Strategic Market Management, European Edition , David A Aaker , Damien McLoughlin Solution Manual by Ace Test Banks

Strategic Market Management, European Edition By David A. Aaker , Damien McLoughlin

Email: Richard@qwconsultancy.com

Chapter 16 Organizational Issues 1. Strategy execution did not go according to plan in the DaimlerChrysler example at the beginning of this chapter. How could these problems have been avoided? While the merger of the two companies offered potential synergies and even economies of scale, it seems that Mercedes’ prior analysis did not take account of the different reasons for success in each company and consequently the core competencies and cultures of each. Similarly they underestimated the impact of the merger on Chrysler’s corporate culture and staff and actively encouraged separation fearing the impact of integration on the Mercedes brand. They also delayed in rectifying the brain-drain and by the time they had acted Mercedes Benz was suffering in its own markets. Mercedes could have avoided initial mistakes by engaging in impact analysis of their original strategy. Despite that, they could have acted more quickly and with greater commitment to the merger to demonstrate how much they valued the acquisition of the American car- maker. Such a policy could have led to a greater mutual understanding and sharing of expertise and technical knowhow which may have helped avoid problems that later transpired for Mercedes with its volume C and E class vehicles for example. 2. What are the advantages of decentralisation? Some people argue that more centralization is needed to develop and implement strategy in these dynamic times. Express your opinion, and illustrate it with examples. When would you recommend that the central team use a facilitative role, rather than impose its advice? Decentralisation affords an organization greater flexibility. Management in local markets has the autonomy and product knowledge to make and implement decisions pertinent to local dynamics, quickly. Performance of individual business units is more transparent than with centralized organizations. As such decentralization can infuse the company with certain vitality as autonomous business units navigate a course in their respective markets. Centralisation allows a company greater control over the business. For example, a standardized brand identity can be developed and implemented globally by one core team, allowing consistency in the implementation and the message. Additionally centralization can lead to efficiencies across a range of management functions such as administration, marketing and financial management. With firms facing globalised markets, fragmented into individual markets by region and cultural norms, it may be optimal to implement a Think Global, Act Local strategy: adopt a happy medium with Head Office acting either as a facilitator, consultant or simply service provider to local operations. HSBC Bank exemplifies this in its positioning as a world bank with local outlets. Embedded in its corporate advertising, HSBC achieves a fine balance in its positioning between being a world bank and one that understands local markets by highlighting different cultural interpretations of common concepts and symbols, for example certain colours and animals. A facilitator role would be advisable for firms entering culturally diverse and culturally distant markets to that of the company’s home culture. In short, a facilitator role is advisable when market dynamics at the local level are sufficiently different from those in the home market. 3. Evaluate Mintzberg’s easy steps to destroying value. Which is the most common step?

2 Planning and implementation of planning are probably the most common area where companies fall down. As indicated by Eisenhower’s famous quote, companies can make plans ad-infinitum but it is the ability to implement plans that fit with the organisation’s culture and values that is crucial. As such a focus on planning can lead to repetition and routine, killing learning and therefore the opportunity to improve through planning that accounts for a variety of strategic options. 4. GE’s Jack Welch believes that people are the most important ingredient to success. What are the implications of that belief? By understanding the fundamental importance of staff to the firm’s success Welch adapted his management style accordingly to take advantage of this by encouraging a range of communications initiatives to stimulate best practice within GE. In an increasingly service-oriented marketplace there are more moments of truth involving contact with company representatives. As such it makes strategic sense for a company to ensure its people are valued and aware of that. A company that places its human resources first will incorporate this value into all aspects of its strategic decisions in the marketplace – leveraging staff skills and competencies for the company’s benefit, protecting their interests and supporting their development personally and professionally where possible. 5. Assume that you are the CEO of a company, which sells entertaining, electronicbased learning devices for customers ranging from infants to secondary school students. Describe the culture you would like to develop and maintain. How would you do that? Student activity

Chapter 1 Business Strategy: The Concept and Trends in Management 1.

What is business strategy? Do you agree with the definition proposed in this chapter? Illustrate your answer with examples. A business strategy consists of four dimensions: the product-market investment strategy, the customer value proposition, assets and competencies, and functional strategies and programmes. The proposed definition is comprehensive because it addresses where a business should compete and how it should do so. In this way it outlines what markets will be served against what competition; what value will be offered to customers and finally what resources will be used achieve these goals.

Examples Nokia plans to capitalize on their leadership position by continuing to enter segments of the mobility industry that they believe will experience rapid growth faster than the industry as a whole; for example smart phones. They have the financial resources and technology to exploit their business opportunity. Their customer value proposition is to be the technology leader when it comes to mobile communications of all forms. They use their extensive R&D resources to support this customer value proposition.

Consider one of the firms in the list below. Read the description in the text, then go to the firm’s website and use it to gain an understanding of the business strategy. Look at elements such as the products and services offered, the history of the firm, and its values. What is the business strategy? What product markets does the firm serve? What value propositions does it use? How are the value propositions delivered? What are the firm’s assets and competencies? What strategic options has it pursued? A. Ikea

B. Aldi

C. Diesel

D. A firm of your choice

Ikea: The Ikea business strategy is to be a one-stop shop for people’s entire furniture needs – making it as easy as possible to purchase and later install furniture in the home. It does this by offering attractively and welldesigned furniture for home assembly to the mass market via sub-urban retail outlets. Ikea’s value proposition to the market is based on ease of

2 purchase, good value for money and combined with contemporary design leveraging the Swedish reputation for design excellence. Ikea’s assets are its core skills in furniture design (blending style and functionality); a distribution model that caters to its target market and facilitates the supply side of the business (using basic warehouse style shops on the outskirts of cities) and finally its brand, which is synonymous with quality at a good price point.

Aldi Aldi operates in Europe, North America and Australia markets as a discount supermarket offering everything from food and drink to consumer goods like clothes and electronics. It sells many products via its own label and also delivers customer savings through frequent promotions and discounts. The company has over 5000 stores worldwide and uses its purchasing power to pass on savings to consumers in the form of generally lower prices across a broad spectrum of products. Aldi has successfully exploited this positioning to expand internationally and globally locating on sites near fronting onto main roads in areas with catchments of at least 10,000 people.

Diesel The Diesel business strategy is about being a clothing and lifestyle brand central to globalised youth culture. Its value proposition is cutting edge trendy designs for savvy consumers seeking independence from mainstream fashion. Diesel’s network of 5000 retail outlets includes 300 own brand stores, of which the company partners with local distributors in 100 cases. Additionally it is renowned for a non-conventional work ethic that fosters creativity and encourages innovation in design. These two factors combined have allowed Diesel to position them at the cutting edge of the mainstream market for high street fashion. Diesel also operates a direct sales channel via their own website and have partnered with other global brands including Adidas to create jointly branded product lines to increase their penetration in the market.

Chapter 2 Strategic Market Management: An Overview 1.

Consider the Senokot strategic decision. Evaluate or describe how you would go about evaluating that decision with respect to the criteria in Figure 2.3. Create a hypothetical BHAG for Senekot and evaluate it with respect to the three criteria for good BHAGs.

While market leader, by 2004 Senokot was faced with a maturing market and slowing sales growth in its constipation remedy category. In identifying strategic alternatives the company could begin by examining product market scope options that would offer new growth directions. In so doing research into the customer value proposition and market segmentation pinpointed an opportunity based on repositioning their core brand. By understanding this issue with perception and performing an internal analysis of Senokot’s own capabilities, the company could address the optimal investment strategy for their constipation remedy. This would then trickle down to the functional area strategies such as production, distribution and marketing.

The company may have considered several options at this stage, but applying the criteria for strategy selection as outlined in figure 2.3, Senokot could focus on the optimal strategy fitting with their core strengths and resources while offering an attractive return on investment taking into account the lack of innovation from competitors. They repositioned the brand as an ‘inner-health product’ and communicated this to previously untapped segments of the market. In so doing, Senokot came to understand a new broader definition of the scope of its business as being health related.

Possible BHAGs for Senokot could include an internationalization strategy leveraging their market leadership position at home or the launch of new product-brands targeting each of the three segments to consolidate their overall market leadership position while reinvigorating the market through innovations.

2 2.

What is the difference between key success factors and sustainable competitive advantages? Illustrate your understanding by discussing several constructs such as the cola market or the luxury car market.

Key Success Factors are the minimum requirements a company needs to compete in a product-market. A Sustainable Competitive Advantage is something that differentiates the company from its competition, enabling a market leadership position that can be protected. SCAs can be KSFs. In the luxury car market, KSFs could include brand heritage, engineering and design excellence, exclusive or near-exclusive distribution and a justifiable price premium. Ultimately the SCA in the luxury car market would be an instantly recognizable brand name that many desire and few can afford. 3.

Which quote from the beginning of either Chapter 1 or Chapter 2 do you find the most insightful? Why?

Students may offer very creative interpretations to any of the quotes. It might be useful to entertain objections from other students as to the position taken by a student on a quote, not for the sake of it but for further analysis of the quote.

Chapter 3 External and Customer Analysis 1.

Why do a strategic analysis? What are the objectives? What in your view are the three keys to making a strategic analysis helpful and important? Is there a downside to conducting a full-blown strategic analysis?

Companies perform a strategic analysis ultimately with a view to making informed decisions about where and how to compete in the future by identifying future trends, threats, opportunities and strategic uncertainties. Any strategic analysis should contribute to the investment decision and to the selection of strategic options that also account for the value proposition, organizational assets and functional programmes. Essentially a strategic analysis is critical to the long-term survival, development and profitability of an organization operating in a dynamic market place.

Key to the success of a strategic analysis is that it has a specific purpose and is directed toward that aim. This means the scope should be defined at the outset. Secondly it should be thorough enough that real strategic alternatives can be identified. Thirdly, the analysis should offer tangible recommendations as to how the company should compete in the market and even gain SCA.

One possible drawback of performing a full strategic analysis is the investment of resources and time it demands. As such there can be a time-lag between when the results are needed and when they are implemented. This can render the analysis useless.

Consider the buyer ‘hot buttons’ described in the insert. What are the implications for frozen food firms such as Findus or Bird’s Eye? What new business areas might be considered, given each hot button? Answer the same questions for a grocery store chain such as El Corte Ingles, Dunnes Stores or Sainsbury’s.

These hot buttons indicate trends that will have a significant impact on future consumption preferences. As such companies like Findus and Bird’s Eye should have factored these into their product development strategy and either had or be developing products that will match these hot buttons. If they fail to anticipate these shifts in consumer preferences they could lose market share and so profitability. © 2008 John Wiley & Sons Ltd. www.wileyeurope.com/college/aaker

For grocery store chains like Dunne Stores or El Corte Ingles, they too should be researching and sourcing supply of products that cater to these hot buttons, to ensure future customer loyalty and even attract more customers away from less proactive retailers.

What is a customer buying at Harrod’s? At Zara? At H&M? In all three cases, the customer is buying physical items, generally fashionable clothes and accessories, but also luxury goods and luxury foods in the case of Harrod’s. In each case however they are paying for several intangible aspects of the shopping experience as well. For example in Harrod’s it may be the prestige of the brand’s heritage, manifest in the distinctive shopping bags, interior design and personalized customer service in the shop. These aspects help to reassure the buyer that shopping at Harrod’s is a luxurious experience and justifies the price premium and that this might somehow rub-off on the customer who can acquire a sense of prestige and exclusivity by shopping there. With Zara, the product range is renewed several times a year always focused on cutting-edge style at high-street prices. Essentially customers are acquiring sophistication without the usual high cost. While Zara clothes rarely display a logo, their style is recognizable and so act as a subtle badge of affordable prestige. With H&M the customer is acquiring high-street fashion and reasonable quality at a value price.

Pick a company or brand/business on which to focus. What are the major segments? What are the customer motivations by segments? What are the unmet needs? In the case of the yogurt business the major segments may be: functional health-oriented yogurts, children’s yogurts, dessert yogurts and drinking yogurts. In the case of the functional foods category, customer motivations may be many and varied but related to a desire for a healthier lifestyle. For example some products may help fortify the immune system, lower cholesterol and fat intake or offer extra vitamins and minerals. In terms of children’s yogurt, the motivation may be to provide a fun tasty snack that is healthy and nutritious. In respect of desserts the motivation may be for indulgence while catering to the healthy conscience. Finally drinking yogurts might cater to changing and busier

3 lifestyles ‘on-the-go’ where people are looking for a healthy snack that is easily consumed on the move. Unmet needs among yogurt consumers may include concepts as left-field as pre-packed savoury yogurt-based sauces for cooking.

Chapter 4 Competitor Analysis 1.

Consider the television industry. Identify the BBC’s competitors and organize them in terms of their intensity of competition. Also organize them in terms of strategic groups. Are there differences in the two methods of organization? The BBC operates in many categories (entertainment, news, documentary and film etc). Also television is now distributed in a variety of ways. Direct competition for the BBC would include large networks including ITV and Channel 4. Another group of direct competitors for the BBC could be the digital and satellite television providers including NTL and Sky Digital. A form of more indirect competition could come from Internet based television providers such as Joost as well as other web-based video and news sites, radio channels, and perhaps to a lesser extent print, cinema and rich media 3G telephony. In terms of strategic groups the distinction for the BBC may be whether the content is accessible using traditional channels such as television or whether it is accessible using digital channels like the Internet, digital television and 3G telephones. Consequently the difference between the two methods relates to the distribution methods and the minimum scale requirements for market entry to the industry.

Evaluate Figure 4.7. What surprises are there in the figure? What are the implications for Toyota? For Audi? One surprise is that product quality perceptions do not seem to influence market share as much as one might expect. Toyota’s Lexus is the only brand that scores above average for product quality, while all European brands score an average mark. Interestingly four of these (BMW, Jaguar, Mercedes Benz and Volvo) each score above average on differentiation. A further examination of the secondary influences indicates that BMW and Mercedes both score better than Lexus on brand name recognition. While Toyota’s Lexus is apparently a superior car it has not capitalized on that in terms of a positioning in the market that sets it apart from its competition. For Audi it may slip into a submarket competing against the likes of Honda and Nissan, on price bases for example, as they all share similar scores across all dimensions of the matrix.

Pick a company or brand/business on which to focus. What business is it in? Who are its direct competitors? Which in each category are the most relevant competitors? Class Discussion

Consider the car industry. Identify competitors to BMW and organize them in terms of their intensity of competition. Also organize them into strategic groups. What are the KSFs for the strategic groups? Do you think that will change in the next five years? BMW’s competitors could be described as premium priced vehicles in a range of segments including small car, sports car, saloon, estate and SUV sectors. Brands against which it would compete in the European market include Audi, Mercedes Benz, Toyota Lexus, Volvo, Nissan and Saab. Using the strategic groups methodology, competitors would fall into the following categories: 1). Luxury cars: Ferrari, Porsche, Bentley, Bugatti, Lamborghini 2). Premium cars: BMW, Saab, Mercedes, Lexus, Audi 3). Mid-price cars: Ford, Renault, Citroen, Toyota, Nissan, Volkswagen 4). Value price cars: Fiat, Seat, Skoda, Peugot, Nissan

Chapter 5 Market Analysis 1.

What are the emerging submarkets in the adult snack food industry? What are the alternative responses available to confectionary companies like Cadbury’s and Walker’s, assuming that it wants to stay relevant to customers interested in healthier eating habits? With a general trend toward healthier eating companies like Cadbury’s and Walker’s face competition from a broader range of product categories. Also, within the chocolate and the potato crisp categories, consumer preferences are changing. Consumers are more aware than before about salt, sugar and fat levels in foods and brands have been catering to the resulting shift in preferences. But there is also increasing competition from outside of those categories for example branded fruit smoothies like the Innocent range, dairy based foods like Philadelphia cheese spreads and yogurt snacks like Mueller Fruit Pots. As a result Cadbury’s and Walker’s can a). Do nothing as there are enough people who are loyal to traditional chocolate and potato crisps to support their business; b). Offer combination products that are tailored to the submarkets so as to attract that business for example chocolate flavoured yogurt drinks; c). Introduce sugar free, salt free and no fat varieties of their main brands to retain relevance with the floating consumer.

Identify markets in which actual sales and growth was less than expected. Why was that the case? What would you say was the most important reason that the bottom fell out of the dot-com boom? Why did all the B2B sites emerge, and why did they collapse so suddenly? One such market where sales underperformed was the Minidisc Digital Player market. Minidiscs were more compact than CDs, offered superior fidelity to existing formats and were also recordable, appealing to music enthusiasts. While the technology commanded a price premium from music enthusiasts, the mass market remained unconvinced and the parallel introduction of MP3 technology with its obvious benefits over all other physical formats, sealed the Minidisc’s fate. The dot-com boom burst its bubble because it was based on hype and expectation rather than sound business principles and workable business models. Bricks and mortar businesses were fundamentally different to this new environment and businesses failed to deliver on the promises inherent the technology of the Internet. B2B sites emerged to eliminate inefficiencies of businesses but many of the firms lost their differentiation. Because of the proprietary nature of most businesses, it was hard to leverage the software. What companies really wanted and needed was software instead of a B2B site, such that many of those B2B sites actually changed into software companies.

Why were some brands (like Lucozade) able to fight off competitors in high growth markets and others (like Palm) were not? A core product attribute for Lucozade was that it had successfully repositioned itself in the early 1990’s to become synonymous with sports and high performance. Originally it was a tonic drink typically drunk in convalescence,

2 but the company leveraged this healing aspect toward a position as an energy drink for activity. Through high-profile advertising on television (featuring Olympic champion sprinter Linford Christie) and advertising at major sporting events, Lucozade Sport built up and consolidated an image as a sports replenishment drink. In fact it was first to market. Lucozade Sport was unique, developed credible product extensions such as Lucozade Isotonic as well as packaging innovations like tough 250ml sachets. It also implemented a national distribution strategy that included dedicated drinks dispenser machines in sports centres as well as mainstream corner shops. This normalized Lucozade as the epitome of a sports energy drink.

Palm, on the other hand, was not able to keep competitors from devising new and improved and even cheaper product alternatives to the Palm Pilot. Had they been able to maintain a proprietary operating system, unique trademarked features, and more innovation at lower prices, they may have been able to maintain leading market share and creating a market that was difficult or at least unattractive for competitors to enter (barriers to entry). Perhaps things would have worked out differently had Palm not licensed their proprietary operating system code.

Pick a company or brand/business on which to focus. What are the emerging submarkets? What are the trends? What are the strategic implications of the submarkets and trends for the major players? In respect of the car industry there are opposing trends to large engine SUVs mainly at the premium end of the market while there is also the emergence of hybrid and other fuel-efficient vehicles. Car companies will be forced to radically overhaul the core technologies used to power their vehicles because of environmental pressures such as the scarcity of oil, the rising prices of oil, climate change and public awareness about the polluting effects of fossil fuels. As such some submarkets may provide huge returns in the short term appealing to individuals’ preference fro luxury cars and SUVs, but submarkets concerned with fuel efficiency will continue to grow and replace other markets as the primary market for vehicles. Consequently the value proposition within this market will continue to evolve as the technology improves and technological innovators will emerge as market leaders in the first phases of this new market place.

Chapter 6 Environmental Analysis and Strategic Uncertainty 1. What did the fax machine replace, if anything? What will replace (or has replaced) the fax machine? When will the fax machine disappear? The fax machine replaced regular and express post. The fax is being replaced by email and other file transfer systems using the Internet. The fax machine will disappear when a faster, simpler and more secure method of transmitting documents is developed and saturates the market. By the same token, it may coexist beside newer technologies like email for some time as universal diffusion of the Internet gradually transpires. 2. Develop a scenario based on the proposition that hybrid cars will continue to improve and take 30% of the automotive market in a few years. Analyse it from the point of view of an energy company like Shell or a car company like Mercedes. What are the top three or four dimensions to consider? From the point of view of Shell, if 30% of the automobile market is going to be hybrid cars, Shell will need to discover IF and HOW they can compete in that market. For example will there be a need for a network of recharging stations? If so, can existing Shell stations be modified accordingly? What kind of business model would allow such recharging stations to be profitable? For Mercedes-Benz, they would need to consider the long-term profitability of the hybrid sector, who their competitors would be in terms of private eco-friendly transport, what technologies they can develop or acquire to compete in that sector and who their target markets will be in the medium-term with respect to hybrid and traditional fuel cars. Possible dimensions to consider include Research and Development, Feasibility Studies regarding profitability, competitor analysis, and the potential for alliances and joint ventures with technically advanced start-ups for example. 3. A recent important technology development is Wi-Fi, the wireless Internet access concept. Supported by Intel’s Centrino chip (which frees computers from hard-wired connections), the development has raised expectations throughout the computer industry. a. Will this change the use of computers? How many people will actually use computers connected to the Internet in coffee shops and airports? Think of some other similarly hyped phenomena, from railroads to airplanes to television to VCRs. What happened in those cases? b. What are the action alternatives for organizations such as Pret A Manger and Starbucks? a. Wi-Fi may change the way we use computers. But it is really part of a wider trend toward mobile communications enabled by the diffusion of many technological developments including 3G networks and broadband Internet, and interactive Web 2.0 technologies. Meanwhile dial-up and plug-in Internet access will continue to be used by later adopters. As such Wi-Fi represents an evolutionary product rather than a revolutionary product. b. The action alternatives for both Starbuck’s and Pre A Manger would be informed by profiling their existing and future core and secondary target markets. Basically they could decide to do nothing or decide to offer Wi-Fi in their outlets. Whether it adds value to the business model must also be

2 evaluated. For example, Wi-Fi may be an added value to certain clientele seeking a comfortable place to work or simply surf the Internet while enjoying a coffee but may not suit a take-away style eatery where customer turnaround is far quicker than the time it takes to browse one’s emails. 4.

Pick a company or brand/business on which to focus. What are the major trends that come out of an environmental analysis? What are the major areas of uncertainty? How would a major company in the industry handle those best? Choosing the airline industry, some areas of uncertainty would include fuel costs and availability, environmental damage from carbon emissions and the ensuing public reaction, threats of terrorism and political instabilities,

Focusing on the airline industry, develop a list of strategic uncertainties and possible strategic actions. Some strategic uncertainties might include questions like what happens if fuel costs soar due to a tightened oil supply? Will technological developments replace the need for travel among a portion of consumers e.g. could teleconferencing replace the need for many business meetings? How will consumers react to increasing concerns about the environmental impact of air travel e.g. will a portion of the market opt to use other forms of travel such as boat or train?

Chapter 7 Internal Analysis 1.

Explain shareholder value analysis. Why might it help firms? Why might it result in bad decisions? Shareholder value analysis provides a method to make investment decisions more quantifiable. It can be helpful to firms because it can accurately indicate the profit stream from a strategic action. However it can focus priorities on the short-term instead of long-term gains and so favour certain stakeholders (e.g. investors) over others such as employees, suppliers and customers.

Explain the market attractiveness-business position matrix. What role should it have in strategy development? Choose an industry (such as confectionary, hotels or alcoholic beverages) and attempt to identify brands that are high or low on each dimension. The market attractiveness-business position matrix is a structured method of making resource allocation decisions based on the firm’s strengths and market opportunities it faces. Market attractiveness is based on factors like size, growth, price levels, profitability, competition dynamics, regulations and customer behaviour. The strength of the business’s position depends on factors like margins, marketing ability, patents, customer loyalty, market share, organizational structure, growth prospects, distribution etc. Depending on the firm’s position in the matrix, management can determine whether to continue with an existing strategy or pursue a new one, which could be to invest for growth, engage in selective investment or harvest revenue from that market.

Look at the quotations that begin Chapters 3 through to 7. Which one do you find the most insightful? Why? Under what circumstances would its implications not hold?

In implementing a market attractiveness-business position matrix, what metrics are likely to be applied in any industry context? Pick an industry and determine if specialized metrics would be needed. In implementing a market attractiveness-business position matrix, universal metrics that could be applied in any given industry would include: market share, growth rates, segment sizes, customer loyalty and level of competition. In pharmaceutical sales other important metrics may include aspects like sales calls-per-salesperson or contact hours. This is because it is difficult to measure sales by sales territory because sales take place in a number of outlets spread out throughout the area.

Chapter 8 Creating Advantage – Synergy and Vision Versus Opportunism 1.

What is a sustainable competitive advantage? Identify the SCAs for BMW, Nestle, UBS and T-Mobile. Sustainable Competitive Advantage is that mix of elements in the business strategy that generates a lasting advantage over competitors and even future competition. In addition to being an advantage over competition, an SCA is sustainable because it is difficult to copy whether because that is a technological patent, in-house expertise or some element of the marketing mix. For BMW, sustainable competitive advantages would include their brand reputation for performance and safety, the quality of their construction and a proprietary dealership network that includes an approval system for secondhand BMWs. Nestle’s global distribution and branding expertise, product and category range and new product development would be its sources of sustainable competitive advantage. For UBS, SCA’s could include its recognizable brand name, a comprehensive range of financial products that offers a consumer a one-stop shop for financial services and a global presence. For T-Mobile its huge customer base with a transatlantic presence, its commitment to innovation in the form of new services and exclusivity distribution agreements of high profile new products like the I-Phone will be sources of SCA.

Pick a product class and several major brands. What are each brand’s points of parity and point of difference? Relate POPs to KSFs, and the POD to SCAs. Points of Parity are not unique to any one company. They are rather like the minimum requirements needed to compete in a market and as such are related to Key Success Factors. Conversely Points of Difference can be those qualities in a firm’s market activity that stand out from the competition. As such they may be KSF’s as well as SCA’s. For Apple’s I-Pod in the MP3 player market, a POD may include the high-profile campaign and user-friendly product design in a market of technically superior competitors.

What is synergy? What are the sources of synergy? Give examples. Why is it so elusive? Synergy refers to the idea that the whole is more than the some of its parts. Whereas logically we may accept that 1+1=2, synergy infers that 1+1>2. From a firm’s viewpoint, synergy is derived by exploiting some overlap in two operations such as R&D efforts, using call centre staff to cross sell products or sell to different markets etc. From a consumer’s viewpoint synergy arises when the value delivered is greater than the sum value of each component in the offering. For example, Nikon offer semi-professional digital camera bodies like the D200 and D300 for sale alone or coupled with a lens for a price only marginally below the sum of the individual retail prices. But the offer simplifies

2 the purchase decision and purchasing process for certain segments of the market that may. 4.

What is strategic vision and how does it differ from strategic opportunism? What are strategic drift and strategic stubbornness and why do they occur? Can you name any examples besides those mentioned in the chapter? Were faulty strategic decisions the real problem or was there a deeper organizational flaw? What is a dynamic vision and is it feasible? Strategic vision is a long-term view of business strategies whereas strategic opportunism focuses on the immediate future. Strategic stubbornness is the danger of sticking to a strategy even when it has become irrelevant, inefficient or even detrimental to the firm’s long-term future. It is a potential drawback of engaging in strategic vision planning. Strategic drift arises gradually when a company over time, having acted in a strategically opportunistic way, finds itself in a set of business areas for which it lacks the required assets and competencies. Students then list examples from the real world of companies engaged in either strategic vision or strategic opportunism. A dynamic vision is the skill to implement a strategic vision while being prepared to alter that vision periodically in anticipation of market, internal or environmental changes. Its success depends on a company’s strategic intent and strategic flexibility.

Compare strategic vision with strategic intent. Illustrate with examples. In a sense strategic intent is like reverse engineering- looking ten years down the line and working back from an end goal to determine what would be required to get there. Strategic vision can be a component of strategic intent, but it approaches the future from a starting point in the present and builds up a strategy based on existing resources. Google could be a good example of strategic intent- their mission is to organize all the information in the world and make it accessible online via Google. That intent then informs their 10year strategy and so how they compete in business areas and customer segments.

Illustrate strategic flexibility with examples. Strategic flexibility is the ability to adapt to internal and external changes. It arises when markets are dynamic and even chaotic. As such there may be too many uncertainties to make necessary predictions about customer needs, positioning and technological changes etc. Strategic flexibility can be achieved by competing in several product-markets, creating an organization that can adapt to changing environments and having the resources available to implement those changes. The emergence of Internet based commerce and the dot.com bubble was a perfect example of a situation where strategic flexibility was critical to survival for start-up technology companies like Yahoo – initially a search engine, it has become a one-stop shop for search, news, entertainment and online shopping to maintain its market position as the world’s most visited webpage.

Chapter 9 Strategic Options:Quality and Brand Equity 1.

Consider three of the following strategic options: product attribute, product design, product-line breadth, corporate social responsibility, brand equity, and quality. For each of these three strategic options, think of two firms not mentioned in the book that have pursued them. Which of the two firms has done better with respect to the five business strategy challenges? Discuss why and how that firm was able to do better. Product Attributes: Tag Heuer Watches and Swatch Watches. In examining the customer value proposition Tag Heuer has probably developed a more sustainable strategy and retained relevance with the market than Swatch has. It has done so by appealing specifically as a luxury item to the men’s market whereas Swatch targets all ages, male and female. Tag Heuer has aligned itself successfully with attributes of performance, precision and quality that are traditional associations with watch-making while Swatch has focused more on being a fun accessory that brightens up any outfit – more novel and fashion sensitive concepts. Both Tag Heuer’s advertising strategy using celebrity athletes and dealer-approved distribution strategies has consolidated that image of quality and performance. Product Design: Apple I-phone and Palm Treo. Both products have entered the premium smart-phone category but with Apple offering a better range of features including a music player and Wi-Fi access. Unlike the I-Phone, the Palm Treo has done away with Palm’s touch screen interface and is less attractive all round. Apple I-phone has captured the public imagination through a combination of successful marketing and a real customer value proposition. Its design is futuristic, user-friendly and integrated with other Apple products such as its I-Tunes music service. As such its strategy seems more relevant to consumer lifestyles and trends favouring integrated multimedia devices. It is similarly sustainable because of multiple revenue streams built around a multifaceted lifestyle product. CSR: The Body Shop and Ben & Jerry’s Ice Cream For both firms CSR was a founding value and intrinsic to the perceived customer value proposition. The Body Shop’s products differentiated it from competitors because it did not engage in animal testing of products. Ben & Jerry’s positioned themselves as offering great tasting conscience free icecream with a percentage of profits being invested in specific projects such as rainforest conservation. For the Body Shop, CSR became an SCA while for Ben and Jerry’s it arguably remained a POD as they differentiated on flavours and new flavour introductions to compete with other premium ice-cream brands. Brand Equity: Guinness and Coca Cola In terms of pursuing brand equity, Coca Cola has implemented and sustained a strategy that sees Coke continually deliver real customer value by offering a refreshing drink for a wide variety of occasions. The Coca Cola brand has maintained relevance with generations of consumers through high-profile campaigns that adapt the core message to the zeitgeist while ensuring Coke is available and affordable everywhere in the world. Guinness on the other hand has become trapped by its brand equity – it has consistently failed to expand its market through differentiation or new product developments. While it has expanded as a global brand, it has come to epitomize Stout, Irishness and tradition. Competing in the beer category it has struggled to adapt its heritage and brand proposition to newer generations of more sophisticated drinkers who

2 are tempted by a wider range of beers, spirits and mixed drink options as well as non-alcoholic beverages.

Evaluate the quality strategy of Volkswagen (Should this be Lexus?) with respect to the business strategy challenges. How might Volkswagen/ Lexus add more personality and emotion to its brand? Think of role models that have achieved a quality reputation and a strong personality. The Lexus quality strategy focused on dimensions like Performance, Features and Process Quality. Toyota identified several aspects that could deliver real added value to the target market and in so doing leverage these as a whole package in the mind of the buyer to perceive Lexus as a superior quality car. The total quality approach by Lexus could have become a sustainable competitive advantage except that it did not account for developments among competitors who differentiated their luxury car propositions along other dimensions. With the emphasis on total quality, the Lexus proposition failed to keep relevant to the target market that began to perceive added value in competitor offerings. Toyota could commission a face for their luxury brand, perhaps a suitable global celebrity/ personality just as Ford did with Steve McQueen and Jaguar did with the musician Sting. Candidates would have to be representative of the brand’s values while appealing and relevant to the target market. Using rap music star Sean ‘P Diddy’ Coombs may work for certain segments of the market but could risk alienating older more conservative segments for example.

Pick a product or service offering. How would you develop a set of customer survey questions that would measure its quality on an ongoing basis? How would you administer the survey? For any product or service there are six critical dimensions along which quality can be measured. Questions should probe consumer perceptions, behaviours and feedback about product performance; features; customer support; process quality; aesthetics and design and finally conformance to specifications. Each of these facets could be addressed through multiple questions/scenarios that are designed with checking in mind – that is asking the question in different ways to establish the core of the answer. A mixture of surveys using observation, focus groups, ethnographic research may be employed to gain a richer insight into quality measurement. Surveys responses can also be time-dependent and this should be taken into account. For example customer perceptions may alter before, during and after a brand experience, as well as whether the survey is conducted one-on-one or in groups where conversation among subjects may elicit further insights and newly formed opinions. Acknowledging the relationship between financial performance and quality perceptions, the firm’s sales and an analysis of why sales are performing the way they are could also be taken into account in any survey.

What are the lessons from the Lynx case for other companies and brand owners? The Lynx case illustrates the strategic value to a business of building and maintaining a brand over the long-term and thereby generating brand equity among a target market. In so doing it demonstrates the critical value to the company of understanding the strategic challenges they faced in marketing a premium priced deodorant spray to succeeding generations of young males in various country markets. Lynx understood the power of branding and exploited it successfully over the life-cycle of the product, keeping the message relevant

3 to its target market while retaining a core message – ‘get lynx and get the girl’ that clearly differentiated it from other deodorants on the market.

Chapter 10 Strategic Options: Value, Focus, Innovation Customer Relationships 1.

Compare the value strategies of Aldi and easyGroup. How are they similar? How are they different? What are the bases for the value proposition in each case? Why has the advantage been sustainable? In both cases, the companies have focused entirely on communicating and delivering real value to the consumer in the form of cost savings. Each business has simplified its proposition, whether by minimizing display and staffing costs in the case of Aldi, or by using automated customer service systems in the case of easyGroup. The value proposition in both cases is that the business places the concerns and priorities of the consumer first in the form of saving money and all cues reinforce this message. In each case the advantage has been sustainable because it is an intrinsic part of the business model and strategic vision of the company in question. This is a genuine commitment; so much so that easyGroup employs a team to seek out expansion opportunities guided by the company’s core ethos and Aldi kept to its value for money positioning during the critical Euro changeover, earning invaluable goodwill from the general public.

Develop expansion options for Shouldice Hospital and/or O’Brien’s Sandwich Bars. Shouldice Hospital could examine the potential of opening other hernia-only hospitals in other regional markets and leverage its business model like a franchise. Another perhaps more difficult option would be to differentiate into other procedures/operations that can be streamlined in the way hernia operations were. For O’Brien’s they could continue to expand through franchising internationally, focusing on deeper penetration in established markets. They might also consider increasing the consumption of O’Brien’s sandwiches by repositioning the proposition, expanding the O’Brien’s brand into new product-markets for example pre-packed sandwiches, or developing the O’Brien’s Guilt Free Organic Food range.

Have Shouldice Hospital and O’Brien’s generated first-mover advantages? How? What is to stop others from following them? Where do you see the primary competition for Shouldice and O’Brien’s coming from? Both firms have successfully marketed an innovation in their respective industries through novel focus strategies. Shouldice Hospital’s first-mover advantage stems in part from the reduced and simplified hospital stay times and costs for patients. For O’Brien’s their advantage stemmed from being the first to focus on mixing fresh natural ingredients with an international franchise model. In both cases, the advantage may be sustainable because of successful brand building by delivering on the value proposition consistently. Both organizations will have progressed sufficiently up their respective learning curves to be able to differentiate themselves successfully from new entrants to their markets, although competition could arise from a larger less focused competitor looking for life-cycle growth by entering niche markets or even localized start-ups that can shift the value proposition in the minds of the consumers.

Compare and contrast the innovation strategies of Nokia and Virgin/ (should this read Sony?). Which has engaged in disruptive innovation (introduced in Chapter 6)? Which is better described as having sustaining innovations?

2 Both companies have developed and nurtured reputations for being highly innovative. Nokia’s strategy could be described as being more focused than that of Sony’s, concentrating on one product category essentially, mobile phones/telecommunications and ultimately smart phones, while Sony operates many product lines from many consumer electronics lines across to professional and scientific equipment. Nokia’s generally failed attempts to innovate outside of its core product category demonstrate the difference in the two company’s innovation strategies. Sony benefits from synergies in its innovation development, bundling technologies together, for example cameras into their phone range, while Nokia partners with other brands like Carl Zeiss to offer similar bundles. Nokia’s N-Gage and its N770 Internet Tablet are examples of disruptive innovation. Sony’s innovation activity is best described as sustaining as they incrementally improve on existing products and technologies and market them globally under product category names like Walkman, VIAO and Playstation for example.

Chapter 11 Global Strategies 1.

Pick a product or service that is offered in a limited number of countries. Assess the advantages of expanding to a more global presence. One such product would be Bulmer’s Original Irish Cider produced by C&C plc for the Irish market and exported to the UK at present under the brand name Magner’s Original Irish Cider. With global consolidation in the alcohol industry and especially the beer sector, scale is critical to gain economies in all aspects of the business from production through to distribution and marketing. Cider is a niche category outside of Ireland and UK and further internationalisation for C&C’s cider brand could generate significant revenue streams and long-term profitability in tapping new markets, if it could capitalize on its existing brand equity and marketing expertise. Low trade barriers and intercultural exchange as well as a network of Irish pubs throughout the continent would facilitate European expansion. As it happens, C&C entered the tough UK market first and encountered strong price-based competition from incumbents more familiar with the UK market dynamics.

For a particular product or service, how would you evaluate the countries that would represent the best prospects? Be specific. What information would you need, and how would you obtain it? Prioritise the criteria that would be useful in deciding which countries to enter. There are many criteria to consider when evaluating other country markets for internationalization. In no order of priority, the markets should be profiled and compared on dimensions like growth, size, and competitiveness. Other questions here may arise about distribution options and marketing communications challenges- will the brand proposition be understood/accepted or does the company have to alter its offering somehow. This issue includes examining cultural distance and operational barriers. Essentially the company needs to establish whether it can add value to the market and whether a critical mass can be achieved over a realistic timeframe. Information can be amassed from first hand and second hand sources depending on budgetary limits, for example government sponsored bodies, private research houses, country visits, Internet research, competitor analysis, and trade boards. In prioritizing the evaluation criteria it can vary from company to company. For some products cultural distance may be the first selection criteria, followed by administrative distance may be critical in the case of a food brand for example. Geographic distance could also be a priority in the case of goods with a low value to volume ratio, for example cardboard. In the case of high-end consumer goods and luxury products, markets in developing countries could be eliminated from the shortlist due to low disposable incomes for example. Fundamentally it is product specific the order of selection that management would follow.

What is the advantage of a global brand team? What are the problems of using a team to devise and run the global strategy? When should a team lead, and when should it take on a supporting role? Would your answer differ for BP versus P&G? Why? Firstly, because of increased trade, travel and intercultural communication, preferences are becoming more homogenous which can make a global brand easier to manage than a portfolio of individual brands. As a result a global outlook can simplify strategy, operations and marketing communications tasks

2 as all country markets work from a universal template, gaining economies of scale. In using one global brand team, a company can lose sight of important differences in markets that mean a standardized model simply cannot be adopted. This may be because of differing consumer perceptions and buyer motivations, varying cultural norms and even the company’s market position relative to the leader in that country. A brand team should lead in terms of the strategic vision for the brand and coordinate with local organizational structures in implementing brand management programmes. BP sell energy derived from petroleum products while P&G operate dozens of product lines in food and related categories. A global brand team could lead for BP’s strategy because the message needs to be homogenous across all markets whereas P&G would benefit from a brand team in a supporting role as cultural idiosyncrasies would play an important role in how foods are perceived and so how they should be marketed. 4.

For a firm such as Royal Bank of Scotland, Danone or Renault, how would you go about creating blockbuster brand-building programmes – for example, sponsorships, promotions, or advertising? How would you leverage those programmes? For each of these firms it would be crucial to communicate the corporate vision across the entire organization to ensure brand equity is leveraged in any branding initiatives at country level. Similarly, a two way flow of information would be critical to encouraging ideas and creativity bubbling up from country level brand management, creating a feedback loop about how the corporate vision and brand message can best be implemented in the marketplace. As such top-line messages can be translated into effective communications at the local level as the company understands what vehicles fit with the respective audience while remaining differentiated from the competition. For example, Royal Bank of Scotland (RBS) can use the same television advertisements in UK and Irish markets because of cultural spillover between the two. Even if RBS didn’t do so the corporate brand message would remain consistent. RBS also leverages sponsorship of the 6 Nations Rugby Tournament to build a pervasive presence in consumer’s leisure time. This also raises their profile with a wider international rugby viewing audience around the world. Promotions may be country specific due to differing financial regulations and market dynamics however. Any such brand-building programme should work well in coordinating country campaigns toward a common corporate goal and this will be facilitated by feedback and internal communications that fosters a spirit of excellence and improvement within the firm.

Select a company. How would you advise it to find an alliance partner to gain distribution into China? What advice would you give regarding the management of that alliance? Taking Victorinox as an example, drafting a shortlist and selecting a partner will be influenced by many criteria. The overall question is to what extent will the partnership benefit the parties involved? This question takes account of both parties, because it will be essential that both benefit from the arrangement to ensure long-term profitability. As such questions should arise over the partner’s resources, policies, management and technical expertise.

Practically speaking it would be invaluable to know how the partner will manage the distribution. Do they have the resources to support the exporting company’s objectives? Or will they outsource elements of the distribution? How will the company handle issues like quality checking, brand management, returns, cashflow and deliveries? What protections are in place to prevent either the distributor or a local competitor from entering the market/stealing market share? How will the distributor be rewarded for its work without Victorinox losing control in the alliance?

Chapter 12 Strategic Positioning 1.

How is Virgin Atlantic Airlines positioned? Are the dimensions, particularly the high quality and high service, inconsistent with its personality? If so, how is that handled? How has the positioning been brought to life? What are the proof points? Why don’t more brands emulate Virgin’s brand building programs? Virgin is positioned as a fresh, non-establishment quality brand that offers value for money to its customer. The quality and high service dimensions are justified, in the case of Virgin Airlines at least, because Virgin has delivered on them since the early days – being the first to introduce bed-style seats, offering inflight massages etc. Virgin’s positioning represents facets of its founder Richard Branson’s own personality and it is through his own high profile in the media that Virgin’s positioning has been brought to life. Proof points of Virgin’s positioning are its success in entering new markets under the same brand positioning- Virgin has become accepted as a lifestyle brand, and surveys have indicated immense public confidence and trust in Richard Branson himself.

Trace the positions of Hyundai cars (should this be IBM?) through the years. How has the firm evolved? How would you advise Hyundai (IBM?) to implement its desired new luxury position? What are the keys to success? What was the logic behind it? The case describes an IBM as a company that has switched between adopting a specific strategic position and not having one at all. IBM’s early history in particular indicates a strategically flexible company that diversified in related markets from punch-card technologies to computers wherein it began to revolutionise the market with new technologies and products, upsetting market leader UNIVAC. By the same token over the following decades it had lost touch with its customer base, drifting into a position of antagonism with it despite having the fundamentals of being smart, innovative and a technological leader. Even with the launch innovations like the PC and PC jr it had demonstrated an inability to translate its technical brilliance into a positioning that resonated with customers – the PC jr destroyed much of the equity created by the launch of the PC. Despite a major repositioning in the, IBM then fell behind again as the market focus shifted to networks and the Internet. IBM was no longer contemporary. Its new repositioning required would guide new strategic initiatives as it developed product solutions that could compete with the likes of Cisco and Sun. IBM’s story exemplifies the concept that the firm’s strategic positioning and its products are intrinsically linked and that a balance between the two has to be established to gain consumer confidence which will then allow it to build and communicate a differential advantage over competitors.

Ryanair has adopted an aggressive positioning versus major stakeholders such as regulators, airport authorities and governments. Identify each position. In each case, is the positioning a liability with respect to its growth ambitions? In respect of all three bodies, Ryanair is critical of established practices that allegedly favour incumbents and the status quo characterized by protectionism in the industry. Ryanair’s position is as a champion of the consumer, striving for deregulation and progressive air transport policies under the banner of saving the consumer time and money. This position fits well with their low-cost strategy that offers travelers significant economic savings on some air tickets. Ryanair’s business model could be described as disruptive in the European airline industry and as such its antagonistic position with respect to authorities and policymakers could suit it well in the medium–term as they flex their economic muscle instead of lobbying to incur change with these organizations. In short

2 they may have significant negotiating power- stimulating the local economy around secondary airports they have targeted to include in their route network is a powerful bargaining chip. In the much longer-term, Ryanair may encounter stiff opposition from these stakeholders if market dynamics alter the power balance for example when fuel becomes prohibitively expensive and people opt to travel by road and rail around Europe. 4.

Pick out three brands from a particular industry. How are they positioned? Which is the best in your view? Does that brand’s positioning provide any emotional or selfexpressive benefits? How would you evaluate each brand’s positioning strategy? Hypothesise proof points and strategic imperatives for each brand. Student activity

Consider how U2 have approached the task of remaining contemporary. What are the lessons of this for newer brands like Innocent or Google? What are the problems with implementing a strategy like this? How would you deal with these problems? It appears U2’s success stems from their reputation as a great live act with a loyal following, blended with their ability to tap into the zeitgeist in the form of new albums that still retain familiar aspects of the legendary U2 sound – the guitar, voice and beat in particular. They infuse the new with the traditional and thereby can appeal to newcomers and oldies alike. Brands like Innocent and Google could learn the value of keeping their heritage alive and present in the minds of both loyal and new customers while also adapting the way those values and the brand message is communicated to the market. This strategy requires constant refinement to maintain a balance. This is because there is a risk of stagnation or worse, decline as a brand fears alienating an ever-widening loyal fan base by trying to appeal to new customers and ends up disappointing both segments.

Consider the Joie de Vivre hotel concept. Think of themes stimulated by magazines or movies, and discuss how you would design a hotel around each concept. For each theme, choose five words that reflect that theme. This can be the basis for a quick class discussion that will highlight students’ understanding of strategic positioning as they justify their vision and explain their choice of keywords.

Chapter 13 Growth Strategies: Penetration, Product-Market Expansion, Vertical Integration and the Big Idea 1.

Pick an industry and a product or service. Engage in a creative thinking process (as outlined in the insert in the chapter) to generate an improved offering. Do the same to create an entirely new offering that uses one or more of the assets and competencies of the firm. This could be the basis for a class activity whereby students form several groups and present their ideas for all to critique. 2. Pick a firm and business and use the ideas proposed by Gary Hamel or W. Chan Kim and Renée Maulborgne to come up with a big idea. Student Activity 3. How would you increase the usage of products if you were the manager of: A. Head and Shoulders anti-dandruff shampoo B. Nokia mobile phone handsets C. Zara A. Head & Shoulders: For shampoo it may be a matter of positioning the product for regular use using a recommended usage rate in communications. Alternatively the brand could be repositioned for wider appeal as a preventative shampoo that all should use periodically. B. Nokia: For mobile phones, it may be optimal to position their phones as having enhanced applications and so increase the frequency of use. This could occur for example by means of offering value-added services such as music or content downloads, through a Nokia branded/sponsored website. C. Zara: With clothes, Zara could provide reminder communications with the launch of new ranges throughout the year. They could also use incentives to draw in customers periodically. 4. The Body Shop was recently acquired by L’Oréal and Green & Black’s Organic Chocolate was acquired by Cadbury. How might their new owners drive growth of these brands? In each case, what assets or competencies are being leveraged? Were these wise acquisitions? In both cases, the larger company was following a diversification strategy of sorts by means of acquisition. These were moves into markets that may have been very difficult for them to enter under their own mainstream brands. Both L’Oreal and Cadbury face a range of growth strategy opportunities. They could examine increasing the brand’s market. Supported by the marketing muscle of its parent company, both Green & Black’s and The Body Shop brands could capture more share through brand-building. Similarly the parent companies could fund expansion into new mainstream segments and new geographical markets surfing the tide of popular opinion that increasingly favours organic and ethical products. In this respect, both acquisitions were astute decisions for the parent companies – with organics and ethical business entering the mainstream consumer consciousness from edges of the market, these acquisitions offered the most quickest and most credulous approach to profiting from these trends. 5. Dell is planning to expand its service business, as it has higher margins and is a growth area. What must Dell do to be successful in this arena? What suggestions

2 would you make as to the business model that will allow easyJet to compete with HP and IBM? For Dell to be successful in integrating closer to the end-user, it will have to dramatically alter its corporate culture. Dell operates on a lean basis, offering value for money, customized products sold directly to the customer. Offering after-sales service and technical support are value-added components that require new skills, resources and mindset. Dell would have to change the client relationship from a transactions based one to a trusted adviser style interaction. Additionally, such integration will make the company less flexible especially as there would be a significant learning curve to climb in a relatively short period of time. With so many moments of truth in the service process, Dell could be exposed to potentially negative customer experiences that would be very difficult to bounce back from. As such to be successful, the company might examine embedding services into their computers and/or buying in expertise to eventually offer comprehensive services.

Chapter 14 Diversification 1. What is the difference between related and unrelated diversification? Are the following related or unrelated? Why? A. Dell selling TV sets B. Barclay’s Bank owning theme parks C. Crest purchasing a chain of dental surgeries D. Caterpillar manufacturing cars E. Domino’s Pizza owning exercise clubs The primary difference between related and unrelated diversification is the degree of commonality between the new business area and the core business. The greater the commonality that exists; there is more opportunity for synergies and economies of scale. An example of related diversification could be Dell selling TV sets or Crest purchasing a chain of dental surgeries. This is because there are certain overlaps in each business area. For example, televisions are widely adopted and understood technologies. Dell already delivers fragile high technology products to the home. As such, with some tweaking, Dell could leverage its web-based retail channel and distribution model to market television. Crest could leverage its brand proposition as a leader in dental hygiene products to offer a professional dental service based around similar core values. Caterpillar could probably harness its manufacturing to build a functional car, however heavy duty plant and machinery and consumer vehicles are distinctly different market types. Even though they may have experience of marketing Caterpillar fashion, car marketing, after-sales service and even fitting interiors are skill sets they cold acquire best through an acquisition. As a food brand with a very specific positioning, Domino’s may find consumers skeptical of a Domino’s fitness gym proposition. While there may be some commonalities in operating a brand franchise, food marketing and fitness and leisure may be too different to capitalize on expertise in designing template business processes. Ultimately, whether related or unrelated, a diversification strategy should lead to improved return on investment. 2. Pick a branded offering, such as Ryanair. Come up with 20 products or services that are alternative extension options. Include some that would be a stretch. Evaluate each of the extension options using the three criteria listed in the chapter. Student should evaluate each extension idea as per the following example: Ryanair Hotels 1). Does the brand fit the new product context? The brand may have some pedigree in travel and experience in providing a consistent service. It could also leverage its network to focus on airport hotels for passengers. However Ryanair is known as a value brand providing a no-frills service primarily through non-personal points of contact. That may be difficult to overcome. Similarly the name is synonymous with air travel and may be a legacy. 2). Does the brand add value to the offering in the new product class? Unless Ryanair Hotels could offer a new customer value proposition such as anytime booking, anytime check-in for example, the only added value that Ryanair could offer would be low-cost accommodation. 3). Will the extension enhance the brand name and image? Air travel and hotel accommodation are entirely different businesses and Ryanair would have much to learn, for example buying real estate locations

2 strategically. The core brand may well suffer because the hotel sector includes many moments of truth for customers and Ryanair may struggle to fulfill customer expetactions in the way that it can fulfill cheap efficient flight promises. 3. Consider the following mergers and acquisitions. In which cases would synergy be logically possible? What would inhibit this synergy? Consider operations, culture, and brand equities. A. Mittal Steel’s acquisition of Arcelor B. Telefonica’s acquisition of O2 C. Grupo Ferrovial’s acquisition of BAA A. Mittal Steel’s aggressive takeover of Arcelor would have overshadowed the possible operational synergies available from merging these two steel giants competing in similar sectors and geographical locations of the steel markets. Apart from the initial antagonism, economies of scale would probably arise from streamlining the new workforce, which could lead to further cultural problems. The acquisition actually improved the share valuations for both companies. B. A merger of Telefonica and O2 probably also meant some job cutbacks but possibly offered many opportunities for economies of scale in terms of R&D and New Product Developments, Sales and Marketing, as well as synergies in accounting and other back office elements of the businesses. Because the companies operate as market leaders in different markets due to the licensing issue in mobile communications, corporate cultures would remain intact. Similarly, the merger would have improved brand equity for both firms as a key SCA in mobile communications is scale and coverage. C. Unlike the other mergers, Grupo Ferrovial’s acquisition of BAA represents an unrelated diversification. Spain’s largest civil engineering and construction company had divested from several related domestic sectors and expanded internationally, purchasing airport real estate. This merger would offer fewer areas for synergy than the other two deals, primarily because of operational differences, although successful maintenance and development of the airport infrastructure could benefit the Ferrovial brand in the longer run and greater picture. 4. Consider the alliance of Starbucks and Barnes & Noble, in which Starbucks’ cafes were opened inside the bookstores. Evaluate this alliance from both sides. When Barnes & Noble opened stores in areas where Starbucks had no presence, the cafes were branded Barnes & Noble but sold Starbucks’ coffee. Would you accept this arrangement if you were Starbucks? (Eventually, it was applied to nearly all of the cafes). Again comment from both sides. The original venture would have offered both companies benefits in brand equity as the co-branding agreement made good sense – people could sit comfortably in the bookstore and enjoy good coffee while perusing books. It offered Starbucks a way to expand its market and coffee consumption in an innovative proposition while Barnes & Noble could offer an enhanced customer experience in-store. The expansion strategy made sense in that the cafes were embedded in the Barnes & Noble experience and so, as the higher profile of the two brands, it was more acceptable to the market if they offered a clear brand experience to the consumers. From Starbucks’ point of view this would also make sense permitting them to build up their own brand profile in those areas from a fresh start while allowing them to retain their fundamental association with good coffee in the Barnes & Noble stores.

Chapter 15 Strategies in Declining and Hostile Markets 1. Identify examples of brands that have created growth in stagnant or declining industries. What revitalization routes were taken? C&C’s Bulmer’s Original Irish Cider, Guinness, GSK’s Lucozade. In the case of all three brands, a major repositioning strategy was used to reinvigorate the market. Bulmer’s created and moved into a premium cider category, Guinness altered its value proposition to appeal to and recruit younger drinkers into its core customer base. Like Bulmer’s, Lucozade, originally a tonic drink, was repackaged based on customer research and repositioned as a sports energy drink entering a new market on the basis of a new application. 2. Identify profitable survivors in declining markets. Why can some firms maintain profits over time? Why did others leave the marketplace? Some firms perform better than others because they understand the dynamics in the market and adjust their strategy accordingly- ultimately investing in the market while others are milking or harvesting their share. Travel agents have been in decline with the proliferation of online booking. Some firms like Trailfinders and E-bookers have prospered as for different reasons. Trailfinders focuses on tailored long-haul trips that are still relatively difficult and timeconsuming for individuals to research and book online. E-Bookers acts as an infomediary- searching for and finding travel information online for customers. Typically, the survivor’s strategy will be based around encouraging competition to leave the market and that may involve raising their profile as the market leader, beating competition on price or promotion efforts to win market share, introducing new products and covering all segments or reducing the barriers to exit. 3. Identify brands that are employing a milking strategy. What are the risks? The primary risks with a milking strategy are related to implementation. Sony employs milking strategies for several of their unsuccessful product lines, including the Walkman Minidisc. A milking strategy delays the inevitable exit from the market and as such all stakeholders – customers and staff alike may react negatively to the realization that a brand is cashing in on consumer loyalty with no longer-term plans to continue the brand story. Apart from these Public Relations challenges, there are management implementation issueshow to motivate a manager to actively wind down a brand and what kind of metrics can be used to gauge performance effectively. Additionally, for some unforeseen reason Minidisc may become popular and Sony would have to revisit reviving the brand and leading the market requiring new strategic planning once again.

4. Consider a divestment strategy. Why is it hard to divest a business? Jack Welch divested hundreds of businesses during his tenure. What are some of the motivations that lead to these divestitures? A firm invests time, energy and resources in building and sustaining a market position. As such it may encounter exit barriers to leaving including operational, strategic and cultural barriers. For example a satellite manufacturer may find its specialized plant and machinery assets are difficult to liquidate, government restrictions may prevent a rail company’s exit because of the resulting vacuum in public transport services. The business

2 may have commitments to existing customers – especially true in the case of durable goods like consumer electronics and high-technology industrial products. Furthermore, the company’ reputation as a whole may suffer if it leaves a particular business area – such is the power of Guinness brand equity that it could not leave the Stout beer market. There may also be cultural issues as management finds it difficult to let go of a declining business area for reasons of pride or sentimentality. The decision whether to divest or to milk can be based on two dimensions: the industry environment and the business’ position in key segments. Motivations to divest arise because the firm’s position is weak with respect to at least one of these dimensions and perhaps both. In choosing between milking or divesting a firm may wish to examine the nature of demand in the market as to how fast it is declining. Increasingly price-based competition may be eroding brand loyalty and that may incentivise a firm to leave if it can overcome barriers to exit. Additionally, the firm may find itself in an irretrievably weak business position or that the company’s overall strategic direction has changed leaving the business in question irrelevant to longer-term plans. 5. Summarise the hostile market theory. What are the key assumptions? Evaluate the theory. How would you test it? Hostile markets are those where there is an element of over capacity, intense competition, low margins and/or tumultuous management. They can occur in growth or declining markets and are typically characterized by a six phase lifecycle. In no particular order the market focus can move from product proliferation to margin pressure to shifts in market share to incredible price pressures. Ultimately there will be consolidation and shakeout which may lead to industry rescue or revival. To be successful in a hostile market, a firm can either aim to be a Gold or Silver firm. A Gold firm occupies first or second place in the market, while Silver firms are smaller companies occupying third or fourth place. In each case, they tend to illustrate several characteristics key to their survival although they will compete very differently – Golds may have a broader presence while Silvers may target premium niches in the market. Commonalities include a focus on large customers, the ability to differentiate; the ability to differentiate away from price while appealing to many price points. They also tend to have an effective cost structure.