Marketing Strategy course presentation for ITM, Mumbai. Sessions 4 & 5

1. DAY 4
Place Strategy AND PLC
Strategy
BUSINESS STRATEGIES AND
THEIR MARKETING
IMPLICATIONS

2. Place Strategies

3. Place Strategies - Distribution
 The ―place ‖ element of the marketing mix.
 Distribution makes products available in adequate
quantities, in convenient locations, and at times
when customers want to buy them.

4. Consider this
 IBM‘s sales force sells to large accounts, outbound
telemarketing sells to medium-sized accounts, direct
mail sells to small accounts, retailers sell to still
smaller accounts, and the Internet to sell specialty
items
 ICICI Direct enables its customers to do transactions
in branch offices, over the phone, or via the Internet
 Today most consumer durable companies market
through traditional retail, direct-response Internet
sites, virtual malls and affiliated sites.

5. Learning Objectives
 Functions of marketing channels?
 Designing, managing, evaluating, and modifying
their channels
 Trends in channel dynamics
 Channel conflict
 Channel Intermediaries
 Types of distribution channel
 Channel strategy & management

6. What is the need for a Marketing Channel?
 Many producers lack the financial resources to carry
out direct marketing
 In some cases direct marketing simply is not feasible
 Producers who do establish their own channels can
often earn a greater return by increasing their
investment in their main business

7. Role of Intermediaries
 Greater efficiency in making goods available to target
markets.
 Intermediaries provide
 Contacts
 Experience
 Specialization
 Scale of operation
 Match supply and demand

8. What does a channel do?
 Key functions include:
 Gather information about potential and current customers,
competitors, and others
 Develop and disseminate persuasive communications to
stimulate purchasing
 Reach agreements on price and other terms so that transfer of
ownership or possession can be effected
 Place orders with manufacturers
 Acquire funds to finance inventories at different levels in the
marketing channel
 Assume risk connected with carrying out channel work
 Provide for the successive storage and movement of physical
products
 Oversee actual transfer of ownership from one organization or
person to another

9. What does a channel do?
 Breaking bulk
 Reduce number of transactions and create bulk for
transport
 Accessibility to markets
 Provide specialist support service
M C M C
M C M C
I
M C M C

10. Channel intermediaries - Wholesalers
 Break down ‗bulk‘
 buys from producers and sell small quantities to retailers
 Provides storage facilities
 reduces contact cost between producer and consumer
 Wholesaler takes some of the marketing
responsibility e.g sales force, promotions

11. Wholesaling
 Selling and promoting
 Buying and assortment building
 Bulk breaking
 Warehousing
 Transportation
 Financing
 Risk bearing
 Market information
 Management services and counseling

12. Wholesaler Marketing Decisions
 Target Market
 Product Assortment and Services
 Price Decision
 Promotion Decision
 Place Decision

13. Channel intermediaries - Agents
 Mainly used in international markets
 Commission agent - does not take title of the goods.
Secures orders.
 Stockist agent - hold ‗consignment‘ stock
 Control is difficult due to cultural differences
 Training, motivation, etc are expensive

14. Channel intermediaries - Retailer
 Much stronger personal relationship with the
consumer
 Hold a variety of products
 Offer consumers credit
 Promote and merchandise products
 Price the final product
 Build retailer ‗brand‘ in the high street

15. Types of Retailers
 Specialty Store:
 Narrow product line with a deep assortment.
 Department Store
 Several product lines with each line operated as a separate department
 Supermarket
 Relatively large, low-cost, low-margin, high volume, selfservice operation
 Convenience Store
 Relatively small store located near residential area
 Nonstore retailing
 Categories of nonstore retailing
 Direct selling
 Direct marketing
 Telemarketing
 Television direct-response marketing
 Electronic shopping
 Automatic vending
 Buying service
 Corporate Retailing

16. Retailing
 Marketing Decisions
 Target Market
 Product Assortment and Procurement
 Breadth
 Depth
 Product-differentiation Strategy Possibilities
 Feature exclusive national brands that are not available at competing
retailers
 Feature mostly private branded merchandise
 Feature blockbuster distinctive merchandise events
 Feature surprise or ever-changing merchandise
 Feature the latest or newest merchandise first
 Offer merchandise customizing services
 Offer a highly targeted assortment

17. Channel intermediaries - Internet
 Sell to a geographically disperse market
 Able to target and focus on specific segments
 Relatively low set-up costs
 Use of e-commerce technology (for payment,
shopping software, etc)
 Paradigm shift in commerce and consumption

18. Six basic channel decisions
 Direct or indirect channels
 Single or multiple channels
 Length of channel
 Types of intermediaries
 Number of intermediaries at each level
 Which intermediaries? Avoid intrachannel conflict

19. Marketing Flows in the Channel

20. Channel-Design Decisions
Analyzing Consumer Service Needs
Setting Channel Objectives & Constraints
Identifying Major Alternatives
Intensive Selective Exclusive
Distribution Distribution Distribution
Evaluating the Major Alternatives

21. The Value-Adds versus Costs of Different Channels

22. Channel Strategy
Channel Strategy Decisions
Channel selection Distribution Intensity Channel Integration
•Market factors •Intensive distribution •Conventional channels
•Buyer behavior, •use of all available markets •Independence of channel
geographical concentration (e.g. cigarettes) members, little or no control
of customers •Selective distribution (e.g. pricing, brand image)
•Producer factors •use of a limited number of •Franchise operation
•Available resources outlets in a geographical •Legal contract in which
product mix offered area (e.g. computers) producer and channel
•Product factors •Exclusive distribution intermediaries agree each a
•Product size, bulky or •only one intermediary is member’s rights and
difficult to handle? used in a geographic area obligations
•Competitive factors (e.g. cars sold by only one •Channel ownership
•Competitor’s control over dealer in each town) •By purchasing retail outlets,
traditional distribution producers control their
channels) purchasing, production and
marketing activities

23. CHANNEL MANAGEMENT
• Identification of candidates
Selection • Development of selection criteria
• Motivate Channel members on various parameters
Motivation • Rewards & recognition
Training • Requisite training on various competences
• Identify an take corrective action to keep channel
Evaluation motivated and performing
• Sources of conflict
Managing Conflict • Identify & avoid / resolve conflict

24. Channel Behavior and Conflict
 The channel will be most effective when:
 Each member is assigned tasks it can do best.
 All members cooperate to attain overall channel goals and
satisfy the target market.
 Focus on individual goals leads to conflict
 Horizontal Conflict occurs among firms at the same level of the
channel.
 Vertical Conflict occurs between different levels of the same
channel.

25. Channel Management Decisions
Selecting
FEEDBACK
Motivating
Evaluating

26. Logistics
 Involves entire supply chain
 Increasing importance of logistics
 Effective logistics is becoming a key to winning and keeping
customers
 Logistics is a major cost element for most companies
 The explosion in product variety has created a need for
improved logistics management
 Information technology has created opportunities for major
gains in distribution efficiency

27. Goals of Logistics system
Provide a Targeted Level of Customer Service at
the Least Cost.
Maximize Profits, Not Sales.
Higher Distribution Costs/ Higher
Customer Service Levels
Lower Distribution Costs/ Lower
Customer Service Levels

28. Logistics Functions
 Order Processing
 Warehousing
 Inventory Management
 Transportation
 Design system to minimize costs of attaining
objectives

29. Transportation Modes
Rail
Nation’s largest carrier, cost-effective
for shipping bulk products, piggyback
Truck
Flexible in routing & time schedules, efficient
for short-hauls of high value goods
Water
Low cost for shipping bulky, low-value
goods, slowest form
Pipeline
Ship petroleum, natural gas, and chemicals
from sources to markets
Air
High cost, ideal when speed is needed or to
ship high-value, low-bulk items

30. Selection consideration
 Market segment - must know the specific
segment and target customer
 Changes during plc - different channels are
exploited at various stages of plc
 Producer-distributor fit - their policies,
strategies and image
 Qualification assessment - experience and
track record must be established
 Distributor training and support

31. Product Life Cycle Strategies

32. Product Life Cycle
A new product progresses through a sequence of stages
from introduction to growth, maturity, and decline..
..impacting the marketing strategy and the marketing
mix

33. Product Life-Cycle Marketing Strategies
 To say that a product has a life cycle asserts four
things
 Products have a limited life.
 Product sales pass through distance stages, each posing
different challenges, opportunities, and problems to the seller.
 Profits rise and fall at different stages of the product life cycle.
 Products require different marketing, financial,
manufacturing, purchasing, and human resource strategies in
each life-cycle stage.

34. Product Life Cycle
Development Introduction Growth Maturity Saturation Decline
Sales
Time

35. Cost Product Life-Cycle Patterns

36. Style, Fashion, and Fad Life Cycles

37. Product Life Cycle
 Product Life Cycle – shows the stages that products
go through from development to withdrawal
from the market
 Product Portfolio – the range of products a company
has in development or available for consumers at any
one time
 Managing product portfolio is important for cash
flow

38. Product Life Cycle
 Each product may have a different life cycle
 PLC determines revenue earned
 Contributes to strategic marketing planning
 May help the firm to identify when a product needs
support, redesign, reinvigorating, withdrawal, etc.
 May help in new product development planning
 May help in forecasting and managing cash flow

39. Product Life Cycle
 Extended stages of the Product Life Cycle:
 Development
 Introduction/Launch
 Growth
 Maturity
 Saturation
 Decline
 Withdrawal

40. Product Life Cycle - Development
 The Development Stage:
 Initial Ideas – possibly large number
 May come from any of the following –
 Market research – identifies gaps in the market
 Monitoring competitors
 Planned research and development (R&D)
 Luck or intuition – stumble across ideas?
 Creative thinking – inventions, hunches?
 Futures thinking – what will people be using/wanting/needing
5,10,20 years hence?

41. Product Life Cycle - Development
 Product Development: Stages
 New ideas/possible inventions
 Market analysis – is it wanted? Can it be produced at a profit?
Who is it likely to be aimed at?
 Product Development and refinement
 Test Marketing – possibly local/regional
 Analysis of test marketing results and amendment of
product/production process
 Preparations for launch – publicity, marketing campaign

42. Product Life Cycle - Introduction
 Introduction/Launch:
 Advertising and promotion campaigns
 Target campaign at specific audience?
 Monitor initial sales
 Maximise publicity
 High cost/low sales
 Length of time – type of product

43. Marketing Strategies: Introduction Stage
 The Pioneer Advantage
 Inventor
 Product pioneer
 Market pioneer
Long-Range Product
Market Expansion
Strategy
(P = Product;
M = Market)

44. Marketing Strategies: Introduction Stage
Sales Low sales
Costs High cost per customer
Profits Negative
Create product awareness and
Marketing Objectives
trial
Product Offer a basic product
Price Use cost-plus basis
Distribution Build selective distribution
Advertising Build awareness among innovators,
early adopters

45. Toyota Hybrid : Introductory stage product
45

46. Product Life Cycle - Growth
 Growth:
 Increased consumer awareness
 Sales rise
 Revenues increase
 Costs - fixed costs/variable costs, profits may be made
 Monitor market – competitors reaction?

47. Marketing Strategies: Growth Stage
Sales Rapidly rising sales
Costs Average cost per customer
Profits Rising profits
Marketing Objectives Maximize market share
Offer product extensions, service,
Product warranty
Price Penetration Pricing
Distribution Build intensive distribution
Advertising Build awareness in the mass market

48. Marketing Strategies: Growth Stage
 Improve product quality and add new product
features and improved styling
 Add new models and flanker products
 Enter new market segments
 Increase distribution coverage and enter new
distribution channels
 Shift from product-awareness advertising to
product-preference advertising
 Lower prices to attract next layer of price sensitive
buyers

49. Flipkart – Growth Stage Offering

50. Product Life Cycle - Maturity
 Saturation:
 New entrants likely to mean market is ‗flooded‘
 Necessity to develop new strategies becomes more pressing:
 Searching out new markets:
 Linking to changing fashions
 Seeking new or exploiting market segments
 Linking to joint ventures – media/music, etc.
 Developing new uses
 Focus on adapting the product
 Re-packaging or format
 Improving the standard or quality
 Developing the product range

51. Product Life Cycle - Maturity
 Maturity:
 Sales reach peak
 Cost of supporting the product declines
 Ratio of revenue to cost high
 Sales growth likely to be low
 Market share may be high
 Competition likely to be greater
 Price elasticity of demand?
 Monitor market – changes/amendments/new strategies?

52. Marketing Strategies: Maturity Stage
 Market Modification  Product modification
 Expand number of brand
 Quality improvement
users by:
 Converting nonusers  Feature improvement
 Entering new market  Marketing-Mix
segments
 Winning competitors‘
Modification
customers  Prices
 Convince current users to  Distribution
increase usage by:
 Using the product on more
 Advertising
occasions  Sales promotion
 Using more of the product
 Personal selling
on each occasion
 Using the product in new  Services
ways

53. Marketing Strategies: Maturity Stage
Sales Peak sales
Costs Low cost per customer
Profits High profits
Marketing Objectives Maximize profit while defending
market share
Product Diversify brand and models
Price Price to match or best competitors
Distribution Build more intensive distribution
Advertising Stress brand differences and benefits

54. A product at the Mature Stage
54

55. Product Life Cycle - Decline
 Decline and Withdrawal:
 Product outlives/outgrows its usefulness/value
 Fashions change
 Technology changes
 Sales decline
 Cost of supporting starts to rise too far
 Decision to withdraw may be dependent on availability of new
products and whether fashions/trends will come around
again?

56. Marketing Strategies: Decline Stage
 Increase firm‘s investment (to dominate the market and
strengthen its competitive position)
 Maintain the firm‘s investment level until the
uncertainties about the industry are resolved.
 Decrease the firm‘s investment level selectively by
dropping unprofitable customer groups, while
simultaneously strengthening the firm‘s investment in
lucrative niches
 Harvesting (―milking‖) the firm‘s investment to recover
cash quickly
 Divesting the business quickly by disposing of its assets
as advantageously as possible.

57. Marketing Strategies: Decline Stage
Sales Declining sales
Costs Low cost per customer
Profits Declining profits
Marketing Objectives Reduce expenditure and milk the
brand
Product Phase out weak items
Price Cut price
Go selective: phase out unprofitable
Distribution outlets
Advertising Reduce to level needed to retain
hard-core loyal customers

58. Product at the decline stage

59. Sales
Effects of Extension Strategies on PLC
Time

60. Product Life Cycle and Profits
Sales/Profits
PLC
Profits
Time
Losses
Break Even

61. Importance of a Portfolio of products
Four products in the portfolio
(1) (2) (3)
Sales
D
B
A C
Time

62. 62

63. END OF DAY 4

64. DAY 5
Portfolio Evaluation Matrix

65. BCG & GE Matrix

66. Introduction
 The creation of SBUs enables the setting of SBU‘s
mission and objectives and the allocation of
resources across SBUs in the organization
 Senior management need to have a framework to
evaluate SBUs and to assign limited resources among
them; hence portfolio analysis

67. BCG (Boston Consulting Group) Matrix
 Provides a framework for senior management in
allocating resources across business units in a
diversified firm by
 Balancing cash flows among business units, and
 Balancing stages in the product life-cycle (PLC)

68. BCG Product Portfolio Matrix
Product
Sales
Growth
Rate
Relative Market Share (Log Scale)

69. BCG Matrix (cont‘d)
 The horizontal axis is the Relative Market Share
shown in a log scale
 Vertical line is usually set as 1.0 Relative Market
Share
 An SBU to the left of this line means it is the market
leader in the industry or segment in which it
operates
 Conversely, an SBU to the right of this line (1.o RMS)
means it is not the leader

70. BCG Matrix (cont‘d)
 The vertical axis is the growth rate
 5 levels may be used: product, product lines, market
segment, SBU and business growth rate
 Horizontal line is usually set as 10% Growth Rate
 SBUs above the set value (10% line) represents high
growth rates
 Conversely, SBUs below this value depicts slower
growth rate

71. Measuring Market Growth Rate
SalesNow SalesEarlier
growthRate
SalesEarlier
Measure of a Market‘s Attractiveness

72. Measuring Market Share
mySales
marketShare
mySales competitors' Sales
mySales
relativeMarketShare
leadingCompetitorsSales
Measured in terms of Volume or Revenue

73. Matrix Quadrants
Relative Market Share
High Low
High
Product Sales
Growth Rate
Low

74. Key Assumptions of BCG Matrix
 Stable cost/price relationship
 Not valid if the firm is pricing on projected lower average unit
costs in the future
 Market leader influences the average costs
 Profit margin is a function of market share
 This ignores profitable niches

75. Strategic Perspectives of Products in
Different Quadrants
 Four different strategic perspectives
 Investment
 Earnings
 Cash-flow, and
 Strategy Implications

76. Question Marks (Problem Children)
 Low market share in an expanding industry
 Investment—heavy initial capacity expenditures and
high R&D costs
 Earnings—negative to low
 Cash-flow—negative (net cash user)
 Strategy Implications
 If possible to dominate segment, go after share. If not,
redefine the business or withdraw

77. = “?”

78. Stars
 Is a leader in an expanding industry
 Investment—continue to invest for capacity
expansion
 Earnings—Low to high earnings
 Cash-flow—Negative (net cash user)
 Strategy Implications
 Continue to increase market share—even at the expense of
short-term earnings

79. Cows
 Investment—Capacity maintenance
 Earnings—High
 Cash-flow—Positive (net cash contributor)
 Strategy Implications
 Maintain market share and cost leadership until
further investment becomes marginal

80. ―Cash Cow‖

81. Dogs
 Investment
 Gradually reduce capacity
 Earnings—High to low
 Cash-flow
 Positive (net cash contributor) if deliberately reducing capacity
 Strategy Implications
 Plan an orderly withdrawal to maximize cash flow Or
differentiate for niche

82. BCG Matrix (Three Paths to Success)
 Continuously generate cash cows and use the cash
throw-up by the cash cows to invest in the question
marks that are not self-sustaining
 Stars need a lot of reinvestments and as the market
matures, stars will degenerate into cash cows and the
process will be repeated.
 As for dogs, segment the markets and nurse the dogs
to health or manage for cash

83. Three Paths to Success (cont‘d)
Relative Market Share
High Low
High
Market
Growth
Rate
Low

84. BCG Matrix (Three Paths to Failure)
 Over invest in cash cows and under invest in
question marks
 Trade further opportunities for present cash flow
 Under invest in the stars
 Allow competitors to gain share in a high growth market
 Over milked the cash cows

85. Three Paths to Failure (cont‘d)
Relative Market Share
High Low
High
Market
Growth
Rate
Low

86. GE McKinsey Multi-Factor Matrix
 Originally developed by GE‘s planners drawing on
McKinsey‘s approaches
 Market attractiveness is based on as many relevant
factors as are appropriate in a given context
 Business-position assessment also made on a many
factors
 SBU needs to be rated on each factor

87. GE Multifactor Portfolio Matrix
High Medium Low
Protect Invest to Build
High Position Build selectively
Invest/Grow
Selectively Limited
Build manage for expansion Selectivity
Medium selectively earnings or harvest /earnings
Harvest
Protect & Manage for /Divest
refocus earnings Divest
Low
Industry Attractiveness

88. Some Limitations of the GE Model
 Subjective measurements across SBUs
 Process also highly subjective
 From the selection and weighting of factors to the subsequent
development of both a firm‘s position and the market
attractiveness
 Businesses may have been evaluated with respect to
different criteria
 Sensitive to how a product market is defined

89. END OF DAY 5