Principles of Marketing

13th Edition
Philip Kotler - Gary Armstrong
Pearson Edition

The Boston Consulting Group Matrix. ........................................................................................................ 3

The Product/Market expansion Grid .......................................................................................................... 4
Marketing strategies ................................................................................................................................... 5
The Four Ps of the Marketing Mix .............................................................................................................. 6
The company’s macroenvironment ............................................................................................................ 7
SWOT analysis ............................................................................................................................................. 8
Market segmentation and targeting........................................................................................................... 9
Positioning Maps....................................................................................................................................... 11
Product Life-Cycle ..................................................................................................................................... 12
E. Rogers’ cycle of adoption of innovations.............................................................................................. 13
Competitor analysis .................................................................................................................................. 14
Basic Competitive Strategies ................................................................................................................ 14
Competitive position............................................................................................................................. 14
International Market Entry Strategies ...................................................................................................... 15
Exporting ............................................................................................................................................... 15
Joint Venturing...................................................................................................................................... 16
Direct Investment ................................................................................................................................. 16

Marketing and Strategy ─ Fanny Gourret ─ 2012-2013 Page 1

 Strategic Management and Business Policy
Achieving sustainability
12th Edition
Thomas L Wheelen
J. David Hunger

Environmental scanning ........................................................................................................................... 17

Porter’s approach to industry analysis ..................................................................................................... 18
Threat of New Entrants ..................................................................................................................... 19
Rivalry Among Existing Firms .......................................................................................................... 19
Threat of Substitute Products or Services ...................................................................................... 20
Bargaining Power of Buyers ............................................................................................................. 20
Bargaining Power of Suppliers ......................................................................................................... 21
Relative Power of Other Stakeholders............................................................................................ 21
Categorizing International Industries ....................................................................................................... 22
Industry value-chain analysis .................................................................................................................... 22
Corporate value-chain analysis ................................................................................................................. 23
Porter’s Generic Competitive Strategies .................................................................................................. 24

Marketing and Strategy ─ Fanny Gourret ─ 2012-2013 Page 2

 The Boston Consulting Group Matrix.

Using the now-classic Boston Consulting Group (BCG) approach, a company classifies all its
SBUs according to the growth-share matrix as shown in Figure 2.2. On the vertical axis,
market growth rate provides à measure 0f market attractiveness. On the horizontal axis,
relative market share serves as a measure of company strength in the market. The growth-
share matrix defines four types of SBUs :

• Stars. Stars are high-growth, high-share businesses or products. They often need
heavy investments to finance their rapid growth. Eventually their growth will slow down,
and they will turn into cash cows.

The BCG Growth-Share Matrix

• Cash cows. Cash cows are low-growth, high-share businesses or products. These
established and successful SBUs need less investment to hold their market share.
Thus, they produce a lot of cash that the company uses to pay its buis and to support
other SBUs that need investment.

• Question marks. Question marks are low-share business units in high-growth

markets. They require a lot of cash to hold their share, let alone increase it.
Management has to think hard about which question marks it shouid try to build into
stars and which should be phased out.

• Dogs. Dogs are low-growth, low-share businesses and products. They may generate
enough cash to maintain themselves but do flot promise to be large sources of cash.

The 10 circles in the growth-share matrix represent a company's 10 current SBUs. The areas
of the circles are proportional to the SBU's dollar sales. As time passes, SBUs change their
positions in the growth-share matrix. The company needs to add new products and units
continuously so that some of them will become stars and, eventually, cash cows that: will help
finance other SBUs.

This company wants to invest in the more promising question marks to make them stars and to
maintain the stars so that they will become cash cows as their markets mature. Fortunately, it
has two good-sized cash cows. Income from these cash cows will help finance the company's
question marks, stars, and dogs. The company should take some decisive action concerning
its dogs and its question marks.

Marketing and Strategy ─ Fanny Gourret ─ 2012-2013 Page 3

 The Product/Market expansion Grid

• Market penetration
A strategy for company growth by increasing sales of current products for current market
segments without changing the product.

• Market development
A strategy for company growth by identfying and developing new market segments for current
company products.

• Product development
A strategy for company growth by offering modified or new products to current market
segments.

• Diversification
A strategy for company growth through starting up or acquiring businesses outside the
company’s current products and markets.

• Downsizing
Reducing the business portfolio by eliminating products or business units that are not profitable
or that no longer fit the company’s overall strategy.

Marketing and Strategy ─ Fanny Gourret ─ 2012-2013 Page 4

 Marketing strategies

Marketing strategy involves two

At its core, marketing is
key questions: which customers
all about creating
will we serve (segmentation and
customer value and
targeting)? How will we create
profitable customer
value for them (differentiation
relationships.
and positioning)? Then, the
company designs a marketing
program – the four Ps - that
delivers the intended value to
targeted consumers.

• Market segmentation
Dividing a market into distinct groups of buyers who have different needs, characteristics, or
behaviors, and who might require separate products or marketing programs.

• Market targeting
The process of evaluating each market segment's attractiveness and selecting one or more
segments to enter.

• Positioning
Arranging for a product to occupy a clear, distinctive, and desirable place relative to competing
products in the minds of target consumers.

• Differentiation
Actually differentiating the market offering to create superior customer value.

• Positioning
Arranging for a market offering to occupy a clear, distinctive, and desirable place relative Io
competing products in the minds of target consumers.

Marketing and Strategy ─ Fanny Gourret ─ 2012-2013 Page 5

 The Four Ps of the Marketing Mix

The marketing mix – or the four Ps –

consists of tactical marketing tools,
blended into an integrated marketing
program that actually delivers the
intended value proposition to target
customers.

After deciding on its overall marketing strategy, the company is ready to begin planning the
details of the marketing mix. The marketing mix consists of everything the firrn can do to
influence the demand for its product.

• Product means the goods-and-services combination the company offers to the target
market.

Three Levels of product

At the most basic level, the

company asks, « What is the
customer really buying ? »

Marketing and Strategy ─ Fanny Gourret ─ 2012-2013 Page 6

 • Price is the amount of money customers must pay to obtain the product. (including, for
example, offering discounts, trade-in allowances, and credit terms).

• Place includes company activities that make the product available to target consumers

• Promotion means activities that communicate the merits of the product and persuade
target customers to buy it.

The company’s macroenvironment

The goal of many

companies today
is environmental
sustainability .
Marketers also
want to be socially
responsible citizens
in their markets
and communities.

Marketing and Strategy ─ Fanny Gourret ─ 2012-2013 Page 7

 SWOT analysis

Managing the marketing function begins with a complete analysis of the company's situation.
The marketer should conduct a SWOT analysis, by which it evaluates the company's overall
strengths (S), weaknesses (W), opportunities (0), and threats (T).

Strengths include internal capabilities, resources, and positive situational factors that may
help the company to serve its customers and achieve its objectives.

Weaknesses include internal limitations and negative situational factors that may interfere with
the company's performance.

Opportunities are favorable factors or trends in the external environment that the company
may be able to exploit to its advantage.

Threats are unfavorable external factors or trends that may present challenges to
performance.

The company should analyze its markets and marketing environment to find attractive
opportunities and identify environmental threats. It should analyze company strengths and
weaknesses as well as current and possible marketing actions to determine which
opportunities it can best pursue. The goal is to match the company's strengths to attractive
opportunities in the environment, while eliminating or overcoming the weaknesses and
minimizing the threats. Marketing analysis provides inputs to each of the other marketing
management functions.

Marketing and Strategy ─ Fanny Gourret ─ 2012-2013 Page 8

 Market segmentation and targeting

This figure covers a broad range of targeting strategies, from mass marketing to individual marketing
(customizing products and programs to individual customers).

• Undifferentiated (mass) marketing

A market-coverage strategy in which a firm decides to ignore market segment differences and
go after the whole market with one offer.

• Differentiated (segmented) marketing

A market-coverage strategy in which a firm decides to target several market segments and
designs separate offers for each.

• Concentrated (niche) marketing

A market-coverage strategy in which a firm goes after a large share of one or a few segments
or niches.

• Micromarketing
The practice of tailoring products and marketing programs to the needs ands wants of specific
individuals and local customer groups – includes local and individual marketing.

Marketing and Strategy ─ Fanny Gourret ─ 2012-2013 Page 9

 Major Segmentation Variables for Customer Market

Marketing and Strategy ─ Fanny Gourret ─ 2012-2013 Page 10

 Positioning Maps

Product position
The place the product occupies in consumers' minds relative to competing products.

Consumers position products with or without the help of marketers. But marketers do
not want to leave their products' positions to chance. They must plan positions. To the extent
that a company can differentiate and position itself as providing superior customer value, it
gains competitive advantage.

Competitive advantage
An advantage over competitors gained by offering greater customer value, either through
Iower prices or by providing more benefits that justify higher prices.

In planning their differentiation and positioning strategies, marketers often prepare

perceptual positioning maps, which show consumer perceptions of their brands versus
competing products on important buying dimensions.

Positioning Map: Large Luxury SUV’s

The location of each circle shows where consumers

position a brand on two dimensions: price and luxury-
performance orientation. The size of each circle
indicates the brand’s relative market share in the
segment. Thus, Toyota’s Land Cruiser is a niche brand
that is perceived to be relatively affordable and more
performance oriented.

The figure above shows a positioning map for the U.S. large luxury sport utility vehicle market.
The position of each circle on the map indicates the brand's perceived positioning on two
dimensions—price and orientation (luxury versus performance). The size of each circle
indicates the brand's relative market share.

Marketing and Strategy ─ Fanny Gourret ─ 2012-2013 Page 11

 Product Life-Cycle

Management is aware that each product will have a life cycle, although its exact shape
and length is flot known in advance.

The figure shows a typical product life cycle (PLC), the course that a product's
sales and profits take over its lifetime. The product life cycle bas five distinct stages:

1. Product develoyment begins when the cornpany finds and develops a new-
product idea. Du ring product development, sales are zero and the company's
investment costs mount.
2. Introduction is a period of slow sales growth as the product is introduced in the
market. Profits arc nonexistent in this stage because of the heavy expenses of
product introduction.
3. Growth is a period of rapid market acceptance and increasing profits.
4. Maturity is a period of slowdown in sales growth because the product has achieved
acceptance by most potential buyers. Profits level off or decline because of
increased marketing out-lays to defend the product against competition.
5. Decline is the period when sales fail off and profits drop.

Not all products follow this product life cycle. Some products are introduced and die quickly ;
others stay in the mature stage for a long, long tirne. Some enter the decline stage and are
then cycled back into the growth stage through strong promotion or repositioning . It seems
that a well-managed brand could hive forever. The PLC concept applies differently in each
case.

Marketing and Strategy ─ Fanny Gourret ─ 2012-2013 Page 12

 E. Rogers’ cycle of adoption of innovations

New-product marketers often target

innovators and early adopters, who in
turn influence later adopters.

Source: Reprinted with permission of the Free Press, a Division of Simon & Schuster, from Diffusion of
Innovations, Fifth Edition, by Everett M. Rogers. Copyright © 2003 by the Free Press.

People differ greatly in their readiness to try new products. People can be classified into the
adopter categories shown in Figure above. After a slow start, an increasing number of people
adopt the new product. Innovators are defined as the first 2.5 percent of the buyers to adopt a
new idea (those beyond two standard deviations from mean adoption time); the early adopters
are the next 13.5 percent (between one and two standard deviations); and so forth.

The five adopter groups have differing values.

Innovators are venturesome: they try new ideas at some risk.

Early adopters are guided by respect: they are opinion leaders in their communities
and adopt new ideas early but carefully.

The early majority are deliberate: although they rarely are leaders, they adopt new
ideas before the average person.

The late majority are skeptical: they adopt an innovation only after a majority of people
have tried it.

Finally, laggards are tradition-bound: they are suspicious of changes and adopt the
innovation only when it has become something of a tradition itself.

This adopter classification suggests that an innovating firm should research the characteristics
of innovators and early adopters and should direct marketing efforts toward them. In general,
innovators tend to be relatively younger, better educated, and higher in income than later
adopters and non-adopters. They are more receptive to unfamiliar things, rely more on their
own values and judgment, and are more willing to take risks. They are less brand-loyal and
more likely to take advantage of special promotions such as discounts, coupons, and samples.

Marketing and Strategy ─ Fanny Gourret ─ 2012-2013 Page 13

 Competitor analysis

Basic Competitive Strategies

Almost three decades ago, Michael Porter suggested four basic competitive positions in
strategies that companies can follow—three winning strategies and one losing one. The three
winning strategies include:

• Overall cost leadership: Here the company works hard to achieve the lowest production
an( distribution costs. Low costs let it price lower than its competitors and win a large mar
ket share. Texas Instruments, Dell, and Wal-Mart are leading practitioners of this strategy

• Differentiation: Here the company concentrates on creating a highly differentiated

product une and marketing program so that it cornes across as the class leader in the
industry. Most customers would prefer to own this brand if its price is not too high. IBM
and the equiprnent-maker Caterpillar follow this strategy in information technology and
services and heavy construction equipment, respectively.

• Focus: Here the company focuses its effort on serving a few market segments well rather
than going after the whole market. For example, the hotel chain the Ritz-Canton focuses
on the top 5 percent of corporate and leisure travelers. Tetra Food supplies 80 percent of
pet tropical fish food. Similarly, Hohner owns a stunning 85 percent of the harmonica
market.

Competitive position

Each market position calls for a different competitive strategy. For example, the market leader
wants to expand total demand. Market nichers seek market segments that are big enough to
be profitable but to small to be of interest to major companies.

Competitor analysis
The process of identifying key competitors; assessing their objectives, strategies, strengths
and weaknesses, and reaction patterns; and selecting which competitors to attack or avoid.

Strategic group
A group of firms in an industry following the same or a similar strategy.

Marketing and Strategy ─ Fanny Gourret ─ 2012-2013 Page 14

 International Market Entry Strategies

Once a company bas decided to sell in a foreign country, it must determine the best mode of
entry. Its choices are exporting, joint venturing, and direct investment.

As the figure shows, each succeeding strategy involves more commitment and risk, but also
more control and potential profits.

Exporting

The simplest way to enter a foreign market is through exporting.

Companies typically start with indirect exporting, working through independent

international marketing intermediaries. Indirect exporting involves less investment because
the firm does not require an overseas marketing organization or network. It also involves
Iess risk. International marketing intermediaries bring know-how and services to the
relationship, so the seller normally makes fewer mistakes.

Sellers may eventually move into direct exporting, whereby they handle their own
exports. A company can conduct direct exporting in several ways: It can set up a domestic
export department that carries out export activities. It can set up an overseas sales branch
that handles sales, distribution, and perhaps promotion. The sales branch gives the seller
more presence and program control in the foreign market and often serves as a display
center and customer-service center. The company can also send home-based
salespeople abroad at certain times in order to find business. Finally, the company can
do its exporting either through foreign-based distributors who buy and own the goods or
through foreign-based agents who sell the goods on behalf of the company.

Marketing and Strategy ─ Fanny Gourret ─ 2012-2013 Page 15

Joint Venturing

A second rnethod of entering a foreign market is joint venturing—joining with foreign

companies to produce or market products or services.

Joint venturing differs from exporting in that the company joins with a host country partner to
sell or market abroad. It differs from direct investment in that an association is formed with
someone in the foreign country. There are four types of joint ventures : licensing, contract
manufacturing, management contracting, and joint ownership.

attractive if the contracting firm bas an option to buy some share in the managed company
later on. The arrangement is not sensible, however; if the company can put its scarce
management talent to better uses or if it can make greater profits by undertaking the whole
venture. Management contracting also prevents the company from setting up its own
operations for a period of time.

Direct Investment

The biggest involvement in a foreign market comes through direct investment- the
development of foreign-based assembly or manufacturing facilities.

If a company has gained experience in exporting and if the foreign market is large
enough, foreign production facilities offer many advantages. The firm may have lower
costs in the form of cheaper labor or raw materials, foreign government investment incentives,
and freight savings. The firm may improve its image in the host country because it creates
jobs. Generally, a firm develops a deeper relationship with government, customers, local
suppliers, and distributors, allowing it to adapt its products to the local market better. Finally,
the firm keeps full control over the investment and therefore can develop manufacturing and
marketing policies that serve its long-term international objectives. The main disadvantage of
direct investment is that the firm faces many risks, such as restricted or devalued currencies,
falling markets, or government changes. In some cases, a firm has rno choice but to accept
these risks if it wants to operate in the host country.

Marketing and Strategy ─ Fanny Gourret ─ 2012-2013 Page 16

 Strategic Management and Business Policy
Achieving sustainability
12th Edition
Thomas L Wheelen
J. David Hunger

Environmental scanning

Marketing and Strategy ─ Fanny Gourret ─ 2012-2013 Page 17

 Porter’s approach to industry analysis

The level of this intensity is determined by basic competitive forces, as depicted in figure
shown here.

In carefully scanning its industry, a corporation must assess the importance to its success of
each of six forces: threat of new entrants, rivalry among existing firms, threat of substitute
products or services, bargaining power of buyers, bargaining power of suppliers, and relative
power of other stakeholders.

The stronger each of these forces, the more Iimited companies are in their ability to raise
prices and earn greater profits.

Although Porter mentions only five forces, a sixth—other stakeholders—is added here to
reflect the power that governments, local communities, and other groups from the task
environment wield over industry activities.

Using the model, a high force can be regarded as a threat because it is likely
to reduce profits. A low force, in contrast, can be viewed as an opportunity because it may
allow the company to earn greater profits. In the short run, these forces act as constraints on a
company's activities. In the long run, however, it may be possible for a company, through its
choice of strategy, to change the strength of one or more of the forces to the company's
advantage.

Marketing and Strategy ─ Fanny Gourret ─ 2012-2013 Page 18

A strategist can analyze any industry by rating each competitive force as high, medium,
or low in strength.

Threat of New Entrants

The threat of entry depends on the presence of entry barriers and the reaction that can be
expected from existing competitors. An entry barrier is an obstruction that makes it difficult for
a company to enter an industry. For example, no new domestic automobile companies have
been successfully established in the United States since the 1930s because of the high capital
requirements to build production facilities and to develop a dealer distribution network.

Some of the possible barriers to entry are:

• Economies of scale: Scale economies in the production and sale of microprocessors,
for example, gave Intel a significant cost advantage over an' new rival.
• Product differentiation: Corporations such as Procter & Gamble create high entry
harriers through their high levels of advertising and promotion.
• Capital requirements: The need to invest huge financial resources in manufacturing
facilities in order to produce large commercial airplanes creates a significant harrier to
entry to any competitor for Boeing and Airbus.
• Switching costs: Once a software program such as Excel or Word becomes
established in an office, office managers are very reluctant to switch to a new program
because of the high training costs.
• Access to distribution channels: Small entrepreneurs often have difficulty obtaining
supermarket shelf space for their goods because large retailers charge for space on
their shelves and give priority to the established firms who can pay for the advertising
needed to generate hi -h customer demand.
• Cost disadvantages independent of size: Once a new product earns sufficient
market share to be accepted as the standard for that type of product, the maker has a
key advantage. Microsoft's development of the first widely adopted operating system
(MS- DOS) for the IBM-type personal computer gave it a significant competitive
advantage over potential competitors. Its introduction of Windows helped to cement
that advantage so that the Microsoft operating system is now on more than 90% of
personal computers worldwide.
• Government policy: Governments can limit entry into an industry through licensing
requirements.

Rivalry Among Existing Firms

In most industries, corporations are mutually dependent. A competitive move of one firm can
be expected to have a noticeable effect on its competitors and thus ma)' cause retaliation.

According to Porter, intense rivalry is related to the presence of several factors, including:

• Number of competitors: When competitors are few and roughly equal in size, such as
in the auto and major home appliance industries, they watch each other carefully.

• Rate of industry growth: Any slowing in passenger traffic tends to set off price wars in
the airline industry because the only path of growth is to take sales away from a
competitor.

Marketing and Strategy ─ Fanny Gourret ─ 2012-2013 Page 19

 • Product or service characteristics: A product can be very unique, with many qualities
differentiating it from others of its kind or it may be a commodity, a product whose
characteristics are the same, regardless of who sells it. For example, most people
choose a gas station based on location and pricing because they view gasoline as a
commodity.

• Amount of fixed costs: Because airlines must fly their planes on all schedule,
regardless of the number of paying passengers for any one flight, they offer cheap
standby fares whenever a plane has empty seats.

• Capacity: If the only way a manufacturer can increase capacity is in a large increment
by building a new plant (as in the paper industry), it will run that new plant at full
capacity to keep its unit costs as low as possible—thus producing so much tint the
selling price falls throughout the industry.

• Height of exit barriers: Exit barriers keep a company from leaving an industry. The
brewing industry, for example, has a low percentage of companies that voluntarily
leave the industry because breweries are specialized assets with few uses except for
making beer.

• Diversity of rivals: Rivals that have very different ideas of how to compete are likely to
cross paths often and unknowingly challenge each other's position. This happens often
in the retail clothing industry when a number of retailers open outlets in the same
location—thus taking sales away from each other. This is also likely to happen in some
countries when multinational corporations compete in an increasingly global economy.

Threat of Substitute Products or Services

A substitute product is a product that appears w be different but can satisfy the same need as
another product.

For example, e-mail is a substitute for the fax, Nutrasweet is a substitute for
Sugar, the Internet is a substitute for video stores, and bottled water is a substitute for a
cola.

According to Porter, "Substitutes limit the potential returns of an industry by placing a ceiling
on the prices firms in the industry can profitably charge."50 To the extent that switching costs
are low, substitutes may have a strong effect on an industry.

Tea can be considered a substitute for coffee. If the price of coffee goes up high
enough, coffee drinkers will slowly begin switching to tea. The price of tea thus puts a
price ceiling on the price of coffee.

Bargaining Power of Buyers

Buyers affect an industry through their ability to force down prices, bargain for higher quality
or more services, and play competitors against each other. A buyer or a group of buyers is
powerful if some of the following factors hold true:

• A buyer purchases a large proportion of the seller's product or service (for example,
filters purchased by a major auto maker).
• A buyer has the potential to integrate backward by producing the product itself (for
example, a newspaper chain could make its own paper).
• Alternative suppliers are plentiful because the product is standard or undifferentiated
(for example, motorists can choose among many gas stations).

Marketing and Strategy ─ Fanny Gourret ─ 2012-2013 Page 20

 • Changing suppliers costs very little (for example, office supplies are easy to find).
• The purchased product represents a high percentage of a buyer's costs, thus providing
an incentive to shop around for a lower price (for example, gasoline purchased for
resale by convenience stores makes up half their total costs).
• A buyer earns low profits and is thus very sensitive to costs and service differences (for
example, grocery Stores have very small margins).
• The purchased product is unimportant to the final quality or price of a buyer's products
or services and thus can be easily substituted without affecting the final product (for
example, electric wire bought for use in lamps).

Bargaining Power of Suppliers

Suppliers can affect an industry through their ability to raise prices or reduce the quality of
purchased goods and services. A supplier or supplier group is powerful if some of the following
factors apply:
• The supplier industry is dominated by a few companies, but it sells to many (for
example, the petroleum industry).
• Its product or service is unique and/or it has built up switching costs (for example, word
processing software).
• Substitutes are not readily available (for example, electricity).
• Suppliers are able to integrate forward and compete directly with their present
customers (for example, a microprocessor producer such as Intel can make PCs).
• A purchasing industry buys only a small portion of the supplier group's goods and
services and is thus unimportant to the supplier (for example, sales of lawn mower tires
are less important to the tire industry than are sales of auto tires).

Relative Power of Other Stakeholders

A sixth force should be added to Porter's list to include a variety of stakeholder groups from the
task environment. Some of these groups are governments (if not explicitly included
elsewhere), local communities, creditors (if not included with suppliers), trade associations,
special-interest groups, unions (if not included with suppliers), shareholders, and
complementary industries.

Key international stakeholders who determine many of the international trade regulations and
standards are the World Trade Organization, the European Union, NAFTA, ASEAN, and
Mercosur.

Marketing and Strategy ─ Fanny Gourret ─ 2012-2013 Page 21

 Categorizing International Industries

Continuum of International Industries

According to Porter, world industries vary on a continuum from multidomestic to global.

Multidomestic industries are specific to each country or group of countries. This type of
international industry is a collection of essentially domestic industries, such as retailing and
insurance. The activities in a subsidiary of a multinational corporation (MNC) in this type of
industry are essentially independent of the activities of the MNC's subsidiaries in other
countries. Within each country, it has a manufacturing facility to produce goods for sale within
that country. The MNC is thus able to tailor its products or services to the very specific needs
of consumers in a particular country or group of countries having similar societal environments.

Global industries, in contrast, operate worldwide, with MNCs making only small adjustments
for country-specific circumstances. In a global industry an MNC's activities in one country are
significantly affected by its activities in other countries. MNCs in global industries produce
products or services in various locations throughout the world and selI them, making only
minor adjustments for specific country requirements.

Examples of global industries are commercial aircraft, television sets, semiconductors,

copiers, automobiles, watches, and tires.

The largest industrial corporations in the world in terms of sales revenue are, for the most part,
MNCs operating in global industries.

Industry value-chain analysis

The value chains of most industries can be split into two segments, upstream and
downstream segments. In the petroleum industry, for example, upstream refers to oil
exploration, drilling, and moving of the crude oil to the refinery, and downstream refers to
refining the oil plus transporting and marketing gasoline and refined oil to distributors and gas
station retailers.

Even though most large oil companies are completely integrated, they often vary in the
amount of expertise they have at each part of the value chain.

Marketing and Strategy ─ Fanny Gourret ─ 2012-2013 Page 22

 Corporate value-chain analysis

Each corporation has its own internal value chain of activities. The systematic examination of
individual value activities can lead to a better understanding of a corporation's strengths and
weaknesses. According to Porter, "Differences among competitor value chains are a key
source of competitive advantage.”

Because most corporations make several different products or services, an internal analysis of
the firm involves analyzing a series of different value chains.

Corporate value chain analysis involves the following three steps :

1. Examine each product line's value chain in terms of the various activities involved in
producing that product or service.
2. Examine the "linkages" within each product line's value chain.
3. Examine flue potential synergies among the value chains of different product lines or
business units.

Marketing and Strategy ─ Fanny Gourret ─ 2012-2013 Page 23

 Porter’s Generic Competitive Strategies

Competitive strategy raises the following questions:

Should we compete on the basis of lower cost (and thus price), or should we differentiate our
products or services on some basis other than cost, such as quality or service?

Should we compete head to head with our major competitors for the biggest but most sought-
after share of the market, or should vie focus on a niche in which we can satisfy a less sought-
after but also profitable segment of the market?

Michael Porter proposes two "generic" competitive strategies for outperforming other
corporations in a particular industry: Iower cost and differentiation.

• Lower cost strategy is the ability of a company or a business unit to design, produce,
and market a comparable product more efficiently than its competitors.

• Differentiation strategy is the ability of a company to provide unique and superior

value to the buyer in terms of product quality, special features, or after-sale service.

A company or business unit can choose a broad target (that is, aim at the middle of the mass
market) or a narrow target (that is, aim at a market niche). Combining these two types of target
markets with the two competitive strategies results in the four variations of generic strategies
depicted in this figure :

Although research does indicate that established firms pursuing broad-scope strategies
outperform firms following narrow-scope strategies in terms of ROA (Return on Assets), new
entrepreneurial firms have a better chance of surviving if they follow a narrow-scope rather
than a broad scope strategies.

Marketing and Strategy ─ Fanny Gourret ─ 2012-2013 Page 24