Multimedia Marketing/Marketing.iso/market/chapter2.4p

Text File | 1996-08-22 | 17KB | 365 lines

SECTION 2.4  Selecting Strategies

INSTRUCTIONS Think about this: Once a company has selected a position for
its product, what strategy can it use to appeal to consumers at this position?

EXAMPLE

A motel chain which started out in the Pacific-northwest section
of the country (mainly Washington and Oregon) decided to expand
its operations to other parts of the country. Basically the
company product positioning had been to offer basic--not fancy--and
low priced lodging to commercial travelers and others who were
operating on a low travel budget. In expanding to new regions,
management had to decide what to offer and what target customers
to serve.

Management decided to upgrade its offering as it moved into new
geographic areas. The rooms were made larger and were provided
with more amenities--better furniture, better room service, and
free breakfast. It was reasoned that these utilities would enable
the firm to make inroads on several major competitors whose offerings
were very basic. The new strategy was well-publicized on network
television and turned out to be very successful. The move into new
parts of the country resulted in a large increase in share of market
for the chain.

DETAILS

It is essential that management take steps to attain the company
objectives and goals through satisfying the needs of target customers.
This requires selecting the most appropriate strategy for this task.
The three major strategies that a firm may select are market
expansion, market entry, and retrenchment. All three are widely-
used and each has its particular strengths and weaknesses.

Market expansion is generally the safest and most conservative of
the strategies. It is based upon trying to improve
company performance by more fully satisfying an existing market
target, as opposed to selecting new or additional ones.

Many firms are attracted to this strategy. It keeps them in the
same markets as they were in the past. This being the case, it
is more comfortable, both to managers and to operative employees.
Both are likely to feel that straying into new fields is risky.
In fact, this often turns out to be the case--risk is closely
associated with the degree to which the company extends its efforts
into new areas.

Conservative firms that are not prone to take risks are drawn to
market expansion. They view preservation of the status quo and
slow growth as desirable goals and prefer not to depart from that
which has been successful in the past.

This strategy can be quite effective. However, it is only effective
to a point. Further growth can become difficult, if not impossible,
once a group of target customers" needs become saturated. Management
needs another strategy at this point. Otherwise the firm will not
keep pace with competitors.

PROBLEM 1

An example of market expansion is where:

A. A carpet producer decides to introduce its product to Canadian
   markets.
B. A newsprint manufacturer decides to move into the corrugated
   cardboard box market.
C. A producer of infant's wear decides to serve the over 50's market.
D. A producer of compact disk players decides to improve the
   quality of its offering.

WORKED

An example of market expansion is where a producer of compact disk
players decides to improve the quality of its offering. Here ,
management is attempting to better satisfy current customers , rather
than striving for new ones. This is a very common strategy today.

When a company engages in market expansion, it continues to serve
the same market target that it did in the past--it does not seek
new types of customers. The idea is to improve on company product
quality, services, pricing, or some other element of the marketing
mix that will satisfy existing target cusomers better than in the
past. Normally, this strategy is less risky than trying to branch
out to new types of target customers.

Often a good way to implement market expansion is to improve
product quality. Several marketers of disposable diapers have been
successful in this regard. They have added waistbands to their
products, which has been well-received by parents who have grown
weary with diapers that unexpectedly slip down the legs of their
babies.

ANSWER  D

INSTRUCTIONS Think about this: Once a company has selected a position for
its product, what strategy can it use to appeal to consumers at this position?

EXAMPLE

A motel chain which started out in the Pacific-northwest section
of the country (mainly Washington and Oregon) decided to expand
its operations to other parts of the country. Basically the
company product positioning had been to offer basic--not fancy--and
low priced lodging to commercial travelers and others who were
operating on a low travel budget. In expanding to new regions,
management had to decide what to offer and what target customers
to serve.

Management decided to upgrade its offering as it moved into new
geographic areas. The rooms were made larger and were provided
with more amenities--better furniture, better room service, and
free breakfast. It was reasoned that these utilities would enable
the firm to make inroads on several major competitors whose offerings
were very basic. The new strategy was well-publicized on network
television and turned out to be very successful. The move into new
parts of the country resulted in a large increase in share of market
for the chain.

DETAILS

With market entry, a company attempts to improve its performance
by expanding the scope of its operations. Product development,
market development, and diversification are the principal market
entry modes.

Product development involves attempting to further satisfy a current
market through major modification of a total product offering. In
other words, the firm continues to serve the same market but offers
new products to its line. A watch manufacturer, for example, could
add watch bands to its list of offerings

When a company tries to satisfy new targets with essentially the
same product as it uses to serve old markets, the strategy is
termed market development. A company that positions its computers
mainly for the commercial market, for example, could expand into
the consumer market. Such a strategy could involve some changes in
the firm's basic product offerings, such as by making the computers
more user-friendly. Another possibility would be to offer a stripped-
down version of the computers at a lower price.

Finally, diversification involves entering new markets with new
types of product offerings. Many tobacco companies have diversified
into food products over the past decade, for instance. This type
of market entry is usually the least desirable because it requires
moving into an area in which the company has neither operating nor
marketing experience. The chances for positive synergy are
consequently quite low.

Companies can accomplish market entry in several ways. One is
internal development, which relies on the company's own staff to
develop the offering (Which can be time consuming). Another is
acquisition--buying another company that has the ability or experience
to deal with the intended offering. Finally, there is joint
venturing, where the company forms a partnership with another firm
to produce and sell the new offering. The appropriate strategy
to use, of course, depends on the costs involved, the timing
implications, and the capabilities of the company.

PROBLEM 2

A producer of industrial abrasives is considering various kinds
of market entry. Which of the following would probably be the
most risky strategy:

A. Producing tools for the consumer market.
B. Producing abrasives for the consumer market.
C. Producing maintenance supplies for the industrial market.
D. Selling industrial abrasives in Canada.

WORKED
A producer of industrial abrasives is considering various kinds of
market entry. A rather dangerous target is producing tools for the
consumer market.

The most risky market entry mode is diversification, because this
involves both a new product and a new market. This means that the
company lacks experience in both of these domains. There have been
a few notable successes of market entry through diversification,
but there have been many failures.

 A large jewelry product chain found this to be the case during
the mid-1980's. Management decided that the firm should purchase
a shoe product chain and a sporting goods product chain. Both of
these two new acquisitions were in areas of the country which
were not served by the jewelry stores. The results were financially
disasterous, and the company had to resort to a sale of both of
the new acquisitions at a staggering loss.

ANSWER  A

INSTRUCTIONS Think about this: Once a company has selected a position for
its product, what strategy can it use to appeal to consumers at this position?

EXAMPLE

A motel chain which started out in the Pacific-northwest section
of the country (mainly Washington and Oregon) decided to expand
its operations to other parts of the country. Basically the
company product positioning had been to offer basic--not fancy--and
low priced lodging to commercial travelers and others who were
operating on a low travel budget. In expanding to new regions,
management had to decide what to offer and what target customers
to serve.

Management decided to upgrade its offering as it moved into new
geographic areas. The rooms were made larger and were provided
with more amenities--better furniture, better room service, and
free breakfast. It was reasoned that these utilities would enable
the firm to make inroads on several major competitors whose offerings
were very basic. The new strategy was well-publicized on network
television and turned out to be very successful. The move into new
parts of the country resulted in a large increase in share of market
for the chain.

DETAILS

Retrenchment is the last strategy that we will consider. Most gardening
buffs know that they must sometimes prune an infected limb to save a
tree's life. Similarly, in business management it is sometimes
necessary to withdraw from unprofitable or cash-draining situations.
Retrenchment is a strategic effort to withdraw from peripheral
market segments to positions where the firm has its strongest niche.

In retrenchment a company may simply stop producing or selling a
product or service. A less extreme strategy is to reduce promotion
expenditures for an offering but continue to offer it. This can
increase cash flow when a product is not doing well in a market.
After a company is stabilized, it may again be in a position to
expand.

A grocery chain has engaged in retrenchments, from time to time. It
has experienced heavy competition and low revenues in some states
and the opposite in other states. This has led management to sell
stores in regions where the firm was having difficulty and placing
the resulting funds in areas where it had strength.

PROBLEM 3

An example of retrenchment is where:

A. A mail-order auto parts retailer decides to liquidate.
B. A wholesaler of dry-cleaning supplies merges with another wholesaler.
C. A grocery store chain sells all of its stores in New England.
D. A producer of glass containers sells all of its assets to another
   company.

WORKED
An example of retrenchment is where a grocery store chain sells
all of its stores in New England.

In the case of retrenchment, a company moves from a position of
weakness to a position of strength. It pulls out of markets or
product lines where it is experiencing financial difficulty and
reallocates its resources to areas where it is financially strong.
While this appears to be logical, it can be difficult, since many
managers are reluctant to drop or demphasize a product or service
that the firm has offered in the past. In many cases, management
has some degree of emotional involvement with the product or
service.

A large retail chain recently decided to drop its catalog business.
This business had been unprofitable for some time, but management
resisted the retrenchment move. Internal fights between various
groups of managers broke out. Several committees, made up of
high level executives were formed to study the situation. Finally
management became convinced of the absolute necessity for the firm
to rid itself of the catalog division. In turn, this decision
enabled the company to stem large financial losses and to concentrate
on its profitable retail store business.

ANSWER  C

INSTRUCTIONS Think about this: Once a company has selected a position for
its product, what strategy can it use to appeal to consumers at this position?

EXAMPLE

A motel chain which started out in the Pacific-northwest section
of the country (mainly Washington and Oregon) decided to expand
its operations to other parts of the country. Basically the
company product positioning had been to offer basic--not fancy--and
low priced lodging to commercial travelers and others who were
operating on a low travel budget. In expanding to new regions,
management had to decide what to offer and what target customers
to serve.

Management decided to upgrade its offering as it moved into new
geographic areas. The rooms were made larger and were provided
with more amenities--better furniture, better room service, and
free breakfast. It was reasoned that these utilities would enable
the firm to make inroads on several major competitors whose offerings
were very basic. The new strategy was well-publicized on network
television and turned out to be very successful. The move into new
parts of the country resulted in a large increase in share of market
for the chain.

DETAILS

Retrenchment is an avenue which has been pursued by some international
marketers. They have rushed into some foreign countries without
adequate research on the potential of those markets. Later, after
experiencing less than attractive returns, they have decided to move
out of these markets, sometimes at great losses.

Abandoning a foreign market has implications in addition to the
loss of revenues. The firm's image in the industry may suffer. What
was once looked upon as a market leader may now be viewed as a
weaker contender. The company may have trouble retaining and obtaining
good wholesalers and retailers, as they may now have questions
regarding company performance. The firm may have trouble gaining
funds from financial institutions and credit from suppliers. These
consequences sometimes cause managers to think twice about moving
out of foreign markets.

It should not be assumed that companies retrench only because they did
not adequately plan what markets to enter in the first place. Sometimes
a good market turns bad and this is not the fault of the marketer. A
large supermarket chain recently retrenched from California. The
reason was that the market had weakened, as a result of a decline in
the economy and natural catastrophes, including earthquakes, fire,
and flood. In addition, competition in the California market had
become more formidable. Retrenchment from this state allowed the
company to plow back its managerial talent, funds, and other resources
into more promising areas of the country.

Ordinarily companies will retrench only after other strategies have
failed. Some managers feel very negatively about pulling resources
out of what was once a profitable segment of the business. They view
this as a form of defeat for the company and victory for competitors.


PROBLEM 4

A producer of pasta is moving out of the East European market. A
probable reason why it made a mistake in going into the market is:

A. Inadequate research on the potential of the market.
B. Inadequate purchasing power in the market.
C. Excessive competition in the market.
D. Restrictive governmental regulations in the market.

WORKED

A producer of pasta is moving out of the East European market. A
probable reason why it made a mistake in going into the market is
inadequate research on the potential of the market. Most mistakes
of this kind result from quick decisions on the part of management
that are based more on intuition and judgment than they are on
careful research.Research will uncover shortcomings such as inadequate
purchasing power, excessive competition, restrictive regulations, and
other shortcomings in the market. When management short-circuits the
research process, mistakes can easily happen.

ANSWER  A