Chapter 2
Corporate Strategy Decisions and Their
Marketing Implications
I. “Ryanair: Low Prices, High Profits—But Increasing Competition” discusses Ryanair’s use
of a straightforward low-cost/low-price corporate strategy and its growth into one of Europe’s
largest and most profitable airlines.
II. Strategic Challenges Addressed in Chapter 2
In view of the interactions and interdependences between corporate-level strategy
decisions and strategic marketing programs for individual product-market entries, this
chapter examines the components of a well-defined corporate strategy in more detail:
oThe overall scope and mission of the organization
oCompany goals and objectives
oA source of competitive advantage
oA development strategy for future growth
oThe allocation of corporate resources across the firm’s various businesses
oThe search for synergy via the sharing of corporate resources, competencies, or
programs across businesses or product lines
A. Implications for Marketers and their Marketing Plans
All six components of corporate strategy together define the general strategic
direction, objectives, and resource constraints within which marketing plans must
operate.
III. Corporate Scope – Defining the Firm’s Mission
A well-thought-out mission statement guides an organization’s managers as to which
market opportunities to pursue and which fall outside the firm’s strategic domain.
To provide a useful sense of direction, a corporate mission statement should clearly define
the organization’s strategic scope. It should answer such fundamental questions as:
oWhat is our business?
oWho are our customers?
oWhat kinds of value can we provide to these customers?
oWhat should our business be in the future
A. Market Influences on the Corporate Mission
An organization’s mission should fit both its internal characteristics and the
opportunities and threats in its external environment.
oIt should also focus the firm’s efforts on markets where the resources and
competencies will generate value for customers, an advantage over
competitors, and synergy across products.
B. Criteria for Defining the Corporate Mission
Many firms specify the domain in physical terms, focusing on products or services
or technology used
oThe problem is that such statements can lead to slow reactions to
technological or customer-demand changes.
Theodore Levitt argues that it is better to define a firm’s mission as what customer
needs are to be satisfied and the functions the firm must perform to satisfy them.
One problem with Levitt’s advice, though, is that a mission statement focusing only
on basic customer needs can be too broad to provide clear guidance and can fail to
take into account the firm’s specific competencies.
The most useful mission statements focus on the customer need to be satisfied and
the functions that must be performed to satisfy that need, and they are specific as to
the customer groups and the products or technologies on which to concentrate.
C. Social Values and Ethical Principles
An increasing number of organizations are developing mission statements that also
attempt to define the social and ethical boundaries of their strategic domain.
Some firms are pursuing social programs they believe to be intertwined with their
economic objectives, while others simply manage their businesses according to the
principles of sustainability—meeting humanity’s needs without harming future
generations.
Crafting mission statements that specify explicit social values, goals, and programs
—with inputs from employees, customers, social interest groups, and other
stakeholders—is becoming a more important part of corporate strategic planning.
Ethics is concerned with the development of moral standards by which actions and
situations can be judged. It focuses on actions that may result in actual or potential
harm of some kind (e.g., economic, mental, physical) to an individual, group, or
organization.
oParticular actions may be legal but not ethical.
oEthics is more proactive than the law. Ethical standards attempt to anticipate
and avoid social problems, whereas most laws and regulations emerge only
after the negative consequences of an action become apparent.
D. Why are ethics important? The Marketing Implications of Ethical Standards
Unethical practices can damage the trust between a firm and its suppliers or
customers, thereby disrupting the development of long-term exchange relationships
and resulting in the likely loss of sales and profit over-time.
Marketers sometimes feel pressure to engage in actions that are inconsistent with
what they believe to be right, such as paying bribes to win a sale from a potential
customer or to ensure needed resources or services from suppliers and government
agencies.
oSuch dilemmas are particularly likely to arise as a company moves into global
markets involving different cultures and levels of economic development
where economic exigencies and ethical standards may be quite different.
E. Getting Caught Can Be Costly
Such inconsistencies in expectations and demands across countries and markets can
lead to uncertainty among a firm’s employees, and consequently to unethical—and
possibly illegal—behavior.
When employees are caught engaging in unlawful behavior—particularly bribery—
by government regulators, fines and penalties can increase the costs dramatically.
Even when the fines imposed are not large, the negative publicity surrounding the
exposure- of unethical practices can raise doubts about future sales revenues and
cash flows, thereby making investors more reluctant to commit funds and reducing
the firm’s market capitalization.
A company can reduce such problems by spelling out formal social policies and
ethical standards in its corporate mission statement and communicating and
enforcing those standards.
It is not always easy to decide what a firm’s ethical policies and standards should
be.
oThere are multiple philosophical traditions or frameworks that managers
might use to evaluate the ethics of a given action.
IV. Corporate Objectives
To be useful as decision criteria and evaluative benchmarks, corporate objectives must be
specific and measurable. Therefore, each objective contains four components:
oA performance dimension or attribute sought.
oA measure or index for evaluating progress.
oA target or hurdle level to be achieved.
oA time frame within which the target is to be accomplished.
Exhibit 2.4 lists some common performance dimensions and measures used in specifying
corporate as well as business-unit and marketing objectives.
When specifying short-term business-level and marketing objectives, however, two
additional dimensions become important:
oTheir relevance to higher-level strategies and goals
oTheir attainability
Thus, corporates find it useful to follow the SMART acronym when specifying objectives
at all levels:
oSpecific,
oMeasurable
oAttainable
oRelevant
oTime-bound
A. Enhancing Shareholder Value: The Ultimate Objective
In recent years, a growing number of executives of publicly held corporations have
concluded that an organization’s ultimate objective should be to increase its
shareholders’ economic returns as measured by dividends plus appreciation in the
company’s stock price.
oTo do so management must balance the interests of various corporate
constituencies, including employees, customers, suppliers, debt holders, and
stockholders.
A going concern must strive to enhance its ability to generate cash from the
operation of its businesses and obtain any additional funds needed from debt or
equity financing.
Management’s primary objective should be to pursue capital investments,
acquisitions, and business strategies that produce sufficient future cash flows to
return positive value to shareholders.
Many firms set explicit objective targeted at increasing shareholder value:
oThese are usually stated in terms of a target return on shareholder equity,
increase in the stock price, or earnings per share.
oRecently, though, some executives have begun expressing such corporate
objectives in terms of economic value added or market value added (MVA). A
firm’s MVA is calculated by combining its debt and the market value of its
stock and then subtracting the capital that has been invested in the company.
The result, if positive, shows how much wealth the company has created.
Broad shareholder-value objectives do not always provide guidance for a firm’s
lower-level managers or benchmarks for evaluating performance.
B. The Marketing Implications of Corporate Objectives
Trying to achieve many objectives at once leads to conflicts and trade-offs.
Managers can reconcile conflicting goals by prioritizing them.
Another approach is to state one of the conflicting goals as a constraint or hurdle.
Thus, a firm may attempt to maximize growth subject to meeting some minimum
ROI hurdle.
In firms with multiple business units or product lines, however, the most common
way to pursue a set of conflicting objectives is to first break them down into
subobjectives and then assign different subobjectives to different business units or
products.
As firms emphasize developing and maintaining long-term customer relationships,
customer-focused objectives—such as satisfaction, retention, and loyalty—are
being given greater importance. Such market-oriented objectives are more likely to
be consistently pursued across business units and product offerings.
C. Gaining a Competitive Advantage
A sustainable competitive advantage at the corporate level is based on company
resources, resources that other firms do not have, that take a long time to develop,
and that are hard to acquire.
The trick is to develop a competitive strategy for each division within the firm, and
a strategic marketing program for each of its product-market entries, that convert
the company’s unique resources into something of value to customers.
Strategies are built—at least in part—on a firm’s marketing-related resources and
competencies.
V. Corporate Growth Strategies
Often, there is a gap between what the firm expects to become if it continues on its present
course and what it would like to become.
To determine where future growth is coming from, management must decide on a strategy
to guide corporate development.
Essentially, a firm can go in two major directions in seeking future growth:
oExpansion of its current businesses and activities
oDiversification into new businesses, either through internal business development or
acquisition
A. Expansion by Increasing Penetration of Current Product-Markets
One way for a company to expand is by increasing its share of existing markets.
This typically requires actions such as making product or service improvements,
cutting costs and prices, or outspending competitors on advertising or promotions.
Even when a firm holds a commanding share of an existing product-market,
additional growth may be possible by encouraging current customers to become
more loyal and concentrate their purchases, use more of the product or service, use
it more often, or use it in new ways.
B. Expansion by Developing New Products for Current Customers
A second avenue to future growth is through a product-development strategy
emphasizing the introduction of product-line extensions or new product or service
offerings aimed at existing customers.
C. Expansion by Selling Existing Products to New Segments or Countries
Perhaps the growth strategy with the greatest potential for many companies is the
development of new markets for their existing goods or services.
oThis may involve the creation of marketing programs aimed at nonuser or
occasional-user segments of existing markets.
Expansion into new geographic markets, particularly new countries, is also a
primary growth strategy for many firms.
D. Expansion by Diversifying
Diversifying operations is typically riskier than the various expansion strategies
because it involves learning new operations and dealing with unfamiliar customer
groups.
Vertical integration is one way for companies to diversify.
oForward vertical integration occurs when a firm moves downstream in
terms of product flow, as when a manufacturer integrates by acquiring or
launching a wholesale distributor or retail outlet
oBackward integration occurs when a firm moves upstream by acquiring a
supplier.
Integration can give a firm access to scarce or volatile sources of supply or tighter
control over marketing, distribution, or servicing of its products.
Related (or concentric) diversification occurs when a firm internally develops or
acquires another business that does not have products or customers in common with
its current businesses but that might contribute to internal synergy through the
sharing of production facilities, brand names, R&D know-how, or marketing and
distribution skills.
The motivations of unrelated (or conglomerate) diversification are primarily
financial rather than operational. By definition, an unrelated diversification involves
two businesses that have no commonalities in products, customers, production
facilities, or functional areas of expertise.
oSuch diversification mostly occurs when a disproportionate number of a
firm’s current business face decline because of decreasing demand, increased
competition, or product obsolescence.
oUnrelated diversification tends to be the riskiest growth strategy in terms of
financial outcomes.
E. Expansion by Diversifying through Organizational Relationships or Networks
Recently, firms have attempted to gain some benefits of market expansion or
diversification while simultaneously focusing more intensely on a few core
competencies.
They try to accomplish this feat by forming relationships or organizational
networks with other firms instead of acquiring ownership.