slight influence of others
via recommendations or suggestions.
8. The B2B buying cycle is often much longer than the B2C decision process.
Therefore, it requires much more nurturing and close attention. B2C buys
tend to satisfy immediate needs, while B2B decisions are meant to complete
long-term goals.
9. A contract for a B2B purchase tends to last months or even years, making
it a much more significant decision. On the contrary, the total B2C cycle can
be as short as a few minutes depending on the product.
10. The two types of marketers have distinctive problems. Often, the largest
problem that B2B marketers have is a lack of content and time to create it.
This differs from B2C marketers who would rather have a bigger advertising
budget and other ways to spread the word about their products. Naturally,
this has a significant effect on tactical executions.
28.
29.
Identification
Up-selling is a marketing technique where you try to convince a customer to purchase a more expensive product.
For example, if a customer looks to purchase an entry-level laptop computer, you could attempt an up-sell by
informing him of the upgrades of a mid-range or premium laptop. A down-sell involves a reversal of the up-sell. If a
customer does not want the product you want to sell, you suggest a cheaper alternative. For instance, when a
customer cannot afford a laptop, you might suggest an older model desktop that costs less.
Benefits
Although your higher-priced items may have a larger profit margin, down-selling can be just as or more important to
your company. Entry-level products can help you build brand loyalty when a customer cannot afford premium
products at the moment. For example, one boutique that sells purses found that sales were dropping because
customers could not afford the item. Instead of slashing prices and potentially diluting the market with their
product, the boutique designed a cellphone holder with a similar design as their purses but at a fraction of the price
of their handbags.
Cross-Selling
Related to up-selling and down-selling is "cross-selling." Using the cross-selling
technique, you offer related products and services to the initial purchase.
Warranties are a common cross-selling technique. If someone buys a computer for
$300, for example, you might offer a warranty to replace the computer in case it
breaks for $100. Cross-selling also builds brand loyalty.
Cross-selling
For a given product or combination of products, you can specify that additional products are to
be suggested for purchase.
Example
If a business partner orders a PC, you can cross-sell by suggesting that they also
buy a printer or a particular software package.
Up-selling
You can define other products that should be proposed if you sell a specific product.
Example
If a business partner orders a fax machine, you up-sell by proposing a more
expensive, better-equipped version.
Down-selling
Under certain circumstances, you may want to suggest a cheaper product as an alternative
(down-selling).
Example
A telesales agent is able to view both more expensive (up-selling) and cheaper
(down-selling) alternatives (depending on Customizing settings). As a rule, the
agent will generally try to promote up-selling products to the customer, but to
prevent a no-sale he or she may also be forced to propose down-selling alternatives
instead. If you create up-selling and down-selling rules that are target-groupspecific, you can control for which business partners you generally want to perform
up-selling, and for which down-selling.
D desire: convince customers that they want and desire the product or service and that it will satisfy their
needs.
4 Asof Marketing:
Acceptability
Affordability
Availability
Awareness
Marketing Mix and the Five Ms of Marketing
Written by Clayton Reeves for Gaebler Ventures
When you produce a marketing strategy, there is a mix that must be created. This
involves the five Ms of marketing and how they convince buyers to purchase your
items.
Marketing has many different interactive parts.
(article continues below)
Among them is the communication aspect.
The five Ms of advertising provide a framework by which you can create an
advertising platform.
First, the firm must decide what the purpose of the advertisements will be. This is
called the mission. Monetary constraints usually determine how large any project
can be. This is the money aspect of the advertising project. Message is the creative
aspect of the advertising strategy. Next, the media by which the message will be
delivered must be determined. Finally, measuring the project is important to
determine how effective the advertisements actually were. This can sometimes be
the most difficult part of the plan, since measuring changes in customer opinion can
be time consuming and costly.
In this article, we take a deeper look at the five Ms of marketing.
Mission
There are several ways that a company can determine what the mission of an
advertising strategy should be. Quantitative measures such as increasing the
awareness of the brand among a certain segment by a certain percentage can be
chosen. For example, increasing the awareness among financial executives of a
certain audit control offered by your company by 20% could be a mission. This
could be measured before and after using a survey or some other form of primary
research.
Money
Budget constraints are everywhere in business, and nowhere are they more evident
than in small businesses. Advertising and marketing can sometimes be ignored
because they do not offer immediate results. However, in every business
environment, some resources must be allocated to building a brand and image.
Without this, the company will not continue to grow. Even during recessions,
marketing must be a priority to avoid losing market share. Having a suitable budget
is an important part of the process.
Message
Advertising is a creative process. There are slogans, themes and gimmicks that try
to lure the customer in. The message of an advertisement is this creative aspect.
Any manner of theme can be implemented as long as it is in line with what the
company stands for.
Media
This aspect of the program refers to the media that will be used to communicate the
message. This can include television, radio, mail, telephone and in person contact.
Most media has metrics to measure their efficiency and costs associated with those
metrics. Choosing the right media can make or break an advertising program.
Measurement
Finally, the firm must measure the effects of the program on their intended
audience. This can be done by measuring sales or trying to gauge interest through
research. It is often very difficult to measure how much the advertisements actually
impacted customer interest and how much other external factors played a part.
When he's not playing racquetball or studying for a class, Clayton Reeves enjoys
writing articles about entrepreneurship. He is currently an MBA student at the
University of Missouri with a concentration in Economics and Finance.
Sales Promotion
38.
Consumer Behavior
39.
Market research
48.
49.
50.
51.
Integrated marketing communication refers to integrating all the methods of brand promotion to promote a particular product or
service among target customers. In integrated marketing communication, all aspects of marketing communication work together for
increased sales and maximum cost effectiveness.
It is essential for organizations to promote their brands well among the end-users not only to outshine competitors but also survive in the
long run. Brand promotion increases awareness of products and services and eventually increases their sales, yielding high profits and
revenue for the organization.
To understand integrated marketing communication, let us first understand what does brand communication mean?
Brand communication is an initiative taken by organizations to make their products and services popular among the end-users.
Brand communication goes a long way in promoting products and services among target consumers. The process involves identifying
individuals who are best suited to the purchase of products or services (also called target consumers) and promoting the brand among them
through any one of the following means:
Advertising
Sales Promotion
Public Relation
Direct Marketing
Personal Selling
52.
53.
1.
2.
3.
4.
What is positioning?
Target Audience- the attitudinal and demographic description of the core prospect to whom the brand is intended to appeal;
the group of customers that most closely represents the brands most fervent users.
Frame of Reference- the category in which the brand competes; the context that gives the brand relevance to the customer.
Benefit/Point of Difference- the most compelling and motivating benefit that the brand can own in the hearts and minds of its
target audience relative to the competition.
Reason to Believe- the most convincing proof that the brand delivers what it promises.
Template for a Positioning Statement:
For (target audience), (brand name) is the (frame of reference) that delivers (benefit/point of difference) because only (brand name) is reason
to believe).
54.
The rule of three in Business and Economics is a rule of thumb suggesting that there are always three major
competitors in any free market within any one industry.
Leader , challenger and follower.
55.
Pricing Strategies?
Pricing is one of the four elements of the marketing mix, along with product, place and promotion. Pricing strategy
is important for companies who wish to achieve success by finding the price point where they can maximize sales
and profits. Companies may use a variety of pricing strategies, depending on their own unique marketing goals and
objectives.
Ads by Google
Premium Pricing
Premium pricing strategy establishes a price higher than the competitors. It's a strategy that can be effectively
used when there is something unique about the product or when the product is first to market and the business has
a distinct competitive advantage. Premium pricing can be a good strategy for companies entering the market with a
new market and hoping to maximize revenue during the early stages of the product life cycle.
Penetration Pricing
A penetration pricing strategy is designed to capture market share by entering the market with a low price relative
to the competition to attract buyers. The idea is that the business will be able to raise awareness and get people to
try the product. Even though penetration pricing may initially create a loss for the company, the hope is that it will
help to generate word-of-mouth and create awareness amid a crowded market category.
Related Reading: Pricing Vs. Nonpricing Strategies
Economy Pricing
Economy pricing is a familiar pricing strategy for organizations that include Wal-Mart, whose brand is based on this
strategy. Aldi, a food store, is another example of economy pricing strategy. Companies take a very basic, low-cost
approach to marketing--nothing fancy, just the bare minimum to keep prices low and attract a specific segment of
the market that is very price sensitive.
Price Skimming
Businesses that have a significant competitive advantage can enter the market with a price skimming strategy
designed to gain maximum revenue advantage before other competitors begin offering similar products or product
alternatives.
Psychological Pricing
Psychological pricing strategy is commonly used by marketers in the prices they establish for their products. For
instance, $99 is psychologically "less" in the minds of consumers than $100. It's a minor distinction that can make a
big difference.
56.
Cause Related Marketing is a commercial activity by which businesses and charities (or causes) form a
partnership with each other to market an image, product or service for mutual benefit. It is a marketing
tool used to help address the social issues of the day, through providing resources and funding, whilst at
the same time addressing important business objectives.
57.
Surrogate advertising/marketing?
58.
59.
Inbound/Outbound, Reverse, relationship, Permission,
Affiliate, Guerrilla, Umbrella, Ambush, Online/Offline Marketing?
60.
In microeconomics and management, vertical integration is where the supply chain of a company is owned by that
company. Usually each member of the supply chain produces a different product or (market-specific) service, and the
products combine to satisfy a common need. It is contrasted with horizontal integration. Vertical integration has also
described management styles that bring large portions of the supply chain not only under a common ownership, but
also into one corporation (as in the 1920s when theFord River Rouge Complex began making much of its own steel
rather than buying it from suppliers).
Vertical integration is one method of avoiding the hold-up problem. A monopoly produced through vertical integration
is called avertical monopoly.
Three types[edit]
Vertical integration is the degree to which a firm owns its upstream suppliers and its downstream buyers. Contrary
to horizontal integration, which is a consolidation of many firms that handle the same part of the production process,
vertical integration is typified by one firm engaged in different parts of production (e.g., growing raw materials,
manufacturing, transporting, marketing, and/or retailing).
There are three varieties: backward (upstream) vertical integration, forward (downstream) vertical integration, and
balanced (both upstream and downstream) vertical integration.
A company exhibits backward vertical integration when it controls subsidiaries that produce some of the
inputs used in the production of its products. For example, an automobile company may own a tire company,
a glass company, and a metal company. Control of these three subsidiaries is intended to create a stable supply
of inputs and ensure a consistent quality in their final product. It was the main business approach of Ford and
other car companies in the 1920s, who sought to minimize costs by integrating the production of cars and car
parts as exemplified in the Ford River Rouge Complex.
A company tends toward forward vertical integration when it controls distribution centers and retailers
where its products are sold.
Examples[edit]
One of the earliest, largest and most famous examples of vertical integration was the Carnegie Steel company. The
company controlled not only the mills where the steel was made, but also the mines where the iron ore was
extracted, the coal mines that supplied the coal, the ships that transported the iron ore and the railroads that
transported the coal to the factory, the coke ovens where the coal was cooked, etc. The company also focused
heavily on developing talent internally from the bottom up, rather than importing it from other companies.[2] Later on,
Carnegie even established an institute of higher learning to teach the steel processes to the next generation.
Oil industry[edit]
Oil companies, both multinational (such as ExxonMobil, Royal Dutch Shell, ConocoPhillips or BP) and national
(e.g. Petronas) often adopt a vertically integrated structure. This means that they are active along the entire supply
chain from locating deposits, drilling and extracting crude oil, transporting it around the world, refining it into
petroleum products such as petrol/gasoline, to distributing the fuel to company-owned retail stations, for sale to
consumers.
In business, horizontal integration is a strategy where a company creates or acquires production units for outputs
which are alike - either complementary or competitive. One example would be when a company acquires competitors
in the same industry doing the same stage of production for the creation of a monopoly.[1] Another example is the
management of a group of products which are alike, yet at different price points, complexities, and qualities. This
strategy may reduce competition and increase market share by using economies of scale. For example, a car
manufacturer acquiring its competitor who does exactly the same thing.
Horizontal integration is the opposite to vertical integration, where companies integrate multiple stages of
production of a small number of production units.
61.
62.
63.
64.
65.
66.
Efforts aimed at discouraging (not destroying) the demandfor a product which (1) a firm
cannot supply in large-enough quantities, or (2) does not want to supply in a certain region where
the high costs of distribution orpromotion allow only a too little profit
margin. Commondemarketing strategies include higher prices, scaled-downadvertising, and product
redesign.
67.
7 S?
The McKinsey 7S Framework is a management model developed by well-known business consultants Robert H.
Waterman, Jr. and Tom Peters (who also developed the MBWA-- "Management By Walking Around" motif, and
authored In Search of Excellence) in the 1980s. This was a strategic vision for groups, to
include businesses,business units, and teams. The 7S are structure, strategy, systems, skills, style, staff and shared
values.
The model is most often used as an organizational analysis tool to assess and monitor changes in the internal
situation of an organization.
The model is based on the theory that, for an organization to perform well, these seven elements need to be aligned
and mutually reinforcing. So, the model can be used to help identify what needs to be realigned to improve
performance, or to maintain alignment (and performance) during other types of change.
Whatever the type of change restructuring, new processes, organizational merger, new systems, change of
leadership, and so on the model can be used to understand how the organizational elements are interrelated, and
so ensure that the wider impact of changes made in one area is taken into consideration.
68.
7 C?
here are 7 Cs of effective communication which are applicable to both written as well as oral communication. These are as follows:
1.
Completeness - The communication must be complete. It should convey all facts required by the audience. The sender of the
message must take into consideration the receivers mind set and convey the message accordingly. A complete communication
has following features:
Moreover, they are cost saving as no crucial information is missing and no additional cost is incurred in conveying extra
message if the communication is complete.
A complete communication always gives additional information wherever required. It leaves no questions in the mind of
receiver.
Complete communication helps in better decision-making by the audience/readers/receivers of message as they get all
desired and crucial information.
2.
3.
4.
5.
6.
Conciseness - Conciseness means wordiness, i.e, communicating what you want to convey in least possible words without
forgoing the other Cs of communication. Conciseness is a necessity for effective communication. Concise communication has
following features:
It underlines and highlights the main message as it avoids using excessive and needless words.
Concise communication provides short and essential message in limited words to the audience.
Consideration - Consideration implies stepping into the shoes of others. Effective communication must take the audience into
consideration, i.e, the audiences view points, background, mind-set, education level, etc. Make an attempt to envisage your
audience, their requirements, emotions as well as problems. Ensure that the self-respect of the audience is maintained and their
emotions are not at harm. Modify your words in message to suit the audiences needs while making your message complete.
Features of considerate communication are as follows:
Empathize with the audience and exhibit interest in the audience. This will stimulate a positive reaction from the
audience.
Show optimism towards your audience. Emphasize on what is possible rather than what is impossible. Lay stress on
positive words such as jovial, committed, thanks, warm, healthy, help, etc.
Clarity - Clarity implies emphasizing on a specific message or goal at a time, rather than trying to achieve too much at once.
Clarity in communication has following features:
Concreteness - Concrete communication implies being particular and clear rather than fuzzy and general. Concreteness
strengthens the confidence. Concrete message has following features:
It makes use of words that are clear and that build the reputation.
Courtesy - Courtesy in message implies the message should show the senders expression as well as should respect the
receiver. The sender of the message should be sincerely polite, judicious, reflective and enthusiastic. Courteous message has
following features:
Courtesy implies taking into consideration both viewpoints as well as feelings of the receiver of the message.
7.
Correctness - Correctness in communication implies that there are no grammatical errors in communication. Correct
communication has following features:
It checks for the precision and accurateness of facts and figures used in the message.
69.
70.
73. Explain BCG matrix in brief. Draw a BCG matrix for any
category of your choice. Justify the placement of each unit in the
matrix. Or
What is the significance of each quadrant of BCG and what
decisions have to be taken with respect to each quadrant? Or
For a company, how many stars, dogs, cash cows and question
marks are preferred? Or
When a product is launched, in which quadrant of the BCG will it
fall in? [My answer was that it depends on the industry growth
rate] Or
Give us examples of both cases, new product in high growth rate
industry and new product in low growth rate industry, which
quadrants would the new product fall in? Or
[I gave the example of Whatsapp- new product in high growth
market, qualifies as a Star. Following questions i.e. 11 to 14
were based on this example. My answer to each question led to
the next question] Or
So if the new product is a Star today, what would it become
after some time? Or
In the BCG, how will you maintain your Cash Cows as Cash
Cows? Or
How will you maintain or further increase market share? There is
no condition where there would be no competition. How can you
protect yourself from competition? Or
Can a Dog ever be converted into a Question Mark or Cash
Cow? If yes, how? Cite example(s). [Given that industry growth
rate picks up] Or
Your answer seems hypothetical. It may work. But what do you
really feel? Can a Dog be really converted into a Cash Cow or
Question Mark ever?
Definition
1.
BCG matrix (or growth-share matrix) is a corporate planning tool, which is used to portray firms
brand portfolio or SBUs on a quadrant along relative market share axis (horizontal axis) and speed of
market growth (vertical axis) axis.
2.
Growth-share matrix is a business tool, which uses relative market share and industry growth
rate factors to evaluate the potential of business brand portfolio and suggest further investment
strategies.
Relative market share. One of the dimensions used to evaluate business portfolio is relative market
share. Higher corporates market share results in higher cash returns. This is because a firm that
produces more, benefits from higher economies of scale and experience curve, which results in higher
profits. Nonetheless, it is worth to note that some firms may experience the same benefits with lower
production outputs and lower market share.
Market growth rate. High market growth rate means higher earnings and sometimes profits but it also
consumes lots of cash, which is used as investment to stimulate further growth. Therefore, business units
that operate in rapid growth industries are cash users and are worth investing in only when they are
expected to grow or maintain market share in the future.
There are four quadrants into which firms brands are classified:
Dogs. Dogs hold low market share compared to competitors and operate in a slowly growing market. In
general, they are not worth investing in because they generate low or negative cash returns. But this is
not always the truth. Some dogs may be profitable for long period of time, they may provide synergies for
other brands or SBUs or simple act as a defense to counter competitors moves. Therefore, it is always
important to perform deeper analysis of each brand or SBU to make sure they are not worth investing in
or have to be divested.
Strategic choices: Retrenchment, divestiture, liquidation
Cash cows. Cash cows are the most profitable brands and should be milked to provide as much cash
as possible. The cash gained from cows should be invested into stars to support their further growth.
According to growth-share matrix, corporates should not invest into cash cows to induce growth but only
to support them so they can maintain their current market share. Again, this is not always the truth. Cash
cows are usually large corporations or SBUs that are capable of innovating new products or processes,
which may become new stars. If there would be no support for cash cows, they would not be capable of
such innovations.
Strategic choices: Product development, diversification, divestiture, retrenchment
Stars. Stars operate in high growth industries and maintain high market share. Stars are both cash
generators and cash users. They are the primary units in which the company should invest its money,
because stars are expected to become cash cows and generate positive cash flows. Yet, not all stars
become cash flows. This is especially true in rapidly changing industries, where new innovative products
can soon be outcompeted by new technological advancements, so a star instead of becoming a cash
cow, becomes a dog.
Strategic choices: Vertical integration, horizontal integration, market penetration, market development,
product development
Question marks. Question marks are the brands that require much closer consideration. They hold low
market share in fast growing markets consuming large amount of cash and incurring losses. It has
potential to gain market share and become a star, which would later become cash cow. Question marks
do not always succeed and even after large amount of investments they struggle to gain market share
and eventually become dogs. Therefore, they require very close consideration to decide if they are worth
investing in or not.
Strategic choices: Market penetration, market development, product development, divestiture
BCG matrix quadrants are simplified versions of the reality and cannot be applied blindly. They can help
as general investment guidelines but should not change strategic thinking. Business should rely on
management judgement, business unit strengths and weaknesses and external environment factors to
Easy to perform;
Business can only be classified to four quadrants. It can be confusing to classify an SBU that falls
right in the middle.
It does not define what market is. Businesses can be classified as cash cows, while they are
actually dogs, or vice versa.
Does not include other external factors that may change the situation completely.
Market share and industry growth are not the only factors of profitability. Besides, high market
share does not necessarily mean high profits.
It denies that synergies between different units exist. Dogs can be as important as cash cows to
businesses if it helps to achieve competitive advantage for the rest of the company.
Step 4. Find out market growth rate. The industry growth rate can be found in industry reports, which
are usually available online for free. It can also be calculated by looking at average revenue growth of the
leading industry firms. Market growth rate is measured in percentage terms. The midpoint of the y-axis is
usually set at 10% growth rate, but this can vary. Some industries grow for years but at average rate of 1
or 2% per year. Therefore, when doing the analysis you should find out what growth rate is seen as
significant (midpoint) to separate cash cows from stars and question marks from dogs.
Step 5. Draw the circles on a matrix. After calculating all the measures, you should be able to plot your
brands on the matrix. You should do this by drawing a circle for each brand. The size of the circle should
correspond to the proportion of business revenue generated by that brand.
Examples
Brand Revenues
% of corporate
Largest rivals
Your brands
Relative
Market
revenues
market share
market share
market share
growth rate
"1"
$500,000 54%
25%
25%
3%
"2"
$350,000 38%
30%
5%
0.17
12%
"3"
$50,000
6%
45%
30%
0.67
13%
"4"
$20,000
2%
10%
1%
0.1
15%
This example was created to show how to deal with a relative market share higher than 100% and with
negative market growth.
Brand Revenues
% of corporate
Largest rivals
Your brands
Relative
Market
revenues
market share
market share
market share
growth rate
"1"
$500,000 55%
15%
60%
3%
"2"
$350,000 31%
30%
5%
0.17
-15%
"3"
$50,000
10%
45%
30%
0.67
-4%
"4"
$20,000
4%
10%
1%
0.1
8%
Value chain analysis (VCA) is a process where a firm identifies its primary and support activities
that add value to its final product and then analyze these activities to reduce costs or increase
differentiation.
2.
Value chain represents the internal activities a firm engages in when transforming inputs into
outputs.
VCA is a strategy tool used to analyze internal firm activities. Its goal is to recognize, which activities are
the most valuable (i.e. are the source of cost or differentiation advantage) to the firm and which ones
could be improved to provide competitive advantage. In other words, by looking into internal activities, the
analysis reveals where a firms competitive advantages or disadvantages are. The firm that competes
through differentiation advantage will try to perform its activities better than competitors would do. If it
competes through cost advantage, it will try to perform internal activities at lower costs than competitors
would do. When a company is capable of producing goods at lower costs than the market price or to
provide superior products, it earns profits.
M. Porter introduced the generic value chain model in 1985. Value chain represents all the internal
activities a firm engages in to produce goods and services. VC is formed of primary activities that add
value to the final product directly and support activities that add value indirectly. Below you can see the
Porters VC model.
Primary Activities
Support Activities
Although, primary activities add value directly to the production process, they are not necessarily more
important than support activities. Nowadays, competitive advantage mainly derives from technological
improvements or innovations in business models or processes. Therefore, such support activities as
information systems, R&D or general management are usually the most important source of
differentiation advantage. On the other hand, primary activities are usually the source of cost advantage,
where costs can be easily identified for each activity and properly managed.
Firms VC is a part of a larger industry VC. The more activities a company undertakes compared to
industry VC, the more vertically integrated it is. Below you can find an industry value chain and its relation
to a firm level VC.
There are two different approaches on how to perform the analysis, which depend on what type
ofcompetitive advantage a company wants to create (cost or differentiation advantage). The table below
lists all the steps needed to achieve cost or differentiation advantage using VCA.
Cost advantage
Differentiation
advantage
This approach is used when organizations try to compete on costs and want to
understand the sources of their cost advantage or disadvantage and what factors
drive those costs.
strive to create
superior products
or services use
differentiation
advantage
approach.
Step
1. Identify the
customers
value-creating
activities.
Step
2. Evaluate the
differentiation
strategies for
improving
customer value.
Step
3. Identify the
best sustainable
differentiation.
Cost advantage
To gain cost advantage a firm has to go through 5 analysis steps:
Step 1. Identify the firms primary and support activities. All the activities (form receiving and storing
materials to marketing, selling and after sales support) that are undertaken to produce goods or services
have to be clearly identified and separated from each other. This requires an adequate knowledge of
companys operations because value chain activities are not organized in the same way as the company
itself. The managers who identify value chain activities have to look into how work is done to deliver
customer value.
Step 2. Establish the relative importance of each activity in the total cost of the product. The total
costs of producing a product or service must be broken down and assigned to each activity. Activity based
costing is used to calculate costs for each process. Activities that are the major sources of cost or done
inefficiently (when benchmarked against competitors) must be addressed first.
Step 3. Identify cost drivers for each activity. Only by understanding what factors drive the costs,
managers can focus on improving them. Costs for labor-intensive activities will be driven by work hours,
work speed, wage rate, etc. Different activities will have different cost drivers.
Step 4. Identify links between activities. Reduction of costs in one activity may lead to further cost
reductions in subsequent activities. For example, fewer components in the product design may lead to
less faulty parts and lower service costs. Therefore identifying the links between activities will lead to
better understanding how cost improvements would affect he whole value chain. Sometimes, cost
reductions in one activity lead to higher costs for other activities.
Step 5. Identify opportunities for reducing costs. When the company knows its inefficient activities
and cost drivers, it can plan on how to improve them. Too high wage rates can be dealt with by increasing
production speed, outsourcing jobs to low wage countries or installing more automated processes.
Differentiation advantage
VCA is done differently when a firm competes on differentiation rather than costs. This is because the
source of differentiation advantage comes from creating superior products, adding more features and
satisfying varying customer needs, which results in higher cost structure.
Step 1. Identify the customers value-creating activities. After identifying all value chain activities,
managers have to focus on those activities that contribute the most to creating customer value. For
example, Apple products success mainly comes not from great product features (other companies have
high-quality offerings too) but from successful marketing activities.
Step 2. Evaluate the differentiation strategies for improving customer value. Managers can use the
following strategies to increase product differentiation and customer value:
Increase customization;
Step 3. Identify the best sustainable differentiation. Usually, superior differentiation and customer
value will be the result of many interrelated activities and strategies used. The best combination of them
should be used to pursue sustainable differentiation advantage.
Example
This example is partially adopted from R. M. Grants book Contemporary Strategy Analysis p.241. It
illustrates the basic VCA for an automobile manufacturing company that competes on cost advantage.
This analysis doesnt include support activities that are essential to any firms value chain, thus the
analysis itself is not complete.
Ste
p1
Ste
p2
$164 M
less important
$410 M
very important
Numbe
r and
Ste
p3
Order
size
frequency of
new models
Sales
per model
$524 M
$10 M
very important not important
Scale
of plants
Averag
e value of
purchases per
supplier
Capa
city utilization
Locati
on of plants
$384 M
important
Level of
quality targets
Freque
Size
of advertising
budget
Ste
p4
Number
of dealers
Sales
ncy of defects
gth of existing
reputation
Locatio
n of suppliers
$230 M
less important
Volume
Frequen
cy of defects
1. High-quality assembling process reduces defects and costs in quality control and dealer support
activities.
2. Locating plants near the cluster of suppliers or dealers reduces purchasing and distribution costs.
3. Fewer model designs reduce assembling costs.
increase order sizes of the same materials, to simplify assembling and quality control processes and
to lower marketing costs.
2. Manufacture components inside the company to eliminate transaction costs of buying them in the
market and to optimize plant utilization. This would also lead to greater economies of scale.
ANSOFF MATRIX
Market penetration[edit]
In market penetration strategy, the organization tries to grow using its existing offerings (products and services) in
existing markets. In other words, it tries to increase its market share in current market scenario.
Market development[edit]
In market development strategy, a firm tries to expand into new markets (geographies, countries etc.) using its
existing offerings.
Product development[edit]
In product development strategy, a company tries to create new products and services targeted at its existing
markets to achieve growth
Diversification[edit]
In diversification an organization tries to grow their introducing new offerings in new markets. It is the most risky
strategy since both product and market development is required.
PORTERS 5 FORCES
Tip:
The terms "Cost Focus" and "Differentiation Focus" can be a little confusing, as they could be interpreted as meaning
"a focus on cost" or "a focus on differentiation." Remember that Cost Focus means emphasizing cost-minimization within a
focused market, and Differentiation Focus means pursuing strategic differentiation within a focused market.
Access to the capital needed to invest in technology that will bring costs down.
A low-cost base (labor, materials, facilities), and a way of sustainably cutting costs below those of other
competitors.
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. This is why it's important to continuously find ways of reducing every cost. One successful
way of doing this is by adopting the Japanese Kaizen philosophy of "continuous improvement."
Effective sales and marketing, so that the market understands the benefits offered by the differentiated
offerings.
Large organizations pursuing a differentiation strategy need to stay agile with their new product development processes. Otherwise, they risk
attack on several fronts by competitors pursuing Focus Differentiation strategies in different market segments.