Strategic Positioning & Growth Strategies

By

Dr. Ravindra Pratap Gupta

ISSUED IN PUBLIC INTEREST

Advisable

All material in slides need not be understood. Use your current working environment and experience to relate to situations Errors and omissions regrettable. Subject to corrections on being brought to notice

Learning Objectives

1. 2. Define the terms market segment, marketing strategy, target market , marketing mix, marketing objective, & positioning,

2.

Identify the reasons that have made positioning essential in todays business climate.

3. List and describe the steps required for effective positioning (the five Ds). 4. List and describe the six different approaches to positioning. 5. Growth Strategies 6. Questions

Market Segment
A market segment is a large identifiable group of customers within a market, which shows a predictable pattern of behavior in buying situations and can be profitably reached by means of distribution and communication

Marketing Strategy

The selection of a course of action from among several alternatives that involves specific customer groups, communication methods, distribution channels, and pricing structures. It is a combination of target markets and marketing mixes.

Target Market

A target market is a market segment selected by a hospitality and travel organization for marketing attention. Market segmentation involves dividing customers into groups (market segments) with common characteristics.

Marketing Mix
A marketing mix includes those controllable factors that have been chosen to satisfy customer needs. The eight controllable factors are product, price, place, promotion, packaging, programming, partnership, and people. These are also know as the 8 Ps.

Marketing Objective

A marketing objective is a measurable goal that a hospitality or travel organization attempts to achieve for a target market within a specific time period, typically one year.

Positioning

Positioning is the development of a service and a marketing mix to occupy a specific place in the minds of customers within target markets.

Understanding the Competitors

Image and Image and Positioning Positioning

Size, Growth Size, Growth & Profitability & Profitability Strengths and Strengths and Weaknesses Weaknesses Exit Barriers Exit Barriers

Objectives and Objectives and Commitment Commitment Current and Current and Past Strategies Past Strategies Organization Organization and Culture and Culture

Competitor Competitor Actions Actions

Cost Structure Cost Structure

10

Figure 3.3

BCG Matrix
Hig h 1.0 Hig h +20

Relative Market Share Position

Med ium .50 Low 0.0

Stars II

Question Marks I

Medi um

Cash Cows III

a S yrt s udn I
Low -20

Dogs IV
11

Strategic Planning Process for Service

Strategic Hierarchy Strategic Positioning sets out a corporate-level set of objectives, goals, mission Service Strategy takes these corporate level strategies and refines them into specific objectives and missions

Tactical Execution executes the service strategy

Reasons for Increased Importance of Positioning

1. Perceptual processes of customers

They screen out most information 2. Greater competition More organizations competing for share of mind 3. Growing volume of commercial messages Advertising and promotion clutter

Regardless of the approach taken, the objectives of strategic positioning is to define the target market the company will serve, define strategies and its mission and objectives.

Steps Required for Effective Positioning (the five Ds)

g Documenting g Deciding g Differentiating g Designing g Delivering

The 5 Ds of Positioning
g Documenting

g Differentiation

What benefits are the most important to your current and potential customers?

g Deciding

Which competitors do you want to appear different from, and what are the factors that you will use to make your organization different from them?

What image do you want your current and potential customers to have of your organization?

The 5 Ds of Positioning

g Designing

How will you develop and communicate these differences?

g Delivering

How will you make good on what youve promised, and how do you make sure that you have delivered?

Positioning Approaches: Six Major Alternatives

g Specific product features g Benefits, problem solution, or needs g Specific usage occasions g User category g Against another product g Product class dissociation

Growth Strategy
Growth Strategy is an approach by which an organization Substantially broadens the scope of one or more of its business in terms of their respective customer group, customer functions and alternative technologies to Improve its overall performance.

Growth Strategies
Growth Strategies are grand strategies that involve organization expansion along some major dimension
a.Concentration b.Vertical Integration c.Diversification

Concentration
Focuses on effecting the growth of a single product or service or a smaller number of closely related products
I. Market development is gaining a larger share of current market or expanding in to new ones example Maricos Safola, Revive II. Product development is improving a basic product or service or expanding in to a closely related products or service example improved parachute oil III.Horizontal integration is adding one or more business that is similar usually by purchasing such business example acquisition of Nahar Coconut oil

Vertical Integration
Involves effecting growth through production of inputs previously provided by suppliers or through replacement of a customer role (such as that of a distributor) by disposing of ones own outputs I. Backward integration occurs when business grows becoming its own supplier example online software distribution II. Forward integration occurs when organizational growth encompasses a role previously fulfilled by a customer example EBay

Diversification
Entails effecting growth through the development of new areas that are clearly distinct from current business
I. Conglomerate diversification takes place when an organization diversifies in to areas that are unrelated to its current business example Kohinoor Group. II. Concentric diversification occurs when an organization diversifies in to related, but distinct business example Pepsi in food products

Growth Strategies Implementation/Types of Growth Strategies

These growth strategies can be implemented through a number of means

Internal Growth Merger Acquisition Joint Venture Strategic Alliance

Internal Growth
As the organization grows by building on its own internal resources example Raymond's,

MERGERS

In merger two firms, agree to move ahead and exist as a single new company. Merger can be merger of equals : both companies are of equal sizes. merger of unequal's : large company merge with smaller one Voluntary process : consent of both companies. Name of new merged entity is usually a combination of both parent companies Mergers are mostly financed by a stock swap. Both companies surrender their stocks and stock of the new company is issued as a replacement.

Types of merger

Horizontal merger : When two merging companies are of the same industry and produce similar products. Example : Footwear Company Merging with Footwear company Vertical merger : When two companies are producing the same goods, but are at different stages, it is a vertical merger. Example : Footwear Company Merging with Leather Tannery Concentric merger : when two companies are related to each other in terms of customer functions or customer groups. Example : Footwear Company Merging with another specialty Footwear Company Conglomerate merger : When two companies operate in different industries. Example : Footwear Company Merging with Pharmaceutical Firms

Are all mergers successful? Hindalco-Novelis (failure)

Hindalco (metal maker of Birla group) acquired Novelis for a staggering $ 5.76 billion. Novelis , on a net worth of $ 322 million, had a debt of $ 2.33 billion

Hindalco took $ 3.13 bn loan to aquire Novelis. Right after the acquisition hindalco came on a rough road. With the debt market tightening , the metal maker is left with no choice but to dilute its equity through a 1:3 rights issue.

Further, high interest costs, which rose by over 490 % loan increased from Rs 3.13 billion in FY 07 to Rs 18.49 billion in FY 08. Finally Hindalcos earning per share in FY08 dropped to Rs.15.76, from Rs. 26.73 in FY07, a fall of 41% !

AQUISITION

Acquisition is a deal when one company takes over another company and buyer becomes sole proprietor. At times takeover occurs when the target company does not want to be purchased. However with better offering of prices shareholder are attracted by acquirer. In legal terms, the target company ceases to survive. The buyer swallows the company and the buyer's stock continues to be traded. Unlike mergers which are friendly, acquisitions can be friendly and unfriendly.

Why M & A OCCUR ?

To reduce competition.

To increase growth rate & capture a greater market share To improve value of organizations stock.

To acquire a needed resource quickly.

To take advantage of synergy. To acquire resources to stabilize operations. To achieve economies of scale.

Disadvantages of M&A
Reduced competition may even facilitate monopolistic or oligopolistic tendencies among firms. Increase of prices. Job losses for employees. Difficulties in cultural integration of the merging firms. Interest of minority shareholders is not protected.

Tata Steel and Corus

On January 31, 2007, Tata Steel Limited, one of the leading steel producers in India, acquired the Anglo Dutch steel producer Corus Group for US$ 12.11 billion. Corus was 2.5 times bigger company than TATA. It took nine rounds for Tata to acquire Corus. In the first bid Tata had closed the deal at US $ 7.6 bn and later it ended up by paying US $ 12.11 bn, making it an expensive turnover. This acquisition was the biggest overseas acquisition by an Indian company. Tata Steel emerged as the fifth largest steel producer in the world.

After acquisition Tata benefited itself from Corus: Distribution network of Europe. Expertise in steel making for automobiles.

JOINT VENTURE
An entity formed between two or more parties to undertake a specified activity together. Parties agree to create a new entity by both contributing equity, and they then share revenue, expenses, and control of the enterprise. The venture can be for one specific project only or a continuing business relationship Example: Sony Ericsson, Future Generali Unlike mergers and acquisitions, in joint venture the parent companies does not cease to exist. Types of Joint Ventures (a) Between 2 Indian org. in one industry (b) Between 2 Indian org. across different industries. (c) Between an Indian org. & a foreign org. in India. (d) Between an Indian org. & a foreign org. in that foreign country. (e) Between an Indian org. & a foreign org. in third country.

Joint Venture Maruti Udyog Ltd. & Suzuki Motor Corp.

Maruti Suzuki is one of India's leading automobile manufacturers and the market leader in the car segment, both in terms of volume of vehicles sold and revenue earned. Until recently, 18.28% of the company was owned by the Indian government, and 54.2% by Suzuki of Japan. The Indian government held an initial public offering of 25% of the company in June 2003. As of May 10, 2007, Govt. of India sold its complete share to Indian financial institutions. With this, Govt. of India no longer has stake in Maruti Udyog.
During 2007-08, Maruti Suzuki sold 764,842 cars, of which 53,024 were exported. In all, over six million Maruti cars are on Indian roads since the first car was rolled out on December 14, 1983.

Strategic alliances

A strategic alliance is a form of affiliation that involves a mutual sharing of resources or partnering to improve efficiency. In strategic alliances, the focus is on sharing of resources rather than seeking change in control. Equity investment in each others company is not any focus example Pfizer with Aventis for marketing oral insulin's, Jet airways & kingfisher Types of strategic alliances : Pre competitive alliance : vertical value chain alliances b/w manufacturers and suppliers. Non competitive alliances : Intra industry partnerships b/w noncompetitive firms like two firms in same industry but different geographical locations. Competitive alliance : partnerships which brings two rival firms in a cooperative arrangement where intense interaction is necessary. Pre competitive alliance : partnerships which brings two firms of different industry together to work on well defined industries such as new technology

Reasons for strategic alliances

Market entry-A strategic alliance can ease entry into a foreign market . Eg: strategic alliance between British Airways and American Airlines. Share risk & expenses -firms involved can share risks. Eg: In early 1990s film manufacturers Kodak and Fuji joined with camera manufacturers Nikon, Canon, and Minolta to create cameras and film for an "Advanced Photo System. Synergistic Effects of Shared Knowledge and Expertisehelp a firm gain knowledge and expertise Skills+ brand + market knowledge+ assets= synergizing effect Eg: For example, in the early 1990s, Motorola initiated an alliance among various partners, including Raytheon, Lockheed Martin, China Great Wall, and Nippon Iridium, to develop and build a global satellite-based communications network. Gaining Competitive Advantage-

Pitfalls
Lack of trust & commitment. Perceived misunderstanding among partners. Conflicting goals & interests. Inadequate preparation for entering into partnership. Hasty implementation of plans.

Jet airways-Kingfisher Alliance

market leaders with share of Jet 30% kingfisher 29% Economic slowdown and high ATF prices resulted in decline of air travel both in international and domestic segments of the air travel market. Airline sector is set to incur a loss of $ 2bn (Rs.10,000 Crore) this year

Thus Jet and Kingfisher have decided to form an alliance in fields including fuel management, ground handling, sharing of technical resources and crew for training and cross-utilization on similar aircraft types. This will help both carriers to significantly rationalize and reduce costs and provide improved standards of service and a wider choice of air travel options to consumers with immediate effect. They could not merge as of rule that two airline companies with combined market share greater than 40 % can not merge in India. So they formed an alliance.

MERGER
Usually two companies of equal size merge Together. Voluntary and friendly process Stock swap : both companies surrender their stocks and stocks of new companies are given as replacement. Parent companies cease to exist.

AQUISITION
Large company takes over the smaller Company. Often forceful or unfriendly where larger company attracts the shareholders of target company by offering them better price for their shares. Parent companies cease to exist.

JOINT VENTURE
Two or more companies agree to form an Entity for a specific task or period. Always friendly. One company receives financial assistance, Managerial inputs and technological inputs from superior company. Parent companies keep functioning in their Respective areas.

STRATEGIC ALLIANCE
To improve efficiency of companies. Includes no equity investments. Parent companies keep functioning as normal by supporting each other.

Porters Five Forces Model of Competition

Threat of Threat of New New Entrants Entrants Bargainin g Power of Suppliers Bargainin g Power of Buyers

Rivalry Among Competing Firms in Industry

Threat of Substitute Products

Business-Level Strategies For Growth

Product/Service
Existing New

Existing Domain (i.e., Industry Market New

Market Penetration Strategy Market Development Strategy

Product Development Strategy Diversification Strategy

Product/Market Expansion: Scale Strategies

Market Penetration
Goal: increase market share Low risk/marginal returns Every business does this

Market Development
Goal: find new markets Marketing expertise Mature products/services

Product/Market Expansion: Scope Strategies

Product Development
Goal: develop & introduce new products/services Technical expertise Growth of products/services (Could Entail Related Diversification)

Diversification
Goal: develop & introduce products/services to new or emerging markets (Most likely Unrelated Diversification)

Questions
Discuss the significance & 5Ds of positioning? Discuss the various types of Growth Strategies with detail example one of the various types of Growth Strategy?

Thanks for your participation!