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Corporate Strategy

Key Concepts in Marketing Strategy

1. What is Strategy?

  • Strategy defines the ways and means of executing a plan.
  • It bridges the gap between:
    • Planning: Setting goals and objectives.
    • Execution: Implementing decisions and processes.
  • Focuses on resource allocation, decision-making, and processes.

2. Corporate Strategy vs. Marketing Strategy

  • Corporate Strategy: The overall strategy for the organization.
    • Example Objectives:
      • 5% market share growth.
      • 10% ROI (Return on Investment).
  • Marketing Strategy:
    • A subset of corporate strategy.
    • Focuses on individual products, brands, or segments to achieve corporate goals.

Corporate Strategy and Its Flow to Marketing Strategy

Example: Unilever

  • Corporate Objective: Achieve 5% market share growth.
  • Divisional Planning:
    • Split objectives by region (e.g., North, South, East, West in India).
  • Strategic Business Units (SBUs):
    • Define contributions by business units (e.g., home care division).
    • Break objectives into brand-specific goals (e.g., Surf Excel, Lifebuoy).
    • Example: Increase Surf Excel sales from 10,000 units to 15,000 units.

Corporate Decision-Making Framework

Key Steps:

  1. Corporate Planning:
    • Establish overall goals (e.g., 5% market share, 10% ROI).
  2. Implementation:
    • Break down objectives to divisional, product, and brand levels.
    • Define specific actions for each strategic business unit.
  3. Control:
    • Monitor performance to ensure alignment with objectives.
    • Compare actual performance with benchmarks (e.g., monthly sales targets).
    • Adjust strategies if targets are not met.

Strategic Business Units (SBUs)

What is an SBU?

  • A single business or collection of related businesses within a company.
  • Characteristics:
    • Has its own competitors.
    • Operates under a defined manager or leader.
    • Responsible for strategic planning and profitability.
  • Examples of SBUs:
    • Brands: Lifebuoy, Surf Excel, Lux.
    • Territories: North, South, East, West.
    • Countries: India, USA, UK.
    • Channels: Retail stores (e.g., Walmart, Amazon).

Purpose of SBUs:

  1. Focus resources on specific business units.
  2. Create tailored strategies for each unit.
  3. Align unit-level goals with corporate objectives.

3.4.2 Unpacking the BCG Matrix

Strategic Business Units (SBUs)

Characteristics of an SBU:

  1. A single business or collection of related businesses.
  2. Has its own competitors.
  3. Operates under a defined leader or manager.
  4. Responsible for strategic planning and profitability.

Examples of SBUs:

  • Individual brands (e.g., Lifebuoy, Surf Excel).
  • Geographic regions (e.g., North, South, East, West).
  • Distribution channels (e.g., Amazon, Walmart, Reliance).

BCG Matrix

Purpose

  • Helps allocate resources to SBUs based on their market position.
  • Simplifies decision-making on investment priorities.

Structure

The BCG Matrix is a 2×2 grid with the following axes:

  • X-axis: Relative Market Share (Low to High).
  • Y-axis: Market Growth Rate (Low to High).

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Quadrants:

  1. Stars:

    • High market share, High growth rate.
    • Characteristics:
      • Requires significant investment to maintain leadership in a growing market.
      • Can transition into cash cows as market growth stabilizes.
    • Strategy: Invest heavily to sustain growth and market leadership.

  2. Cash Cows:

    • High market share, Low growth rate.
    • Characteristics:
      • Generates steady cash flow with minimal investment.
      • Supports other SBUs requiring investment.
    • Strategy: Maintain position, minimize investment, and harvest returns.

  3. Question Marks:

    • Low market share, High growth rate.
    • Characteristics:
      • Uncertain potential; requires careful evaluation before investment.
      • May transition to stars with investment or to dogs without.
    • Strategy: Selectively invest to convert into stars or divest if not promising.

  4. Dogs:

    • Low market share, Low growth rate.
    • Characteristics:
      • Limited potential and often drains resources.
      • Unprofitable with minimal returns.
    • Strategy: Divest or allow natural decline.

Example Interpretation of a BCG Matrix

  1. SBU Positions:

    • Stars: Two SBUs, one large volume and one small volume.
    • Cash Cow: One large volume SBU generating maximum revenue.
    • Question Marks: Four SBUs with growth potential but requiring investment.
    • Dogs: One SBU with low returns, set for divestment.

  2. Resource Allocation:

    • Use cash flow from cash cows to fund stars and selected question marks.
    • Avoid investing in dogs; allow natural decline.

Advantages of the BCG Matrix

  1. Simple visual representation of SBU performance.
  2. Highlights the relationship between market share, growth, and resource allocation.
  3. Facilitates strategic decisions for long-term planning.

Disadvantages of the BCG Matrix

  1. Simplistic Approach:
    • Only considers market share and growth rate; ignores other factors like competitive intensity, innovation, or brand equity.
  2. Rigidity:
    • Assumes an SBU fits into one quadrant, whereas some may overlap (e.g., transitioning from question mark to star).
  3. Cash Flow Emphasis:
    • Focuses heavily on cash generation and investment while neglecting other strategic dimensions.
  4. Assumption of Investment Success:
    • Assumes direct correlation between investment and success, which may not always hold true.

Connection to Market Size and Market Share Analysis

  • Market Size and Growth:
    • BCG Matrix relies on market size and growth data to classify SBUs.
  • Market Share:
    • Relative market share determines an SBU’s position on the X-axis of the matrix.

3.4.3 Strategic Planning Essentials

Overview

Strategic planning for Strategic Business Units (SBUs), such as a specific brand (e.g., Lifebuoy or Lux), involves defining the mission, analyzing internal and external factors, setting objectives, formulating strategies, implementing programs, and monitoring outcomes. This process aligns with corporate strategic planning.

Strategic Planning Process for SBUs

  1. Mission or Purpose

    • The foundation of strategic planning.
    • Defines the reason or purpose for which the organization or brand exists.

    Key Questions for Mission (Peter Drucker):

    1. What is your business?
    2. Who is the customer?
    3. What is value to the customer?
    4. What will our business be in the future?
    5. What should our business be?

    Example:

    • For Lifebuoy: "To provide affordable hygiene solutions to improve global health."
    • For Lux: "To offer luxurious personal care products for women to feel confident and beautiful."

  1. SWOT Analysis

    • Analyzes the external and internal environment.
    • External Analysis: Opportunities and threats in the environment.
    • Internal Analysis: Strengths and weaknesses within the organization.

    Tool: SWOT (Strengths, Weaknesses, Opportunities, Threats).

    • Strengths: Internal capabilities (e.g., strong brand recognition, superior R&D).
    • Weaknesses: Internal limitations (e.g., limited distribution network).
    • Opportunities: External factors (e.g., untapped markets, changing consumer trends).
    • Threats: External risks (e.g., competition, regulatory challenges).
  1. Objectives or Goals
    • Derived from the mission and vision.
    • Provide measurable short-term or medium-term targets.
    • Align with the vision to guide the strategy.
    • Examples:
      • Increase market share by 5% within 1 year.
      • Reduce production costs by 10% over 6 months.
      • Launch a new product line within 6 months.
  1. Strategy Development
    • Outlines how the objectives will be achieved.
    • Based on insights from the SWOT analysis.
    • Includes decisions on:
      • Target markets.
      • Product positioning.
      • Marketing mix (4Ps: Product, Price, Place, Promotion).
  1. Program Formulation and Implementation
    • Translate strategies into actionable plans.
    • Allocate resources, define tasks, and assign responsibilities.
    • Example for a new Lux campaign:
      • Develop a product redesign emphasizing sustainability.
      • Run a targeted marketing campaign through social media and television.
      • Expand distribution to new geographies.
  1. Feedback and Control
    • Monitor and evaluate performance against objectives.
    • Use benchmarks (e.g., monthly sales targets) to track progress.
    • Adjust strategies based on performance:
      • Example: If sales targets fall short, increase promotions or reassess pricing.

Key Definitions

  1. Mission:

    • The reason for an organization’s existence.
    • Broad and long-term in nature.
    • Focused on fulfilling a societal, customer, or business purpose.

  2. Vision:

    • A future-focused statement derived from the mission.
    • Defines the organization’s aspirations for the next 5-10 years.
    • Example: "To become the market leader in affordable hygiene solutions globally."

  3. Objectives or Goals:

    • Short-term, specific, and measurable targets.
    • Support the vision and mission.
    • Serve as benchmarks for strategy execution.

Example: Strategic Planning for Surf Excel (Unilever, South Zone)

  1. Mission: "To provide sustainable cleaning solutions for everyday laundry needs."
  2. Vision: "To achieve a 5% market share in the South Zone laundry detergent market within 5 years."
  3. Objective: "Increase Surf Excel sales from 10,000 units to 15,000 units in 1 year."
  4. Strategy: Focus on premium positioning and eco-friendly product benefits.
  5. Program:
    • Launch a campaign highlighting water-saving properties.
    • Expand retail distribution to rural areas.
    • Partner with e-commerce platforms for online sales.
  6. Feedback:
    • Monthly performance tracking: Ensure 2,000 units sold monthly in the first quarter.
    • If below target, reassess promotional effectiveness and distribution channels.

3.4.4 Functioning of the Organizational Strategy

Marketing Strategy within Organizational Strategy

Connection:

  1. Alignment:
    • Marketing strategy must align with organizational objectives.
    • Example: Organizational goal of 5% market share growth translates into brand-specific marketing strategies.
  2. Resource Allocation:
    • Marketing efforts for each brand or region depend on priorities set by organizational strategy.
  3. Feedback Loop:
    • Marketing outcomes contribute to assessing overall organizational performance.

Example: From Organizational Strategy to Marketing Strategy (Unilever)

  1. Organizational Goal:
    • Achieve 5% market share growth.
  2. Regional Objective:
    • South Zone India to contribute 2% of the growth.
  3. Brand-Specific Strategy (e.g., Surf Excel):
    • Increase Surf Excel sales in South Zone by 10% through:
      • Eco-friendly positioning.
      • Targeted promotions in urban areas.
      • Expanding distribution in rural markets.
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