C

H
2
A
P
T
E
R

TWO
Corporate
Strategy
Decisions
and Their
Marketing
Implications
McGraw-Hill/Irwin
©2008 The McGraw-Hill Companies,
1-1
All Rights Reserved
Components of a Corporate Strategy
 Overall scope and mission of the
organization
 Company goals and objectives
 Source of competitive advantage
 Development strategy for future growth
 Allocation of corporate resources across
firm’s various businesses
 Sources of synergy

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Corporate Scope—Defining the
Firm’s Mission
 Clearly stated mission can help instill:
 A shared sense of direction
 Relevance
 Achievement among employees
 Positive image of the firm

1-3 2-3
Exhibit 2.2

Characteristics of Effective
Corporate Mission Statements
Broad Specific
Functional Transportation Long-distance
Based on business transportation for
customer needs large-volume
producers of low-
value, low-density
products
Physical Railroad Long-haul, coal
Based on business carrying railroad
existing products
or technology

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

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The Marketing Implications of
Ethical Standards
 Unethical practices can:
 Damage the trust between a firm and its
suppliers or customers
 Disrupt the development of long-term
exchange relationships
 Result in the likely loss of sales and profits
over time

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Corporate Objectives

 Components of an objective:
 A performance dimension
 A measure or index for evaluating progress
 A target or hurdle level to be achieved
 A time frame within which the target is to
be accomplished

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Enhancing Shareholder Value

 Management’s primary objective:

 Capital investments
 Acquisitions
 Business strategies
 Many firms set explicit objectives
targeted to increase shareholder value
 Objectives are sometimes expressed in
terms of market value added (MVA)

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

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Corporate Growth Strategies

 Firms can head in two major directions

for future growth:
 Expansion of its current businesses and
activities
 Diversification into new businesses

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Exhibit 2.5

Alternative Corporate Growth Strategies

Current products New products

Market penetration Product development

strategies strategies
• Increase market share • Product improvements
Current
markets

• Increase product usage • Product-line extensions

Increase frequency of use • New products for same
Increase quantity used market
New applications

Market development Diversification strategies

strategies • Vertical integration
markets

• Expand markets for Forward/backward integration

New

existing products • Diversification into related

Geographic expansion businesses
Target new segments (concentric diversification)
• Diversification into
unrelated businesses
(conglomerate diversification)
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Allocating Corporate Resources

 Two sets of analytical tools are used:

 Portfolio models
 Value-based planning

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Portfolio Models

 The Boston Consulting Group’s (BCG)

Growth-Share Matrix
 Resource Allocation and Strategy
Implications
 Question marks–Businesses in high-growth
industries with low relative market shares
 Stars–Market leader in a high-growth
industry
 Cash cows–Businesses with a high relative
share of low-growth markets
 Dogs–Low-share businesses in low-growth
markets
1-132-13
Exhibit 2.6

BCG’s Market Growth Relative

Share Matrix
High
Stars Question marks

5
2
4 1

Market 6
growth 3
rate
(in constant 10%
dollars) Cash cows Dogs
7
8 11 12

9 10 13

Low
10 0.1
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

Cash Flows across Businesses in

BCG Portfolio Model
Growth rate (cash use)

Stars Question
High
marks

Cash
Flows

Low Dogs
Cash cows

High Low
Relative market share

Desired direction of business development

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Exhibit 2.8

The Industry Attractiveness-

Business Position Matrix

Industry attractiveness
High Medium Low
competitive position

High 1 1 2
Business’s

Medium 1 2 3

Low 2 3 3

1 Invest/grow
2 Selective investment/ maintain position
3 Harvest/divest

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Value-Based Planning Methods

 Assess the economic value a strategy by

examining the cash flows it will
generate
 Estimate the shareholder value
produced by discounting its forecasted
cash flows by the business’s risk-
adjusted cost of capital

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Exhibit 2.9

Factors Affecting the Creation of

Shareholder Value

Corporate Creating Shareholder return

objective Shareholder Dividends
value Capital gains

Valuation Cash flow

components from Discount
rate Debt
operations

Value Sales growth Working Cost of capital

Value growth Operating capital
drivers duration profit margin investment
Income tax Fixed capital
rate investment

Management Operating Investment Financing

decisions
Source: to come

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Sources of Synergy

 Knowledge-Based Synergies
 Corporate Identity and the Corporate
Brand

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