So, have you ever been exposed to viral marketing? View this viral marketing from Mentos and you'll have been infected as a consumer of viral marketing. It's very creative and very cool. The real question is . . . does it make you want to go out and purchase a Mentos or a Diet Coke? So although it may be creative and explosive, does it work to increase sales? Time will tell.
Monday, July 13, 2009
Viral Marketing - Love it or Lose it?
Viral marketing describes any strategy that encourages potential consumers to forward a marketing message to friends and family (or anyone for that matter), creating the potential for astronomical growth in the message's exposure and impact. Similar to viruses, these strategies use rapid multiplication to spread the message to thousands, and even millions.
So, have you ever been exposed to viral marketing? View this viral marketing from Mentos and you'll have been infected as a consumer of viral marketing. It's very creative and very cool. The real question is . . . does it make you want to go out and purchase a Mentos or a Diet Coke? So although it may be creative and explosive, does it work to increase sales? Time will tell.
So, have you ever been exposed to viral marketing? View this viral marketing from Mentos and you'll have been infected as a consumer of viral marketing. It's very creative and very cool. The real question is . . . does it make you want to go out and purchase a Mentos or a Diet Coke? So although it may be creative and explosive, does it work to increase sales? Time will tell.
Sunday, July 12, 2009
Understanding the Concept of Brand Equity
My palms were clammy and my throat was dry. “Just Do It” I kept telling myself. Come on, “It’s so easy a caveman can do it” I tried to convince myself. As I stood at the jewelry counter, it hit me, “Diamonds are forever.” I looked at the stone like I knew what I was doing and questioned the clarity. Don’t worry, “You’re in good hands” the sales clerk reassured me. To my surprise, my girlfriend was in the mall and saw me at the counter. She ran over, looked at the ring and asked, “It’s the real thing.” I was too stunned to utter a word as she grabbed the ring and said, “I’m loving it.” Seems like an opening monologue for an annual commercial program on cable television. OK, maybe not. But it does demonstrate the concept of brand equity as your mind reacts to the slogans associated to these popular company brands. (Nike, Geico, DeBeers, AllState, Coca-Cola, and McDonalds respectfully).
Developing a strong, successful brand image may be the best marketing investment a company can make. A company’s brand image is the total of all intangible and intangible characteristics such as history, values, ideas, beliefs, prejudices, interests and features that make it unique. The company’s brand image visually represents the internal and external characteristics of a company. “A brand is thus a product or service whose dimensions differentiate it in some way from other products or services designed to satisfy the same need. These differences may be functional, rational, or tangible – related to product performance of the brand. They may also be more symbolic, emotional, or intangible – related to what the brand represents.” (Kotler and Keller. 2009. pg. 239)
Ultimately, the brand is only as strong as it is in the mind of the consumer. In order for a brand to hold value, the consumer must believe that distinctive differences exist among other brands within a product category. This value can be a direct result of establishing brand equity. “Brand equity is the added value endowed on products and services. It may be reflected in the way consumers think, feel, and act with respect to the brand, as well as in the prices, market share, and profitability the brand commands for the firm.” (Kotler and Keller. 2009. pg. 239) Brand equity depends on related associations made by the consumer and is considered a very valuable intangible asset. Three recognized perspectives of brand equity are; financially based, brand extensions and consumer based.
Brand equity measured in financial terms can “determine the price premium that a brand commands over a generic product.” (NetMBA. Nd. para. 4) Measured in terms of brand extensions, a successful brand can be used to introduce new products. Consumer based brand equity can increase the consumers feelings toward the brand. “The premise of customer-based brand equity models is that the power of a brand lies in what customers have seen, read, heard, learned, thought, and felt about the brand over time.” (Kotler and Keller. 2009. pg. 240)
Customer based brand equity involves three unique attributes. First, brand equity is developed based upon unique customer responses to the brand. In addition, the unique responses are a direct result based upon the consumer’s knowledge regarding the brand. And finally, brand knowledge is a very important aspect of brand equity. “Brand knowledge consists of all the thoughts, feelings, images, experiences, beliefs, and so on that become associated with the brand.” (Kotler and Keller. 2009. pg. 241)
Different reactions and feelings to the brand are a result of the consumers familiarity and knowledge of the brand. And “the differential response by consumers that makes up brand equity is reflected in perceptions, preferences, and behavior related to all aspects of the marketing of a brand.” (Kotler and Keller. 2009. pg. 241) Strong brands lead to strong revenues. As a result, companies leverage strong brand equity for strong profit results. “Understanding consumer brand knowledge – all the different things that become linked to the brand in the minds of consumers – is thus of paramount importance because it is the foundation of brand equity.” (Kotler and Keller. 2009. pg. 242)
Building brand equity is developed with three main forces. First, brand elements have a very important influence on brand equity. Brand elements are used to identify and differentiate the brand. They include elements such as the brand name, logo, slogan and character. “A brand element that provides a positive contribution to brand equity, for example, conveys certain valued associations or responses.” (Kotler and Keller. 2009. pg. 246)
Selecting brand elements involves 2 themes: branding building and brand preservation. Within these two themes, marketers consider 6 criteria when selecting elements. The first three characteristics, regarding the brand as memorable, meaningful and likeable, are associated with building a strong brand. The last three characteristics, regarding the brand as transferable, adaptable and protectible, are associated with preserving and leveraging brand equity through elements. It focuses on how a brand is positioning to adapt opportunities and threats, for long term success.
The second force in building brand equity involves the relationship and combined effort to associate the product and service, along with all marketing efforts, activities and programs. All of the messages, images, perceptions and promotions of the brand must stay consistent when presented to the consumer. The consumer must be able to associate the marketing effort with the brand. This aspect is also very important when you consider internal branding as well. Internal and external branding must coincide so that employees of the company deliver on the promise and properly represent the brand.
An example of this consistency in brand delivery is when a consumer can recognize a brand within seconds of seeing the commercial, even without viewing the logo or hearing the brand name. Target does a great job in using consistent imagery, music and themes to develop commercials. In some of their commercials, the logo and brand name are not presented for ten seconds or more. However, due to the consistency of the branding elements, consumers are able to identify the brand of Target within seconds.
The third force in building brand equity involves, “other associations indirectly transferred to the brand by linking it to some other entity (a person, place, or thing.)” (Kotler and Keller. 2009. pg. 246) Associating a professional athlete or famous star with a brand has been used by many companies for years. Michael Jordan with Nike Shoes, Tiger Woods with American Express, Catherine Zeta-Jone for T-Mobil, and Charlton Heston with the National Rifle Association are just a few. Associations can help establish credibility, popularity and other positive characteristics associated with the brand, reflective of the associated party. An example of association by a place might be coffee to Seattle to Starbucks.
Creating or adjusting a positive brand image which results in strong brand equity is a basic but necessary goal of every company. “Most business people understand the power of a well-recognized and respected brand name. It can strengthen consumer preference for your product, raise customer loyalty, insulate you from competitive forces and cut your promotional costs.” (Carey. 2007. para. 4) It builds the foundation on which companies build their futures. “Marketers build brand equity by creating the right brand knowledge structures with the right consumers.” (Kotler and Keller. 2009. pg. 245) Strong brands are based on strong products, with a clear message, differentiated from the competition, with a believable and consistent message, that is relevant to the targeted audience. With these characteristics in place, companies will experience strong brand equity.
References
Kotler, P., Keller, K. L. (2009). Marketing Management. New Jersey: Pearson Prentice Hall.
Internet Center for Management and Business Administration, Inc. N.d. Brand Equity. Retrieved June 21, 2009 from NetMBA Business Knowledge Center. Website: http://www.netmba.com/marketing/brand/equity/
Carey, W.P. May 9, 2007. Brand Equity. It’s Worth More Than Companies Realize. Retrieved June 21, 2009 from Marketing and Services Leadership. Website: http://knowledge.wpcarey.asu.edu/article.cfm?articleid=1413
Developing a strong, successful brand image may be the best marketing investment a company can make. A company’s brand image is the total of all intangible and intangible characteristics such as history, values, ideas, beliefs, prejudices, interests and features that make it unique. The company’s brand image visually represents the internal and external characteristics of a company. “A brand is thus a product or service whose dimensions differentiate it in some way from other products or services designed to satisfy the same need. These differences may be functional, rational, or tangible – related to product performance of the brand. They may also be more symbolic, emotional, or intangible – related to what the brand represents.” (Kotler and Keller. 2009. pg. 239)
Ultimately, the brand is only as strong as it is in the mind of the consumer. In order for a brand to hold value, the consumer must believe that distinctive differences exist among other brands within a product category. This value can be a direct result of establishing brand equity. “Brand equity is the added value endowed on products and services. It may be reflected in the way consumers think, feel, and act with respect to the brand, as well as in the prices, market share, and profitability the brand commands for the firm.” (Kotler and Keller. 2009. pg. 239) Brand equity depends on related associations made by the consumer and is considered a very valuable intangible asset. Three recognized perspectives of brand equity are; financially based, brand extensions and consumer based.
Brand equity measured in financial terms can “determine the price premium that a brand commands over a generic product.” (NetMBA. Nd. para. 4) Measured in terms of brand extensions, a successful brand can be used to introduce new products. Consumer based brand equity can increase the consumers feelings toward the brand. “The premise of customer-based brand equity models is that the power of a brand lies in what customers have seen, read, heard, learned, thought, and felt about the brand over time.” (Kotler and Keller. 2009. pg. 240)
Customer based brand equity involves three unique attributes. First, brand equity is developed based upon unique customer responses to the brand. In addition, the unique responses are a direct result based upon the consumer’s knowledge regarding the brand. And finally, brand knowledge is a very important aspect of brand equity. “Brand knowledge consists of all the thoughts, feelings, images, experiences, beliefs, and so on that become associated with the brand.” (Kotler and Keller. 2009. pg. 241)
Different reactions and feelings to the brand are a result of the consumers familiarity and knowledge of the brand. And “the differential response by consumers that makes up brand equity is reflected in perceptions, preferences, and behavior related to all aspects of the marketing of a brand.” (Kotler and Keller. 2009. pg. 241) Strong brands lead to strong revenues. As a result, companies leverage strong brand equity for strong profit results. “Understanding consumer brand knowledge – all the different things that become linked to the brand in the minds of consumers – is thus of paramount importance because it is the foundation of brand equity.” (Kotler and Keller. 2009. pg. 242)
Building brand equity is developed with three main forces. First, brand elements have a very important influence on brand equity. Brand elements are used to identify and differentiate the brand. They include elements such as the brand name, logo, slogan and character. “A brand element that provides a positive contribution to brand equity, for example, conveys certain valued associations or responses.” (Kotler and Keller. 2009. pg. 246)
Selecting brand elements involves 2 themes: branding building and brand preservation. Within these two themes, marketers consider 6 criteria when selecting elements. The first three characteristics, regarding the brand as memorable, meaningful and likeable, are associated with building a strong brand. The last three characteristics, regarding the brand as transferable, adaptable and protectible, are associated with preserving and leveraging brand equity through elements. It focuses on how a brand is positioning to adapt opportunities and threats, for long term success.
The second force in building brand equity involves the relationship and combined effort to associate the product and service, along with all marketing efforts, activities and programs. All of the messages, images, perceptions and promotions of the brand must stay consistent when presented to the consumer. The consumer must be able to associate the marketing effort with the brand. This aspect is also very important when you consider internal branding as well. Internal and external branding must coincide so that employees of the company deliver on the promise and properly represent the brand.
An example of this consistency in brand delivery is when a consumer can recognize a brand within seconds of seeing the commercial, even without viewing the logo or hearing the brand name. Target does a great job in using consistent imagery, music and themes to develop commercials. In some of their commercials, the logo and brand name are not presented for ten seconds or more. However, due to the consistency of the branding elements, consumers are able to identify the brand of Target within seconds.
The third force in building brand equity involves, “other associations indirectly transferred to the brand by linking it to some other entity (a person, place, or thing.)” (Kotler and Keller. 2009. pg. 246) Associating a professional athlete or famous star with a brand has been used by many companies for years. Michael Jordan with Nike Shoes, Tiger Woods with American Express, Catherine Zeta-Jone for T-Mobil, and Charlton Heston with the National Rifle Association are just a few. Associations can help establish credibility, popularity and other positive characteristics associated with the brand, reflective of the associated party. An example of association by a place might be coffee to Seattle to Starbucks.
Creating or adjusting a positive brand image which results in strong brand equity is a basic but necessary goal of every company. “Most business people understand the power of a well-recognized and respected brand name. It can strengthen consumer preference for your product, raise customer loyalty, insulate you from competitive forces and cut your promotional costs.” (Carey. 2007. para. 4) It builds the foundation on which companies build their futures. “Marketers build brand equity by creating the right brand knowledge structures with the right consumers.” (Kotler and Keller. 2009. pg. 245) Strong brands are based on strong products, with a clear message, differentiated from the competition, with a believable and consistent message, that is relevant to the targeted audience. With these characteristics in place, companies will experience strong brand equity.
References
Kotler, P., Keller, K. L. (2009). Marketing Management. New Jersey: Pearson Prentice Hall.
Internet Center for Management and Business Administration, Inc. N.d. Brand Equity. Retrieved June 21, 2009 from NetMBA Business Knowledge Center. Website: http://www.netmba.com/marketing/brand/equity/
Carey, W.P. May 9, 2007. Brand Equity. It’s Worth More Than Companies Realize. Retrieved June 21, 2009 from Marketing and Services Leadership. Website: http://knowledge.wpcarey.asu.edu/article.cfm?articleid=1413
P&G - The Art of Masterful Marketing and Consumer Packaging
Proctor & Gamble has been recognized globally as a marketing powerhouse. They have successfully developed and nurtured numerous branding initiatives that have lead to sustained market leadership. “Proctor & Gamble (P&G) is one of the most skillful marketers of consumer packaged goods. (P&G) is a global leader in the majority of 22 different product categories in which they compete; and has total world wide sales of more than $76 billion a year.” (Kotler and Keller. 2009. pg. 239)
P&G utilizes and implements several capabilities and philosophies that help them thrive in the market. Among these are five key drivers that include customer knowledge, product innovation, quality strategy, an aggressive sales force, and manufacturing efficiency and cost cutting.
It is very difficult to succeed in business if you are trying to sell a product or service to a specific audience if you don’t know what your audience wants, likes and needs. Customer knowledge is very important in delivering products to the market in fulfillment of a need. “P&G studies its customers – both end consumers and trade partners – through continuous marketing research and intelligence gathering. (P&G) generates more than 3 million consumer contacts via its email and phone center. It also puts more emphasis on getting its marketers and researchers out into the field, where they can interact with consumers and retailers in their natural environment.” (Kotler and Keller. 2009. pg. 239) Such front line exposure to the consumer helps management understand their desires. Valuable information can be gathered and implemented to better meet the demands of the consumer.
Consider this analogy if you will. After a long, tough day at work, you decide to treat yourself to a nice relaxing dinner at one of your favorite restaurants. You sit down and the waiter brings you a glass of water. After about 10-15 minutes, he returns with your dinner, piping hot and ready to consume. You’d be a little puzzled wouldn’t you? Unless you were a frequent patron who had a standing order, you would expect the waiter to take your order first. If he simply decided what to serve you for dinner, what are the chances you would be satisfied? With dozens of different types of food, chances are he would not deliver what you had in mind. The only way for him to know what will satisfy you is to take your order. A successful waiter seeks customer knowledge because he asks questions and listens to the customer. Knowing your customer is one of the most important, if not the most important, aspects to providing satisfactory products and services. P&G recognizes this important issue and takes the necessary steps to know the customer.
Product innovations are also very important in gaining and maintaining market leadership. “P&G is an active product innovator, devoting $1.8 billion (3.5% of sales) to research and development, an impressively high amount for a packaged-goods company. It employs more science PhDs than Harvard, Berkeley, and MIT combined and applies for roughly 3,000 patents each year.” (Kotler and Keller. 2009. pg. 239) Such innovation helps provide products that are developed with cutting edge technology. As sciences and technologies advance, products and services must follow.
With innovative advancements, products continue to evolve and the market continues to expand. In a speech in 2000, Federal Reserve Chairman Alan Greenspan summed it up when he stated, “We appear to be in the midst of a period of rapid innovation that is bringing with it substantial and lasting benefits to our economy.” (Mandel. 2009. p. 36) New benefits typically means increased demand. It helps retain loyal customers and attract new ones. At the time of his speech, it seemed like we were experiencing a boom in innovation that was helping markets to thrive. “But (today) there’s growing evidence that the innovation shortfall of the past decade is not only real but may also have contributed to today’s financial crisis. . . With far fewer breakthrough products than expected, Americans had little new to sell to the rest of the world.” (Mandel. 2009. p. 35-36)
This recognizable trend demonstrates the importance of innovative capabilities and R&D philosophies within a company. Innovation can dramatically differentiate products within the same category, providing the competitive advantage needed to emerge as a market leader. “Part of (P&G’s) innovative process is developing brands that offer new consumer benefits.” (Kotler and Keller. 2009. pg. 239) This innovation has helped them stay on top of the industry. Lack of innovation may have affected other companies, but P&G’s commitment to innovation has helped it maintain its leadership position.
Another vital key to a company’s success is the quality of their products or services. “P&G designs products of above average quality and continuously improves them. When P&G says ‘new and improved,’ it means it.” (Kotler and Keller. 2009. pg. 239) In today’s hyper competitive markets, quality products can provide a competitive advantage through differentiation among numerous offerings. An increase number of consumers are considering quality over cost, focusing on the value of a product that will last. It has been unfairly perceived that among low income families, that cheaper is considered a better way to go. Research is uncovering that in today’s markets, low-income families are also considering quality as an important aspect to the decision making process of a purchase.
Another capability and philosophy that sustains P&G as a market leader is an aggressive sales force. “P&G’s sales force has been named one of the top 25 sales forces by Sales & Marketing Management magazine. A key to its success is the close ties its sales force forms with retailers, notably Wal-Mart.” (Kotler and Keller. 2009. pg. 239) As a critical part of the marketing effort, the sales force must ensure that P&G’s products are visible, accessible and prominent among the various offerings within the retail stores. By proactively leveraging positive working relationships with retailers, P&G can streamline the operational and promotional efficiencies, from production to distribution. The sales force can work closely with the retailer to gather useful information which can help improve the product. Improved product quality in turn helps the retailer by increased demands and ultimate sales, as well as helping the profits of P&G. In addition, improved products increase the likelihood of satisfied consumers.
Positive working relationships can also help in negotiations and by establishing a partnership mentality between the 2 companies. In the case of Wal-Mart, a strong working relationship established by an aggressive sales force might provide P&G with a competitive advantage over the competition. The “partnership power” of the relationship can help P&G avoid certain elements required of other companies seeking to do business with Wal-Mart. “A recent JPMorgan Chase report says Wal-Mart wants manufacturers to spend more on promotions and ads that appear on the retailer’s in-store TV network. ‘Failure to participate could have meaningful consequences,’ the report concluded.” (Boyle. 2009. p. 52-53) A strong historical relationship developed by an aggressive sales force may encompass more bargaining power and a reflection of partner as opposed to manufacturer. This can be a very valuable asset for power promoting a company’s brands.
As stated earlier, quality is definitely a valuable aspect of P&G’s products. However, cost considerations are also very important in many consumer minds. Many consumers are willing to pay a premium for superior product quality. However, each product premium has a limit based on perceived value. The goal of a good marketer is to help develop cost efficient operations that can help set proper pricing levels for a product. “P&G’s reputation as a great marketing company is matched by its excellence as a manufacturing company. P&G spends large sums developing and improving production operations to keep its costs among the lowest in the industry, allowing it to reduce the premium prices at which some of the goods sell.” (Kotler and Keller. 2009. pg. 239) Providing top quality products at lower prices develops competitive advantages that will sustain market leadership.
P&G has proven that they have what it takes to sustain market leadership. As P&G states on its website, “Invest in technology. Create superior products. Make each product a brand behind a distinctive strategy. And when you get it right, invest in it over time to establish a brand equity.” (P&G. Nd. para. 7) They have accomplished this through capabilities and philosophies that have been engrossed throughout the company. Among the five key drivers that P&G uses include customer knowledge, product innovation, quality strategy, aggressive sales force, and manufacturing efficiency and cost cutting. Their success can not be attributed to one simple task, but on the successful combination and relational interdependency of many different aspects. As a result, this combined effort has developed a market leader that has been recognized globally, as a benchmark for success.
References
Kotler, P., Keller, K. L. (2009). Marketing Management. New Jersey: Pearson Prentice Hall.
Mandel, M. (2009, June 15). Innovation Interrupted. Business Week. The McGraw-Hill Companies.
Boyle, M. (2009, June 15). Management & Leadership. Wal-Mart’s Magic Moment. Business Week. The McGraw-Hill Companies.
P&G Global Operations. Nd. Retrieved June 20, 2009 from Proctor & Gamble. Website: http://www.pg.com/jobs/jobs_us/usinfo/building_brand_gl.shtm l
P&G utilizes and implements several capabilities and philosophies that help them thrive in the market. Among these are five key drivers that include customer knowledge, product innovation, quality strategy, an aggressive sales force, and manufacturing efficiency and cost cutting.
It is very difficult to succeed in business if you are trying to sell a product or service to a specific audience if you don’t know what your audience wants, likes and needs. Customer knowledge is very important in delivering products to the market in fulfillment of a need. “P&G studies its customers – both end consumers and trade partners – through continuous marketing research and intelligence gathering. (P&G) generates more than 3 million consumer contacts via its email and phone center. It also puts more emphasis on getting its marketers and researchers out into the field, where they can interact with consumers and retailers in their natural environment.” (Kotler and Keller. 2009. pg. 239) Such front line exposure to the consumer helps management understand their desires. Valuable information can be gathered and implemented to better meet the demands of the consumer.
Consider this analogy if you will. After a long, tough day at work, you decide to treat yourself to a nice relaxing dinner at one of your favorite restaurants. You sit down and the waiter brings you a glass of water. After about 10-15 minutes, he returns with your dinner, piping hot and ready to consume. You’d be a little puzzled wouldn’t you? Unless you were a frequent patron who had a standing order, you would expect the waiter to take your order first. If he simply decided what to serve you for dinner, what are the chances you would be satisfied? With dozens of different types of food, chances are he would not deliver what you had in mind. The only way for him to know what will satisfy you is to take your order. A successful waiter seeks customer knowledge because he asks questions and listens to the customer. Knowing your customer is one of the most important, if not the most important, aspects to providing satisfactory products and services. P&G recognizes this important issue and takes the necessary steps to know the customer.
Product innovations are also very important in gaining and maintaining market leadership. “P&G is an active product innovator, devoting $1.8 billion (3.5% of sales) to research and development, an impressively high amount for a packaged-goods company. It employs more science PhDs than Harvard, Berkeley, and MIT combined and applies for roughly 3,000 patents each year.” (Kotler and Keller. 2009. pg. 239) Such innovation helps provide products that are developed with cutting edge technology. As sciences and technologies advance, products and services must follow.
With innovative advancements, products continue to evolve and the market continues to expand. In a speech in 2000, Federal Reserve Chairman Alan Greenspan summed it up when he stated, “We appear to be in the midst of a period of rapid innovation that is bringing with it substantial and lasting benefits to our economy.” (Mandel. 2009. p. 36) New benefits typically means increased demand. It helps retain loyal customers and attract new ones. At the time of his speech, it seemed like we were experiencing a boom in innovation that was helping markets to thrive. “But (today) there’s growing evidence that the innovation shortfall of the past decade is not only real but may also have contributed to today’s financial crisis. . . With far fewer breakthrough products than expected, Americans had little new to sell to the rest of the world.” (Mandel. 2009. p. 35-36)
This recognizable trend demonstrates the importance of innovative capabilities and R&D philosophies within a company. Innovation can dramatically differentiate products within the same category, providing the competitive advantage needed to emerge as a market leader. “Part of (P&G’s) innovative process is developing brands that offer new consumer benefits.” (Kotler and Keller. 2009. pg. 239) This innovation has helped them stay on top of the industry. Lack of innovation may have affected other companies, but P&G’s commitment to innovation has helped it maintain its leadership position.
Another vital key to a company’s success is the quality of their products or services. “P&G designs products of above average quality and continuously improves them. When P&G says ‘new and improved,’ it means it.” (Kotler and Keller. 2009. pg. 239) In today’s hyper competitive markets, quality products can provide a competitive advantage through differentiation among numerous offerings. An increase number of consumers are considering quality over cost, focusing on the value of a product that will last. It has been unfairly perceived that among low income families, that cheaper is considered a better way to go. Research is uncovering that in today’s markets, low-income families are also considering quality as an important aspect to the decision making process of a purchase.
Another capability and philosophy that sustains P&G as a market leader is an aggressive sales force. “P&G’s sales force has been named one of the top 25 sales forces by Sales & Marketing Management magazine. A key to its success is the close ties its sales force forms with retailers, notably Wal-Mart.” (Kotler and Keller. 2009. pg. 239) As a critical part of the marketing effort, the sales force must ensure that P&G’s products are visible, accessible and prominent among the various offerings within the retail stores. By proactively leveraging positive working relationships with retailers, P&G can streamline the operational and promotional efficiencies, from production to distribution. The sales force can work closely with the retailer to gather useful information which can help improve the product. Improved product quality in turn helps the retailer by increased demands and ultimate sales, as well as helping the profits of P&G. In addition, improved products increase the likelihood of satisfied consumers.
Positive working relationships can also help in negotiations and by establishing a partnership mentality between the 2 companies. In the case of Wal-Mart, a strong working relationship established by an aggressive sales force might provide P&G with a competitive advantage over the competition. The “partnership power” of the relationship can help P&G avoid certain elements required of other companies seeking to do business with Wal-Mart. “A recent JPMorgan Chase report says Wal-Mart wants manufacturers to spend more on promotions and ads that appear on the retailer’s in-store TV network. ‘Failure to participate could have meaningful consequences,’ the report concluded.” (Boyle. 2009. p. 52-53) A strong historical relationship developed by an aggressive sales force may encompass more bargaining power and a reflection of partner as opposed to manufacturer. This can be a very valuable asset for power promoting a company’s brands.
As stated earlier, quality is definitely a valuable aspect of P&G’s products. However, cost considerations are also very important in many consumer minds. Many consumers are willing to pay a premium for superior product quality. However, each product premium has a limit based on perceived value. The goal of a good marketer is to help develop cost efficient operations that can help set proper pricing levels for a product. “P&G’s reputation as a great marketing company is matched by its excellence as a manufacturing company. P&G spends large sums developing and improving production operations to keep its costs among the lowest in the industry, allowing it to reduce the premium prices at which some of the goods sell.” (Kotler and Keller. 2009. pg. 239) Providing top quality products at lower prices develops competitive advantages that will sustain market leadership.
P&G has proven that they have what it takes to sustain market leadership. As P&G states on its website, “Invest in technology. Create superior products. Make each product a brand behind a distinctive strategy. And when you get it right, invest in it over time to establish a brand equity.” (P&G. Nd. para. 7) They have accomplished this through capabilities and philosophies that have been engrossed throughout the company. Among the five key drivers that P&G uses include customer knowledge, product innovation, quality strategy, aggressive sales force, and manufacturing efficiency and cost cutting. Their success can not be attributed to one simple task, but on the successful combination and relational interdependency of many different aspects. As a result, this combined effort has developed a market leader that has been recognized globally, as a benchmark for success.
References
Kotler, P., Keller, K. L. (2009). Marketing Management. New Jersey: Pearson Prentice Hall.
Mandel, M. (2009, June 15). Innovation Interrupted. Business Week. The McGraw-Hill Companies.
Boyle, M. (2009, June 15). Management & Leadership. Wal-Mart’s Magic Moment. Business Week. The McGraw-Hill Companies.
P&G Global Operations. Nd. Retrieved June 20, 2009 from Proctor & Gamble. Website: http://www.pg.com/jobs/jobs_us/usinfo/building_brand_gl.shtm l
Saturday, July 11, 2009
How Much is too Much for a Niche Market?
I came across this news article in CNN and was amazed at how far we are taking the niche markets in our country. Without having the financial data and research obviously used to support such a decision made by Pet Airlines, I can't imagine this would be a sustainable and profitable market. However, it does cater to an extreme market, going to extents some parents don't even do for their real children (see nervous parents in bold).
What are your thoughts on servicing extreme niche markets like this one?
Here are parts of the CNN article I found worth referencing. For the complete article, visit CNN as referenced below.
More airlines embracing furry travelers
Blame America's pet obsession, but in recent years, more members of the airline industry are embracing dogs and cats on board. Midwest Airlines may be an extreme example, letting select dogs sit in the same seats as humans, but other airlines are relaxing their pet policies by letting smaller cats and dogs come into the cabin area. About a year ago, Midwest began allowing certain "celebrity" dogs that appear in canine competitions, shows or advertisements to sit in seats. "They are just passengers with four legs instead of two," said Susan Kerwin, who oversees the pet program at Midwest Airlines.
The pet travel frenzy has spurred the creation of an airline catering exclusively to pets. This month, Pet Airways, the nation's first pet-only airline, will begin flying in five major cities, including New York and Los Angeles, California. It's an alternative to shipping larger pets in the cargo area of a plane, where there have been pet injuries and even deaths.
On each Pet Airways flight, services include potty breaks and experienced animal handlers checking up on the animals every 15 minutes. Nervous parents can track their pets online.
The cost of flying your furry friend ranges from $75 to nearly $300 each leg. It's a hefty price tag, but profit-bleeding airlines are happy to offer the option.
ARTICLE REFERENCE:
http://www.cnn.com/2009/TRAVEL/07/10/pets.fly.airlines/index.html.
What are your thoughts on servicing extreme niche markets like this one?
Here are parts of the CNN article I found worth referencing. For the complete article, visit CNN as referenced below.
More airlines embracing furry travelers
Blame America's pet obsession, but in recent years, more members of the airline industry are embracing dogs and cats on board. Midwest Airlines may be an extreme example, letting select dogs sit in the same seats as humans, but other airlines are relaxing their pet policies by letting smaller cats and dogs come into the cabin area. About a year ago, Midwest began allowing certain "celebrity" dogs that appear in canine competitions, shows or advertisements to sit in seats. "They are just passengers with four legs instead of two," said Susan Kerwin, who oversees the pet program at Midwest Airlines.
The pet travel frenzy has spurred the creation of an airline catering exclusively to pets. This month, Pet Airways, the nation's first pet-only airline, will begin flying in five major cities, including New York and Los Angeles, California. It's an alternative to shipping larger pets in the cargo area of a plane, where there have been pet injuries and even deaths.
On each Pet Airways flight, services include potty breaks and experienced animal handlers checking up on the animals every 15 minutes. Nervous parents can track their pets online.
The cost of flying your furry friend ranges from $75 to nearly $300 each leg. It's a hefty price tag, but profit-bleeding airlines are happy to offer the option.
ARTICLE REFERENCE:
http://www.cnn.com/2009/TRAVEL/07/10/pets.fly.airlines/index.html.
Friday, July 10, 2009
Management By Objectives help improve the implementation of strategy.
A company works to reach its strategic goals through an action plan. “An action plan states what actions are going to be taken, by whom, during what time frame, and with what expected results.” (Hunger and Wheelen. 2008. pg. 253) Action plans are used to drive programs set within a specific company strategy.
Action plans are a very useful tool in the evaluation and control of a strategy. They can help determine areas that may require adjustments in daily operations. An action plan will set responsibilities into motion and the detailed direction will act as a motivating factor. Furthermore, action plans develop a time table for anticipated progress and completion. They evaluate the targeted financial results of the actions and offer alternative scenarios as needed.
An action plan is a primary driver. The plan itself determines what resources will be used to accomplish the anticipated results. However, employee’s are assigned to tasks, with the emphasis on the activity, not the results or resources needed to accomplish the task and achieve the desired results in an efficient manner. In contrast, Management By Objectives (MBO) strives to increase the performance of a company by synchronizing goals and objectives throughout the operations. “MBO links organizational objectives and the behavior of individuals.” (Hunger and Wheelen. 2008. pg. 255). It matches employee competencies to individual tasks within the plan. MBO assigns the best man or woman for the job.
Management by objectives is a logical and organized process that allows management to focus on obtainable goals and to achieve the best possible results from available resources. Furthermore, it works to increase a company’s performance by matching goals and employee objectives throughout the corporation. “The principles behind Management By Objectives (MBO) is to make sure that everyone within the organization has a clear understanding of the aims, or objectives, of that organization, as well as awareness of their own goals and responsibilities in achieving those aims. The complete MBO system is to get plans, which automatically achieve those of the organization.” (Management Help. Date. Para. 6)
Action plans focus on creating a system and applying resources to a function based on a broad spectrum of options. The plan starts with a desired result and is formulated and executed by management, driving it to fit within the development. Managers work toward the end result by assigning tasks to employees without a relevant connection to the entire plan. They provide detailed agendas to follow step by step, leaving little room for employee input. Management dictates the execution of the plan regardless of inefficiencies or imperfections.
MBO breaks down the process to an individual level, based on employee competencies and expertise. It matches goals with specific performance “Management by Objectives (MBO) is about setting your self objectives and then breaking these down into more specific goals or key results.” (Management Help. Date. Para. 5) Management clearly advises employees of the goals and objectives of the plan, and states the overall desired results. They then allow the employees to use their knowledge and competency to work towards the assigned goals. Since these employees have the greatest knowledge of their job, they are given the responsibility to create success in the individual task. “MBO managers focus on the result, not the activity. They delegate tasks by negotiating a contract of goals with their subordinates without dictating a detailed roadmap for implementation.” (Management Help. Date. Para. 5)
MBO will help improve the implementation of strategy in many ways. MBO creates focus on individual tasks for management and empowered employees. Instead of diluting focus with concern on multiple tasks within an action plan, each manager and employee knows what is expected of them, and develops a more detailed focus on an individually assigned task.
MBO fosters organizational characteristics within groups and units. Management and employees are provided details and acknowledge the desired results. In order to succeed, they have to work together in an organized fashion to build individual results into combined unit results. It’s a system of building blocks. Management and empowered employees accomplish individual tasks that when combined, formulate the unit task and ultimately develop into the overall company goal.
MBO motivates individuals to perform at high levels. Since employees are provided with important decision making processes and responsibilities, MBO’s fosters a sense of pride and importance related to the individual task. “Empowerment recognizes ‘the demise’ of the command-and-control system, but remains a term of power and rank. A manager should view members of his or her team much as a conductor regards the players in the orchestra, as individuals whose particular skills contribute to the success of the enterprise.” (Management Help. Date. Para. 16) In addition, individual tasks can be measureable in time and performance as a direct result of the individual’s effort. An individual effort that is performed at sub par levels, can not be blanketed within the overall effort, hiding its lack of effort and deficiencies. Since employees must take ownership of their work, performance levels are increased.
MBO increases the need for cooperation and communication as a team. Since many individuals are working as individual parts of the larger picture, communication is needed for progress and coordination of various efforts. In addition, individuals develop an increased awareness of various aspects of the plan as they are subjected to various communications regarding the plan. The end result is a unification of efforts and an increased knowledge of how each part works together in the process, thus increasing overall employee knowledge and awareness of the functions within the unit.
MBO, as stated earlier, requires a building block system to achieve the overall goals of the plan. This building block system creates synergy among units, in various locations with different cultures, as they work together to complete the company wide plan. As units become familiar with each other and their associated functions within the company, increased resource awareness can develop. Management and employees of various units work together and start developing competitive advantages with increased levels of synergy. This can lead to new productive systems such as virtual teams or even concurrent engineering.
These examples are just a few of the advantages Management By Objectives fosters in the implementation of strategy.
References
---------------------------
Hunger, David J. & Wheelen, Thomas L. (2008). Concepts on Strategic Management and Business Policy. New Jersey: Pearson Prentice Hall.
eCoach Effective Management. Management By Objectives – The Five Step MBO Process. Retrieved March 7, 2008, from eCoach. Website: http://www.1000ventures.com/business_guide/mgmt_mbo_main.html
Action plans are a very useful tool in the evaluation and control of a strategy. They can help determine areas that may require adjustments in daily operations. An action plan will set responsibilities into motion and the detailed direction will act as a motivating factor. Furthermore, action plans develop a time table for anticipated progress and completion. They evaluate the targeted financial results of the actions and offer alternative scenarios as needed.
An action plan is a primary driver. The plan itself determines what resources will be used to accomplish the anticipated results. However, employee’s are assigned to tasks, with the emphasis on the activity, not the results or resources needed to accomplish the task and achieve the desired results in an efficient manner. In contrast, Management By Objectives (MBO) strives to increase the performance of a company by synchronizing goals and objectives throughout the operations. “MBO links organizational objectives and the behavior of individuals.” (Hunger and Wheelen. 2008. pg. 255). It matches employee competencies to individual tasks within the plan. MBO assigns the best man or woman for the job.
Management by objectives is a logical and organized process that allows management to focus on obtainable goals and to achieve the best possible results from available resources. Furthermore, it works to increase a company’s performance by matching goals and employee objectives throughout the corporation. “The principles behind Management By Objectives (MBO) is to make sure that everyone within the organization has a clear understanding of the aims, or objectives, of that organization, as well as awareness of their own goals and responsibilities in achieving those aims. The complete MBO system is to get plans, which automatically achieve those of the organization.” (Management Help. Date. Para. 6)
Action plans focus on creating a system and applying resources to a function based on a broad spectrum of options. The plan starts with a desired result and is formulated and executed by management, driving it to fit within the development. Managers work toward the end result by assigning tasks to employees without a relevant connection to the entire plan. They provide detailed agendas to follow step by step, leaving little room for employee input. Management dictates the execution of the plan regardless of inefficiencies or imperfections.
MBO breaks down the process to an individual level, based on employee competencies and expertise. It matches goals with specific performance “Management by Objectives (MBO) is about setting your self objectives and then breaking these down into more specific goals or key results.” (Management Help. Date. Para. 5) Management clearly advises employees of the goals and objectives of the plan, and states the overall desired results. They then allow the employees to use their knowledge and competency to work towards the assigned goals. Since these employees have the greatest knowledge of their job, they are given the responsibility to create success in the individual task. “MBO managers focus on the result, not the activity. They delegate tasks by negotiating a contract of goals with their subordinates without dictating a detailed roadmap for implementation.” (Management Help. Date. Para. 5)
MBO will help improve the implementation of strategy in many ways. MBO creates focus on individual tasks for management and empowered employees. Instead of diluting focus with concern on multiple tasks within an action plan, each manager and employee knows what is expected of them, and develops a more detailed focus on an individually assigned task.
MBO fosters organizational characteristics within groups and units. Management and employees are provided details and acknowledge the desired results. In order to succeed, they have to work together in an organized fashion to build individual results into combined unit results. It’s a system of building blocks. Management and empowered employees accomplish individual tasks that when combined, formulate the unit task and ultimately develop into the overall company goal.
MBO motivates individuals to perform at high levels. Since employees are provided with important decision making processes and responsibilities, MBO’s fosters a sense of pride and importance related to the individual task. “Empowerment recognizes ‘the demise’ of the command-and-control system, but remains a term of power and rank. A manager should view members of his or her team much as a conductor regards the players in the orchestra, as individuals whose particular skills contribute to the success of the enterprise.” (Management Help. Date. Para. 16) In addition, individual tasks can be measureable in time and performance as a direct result of the individual’s effort. An individual effort that is performed at sub par levels, can not be blanketed within the overall effort, hiding its lack of effort and deficiencies. Since employees must take ownership of their work, performance levels are increased.
MBO increases the need for cooperation and communication as a team. Since many individuals are working as individual parts of the larger picture, communication is needed for progress and coordination of various efforts. In addition, individuals develop an increased awareness of various aspects of the plan as they are subjected to various communications regarding the plan. The end result is a unification of efforts and an increased knowledge of how each part works together in the process, thus increasing overall employee knowledge and awareness of the functions within the unit.
MBO, as stated earlier, requires a building block system to achieve the overall goals of the plan. This building block system creates synergy among units, in various locations with different cultures, as they work together to complete the company wide plan. As units become familiar with each other and their associated functions within the company, increased resource awareness can develop. Management and employees of various units work together and start developing competitive advantages with increased levels of synergy. This can lead to new productive systems such as virtual teams or even concurrent engineering.
These examples are just a few of the advantages Management By Objectives fosters in the implementation of strategy.
References
---------------------------
Hunger, David J. & Wheelen, Thomas L. (2008). Concepts on Strategic Management and Business Policy. New Jersey: Pearson Prentice Hall.
eCoach Effective Management. Management By Objectives – The Five Step MBO Process. Retrieved March 7, 2008, from eCoach. Website: http://www.1000ventures.com/business_guide/mgmt_mbo_main.html
The Importance of the Strategy and Culture Mix.
A good mix between strategy and culture is vital to a company’s success when implementing new strategies for a company. If they conflict, research shows that failure rates are high.
Strategies that conflict with strong cultures are likely to experience resistance. A company’s culture is its identity. It states who they are and what they do. “Because an organizations culture can exert a powerful influence on the behavior of all employees, it can strongly affect a company’s ability to shift its strategic direction. A problem for a strong culture is that a change in mission, objectives, strategies, or policies is not likely to be successful if it is in opposition to the accepted culture of a company.” (Hunger and Wheelen. 2008. pg. 248).
However, in the case of a weak culture, strategic changes may be welcome, even if they change the current culture. This was the case when Maytag purchased Admiral, formerly known as Magic Chef. Admiral employees, out of respect for Maytag’s success and leadership in quality, gladly accepted a new culture, based on a strategy they anticipated would develop success for their future.
“An optimal culture is one that best supports the mission and strategy of the company of which it is a part. This means that, like structure and staffing, corporate culture should support the strategy. Unless strategy is in complete agreement with the culture, any significant change in strategy should be followed by a modification on the organization’s culture.” (Hunger and Wheelen. 2008. pg. 248).
Therefore, strategy must fit with culture to be successful for a company. However, to succeed in a competitive market, companies must develop strategies that align a company with success. Properly formulated and implemented strategies result in success within an industry. A company’s culture does not drive this success. It definitely can play a significant role in the ultimate achievement of desired results and the effort, timing and implementation of strategies. Culture does not provide a “roadmap” for a company’s planning to success. It is a considerable factor in the planning implementation, but a company’s ability to reach its goals is a result of the direction provided through strategy.
As such, the strategy-culture compatibility assessment is based on strategy as the dominant driving factor. However, this may vary in different unique situations. The ultimate goal of the compatibility assessment is to evaluate the current correlation between the company culture and the affects of implementing a new strategy. If a possible conflict occurs, it can be addressed in a manner that evaluates possible ways to gradually evolve the culture to match the new strategy. Since strategy is the driving force of a company’s efforts, the assessment also focuses on the current culture effect on its outcome. The assessment can prove that if a culture is too strong, a new strategy may not work. As a result, in some circumstances, culture may actually shape a strategy.
In most circumstances, culture can be gradually adjusted to mesh with a new strategy. It is management’s responsibility to evaluate this connection and try to develop a new strategy that is most inline with the current culture. However, the strategy remains the driving factor in a company’s effort to reach its goal. Only after all attempts to adjust culture have been determined unobtainable, should a company decide to change its strategy.
In evaluating the effects of culture on new strategies, management should follow a process of evaluation based on the strategy-culture compatibility assessment. They should first consider if the planned strategy is compatible with the company culture. If it is, the new strategy is likely to be accepted by the workforce. If they are not inline with each other, management must determine if the culture can be easily modified to make it more compatible with the new strategy.
Once a company determines that the culture can be easily modified to make it more compatible with the new strategy, management must proceed with caution, introducing new culture characteristics. This can be achieved through modifying structures, training and development and establishing new management personnel compatible with the new strategy. If management determines that the culture can not be easily modified consistent with the new strategy, they need to determine if they are willing to make organizational changes, accept delays and increases in cost associated with the new strategy that conflicts with the current culture.
If these factors are acceptable to management, they can implement the new strategy working around the culture. They will need to develop and implement a new organizational structure to move forward with the new strategy. If they are unwilling to accept these factors, they must evaluate their commitment to the new strategy. If they are still convinced that implementing the new strategy is the correct course of action, they should consider finding a “joint venture partner or contract with another company to carry out the new strategy.” (Hunger and Wheelen. 2008. pg. 250). Once management has determined that they are not committed to the new strategy due to the challenges it faces within the culture, they should find a different strategy.
Since numerous efforts are made to modify the culture to work with the strategy, one would conclude that culture follows strategy according to the strategy-culture compatibility assessment.
References
---------------------------
Hunger, David J. & Wheelen, Thomas L. (2008). Concepts on Strategic Management and Business Policy. New Jersey: Pearson Prentice Hall.
Strategies that conflict with strong cultures are likely to experience resistance. A company’s culture is its identity. It states who they are and what they do. “Because an organizations culture can exert a powerful influence on the behavior of all employees, it can strongly affect a company’s ability to shift its strategic direction. A problem for a strong culture is that a change in mission, objectives, strategies, or policies is not likely to be successful if it is in opposition to the accepted culture of a company.” (Hunger and Wheelen. 2008. pg. 248).
However, in the case of a weak culture, strategic changes may be welcome, even if they change the current culture. This was the case when Maytag purchased Admiral, formerly known as Magic Chef. Admiral employees, out of respect for Maytag’s success and leadership in quality, gladly accepted a new culture, based on a strategy they anticipated would develop success for their future.
“An optimal culture is one that best supports the mission and strategy of the company of which it is a part. This means that, like structure and staffing, corporate culture should support the strategy. Unless strategy is in complete agreement with the culture, any significant change in strategy should be followed by a modification on the organization’s culture.” (Hunger and Wheelen. 2008. pg. 248).
Therefore, strategy must fit with culture to be successful for a company. However, to succeed in a competitive market, companies must develop strategies that align a company with success. Properly formulated and implemented strategies result in success within an industry. A company’s culture does not drive this success. It definitely can play a significant role in the ultimate achievement of desired results and the effort, timing and implementation of strategies. Culture does not provide a “roadmap” for a company’s planning to success. It is a considerable factor in the planning implementation, but a company’s ability to reach its goals is a result of the direction provided through strategy.
As such, the strategy-culture compatibility assessment is based on strategy as the dominant driving factor. However, this may vary in different unique situations. The ultimate goal of the compatibility assessment is to evaluate the current correlation between the company culture and the affects of implementing a new strategy. If a possible conflict occurs, it can be addressed in a manner that evaluates possible ways to gradually evolve the culture to match the new strategy. Since strategy is the driving force of a company’s efforts, the assessment also focuses on the current culture effect on its outcome. The assessment can prove that if a culture is too strong, a new strategy may not work. As a result, in some circumstances, culture may actually shape a strategy.
In most circumstances, culture can be gradually adjusted to mesh with a new strategy. It is management’s responsibility to evaluate this connection and try to develop a new strategy that is most inline with the current culture. However, the strategy remains the driving factor in a company’s effort to reach its goal. Only after all attempts to adjust culture have been determined unobtainable, should a company decide to change its strategy.
In evaluating the effects of culture on new strategies, management should follow a process of evaluation based on the strategy-culture compatibility assessment. They should first consider if the planned strategy is compatible with the company culture. If it is, the new strategy is likely to be accepted by the workforce. If they are not inline with each other, management must determine if the culture can be easily modified to make it more compatible with the new strategy.
Once a company determines that the culture can be easily modified to make it more compatible with the new strategy, management must proceed with caution, introducing new culture characteristics. This can be achieved through modifying structures, training and development and establishing new management personnel compatible with the new strategy. If management determines that the culture can not be easily modified consistent with the new strategy, they need to determine if they are willing to make organizational changes, accept delays and increases in cost associated with the new strategy that conflicts with the current culture.
If these factors are acceptable to management, they can implement the new strategy working around the culture. They will need to develop and implement a new organizational structure to move forward with the new strategy. If they are unwilling to accept these factors, they must evaluate their commitment to the new strategy. If they are still convinced that implementing the new strategy is the correct course of action, they should consider finding a “joint venture partner or contract with another company to carry out the new strategy.” (Hunger and Wheelen. 2008. pg. 250). Once management has determined that they are not committed to the new strategy due to the challenges it faces within the culture, they should find a different strategy.
Since numerous efforts are made to modify the culture to work with the strategy, one would conclude that culture follows strategy according to the strategy-culture compatibility assessment.
References
---------------------------
Hunger, David J. & Wheelen, Thomas L. (2008). Concepts on Strategic Management and Business Policy. New Jersey: Pearson Prentice Hall.
Thursday, July 9, 2009
According to Porter’s discussion of industry analysis, is Pepsi Cola a substitute for Coca Cola?
According to Porter’s views on industry analysis, Pepsi Cola would not be considered a substitute for Coca Cola. They are both cola. Porter’s view of a substitute product is one that appears different but can satisfy the same need, like coffee and tea as described in the text. In the case of cola, bottled water or juice could be viewed as a substitute product, according to Porter.
In today’s health conscious environment, a new company might be able to capitalize on an organic, or natural soft drink. Although Snapple is a competitor of Coca Cola and Pepsi, it promotes natural teas, waters and juices. If a company could utilize a similar theme of Snapple (made from the best stuff on earth), but apply it to a soft drink, they may be able to grab a solid portion of the diet cola (health conscious) market.
In today’s health conscious environment, a new company might be able to capitalize on an organic, or natural soft drink. Although Snapple is a competitor of Coca Cola and Pepsi, it promotes natural teas, waters and juices. If a company could utilize a similar theme of Snapple (made from the best stuff on earth), but apply it to a soft drink, they may be able to grab a solid portion of the diet cola (health conscious) market.
The value of the TOWS Matrix in strategy formulation and generating strategic alternatives?
TOWS and SWOT are both acronyms for the words threats, opportunities, weaknesses and strengths. SWOT uses strengths and weaknesses to combat threats and capitalize on opportunities. TOWS matches external opportunities and threats with a company’s internal strengths and weaknesses. Aren’t they the same? “At a practical level, the only difference between TOWS and SWOT is that TOWS emphasizes the external environment whilst SWOT emphasizes the internal environment.” (Mind Tools. 2007. para. 4.)
The TOWS Matrix produces four potential strategy alternatives based on the pairing of threats, opportunities, weaknesses and strengths. The result is:
SO Strategies (strengths and opportunities) focuses on the external factor of opportunities and the internal factor of strength. This strategy uses strengths to capitalize on opportunities. WO Strategies (weaknesses and opportunities) focuses on the external factor of opportunities and the internal factor of weaknesses. This strategy takes advantage of opportunities by overcoming weaknesses. ST Strategies (strengths and threats) focuses on the external factor of threats and the internal factor of strengths. This strategy utilizes strengths to avoid threats. WT Strategies (weaknesses and threats) focuses on the external factor of threats and the internal factor of weaknesses. This strategy attempts to limit weaknesses while staying clear of threats.
I do agree with utilizing the TOWS Matrix for strategic alternatives. Whereas SWOT provides information helpful in determining the strengths, weaknesses, opportunities and threats of a company’s, the TOWS matrix expands on this area by matching internal and external factors for generating additional strategic alternatives. It helps you gain a better understanding of the strategic choices that you face and the options you could pursue.
“This (TOWS Matrix) is a good way to use brainstorming to create alternative strategies that might not otherwise be considered.” (Hunger and Wheelen. 2008. Pg 144.)
The TOWS Matrix does more than just list the threats, opportunities, weaknesses and strengths a company faces. Instead of simply providing lists, it creates strategic alternatives in an action based formats. It pairs internal and external factors in an effort to provide the best alternative for a company in light of its current condition. It helps management evaluate not only the 4 factors facing the company, but how they match up and can be used together in an effort to generate various strategic alternatives. Without the TOWS Matrix, and the correlation of both internal and external factors, various alternatives may not be recognized as possible solutions.
However, management must realize that, “. . . using a TOWS Matrix is only one of many ways to generate alternative strategies.” (Hunger and Wheelen. 2008. Pg 145.)
Mind Tools - Essential Skills for an Excellent Career. Using the TOWS Matrix. Retrieved March 2, 2007, from Mind Tools. Website: http://www.mindtools.com/pages/article/newSTR_89.htm
Hunger, David J. & Wheelen, Thomas L. (2008). Concepts in Strategic Management and Business Policy. New Jersey: Pearson Prentice Hall
The TOWS Matrix produces four potential strategy alternatives based on the pairing of threats, opportunities, weaknesses and strengths. The result is:
SO Strategies (strengths and opportunities) focuses on the external factor of opportunities and the internal factor of strength. This strategy uses strengths to capitalize on opportunities. WO Strategies (weaknesses and opportunities) focuses on the external factor of opportunities and the internal factor of weaknesses. This strategy takes advantage of opportunities by overcoming weaknesses. ST Strategies (strengths and threats) focuses on the external factor of threats and the internal factor of strengths. This strategy utilizes strengths to avoid threats. WT Strategies (weaknesses and threats) focuses on the external factor of threats and the internal factor of weaknesses. This strategy attempts to limit weaknesses while staying clear of threats.
I do agree with utilizing the TOWS Matrix for strategic alternatives. Whereas SWOT provides information helpful in determining the strengths, weaknesses, opportunities and threats of a company’s, the TOWS matrix expands on this area by matching internal and external factors for generating additional strategic alternatives. It helps you gain a better understanding of the strategic choices that you face and the options you could pursue.
“This (TOWS Matrix) is a good way to use brainstorming to create alternative strategies that might not otherwise be considered.” (Hunger and Wheelen. 2008. Pg 144.)
The TOWS Matrix does more than just list the threats, opportunities, weaknesses and strengths a company faces. Instead of simply providing lists, it creates strategic alternatives in an action based formats. It pairs internal and external factors in an effort to provide the best alternative for a company in light of its current condition. It helps management evaluate not only the 4 factors facing the company, but how they match up and can be used together in an effort to generate various strategic alternatives. Without the TOWS Matrix, and the correlation of both internal and external factors, various alternatives may not be recognized as possible solutions.
However, management must realize that, “. . . using a TOWS Matrix is only one of many ways to generate alternative strategies.” (Hunger and Wheelen. 2008. Pg 145.)
Mind Tools - Essential Skills for an Excellent Career. Using the TOWS Matrix. Retrieved March 2, 2007, from Mind Tools. Website: http://www.mindtools.com/pages/article/newSTR_89.htm
Hunger, David J. & Wheelen, Thomas L. (2008). Concepts in Strategic Management and Business Policy. New Jersey: Pearson Prentice Hall
What are the tradeoffs (pros and cons) between internal and external growth strategy? Which approach is best as an international strategy?
Growth strategies attempt to expand company activities. This growth can be accomplished internally or externally.
Internal growth aims to achieve growth in sales, assets, profits or a combination of these efforts. A company can grow internally with increases in operations globally and domestically. This growth can be accomplished in many ways, including horizontal or vertical growth.
Internal growth can focus on the strengths and resources of a company that will help it produce growth and high annual returns on capital invested in the company. “The firm attempts to secure strategic fit in a new industry where the firm’s product knowledge, its manufacturing capabilities, and the marketing skills it used so effectively in the original industry can be put to good use.” (Hunger and Wheelen. 2008. Pg 170.)
Expanding growth into a new industry requires organization and the unification of various company resources for optimal results. For example, vertical growth, when used with a distinctive competency and to expand a competitive advantage along the industry value chain, can improve market position. However, it can also reduce a company’s strategic flexibility and focus.
Internal growth requires management to evaluate the current company strategic plan and consider options for the desired growth. They must evaluate the options available and consider various outcomes based on the growth potential. For example, “Transactional cost economies proposes that vertical integration is more efficient than contracting for goods and services in the marketplace when the transaction costs of buying goods on the open market becomes too great. When highly vertically integrated firms become excessively large and bureaucratic, however, the costs of managing the internal transactions may become greater than simply purchasing the needed goods externally.” (Hunger and Wheelen. 2008. Pg 167.)
External growth is designed for the same purposes as internal growth. However, it also involves gaining market share, international recognition, acquiring strengths to develop competitive advantages, and eliminating or dominating your competitors through acquisitions, mergers and strategic alliances.
“A properly executed external growth strategy can help you realize maximum growth potential at the right pace-particularly when internal growth opportunities are limited by financing or other constraints, or aren't the best choice in terms of strategic opportunities or shareholder objectives.” (Lucky, D. 2007. para. 1.)
In addition, the organizational structure and corporate culture can influence the success of this growth. If various SBUs (strategic business units) work against each other in a competitive nature, and fail to work together towards the goals of the corporation, achieving synergy will be ineffective and the results minimized.
External growth done through mergers, acquisitions and strategic alliances, provides opportunities to develop strengths and competencies an organization lacks but other organizations control. By gaining key resources and knowledge, a company can gain market share and competitive advantages in an industry. However, all external growth opportunities face uncertainty.
For example, there are significant inherent challenges in international external growth strategies. “Among the most important barriers to international trade are the different standards for products and services.” (Hunger and Wheelen. 2008. Pg 276.) In addition, companies face challenges in the ability to measure product demands based on the demographics of the market, different auditing and accounting practices, fluctuation among currency values and inflations, and unique marketing and manufacturing schemes inherent to a foreign country.
Joint ventures, the most popular form of strategic alliance, are extremely popular in international efforts because each corporation keeps its independence. However, they can encounter disadvantages that damage a company, such as loss of control, low profits, significant potential for conflict, and knowledge transfer from one company to the other.
“A key benefit of strategic alliances, partnering relationships and mergers is that they allow you to share risk and resources when entering a new market. These growth strategies also present the opportunity to develop more expertise, or take advantage of an existing strong management team with excess capacity. Appropriate growth strategies also address opportunities for diversification, realizing business synergies and achieving product rationalization. Note, however, that strategic alliances, partnering relationships and mergers also require you and the other party (or parties) to agree on mutual expectations and governance issues.” (Lucky, D. 2007. para. 8.)
In mergers within an industry, companies may combine a complimentary match of resources and competencies for competitive advantages. However, if the merged organizations have extremely different structures and cultures, they will unlikely be able to unify as one productive and efficient company.
“Research generally concludes, however, that firms growing through acquisitions do not perform financially as well as firms that grow through internal means.” (Hunger and Wheelen. 2008. Pg 175.)
“Over time, conflicts over objectives and control often develop among the partners. For these and other reasons, around half of all alliances (including international alliances) perform unsatisfactorily.” (Hunger and Wheelen. 2008. Pg 157.)
The best strategy for growth on an international basis appears to be determined by the corporation and industry. However, on a broad perspective, external growth is more suitable. “Strategic alliances, such as joint ventures and licensing agreements, between an MNC and a local partner in a host country are becoming increasingly popular as means by which a corporation can gain entry onto another country, especially developed countries.” (Hunger and Wheelen. 2008. Pg 233.) Establishing relationships with local governments, workforces and suppliers, can help an MNC enter and institute itself within a new country. It can then experience growth which will develop into a true global competitor, managing its worldwide operations as if they were completely interrelated. “Strategic alliances may complement or even substitute for an internal functional activity.” (Hunger and Wheelen. 2008. Pg 233.)
Furthermore, by forming strategic alliances and licensing agreements, a company can experience external growth on a trial basis. They can observe and analyze the market and all of the variables associated with this market from an external growth perspective. They have not committed to any long term contracts or made any purchases requiring the outlay of considerable finances such as required in a Green-Field Development. Once a company experiences confidence in developing relationships and operation, it should consider additional growth opportunities in the form of mergers, acquisitions and internal growth.
References
Lucky, D. (2007). External Growth Strategies. Retrieved March 1, 2007, from Canadaone. Website: http://www.canadaone.com/magazine/egs050198.html
Hunger, David J. & Wheelen, Thomas L. (2008). Concepts in Strategic Management and Business Policy. New Jersey: Pearson Prentice Hall.
Internal growth aims to achieve growth in sales, assets, profits or a combination of these efforts. A company can grow internally with increases in operations globally and domestically. This growth can be accomplished in many ways, including horizontal or vertical growth.
Internal growth can focus on the strengths and resources of a company that will help it produce growth and high annual returns on capital invested in the company. “The firm attempts to secure strategic fit in a new industry where the firm’s product knowledge, its manufacturing capabilities, and the marketing skills it used so effectively in the original industry can be put to good use.” (Hunger and Wheelen. 2008. Pg 170.)
Expanding growth into a new industry requires organization and the unification of various company resources for optimal results. For example, vertical growth, when used with a distinctive competency and to expand a competitive advantage along the industry value chain, can improve market position. However, it can also reduce a company’s strategic flexibility and focus.
Internal growth requires management to evaluate the current company strategic plan and consider options for the desired growth. They must evaluate the options available and consider various outcomes based on the growth potential. For example, “Transactional cost economies proposes that vertical integration is more efficient than contracting for goods and services in the marketplace when the transaction costs of buying goods on the open market becomes too great. When highly vertically integrated firms become excessively large and bureaucratic, however, the costs of managing the internal transactions may become greater than simply purchasing the needed goods externally.” (Hunger and Wheelen. 2008. Pg 167.)
External growth is designed for the same purposes as internal growth. However, it also involves gaining market share, international recognition, acquiring strengths to develop competitive advantages, and eliminating or dominating your competitors through acquisitions, mergers and strategic alliances.
“A properly executed external growth strategy can help you realize maximum growth potential at the right pace-particularly when internal growth opportunities are limited by financing or other constraints, or aren't the best choice in terms of strategic opportunities or shareholder objectives.” (Lucky, D. 2007. para. 1.)
In addition, the organizational structure and corporate culture can influence the success of this growth. If various SBUs (strategic business units) work against each other in a competitive nature, and fail to work together towards the goals of the corporation, achieving synergy will be ineffective and the results minimized.
External growth done through mergers, acquisitions and strategic alliances, provides opportunities to develop strengths and competencies an organization lacks but other organizations control. By gaining key resources and knowledge, a company can gain market share and competitive advantages in an industry. However, all external growth opportunities face uncertainty.
For example, there are significant inherent challenges in international external growth strategies. “Among the most important barriers to international trade are the different standards for products and services.” (Hunger and Wheelen. 2008. Pg 276.) In addition, companies face challenges in the ability to measure product demands based on the demographics of the market, different auditing and accounting practices, fluctuation among currency values and inflations, and unique marketing and manufacturing schemes inherent to a foreign country.
Joint ventures, the most popular form of strategic alliance, are extremely popular in international efforts because each corporation keeps its independence. However, they can encounter disadvantages that damage a company, such as loss of control, low profits, significant potential for conflict, and knowledge transfer from one company to the other.
“A key benefit of strategic alliances, partnering relationships and mergers is that they allow you to share risk and resources when entering a new market. These growth strategies also present the opportunity to develop more expertise, or take advantage of an existing strong management team with excess capacity. Appropriate growth strategies also address opportunities for diversification, realizing business synergies and achieving product rationalization. Note, however, that strategic alliances, partnering relationships and mergers also require you and the other party (or parties) to agree on mutual expectations and governance issues.” (Lucky, D. 2007. para. 8.)
In mergers within an industry, companies may combine a complimentary match of resources and competencies for competitive advantages. However, if the merged organizations have extremely different structures and cultures, they will unlikely be able to unify as one productive and efficient company.
“Research generally concludes, however, that firms growing through acquisitions do not perform financially as well as firms that grow through internal means.” (Hunger and Wheelen. 2008. Pg 175.)
“Over time, conflicts over objectives and control often develop among the partners. For these and other reasons, around half of all alliances (including international alliances) perform unsatisfactorily.” (Hunger and Wheelen. 2008. Pg 157.)
The best strategy for growth on an international basis appears to be determined by the corporation and industry. However, on a broad perspective, external growth is more suitable. “Strategic alliances, such as joint ventures and licensing agreements, between an MNC and a local partner in a host country are becoming increasingly popular as means by which a corporation can gain entry onto another country, especially developed countries.” (Hunger and Wheelen. 2008. Pg 233.) Establishing relationships with local governments, workforces and suppliers, can help an MNC enter and institute itself within a new country. It can then experience growth which will develop into a true global competitor, managing its worldwide operations as if they were completely interrelated. “Strategic alliances may complement or even substitute for an internal functional activity.” (Hunger and Wheelen. 2008. Pg 233.)
Furthermore, by forming strategic alliances and licensing agreements, a company can experience external growth on a trial basis. They can observe and analyze the market and all of the variables associated with this market from an external growth perspective. They have not committed to any long term contracts or made any purchases requiring the outlay of considerable finances such as required in a Green-Field Development. Once a company experiences confidence in developing relationships and operation, it should consider additional growth opportunities in the form of mergers, acquisitions and internal growth.
References
Lucky, D. (2007). External Growth Strategies. Retrieved March 1, 2007, from Canadaone. Website: http://www.canadaone.com/magazine/egs050198.html
Hunger, David J. & Wheelen, Thomas L. (2008). Concepts in Strategic Management and Business Policy. New Jersey: Pearson Prentice Hall.
Wednesday, July 8, 2009
Why is astute strategic planning a must in today’s competitive business world?
Strategic planning is vital to an organizations mission to announce where it’s going (short term and long term), how it will get there and how it can monitor success or failure. A solid strategic plan focuses a company’s energy, provides direction towards goals, and helps adjust to a changing environment.
In today’s business environment, “flying by the seat of your pants” is extremely risky and inefficient. Strategic planning helps an organization define its purpose, goals, objectives and resources – all used by the team to work together. Although it does not guarantee success, it provides focus and unity in vision, a definite competitive advantage over a competitor who lacks a strategic plan. A powerful strategic plan is the foundation for a company’s success. Projections are rarely the same as the plan forecasts. Meaningful strategic plans provide management with the reasons for variances and thus the wisdom for future planning.
With the rapid globalization of our markets, a strong strategic plan is more important than ever before. A strong strategic plan may provide opportunities in uncertain environments created by globalization.
“ . . . environmental uncertainty is an opportunity because it creates a new playing field in which creativity and innovation can play a major part in strategic decisions.” (Concepts in Strategic Management and Business Policy, Wheelen & Hunger, 2008, p. 73)
As more businesses enter this global stage, establishing a strategic plan that encompasses key factors associated with both local and global aspects of business, is vital to its success. Conducting international risk assessments is vitally important prior to entering a nation’s economic system. Proper business planning will also help in evaluating the economic, technological, political-legal, and socio-cultural variables of a county, as well as analyzing the industry and task environment associated with various countries.
Think globally but act locally. This is more likely obtainable with a successful business plan.
In today’s business environment, “flying by the seat of your pants” is extremely risky and inefficient. Strategic planning helps an organization define its purpose, goals, objectives and resources – all used by the team to work together. Although it does not guarantee success, it provides focus and unity in vision, a definite competitive advantage over a competitor who lacks a strategic plan. A powerful strategic plan is the foundation for a company’s success. Projections are rarely the same as the plan forecasts. Meaningful strategic plans provide management with the reasons for variances and thus the wisdom for future planning.
With the rapid globalization of our markets, a strong strategic plan is more important than ever before. A strong strategic plan may provide opportunities in uncertain environments created by globalization.
“ . . . environmental uncertainty is an opportunity because it creates a new playing field in which creativity and innovation can play a major part in strategic decisions.” (Concepts in Strategic Management and Business Policy, Wheelen & Hunger, 2008, p. 73)
As more businesses enter this global stage, establishing a strategic plan that encompasses key factors associated with both local and global aspects of business, is vital to its success. Conducting international risk assessments is vitally important prior to entering a nation’s economic system. Proper business planning will also help in evaluating the economic, technological, political-legal, and socio-cultural variables of a county, as well as analyzing the industry and task environment associated with various countries.
Think globally but act locally. This is more likely obtainable with a successful business plan.
What is the impact of globalization and the internet on corporations?
Internet
The impact of the Internet on business is dramatic. It has revolutionized our lifestyle and most everything related to it. It has created the term "global community" where everything and everybody is only a click away.
A 2007 study by Nielsen/NetRatings shows that there are almost 334 million (333,841,523) active internet home users from only 10 countries! Most users are utilizing the Internet to make purchases and/or conduct businesses.
The way business was conducted prior to the internet has completely changed. Web sites, emails and search engines have created, if not demanded, new strategies for businesses. Organizations can advertise aggressively to a much larger, global market. Products and services are marketed virtually to people throughout the world. Almost anything can be bought and sold with the help of an internet connection. This has created new challenges for strategic planning.
“Companies wanting a multinational Internet presence must now try to balance a region's disparate cultural dimensions with the need to present a unified corporate image. A true global web site should relay a message that is clear and comprehensible to all users, regardless of nationalities, yet a successful Internet site must be tailored to match the language, monetary units, and culture of each country.” (The Journal of Computer Information Systems, Stylianou, January 2001 – A1)
The internet has been an enormous asset to business in several ways. Two key characteristics as related to strategy involve information and time. Companies have vast amounts of data more readily available to them than ever before, providing competitive advantages when used for strategic planning and management. Trends in a changing environment can be recognized much more efficiently, providing corporations the ability to implement adjusted strategies in a timely fashion. The internet has allowed corporations to create competitive advantages by establishing knowledge as a key asset.
Evaluating this information can be a big task, but companies like IBM have created programs to gather, analyze and clean available data for useful, related results. The internet has also established a sprinters approach to communication. The internet provides instant communication opportunities with email, data transfers, video conferencing and meetings. Business network sites provide a great opportunity for information sharing. This is very important in today’s fast paced environment which requires efficiency in order to compete in any industry.
In today’s web centered society, we have immediate access to virtually unlimited resources. In the days prior to the internet, people adjusted life around their work related activities. Work days were typically a set time so people could manage their daily responsibilities outside of work. We can pay bills, make reservations, attend college, trade stocks, conduct research, seek entertainment, communicate with family and friends, hold video conferences (and the list goes on) with the use of an internet connection, directly in ones home. In addition, the internet provides cost cutting measures for businesses. For example, companies now have the ability to video conference sales presentations or company meetings, saving on travel expenses.
The Internet has minimized distance and time restraints on people and business. It has given individuals the freedom to be their own boss, work remotely, run a home based business, or simply have a virtual garage sale with the use of sites such as ebay or Amazon. Prior to the internet, stores would service more local markets, have set times of operation and require staff to be present for the stores operation. In today’s market, you can have an e-commerce store that is open 24 hours a day, seven days a week, and have a virtual employee available to handle sales around the world. As a result, stores require less operating expenses (staff salaries), expand their markets (nationally and globally vs. locally) and positively impact customer service.
The internet has also shifted the balance of power towards the consumer. It has decreased the need for distributors as demonstrated by Dell’s business plan, selling custom tailored computers directly to the consumer. Without the internet, this option would hardly be possible without the just in time inventory process.
The power of the internet can also be recognized in its global effect on commerce. This medium is so strong worldwide that it has required a new global commerce for business exchanges known as PayPal. PayPal is recognized as an actual commerce with value around the world, and has provided a system of international monetary exchange. Someone in Europe can purchase a product from the United States and neither party has to struggle with exchange rates or the transfer of money options. It’s amazing. The internet has unwittingly created a global commerce exchange system at a local consumer level.
The internet has earned the reputation to be one of the most significant developments of our lifetime. However, where the internet has tried to level the playing field for small business, it has created some challenges for larger corporations, who must consider cultural issues consistent in their branding approach.
Globalization
The World Bank Group defines globalization as the growing integration of economies and societies around the world. It is a process of interaction and integration among the people, companies, and governments of different nations. This process is driven by international trade and investment and is aided by information technology.
“Since 1950 . . . the volume of world trade has increased by 20 times, and from just 1997 to 1999 flows of foreign investment nearly doubled, from $468 billion to $827 billion. Distinguishing this current wave of globalization from earlier ones, author Thomas Friedman has said that today globalization is farther, faster, cheaper, and deeper.” (The Levin Institute 2008 – A1)
Globalization has created environmental uncertainty for many corporations.
“As more and more markets become global, the number of factors a company must consider in any decision become huge and much more complex. Environment uncertainty is a threat to strategic management because it hampers their ability to develop long-range plans and to make strategic decisions to keep the corporation in equilibrium with its external environment.” (Concepts in Strategic Management and Business Policy, Wheelen & Hunger, 2008, p. 72-73)
According to Porter, world industries vary from multidomestic to global. Multidomestic corporations are specific to a certain country or set of countries, whereas multinational corporations, or global, industries are worldwide. The difference between these two styles is very challenging for a strategic plan, and each offers new challenges specific to its environments. As such, conducting business in a global market requires international societal considerations.
“Each country or group of countries in which a company operates presents a unique societal environment with a different set of economic, technological, political-legal, and sociocultural variables for the company to face.” (Concepts in Strategic Management and Business Policy, Wheelen & Hunger, 2008, p. 78)
Consider the political and social cultures and risks of each country. What may be acceptable in one country may be appalling in another. What might be illegal in one country may simply be a way of doing business in another. An example of this is conducting business in a less developed country or one that focuses on relationships for doing business, which increases the chance for corruption. Many aspects of business demand a heightened level of focus in a global environment. The use of child labor or sweatshops in other countries, used to produce your product, may create enormous social issues in countries where your product is sold.
Globalization has also created trends in sales for many companies based on the monetary value levels of the world. In addition, globalization is responsible for the development of the European Union (EU), the North American Free Trade Agreement (NAFTA), Mercousur, the Central American Free Trade Agreement (CAFTA) and the Association of Southeast Asian Nations (ASEAN).
A good example of this is based on my personal experience of selling products on ebay. Whenever the dollar weakens in value, international sales increase dramatically. Recently, with the lower Euro values, my international sales have dropped. This adjustment of monetary values creates a challenge for strategic planning, and the consideration for adjusting levels is a key factor that must be addresses in any astute plan.
The impact of the Internet on business is dramatic. It has revolutionized our lifestyle and most everything related to it. It has created the term "global community" where everything and everybody is only a click away.
A 2007 study by Nielsen/NetRatings shows that there are almost 334 million (333,841,523) active internet home users from only 10 countries! Most users are utilizing the Internet to make purchases and/or conduct businesses.
The way business was conducted prior to the internet has completely changed. Web sites, emails and search engines have created, if not demanded, new strategies for businesses. Organizations can advertise aggressively to a much larger, global market. Products and services are marketed virtually to people throughout the world. Almost anything can be bought and sold with the help of an internet connection. This has created new challenges for strategic planning.
“Companies wanting a multinational Internet presence must now try to balance a region's disparate cultural dimensions with the need to present a unified corporate image. A true global web site should relay a message that is clear and comprehensible to all users, regardless of nationalities, yet a successful Internet site must be tailored to match the language, monetary units, and culture of each country.” (The Journal of Computer Information Systems, Stylianou, January 2001 – A1)
The internet has been an enormous asset to business in several ways. Two key characteristics as related to strategy involve information and time. Companies have vast amounts of data more readily available to them than ever before, providing competitive advantages when used for strategic planning and management. Trends in a changing environment can be recognized much more efficiently, providing corporations the ability to implement adjusted strategies in a timely fashion. The internet has allowed corporations to create competitive advantages by establishing knowledge as a key asset.
Evaluating this information can be a big task, but companies like IBM have created programs to gather, analyze and clean available data for useful, related results. The internet has also established a sprinters approach to communication. The internet provides instant communication opportunities with email, data transfers, video conferencing and meetings. Business network sites provide a great opportunity for information sharing. This is very important in today’s fast paced environment which requires efficiency in order to compete in any industry.
In today’s web centered society, we have immediate access to virtually unlimited resources. In the days prior to the internet, people adjusted life around their work related activities. Work days were typically a set time so people could manage their daily responsibilities outside of work. We can pay bills, make reservations, attend college, trade stocks, conduct research, seek entertainment, communicate with family and friends, hold video conferences (and the list goes on) with the use of an internet connection, directly in ones home. In addition, the internet provides cost cutting measures for businesses. For example, companies now have the ability to video conference sales presentations or company meetings, saving on travel expenses.
The Internet has minimized distance and time restraints on people and business. It has given individuals the freedom to be their own boss, work remotely, run a home based business, or simply have a virtual garage sale with the use of sites such as ebay or Amazon. Prior to the internet, stores would service more local markets, have set times of operation and require staff to be present for the stores operation. In today’s market, you can have an e-commerce store that is open 24 hours a day, seven days a week, and have a virtual employee available to handle sales around the world. As a result, stores require less operating expenses (staff salaries), expand their markets (nationally and globally vs. locally) and positively impact customer service.
The internet has also shifted the balance of power towards the consumer. It has decreased the need for distributors as demonstrated by Dell’s business plan, selling custom tailored computers directly to the consumer. Without the internet, this option would hardly be possible without the just in time inventory process.
The power of the internet can also be recognized in its global effect on commerce. This medium is so strong worldwide that it has required a new global commerce for business exchanges known as PayPal. PayPal is recognized as an actual commerce with value around the world, and has provided a system of international monetary exchange. Someone in Europe can purchase a product from the United States and neither party has to struggle with exchange rates or the transfer of money options. It’s amazing. The internet has unwittingly created a global commerce exchange system at a local consumer level.
The internet has earned the reputation to be one of the most significant developments of our lifetime. However, where the internet has tried to level the playing field for small business, it has created some challenges for larger corporations, who must consider cultural issues consistent in their branding approach.
Globalization
The World Bank Group defines globalization as the growing integration of economies and societies around the world. It is a process of interaction and integration among the people, companies, and governments of different nations. This process is driven by international trade and investment and is aided by information technology.
“Since 1950 . . . the volume of world trade has increased by 20 times, and from just 1997 to 1999 flows of foreign investment nearly doubled, from $468 billion to $827 billion. Distinguishing this current wave of globalization from earlier ones, author Thomas Friedman has said that today globalization is farther, faster, cheaper, and deeper.” (The Levin Institute 2008 – A1)
Globalization has created environmental uncertainty for many corporations.
“As more and more markets become global, the number of factors a company must consider in any decision become huge and much more complex. Environment uncertainty is a threat to strategic management because it hampers their ability to develop long-range plans and to make strategic decisions to keep the corporation in equilibrium with its external environment.” (Concepts in Strategic Management and Business Policy, Wheelen & Hunger, 2008, p. 72-73)
According to Porter, world industries vary from multidomestic to global. Multidomestic corporations are specific to a certain country or set of countries, whereas multinational corporations, or global, industries are worldwide. The difference between these two styles is very challenging for a strategic plan, and each offers new challenges specific to its environments. As such, conducting business in a global market requires international societal considerations.
“Each country or group of countries in which a company operates presents a unique societal environment with a different set of economic, technological, political-legal, and sociocultural variables for the company to face.” (Concepts in Strategic Management and Business Policy, Wheelen & Hunger, 2008, p. 78)
Consider the political and social cultures and risks of each country. What may be acceptable in one country may be appalling in another. What might be illegal in one country may simply be a way of doing business in another. An example of this is conducting business in a less developed country or one that focuses on relationships for doing business, which increases the chance for corruption. Many aspects of business demand a heightened level of focus in a global environment. The use of child labor or sweatshops in other countries, used to produce your product, may create enormous social issues in countries where your product is sold.
Globalization has also created trends in sales for many companies based on the monetary value levels of the world. In addition, globalization is responsible for the development of the European Union (EU), the North American Free Trade Agreement (NAFTA), Mercousur, the Central American Free Trade Agreement (CAFTA) and the Association of Southeast Asian Nations (ASEAN).
A good example of this is based on my personal experience of selling products on ebay. Whenever the dollar weakens in value, international sales increase dramatically. Recently, with the lower Euro values, my international sales have dropped. This adjustment of monetary values creates a challenge for strategic planning, and the consideration for adjusting levels is a key factor that must be addresses in any astute plan.
Tuesday, July 7, 2009
Don't Let Your Customers Get Away
There used to be a saying in business that cash is king. However, a more modern version would be accurately stated that customers are king. As a result, many companies are recognizing the importance of customer retention and implementing systems and policies to minimize customer defection.
In order to grow, a company must increase sales through gaining new and profitable customers. Such attempts to obtain new customers can be very expensive. “Acquiring new customers can cost five times more than satisfying and retaining customers.” (Kotler and Keller. 2009. pg. 138) Often times, this responsibility falls upon the marketing / sales team, and can dominate their efforts and mindset. Setting aggressive sales goals and maximizing such importance can create a narrow minded approach to profits. “Unfortunately, much marketing theory and practice centers on the art of attracting new customers, rather than on retaining and cultivating existing ones. The emphasis traditionally has been on making sales rather than on building relationships; on preselling and selling rather than on caring for the customer afterward. More companies now recognize the importance of satisfying and retaining customers.” (Kotler and Keller. 2009. pg. 137)
In today’s hyper competitive markets, companies are taking critical steps to reduce defection rates of customers. First, the company needs to determine and measure its current retention rate, or the rate of which customers remain as loyal customers. A good example of retention is the renewal of a club membership at a wholesale store such as Sam’s or BJ’s.
However, companies must be careful in defining the retention rate. For example, measuring the number of returning college students in their senior year may not be a good indication or accurate measurement of retention. By the senior year, it is unlikely that a student will transfer schools and risk loosing hard earned credits. Such a measurement may result in a skewed higher retention rate. A more accurate and reflective retention measurement would be to capture the number of returning sophomores, who have less to risk in transferring schools at an earlier stage in the educational process.
Accurately measuring retention rates will help evaluate customer satisfaction. If a company experiences high retention rates, then it appears that they are performing well and have satisfied customers. As a result, they can increase their focus on acquiring new customers for growth. However, if the retention rate is low and the defection rate is high, the company should place their main focus on satisfying customers. The main focus should be reverted to implementing changes to fix the problem in an effort to satisfy customers through strong customer relations management.
Once you determine that your retention rate has decreased, the company must act to avoid further customer defections. A company must, “distinguish the cause of customer attrition and identify those that can be managed better.” (Kotler and Keller. 2009. pg. 137) A company must determine what they are doing wrong to cause customers to defect. They must also determine how to make improvements to avoid further defection and to retain customers on the verge of defection. It is important to realize that defection isn’t always the result of poor service or inadequate quality. The competition may have developed a new product or service that your company currently does not offer. If you do not fill this need, the opportunity to defect will increase as the need and/or desire for this product or service grows in the mind of the customer.
Whatever the case for defection, a company must act quickly and determine what factors need to be changed, added, eliminated or adjusted to provide the best possible customer experience. “Listening to customers is crucial to customer relationship management.” (Kotler and Keller. 2009. pg. 138) Find out what they want and delivery.
Another important thing that companies must realize is that customer defection is not always a bad situation. There is a cost associated with servicing customers. Depending on the amount of money spent within a company, some customers can actually cost the company money to make a sale. Companies view customers in relations to profitable stature based on purchasing history and the level of attention required to service. Marketers understand that there are profitable customers and unprofitable customers. This can be determined by the customers lifetime value (CLV). “In marketing, customer lifetime value (CLV), a new concept of ‘customer life cycle management’ is the present value of the future cash flows attributed to the customer relationship. Use of customer lifetime value as a marketing metric tends to place greater emphasis on customer service and long-term customer satisfaction, rather than on maximizing short-term sales.” (Customer. Nd. para. 1)
Understanding the customer lifetime value can better explain why losing some customers is not the end of the world. The key factor related to defection is to, “compare the lost profit equal to the customer’s lifetime value from a lost customer to the costs to reduce the defection rate. As long as the cost to discourage defection is lower than the lost profit, the company should spend the money to try to retain the customer.” (Kotler and Keller. 2009. pg. 137) In the case where the cost to discourage defection is higher than the lost profit, the company should accept and allow the loss of the customer.
A company should do everything possible to keep profitable customers. This goal should be expressed as the key to sales since the cost of finding new customers is far more expensive than retaining current ones. Progressive companies will adjust sales commissions to include compensation for both new sales as well as customer retention rates achieved through strong customer relations management by the sales person. If a company experiences high retention rates, they can adjust their focus on acquiring new customers in an effort to increase profits and growth. In addition, companies should not overlook the possibility of new profit growth potential within the current customers. It’s typically easier to cross sell additional products and services to a current customer than to generate a new sale customer.
By measuring retention rates, making necessary adjustments and evaluating the cost of retention efforts to profit, a company can increase its chances for profitable operations.
References
Kotler, P., Keller, K. L. (2009). Marketing Management. New Jersey: Pearson Prentice Hall.
Customer Lifetime Value. (n.d.). Retrieved June 15, 2009, from Wikipedia: http://en.wikipedia.org/wiki/Customer_lifetime_value
In order to grow, a company must increase sales through gaining new and profitable customers. Such attempts to obtain new customers can be very expensive. “Acquiring new customers can cost five times more than satisfying and retaining customers.” (Kotler and Keller. 2009. pg. 138) Often times, this responsibility falls upon the marketing / sales team, and can dominate their efforts and mindset. Setting aggressive sales goals and maximizing such importance can create a narrow minded approach to profits. “Unfortunately, much marketing theory and practice centers on the art of attracting new customers, rather than on retaining and cultivating existing ones. The emphasis traditionally has been on making sales rather than on building relationships; on preselling and selling rather than on caring for the customer afterward. More companies now recognize the importance of satisfying and retaining customers.” (Kotler and Keller. 2009. pg. 137)
In today’s hyper competitive markets, companies are taking critical steps to reduce defection rates of customers. First, the company needs to determine and measure its current retention rate, or the rate of which customers remain as loyal customers. A good example of retention is the renewal of a club membership at a wholesale store such as Sam’s or BJ’s.
However, companies must be careful in defining the retention rate. For example, measuring the number of returning college students in their senior year may not be a good indication or accurate measurement of retention. By the senior year, it is unlikely that a student will transfer schools and risk loosing hard earned credits. Such a measurement may result in a skewed higher retention rate. A more accurate and reflective retention measurement would be to capture the number of returning sophomores, who have less to risk in transferring schools at an earlier stage in the educational process.
Accurately measuring retention rates will help evaluate customer satisfaction. If a company experiences high retention rates, then it appears that they are performing well and have satisfied customers. As a result, they can increase their focus on acquiring new customers for growth. However, if the retention rate is low and the defection rate is high, the company should place their main focus on satisfying customers. The main focus should be reverted to implementing changes to fix the problem in an effort to satisfy customers through strong customer relations management.
Once you determine that your retention rate has decreased, the company must act to avoid further customer defections. A company must, “distinguish the cause of customer attrition and identify those that can be managed better.” (Kotler and Keller. 2009. pg. 137) A company must determine what they are doing wrong to cause customers to defect. They must also determine how to make improvements to avoid further defection and to retain customers on the verge of defection. It is important to realize that defection isn’t always the result of poor service or inadequate quality. The competition may have developed a new product or service that your company currently does not offer. If you do not fill this need, the opportunity to defect will increase as the need and/or desire for this product or service grows in the mind of the customer.
Whatever the case for defection, a company must act quickly and determine what factors need to be changed, added, eliminated or adjusted to provide the best possible customer experience. “Listening to customers is crucial to customer relationship management.” (Kotler and Keller. 2009. pg. 138) Find out what they want and delivery.
Another important thing that companies must realize is that customer defection is not always a bad situation. There is a cost associated with servicing customers. Depending on the amount of money spent within a company, some customers can actually cost the company money to make a sale. Companies view customers in relations to profitable stature based on purchasing history and the level of attention required to service. Marketers understand that there are profitable customers and unprofitable customers. This can be determined by the customers lifetime value (CLV). “In marketing, customer lifetime value (CLV), a new concept of ‘customer life cycle management’ is the present value of the future cash flows attributed to the customer relationship. Use of customer lifetime value as a marketing metric tends to place greater emphasis on customer service and long-term customer satisfaction, rather than on maximizing short-term sales.” (Customer. Nd. para. 1)
Understanding the customer lifetime value can better explain why losing some customers is not the end of the world. The key factor related to defection is to, “compare the lost profit equal to the customer’s lifetime value from a lost customer to the costs to reduce the defection rate. As long as the cost to discourage defection is lower than the lost profit, the company should spend the money to try to retain the customer.” (Kotler and Keller. 2009. pg. 137) In the case where the cost to discourage defection is higher than the lost profit, the company should accept and allow the loss of the customer.
A company should do everything possible to keep profitable customers. This goal should be expressed as the key to sales since the cost of finding new customers is far more expensive than retaining current ones. Progressive companies will adjust sales commissions to include compensation for both new sales as well as customer retention rates achieved through strong customer relations management by the sales person. If a company experiences high retention rates, they can adjust their focus on acquiring new customers in an effort to increase profits and growth. In addition, companies should not overlook the possibility of new profit growth potential within the current customers. It’s typically easier to cross sell additional products and services to a current customer than to generate a new sale customer.
By measuring retention rates, making necessary adjustments and evaluating the cost of retention efforts to profit, a company can increase its chances for profitable operations.
References
Kotler, P., Keller, K. L. (2009). Marketing Management. New Jersey: Pearson Prentice Hall.
Customer Lifetime Value. (n.d.). Retrieved June 15, 2009, from Wikipedia: http://en.wikipedia.org/wiki/Customer_lifetime_value
Move Over Tradition - it's Time for the Modern Customer-Oriented Organization Chart
With the advancements in Technology, companies are being forced to reconsider and adjust traditional ways of doing business. Marketing Information Systems have created efficiencies in marketing, streamlining the process for a concentrated and powerful customer focus.
Companies have the ability to focus directly on more isolated, concentrated and relevant profitable customers. As a result, the flow and responsibilities associated with a traditional organizational chart have evolved into a customer centric focal design, referred to as the modern customer-oriented organizational chart. Although both organizational charts involve the same or similar features, it is the manner and layout of these features that differentiates these 2 styles.
Traditionally, an organizational chart was designed from the top down, according to management. The upper management resided at the top of the pyramid as the critical point of decision making, driving the organizational leadership. In tier 3, middle management worked closely with upper management in addition to the frontline personnel, located in tier 2. The frontline personnel worked directly with the customers, located at the bottom of the pyramid in tier 1. Frontline personnel serviced the customers as well as mediated customer information to middle management.
In a traditional organizational chart, the structure is established in a way that relies on tier hierarchy, where critical consumer information is forced to flow upwards. As the flow of information progresses further up the pyramid, the accuracy and aspects of the information can become diluted. This type of organizational flow can be compared to the childhood game, “telephone.” The goal is to have a number of children share information. Starting from the first person in line, a message is transferred from one child to another until it reaches the last child in line. The desired result is to have the message relayed at the end of the line, exactly as initiated with the first child. Typically, as the message travels along the line of children, it changes in meaning, relevancy and impact.
The traditional organizational chart structure has a similar shortfall in design. The decision makers in top management don’t have an accurate pulse of the customer. Upper management makes decisions that affect the products and services offered by the company. If the message from the consumer becomes distorted as it moves along the chain of command, management’s current and future decisions are unlikely to address consumer concerns. “Managers who believe the customer is the company’s only true “profit center” consider the traditional organizational chart, a pyramid with the president at the top and, management in the middle, and frontline people and customers at the bottom, obsolete.” (Kotler and Keller. 2009. pg. 120)
The traditional organizational chart focuses attention on the decisions and responsibilities of upper management. Customers, located at the bottom of the pyramid, are typically unseen and unintentionally considered irrelevant in the decisions made by management. Although management may intend to use customer related information passed up the pyramid in making decisions, many times the consumer factor is minimized and decisions regarding the company operations overshadow any consumer input. As a result, a large number of decisions are made in the interest of the company, as opposed to the consumer, who ultimately makes the purchase. This can be critical to a company’s success because if the company doesn’t address consumer issues, frustrations, needs, opportunities and desires, they will experience substantial losses in market share as numerous consumers defect to other market opportunities.
In contrast, the modern customer-oriented organizational chart inverts the traditional chart, focusing the importance on the consumer. “At the top are customers; next in importance are frontline people who meet, serve, and satisfy customers; under them are the middle managers, whose job is to support the frontline people so they can serve customers well; and at the base is top management, whose job is to hire and support good middle managers.” (Kotler and Keller. 2009. pg. 120) Customers are also extending along side the entire length of the pyramid. As such, “managers at every level must be personally involved in knowing, meeting, and serving customers.” (Kotler and Keller. 2009. pg. 120)
This new style of information flow is much more precise. It allows upper management to make decisions that are inline and directly related to consumers as they now can relate to their input. “Some companies have created an ongoing mechanism that keeps senior managers permanently plugged in to frontline customer feedback.” (Kotler and Keller. 2009. pg. 138) This new approach places all focus, at whatever level, on the needs of the consumer. Decisions are now made on optimal operational factors that will ultimately serve the consumer in the most efficient and profitable manner.
The traditional organizational chart and the new modern customer-oriented organizational chart are similar in that they share the relational dependency among the 3 company tiers (top management, middle management and frontline people). In both styles, business units and personnel must work together in assigned roles, reporting structures and job responsibilities. The roles in frontline people and middle management are relatively similar among the 2 styles. However, the biggest difference is that the new modern customer-oriented organizational chart demonstrates the recognized importance of all levels to be available to service and support the consumer.
In the traditional style, frontline people were the only directly connected group to the consumer. In the new modern style, all levels of management as well as employees are focused on being available to directly service the consumer. A perfect example of upper management’s involvement in daily operations and interactions with customers is the CEO of Dominos. “As a continuation of Domino's Big Taste Bailout campaign, Domino's CEO Dave Brandon, made the first of two surprise deliveries in Killeen, Texas to Angela Waldrep, the first lucky winner.” (Trading Markets. 2009. para. 1) In the past, top executives would never have considered being part of the front line service. However, in today’s ultra competitive business environment, an expanding number of top executives recognize the incredible insight that can be gained through such frontline experiences.
References
Kotler, P., Keller, K. L. (2009). Marketing Management. New Jersey: Pearson Prentice Hall.
Trading Markets. Domino's Pizza CEO Delivers Pizza for a Year Prize to Killeen Resident. 2009. Retrieved June 15, 2009 from Trading Markets. Website: http://www.tradingmarkets.com/.site/news/Stock%20News/2254713/
Companies have the ability to focus directly on more isolated, concentrated and relevant profitable customers. As a result, the flow and responsibilities associated with a traditional organizational chart have evolved into a customer centric focal design, referred to as the modern customer-oriented organizational chart. Although both organizational charts involve the same or similar features, it is the manner and layout of these features that differentiates these 2 styles.
Traditionally, an organizational chart was designed from the top down, according to management. The upper management resided at the top of the pyramid as the critical point of decision making, driving the organizational leadership. In tier 3, middle management worked closely with upper management in addition to the frontline personnel, located in tier 2. The frontline personnel worked directly with the customers, located at the bottom of the pyramid in tier 1. Frontline personnel serviced the customers as well as mediated customer information to middle management.
In a traditional organizational chart, the structure is established in a way that relies on tier hierarchy, where critical consumer information is forced to flow upwards. As the flow of information progresses further up the pyramid, the accuracy and aspects of the information can become diluted. This type of organizational flow can be compared to the childhood game, “telephone.” The goal is to have a number of children share information. Starting from the first person in line, a message is transferred from one child to another until it reaches the last child in line. The desired result is to have the message relayed at the end of the line, exactly as initiated with the first child. Typically, as the message travels along the line of children, it changes in meaning, relevancy and impact.
The traditional organizational chart structure has a similar shortfall in design. The decision makers in top management don’t have an accurate pulse of the customer. Upper management makes decisions that affect the products and services offered by the company. If the message from the consumer becomes distorted as it moves along the chain of command, management’s current and future decisions are unlikely to address consumer concerns. “Managers who believe the customer is the company’s only true “profit center” consider the traditional organizational chart, a pyramid with the president at the top and, management in the middle, and frontline people and customers at the bottom, obsolete.” (Kotler and Keller. 2009. pg. 120)
The traditional organizational chart focuses attention on the decisions and responsibilities of upper management. Customers, located at the bottom of the pyramid, are typically unseen and unintentionally considered irrelevant in the decisions made by management. Although management may intend to use customer related information passed up the pyramid in making decisions, many times the consumer factor is minimized and decisions regarding the company operations overshadow any consumer input. As a result, a large number of decisions are made in the interest of the company, as opposed to the consumer, who ultimately makes the purchase. This can be critical to a company’s success because if the company doesn’t address consumer issues, frustrations, needs, opportunities and desires, they will experience substantial losses in market share as numerous consumers defect to other market opportunities.
In contrast, the modern customer-oriented organizational chart inverts the traditional chart, focusing the importance on the consumer. “At the top are customers; next in importance are frontline people who meet, serve, and satisfy customers; under them are the middle managers, whose job is to support the frontline people so they can serve customers well; and at the base is top management, whose job is to hire and support good middle managers.” (Kotler and Keller. 2009. pg. 120) Customers are also extending along side the entire length of the pyramid. As such, “managers at every level must be personally involved in knowing, meeting, and serving customers.” (Kotler and Keller. 2009. pg. 120)This new style of information flow is much more precise. It allows upper management to make decisions that are inline and directly related to consumers as they now can relate to their input. “Some companies have created an ongoing mechanism that keeps senior managers permanently plugged in to frontline customer feedback.” (Kotler and Keller. 2009. pg. 138) This new approach places all focus, at whatever level, on the needs of the consumer. Decisions are now made on optimal operational factors that will ultimately serve the consumer in the most efficient and profitable manner.
The traditional organizational chart and the new modern customer-oriented organizational chart are similar in that they share the relational dependency among the 3 company tiers (top management, middle management and frontline people). In both styles, business units and personnel must work together in assigned roles, reporting structures and job responsibilities. The roles in frontline people and middle management are relatively similar among the 2 styles. However, the biggest difference is that the new modern customer-oriented organizational chart demonstrates the recognized importance of all levels to be available to service and support the consumer.
In the traditional style, frontline people were the only directly connected group to the consumer. In the new modern style, all levels of management as well as employees are focused on being available to directly service the consumer. A perfect example of upper management’s involvement in daily operations and interactions with customers is the CEO of Dominos. “As a continuation of Domino's Big Taste Bailout campaign, Domino's CEO Dave Brandon, made the first of two surprise deliveries in Killeen, Texas to Angela Waldrep, the first lucky winner.” (Trading Markets. 2009. para. 1) In the past, top executives would never have considered being part of the front line service. However, in today’s ultra competitive business environment, an expanding number of top executives recognize the incredible insight that can be gained through such frontline experiences.
References
Kotler, P., Keller, K. L. (2009). Marketing Management. New Jersey: Pearson Prentice Hall.
Trading Markets. Domino's Pizza CEO Delivers Pizza for a Year Prize to Killeen Resident. 2009. Retrieved June 15, 2009 from Trading Markets. Website: http://www.tradingmarkets.com/.site/news/Stock%20News/2254713/
Subscribe to:
Posts (Atom)
Posts
