Crafting Corporate Strategies
Part 4 – Portfolio
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Chris Stern 01-311-4, v. 9-13
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4. Phase: Portfolio
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Portfolio
Decision about Segmentation
n
n
Broadly, markets can be divided according
to a number of general criteria, such as by
industry or public versus private sector.
Small segments are often termed niche
markets or specialty markets. However, all
segments fall into either consumer or
industrial markets.
Although it has similar objectives and it
overlaps with consumer markets in many
ways, the process of Industrial market
segmentation is quite different.
P
S1
S1
P
S1
S1
One product to
many segments
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n
n
n
n
n
P
P
D Differential: it must respond differently to a
different marketing mix
A Actionable: you must have a product for
this segment to be accrued
M Measurable: size and purchasing power
can be measured
A Accessible: it must be possible to reach it
efficiently
S Substantial: the segment has to be large
and profitable enough
P
S1
Many products to
one segment
P
P
S1
S1
P
P
S1
S1
Many products to
many segments
3
Portfolio
The Origins of Segmentation
In 1526 Mastro Bartolomeo Beretta (1490 – 1565/68) of Gardone received 296
ducats as payment for 185 arquebus barrels sold to the Arsenal of Venice. Already
in production in the early 1500s, Beretta products were chosen by the highly
discriminating Republic of Venice because of their excellence. As the Beretta name
became synonymous with uncompromising quality, design, materials, construction
and performance, word spread beyond the Italian borders, establishing a tradition
that has carried over, uninterrupted, through fifteen generations of Berettas.
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Portfolio
Portfolio-Management – Axes (1)
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Portfolio
Portfolio-Management – Axes (2)
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Portfolio
Portfolio-Management – Axes (3)
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Portfolio
Segment Portfolios
“Question
Mark”
Market
attractiveness
“Star”
aggressive strategies
100
high
1: Invest in defense
2: Invest and hold
1
3
67
selective strategies
4
medium
3: Grow qualitatively/quantitatively
4: Selectively invest in promising areas
of business, or divest accordingly
5: Segmentation
5
33
2
defensive strategies
low
6
7
6: Harvest, Milk the cow
7: Divest, sell the dog
“Dog”
0
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low
33 medium
Chris Stern 01-311-4, v. 9-13
67
high
100
Own
Competencies
“Cash Cow”
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Portfolio
Classical Life Cycle Positioning
Development
Introduction
Growth
Repositioning
Survival
Rebirth
Development
Introduction
Growth
Maturity
Decline
Dead
Time to Market
Educate Market
and build brand
identity
Refine product and
build brand
preference
Augment and
differentiate
product and build
brand reputation
Phase out weak
models, reduce
costs and milk the
brand
Get out, transfer
the brand to
another product
Source: Adapted from Theodore Levitt, HBR, 1965
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Portfolio
Product Life-Cycle Strategies
Growth Stage
• Improve product quality and
add new product features
and improved styling
• Ad new models and flanker
products
• Enter new market segments
• Increase distribution
coverage and enter new
distribution channels
• Shift from productawareness advertising to
product-preference
advertising
• Lower prices to attract next
layer of price sensitive
buyers
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Maturity Stage
Market Modification
• Expand number of brand
users by
- converting nonusers
- Entering new market
segments
- Winning competitors’
customers
• Convince current users to
increase usage by:
- using the product on more
occasions
- using more of the product
on each occasion
- Using the product in new
ways
Product modification
• Quality improvement
• Feature Improvement
Marketing Mix Modification
Declining Stage
• Increase firm’s investment to
dominate market and
strengthen its competitive
position
• Maintain the firm’s
investment level until the
uncertainties about the
industry are resolved
• Decrease the firm’s
investment level selectively
by dropping unprofitable
customer groups, while
simultaneously strengthening
the firm’s investment into
lucrative niches
• Harvesting the firm’s
investment to recover cash
quickly
• Divesting the business
quickly
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Portfolio
Life Cycle Patterns
1. Growth-Slump-Maturity Pattern
2. Cycle-recycle pattern
3. Scalloped pattern
Common for drugs. Second
Push of the product in an attempt
to recover development cots
Sales Volume
Sales Volume
Time to market rewards, followed
by a severe slump. Sales are
maintained by late adopters and
replacements by the initial
purchasers
Time
4. Style Pattern
Secondary
cycle
Time
Sales Volume
Style is a basic mode of
expression. Clothing: Formal,
traditional, casual, hip, etc.
Sales Volume
Result from the identification of
new uses for the product
Time
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Primary
cycle
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Chris Stern 01-311-4, v. 9-13
Time
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Portfolio
Industry Life Cycle Situation
Industry Sales
Total Industry Sales
Sales of Company
Time
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Portfolio
Value Chains show options for growth
Contribution Margin =
Sales – Raw Material
Costs
$
Key Elements
today
Options for future growth
Innovation
(Build new business)
Evolution of Current Portfolio
(Expand existing business)
Totally new product
lines needing
significant R&D
New products currently
in final stage of
development
Modifications to
existing product lines
and continuous product
development
Existing Portfolio
(Defend existing business)
2011
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2014
2015
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Cautious
Live-for Today
Slow
Comfortably Well-off
Stop
Pained-but-Patient
Slam-on-the Brakes
Four New Customer Segments
Unconcerned
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Segment 1: Slam-on-the-Brakes
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Cautious
Live-for Today
Slow
Comfortably
Well-off
Stop
Pained-butPatient
Slam-on-the
Brakes
n Will reduce purchases overall and seek
lower-cost substitutes for essentials
n Reduces all types of spending by eliminating,
postponing, decreasing, or substituting
purchases
n Eliminate purchases of expendables
Unconcerne
d
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Segment 2: Pained-but-Patient
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Cautious
Live-for Today
Slow
Comfortably
Well-off
Stop
Pained-butPatient
Slam-on-the
Brakes
n Tend to be resilient and optimistic about the
long-term, but less confident about the
prospects for recovery in the near future
n Economize in all areas, though less
aggressively
n As news get worse, they migrate into the
slam-on-the-brakes customers
Unconcerne
d
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Segment 3: Comfortably Well Off
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Cautious
Live-for Today
Slow
Comfortably
Well-off
Stop
Pained-butPatient
Slam-on-the
Brakes
n Feel secure about their ability to ride out
current and future bumps in the economy
n Spend at near-prerecession levels, though
now they tend to be a little more selective
about their purchases
Unconcerne
d
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Segment 4: Live-for-Today
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Cautious
Live-for Today
Slow
Comfortably
Well-off
Stop
Pained-butPatient
Slam-on-the
Brakes
n Carries on as usual and for the most part
remains unconcerned about spending
n Respond to the recession mainly by
extending their timetables for making major
purchases or decisions
Unconcerne
d
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Four Product and Service Categories
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Chris Stern 01-311-4, v. 9-13
Perceived as
unnecessary
or
unjustifiable
Expendables
Needed or
desired
items whose
purchase
can be
reasonably
put off
Postponables
Indulgences
whose
immediate
purchase is
considered
justifiable
Necessities
Essentials
Necessary
for survival
or perceived
as central
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Postponables
Expendables
Slam-on-theBrakes
Will seek lower-cost
product and brand
substitutes such as
private labels
Will deeply reduce or
eliminate treats or
seek lower-cost
substitutes
Will put off all durable
purchases unless forced
to make emergency
replacements. Will delay
repairs and services
Will eliminate
purchases in this
category
Will seek out favorite
brands at lower prices
but settle for cheaper,
less-preferred
alternatives, will stock
up on good deals
Will cut back
somewhat on
frequency and quantity
and emphasize value
Will delay major
purchases, repair rather
than replace, seek value
and low ownership costs
rather than extra
features, and negotiate
at point of sale
Will deeply curtail
expendables
Will seek better quality
for the price; will
negotiate harder at
point of sale
Rarely regards any
purchase as
unjustifiable but may
reduce the most
conspicuous
consumption in this
category
May buy if there is a
great deal; otherwise
may postpone
Is reluctant to regard
and customary
purchase as unjustified.
May not want to expand
consumption to new
types of purchases
Live-for-Today
Will continue to buy
favorite brands at
prerecession levels
Will continue to buy
favorite brands at
prerecession levels
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Will be more selective
in purchasing luxuries
or expensive services
Will continue to buy
favorite brands at
prerecession levels
Chris Stern 01-311-4, v. 9-13
Risk of Sales Downturn
Behavior Change
Necessities
Comfortably
Well-Off
Essentials
Pained-butPatient
Customer Segment’s Changing Behavior
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Tailoring Your Tactics
•Emphasize price
•Offer smaller pack
sizes for lower price
•Expand private labels
•Promote low-cost value
product
•Introduce fighter brand
•Shrink sizes
•Hold prices down
•Market as a “needed
treat or indulgence”
•Offer layaway plans
•Provide low-cost
financing
•Promote exceptional
deals
•Challenge penny-wise,
pound-foolish behavior
(maintenance, service)
•Offer do-it-yourself
alternatives to doing
without
•Continue awareness
marketing
•Offer a lower-priced option
•Hit competitive price points
•Promote bonus packs to
encourage stock-piling
•Emphasize dependability
of branded product or
service
•Reward loyal customers,
even if they buy less
•Advertise products as
morale raisers
•Advertise products as
affordable alternatives to
more expensive brands
•Offer simpler models,
lower prices
•Promote loweroperation-cost models
•Promote repair
services
•Continue awareness
marketing
•Invest in core product
improvements that will
accelerate customers’
reentry into market
•Continue awareness
marketing
•Emphasize
outstanding quality
•Market as a product
you need because you
are successful
•Promote savings from
buying now
•Advise customers
they are missing out
by postponing
•Enable discreet
purchasing that avoids
the appearance of
flaunting
•Advertise benefits of
impressing competition
•Continue awareness
marketing
•Remind customers,
“You can’t make it
without it”
•Offer convenient and
automatic billing
•Promote as
opportunity to seize
the moment
•Offer monthly
payment plans
•Promote quality-of-life
benefits of buying now
•Offer exciting new
products and promote
as “must have”
•Market as products you
aspire to buy when the
world changes again
©
Risk of Sales Downturn
•Behavior Change
Slam-on-theBrakes
Expendables
Pained-butPatient
Postponables
Comfortably
Well-Off
Necessities
Live-for-Today
Essentials
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References
n Michael Porter, Competitive Strategy: Techniques for Analyzing Industries
and Competitors (1980, New York, The Free Press)
n Philip Kotler, Marketing Management (2002, Upper Saddle River, Prentice
Hall)
n Chris Stern, Total Customer Focus (2005, Philadelphia, Xlibris)
n Cynthia A. Montgomery, Putting Leadership Back into Strategy, HBR
1/2008
n Robert Kaplan, David Norton, Mastering the Management System, HBR
1/2008
n Michael Porter, The Five Competitive Forces That Shape Strategy, HBR
1/2008
n Joan Magretta, Understanding Michael Porter, (2012, Boston, Harvard
Business School Press)
n John A. Quelch, Katherine E. Jocz, HBR April 2009, p;. 52ff
n Chris Stern, Business is Simple, 2013, Raleigh,
Webbook on http://www.bizIsSimple.com
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