C

H
A
P
T
E
R

TWO

Corporate Strategy
Decisions and Their
Marketing
Implications

McGraw-Hill/Irwin

Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

Components of a Corporate Strategy

o Overall scope and mission of the
organization
o Company goals and objectives
o Source of competitive advantage
o Development strategy for future
growth
o Allocation of corporate resources
across firms various businesses
o Sources of synergy
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Corporate ScopeDefining the Firms Mission

o Clearly stated mission can help instill:

o A shared sense of direction
o Relevance
o Achievement among employees
o Positive image of the firm

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Exhibit 2.2

Characteristics of Effective Corporate Mission Statements

Broad

Specific

Functional
Based on
customer
needs

Transportati Long-distance
on business transportation for
large-volume
producers of lowvalue, low-density
products

Physical
Based on
existing
products or
technology

Railroad
business

Long-haul, coal
carrying railroad

Source: Adapted from Strategy Formulation: Analytical Concepts, 1st edition, by

C. W. Hofer and D. Schendel, Thomson Learning 1978.

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Social Values and Ethical Principles

o Ethics
oIs concerned with the development of moral
standards by which actions and situations can
be judged
oIs more proactive than the law
o Important to craft mission statements specifying
explicit social values, goals and programs

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The Marketing Implications of Ethical Standards

o Unethical practices can:

oDamage the trust between a firm
and its suppliers or customers
oDisrupt the development of longterm exchange relationships
oResult in the likely loss of sales
and profits over time

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Corporate Objectives
o Components of an objective:
oA performance dimension
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
oSpecific, Measurable, Attainable,
Relevant, and Time-bound
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Enhancing Shareholder Value

o Managements primary objective:
o Capital investments
o Acquisitions
o Business strategies
o Many firms set explicit objectives
targeted to increase shareholder
value
o Objectives are sometimes expressed
in terms of market value added (MVA)
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The Marketing Implications of Corporate

Objectives
o Managers can reconcile conflicting
goals by:
o Prioritizing them
o Stating one of them as a
constraint or hurdle
o Consistent customer-focused
objectives are:
o Satisfaction
o Retention
o Loyalty
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Corporate Growth Strategies

o Firms can head in two major
directions for future growth:
o Expansion of its current
businesses and activities
o Diversification into new
businesses

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Exhibit 2.5

Alternative Corporate Growth Strategies

Current products

New
markets

Current
markets

Market penetration
strategies

Increase market share

Increase product usage
Increase frequency of use
Increase quantity used
New applications

Market development
strategies
Expand markets for
existing products
Geographic expansion
Target new segments

New products

Product development
strategies

Product improvements
Product-line extensions
New products for same
market

Diversification strategies
Vertical integration

Forward/backward integration

Diversification into related

businesses
(concentric diversification)

Diversification into unrelated

businesses
(conglomerate diversification)
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Allocating Corporate Resources

o Two sets of analytical tools are
used:
o Portfolio models
o Value-based planning

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Portfolio Models
o The Boston Consulting Groups (BCG) GrowthShare Matrix
o Resource Allocation and Strategy Implications
o Question marksBusinesses in high-growth
industries with low relative market shares
o StarsMarket leader in a high-growth
industry
o Cash cowsBusinesses with a high relative
share of low-growth markets
o DogsLow-share businesses in low-growth
markets

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Exhibit 2.6

BCGs Market Growth Relative Share Matrix

High

Stars

Question marks

Market
growth
rate
(in constant
dollars)

6
3

10%
Cash cows

Dogs

11

10

12

13

Low
10

0.1

Relative market share

Source: From Long Range Planning, Volume 10 (February 1977), Barry Hedley, Strategy and the Business Portfolio,
Copyright 1977, Elsevier Science. Reprinted with permission.

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Exhibit 2.7

Growth rate (cash use)

Cash Flows across Businesses in BCG Portfolio Model

High

Question
marks

Stars
Cash
Flows

Low

Dogs

Cash cows

High

Relative market share

Low

Desired direction of business development

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Exhibit 2.8

Businesss
competitive position

The Industry Attractiveness- Business Position Matrix

Industry attractiveness
High
Medium

Low

High

Medium

Low

1 Invest/grow
2 Selective investment/ maintain position
3 Harvest/divest
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Value-Based Planning Methods

o Assess the economic value of a
strategy by examining the cash
flows it will generate
o Estimate the shareholder value
produced by discounting its
forecasted cash flows by the
businesss risk-adjusted cost of
capital
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Exhibit 2.9

Factors Affecting the Creation of Shareholder Value

Corporate
objective

Creating
Shareholder
value

Valuation
components

Cash flow
from
operations

Value
drivers

Management
decisions

Value
growth
duration

Sales growth
Operating
profit margin
Income tax
rate
Operating

Shareholder return
Dividends
Capital gains

Discount
rate
Working
capital
investment
Fixed capital
investment
Investment

Debt

Cost of capital

Financing

Source: to come
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Sources of Synergy
o Knowledge-Based Synergies
o Corporate Identity and the
Corporate Brand

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Corporate Branding Strategy

o A firm might pursue one of three options
concerning the corporate brand:
o Might serve as the brand name of all or most
of the firms products in markets around the
world
o Dual branding strategy where each offering
carries both a corporate identifier and an
individual product brand.
o Each product offering might be given a unique
brand and identity
o A second potential source of corporate synergy
is inherent in sharing operational resources

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