Multimedia Marketing/Marketing.iso/market/chapter2.2p

Text File | 1996-08-22 | 15KB | 317 lines

SECTION 2.2  Company Capabilities

INSTRUCTIONS Answer these questions: Why don't auto producers produce bicycles?
prefabricated homes? household appliances?

EXAMPLE

In formulating objectives and goals, management must assess the
strengths and weaknesses of the company. A large producer of
oil field supplies, tools , and equipment made a far-reaching
decision in the 1980's--management decided to go into the busines
of producing helicopters. It was believed that the company technical
and marketing personnel were sufficient to permit effective
penetration of that market. Several years of experience dispelled
that notion, however.

The production and engineering staff lacked
the technical expertise to manufacture precision parts and to
assemble competitive helicopter models. The marketing staff lacked
the expertise and the sales contacts to convince potential buyers
to purchase company models. After several years of disappointing
sales, the company abandoned this line of business.

DETAILS

If it is to be effective, strategy must reflect a firm's resources
and capabilties. because a firm's capabilities are a function of
both its own characteristics and the tasks necessary to follow
through on an alternative, management should assess each opportunity
separately. It is possible to classify all of a firm's tasks into
one of two functional categories: general management, marketing,
and finance, on the one hand, and research and development and
operations on the other.

Managers and other employees of the company gain expertise in their
fields of specialization. Large food processing company executives,
for instance, become thoroughly knowledgeable about the consumer
products industry by the time they rise to higher echelons. Hence,
these companies have a strong experience base among their managers
from which to draw when considering new consumer items.

The experience of marketing managers is especially significant.
For instance, distribution channel marketing experience is often
crucial. Some people naively believe that intermediaries are
anxious to accept virtually any new item. Such a belief is totally
unfounded. To the contrary, sales representatives of many producers
barrage wholesalers and retailers in an attempt to get them to
carry new or revised products. But shelf and inventory storage
space is a limited resource and getting intermediaries to handle
an item is no easy task--one that requires managerial expertise.

Many companies cannot pursue opportunities because of a lack of
capital. it may cost several hundred million dollars to build a
modern steel plant, for example. Few companies beyond those already
established in the steel industry have the ability to obtain such
funds. Capital lending markets heavily favor existing enterprises
with extensive experience and large size.

PROBLEM  1

A defense products manufacturer wants to diversify and enter the market
for home security devices. Probably the best individual to hire to head
up marketing for this new division is:

A. One with experience in selling weapons systems to governments.
B. One with experience in selling store fixtures to retailers.
C. One with experience in selling business forms to retailers.
D. One with experience in selling over-the-counter drugs to retailers.

WORKED

A defense products manufacturer wants to diversify and enter the
market for home security devices. Probably the best individual to
hire to head up marketing for this new division is one with
experience in selling over-the-counter drugs to retailers.

When a company which produces goods for government or for indstrial
use decides to enter a consumer goods market, it is important that
the firm have on its staff executives with experience in selling
consumer goods.

In the latter 1980's and early 1990's, the federal government severely
cut back expenditures on defense related goods and services. This left
many companies that had been heavily in this market with sharply-
declining revenues. Some decided to refocus on commercial and
industrial targets. Others opted to aim at consumer markets. Some
have been successful and those that did all hired marketing
executives with long experience in the consumer goods market. Some
came from the food industry. Others came from the tobacco, jewelry,
soft drink, automotive, computer, and other industries. All had one
thing in common--their experience with consumer goods.

ANSWER   D
INSTRUCTIONS Answer these questions: Why don't auto producers produce bicycles?
prefabricated homes? household appliances?

EXAMPLE

In formulating objectives and goals, management must assess the
strengths and weaknesses of the company. A large producer of
oil field supplies, tools , and equipment made a far-reaching
decision in the 1980's--management decided to go into the busines
of producing helicopters. It was believed that the company technical
and marketing personnel were sufficient to permit effective
penetration of that market. Several years of experience dispelled
that notion, however.

The production and engineering staff lacked
the technical expertise to manufacture precision parts and to
assemble competitive helicopter models. The marketing staff lacked
the expertise and the sales contacts to convince potential buyers
to purchase company models. After several years of disappointing
sales, the company abandoned this line of business.

DETAILS

Companies who have capabilities in research and development and in
operations are in a position to capture marketing opportunities.
A firm's capability to obtain and maintain appropriate levels of
technology is of primary importance in evaluating some potential
market opportunities.

 Many apparently promising opportunities are really available
only to a handful of firms that possess or can obtain the necessary
technology. For example, nuclear, solar, and oil shale energy sources
are potential future opportunities, but their complexity precludes
all but a few firms (such as large oil and utility companies)
from succeeding.

Research and development (R & D) activities do not pertain solely to
physical technology but include all areas of technical and specialized
knowledge. The ability to conduct marketing research and forecasting,
along with knowledge of buyer behavior, are important factors to
consider in assessing whether or not a company has a differential
advantage in a particular field.

A company's current structure of operations sometimes restains
decision making. Organizations, especially large ones, become
bureaucracies with established and often rigid rules, procedures,
and policies for the conduct of business. These restaints are
desirable in order to attain current goals and to achieve efficiencies
in operation , but they can inhibit making the changes needed to
effectively tackle a new opportunity.

Small firms frequently do not labor under such burdens. One small
company located in the Southwest, for exajple, successfully dropped
its ailing skateboard product line and substituted a line of hang
gliders in less than a month. Managements of large companies,
however, should generally avoid drastic shifts from routines and
standards. The greatest competitive advantage for these firms is
generally found in areas where the new operations are similar to
the old ones.

PROBLEM 2

Which of the following types of companies is in the best position
to drastically change its product line?

A. A company that delivers parcels to businesses and residences.
B. A company that provides financial advice to investors.
C. A company that sells life insurance to consumers.
D. A company that provides consulting for small business

WORKED

A company that provides consulting for small business is in a
position to drastically change its product line.

Companies that do not have established routines in their operations
are in a good position to incorporate new products into their
lines. Examples are firms that sell services, such as accounting
and legal services enterprises.

On the other hand, some companies rely heavily on routines, in order
to make their operations efficient. An example is fast food outlets.
Many of these organizations are large in size and are in a position
to take advantage of economies resulting from their large size. These
savings combine with low costs resultingfrom routine operations,
putting them in a position to offer low prices and achieve differential
advantage in this way.

ANSWER D

INSTRUCTIONS Answer these questions: Why don't auto producers produce bicycles?
prefabricated homes? household appliances?

EXAMPLE

In formulating objectives and goals, management must assess the
strengths and weaknesses of the company. A large producer of
oil field supplies, tools , and equipment made a far-reaching
decision in the 1980's--management decided to go into the busines
of producing helicopters. It was believed that the company technical
and marketing personnel were sufficient to permit effective
penetration of that market. Several years of experience dispelled
that notion, however.

The production and engineering staff lacked
the technical expertise to manufacture precision parts and to
assemble competitive helicopter models. The marketing staff lacked
the expertise and the sales contacts to convince potential buyers
to purchase company models. After several years of disappointing
sales, the company abandoned this line of business.

DETAILS

A company should not enter a market unless it has a strong potential
for developing a favorable differential advantage over competitors
and establishing a long-run market niche. The concept of synergy
is useful when management is assessing the potential for differential
advantage offered by various opportunity alternatives. Companies
attempt to integrate various activities to produce an organized
effort. Synegy exists when, because of the combination of activities,
the value of the combined effort is greater than the value of the
sum of the parts. For example, if the value of one activity is 2
units and the value of the second activity is 2 units, synergy exists
when 2 + 2 = 5.

PROBLEM 3

Synergy probably would not exist if:

A. A fresh fruit wholesaler started selling fresh vegetables.
B. A supermarket began offering ostrich steaks.
C. A cheese producer began selling frozen dinners.
D. A lipstick producer began selling rouge.

WORKED

Synergy probably would not exist if a cheese producer began selling
frozen dinners. This company's salesforce know the buyers in the
dairy section of supermarkets. They probably do not know the
buyers in the frozen food section. Also, company trucks that transport
cheese could not move frozen dinners. A different fleet of truck would
be necessary--made up of trucks that can carry frozen goods.

ANSWER C

INSTRUCTIONS Answer these questions: Why don't auto producers produce bicycles?
prefabricated homes? household appliances?

EXAMPLE

In formulating objectives and goals, management must assess the
strengths and weaknesses of the company. A large producer of
oil field supplies, tools , and equipment made a far-reaching
decision in the 1980's--management decided to go into the busines
of producing helicopters. It was believed that the company technical
and marketing personnel were sufficient to permit effective
penetration of that market. Several years of experience dispelled
that notion, however.

The production and engineering staff lacked
the technical expertise to manufacture precision parts and to
assemble competitive helicopter models. The marketing staff lacked
the expertise and the sales contacts to convince potential buyers
to purchase company models. After several years of disappointing
sales, the company abandoned this line of business.

DETAILS

To illustrate, a retailer with an established reputation for selling
moderately expensive electronic equipment and components to hobbyists
expanded into personal computers and achieved considerable synergy.
A producer of aircraft offers a number of management development
programs for executives in other companies. It developed the
expertise needed to produce these programs in the process of conducting
training programs for its own employees.

The typical view of synergy is that it is either zero (nonexistent)
or positive (present). When choosing strategy, though , management is
well-advised  to view synergy using a negative-to-positive
continuum, i.e., 2 + 2 might equal 3, 4, or 5, depending on the
circumstances. For example, both the retailer that sells electronic
equipment and components and the aircraft producer would both likely
experience negative synergy in producing and marketing cashew nuts.
Each operation (electronics and development programs and cashew
nuts) would contribute little, if anything, to the other, resulting
in added overhead and a probable detraction of effort from both.
From this perspective, a company is likely to attain positive synergy
in only a few areas.

PROBLEM 4

In which of the following situations would synegy most likely
occur?

A. A retailer which rents videotapes decided to sell soft drinks.
B. A producer of electrically driven tools (such as drills and
   power saws) decided to market auto seat covers.
C. A retailer which sells hardware decided to sell snacks in
   vending machines.
D. A scrap metal wholesaler decided to offer management consulting
   to buyers of the scrap metal.

WORKED

A retailer which rents videotapes might achieve considerable
synergy if it decided to sell soft drinks. This is because people
often use both products at the same time. They watch videotapes
and consume soft drinks. The two products seem to fit together
and many consumers will buy them at the same time because the
purchase of one places the consumer's perceptions so that they
are "set" to purchase the other.

Marketers often find that they can achieve synergy when both existing
products and the proposed new venture assist each other in promoting
sales. (This is often called cross-selling). To illustrate favorable
synergy in this case consider a small grocery store that sells both
ground meat and hamburger buns. Such a store probably sells more
of each item than if it stocked only one of them. Ground meat sales
are helped by the buns and vice versa.

ANSWER A