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Competitive Advantage: The Importance of Strategic Marketing

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  • 0:49 Four Strategic Alternatives
  • 3:30 Selecting a Strategic…
  • 4:36 Four Quadrants of a…
  • 6:36 Four Ways to Allocate…
  • 8:29 Lesson Summary
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Lesson Transcript
Instructor: Jennifer Lombardo
Companies have many options when it comes to gaining market share and increasing profits. Learn about strategic marketing and the tools companies use to their advantage.

Strategic Alternatives

Companies must go through a number of steps to create an effective marketing plan and strategy. They first must conduct a S.W.O.T. analysis. S.W.O.T. stands for strengths, weaknesses, opportunities, and threats. They must use a S.W.O.T. analysis to decide on the competitive advantage they will use in the marketplace. The next step is that companies must decide on which strategic alternative they will use to market their product or service. A strategic alternative is the game plan that a company chooses in order to get the largest growth and profits with the lowest risk.

Four Strategic Alternatives

Companies can choose to go in four different ways: market penetration, market development, product development, and diversification. A company that decides to use a market penetration strategy would plan to increase profits by increasing market share among existing customers. When Coca-Cola runs a special summer sweepstakes contest with spectacular prize giveaways, the plan is to increase market share by using promotional methods. When Hershey Candy offers two bags of candy for five dollars at Target around Halloween, they are also using market penetration through an incentive for customers to possibly buy more than they originally intended.

Examples of SBUs created by the Campbell Soup company
Campbells Soup SBUs

Sometimes companies concentrate on developing a new customer base. They want to attract new customers to their existing product lines. This is called market development. One key way of achieving this is to find new ways to use existing products. A perfect example is Arm & Hammer Baking Soda. They constantly find new ways to bring in additional customers. In fact, their promotional campaigns always indicate the many uses, such as cleaning pesticides off fruit, brushing your teeth, baking, deodorizing, et cetera. Another way companies can increase their new customers is to target new markets. For example, McDonald's has had much of their growth overseas and is looking to gain even more customers in Eastern Europe.

Another strategic alternative is product development. In a product development strategy, companies create new products for current markets. Some examples of this type of strategy would be Microsoft's Xbox gaming console, Pretzel M&M's candy, and Apple's iPad. Companies constantly look for ideas for new products. Did you know that in the food category alone, over twenty thousand new products are introduced to the marketplace each year?

The last strategy a company can use is called diversification. This strategy has the most risk because it is when a company not only develops new products, but also pushes into new markets. A great example is when Disney went from making movies to building theme parks. When a firm is able to be successful at this strategy, they can reap large market share and profits. Companies must thoroughly research the new product development process and the new markets. One of the worst failures was when Colgate tried to make frozen dinners and Cosmopolitan magazine marketed yogurt! The companies should have stuck with teeth and magazines.

Selecting a Strategic Alternative

Large companies create SBUs or strategic business units to help them manage their organization's growth. SBUs are business divisions set up to make the larger organizations more nimble and provide flexibility and control in the marketplace. Campbell Soup has their large company divided into smaller SBUs such as USA, Bakery & Confectionery, and International Grocery.

Companies always have certain SBUs that are more successful than others and might need a different strategic plan. SBUs can be categorized in a portfolio matrix which classifies each SBU by its present or forecast growth and market share. The portfolio matrix is set up with the market share dominance (the share as relative to the largest competitor) on the x-axis and the market growth rate on the y-axis, in constant dollars. The portfolio matrix consists of four matrix areas: stars, cash cows, problem children, and dogs.

The portfolio matrix
Portfolio Matrix

Four Quadrants of a Portfolio Matrix

A star is a market leader with tremendous growth potential. Most stars require a large amount of cash investment for product development and promotion to stay ahead of competition. Samsung has developed its tablet computers, a fast-growing industry, but needs to continue to invest in the product in order to maintain a market share.

A cash cow is an SBU that generates heaps of cash and does not need a large investment to maintain market share and sales. Laptop computers would be considered cash cows, because they sell consistently in a slower-growth industry and don't require much investment. Heinz has two large cash cows to milk: ketchup and Weight Watchers frozen dinners, both products that maintain a large market share without development or advertising costs.

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