Strategic Marketing

Decisions

Knowledge Factory
Market led strategic management
 The discipline of marketing has migrated from being
a functional discipline to being a concept of how
business should be run
 Only few companies have moved beyond the
marketing trapping of advertising, short-term sales
growth and flamboyant innovations to achieve a
sustainable robust marketing strategy that produces
long term performance and strong shareholder value
 Radical strategy
 Rational strategy
 Robust strategy
2003/2004 TKF
Radical strategies
 Where company may Sales
achieve spectacular
growth in sales and
profits
 They don’t build
customer value
 They don’t create long
term shareholder value

E.g..:- Apple Ipod, Time

Nano,MP4
2003/2004 TKF
Rational strategy
 Where company may
Sales
achieve high short term
performance by
creating new products,
which are significantly
cheaper or superior
 Such strategies include
innovations in
technology, marketing
methods and
distribution channels
Time
E.g.:- E bay, Disney,Coke

2003/2004 TKF
Robust strategies (characteristics)
 Focus on superior
Sales
customer value
 Recognizing that no
innovation on its own
can offer long term
advantage Develop
 Making long-term Innovation
relationships with stake
holders Innovation
 Processes for continues
learning and innovation Time
 Developing effective e.g.:-
supply chain & ICT
2003/2004 TKF Calyrix & Corona florists
Robust Strategies (an example)
catalogues

Calrix & Customer request Customer

Corona Online, fax, WAP, Tel.

inform Alert
Delivers within
Inform 30 minutes
collection time
500 flower
growers Pickup gods

Developing effective supply chain & ICT

2003/2004 TKF
 Competitive Advantage
 Definition of competitive advantage

 Sustainable competitive advantage strategies

The way you compete

Product Strategy
Positioning strategy
Sustainable Distribution strategy
Pricing / Manufacturing strategy
Competitive
Advantage Basis of competition

Where you compete?

Who you compete against with?

2003/2004 TKF
Definition of competitive advantage
 Competitive advantage can be defined as
whenever you do something
better than your competition and if that
something is important in the minds of the
customer then the company has a definable
competitive advantage
 Usually one or more advantages are necessary to
develop a winning strategy
e.g.:- Coca Cola competitive advantages are Branding and
communication strategy, Distribution, Global scale and
innovation.

2003/2004 TKF
What is better than your competition?
(Approaches to developing Sustainable Competitive Advantage)

 Superior product benefit

 Perceived advantage
 Low cost operations
 Legal advantage
 Superior contacts
 Superior knowledge
 Scale advantage
 Offensive advantage

2003/2004 TKF
Product Strategy (Starbucks)
 Starbuck Single origins,
blends & exclusives
Grouped according to
aroma, acidity, body
and flavor
 Brazil Ipanema Bourbon™
(Mellow and soft, with
hints of cocoa)
 Decaf LightNote Blend®

2003/2004 TKF
Positioning strategy (Starbucks)
 Starbucks was a
pioneer in implementing
a "third-place" strategy
with inviting
surroundings,
comfortable furnishings
and a hip,
contemporary feel
Home

Office Third
2003/2004 TKF place
Distribution strategy (Dell)
 E-commerce
 Customized solutions
and products
 Competitive channel
strategy
 On-line delivery
 Speed of service and
delivery
 Low-cost operations

2003/2004 TKF
Pricing strategy
 Tesco strengthened its
position as the leading
grocer in the UK in the
last quarter, with sales
growth more than twice
that of its nearest rival
Asda.

 Both ASDA and Tesco

have Every Day Low
Price (EDLP) stance

2003/2004 TKF
Basis of competition
(Assets & Competencies)
 Basis of competition
involves assets and
competencies
 With out support of
assets and
competencies it is
unlikely that the SCA
will be enduring
 E.g.:- Mercedes’ Benz
The new Mercedes-Benz E-Class Estate
& Intelligent climate THERMOTRONIC four-zone
control system climate control and the dynamic
multicontour seat
2003/2004 TKF
Where you compete?
(Product market selection)
This determinant of SCA
involves;
 the choice of target
product market
 Involvement in delivering
value in the market
e.g.:- P & G Pringles
Potato chips has to
convince their customers
about actual and
perceived taste

2003/2004 TKF
Who do you compete against with?
(Competitor selection)
 What group do we
belong to?
 The right set of
competitors

e.g.:- for an airline, has to

identify the right
competitors; safety,
Terrorism and security,
perceived quality or low
cost air lines
2003/2004 TKF
Managing in the 21st Century
 Globalization of markets
(e.g.:- Intel, Microsoft,
Company Profiles
McDonalds, Barbie, Sony)  Intel Company
 Change in industrial  Microsoft
structures  Barbie
(e.g.:- Coconut Vs.  Sony
Microchips)
 Amazon
 The information revolution
 Ni`ke
and technological change
 Proctor & Gamble
(e.g.:- Amazon.com)
 Rising customer expectation  United Distillers
 Coca Cola
(e.g.:- Nike, P&G, United
Distillers, Coca Cola, Dell)  Dell

2003/2004 TKF
Intel Corporation
 Intel Corporation designs,
develops, manufactures and
markets computing and
communications products at
various levels of integration

 It has three product line

operating segments:
 the Intel Architecture
business (e.g.:-
microprocessors)
 the Intel Communications Intel Flash memory
Group (e.g.:- wired
Ethernet )
 the Wireless
Communications and
Computing Group (e.g.:-
Intel flash memory) 2003/2004 TKF
Microsoft
Microsoft Company profile Web link

 creates software-the instructions

that help electronic devices like
computers, cars, and digital
cameras work
 Products include
Microsoft X Box
 Windows
 Office
 Windows server systems
 Developer tools
 Business solutions
 Games & X box
 MSN
 Windows mobile

2003/2004 TKF
Barbie (Mattel, Inc)
 Mattel, Inc. designs, manufactures and markets a variety of toy
products worldwide, sales to retailers and directly to consumers
 Mattel, Inc. designs, manufactures, markets and distributes a variety of
family products on a worldwide basis. For the 9 months ended
9/30/04, net sales rose 1% to $3.25B. Net income fell 11% to
$288.4M. Revenues reflect an increase in sales of the American Girls
and Barbie Brands.
 Products include
 Barbie
 American Girl
 Polly Pocket
 ello

Barbie dolls

2003/2004 TKF
Company Web Site: http://www.mattel.com/
 Sony
 Sony, well known for their huge line of consumer electronics,
also produces computers, notebooks, and multimedia
peripherals. Their VAIO line of computers is on the forefront of
computer technology and aesthetic design.

Sony VAIO Sony HIFI

Sony walkman

Sony Play station 2 Sony mobile

2003/2004 TKF
 Amazon.com
 What started as Earth's
biggest bookstore is rapidly
becoming Earth's biggest
anything store.
Amazon.com's main Web
site offers millions of books,
CDs, DVDs, and videos
(which still account for the
majority of the firm's sales),
not to mention toys, tools,
electronics, home
furnishings, apparel, health
and beauty goods,
Revenue (2003): $5263.70 M
prescription drugs, gourmet
foods, and services including Revenue Growth (1 yr): 33.80%
film processing.
Competitors: • Barnes & Noble, Inc.
Amazon.com company profile web link 2003/2004(BKS)
TKF • Columbia House Company
• eBay Inc. (EBAY)
Nike
 The Pacific Northwest is Nike's hometown, Nike
employs around 23,000 people, and every one of
them is significant to our mission of bringing
inspiration and innovation to every athlete in the
world.
 Exeter Brands Group: In August 2004, Nike created
the Exeter Brands Group, a wholly owned subsidiary,
dedicated to building athletic footwear and apparel
brands for the value retail channel.

2003/2004 TKF
Procter & Gamble
 Fast moving consumer goods company
 162 years old
 Markets 300 brands to nearly 5 billion consumers in
140 countries
 Net sales of $39 billion (FY 2000/2001)

 baby care:  Pampers

 beauty care:  Pantene, Head & Shoulders
 fabric & home care:  Arial, Tide, Bold, Ace, Lenor
 feminine protection:  Always, Alldays, Tampax
 food & beverage:  Pringles, Folgers
 health care:  Blend-a-Med, Vicks
 tissues & towels:  Swiffer, Bounty, Puffs
2003/2004 TKF
United Distillers
 Scotch Whisky Company
and the biggest spirit
distilling company in the
world
 Brand names: Southern
Comfort, Jack Daniel's,
Woodford Reserve,
Forester, Jack Daniels,
Single Barrell, Smirnoff,
Number 1 in Vodka,
Johnnie Walker, Number 1 in
Blended Whisky
Gordon’s, Number 1 in Gin
 Product: Spirit

United Distillers company profile 2003/2004

web link TKF
Coca Cola

 Coca Cola financial highlights

(web link)
 Net operating revenues
$21,004 millions in 2003
 Coca Cola six strategic priorities low-carb drink
(web link)
 The world’s leading
provider of branded
beverage solutions
 The Coca-cola
company has 350
brands [view – web link] Coca Cola
Fridge Pack
2003/2004 TKF
Dell
 Dell Inc. designs, develops, manufactures, markets, sells and
supports a range of computer systems and services that are
customized to customer requirements. These include enterprise
systems (servers, storage and networking products, and
workstations), client systems (notebooks and desktops), software and
peripherals, and service and support programs.

 For the 39 weeks ended 10/29/04, revenues rose 19% to $35.75

billion. Net income rose 25% to $2.38 billion. Revenues reflect
increased product shipments in all geographic markets. Net income
also reflects a leveling off of R&D expenses.

2003/2004 TKF
Rising customer expectation
 Nike expectation Mass
customization
 P&G

 United Distillers Customization

 Coca Cola Mass

marketing

 Dell computers Time

2003/2004 TKF
Stages of involvement in global market

 Domestic market
(Local customer)
 Export market
(Reactive, No product development, No Research)
 International markets
(Committed, Resource dedication, Profit objective
Segment importance)
 Global markets
(Global opportunity, Global branding, Standardized
products)
2003/2004 TKF
Key drivers of the globalization
 Customer demand
 Global supply Risk
perception
 Organizational objective
to be globally
competitive
Global
Business

Competition Commitment

2003/2004 TKF
Understanding global strategies
and competitive advantage
 Manage globally available information
 ROI marketing e.g.:- HSBC
 Develop global strategies
 Manage customization Vs. standardization

2003/2004 TKF
Decisions involved in developing a
global strategy
 In which country should products be marketed and at
what market share level (e.g.:- India or China)
 To what extent should products & services be
standardized across countries
 Where should the value added activities such as
research production and service be located
 To what extent should the brand name and marketing
activities such as brand positioning, advertising and
pricing be standardized across countries
 Should competitive moves be part of a global
strategy or should it be individual (e.g.:- HSBC)
2003/2004 TKF
Motivation for global strategies
 Obtaining scale economies
(e.g.:- Nike footwear, Kodak film, Nestle coffee)
 Desirable global brand association
 Access to low labour and materials
 Access to national investment incentives
 Dodged Trade barriers
 Cross subsidization
(Resources accumulated in one country can be used in
another)
 Access to strategically important markets
(e.g.:- India & China)
2003/2004 TKF
10 ways to develop a high global
business IQ
 Be comfortable with change and respond at lightning
speed (Speed rules). Peter Ducker said “One cannot
manage change,one can be a head of it”
 Develop and old encompasy perspectives, Where should
able to function well on small scale and large scale
 Welcome new experiences even crises for they loring
about the positive confrontation between different
prospective. “A crisis is a turning point which offers as
much opportunity as danger”
 Adopt, take risk and be innovative
continue….

2003/2004 TKF
10 ways to develop a high global
business IQ (Continued)
 Travel to atleast one foreign country and stay for
several weeks preferably with a native family
 Learn as much as possible about the culture in which
you are above to do the business
 Maintain position & enthusiasm, playfulness &
curiosity
 know your self well before you present your self.
(listening, empathizing and understanding)
 Store enormous reserves of energy with patient
 Own courage

2003/2004 TKF
Standardization Vs. Customization
 The prime motivation for standardization is economies. The
more standardization, the more potential there is for scale
economies.
 The vision of a single global product that share not only R&D
and manufacturing but also a common name as well as brand
equity
 The second motivation for standardization is to create impact
for the marketing programs outside the main country through
media-spill-over
 The 3rd motivation for standardization global strategy is the
global brand association and essence of brand positioning
(e.g.:- Levis jeans, French perfumes)

2003/2004 TKF
The customization option
 Customization provides name associations
and advertising that can be developed locally
tailored to the local market and selected
without the constrains of standardization
 customization also involves reduce risk from
“buy local” sentiments

Home work:- One page summary Sony’s of global

strategy
2003/2004 TKF
Question
 You are the Marketing Manager of AXY company,
who currently markets specialized ice creams.
Recent meeting at Tesco’s with other competitor
manufacturers. Tesco has requested that your
company manufacturers an ice-cream for Tesco.
This would be chosen on the basis of product cost
and quality.
 Evaluate and justify options available for the
company to perceive or not to perceive this
decision

2003/2004 TKF
Definition of Marketing
 Marketing is the management process that seeks to
maximise return to shareholders by developing and
implementing strategies to build relationship of trust
with high value customers and to create a
sustainable differential advantage

Two critical areas of focus in this topic is

 understanding what customers want and choosing
them
 Profiling your competitors so that the company can
create continue value for customers
2003/2004 TKF
Areas of creating Identifying
value for customers competitors
 Choice of markets  Overtime perceive
 Target market similar competitive
segmentation strategies and use the
 Differential advantage same distribution
channel and heavy
 Marketing mix
advertising
 Have similar
characteristics
 Have similar assets and
competencies

2003/2004 TKF
 Strategic groups
Global
•Toyota
•Mercs •Nissan
•Land Rover •BMW •Honda
•Range Rover •Volvo •Ford
operation

•Montex •Audi •Hyundai

Scale of

Local

Specific Broad
Product 2003/2004
Range TKF
Changing traditional thinking

Old New
Business
Marketing Marketing
process
concept concept

 From the marketing concept to marketing as a business process

 Old Marketing concept definition
 New Marketing concept definition
 marketing as a business process

2003/2004 TKF
Old marketing New marketing
concept concept
 Marketing concept can  Marketing is the
be defined as a process process of planning and
of achieving executing activities that
organisational goals by satisfy individual,
determining customer ecological and social
needs and wants of needs ethically and
target markets and sincerely by also
delivering the desired satisfying organisational
satisfactions more objectives
efficiently and
effectively than
competitors
2003/2004 TKF
 Marketing as a Business process
 Marketing can be thought of as a process which
designs and manages business process necessary to
define, develop and deliver value to target customers
 Therefore marketing should include;
Value defining, Value developing & Value delivery
Gillette:- complete
Value shaving system
defining Philips:- CD ROM
process

Value Value
developing delivery BMW:- i-Drive
Sony:- CDROM
process 2003/2004 TKF
process
Assignment

 Identify one company that has been a market

leader and identify why this company lost its
position as a market leader and decline?
 Giving examples of findings two areas of
information;
 Why market leaders decline?
 What are the capabilities market leaders need
to acquire to maintain leadership?

2003/2004 TKF
Characteristics shared by the
strongest brand today
 Clarity of vision (ownership in the people’s mind)
 Consistency
 Leadership
 Out of sum 2500 Interbrand studies in brand
valuation throughout the world the most
discriminating factor in generating long term brand
value at the highest level is leadership
 This is the brand’s ability to lead and exceed
expectations to take people in to new territories and
new areas of product and service and even social
philosophy at right time
2003/2004 TKF
Sainsbury’s strategic return to core
values
 The UK’s 3rd biggest food retailer is looking to establish a
more up market position in order to reverse the recent
downturns in fortune
 A new flagship store in London will feature a luxury product
ranges. These includes a juice bar, a up market bakery, a
premium wine merchant and a seasonal produce counter
 Sainsbury’s traditional strength is not price but rather quality
with the above developments aiming to position the company
upmarket
 Sainsbury struggled to compete in a price war with larger
groups such as ASDA and Tesco

2003/2004 TKF
Strategic drift
 Strategy must fit the Sales
environment
 Successful strategies The
erode environment
changes over Strategic

ss
 Effectiveness is more time

ne
drift
important than efficiency

ive
ncy

ct
ie

fe
c
 Speed and decisiveness Effi

Ef
(first mover advantage) Strategic
 Organisation is more vital ware out
than the strategy
Time
This doesn’t
have a
2003/2004 TKF
corporate
charisma
Strategy must fit the environment
 Companies like Virgin,
Orange, O2 seceded,
because they give
today’s customers what
they want.
 They have the brands
and distribution
channels which offer
update solutions for
customers
2003/2004 TKF
 Virgin (web link)
 Brand name associated
with Richard Branson
 Orange (web link)
 There are 16
countries in the
Orange Group
worldwide offering a
broad range of voice
and data
communication
services.
 O2 (web link)
Products & Services
Mobiles Voicemail WAP
Media Messaging
Mobile Video
Successful strategies erode
 History suggest that nothing fails like success
 IBM had 80% market share 10 years ago, today it has 8%. Almost
invariably a new competitors innovative technology, new distribution
channels or changes in customer tastes undermines market dominant
 market leadership is immensely difficult . It requires enormous
investments, high rates of innovation, greater flexibility (e.g.:- HSBC
conservative lending policy)

2003/2004 TKF
Effectiveness is more important
than efficiency
n Innovation

ss
Profit cti o

ne
d u Apple Ipod
e

ive
st r ncy

ct
e
Co Effici Play station 2

fe
Ef
Time
 Peter Drucker made the famous distinguish between
efficiency (doing things right) and effectiveness (doing
the right thing).
 Efficiency is essential about cost reduction and
effectiveness about innovation
 innovations first offer customers superior benefit, but
in long run also offer lower cost
2003/2004 TKF
Speed and decisiveness
 First mover find it easier to
establish competitive First mover
advantage
advantage.
 They get premium prices
suchimi principle
and faster payback on
their earlier investments.
 Companies, who are slow
have to launch at
discounted prices and
catch-up in the battle in the
battle for market share

2003/2004 TKF
Organisation is more vital than the
strategy
 Where organisations  Culture and behavior of
create systems, corporations (The
structures and attitudes, Seven-Ss Model)
which stimulate people
to be customer focus Structure

Hard Ss
Strategy Systems

Shared
values

Soft Ss Skills Style

Staff
2003/2004 TKF
Reinvention or changing the
paradigm

Adoption of Development Business

Implementation
Recipe of strategy Performance

If unsatisfactory

Modify plan or
tighten control
Modify or develop
new strategy
Abandon old
recipe & reinvent
2003/2004 TKF

Source: CIM Professional PG Diploma SMD Slide No. 36

The strategic planing factors
 Value and purpose
 Time
 Level of market
orientation
 Performance measures
 Product, market and
industry sectors
 Degree of turbulence
 Resource leverage &
resource availability
 Market analysis
2003/2004 TKF
This is that the more linear
and iterative process of
marketing although useful
may be too restrictive and
not dynamic enough.
When organizations need
to consider the various
internal and external
factors which must be
taken in to account when
developing a strategic
marketing stance
Organizational learning and
knowledge management
 Organizational learning can be basically defined as a
process of improving action through better knowledge
and understanding
 Organizational learning is a development of knowledge
or insights that have the potential to influence behavior
 Learning facilities, behavior changes that lead to
improve performance
 dynamic and turbulent environment demand learning
and behavior changes that lead to improve performance
Continue…...

2003/2004 TKF
Organizational learning and
knowledge management (continued)
Transfer
Learning
Organizational Individual
Learning Learning
Gap
 More recently a learning organization has been
viewed as a continuously creative, innovative
organization
 As an coherent, cohesive structure, where each
member is willingly active
 If this is to occur there needs to be single loop
learning and double loop learning
2003/2004 TKF
 Double loop Single loop
learning learning

 This effects the whole  This is limited to a section

organization of an organization
 it entails deeper  Have a defined set of
challenge to routine behaviors, design to cope
practices and rules with particular problems
 Take advantages of (reactive learning)
windows of  Emphasis on making
opportunities technique more efficient
2003/2004 TKF
Distinguishing between Explicit
knowledge and Tacit knowledge
 Explicit Knowledge  Tacit Knowledge is
can be formally knowledge in practice
articulated or encoded  Developed from direct
 This can be more easily experience and action
transferred or shared  highly pragmatic and
situation specific
 This is abstract and
 Subconsciously
removed from direct
understood and applied
experience
 Difficult to articulate
 Usually shared through
highly interactive
conversation and shared
2003/2004 TKF
experience
 Knowledge Management
Leveraging learning across markets
Tacit knowledge

Socialisation Externalisation
(Articulating tacit knowledge
(Sharing experience) explicitly)
From
Explicit knowledge

Internalisation Combination
(Building a knowledge
(Learning by doing)
system)

Tacit Knowledge Explicit Knowledge

2003/2004 TKF
To
Barriers to the sharing of Tacit
Knowledge
 Hierarchies
 Strong preference for analysis over intuition: discouraging
employees to offer ideas without “hard facts” to back it up
 Penalties for failure (discouraging experimentation)
 Strong preference for a particular type of communication
within working groups
 Fear of failing to express the inexpressible: When trying to
convert tacit knowledge to explicit one
 Inequality in status among the participants
 Uneasiness of expressing emotional life experience
 Distance, both physical separation and time

2003/2004 TKF
Tacit knowledge as a source of
competitive advantage
 Tacit knowledge underlies many competitive capabilities.
 Tacit knowledge, or implicit knowledge as opposite to
explicit knowledge, is far less tangible and is deeply
embedded into an organisation’s operating practices.
 Tacit knowledge includes relationships, norms, values
and standard operating procedures
 Because tacit knowledge is much harder to detail, copy
and distribute it can be a sustainable source of
competitive advantage
 Individual tacit knowledge
 Collective tacit knowledge

2003/2004 TKF
Learning organisation
 An organisation that learns and encourages
learning among its people, it promotes;
 Exchange of information between employees
 Hence creating a more knowledgeable work force
 This promotes;
 Very flexible organisation
 Where people except and adopt to new ideas and
changes through a shared vision
 The corporation which is able to quickly learn
and then innovate their work practices performs
better in the constantly changing environment
2003/2004 TKF
Continue….
Learning organisation (Continued)
 Business reengineering
Balance
used to concentrate on
eliminating waste and not
Change in Stability of
working smarter and learning the the
 Speed of learning this is organisation organisation
how fast an organisation
absorb and put it in to 3. Convert it in to
explicit knowledge
practice
 This can only be introduced Company
to a company that is 2. Sharing tacit
prepared to reach a balance knowledge
between change and
1. No tacit
stability 2003/2004 TKF
knowledge shared
The nature of strategic innovation
 Most strategic innovations came from outsiders, rarely
from established players
 It arises from complex interactions between many
individuals, organisations and their operating
environment
 Rapid innovation requires an effective innovation
process. "The process of innovation is a rhythm of
search and selection, exploration and synthesis,
cycles of divergent thinking followed by convergence".
 Corporate innovation system
 Systematic approach to innovation - 7 areas of innovation

2003/2004 TKF
Elements of a corporate innovation
system

2003/2004 TKF
Systematic approach to innovation
Click below for
information
Strategy innovat

Business innova

Organisational in

Product innovat

Process innovat

Technology inno

2003/2004 TKF Marketing innov

Systematic approach to innovation
(Seven interwoven areas) - 01
 Strategy innovation  Business innovation
 Innovative enterprise  New business models
strategy  New management
models
 Innovative corporative
growth strategies
 New approaches to value
chain management
 Venture strategies  New approaches to
 Innovative competitive information, idea and
strategies Knowledge management
 New forms of strategic
partnerships
 New forms of selling and
customer service
2003/2004 TKF

Source: 1000 ventures web site

 Systematic approach to innovation
(Seven interwoven areas) - 02
 Organisational innovation  Product innovation
 New people partnership  New-to-the-world product
 Better internal climate,  New to the company and
motivation, and
communication
local markets products
 New forms of employee &  Line extensions
stakeholder participation  Improved products or
 Better culture of innovation services
and innovation system
 New knowledge, idea and
creativity management
systems
 More efficient innovation
matrics
2003/2004 TKF

Source: 1000 ventures web site

 Systematic approach to innovation
(Seven interwoven areas) - 03
 Process innovation
 Innovative Business
Process Management
System (BPMS)
 New processes and
production techniques
 Quality and efficiency
improvements
 Novel lean and cleaner
products methods
 Technology innovation
 Technology strategy and
Road-mapping
 Development of new
technologies
 New ways of technology
commercialization and
exploitation
 Technology acquisitions

2003/2004 TKF

Source: 1000 ventures web site

 Marketing & Innovation
In most businesses innovation is  Marketing innovation
regarded as the key to corporate  Innovative design and
success
presentation techniques
In today’s rapidly changing
 New forms of
environment a company cannot
alone maintain market share or differentiation, positioning
profits unless its innovative and advertising
If a company’s product or service  Innovative distribution and
are not continually improved, customer service methods
competitive pressure in variably
leads to fall in prices, declining
margins and the commoditization
of the offer
Innovation is the path to achieve
growth in sales and profitability 2003/2004 TKF
Source: 1000 ventures web site
Key challenges to companies
1. Collapse of 2. Rising 3. Speed of
boundaries customer change
 WTO expectations  Latest product
(reduction of  Micro
taxes for  Latest
foreign entry) marketing technology
 Dell computers  Customized  Latest model
(Innovative and products (Nike, or version
cost effective make your own  “Latest” is the
processes shoe) key word of
 Amazon.com  High number of today’s
(e-businesses) users and business
large volumes
2003/2004 TKF
 Exploiting innovation for effective
strategies
 Product differentiation  Gillette, Nike

 Service differentiation  Singapore airlines

 Customer intimacy  HSBC

 Brand leadership
 Giorgio Armani
 Lower total cost  McDonalds, Dell,
Amozon.com, Boeing

 Process innovation  HSBC-PIL, SIA - e-ticket

2003/2004 TKF Giorgio

Armani NIKE
Success criteria for innovation
 The strategy must fit the environment
 This means companies must offer customers, brands they want
and offer them through distribution channels which offer update
solutions (e.g.:- Dell Computers)
 Successful strategies erode
 “Nothing fails like success”. Today's market leaders generally
tomorrow’s basket cases(number of years earlier IBM had 80%
market share, now it has 8%)
 Effectiveness is more important than efficiency
 (Doing things right Vs. Doing the right thing)
 Speed and decisiveness
 Organisation is more vital than the strategy

2003/2004 TKF
Conditions required for innovation
Moderate Cohesive
Exchange
environmental work
of information
uncertainty groups

Innovation

Resources Supportive Low

for structure and people
innovation systems turnover
2003/2004 TKF

Source: CIM Professional PG Diploma SMD Slide No. 55

Criteria of success innovation
 It must offer customer value
 Breathtaking technology is not good enough. It
must offer unique value (e.g.:-WIFI)
 It must be perceived as unique
 It must be marketable(e.g.:-Concord)
 It must be sustainable
(e.g.:-Coca-Cola, Malbro, Starbucks)

2003/2004 TKF
Example Question
 For an organisation of your choice discuss
how the organisation has created
conditions for effective innovation.
 Explain how this innovation process
 sets them apart from competitors
 What are the obstacles they are likely to face
and why?
 What can they do to overcome this obstacles?
 How do you think e-technology can contribute
supporting and stimulating innovation?
2003/2004 TKF
 Innovation strategy
 Marketing department led innovation
 e.g.:- STP, new Campaigns, differentiated branding, trading up
customers, Rin & SurfUltra, Johnnie Walker ad.
 Acquisition led innovation
 Many companies have often sought to find innovation through
acquisition.It is faster and the company can leapfrog in
competition (e.g.:- Apple Ipod-Fujitsu hard disk, HP-Compaq,
Nissan-Renault
 Invention led innovation e.g.:- Evan moisturizing spray
 Market led innovation
 most effective way to build sustainable innovations through a
comprehensive market innovation.
 This focuses on building value generating relationships with
2003/2004 TKF
customers, system partners & staff (e.g.:- Amazon, FedEx)
Innovation Zones

Basic innovation

Relative
innovation
Zone 01

Concept
Zone 02 innovation

Zone 03 2003/2004 TKF

Basic innovation – Zone 01
 Minor product or service
enhancement.
 This will not add value to the
product
 It can be copied by the
competitors easily
 Examples:-
 Coca cola Lemon
 HSBC 0% interest in
credit cards
 Life policy premiums and
Bonus combined
packages
2003/2004 TKF
Relative innovation – Zone 02
 This is innovations that build
on existing products and Gillette
Sensor for
services
women
 Taking existing products to
new markets
 Relate yourself to the
competitors and to the
markets
 Examples
 Gillette Sensor for women
 HSBC e-saver accounts
 Ceylinco LIPS
2003/2004 TKF
Concept innovation – Zone 03
 Major areas of concept
innovation are;
 Information technology
innovation (e.g.;- e-
merchandizing, use PDAs Mc-Drive
to send order immediately Through
to suppliers extranets)
Tetra packs Samsung SGH E700
 Strategic innovation
e.g.:- Tetra packs
 Demand innovation e.g.:-
Samsung mobile phones
 Operational innovation
e.g.:- McDonalds drive
through
2003/2004 TKF
Strategic decisions on innovation in
marketing
Uncertainty about market (ends)

Blind Speculative
Know how to, but not Don’t know how to or
High

whether we can sell it. What the market is?

Need alliances with Sometimes can be
better partners Successful, sometimes not
Anti aging products Design a baby (Bio-tech)

Straight forward Potential disaster

Know the market Know what the market is
Low

and how to approach But not how to approach

Basic approach
Mobile windows 3G

Low High
2003/2004 TKF

Uncertainty about development approach

Alternative approaches to strategic
decisions

2003/2004 TKF
 Strategic Intent versus Traditional
Missions and Visions
 Traditional company visions and missions, developed
in one-day strategy session, often lack discovery,
opportunity and purpose, the critical elements of strategic
intent
 Strategic intent cannot be planned all in advance. It must
evolve on the basis of experience during its
implementation. Separating strategy creation from
strategy implementation by using corporate planners or
consultants for the former activity is thus a hindrance to
the evolution of a successful strategy. Linking creation
and implementation supports the overall process, and
thus a strategy emerges and evolves.
2003/2004 TKF

Source: 1000 ventures Business E-coach, Strategic Intent

 Coca-cola Strategic priorities (6)
1. Accelerated carbonated soft-drink growth led by
Coca-cola
2. Selectively broaden our family of beverage brands
to drive profitable growth
3. Grow system profitability and capability to together
with our bottling partners
4. Serve customers with creativity and consistency to
generate growth across all channels
5. Direct investments to highest-potential areas across
markets
6. Drive efficiency and cost-effectiveness everywhere
2003/2004 TKF
Continue …….
1. Accelerated carbonated soft-drink
growth led by Coca-cola
 We lead with our strengths. Carbonated soft drinks
remain our most profitable business and Coca-Cola
is the most popular brand in the world. This strategy
paves the way for growth.
 Bringing freshness to the brand
 Coca-Cola – Lemon Coke, Vanilla coke
 Sprite – Sprite Ice, only served through fountains
 Fanta – many flavours
 Freezer pack

2003/2004 TKF
2. Selectively broaden our family of
beverage brands to drive profitable growth
 Enormous opportunity exists in categories
such as juice and juice drinks, bottled water,
teas, energy drinks, coffee and more.
 Consist of 6 SBU s
 Carbonated drinks
 Juices and juice drinks
 Mineral water
 Energy drinks e.g.:- Burn
 Sports drinks e.g.:- PowerAde
 Tea & Coffee

2003/2004 TKF
3. Grow system profitability and capability
to together with our bottling partners
 We are a company of
relationships, and one
of our most important
relationships is the one
we share with our
bottling partners. In
2003, those
relationships became
more profitable and
productive. A Coca-cola bottling plant
 e.g.:- Closedown Pure
bottling plant in Sri Lanka
2003/2004 TKF
4. Serve customers with creativity and consistency
to generate growth across all channels
 We will continually
strive to increase
growth for our
customers’ businesses,
helping create a context
for our own growth.
 e.g.:- electronically
controlled mixing in the
fountains
 Global standardization

A Coca cola fountain

2003/2004 TKF
5. Direct investments to highest-
potential areas across markets
 We tailor our business approach to the
individual marketplace based on its stage of
development. In this way, we direct our
investments in a way that makes the most
business sense.
 e.g.:- Total population 100 billion cups
Coca-Cola sells 1 billion cups.
 In Brazil and North America they have
invested in mineral water

2003/2004 TKF
6. Drive efficiency and cost-
effectiveness everywhere
 By leveraging
technology, creating
alignment across
business units and
achieving economies of
scale, we are able to
operate with more
efficiency.
 e.g.:- 5 litre copper
tank replaced with 20
litre plastic tank

2003/2004 TKF
 Strategic intent defined
 Strategic intent is a high level
statement of the means by which
an organisation will achieve its Strategic intent
vision
 The purpose of the strategic intent;
 is a logic, the uniqueness and
discovery that makes the strategic
intent come to life are vitally Challenges
important for all the employees
 They have to understand, believe
and live according to it

Opportunities
2003/2004 TKF
Strategic define (Continued)
 In developing a “strategic intent” takes the form
of a number of corporate challenges. It should
imply or convey a significant stretch for your
company, a sense of direction, discovery and
opportunity
 Strategy should be a stretch exercise not a fit
exercise
 therefore the expression of strategic intent is to
help individuals and organisations share a
common intention to survive, continue and
extend
2003/2004 TKF
Developing a Statement of
Strategic Intent
 Strategic intent takes the form of a number of
corporate challenges, specified as short term projects
and opportunities.
 The strategic intent must convey a significant stretch
for your company, a sense of direction, discovery and
opportunity that can conveyed a worthwhile to all
employees.
 It should not focus so much on today's problems,
which are normally dealt with by company visions and
missions, but rather on tomorrow's opportunities.
 Strategic intent should specify the competitive factors,
the factors critical to success in the future.
2003/2004 TKF

Source: 1000 ventures Business E-coach, Strategic Intent

 Developing a Statement of
Strategic Intent (Continued)
 The strategic focus is the starting point for developing
a statement of strategic intent.
 A statement of strategy must become then a
statement of design through which the principles,
processes and practices of an organization are
developed.
 These statements must represent the whole as seen
from any location in the organization
 strategic intent should also be accompanied by
intermediate goals against which company
achievements can be measured.
2003/2004 TKF

Source: 1000 ventures Business E-coach, Strategic Intent

 Developing a Statement of
Strategic Intent (Continued)
 Discovery and detection of opportunity serve as
platforms for developing strategic intent.
 A strategic intent creates a picture of the customer daily
life and describes discontinuities and anticipated
changes from the world of today.
 It describes future customer's needs and the success
factors required for meeting these needs.
 An example of expression of strategic intent would be
Coca Cola's dream of putting a Coke within
arm's reach of every consumer in the world.

2003/2004 TKF

Source: 1000 ventures Business E-coach, Strategic Intent

Mission statement
 The mission statement should be clear succinct
represented of the enterprises purpose for existence.

 It should incorporate socially meaningful and measurable

criteria addressing concept such as the moral and ethical
position of the enterprise, public image, target market,
products/services, geographic domain and expectation of
growth and profitability

 The intent of the mission statement should be the first

consideration for any employee, who is evaluating a
strategic decision
2003/2004 TKF
How specific should mission
statement be (e.g.)
 Airco Inc. mission statement
 Airco incorporated will be recognized as the most
progressive enterprise in the transportation
business. We will offer our customers cost
effective transportation service within
geographical areas and market segments that
can be benefit from our service and be ensure on
ROI and growth rate consistent with a current
management guide lines.

2003/2004 TKF
Example mission statements
 3M mission statement
 “To solve unsolved problems innovatively”
 Mary K cosmetics mission statement
 “To give unlimited opportunity to women”
 Merc - Pharma Co. USA
 “To perceive and improve human life”
 Walt Disney
 “To make people happy”

2003/2004 TKF
Strategic decisions are concerned
with;
 Long term directions of the organization as
suppose to day to day management issues
 Defining the scope of the organization activities
of what it will do and will not do
 Matching the activities of the organization to the
environment in which it operates. So that it
promises and minimizes threats
 Matching the organizations activities to it
resource capacity in finance, technology or skill
level
2003/2004 TKF
Different ways of building
strategies by organisations

 Planning model
 Interpretive model
 Political model
 Logical incremental model
 Ecological model
 Visionary leadership model

2003/2004 TKF
 Planning model
 Strategic decisions are
reached by use of Play
sequenced plan; search for Station 2
optimum solutions to define
problems
 This process is highly
rationale and fuel by
concrete data
 e.g.:- Play Station 2, Apple
Ipod, Pixal,MP3
 e.g.:- Employee Develop Apple Ipod
Systems, Strategic
Alliances
2003/2004 TKF
Interpretive model
 The organisation as regarded as collection of
associations, sharing similar values believes and
perceptions.
 These frames of reference enable the stakeholders to
interpret the organisation and the environment.
 Strategy thus become the product not of defined aims
and objectives, but of the prevailing values, attitudes
and ideas in the organisation
 e.g.:- Family driven business (Walt Disney)

2003/2004 TKF
Political model
 Where a strategy is not chosen directly, but
immerges through compromise, conflicts and
consensus seeking among interested
stakeholders.

 The person with the most amount of power

have the greatest influence

2003/2004 TKF
 Logical incremental model
 Strategies immerged from Sales
strategic subsystems, each
Sony
concern with a different type
Sony PS2
of strategic issue Pictures
 It is not structured as Sony
HIFI
planning model
 Goals can be wage, general
and non-rigid
 e.g.:- Sony vision statement
moves from; Today’s Tomorrow’sTime
Digital company to Content bread bread
enabler to Integrated 2003/2004 TKF winners winners
intelligent networks
Ecological model
 In this perspective the environment impinges
on the organisation in such a way that
strategies are virtually prescribed and there is
little or no free choice
 The organisation that adopts to this
environment will survive
 e.g.:- Post Sep 11th model (Way the airlines
compete)looked at the business class and
long haul passengers, for traveling executives
economy class with office environment
2003/2004 TKF
Visionary leadership model
 Where strategy
immerges as a result of
a leaders vision
enforced by his
commitment, credibility
and how he articulate
others
 e.g.:- Starbucks,
Microsoft, Body-shop,
E-bay

2003/2004 TKF
Body Shop
Characteristics of Competitive
Advantage
 An efficient SCA will be created when a
strategy has at least 3 characteristics
 It should be supported by assets and
competencies
 It should be employed in a competitive arena
that contains segments that will value the
strategy
 It should be employed against competitors,
who cannot easily match or neutralize SCA

2003/2004 TKF
 an effective SCA should be;
 Substantial enough to make difference
 e.g.:- Marginally superior, quality

 Sustainable
 in the phase of environmental changes/challenges
and competitive actions a high-tech market can erode
their advantage overtime.
 Leverage
 When possible the SCA should be embedded in to
the visible business attributes that will influence
customers. This is possible through advertising and
positioning.
2003/2004 TKF
 Strategic Thrusts (Route to an
SCA)
Differentiation Focus

Strategic Thrust Synergy

Preemption
Cost Leadership
 Besides the strategic thrust shown out above there are several
other strategic thrusts that could be considered. They are;
 Being innovative, Thinking globally, Having an entrepreneurial
style, Exploiting information 2003/2004
technology
TKF
 Differentiation strategy
 There is a element of uniqueness above to strategy that
provides value to the customer
 Firms differentiate their offerings by enhancing performance,
quality, reliability, prestige or convenience
 The differentiation strategy is an integrated set of action
designed to produce or deliver goods or services that
customers perceive as being different in ways that are
important to them
 . With the enormous competition markets today are driven by
choice - your targeted customers have too many choices, all of
which can be fulfilled instantly. Choosing among multiple
options is always based on differences, implicit or explicit, so
you ought to differentiate in order to give the customer a
reason to chose your product or service.
2003/2004 TKF
Low cost strategy
 Low-cost strategy can be based on cost advantage
that can be used to invest in the product support low
prices or provide high profit
 Some of the ways that firms acquire cost advantages
are by improving process efficiencies, gaining unique
access to a large source of lower cost materials,
making optimal outsourcing, and vertical integration
decision, or avoiding some costs altogether
 e.g.:- McDonalds, Dell Computers, ToysRus
Continue…

2003/2004 TKF
Preemptive
strategy
 Preemptive strategies
employee first mover
advantage to inhibit or
prevent competitors
from duplicating or
countering
2003/2004 TKF
Synergistic
strategy
 Synergistic strategy
rely on synergy
between a business and
other businesses at the
same firm
 e.g.:- GE is Jack Welch
 e.g.:- IBM focus on the
internet was to create
synergy by pushing
core technologies
across more product
lines
Strategies for specific situations
 The position of the organisation or product within a
given market will clearly influence the strategic
options available
 A market leader dominant within given market or a
segment. This dominance is mainly due to the market
share
 You can be a;
 market leader
 market challenger
 market follower
 market nicher
2003/2004 TKF
The strategic square

2003/2004 TKF
The market leader
 The market leader will be the Panadol
constant target for aggressive 650 million
competitors. Therefore must tablets per
be vigilant and proactive. The year
common strategies for a 60 million
market leader will be; market
 Expanding the market penetration
 This can be achieved by
finding new users or new
uses
Headache

Muscles
& Joint pain
2003/2004 TKF Markets
Continue…….
The market leader (Continued)
 Offensive strategy
 Aggressive perceived of market share and the
fight taken to competitors
 Maintaining high Share of Voice and Share of
Mouth
 Defensive strategy
 Its equally important to protect your customer
base

2003/2004 TKF
Market challenger
 Market challenges will see confrontation and
aggressively perceived market share
 These organisations have to be well resourced and
present a long term sustainable challenge to the
market leader
 Two strategies available are;
 Selective targeting;- where challenger can target
specific competitors. Locking at attacking weaker
competitor who are under finance and under resource.
 Attack the leader:- where the challenger can
challenge the dominant player. Usually a long term war
and have to be sustained for market share to be won

2003/2004 TKF
Market follower
 Market follower tend to shadow the market
leaders as oppose to challenging them
 Two broad strategies used by the market
follower is;
 Duplication:- Where the offering is duplicated in
every possible way even in packaging and
promotion
 Adoption:- Here the market follower will adopt the
basic product offering, if possible improve on the
concept

2003/2004 TKF
Offensive Defensive
Strategies Strategies

 Frontal attack  Position defense

 Flank attack  Flank defense
 Encirclement attack  Preemptive defense
 By pass attack  Counter defense
 Guerilla warfare  Mobile defense

2003/2004 TKF
Frontal attack
 This is an all out attack
on a competitor.
 Requires a sustained
effort and attackers
must be certain that
they are able to endure
a long and hard
struggle
 e.g.:- Elephant House
Vs. Cargils in Sri Lanka
2003/2004 TKF
Flank attack
 Flanks are the weakest
points of any company.
 Flanking is achieved by
attacking selective
market segments, where
the competitor is
relatively weak
 e.g.:- Elephant house
don’t look at the health
conscious segment
 e.g.:- HSBC most
expensive bank charges
Encirclement
Bypass attack
attack
 Here the company offer  This is more of
a range of products that avoidance than attack
effectively encircles the  where the attacker
competitor moves in areas, where
 e.g.:- a washing powder competitors are inactive
market leader can be  e.g.:- “Move & Pick”
encircled on three
Supermarket
product attributes. They
are;
 Low cost
 Cleaning power
 Environmental friendly
2003/2004 TKF
Gorilla warfare
 Tactical, short term marketing initiatives are
used to gradually weaken the opposition.
 e.g.:- price cuts, burst of promotional
activities or other tactics
 Gorilla attacks are not committed to
marketing activities. They may also includes;
 Legal action
 Field force recruitment

2003/2004 TKF
Position
Flank defense
defense
 Aims to strengthen  This is more of protect
the current position weak points
and shut out the  e.g.:- Elephant house
competition can come with a low
 Assets and fat healthy ice cream
competencies are
used to develop a
value added product,
which is unmatchable

2003/2004 TKF
Preemptive Counter
defense defense
 This involves striking  E.g.:- Points, Interest
at potential Free on credit cards,
competitors before Loyalty points
they attack
 e.g.:- Deep price cuts
and special
promotions

2003/2004 TKF
Mobile defense
 Involve the flexible and adoptive response
allowing the defender to switch in to new
areas of interests
 It is achieved by diversifying in to the
unrelated markets and broadening current
markets
 e.g.:- Elephant House can go to drinking ice-
creams, soft drinks to energy drinks
 e.g.:- HSBC car loans, PIL, Insurance

2003/2004 TKF
Investment Appraisal
 A means of assessing whether an investment
project is worthwhile or not
 Investment project could be the purchase of a new
PC for a small firm, a new piece of equipment in a
manufacturing plant, a whole new factory, etc
 Used in both public and private sector

2003/2004 TKF
 Investment Appraisal
What factors need to be
considered before investing in
equipment such as this?
Source: Gergely Erno,
http://www.sxc.hu
 Types of investment
appraisal:
 Payback Period
 Accounting Rate of
Return (ARR)
 Internal Rate of Return
(IRR)
 Profitability Index
 Net Present Value
(discounted cash flow)
2003/2004 TKF
Investment Appraisal
 Why do companies invest?
 Importance of remembering investment as the
purchase of productive capacity NOT buying stocks
and shares or investing in a bank!
 Buy equipment/machinery or build new plant to:
 Increase capacity (amount that can be produced)
which means:
 Demand can be met and this generates sales

revenue
 Increased efficiency and productivity

2003/2004 TKF
 Investment Appraisal
A fork lift may be an important item
but what does it contribute to
overall sales? How long and how
much work would it have to do to
repay its initial cost?
 Investment therefore
assumes that the
investment will yield
future income streams
 Investment appraisal
is all about assessing
these income streams
against the cost of the
investment
 Not a precise science!
2003/2004 TKF
Investment appraisals - action check list
 Identify the key plans objectives for the
organisation(market share, brand extension &
NPD)
 Asses payments, receipts and duration of the
investment project
 Produce a each flow forecast and profit & loss
account for the project
 Establish the methods that your organisation
uses to appraise investments
 Payback point
 Net Present Value 2003/2004 TKF
 Internal Rate of Return
Payback Method
 The length of time taken to repay the initial
capital cost
 Requires information on the revenue the investment
generates
 E.g. A machine costs £600,000
 It produces items that sell at £5 each and produces
60,000 units per year
 Payback period will be 2 years

2003/2004 TKF
Payback method
 Payback could occur during a year
 Can take account of this by reducing the cash
inflows from the investment to days, weeks or
years.
Days/Weeks/Months x Initial Investment
Payback = ------------------------------------------
Total Cash Received

2003/2004 TKF
 Payback Method
 e.g.
 Cost of machine = Income
£600,000
 Annual income streams
from investment = Year 1 255,000
£255,000 per year
 Payback = 36 x Year 2 255,000
600,000/765,000
 = 28.23 months
Year 3 255,000
 (2 yrs, 6¾ months)

2003/2004 TKF
Accounting Rate of Return
 A comparison of the profit generated by the
investment with the cost of the investment
Average annual return or annual profit
 ARR = --------------------------------------------
Initial cost of investment

2003/2004 TKF
Accounting Rate of Return
 e.g.
 A investment is expected to yield cash flows of
£10,000 annually for the next 5 years.
 The initial cost of the investment is £20,000
 Total profit therefore is: £30,000
 Annual profit = £30,000 / 12
= £2,500
ARR = 2,500/20,000 x 100
= 12.5%
A worthwhile return?

2003/2004 TKF
Investment Appraisal

 To make a more
informed decision,
more sophisticated
techniques need to be
used.
 Importance of time-
value of money

2003/2004 TKF
Net Present Value
 Takes into account the fact that money values
change with time
 How much would you need to invest today to
earn x amount in x years time?
 Value of money is affected by interest rates
 NPV helps to take these factors into
consideration
 Shows you what your investment would have
earned in an alternative investment regime

2003/2004 TKF
Net Present Value
 e.g.
 Project A costs £1,000,000
 After 5 years the cash returns = £100,000 (10%)
 If you had invested the £1 million into a bank
offering interest at 12% the returns would be
greater
 You might be better off re-considering your
investment!

2003/2004 TKF
Net Present Value
 The principle:
 How much would you have to invest now to earn
£100 in 1 years time if the interest rate was 5%?
 The amount invested would need to be: £95.24
 Allows comparison of an investment by valuing
cash payments on the project and cash receipts
expected to be earned over the lifetime of the
investment at the same point in time, i.e the
present.

2003/2004 TKF
Net Present Value
Future Value
PV = -----------------
(1 + i)n
Where i = interest rate
n = number of years
 The PV of £1 @ 10% in 1 years time is 0.9090.
 If you invested 0.9090p today and the interest rate
was 10% you would have £1 in a years time
 Process referred to as:
‘Discounting Cash Flow’

2003/2004 TKF
Net Present Value
 Cash flow x discount factor = present value
 e.g. PV of £500 in 10 years time at a rate of
interest of 4.25% = 500 x .6595373 = £329.77
 £329.77 is what you would have to invest today
at a rate of interest of 4.25% to earn £500 in 10
years time
 PVs can be found through valuation tables (e.g.
Parry’s Valuation Tables)

2003/2004 TKF
Discounted Cash Flow
 An example:
 A firm is deciding on investing in an energy
efficiency system. Two possible systems are
under investigation
 1 yields quicker results in terms of energy
savings than the other but the second may be
more efficient later
 Which should the firm invest in?

2003/2004 TKF
Discounted Cash Flow – System A
Year Cash Flow (£) Discount Factor Present Value
(4.75%) (£) (CF x DF)

0 - 600,000 1.00 -600,000

1 +75,000 0.9546539 71,599.04

2 +100,000 0.9113641 91,136.41

3 +150,000 0.8700374 130,505.61

4 +200,000 0.8305846 166,116.92

5 +210,000 0.7929209 166,513.39

6 +150,000 0.7569650 113,544.75

Total 285,000 NPV =139,416

2003/2004 TKF
Discounted Cash Flow – System B

Year Cash Flow (£) Discount Factor Present Value (£)

(4.75%) (CF x DF)
0 - 600,000 1.00 -600,000
1 +25,000 0.9546539 23,866.35
2 +75,000 0.9113641 68,352.31
3 +85,000 0.8700374 73,953.18
4 +100,000 0.8305846 83,058.46
5 +150,000 0.7929209 118,938.10
6 +450,000 0.7569650 340,634.30
Total 285,000 NPV =108,802.70

2003/2004 TKF
Discounted Cash Flow
 System A represents the better investment
 System B yields the same return after 6 years
but the returns of System A occur faster and are
worth more to the firm than returns occurring in
future years even though those returns are
greater

2003/2004 TKF
Internal Rate of Return
 Allows the risk associated with an investment project
to be assessed.
 The IRR is the rate of interest (or discount rate)
that makes the net present value = to zero
 Helps measure the worth of an investment
 Allows the firm to assess whether an investment in the
machine etc would yield a better return based on internal
standards of return
 Allows comparison of projects with different initial outlays
 Set the cash flows to different discount rates
 Software or simple graphing allows the IRR to be found

2003/2004 TKF
Profitability Index
 Allows a comparison of the costs and benefits
of different projects to be assessed and thus
allow decision making to be carried out
Net Present Value
Profitability Index = --------------------
Initial Capital Cost

2003/2004 TKF
 Investment Appraisal

 Key considerations for firms in considering

use:
 Ease of use/degree of simplicity required
 Degree of accuracy required
 Extent to which future cash flows can be
measured accurately
 Extent to which future interest rate movements
can be factored in and predicted
 Necessity of factoring in effects of inflation

2003/2004 TKF
Corporate Social Responsibility
 Representing CSR in
action
 Triple Bottom Line
 Sustainability and
marketing
 Organisational
interactions
 Sustainability through
the market
 Ethical consumerism
 A CSR value chain
2003/2004 TKF
CSR Brands
CSR in action (e.g. Unilever)
 Representing CSR in
action around our
business. The picture
shows our on-site fire
fighting team – which is
staffed entirely by
employee volunteers –
practising their skills at
their monthly training
session.

2003/2004 TKF
Triple Bottom Line
 People
People
 Planet

 Profit

Planet Profit

2003/2004 TKF
Sustainability and marketing
 Recent surveys suggest that awareness of green issues
is currently running at very high levels in most of the
developed world.
 Instead of lowering living standards in one part of the
world and improving them in other parts, the business
idea is to create sustainable development by creating
goods and services that improve the quality of life in all
parts of the world.
 Companies have the opportunity to improve people’s
lives through what they do, how they do it, and who
and what they affect.
 Sustainability is about understanding the interactions
of the various stakeholders in an organisation.

2003/2004 TKF
Organisational interactions

2003/2004 TKF
Sustainability through the market -
Seven keys to success
 Innovate
 Practice eco-efficiency
 Move from stake holder dialogues to
partnerships for progress
 Provide an inform consumer choice
 Improve market framework conditions
 Establish the worth of earth
 Make the markets work for every one

2003/2004 TKF
Ethical consumerism
 The “invisibles” contributed £5.6 billion to the £19.9
billion ethical marketplace in 2002.
 The total value of ethical banking increased to £3.9
billion (a rise of 16%), while the value of ethical
investments fell back to £3.5 billion, (a contraction of 8%
against a market decline of 17%).
 Boycotts by ethically motivated consumers cost big
brands £2.6 billion a year.
 Ethical consumerism has crossed into the mainstream
with some ethical products now close to being the
product of consumer choice in their respective sectors.

2003/2004 TKF
 UNILEVER SUSTAINABLE VALUE CHAIN
FIRM INFRASTRUCTURE
% of Greenery in the factory, Preservation of surrounding eco-system, Location effect on the
environment
HUMAN RESOURCE MANAGEMENT
Good Quality of Work Life e.g. Setting CSR Standards (TQM), Diversity and Equality in the work place
Motivation scheme to encourage employee participation in CSR. Internal CSR Marketing

SUSTAINABLE
TECHNOLOGY DEVELOPMENT
Using internet and e-commerce, and as waste minimizer. Research and Development into CSR
products and best practices. E.g. Research into new sources of renewable energy.

MARGIN
PROCUREMENT
Sustainability Audits for supplier selection – e.g. Unilever’s sustainable sourcing of agriculture
products.

INBOUND OPERATIONS OUTBOUND MARKETING & AFTER SALES

LOGISTICS LOGISTICS SALES
Using Incentives for
Recyclable raw renewable Optimize Reduce printed recycling of used
materials sourcing energy delivery time material/collater products/parts.
e.g. recyclable sources e.g. and loads e.g. al e.g. collection and
soap packaging for Renewable less deliveries to reuse of waste
Ethical
Lux energy for retailers. detergent
Communication
production packaging.
Sustainable Sustainable e.g. proper
procurement and Increasing transport labeling on food Website or Call
logistics practices production strategy e.g. products Center to reduce
e.g. Reduction of eco-efficiency use of eco- field visits.
Develop CSR
supplier delivers. e.g. water efficient deliver
based MKIS
conservation. vans.
Sustainable Cause Related
Vendor Environmenta E-Technologies
Marketing &
Partnership. l Control to drive eco- 2003/2004 TKF
Branding e.g.
mechanisms efficient order
e.g. Fish, Unilever campaign
(ISO 14000) processing.
in India
Challenge conventional marketing
thinking
 Global position
 Master brand
 The integrated enterprise and end user focus
 Best in class processes
 Mass customization
 Break - Through technology

2003/2004 TKF
Branding
 Brands are difficult to build
 Brands add value for customers
 e.g.:- Coca cola Vs. Pepsi

 Brands create defensible position

 e.g.:- Panadol and Paracetamol
 Brands build customer retention
 e.g.:-Johnson & Johnson

 Brands can transform markets

 e.g.:- Dialogue GSM
 Brands perform financially
2003/2004 TKF
Brands perform financially
 Brand Value in Year 2004(in USD / $)
 01. COCA-COLA 67,394
 02. MICROSOFT 61,372
 03. IBM 53,791
 04. GE 44,111
 05. INTEL 33,499
 06. DISNEY 27,113
 07. McDonald's 25,001
 08. NOKIA 24,041
 09. TOYOTA 22,673
 10. MARLBORO 22,128
 11. MERCEDES 21,331
2003/2004 TKF
 12. HEWLETT–PACKARD 20,978
Factors consider in brand evaluation
 Current market position
 Brands that are market leaders typically more highly
than brands that may have good market shares, but
operating markets where another brand is dominant
 Market type
 Brands are more valuable in more established markets
with further potential for growth
 Durability
 Brand names which have lasted for many years are
likely to have develop stronger customer loyalty and
become part of the fabric of the market

2003/2004 TKF
Factors consider in brand evaluation
(continued)
 Global presence
 Those brands that can be exploited internationally are
generally more valuable than those restricted to
domestic market
 Extendibility
 Brands that can be extended and exploited in the same
or new markets have greater value than brands that
are more limited in scope
 Protection
 e.g.:- Coca cola’s patent protection of the shape of the
bottle

2003/2004 TKF
 Market relationship alliances
 Key drivers of
customer equity Recommendations
 Value equity
 Brand equity
 Retention equity
Brand Customer Value
 Recommendation Equity Equity Equity

Retention Equity

2003/2004 TKF
Building relationship with customers
 Building enhanced benefits of loyalty
 e.g.:- Loyalty cards, (HSBC, AmEx)
 Creating structural ties and bonds
 e.g.:- Through strategic bundling, strategic
alliances and loyalty contracts
 Creating delighted customers
 Satisfaction is not the something as retention
and loyalty. Some customers who defect are
yet satisfied with their previous supplier

2003/2004 TKF
Three phases in CRM

Acquire
Differentiation
Innovation
Convenience

ado etai
p
R
tab
ecn ot suc s

i
e

lity
n
r e eci vr
e E
c ahn
m
d R
uB

2003/2004 TKF
d
n
u
Technology drivers that creates CRM
 Salesman on the road can be updated on customer
requirement
 Information can be used to enhance CRM and logistics
 Mobile devices enables customers to access supplier
inventories
 Consumers as well as talking to each other will be
able to communicate with machines
 Using blue tooth retailers can give customers special
offers
 GPS (Global positioning System) enables customers
to locate nearest outlet or ask for service
2003/2004 TKF
The End