CHAPTER 6
BUSINESS STRATEGIES
BUSINESS STRATEGIES

Strategic Planning

Strategic Options

Global Market-driven
Strategies

Major Marketing
Strategies
STRATEGIC PLANNING

Core Competency

Strategic Alliances

Outsourcing

Sustainable Competitive
Advantage
CORE COMPETENCY
The activities that an organization has expertise
in and performing very well
• WalMart
•IBM
•Pappas
IBM STRATEGIC ACTIONS

Bought PricewaterhouseCoopers
consulting division in 2002

Sold IBM personal computer division in
2005

Reorganized service group in 2005
a) Technical computer services
b) Traditional consulting
STRATEGIC ALLIANCES
A win-win strategy where all parties benefit from
the relationship
•UH Bauer School and
Methodist Hospital
•Toyota and Nissan
•Busch and Tsingtao Beer
OUTSOURCING

Corporate Outsourcing

Global Outsourcing

Microbusiness Outsourcing
CORPORATE OUTSOURCING IN
THE UNITED STATES 2005

Manufacturing
170 Billion

Logistics and
Procurement
179 Billion

Information/
Technology
90 Billion
GLOBAL OUTSOURCING

India Dominates

Eastern Europe

Asia

Latin America
SUSTAINABLE COMPETITIVE
ADVANTAGE
Obtaining a competitive advantage over a
long period of time
•Patents/copyrights
•Brand equity
•Location
PATENTS/COPYRIGHTS
Patents and copyrights are monopoly awards
given by the government for new technology and
innovations
• Microsoft Windows
•Valium Drugs
•Dead Moneymakers
LOSS OF DRUG PATENT
PROTECTION
Company
Eli Lilly
Drug
Prozac
Sales Results
Yearly sales
fell 61%
Roche
Valium
Yearly sales
fell 67%
DEAD MONEYMAKERS
2003
Celebrity
Millions
Elvis Presley
Charles Schulz
J. R. R. Tolkien
John Lennon
40
32
22
19
BRAND EQUITY
Brand equity is the goodwill of a brand.
•Coca Cola
•Intel
•Toyota
LOCATION
Location is used as a sustainable
advantage, particularly in retailing
•Specs Liquor Store
•UH Bookstore
•Flying J Truck Stops
STRATEGIC OPTIONS

Contrasting Business Models

Strategic Decision Choices

SWOT Analysis

Changing Business Models
CONTRASTING BUSINESS
MODELS
Traditional Business Model
 Many Levels of Management
 Rules are Very Important
 Focus on Command and Control
Entrepreneurial Model
 Few Levels of Management
 Rules are Guidelines
 Focus on Recognition and Response
ENTREPRENEUR RULES FOR
SUCCESS

Focus on the Customer

Keep a Short Turnaround Time

Always Add Value to the Customer
STRATEGIC DECISION CHOICES
Maximizing
Maximizing is where you are trying to get the
one best answer.
Satisficing
Satisficing is where you are trying to get a
satisfactory (best) answer.
SATISFICING CONTINGENCIES
IN MARKETING

Should I introduce a new banking service for
immigrants?

Should I introduce Blue Bell Ice Cream
nationwide?

Should “Mattress Mac” change his advertising
message on TV?
SWOT ANALYSIS
Controllable by Management

Strengths of the Business

Weaknesses of the Business
Not Controllable by Management

Opportunities

Threats
CHANGING BUSINESS MODELS

Southwest Airline

Toyota

Dell
SOUTHWEST AIRLINE BUSINESS
MODEL
Use one type of plane - Boeing 737
 Avoid hub airports in favor or secondary
airports
 Concentrate on short-haul flights
 Use low-fare pricing
 Emphasize no frill service

DELL BUSINESS MODEL

Minimal R & D

No intermediaries

Minimize inventory

Low operating cost
TOYOTA BUSINESS MODEL

Faster turnaround time for new cars

Outsource manufacturing and assembly

Close high cost manufacturing plants

Revolutionize traditional inventory and
supply chain systems
STRATEGIC WEAKNESSES
OF GM AND FORD

High Labor, Health, and Retirement Costs

Obsolete Plants in Detroit

High Supply Chain Costs

Weak Customer Focus
OPERATING COST FOR
PERSONAL COMPUTERS

Dell
10%

H-P
21%

Gateway
25%
THREATENED BUSINESS MODELS
Department Stores
Lots of Services
Telephone Companies
Physical Phone
Lines
Brokerage Firms
Execute Orders
Financial Advice
GLOBAL MARKET-DRIVEN
STRATEGIES

Push for Healthy Competition

Meaningful Incentives

Rules for the System

Move To Common Standards
PUSH FOR HEALTHY
COMPETITION

Protect small Japanese retailers from
international competition

Moscow blocks new Ikea retail store

Rewarding family members in Indonesia
MEANINGFUL INCENTIVES

Reduce the cost of starting a new business in
Mexico

Change the incentives in U.S. to inflate shortterm profits

Cheaper labor costs encourages outsourcing
overseas
RULES FOR THE SYSTEM
Russia
Mafia influences
Japan
Banking off-book
losses
U.S.
CPA auditing rules
MOVE TO COMMON STANDARDS

English as international business language

Common physical measurements

Euro monetary system

Standard container in global shipping
INTERNATIONAL DIFFERENCES
Concept
Time
Measurements
U.S.
Other Countries
1-12 am
1-12 pm
1:00 - 24:00
Feet
Meter
Temperature
Fahrenheit
Centigrade
Driving
On Right
On Left
MAJOR MARKETING STRATEGIES

Intensive Growth - growth within the organization

Concentrated Niche – one target segment

Multiple Niches – more than one target segment

Market Positioning

Multiple Revenue Streams
INTENSIVE GROWTH

Market Penetration – existing products in
existing markets

Product Development – new products in existing
markets

Market Development – existing products in new
markets
MARKET PENETRATION

Use more of the product

Cross-sell products/services
•Green ketchup
•Arm & Hammer
baking soda
PRODUCT DEVELOPMENT

New products

New services
MARKET DEVELOPMENT

Expand from Houston to
all major U.S. cities

Expand overseas

Develop new market for
existing products
INTENSIVE GROWTH OF
BLUE BELL ICE CREAM
Market Penetration
Increasing share of market for existing products in Houston
Product Development
Introducing a new line of Diet Blue Bell ice cream
Market Development
Enter Oklahoma and Kansas with Blue Bell
CONCENTRATED NICHE
Marketing to one market segment rather than
the whole market for a product/service
•Cliff Notes
•Jolt Soda
•Long haul blue jeans
MULTIPLE NICHES
Marketing to more than one market segment rather
than the whole market for a product/service
•Procter & Gamble
•General Motors
•Anheuser – Busch
GENERAL MOTORS
AUTOMOBILES
Chevrolet
 Cadillac
 Buick
 Pontiac
 Saturn

MARKET POSITIONING
The perception that a potential buyer has
about your product/service versus your
competitor’s product/service
•Lite beer
•Gerber
•Barbie doll
MULTIPLE REVENUE STREAMS

Sterling McCall

Wells Fargo Bank

Harry Potter
STERLING MCCALL TOYOTA
MULTIPLE REVENUE STREAMS

New automobiles

Used automobiles

Finance contracts

Service department
THREATS TO MULTIPLE
REVENUE STREAMS

Car Max vs. New Car dealers

Cartridge World vs. HP cartridge refills

Ditech mortgage vs. local home
mortgages
MARKETING MIX
Target Market(s)
Product/Service
Strategy
Distribution
Strategy
Pricing
Strategy
Promotion
Strategy
MARKETING MIX STRATEGIES

Girl Scout Cookies

Prescription Drugs

Long Haul Blue Jeans
GIRL SCOUT COOKIES

Target Market

Product Strategy

Distribution Strategy

Promotion Strategy

Pricing Strategy
DRUG COMPANIES
MARKETING MIX

Product

Distribution

Promotion

Pricing
DRUG PRODUCTS

Patent Drugs

Generic Drugs

Over-the-counter Drugs
U.S. HEARTBURN DRUGS
Drugs
Purchase
Pattern
Cost
per pill
Sales
Prilosec
Over-the-Counter
$.80
304 Million
Prevacid
Prescription Only
$4.00
2,190 Million
Nexium
Prescription Only
$4.00
2,100 Million
LOSS OF DRUG PATENTS
Company
Drug
Sales Results
Eli Lilly
Prozac
Yearly sales
fell 61%
Roche
Valium
Yearly sales
fell 67%
U.S. GENERIC DRUG GROWTH
(Share of Market)
1984
19%
2002
47%
DRUG DISTRIBUTION

Retail Pharmacies

Employer Buying Group

Medical Insurance Companies

Medicare/Medicaid

Supermarkets
DRUG PROMOTIONS

Advertising

Personal Selling

Sales Promotion
ADVERTISING OF PRESCRIPTION
DRUGS IN 2003 (Millions)
Drug
Treatment
Advertising
Nexium
Clarinex
Allegra
Viagra
Lipitor
Heartburn
Allergy
Allergy
Impotency
Cholesterol
257
129
125
112
109
PRESCRIPTION DRUG
ADVERTISING
1996
.8 Billion
2000
2.5 Billion
PRESCRIPTION DRUG
SALES FORCE
1993
35,000
2003
82,000
PRESCRIPTION DRUG SALES
PROMOTIONS
Consumers
•Drug Coupons
•Rebates
•Free Samples
Doctors
•Gifts
•Honorarium
•Educational Programs
DRUG PRICING

Antibiotics

Claritin tablets

Online in Canada
PRICING OF PRESCRIPTION DRUGS
ANTIBIOTICS (100 Tablets)
Branded
Product
(Abbot)
Generic
Product
(Mylan)
Price to Retailer
$13.27
$4.75
Price to Consumer
$18.93
$10.99
42%
131%
Retail Markup
PRICES FOR CLARITIN TABLETS
Availability
Time Period
Prescription
Only
Dec. 1997 Dec. 2002
$2.50 - $3.00
Over the
Counter
Jan. 2003 May 2003
$0.90 – $1.35
July 2003
$0.40 – $0.50
Generics Enter
The Market
Price Range
ONLINE DRUG PRICES
Drug and Purpose
U.S. Price
Canada Price
Lipitor
(Cholesterol)
$269
$184
Tamoxifen
(Breast Cancer)
$287
$47
Celebrex
$133
$68