Introduction to management

Strategies for Existing Products and Markets

CONSOLIDATION: Focus on strengthening the company's position in existing markets.

PENETRATION: Increase market share by launching new or improved products into existing markets.

PRODUCT DEVELOPMENT: Continuously improve existing products to meet customer needs.

Strategies for New Markets

MARKET DEVELOPMENT: Find new markets for existing products.

DIVERSIFICATION: Launch new products into new markets.

Most companies prioritize product development and market development strategies. It is important for even less dynamic companies to periodically improve their products and expand into new markets. This not only benefits the company but also sends a positive message to customers.

Italian companies, particularly small and medium-sized enterprises (SMEs), often excel in international markets. Internationalization is a common strategy for these companies, allowing them to export their products and expand their reach globally.

cancall it market development.

The most advanced strategic and marketing tools are related to this quadrant (3) because we have to answer different questions:

1. Which new market? We have to select the priorities
2. What do you think about the customers' behaviour in Japan/China? We want to answer their needs, how can we analyze these customers? Which are the expectations of US customers? We need sophisticated marketing tools to analyze the customers to avoid doing some bad mistakes

The fourth quadrant is for some very flexible and dynamic companies because it is related to new products and new markets. So, some companies say that they have to produce different products for different markets (e.g. Toyota: models of car sold in the U.S are different from the models sold in the European market because the customers' needs are different)

INTRODUCTION TO MANAGEMENT CLASS 17

29/11/2021

PORTER'S APPROACHES TO STRATEGY

We're discussing the tools used by companies to set the

Porter's approach to strategy answers this question: how do we want to compete and his approach is mainly related to 3 possible answers to this question (Porter has identified three generic strategies that an organization can follow)

The 3 answers are:

1. We can compete on cost leadership: it is about competing on costs, so the organization aims to be the lowest cost producer within the industry (e.g. Ryanair, the low fares airline)
2. We can compete on differentiation: the organization seeks some unique dimension in its product/service that is valued by consumers, and which can command a premium price (the idea is willing to be different, or better, unique, so the competition is on values, not on prices in fact we're considering premium/high prices)
3. The company wants to compete in order to be different from the competitors, in other words it wants to be unique and the competition is on

We can compete on focus: the organization focuses at a particular part of the market, which is usually very small and particular, and is called niche market (e.g. Brembo)

Usually given these 3 approaches when we take into consideration a company the concept that we analyze is this one: competitive advantage because with some products you compete on costs, with others you compete on values. In fact companies have many different products and usually they are called segments (different products from different segments), so a company in order to be successful has to have competitive advantage, a concept that has been introduced by Michael Porter and it's the combination of the decisions (naturally the company that decides to be successful in a niche, given the fact that the niche are very small), so he says when we want to analyze the performance of a company we have to understand its competitive advantage which is the combination of all the products related to the differentiation.

effectiveness? Lowering cost at quality parity ➔ Increasing value more than costs ➔ and these 2 points are the competitive advantages

This is the visual representation of the value chain. We were used to analyze the organization of a company using the organigrams (functional, divisional and matrix). Here the question is different: we want to analyze the company, how it is organized, but with a different purpose. We don't want to reconstruct the organigram, so the SBUs, but we want to analyze the activities → what is done within the company and which are the activities that generate value.

The value chain aims at analyzing the value created by all these activities and these activities are helped by other support activities. → the activities and support activities produce the margin.

Value is what buyers are willing to pay, and usually in marketing is called WTP which stands for willingness to pay and if it goes up it says that the value is higher, and also the willingness to pay is higher. So,

We can say that companies are collections of activities in which competitive advantage resides. Activity Based Costing is used to compete on costs, so the idea is to move from ABC to ABM, Activity Based Management, which is very much related to the value chain of the activities because companies are collections of activities.

The ABC (in which we link costs to activities) if the answer to the question how do we want to compete is cost leadership. If we want to compete on the competitive advantage, we use the value chain, we consider that company as a collection of activities, so we manage activities (from ABC to ABM) because we want to analyze all the activities and we want to understand if we are running these activities in an efficient way (ABC) and in an effective way (ABM) since if we are effective we can increase the willingness to pay of the customers, which means that we are competing on value. These are an analysis of the decisions taken by a company.

The idea is to understand the

relationships across the value chain of business units (how can we run our business better? how can we rethink the way we are running our business?)

Successful diversification depends on capturing interrelationships across the value chains of business units:

• Transferring proprietary knowledge and skills across units
• Sharing activities across business unit value chains

So, each single activity is analyzed and reconsidered. This is the competitive advantage, or strategic positioning, of BMW.

Value Proposition is competing on differentiation, diversification, uniqueness. Given this value proposition, the activities that give value are linked in the red column.

The idea is to build the value chain, analyze the different activities, and clearly define the distinctive activities that generate value. There is no right and wrong answer, you have to find the value proposition, how do you want to compete, and then define the activities accordingly.

Naturally, there are levels of strategy: there are strategies

static way, and when we have to make a market analysis of a product we should take into consideration that products have a life cycle, so in order to analyze a product we have to understand which is the life cycle of that product because if we use a dynamic analysis (using time) the characteristic of the same products change: it could become more or less profitable according to the life cycle.

Which are the phases of the life cycle of a product in order to understand how the products behave through time?

There are 5 phases:

1. Development, in which the product doesn't exist yet and so you think about it: the potential customers and markets, the value, the distinctiveness, the price
2. Introduction, in which you launch the product or service into to the market
3. Growth, that can be high or low depending on the performance
4. Maturity
5. Decline

Is it sufficient to understand the phase of the product? No, it is not: we have to consider 2 other pieces of information: cash flow and sales.