Introduction:
This section summarizes information about a sample of tools and frameworks useful for strategy development. A brief summary of each is offered here. Copies of articles or chapters/pages from books are linked on the project website. Feel free to scout out other tools and frameworks that might be helpful.


Integrative Frameworks:
These frameworks examine multiple elements in the firm and environment to derive strategy.

3 Cs Analysis


Summary:
  Marketing strategy focuses on the ways in which a firm can differentiate itself effectively from its competitors, capitalizing on its distinctive strengths to delivery better value to its customers.  A good marketing strategy should be characterized by (a) a clear market definition; (b) a good match between corporate strengths and the needs of the market; and (c) superior performance, relative to the competition in the key success factors of the business.  Together, the strategic three C’s form the marketing strategy triangle.  Matching between the Company, (current and potential strengths and weaknesses), Customers (served and not served), and Competitors (current and prospective) needs to be considered.  Ultimately, the focus needs to be on achieving maximum positive differentiation over competition in meeting customer needs regarding:
- Where to compete – definition of the market
- How to compete – means of competing
- When to compete – timing issues


Source: 
Jain, Subhash C. (2000). Marketing: Planning & Strategy (6th ed.), Cincinnati: South-Western College Publishing, pp 23-27. 

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Three Value Disciplines


Summary:
Treacy and Wiersema propose a set of three value disciplines similar to Porter’s generic strategies.  The three strategies are Operational Excellence, Customer Intimacy, and Product Leadership.  The operational excellence strategy is to lead the industry in price.  The goal is to increase efficiency and lower prices to consumers.  Profits are made from lower costs rather than higher prices.  Firms with a customer intimacy strategy tailor their products to fit the specific needs of market segments.  They compete on superior service and satisfying wants rather than low prices.  Firms make profits from higher prices rather than from lower costs.  The product leadership strategy does not have a corresponding generic strategy.  Firms following this strategy stress speed and perpetual innovation.  They prefer to move quickly into new markets with innovative new products.  Product leaders introduce a rapid-fire number of new products that leave competitors perpetually playing catch-up.  The authors argue that the choice of strategy depends on the segment targeted.  Picking a segment to serve is essentially the same as picking a strategy, and picking a strategy is the same as picking a market to serve. 


Sources: 

Treacy, Michael and Fred Wiersma (1993), “Customer Intimacy and Other Value Disciplines,” Harvard Business Review, 71 (Jan/Feb), 84-94.  (This reading is in your course pack)

Schnaars, Steven P. (1998), Marketing Strategy: Customers & Competition, 2nd ed., New York: Free Press, pp 65-67.

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Porter Five Forces Industry Analysis

Summary: This model identifies five key structural features that determine the strength of the competitive forces within an industry and hence industry profitability.  These are:  Buyer Power, Supplier Power, Threat of Entrants, Threat of Substitutes, and Competitive Rivalry.  Together these factors influence market attractiveness.  Depending on their combination, intensity can be cut-throat and thus result in poor profits or it may be moderate and result in higher profits.  Firms can monitor the alignment of the five forces to match their strengths and weaknesses to the market’s structure, to anticipate market changes, to identify diversification opportunities, to reconfigure the rules of competition, and to ensure that their dominant position remains undiminished. 


Sources:
Michael E. Porter (1980), “Industry Structure and Competitive Strategy:  Keys to Profitability,” Financial Analysis Journal, July-August, 30-41.

Schnaars, Steven P. (1998), Marketing Strategy: Customers & Competition, 2nd ed., New York: Free Press, pp 35-43.

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SWOT Analysis

Summary:  SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis models actual and potential fit between firm and offering strengths and weaknesses and environmental opportunities and threats.  It identifies the key components of marketing information from the vast amounts of data generated by a marketing audit.  It allows the firm to highlight the external opportunities and threats, and to weight them against its current internal strengths and weaknesses.  The traditional layout for the SWOT analysis was a 2 X 2 matrix but this traditional layout is now best expanded to include more details such as a summary of reasons for good and bad performance.  SWOT analysis provides the basis for setting objectives and strategies and thus should be undertaken at several levels:  for the organization, for each major market segment, for each major product/service, and for the competition.  The information that should appear in the SWOT should be dependent on the impact and likelihood of occurring. 

Source:  McDonald, Malcolm and Adrian Payne (1996), Marketing Planning for Services, Oxford: Butterworth-Heinemann, pp 77-117

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Opportunity Evaluation Matrix


Summary:
  The opportunity evaluation matrix is used in an opportunity analysis as a means to find markets that an organization can profitably serve.  Opportunities arise from identifying new types or classes of buyers, uncovering unsatisfied needs of buyers, or creating new ways or means for satisfying buyer needs.  The qualitative phase of an opportunity evaluation focuses on matching the attractiveness of an opportunity with the potential for uncovering a market niche.  Attractiveness is a function of five factors, including:  (1) competitive activity, (2) buyer requirements, (3) market demand and supplier sources, (4) social, political, economic, and technological forces, and (5) organizational capabilities.  Each factor is assessed on the types of buyers sought, the needs of buyers, and the means for satisfying these needs. 


Source: 
Kerin, Roger A and Robert A. Peterson (1998), Strategic Marketing Problems: Case and Comments, Upper Saddle River, NJ: Prentice Hall, pp 59-61

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Threat Matrix


Summary:
A threat is a challenge posed by an unfavorable trend or development that would lead, in the absence of defensive marketing action, to sales or profit deterioration.  Threats are classified according to their seriousness and probability of occurrence.  The result is a 2 X 2 matrix.  Threats of high seriousness and high probability of occurrence are major threats since they can seriously hurt the company’s performance and have a high probability of occurrence.  Contingency plans need to be prepared in case this type of threat occurs.  Threats with low seriousness and low probability of occurrence are minor and can be ignored.  Threats in the upper right or lower left of the matrix do not require contingency planning but need to be monitored in the event that they grow more critical.  Strategy can be developed on the basis of this analysis.


Source: 
Kotler, Philip (1994), Marketing Management (8th ed.), Englewood Cliffs, NJ: Prentice Hall, pp 64-65.

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Value Net

Summary: This model, developed by Brandenburger and Nalebuff, extends the five-forces framework more general by examining the role of complementors.  Complementors are firms from which customers buy complementary products or services and their effect is the mirror image of competitors.  They increase buyers’ willingness to pay for products and decrease the price that suppliers require for their inputs.  Complementors seem to be particularly important in situations where businesses are developing entirely new ways of doing things or where standards play important roles.  Cooperation with complementors to expand the size of the pie must be considered in light of the fact that the may ultimately compete with them.   Factors that determine the relationship with complementors are listed below. 
  1. Complementors are more likely to have the power to pursue their own agenda when they are concentrated relative to competitors.
  2. Complementors’ ability to pursue their own agendas increases when the costs to buyers or suppliers of switching across complementors vs. switching across competitors.
  3.  Complementors will tend to have less power if consumers can purchase and use products independently of them.  As complementors play a greater role in pulling through demand or supply, their power is likely to expand. 
  4. Complementors are likely to have more power when they can credibly threaten to invade competitors’ turf. 
  5.  Competition with complementors to claim value is likely to be less intense when the size of the pie available is growing rapidly.


Source:
Ghemawat, Pankaj (1999), Strategy and the Business Landscape, Reading, MA: Addison-Wesley, pp 31-35.

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Mapping Business Landscapes


Summary:
  This model offers a way to visualize the profit potential of a business environment.   A business landscape maps each business model’s elevation (on the vertical dimension) according to its economic profitability.  The challenge of strategy is to guide a business to a relatively high point on this landscape.  Two- and three-dimensional landscapes allow the inclusion of one or two choice variables.  The major purpose of mapping the business landscape is not to identify whether one operates on a part of it that is high above or well below economic sea levels but instead to understand the reasons for such variances and to capitalize on them.  The five-forces and value net models are both structured ways of thinking about business landscapes. 

  1.  Draw the boundaries around the parts to be described in detail by identifying the types of players that will be taken into account.  For most business strategy, zooming in on sets of players with a direct impact on the profitability of one’s own business model offers more insight than reviewing the economy as a whole.  The strategist must decide how broadly to focus in mapping the business landscape.  Important substitutions and complementarities must be taken into account.
  2. Identify and sometime calibrate key relationships among players.  Not all the potential types of players will be of equal importance in any particular situation.  One approach to assessing these relationships calibrates relationships in quantitative or categorical terms so as to yield something akin to a traditional decision support system.  Another approach focuses on mental models, stressing that key decision-makers should understand key relationships in some depth.
  3. Find ways of adapting to or shaping those relationships so as to maximize a business’s total profitability, rather than just the average profitability of the environment in which it operates.  Generally, the connection to a strategic action becomes most obvious when the analysis is initially motivated by a specific choice (e.g., whether to enter a market). 

Source: Ghemawat, Pankaj (1999), Strategy and the Business Landscape, Reading, MA: Addison-Wesley, pp 35-44.

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Strategic Groups


Summary:
  This model identifies competitors based on differences in firms’ strategies for competing in an industry.  This approach is useful in identifying and analyzing competitors because members of a strategic group not only resemble each other but are also affected similarly by any given event or change in the environment.  As a result, they will likely respond in a similar manner to competitive threats or moves.  A firm’s competitive strategy can be defined using several dimensions that differentiate it from other firms in the industry.  These dimensions consist of two sets of activities:  business scope and business resource commitments.  Business scope includes target market segments, type of products & services offered in the target markets, and the geographic reach of the product market strategy.  Resource commitments include the allocation of resources to those functional areas considered central to achieving and maintaining a competitive advantage in targeted product-markets.  When firms compete within an industry on the basis of similar combinations of scope and resource commitments, the firms are considered participants in a strategic group.  The number of strategic groups in an industry can vary from one (i.e., all firms compete on the same dimensions) to the total number of firms in the industry (i.e., each firm competes on a unique set of dimensions).  Strategic groups are sensitive to the particular dimensions used and may change over time.  Different dimensions can produce different strategic groups and result in a situation in which group membership changes.


Sources: 
Czepiel, John A. (1992), Competitive Marketing Strategy, Englewood Cliffs, NJ: Prentice Hall, pp 335-339.

Kerin, Roger A., Vijay Mahajan, and P. Rajan Varadarajan (1990), Contemporary Perspectives on Strategic Market Planning, Boston: Allyn and Bacon, pp 294-302.

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The SPACE Matrix


Summary:
The SPACE matrix is a valuable method for analyzing the competitive position of an organization. It makes use of two internal dimensions (financial strength and competitive advantage) and two external dimensions (industry strength and environmental stability), to determine the organization’s strategic posture in the industry. The firm’s strategic posture is then classified broadly as: aggressive, competitive, conservative or defensive.  The SPACE matrix can be used alone or as the basis for other analyses (e.g., SWOT analysis, industry analysis, or assessing strategic alternatives).


Source: 
Radder, Laeticia (1998), “The SPACE Matrix: A Tool for Calibrating Competition,” Long Range Planning, 31 (4), 549-559.

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Kotler’s Typology of Marketing Strategies


Summary:
  Kotler classifies firms by the role they play in the target market:  leader, challenger, follower, or nicher.

Market Leader Strategies
:  The market leader generally leads the other firms in price changes, new-product introductions, distribution coverage, and promotional intensity.  The market leader must maintain a constant vigilance as other firms keep challenging its strength or trying to take advantage of its weaknesses.  To remain number one, dominant firms must find ways (1) to expand total market demand, (2) to protect its current market share through good defensive and offense actions, and/or (3) try to increase its market share further, even if market size remains constant. 


Market Challenger Strategies
:  Challengers can attack the leader and other competitors in an aggressive bid for further market share.  The strategic objective of most challengers is to increase their market shares.  An aggressor can choose to attack the market leader, to attack firms of its own size that are not doing the job or are under-financed, or attack small local and regional firms that are not doing the job or are under-financed.  The attack strategies include frontal attack, flank attack, encirclement attack, bypass attack, and guerilla attack.


Market Follower Strategies
:  Followers tend not to want to steal others’ customers, but instead they present similar offers to buyers, usually by copying the leader.  Follower market shares show a high stability.  Each follower tries to bring distinctive advantages to its target market.  The follower is a major target of attack by challengers.  Therefore the follower must keep its manufacturing costs low and its product quality and service high.  Following does not mean the firm is passive or a carbon copy of the leader.  The specific strategies are: the cloner, which lives parasitically off the leader; the imitator, which copies some things from the leader but maintains differentiation in terms of packaging advertising, pricing, etc; and the adapter, which takes the leader’s products and adapts and often improves them.   


Market Nicher Strategies
:  An alternative to being a follower in a large market is to be a leader in a small market or niche.  Smaller firms normally avoid competing with larger firms by targeting small markets of little or no interest to the larger firms.  Firms with low shares of the total market can be highly profitable through small niching.  The nicher ends up knowing the target customer group so well that it can meet their needs better than other firms casually selling to this niche could.  The nicher receives high margins in contrast to the high volume of the mass marketer.  The key idea is specialization.  Nichers need to create niches, expand niches, and protect niches.


Sources: 
Kotler (1994), Chapter 15: “Designing Marketing Strategies for Market Leaders, Challengers, Followers, and Nichers,” Marketing Management, 8th edition, Prentice Hall, 381-407. (This reading is in your course pack) 

Schnaars, Steven P. (1998), Marketing Strategy: Customers & Competition, 2nd ed., New York: Free Press, pp 129-143.

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Opportunity Assessment (and Grid)


Summary:
   This is a strategy tool used to assess nine factors in four areas that can determine the character and magnitude of an opportunity.  These four areas are competitive intensity, customer dynamics, technology vulnerability, and microeconomics. 

  1. Competitive Intensity:  Factors that relate to overall competitive intensity can be expressed in a competitor map that includes (a) the number and identity of competitors along with (b) their respective strengths and weaknesses at delivering benefits.  To measure competitive intensity, the company needs to identify the competitors it will face.  Competition can come in the form of both direct and indirect competition.  Direct competitors offer a similar or competing product.  Indirect competition comes from firms offering products and services that perform the same function even though they are in different industries and firms that do not currently offer products and services that are direct substitutes but have the potential to quickly do so.  A competitor map allows the firm to see the underserved areas in the market, competitors and their strengths, and to identify potential collaborators. 
  2. Customer Dynamics:  Elements that frame the overall customer dynamics of the market are the level of unmet need or magnitude of unconstrained opportunity, the level of interaction between major customer segments, and the likely rate of growth.  Customer dynamics of the market must be assessed for how they create, accelerate, and sustain unit demand.  Unconstrained opportunity is the amount of untapped opportunity available in the market space.  Segment interaction is the level of reinforcing activity that generates more purchase and usage.  Markets with high-expected growth represent significant opportunities for firms. 
  3. Technological Vulnerability:  Includes the impact of the penetration of enabling technologies and the impact of new technologies on the value proposition.  The firm must make a high-level judgment on the products’ vulnerability to technology trends in terms of technology adoption and the impact of new technologies. 
  4. Microeconomics of the opportunity includes the size/volume of the market and the level of profitability.  Firms in large markets or with high profitability are attractive because they generate significant revenue flow and profits.  To assess overall industry attractiveness, managers must rate each factor separately and as a whole.  The manager must try to gage the magnitude of each factor on whether its impact will help, be neutral, or hinder the overall market opportunity.  The data can be depicted on a grid with each factor’s rating (i.e., positive, neutral or negative) along the vertical dimension and each factor on the horizontal dimension.

Source:  Rayport, Jeffrey F. and Bernard J. Jaworski (2001), e-Commerce, New York: McGraw Hill Higher Education. pp 86-96.

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RJS (Rayport, Jaworski, and Siegal) Model


Summary:
This is a 2 X 2 model that has sources of content origination along the horizontal axis and focus of the business strategy on the vertical access.  Content in this context may refer to products, services, and/or information.  The business can focus on content from a single source or multiple sources.  The focus of the business strategy is whether it is principally focused on supply-chain improvement and hence supply-side focused, or whether it is focused on a better customer experience and thus demand-side focused.  Given these dimensions, firms are categorized as forward-integrated producers, supply-side aggregators, backward-integrated users, and demand-side aggregators.  Forward-integrated producers refer to single company initiatives that focus on enhancing the effectiveness of efficiency of the supply channel.  Applied to an internet context, these companies have generally decided to pursue an Internet strategy to enhance their relationships with suppliers or to reduce supply-chain inefficiencies.  Supply-side aggregators are similar to forward-integrated producers in their focus as they enhance the effectiveness or efficiency of the supply chain.  However, they do so by aggregating multiple players in the supply chain.  This means that they do not offer their own products, but rather they aggregate many suppliers.  Backward-integrated users refer to a situation where a single company attempts to better serve its clients through a web interface.  The intent is to better serve existing or new clients through a company site.  Demand-side aggregators pull together many potential buyers on a single site.  It is important to note that the resulting four categorizations are not mutually exclusive.  Many businesses pursue hybrid approaches.  Through a hybrid model, firms can choose to aggregate many sources of supply and many sources of demand and thus combine the supply-side aggregation and demand-side aggregation cells of the matrix.  Similarly, a firm may decide to aggregate all of its suppliers and buyers into a single hub that is firm specific. 


Source: 
Rayport, Jeffrey F. and Bernard J. Jaworski (2001), e-Commerce, New York: McGraw Hill Higher Education, pp 99-102.

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Competitive Positioning


Summary:
  Positioning models usually begin by cataloging a business’ activities.  These activities should be grouped into a limited number of economically meaningful categories.  Porter’s value chain analysis, which distinguishes between primary activities and support activities that make the primary activities possible is particularly helpful in ensuring that one considers a comprehensive array of activities.  The rest of the analysis usually proceeds in three steps.  First, managers examine the costs associated with each activity, using differences in activities to understand how and why their costs differ from those of competitors.  Second, they analyze how each activity generates customer willingness to pay, studying differences in activities to see how and why customers are willing to pay more or less for the goods or services of rivals.  Finally, managers consider changes in the firm’s activities with the objective of identifying changes that will widen the wedge between costs and willingness to pay.  Typically, competitive cost analysis is the starting point for the competitive analysis.  Differences in cost often exert a large influence on differences in profitability.  After calculating the costs associated with each activity, the set of cost drivers of each activity should be determined.  Cost drivers are the factors that make the cost of an activity rise or fall.  A particular driver should be modeled only if it is likely to vary across competitors or in terms of the strategic options that will be considered.  Drivers are also critical because they allow estimation of competitor’s cost position.  One can often study cost drivers without directly observing a competitor’s costs.  Virtually any activity in the value chain can affect customers’ willingness to pay for a product.  Most obviously, manufacturing activities that influence product characteristics – quality, performance, features, aesthetics – affect willingness to pay.  A firm can boost willingness to pay through activities associated with sales or delivery and with post-sale service or complementary goods.  In many cases, willingness to pay depends heavily on intangible factors and perceptions that are hard to measure.  It may also be nonlinear and non-additive and depend on multiple parties.  A typical way of measuring it is to find out who the real buyer is, what they want, how consumers make trade-offs among the different needs, how successful the firm and its competitors are at fulfilling customer needs, and then relating this information back to the company activities.  The final step in the analysis involves the search for ways to widen the wedge between costs and willingness to pay.  The generation of options for doing so is ultimately a creative act.  In sum, the firm should eliminate activities that generate costs without creating commensurate willingness to pay, and it should search for inexpensive ways to generate additional wiliness to pay, at least among a segment of consumers.


Source: 
Ghemawat, Pankaj (1999), Strategy and the Business Landscape: Text and Cases, Reading, MA: Addison-Wesley, pp 60-70.

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Classic Product Life Cycle


Summary:
  The classic product life cycle is based on the biological birth-growth-maturity-decline sequence in life.  Sales grow slowly as the product is introduced.  In the growth stage, the product achieves rapid market acceptance and profits improve substantially.  The maturity stage is characterized by a slowdown in sales growth as most potential buyers have accepted the new product.  The decline period sees a downward drift in sales and erosion of profits as the level of competition increases.  The classic cycle can be characterized as such:  (1) products have a limited life; (2) their sales history follows an S-curve until annual sales flatten; (3) the inflection points in the sales history identify the various stages; (4) the life of the product may be extended by finding new uses or users, or getting present users to increase consumption; and (5) the average profitability per unit rises and then falls as products move sequentially and inevitably through the stages.  Each stage is distinct and brings different challenges to the seller.  The marketer must continually adapt the marketing focus at each stage.


Source: 
Czepiel, John A. (1992), Competitive Marketing Strategy, Englewood Cliffs, NJ: Prentice Hall, pp 222-224.

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Evolutionary Model of the Product Life Cycle


Summary:
  This model explores the concept of biological evolution as the basis for a life-cycle theory.  The classic product life cycle is based on the life cycle of individual biological specimens.  Instead, this model proposes that a biological evolutionary cycle be used.  Evolution is used to designate gradual, continuous change that is: (1) cumulative, (2) motivated by generative, selective, and meditative forces, (3) directional and (4) patterned.  Change in products is clearly cumulative and seems directional as evidenced by increasing diversity, efficiency, and complexity of products.  The evolutionary approach is dynamic and open-ended, and thus in direct contrast to the classic life cycle.  The product need not go through each stage in a predetermined order.  Development of the product is a function of the interaction of the product with the environment.  The firm does not simply respond to change in the environment, but it is an active participant in the process. 


Source:
Czepiel, John A. (1992), Competitive Marketing Strategy, Englewood Cliffs, NJ: Prentice Hall, pp 224-227.

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BCG Matrix (Growth-Share Matrix)


Summary:
This matrix is a simple 2 X 2 matrix that crosses market share and market growth to yield four quadrants.  Each of the firm’s products is plotted into one of the cells of the matrix identified as stars (high share/high growth), question marks (low share/high growth), cash cows (high share/low growth), and dogs (low share/low growth).  Different strategies are designated for each quadrant based on the combination of market share and market growth.  It is a strategic allocation model that shows how money can be transferred from areas of strategic weakness to opportunity.  Based on these classifications, the firm then assesses the health of its portfolio.  The goal is to continuously generate future cash cows.  Money earned from cash cows is invested into question marks with the intent of turning them into stars.  As the market matures, stars will degenerate into cash cows and the process is repeated.  New cash cows give the firm a steady source of funds to pursue future avenues of growth.  The path to success is not foolproof as the firm can also follow paths to failure.  The matrix can also be used to project the firm’s trajectory. 

Sources:  Schnaars, Steven P. (1998), Marketing Strategy: Customers & Competition,” 2nd ed., New York: Free Press, pp 49-59.

Kotler, Philip (1994), Marketing Management (8th ed.),” Englewood Cliffs, NJ: Prentice Hall, pp 70-72

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Competitive Advantage Matrix (New BCG Matrix)


Summary:
  The new BCG matrix is a tool for assessing the number of differentiation opportunities for obtaining a competitive advantage.  This matrix was designed to address criticisms of the original BCG portfolio matrix (which include a failure to reflect changes in the business environment).  This new competitive advantage matrix views a strategy of market share leadership as desirable in only certain industry contexts.  This is a 2 X 2 matrix with size of the competitive advantage that can be achieved (small or large) and the number of ways of achieving competitive advantage (few or many) as the dimensions.  The cells of the matrix categorize industries into volume, stalemate, fragmented, and specialized industries.  With volume businesses, market share and profitability increase with each other thus making a strategy of market share leadership and cost reduction meaningful.  With stalemate businesses, profitability is not related to the size of the firm.  In this type of industry, the difference between the most profitable and least profitable firms will be relatively small.  Fragmented businesses are those in which market share and profitability are uncorrelated so firm profitability is independent of size.  Specialized businesses are such that small firms that distinguish themselves from their competitors by pursuing a focused strategy are likely to be the most profitable.  Depending on the type of industry, firms can then use maneuverability and strategic leverage to improve their positions. 


Sources: 
Kerin, Roger A., Vijay Mahajan, and P. Rajan Varadarajan (1990), Contemporary Perspectives on Strategic Market Planning, Boston: Allyn and Bacon, pp 101-103
.

Kotler, Philip (1994), Marketing Management (8th ed.), Englewood Cliffs, NJ: Prentice Hall, pp 294-295.

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GE/McKinsey Portfolio Matrix


Summary:
  This is a multifactor portfolio approach to strategy developed in response to the BCG Matrix.  This two-dimensional matrix uses industry attractiveness and business strengths as its dimensions, both of which are based on many factors.  Both dimensions are divided into three regions resulting in nine cells.  To appropriately assign products into the cells of the matrix, the firm must assess industry attractiveness and business strength.  It must first decide what criteria to use to define these two facets.  GE and McKinsey have developed a list of criteria but it is not exhaustive.  Management can use various criteria.  Whatever criteria are utilized must then be weighted in order to arrive at an industry attractiveness score and a business strength score.  Circles representing each of the SBUs in the firm’s portfolio are drawn in the matrix corresponding to their positions on business strength and industry attractiveness.  The sizes of the circles are in proportion to the sizes of the industries and the shaded parts of the circles are in proportion to the SBU’s share of the industries in which it competes.  A company may position its products or businesses on the matrix to study its present standing.  Future projections can be compared to current positions to identify gaps between what is desired and what can be expected.  For every combination of market attractiveness and competitive advantage, there is at least one strategic market plan to be considered.  Based on the analysis, the firm has four strategy options:  investing to maintain, investing to grow, investing to regain, and investing to exit.  Product markets strong in both market attractiveness and business strength present the best opportunity for profit performance. 


Sources: 
Jain, Subhash C. (2000). Marketing: Planning & Strategy (6th ed.), Cincinnati, OH: South-Western College Publishing, pp 258-263. 

Best, Roger J. (2000), Market-Based Management (2nd ed.), Upper Saddle River, NJ: Prentice Hall, pp 248-252.

Kotler, Philip (1994), Marketing Management (8th ed.), Englewood Cliffs, NJ: Prentice Hall, pp 72-75.

Kerin, Roger A., Vijay Mahajan, and P. Rajan Varadarajan (1990), Contemporary Perspectives on Strategic Market Planning, Boston: Allyn and Bacon, pp 72-77.

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Directional Policy Matrix


Summary:
Developed by Shell Chemicals, this matrix is based on two dimensions:  business sector prospects and competitive position of the firm in that sector.  Business sector prospects are the profit and growth potential for the sector in which the business unit operates.  This matrix differentiates between three levels of business sector prospects (attractive, average, and unattractive) and three levels of the company’s competitive capabilities (strong, average, and weak).  Each of the nine cells of the matrix has a suggested strategic guideline for the business units falling within the cell.  The matrix offers flexibility in selecting factors relevant to the specific industry for assessing business sector prospects and competitive position.  Business sector prospects are assessed with market growth rate, market quality, industry situation, and environmental aspects.  Competitive position is assessed based on market position, product research and development, and production capability.  This matrix differs from the GE/McKinsey matrix in that it focuses on the attractiveness of a sector rather than the industry as a whole. 


Source: 
Kerin, Roger A., Vijay Mahajan, and P. Rajan Varadarajan (1990), Contemporary Perspectives on Strategic Market Planning, Boston: Allyn and Bacon, pp 80-86.

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Improved Critical Issues Grid


Summary:
  This is a framework and method for the planning radically new products.  It can also be used to analyze any type of planning strategy.  The analysis pays particular attention to environmental changes that come from political, behavioral, economic, sociological, or technological sources.  These environmental forces are studied from the point of view of the company, business ecosystem or value network, and the infrastructure.  The critical-issues grid provides a tool for identifying the key issues that may affect the product planning process.  The grid places the five environmental forces (political, behavioral, economic, sociological, and technological) in the rows of the matrix and the three points of view (company, business ecosystem, and infrastructure) as column heads.  The company is part of the business ecosystem and the ecosystem is part of the larger infrastructure.  These three points of view are comparable to getting a view from three different depths (e.g., from ground level, from 1000 feet above, and from 10,000 feet above).  These different points of view bring different issues into focus.  The goal of the critical issue grid is to keep strategic marketing planners thinking divergently enough that fundamental issues are elicited.


Source: 
Cooper, Lee G. (2000), “Strategic Marketing Planning for Radically New Products,” Journal of Marketing, 64 (January), 1-16. 

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Bayesian Networks


Summary:
Bayesian networks were developed in an attempt to devise a computational model of human reasoning of how people integrate information from multiple sources to create coherent stories or interpretations.  The human reasoning process is presented as a process that links judgments on a small number of propositions at one time.  The nodes of the graph represent certain propositions and the arcs link propositions that the scenario says are directly related.  The functionality of the mapping requires consistency and completeness – linguistically and probabilistically.  Such maps use concepts of conditional independence and graph separability to make it easier to compute the implication that a change in one state or conditional probability has on all other nodes in the graph.  As the number of influences on any given node increases, the number of conditional probabilities that must be evaluated grows multiplicatively.  By inputting all the information into a Bayesian network, it is possible to track the events that lead to different market outcomes.  The Bayesian nature of the network enables planners to improve the accuracy of the networks as their experience and expertise grows, to update information as events unfold, and to simulate the impact that changes in assumptions underlying the web have on the prospects for the new product. 


Source: 
Cooper, Lee G. (2000), “Strategic Marketing Planning for Radically New Products,” Journal of Marketing, 64 (January), 1-16. 

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Ansoff’s Product/Market Expansion Grid


Summary:
  This framework is useful in thinking about intensive growth opportunities.  The grid has current and new products on one dimension and current and new markets on the other dimension.  The strategies falling out of the grid are market penetration strategy (current market, current product), market development strategy (new markets, current products), product development strategy (current markets, new products), and differentiation strategy (new markets, new products).  Management first considers whether it could gain more market share with its current products in their current markets (i.e., market penetration).  Next, it considers whether it can find or develop new markets for its current products (i.e., market development).  Then it considers whether it can develop new products of potential interest to its current markets (i.e., product development).  Finally, the firm will review opportunities to develop new products for new markets (i.e., diversification).


Sources:
      Kotler, Philip (1994), Marketing Management (8th ed.), Englewood Cliffs, NJ: Prentice Hall, pp 76-79.

Kerin, Roger A., Vijay Mahajan, and P. Rajan Varadarajan (1990), Contemporary Perspectives on Strategic Market Planning, Boston: Allyn and Bacon, pp 230-232.

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Sheth Matrix


Summary:
This matrix is an extension of Ansoff’s product-market expansion grid.  The portfolio matrix approaches employ an analytic framework for identifying SBUs that a firm should retain in its portfolio and those it should delete.  However, it is imperative for top management to carefully explore the feasibility of turning around poor performers by evaluating a multiplicity of options before making a decision, which is often irreversible, to delete them from the portfolio.  Sheth lists nine strategic options that managers should evaluate before deciding that a product or service should be dropped.  These options differ with respect to market and use focus.  The market focus is on present or new markets, and the use focus is on present and new uses.  For each of these market-use categories, different strategic alternatives are provided for turning around poor performers.


Source: 
Kerin, Roger A., Vijay Mahajan, and P. Rajan Varadarajan (1990), Contemporary Perspectives on Strategic Market Planning, Boston: Allyn and Bacon, pp 92-93.

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Abell’s Framework for Strategic Planning


Summary:
  The heart of any business strategy is market definition.  The market can be defined in many ways, including in terms of product characteristics, type of brand sales, by specific regions, or by sales target.  The size of the market will vary considerably depending on its definition.  Traditionally, market boundaries have been defined in terms of product-market space.  In recent years, it has been considered inadequate to perceive market definition as simply that of a choice of a product for chosen markets.  Instead, the product can be considered a physical manifestation of a particular technology to a particular customer function for a particular customer group.  Market boundaries are then determined by choices made along these three dimensions.  Five sets of environmental influences will affect market boundaries.  These are: technological change, market-oriented product development, price changes and supply constraints, social, legal, or government trends; and international trade competition.  The adoption and diffusion process underlies the penetration of new customer groups.  A process of systemization results in the operation of products to serve combinations of functions.  Finally, the technology substitution process underlies change on the technology dimension.


Sources: 
Abell, Derek F.,  (1980), Defining the Business: The Starting Point of Strategic Planning, Englewood Cliffs, NJ: Prentice Hall, pp 11-57.

Jain, Subhash C. (2000). Marketing: Planning & Strategy (6th ed.), Cincinnati, OH: South-Western College Publishing, pp 113-114.

Kerin, Roger A., Vijay Mahajan, and P. Rajan Varadarajan (1990), Contemporary Perspectives on Strategic Market Planning, Boston: Allyn and Bacon, pp 230-232.

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Competitor Frameworks:
These frameworks focus on competitor factors to derive strategy.

Porter’s Three Generic Strategies


Summary:
  Michael Porter posits three generic competitive strategies that confer a sustainable competitive advantage for the firm.  The strategies are based on the form of strategic advantage that the firm brings to the market.  A firm can either (1) avoid head-to-head competition by providing unique benefits to the marketplace (i.e., differentiation strategy) or (2) mitigate the effects of competition through its low-cost production position (i.e., overall cost leadership strategy).  Firms should either differentiate or lower costs and sell at lower prices, but not both.  Having a low-cost position yields high market gains and above average returns relative to other industry participants, while a product differentiation strategy generates brand or customer loyalty.  Although differentiation may keep the firm from becoming an industry-wide market share leader, it may produce high margins and above average returns relative to that of other firms. 

A third strategy – a focus strategy – involves limiting the scope of operations and the production of a product that fulfills the needs of particular buyers in an industry.  The strategic advantage may be used either industry wide or only in a particular segment of the market; that is, the firm has a strategic choice about how much of the market it will choose to serve.  Within the segment in which it chooses to focus, the firm can then either differentiate or be the low-cost producer.

Sources: 
Czepiel, John A. (1992), Competitive Marketing Strategy, Englewood Cliffs, NJ: Prentice Hall, pp 44-45.

Schnaars, Steven P. (1998), Marketing Strategy: Customers & Competition, 2nd ed., New York: Free Press, pp 60-65.

Kerin, Roger A., Vijay Mahajan, and P. Rajan Varadarajan (1990), Contemporary Perspectives on Strategic Market Planning, Boston: Allyn and Bacon, pp 303-309.

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Population Ecology Model of Competitive Markets


Summary:
The population ecology model uses a biological evolutionary perspective to provide insight into the population of competing organizations and their strategies.  It is a supply-side theory of market evolution that provides an integrative model and associated predictions about the likely success of different generic strategies as the product-market evolves through different stages.  The population is the group of businesses serving a given product market.  The growth process is a logistic function in which there is some natural rate of increase and an upper limit (i.e., carrying capacity).  There is a typology of strategies based on the time at which an organization enters the new market.  These strategies are described as either (1) early entrants or (2) those entering later when the population of competitors is larger.  The typology incorporates three concepts: density dependence, environmental niches, and niche width strategies.  Density dependence means that competitive conditions in any population are a function of the number of organizations competing for the finite level of resources available.  Most importantly, each competitor faces a unique set of resources and competitive conditions when it enters.  A niche is a unique combination of resources and competitive conditions sufficient to support any one type of organization.  Niche width refers to the extent to which an organization chooses to spread its resources across a broad spectrum of the environment or concentrates on a narrow segment. 


Source: 
Czepiel, John A. (1992), Competitive Marketing Strategy, Englewood Cliffs, NJ: Prentice Hall, pp 227-233.

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Resource-Based View of Strategy


Summary:  
Resources include all assets, capabilities, organizational processes, firm attributes, information, knowledge, etc. controlled by a firm that enable the firm to conceive of an implement strategies that improve its efficient and effectiveness.  In the language of traditional strategic analysis, firm resources are strengths that firms can use to conceive of and implement their strategies.  Barney suggests that resources can have an impact on strategy when they are valuable, rare, imperfectly imitable, and not substitutable.  This view suggests that a firm’s ability to attain and keep profitable market positions depends on its ability to gain and defend advantageous positions in underlying resources.  Above normal earnings are assumed to accrue to valuable, rare, imperfectly imitable, and not substitutable assets rather than from the structure of the industry.  Primary attention within this framework has been drawn to how managers might discern which inputs are likely to have productive value in excess of their hire-price, as well as to incorporate characteristics that render these inputs costly for rivals to copy.  The resources that are distinctive or superior relative to those of rivals may become the basis for competitive advantage if they are matched appropriately to environmental opportunities.  Four conditions underlie a competitive advantage: resource heterogeneity which produce economic rents, ex post limits to competition which sustain rents, imperfect resource mobility that ensures that the rents are bound to the firm and shared by it, and ex ante limits to competition which prevent cost from offsetting the rents.   


Sources: 
Barney, Jay (1991), “Firm Resources and Sustained Competitive Advantage,” Journal of Management, 17 (1), 99-120.

Conner, Kathleen R. (1991), “A Historical comparison of Resource-Based Theory and Five Schools of Thought Within Industrial Organization Economics: Do We have a New Theory of the Firm?” Journal of Management, 17 (1), 121-154.

Peteraf, Margaret A. (1993), “The Cornerstones of Competitive Advantage: A Resource-Based View,” Strategic Management Journal, 14, 179-191.

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Dynamic View of Strategy


Summary: 
The dynamic view of strategy demands a theory that links not only what the organization did in the past to what it can do well today, but also what it does today to what it can do well in the future.  The resource-based view focuses on the link from past to present.  The dynamic view framework attempts to integrate and generalize the resource-based views in a way that connects the evolution of firms’ resource endowments or opportunity sets to the choices that they make from their respective menus of opportunities.  According to the model, resource endowments lead to resource commitments, which lead to activities.  There are feedback loops from resource commitments back to resource endowments and from activities back to resource endowments.  These two loops emphasize how the activities that a firm performs and the resource commitments that it makes affect its future resource endowment opportunity set.  Choices about which activities to perform and how to perform them are constrained by resources that can often be varied only in the medium to long run.  History matters with respect to both long-run resource related choices and short-run activity related choices.  The terms on which an organization can make resource commitments and perform activities often depends in important ways on the legacy of the choices that the organization has made in the past.  Commitments are the few “lumpy” decisions involving large changes in resource endowments (e.g., acquiring another company, developing and launching a breakthrough product, engaging in a major capacity expansion) that have significant lasting effects on firms’ future menus of opportunities or choices.  The irreversibility of such major decision requires a deep look into the future.  In contrast, the development of capabilities involves choices that are individually small and frequent rather than individually important and infrequent.  Capabilities can be associated with the feedback loop that runs from activities to resource endowments.  The idea is that firm-specific capabilities to perform activities better than competitors can be built gradually and reinforced over long periods of time.  Superior capabilities can lead to superior performance by improving the terms on which activities can be performed or resource commitments made.  These capabilities must be difficult to imitate as well as competitively superior. 


Source:
Ghemawat, Pankaj (1999), Strategy and the Business Landscape, Reading, MA: Addison-Wesley, pp 119-127.

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The Strategic Gameboard


Summary:
  A firm’s decisions pertaining to the scope and mode of competition and the time for the overall action should be based on a continuous analysis of the firm’s strengths, vulnerabilities, and resources in relation to those of its competitors.  The strategic game board describes the options open to a firm regarding the scope and mode components of strategy.  The vertical axis represents a continuum of where-to-compete options ranging from a sharp focus on a narrow market niche to competing across an entire market.  The horizontal axis represents a continuum of how-to-compete options ranging from playing entirely by the accepted rules of the industry to disregarding the rules and inventing new ones.  Same-game strategies are basically deductive and analytical.  They treat the business and the environmental forces as givens and a firm gains in competitive advantage by identifying the needs of a particular market or market segment and developing an approach to meet them.  New-game strategies are intuitive and opportunistic.  They explore ways to influence the environment, redefine market boundaries, or reshape market behavior.  A competitive advantage achieved through the pursuit of a new-game strategy is likely to be more enduring than those achieved through same-game strategies. 


Source: 
Kerin, Roger A., Vijay Mahajan, and P. Rajan Varadarajan (1990), Contemporary Perspectives on Strategic Market Planning, Boston: Allyn and Bacon, pp 103-107.

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Shareholder Value Creation Network


Summary:
  This framework uses discounted cash flow analysis for value-based planning.  It proceeds through the following steps:

  1. Forecasting annual operating cash flows for a business unit for a specific strategy and planning period. 
  2. Discounting cash flows back to the initial time period and summed to arrive at the present value of the forecasted cash flows.  The discount rate for the cash flow stream is the weighted average cost of debt and equity capital. 
  3. Discounting the residual value of the strategy at the end of the planning period. 
  4. Calculating the present value of the strategy, which is the sum of the present values of future cash flows and the residual value.  After subtracting the market value of debt, this figure is termed “total shareholder value.” 
  5. Calculating the present value of the business unit in the initial time period, termed the “pre-strategy shareholder value.” 
  6. Determining the shareholder value creation potential of the business unit, which is the difference between “total shareholder value” and the “pre-strategy shareholder value.”

This analysis can also be done at the corporate level with only minor adjustments.  This tool allows the firm insights into its present portfolio.  It provides answers to questions such as which business units are creating or destroying value, which business units are cash flow producers or drainers, and which combination of strategies generates the highest total value for shareholders. 


Source:
 Kerin, Roger A., Vijay Mahajan, and P. Rajan Varadarajan (1990), Contemporary Perspectives on Strategic Market Planning, Boston: Allyn and Bacon, pp 370-377.

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Game Theoretic Frameworks


Summary:
  Game theory is the study of interactions among players whose payoffs depend on one another’s choices and who take that interdependence into account when trying to maximize their respective payoffs.  Zero-sum games are games in which one player’s gain is exactly equal to the other player’s losses.  Most business games are not zero-sum games in the sense that they afford opportunities for both cooperation and competition.  Non-zero-sum games have been analyzed under two assumptions – freewheeling and rule-based games.  Freewheeling games involve unrestricted bargaining in which players interact without any external constraints.  Rule-based games are those in which interactions are governed by specific rules of engagement.  Rule-based games are being used by a growing number of companies to make decisions about marketing variables, capacity, entry and entry-deterrence, acquisitions, bidding, and negotiation.  The theory forces managers to put themselves into the shoes of other players rather than viewing games solely from the perspective of their own businesses.  Typically, the analysis begins with specifying the options.  The options are assessed for the effects on the firm itself and on the competitors.  The firm examines the reactions of competitors and the implications of those reactions on the firm.  Game theoretic analysis is sometimes formalized by drawing up “reaction functions,” which describe the reactions of one firm to a move by the other firm.  When the reaction functions interact at just one point and under the assumption of simultaneous moves, the intersection represents the unique equilibrium, that is, the unique set of mutually consistent actions.  In contrast, if one player can move first, it can attempt to select its preferred point off the reaction function of its rivals.  This difference underscores the importance of time and the order of moves in rule-based games.  Rule-based games can also provide useful insights into competitors’ incentives without necessarily identifying a unique equilibrium point.  Even when reaction functions cannot be identified with any degree of precision, using role-plays, simulations, and lessons from the academic literature generates valuable insights about ways to shape and adapt to competitor moves.  Game-theoretic thinking is most helpful when there are only a few players whose actions or reactions really matter for a particular issue. 


Source:
 Ghemawat, Pankaj (1999), Strategy and the Business Landscape, Reading, MA: Addison-Wesley, pp 60-70.

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Competitor Analysis from a Behavioral Theory Perspective


Summary:
  It is often difficult to see behaviors of competing firms strictly as interactions between two players maximizing their respective profits at each and every point in time.  Instead, there is evidence that firms often irrationally escalate commitment in conflicts because of the “sunk cost” fallacy, attempts to justify past choices, selective perception, hostility, and other biases.  These biases exemplify the sort of effects on which behaviorists tend to focus.  Many of the analytic frameworks for assessing strategy (e.g., Porter’s competitor analysis framework) fail to take into account some of the influences on decision making that have been most clearly validated by behavioral researchers.  A more integrative perspective is suggested by Selznick’s insight that an organization’s history has overarching importance in driving its behavior.  These historical factors persistently influence organizational behavior largely because they are difficult to change in the short run.  They include:  resources, capabilities, relationships, and employees; the way in which personnel are organized and the political coalitions that they form; precedents, norms, and beliefs to which employees subscribe; and the organization’s historical performance dynamics.  In most situations, behavioral analysis is a complement to, rather than a substitute for, game theoretic analysis.  Behavioral analysis tends to focus on the organization’s predisposition, while game theory focuses on the economic incentives facing the organization.  True-blue game theory tends to ignore biases because players are expected to make rational, economic choices.  At the other extreme, we can discount game-theoretic analysis only when players are certain to succumb to non-economic predispositions.  Managers should keep both economic and non-economic influences on competitors’ behavior in view. 


Source:
 Ghemawat, Pankaj (1999), Strategy and the Business Landscape, Reading, MA: Addison-Wesley, pp 79-81.

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Customer Frameworks:
These frameworks focus on customer factors to derive strategy.

Market-Based Assets


Summary:
This framework identifies the assumptions pertaining to the marketing-finance interface and their consequences for marketing.  Traditionally, marketing activities focus on success in the product marketplace.  Increasingly, however, top management requires that marketing view its ultimate purpose as contributing to the enhancement of shareholder returns.  Marketers can no longer rely on the traditional assumption that positive product-market results will translate automatically into the best financial results.  As a result, marketers are adopting the perspective that customers and channels are not simply the object of marketing’s actions but that they are assets that must be cultivated and leveraged.  These assets can be conceptualized as market-based assets or assets that arise from the commingling of the firm with entities in its external environment.  An asset can be defined broadly as any physical, organizational, or human attribute that enables the firm to generate and implement strategies that improve its efficiency and effectiveness in the marketplace.  An asset is more likely to contribute to value generation when it is convertible, rare, imperfectly imitable, and does not have perfect substitutes.  Market based assets are relational and intellectual.  Such assets are primarily external to the firm, generally do not appear on the balance sheet, and are largely intangible.  Relational market-based assets are outcomes of the relationships between a firm and key external stakeholders.  Intellectual market based assets are the type of knowledge a firm possess about the environment such as the emerging and potential state of market conditions.  Market based assets an be used to lower costs, attain price premiums, generate competitive barriers, provide a competitive edge by making other resources more productive, and/or provide managers with options. 


Source: 
Srivastava, Rajendra K., Tasadduq A. Shervani, and Liam Fahey (1998), “Market-Based Assets and Shareholder Value: A Framework for Analysis,” Journal of Marketing, 62 (January), 2-18.

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Customer-Oriented Approach for Determining Market Structures

Summary:
  This approach suggests that over time customers develop sets of products for consideration based upon the perceived appropriateness of their functional attributes for the intended usage situation or context.  This “matching” between the usage requirements (i.e., benefits sought) and the product attributes (i.e., benefits provided) has major implications for marketing strategy.  Specifically, this approach leads to a broader perspective on market definition.  A product market is the set of products judged to be substitutes within those usage situations in which similar patterns of benefits are sought by groups of customers.  The managerial implications of this view include situational segmentation and the need to examine overlapping sub-markets.  This framework is useful for market structure analysis if the research interest lies in examining competition among product variants and categories as opposed to among brands of a narrowly defined product category.  In these contexts, the usage situation can be expected to influence the preference for and the likelihood of use of a product by customers.  The research suggests that when usage-situational influences are controlled for, the predictive ability of choice/preference models can be greatly improved
.


Source:
Srivastava, Rajendra K., Mark I. Alpert, and Allan D. Shocker (1984), “A Customer-oriented Approach for Determining Market Structures,” Journal of Marketing, 48 (Spring), 32-45. 

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Shareholder Value Models
Summary:  These models identify how a company plans to generate cash flow or shareholder value for either the long or the short term.  Recent writings have suggested that there are well over 20 alternative profit models that can be pursued in offline businesses.  Building and extending from these 20 profit models, are 10 shareholder value models for the online world.  It is important to note that for Internet company discussion, the traditional commerce theories on profit models differ in three ways.  First, focus should be placed on shareholder value rather than on profit as currently successful online businesses have yet to turn a profit.  Secondly, demand comes first, supply second.  Companies focus on the core benefits that customers are looking for and respond accordingly.  Thirdly, there are several new value-creation models that reflect the evolution of the new economy.  The models are grouped according to key factors.  Company and user derived models are those where both the company and the user provide content and value added services to the site (e.g., ebay).  They rely heavily on a combination of supply-side and demand-side forces to launch and defend the online competitive space.  On the other hand, company derived value creation models are driven largely by excellence on a key customer need or benefit.  Most of these models derive their value from company initiatives and products rather than from user-generated content.

Source:  Rayport, Jeffrey F. and Bernard J. Jaworski (2001), e-Commerce, New York: McGraw Hill Higher Education, pp 86-96.

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Market Opportunity Analysis Framework


Summary:
  A firm needs to follow a rigorous approach to isolate market opportunities.  This framework consists of five main stages and a final “go/no go” decision.  The five-steps are: 
-          Seeding an opportunity in an existing or new value system
-          Uncovering an opportunity nucleus – identify unmet and underserved needs
-          Identifying target segments
-          Declaring a company’s resource-based opportunity
-          Assessing the opportunity attractiveness. 

The starting point for opportunity identification often is someone with a belief about a value system (or playing field) that can be reinvented or transformed.  This value system becomes the anchor for framing the opportunity.  Once a rough definition of the playing field is set, the company can define the opportunity to increase customer satisfaction or create a new highly valued customer experience.  Identifying and choosing priority customers leads to a preliminary understanding of the potentially attractive customers the company could serve.  This is followed by an examination of the distinct capabilities and activities the company would bring to the offering to achieve advantage through its own resources and those of potential partner companies.  Finally, to assess opportunity attractiveness, the company must assess the market’s financial, technological, and competitive situations. 


Source: 
Rayport, Jeffrey F. and Bernard J. Jaworski (2001), e-Commerce, New York: McGraw Hill Higher Education, pp 25-30.

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Value Proposition/Value Cluster Analysis


Summary:
  One of the necessary steps in developing a business model is to specify the value proposition or value cluster for targeted customers.  A value proposition requires management to specify the choice of target segment, the choice of focal customer benefits, and the rationale for why the firm can deliver the benefit package significantly better than competitors in the same space.  A value proposition can be considered a basic or baseline case.  A recent alternative view argues that because of the customization capabilities available to online businesses, multiple segments of customers can be addressed with a variety of combinations of benefits offered.  The value position is no longer singular but is a value cluster composed of the choice of target customer segments, the particular focal combination of customer-driven benefits offered, and the rationale for why this firm and its partners can deliver the value cluster significantly better than competitors can.  In either case, the first decision is the selection of target segments.  The analysis basically entails assessing the attractiveness of the market and the firm’s ability to compete in the market.  The second step is the specification of the key benefits to be delivered to the target segment.  Generally, firms focus on a few key benefits.  The final component is the compelling rationale for why a particular firm can provide a benefit(s) significantly better than competitors.  This component focuses on factors inside the firm that lead to the superior delivery of targeted benefits.  The key issue is whether these unique capabilities can be linked directly to the core benefits that form the value proposition.  The question that should be asked is how differentiated are these value propositions, that is the firm’s ability to uniquely “own” this position in the minds of customers.  Customer, company, and competitive classes of criteria should be used to assess the quality of the value proposition or cluster. 


Source: 
Rayport, Jeffrey F. and Bernard J. Jaworski (2001), e-Commerce, New York: McGraw Hill Higher Education, pp 71-76.

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Offering-Market Matrix


Summary:
  This model is used to relate offerings to selected groups of buyers.  One dimension of the matrix lists the possible user groups.  The other dimension lists the characteristics of the offering.  This matrix makes it easier to identify which user groups are not being satisfied.  The matrix can also be used to see where competitors are positioned, as knowing where competitors are active provides a basis for determining whether a market opportunity exists.


Source: 
Kerin, Roger A and Robert A. Peterson (1998), Strategic Marketing Problems: Case and Comments, Upper Saddle River, NJ: Prentice Hall, pp 64-65.

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Value Delivery System (Value Chain Analysis)


Summary:
  This model is predicated on the assumption that the key to competitive advantage lies in the firm’s ability to achieve an unfair advantage in delivering superior value to the marketplace.  A business needs to convince a target group of customers that they are receiving a net value superior to the alternatives.  The value chain is a tool that provides an assessment of the activities that a firm performs to design, produce, market, deliver, and support its product.  Such as assessment of activities is a logical framework for exploring how new product-markets can be created by enhancing or changing the way the product is currently produced and offered either by the firm or its competitors.  The traditional view has been that the firm makes the product and then sells the product, where marketing takes place only at the second step of the process.  The contemporary view is that of a value chain, which is a set of interrelated activities performed by a firm to create, support, and deliver its product.  There are three steps in the value deliver sequence, namely choosing the value, providing the value, and communicating the value to customers.  Marketing occurs at each step and thus is involved right from the start of the business planning process.  Choosing the value involves deciding on the precise benefits, price, target customers, and costs versus some set of competitive offerings.  This is often termed the value proposition.  Providing value means developing specific product features, prices, and distribution systems.  Communicating the value means utilizing the sales force, sales promotion, advertising, and other promotional tasks to inform the market about the offer.  Competitive advantage is often found in the thoroughness with which the value is provided and communicated by subunits and managers throughout the business unit. 


Sources: 
Czepiel, John A. (1992), Competitive Marketing Strategy, Englewood Cliffs, NJ: Prentice Hall, pp 38-44.

Kotler, Philip (1994), Marketing Management (8th ed.), Englewood Cliffs, NJ: Prentice Hall, pp 92-94.

Kerin, Roger A., Vijay Mahajan, and P. Rajan Varadarajan (1990), Contemporary Perspectives on Strategic Market Planning, Boston: Allyn and Bacon, pp 313-317.

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Generic Value Types


Summary:
  Both the activities within the firm (i.e., value chain) and those connecting firms with other firms and customers (i.e., value system) are potential candidates for value creation.  Firms should look at the value system with an eye toward new business possibilities.  Specifically, a firm should look for either trapped value to be liberated or new-to-the-world value to be introduced.  Firms can unlock four types of trapped value:

  1. Creating more efficient markets:  Markets can be made more efficient by lowering search and transaction costs. 
  2. Creating more efficient value systems:  Greater efficiencies in the value system can come through efficiencies in time or cost by compressing or eliminating steps in the value system.
  3. Enabling easier access:  Enabling ease of access entails enhancing the access points and the degree of communication between relevant exchange partners. 
  4. Disrupting current pricing power.  Disrupting current pricing power means changing current pricing-power relationships. 

New-to-the-world value can be created by:
-          Customizing offerings
-          Radically extending reach and access (e.g., delivering a cost-effective reach)
-          Building community
-          Enabling collaboration among multiple people across locations and time
-          Introducing new-to-the-world functionality or experience. 


Source: 
Rayport, Jeffrey F. and Bernard J. Jaworski (2001), e-Commerce, New York: McGraw Hill Higher Education, pp 30-34.

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Products as Satisfaction-Generating Systems


Summary:
  A product is anything that can be offered to a market that can satisfy a need or want.  There are multiple conceptualizations of what a product is and why it sells.  No one conceptualization is the dominant or correct one.  To the firm, a product is a causal promise made to customers via a marketplace offering of some physical action or object made possible by an investment in technology.  To the customer, a product is a causal promise of some functional, experiential, or symbolic satisfaction created via a real physical object or action.  Products are satisfaction-generating systems in that customers buy a physical object for its benefits.  To the customer, a physical product is nothing more than a means to attain some satisfaction.  The customer cares little about the physical attributes of a product except as those attributes contribute to delivering the benefits the customer desires.  Firms that define their business in terms of what they do rather than in terms of the satisfactions or utilities their customers buy are myopic.  It is the strategist’s task to identify and understand the real source of competition for satisfying customer needs whether from similar or dissimilar product offerings.


Source: 
Czepiel, John A. (1992), Competitive Marketing Strategy, Englewood Cliffs, NJ: Prentice Hall, pp 65-68.

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Share Development Tree

Summary:
  This is a tool for estimating what a firm’s market share should be.  Market share can be estimated from a combination of hierarchical market share effects.  The Share Development Path traces a hierarchy of market share effects that lead to a particular level of market penetration.  Each step along the path indicates how customer response influences market share.  This allows for an overall share index estimate that is the result of interaction between effects.  Each share effect is derived from a particular component of the marketing mix as each of the marketing mix factors creates a different impact on target customer response and share development.  In managing market share, a firm must develop a successful strategy for each element of the marketing mix.  The share effects, in sequence from first to last, are:  product awareness, product preference, intention to buy, product availability, and finally product purchase.  The market share index is a product of these elements.  This index (1) helps identify important sources of lost market share opportunity, (2) provides a mechanism to assess market share changes when a certain level of improvement is directed at a key area, and (3) enables us to estimate what might be a reasonable market share potential given reasonable levels of performance in each area along the path.


Source: 
Best, Roger J. (2000), Market-Based Management (2nd ed.), Upper Saddle River, NJ: Prentice Hall, pp 68-73.

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Segment Profitability


Summary:
   A market segment may appear attractive, yet it may not be profitable.  One way to estimate segment profitability is to use the net marketing contribution that is expected with a certain level of segment market penetration.  Net marketing contribution is a function of segment demand, segment share, revenue per customer, variable cost per customer, and marketing expense.  Knowing segment profitability allows the firm to assess whether it is targeting the most profitable segments.


Source: 
Best, Roger J. (2000), Market-Based Management (2nd ed.), Upper Saddle River, NJ: Prentice Hall, pp 108-117.

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Segmentation Strategies


Summary:
  Segmentation strategies can range from a mass-market strategy with no segment focus to a mass customization strategy with a number of niche segments within segments.  A mass-market strategy is best used when differences in customer needs are small or demographics are not distinctive.  A large segment strategy is best when a market is segmented and marketing resources are limited.  A large segment strategy means focusing on the largest segment of the market.  It addresses only one set of core customer needs.  An adjacent segment strategy may be best when businesses find themselves in a situation in which they have pursued a single segment focus but have reached the point of full market penetration.  A closely related attractive segment is tackled next using profits from the primary target segment.  A multi-segment strategy is used when there are several segment opportunities and resources are available to pursue more than one.  A small segment strategy may be best when the business has limited resources and certain capabilities that allow it to compete in the smallest segment.  Large competitors often ignore the smallest segments leaving them open to smaller firms.  A niche segment strategy is used when there is an opportunity for a firm to carve out a niche within a segment and further customize its marketing resources to that group of target customers.  All marketing resources are focused on the specific needs of a certain type of customer.  The mass customization strategy is the complete opposite of a mass-market strategy.  This strategy treats every group of customer needs as a niche market.  The objective is to customize a segment strategy for each customer segment.  Segments can be further broken down into sub-segments and so on.  Mass customization has the advantages of niche segment strategy while retaining the breadth of opportunity available with multi-segment marketing strategies. 


Source: 
Best, Roger J. (2000), Market-Based Management (2nd ed.), Upper Saddle River, NJ: Prentice Hall, pp 118-123.

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Five Patterns of Market Selection


Summary:
   The firm must decide which and how many segments to serve (i.e., problem of target market selection).  There are five patterns of target market selection.  In the simplest case, the firm selects a single-segment concentration.  Through this concentrated marketing, the firm achieves a strong market position in the segment owing to its greater knowledge of the segment’s needs and the special reputation it gains.  Yet, this involves higher than normal risks.  Selective specialization means that the firm selects a number of segments, each objectively attractive and appropriate based on the firm’s objective and resources.  There may be little or no synergy between the segments, but each segment promises to be a moneymaker.  In product specialization, the firm concentrates on making a certain product that it sells to several segments. The firm builds a strong reputation in the specific product area.  In market specialization, the firm concentrates on serving many needs of a particular customer group.  The firm gains a strong reputation for specializing in serving this customer group and becomes a channel for all new products that this customer group could feasibly use.  With full market coverage, the firm attempts to serve all customer groups with all the products that they might need.  Only large firms can undertake this type of strategy, doing so by either undifferentiated or differentiated marketing. 


Source:
 Kotler, Philip (1994), Marketing Management (8th ed.), Englewood Cliffs, NJ: Prentice Hall, pp 283-289.

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Offensive Strategic Market Plans


Summary:
  Offensive marketing strategies tend to be growth-oriented, and therefore, more likely to occur in the growth stage of the product-market life cycle.  They are designed to produce sales growth, improve share position, and improve future profit performance.  Attractive markets are most likely to warrant an offensive strategic market plan to improve competitive advantage and share position when the firms’ competitive advantage is average or below.  The plans can range from entering a new market to growing the market share in existing product-markets.  Offensive strategies can also be used to help grow an emerging or underdeveloped market in which the business has established a strong position of advantage. 


Source: 
Best, Roger J. (2000), Market-Based Management (2nd ed.), Upper Saddle River, NJ: Prentice Hall, pp 261-275.

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Defensive Strategic Market Plans


Summary:
   Defensive marketing strategies are more likely to occur in the latter stage of a product-market life cycle.  They are often designed to protect important share positions and be large contributors to short-runsles revenues and profits.  In general, businesses in high share positions in growth or mature markets will use defensive strategic market plans to maintain cash flow that supports short-run profit performance and shareholder value.  A strategic market plan to protect market share would provide continued growth in sales revenues despite anticipated price erosion.  Businesses in less attractive markets with fewer resources may be forced to reduce share in an effort to find a better combination of share and profitability.  Others may be forced to exit markets slowly using a harvest strategy or quickly with a divestment strategy.  There are other defensive strategies, but each of these defensive strategies is intended to maximize or protect short-run profits or to minimize short-run losses. 


Source: 
Best, Roger J. (2000), Market-Based Management (2nd ed.), Upper Saddle River, NJ: Prentice Hall, pp 276-293.

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Customer Profitability Analysis


Summary:
  The challenge to marketers is to attract and keep profitable customers.  Yet, companies often find that between 20% and 40% of their customers may be unprofitable.  In addition, many companies are surprised to find that their most profitable customers are often their mid-size customers and not their largest customers.  The firm should be interested in a customer’s lifetime value and not necessarily in the profit from a particular transaction.  A useful way to measure profitability is to perform a customer/product profitability analysis.  A matrix with customers arrayed along the columns and products arrayed along the rows is used to display the data.  Each cell contains a symbol for the profitability of selling that product to that customer.  The analysis is performed for each and every customer.


Source: 
Kotler, Philip (1994), Marketing Management (8th ed.), Englewood Cliffs, NJ: Prentice Hall, pp 52-54.

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