Marketing objectives should be set in terms of which products to sell in which markets. Strategic objectives for each product need to be agreed. This begins the process of planning at the product level. There are four alternatives: Build, Hold, Harvest and Divest.
For new products, the strategic objectives will be to build sales and market share. For existing products appropriate strategic objective will depend upon the particular competitive situation of the product (BCG matrix).
Strategic Options for Increasing Sales Volume
A company wins competitor’s customers by making more effective use of promotion or distribution, or by cutting prices in existing markets with current products. Winning competitors’ customers achieves an immediate increase in market share. To protect the penetration already gained in a market, a business may consider methods of discouraging competitive entry.
Barriers can be created by cost advantages (lower labor costs, access to raw materials, economies of scale), highly differentiated products, high switching costs, and displaying aggressive tendencies to retaliate.
A company may attempt to expand a market that they already serve by converting non-users to users of their product. This can be an attractive option in new markets when non-users form a sizable segment and may be willing to try the product given suitable inducements. Lapsed users i.e. customers who have used the product but have stopped doing so, can also be targeted. Market expansion can also be achieved by increasing usage rate.
A company develops new products for existing markets. One variant is to extend existing product lines to give current customers greater choice. When new features are added with an accompanying price rise, trading up may occur with customers buying the enhanced value product upon repurchase. Product replacement activities involve the replacement of old models/brands with new ones. A final option is replacement of an old product with a fundamentally different one, often based on technology change. The old product is replaced with an innovation.
Promotion of new uses of an existing product to existing customers or marketing of existing products to new market segments (overseas).
Entry into new Markets
Development of new products for new markets. This is risky if it is not based on the core competencies of the business.
Strategic Options for Improving Profitability
Fixed costs cannot be varied in the short term. Fixed cost reduction can be accomplished by closing less efficient plants thereby reducing capacity. Fixed cost per unit are reduced, therefore profitability is increased. One positive way of reducing fixed cost is by increasing capacity utilization and consequently reducing fixed cost per unit of output. Closing inefficient plant also reduces variable costs. Another method of reducing both fixed and variable costs is by sub contracting.
Profitability can also be improved by reducing investment in such areas as stocks, work in Progress and account receivables. This reduces working capital of business. Standardization of components has a beneficial effect on variable costs because component makers can gain from longer production runs.
Three alternatives may be considered for rationalizing operations – market segment rationalization, product line pruning, and distribution rationalization.
Market segmentation rationalization involves dropping of market segments to be served by the company, or serving them in a cheaper way (shifting from personal selling to telesales). Product line pruning reduces costs by eliminating costly product variants or brands. A business may decide to cut bock on the distribution channel width in order to make economies. A decision could be mode to supply to only those outlets which order over a certain threshold level, thus reducing ordering and transportation costs.
Profitability can also be improved by increasing the price of the product. The increase in price however needs to be justified. A company may decide to odd some product features, provide additional or better services, customize products, or improve quality in order to justify the price increase.
With this enhanced value provision, the company may decide to target either the existing segment or a new segment of customers who may require such a modified product. However, these modifications require additional investment depending on the extent of modifications. Here, the additional value comes at a higher price for the customer. This option makes perfect sense when the additional value provided by the company cannot be copied by competitors.
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