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Strategy definition and implementation: the logical flow

The strategy formation process is a managerial process; it is a closed loop and has a feedback


à à

The strategy formation process has a clear objective which is the shareholders value creation and

it is a set of coordinated actions carried on by people in different functional units (inter-functional).

1. Business boundaries definition: identification of the SBU we are in;

2. fix the value proposition: consistent analysis of what are the key elements that

differentiate us from the others. This is the strategic part of the process;

3. transformation of the promise in a concrete offer: marketing mix (design of the


4. real implementation;

5. control step: an operational part of the process (analyse and take decisions and

actions: transformations).


- Internal environment: the company’s values and goals, the company’s resources and

capabilities, the company’s organizational structure and systems. It is a market aware

analysis since it combines the market and the internal perspective (not only

technological: does it have a value in the market?)

What are the organization’s strengths, in terms of capabilities and resources?

What are the organization’s weaknesses and capability gaps?

- External environment: all the economic, social, political and technological factors

that influence the company’s decisions and its performance.

What opportunities exist which we can act upon?

What threats could lead to performance deterioration? 16


The SWOT analysis considers both the internal and the external environment and it has to

be market driven. (S,W: the competition; O,T: the environment).

The strategy links the internal and the external environment. The goal is to exploit

opportunities from the external environment with the internal resources.

Example: McDonald’s STRENGHTS

- largest fast food market share in the world WEAKNESSES

- brand recognition valued at $40 billion - negative publicity

- $2 billion advertising budget -unhealthy food menu

- locally adapted food menus - Mac Job and high employee turnover

- partnership with best brands

- more than 80% of restaurants are owned by - low differentiation

independent franchisees

- children targeting McDonald's THREATS

OPPORTUNITIES - saturated fast food market in the developed

- incresing demand for healthier food economies

- home meal delivery - trend towards healthy eating

- full adaption of its new practices - local fast food restaurant chains

- changing customer habits and new cutome - currency fluctuations

groups - lawsuits against McDonald's






There are two main steps for the analysis of the environment in which a company operates:

1. macro-environment analysis: it allows the company to anticipate opportunities and

threats; a lot of time and resources are needed;

2. micro-environment analysis: specific purchase process.

Macro-Environment: PESTE analysis

Which scenario’s factors can influence company’s success? The variables affecting the global

environment are:

- supply levels (capital, labour);

- demand levels (consumption, investment, climate, export, imports);

- cost structures (price based in the equilibrium of supply and demand).

These variables are grouped in:

- Political: political stability, antitrust, regulation, employment laws, tax policy, …

- Economic: GDP, trends, interest rates, inflation rate, unemployment level, price

controls, exchange rates, …

- Social: demographic changes, life expectancies, birth rate, consumer activism, …

- Technological: patent protection, industry spending on R&D, productivity

improvements through automation, …

- Ecological: environmental protection laws, Kyoto Protocol, decommissioning costs, …

The PESTE model considers all the relevant factors. The PESTE model/analysis/framework is

for an educated approach to cover important environmental factors. A practical way of

carrying out this analysis is to: identify each possible factor; give each factor a probability of

occurrence in % and a rating for their impact in the coming 3-5 years (where -5 is terrible

and 5 is fantastic).

Macro-Environment: Macro Demand Analysis

The object of the macro demand analysis is the target market. The macro demand analysis

is composed by two main steps:

1. Market qualification: which market I am referring to?

2. Demand forecasting: how big is that market?


Need: “A feeling that something is missing (privation) compared with the general

satisfaction of the human condition” (Kotler, 1991)

Classification of needs:

- according to the real “necessity”:

“true” and “false” needs;


Marketing cannot create need; it exists by itself. Marketing can transform an implicit

need into an explicit one. 18


- According to the social dimension of the need

“absolute”: (according to an individual perspective) needs experiences

o regardless of the situation of others;

“relative”: need whose satisfaction takes us beyond our peers, giving us a

o feeling of superiority over them; it depends on the others and can never be

fully satisfied: there is a continuous comparison.

Absolute needs can be satisfied; relative needs can never be fully satisfied.

- According to the objectification:

“generic”: regards the

o fundamental, functional need;

“derived”: regard the specific

o object that can express the

functionality: it is the

technological answer to the

generic need.

Derived needs are subject to a life

cycle owing to technological progress

and destructive innovation processes.

Generic needs follow their own path:

they tend to be the envelope curve of

needs arising over time.

Needs and desires: the desire is the finalization of a need in a specific object. It is a step

forward the need (sense of lack). The desire is the identification of the object which can

satisfy the need (ex. a sandwich is the desire of the need “I’m hungry” or if the need is thirst

the desire can be water). The desire can then be transformed into demand if I have the


Desires are influenced by the social environment. For example, if the need is hunger the

desire can be, in the U.S. a hamburger while in Italy it can be pasta.

Marketing is a set of activities linked with desires.

Demand: when the desire is economic affordable it become demand (exchange).



- need: number of people who need to communicate in the distance

- desire: number of people who want an iPhone

- demand: number of people who want an iPhone and are in the condition of buying it



Marlow’s hierarchy of needs

Assumption: needs derive from sense of privation, which motivates human beings to do to

higher-order needs once they have satisfied the lower-order ones (homeostasis). (higher

order needs are more important).

The market

There are different meanings of the term “market”:

- economic theory: collection of economic operators (buyers and sellers) who interact

to make transactions involving a product;

- marketing theory: mostly, customer groups “customers, current and potential, who

share a particular need or want which could be satisfied by a particular

product/service”. A market has its own finalization: clear object; a market is based on

transactions with the aim of satisfying customers with the same desire;

other meanings:

- geographical market: a product’s area of distribution (e.g. domestic market);

- demographic groups (e.g. the youth market);

- product market (e.g. the shoe market).

The “6 O” model is a checklist of factors and it is useful to characterize a market:

Exchanges and transactions

“Exchange is the process of obtaining a desired product from someone by offering

something in return”


- there are at least two parties; 20


- each party has something that might be of value to the other party;

- each party is capable of communication and delivery;

- each party is free to accept or reject the exchange offer;

- each party believes it is appropriate or desirable to deal with the other party.

In transactions:

- parties are involved in an exchange if they are negotiating and reaching an


- a transaction is the exchange (i.e. effective transfer) of value between two parties;

- it is an operation that is “in conflict of interest”;

- foresees a return (usually economic) from the other party.

An exchange become a transaction when the two parties agree. For several decades

marketing meant maximize transactions (transactions are based on a short term perspective

and are instantaneous); today we shifted from a transactional point of view to a relations

based perspective in which the relationships with the customers are key component of the

perceived value.

Products and services are often mixed, and value comes not only from the object of

transaction, but also from the history of the relationships between the supplier and the

customer. This is a market relationship: interactive, lasting more than a transaction, highly

intangible, not necessarily product or service related.

Market demand

Purchase volume (q) by a specific group of customers (c) in a specific geographic area (g) in

a specific lapse of time (t) in a specific context (e) given a specific marketing program (m).

The demand depends on the environmental variables (e) and the marketing program (m)

which are independent variables. Given an environment the success is affected by the

marketing programme and vice versa.

Characterization of demand: product/service, definition of “purchase”, unit of measure,

customers, geography, time, level of aggregation.

Decision making and environmental variables affecting demand: 21


External variables (context conditions) that influence demand: macro-environment,

economic situation, customer expenditure availability, competitive system, position in the

industry, subsidiary products, equivalent products.

Decisional variables (marketing effort) that influence demand: product/service, price,

stores/distribution, promotion/communication, salesforce.

The demand evolves in an S-Curve: at the beginning there are always a lot of efforts and few

results then the curve increase significantly once the knowledge is reached and finally, when

the product becomes obsolete, the curve decreases. The whole curve shifts up and down

according to the economic conditions (in times of positive economic situations it goes up).

The relationship between demand and influencing variables, external variables effect:

The relationship between demand and influencing variables, decisional variables effect

(marketing effort):

Example - the decisional variable price effect upon demand:

Given a price reduction we expect an increase of volume. The elasticity to price is how the

demand changes given a certain price change. It is not the same in every market but it

depends on the specific market. 22


Market share

The market share is an indicator of the competitive capacity of a company, product or brand.

(The top managers are obsessed with it and it is wrong!) The increasing of sales does not

lead necessary to an increasing of profitability. For example, in the smartphone market,

Android’s market share is 70% while Apple’s is 15% but Apple’s profitability is 85%.

It is necessary to take the right reference system to calculate properly the market share.

The relative market share compares our company with the biggest competitor of the market

in which we operate. If the relative market share of my company is bigger than 1, I’m the

leader of the market.


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Corso di laurea: Corso di laurea magistrale in ingegneria gestionale
A.A.: 2017-2018

I contenuti di questa pagina costituiscono rielaborazioni personali del Publisher franciig_ di informazioni apprese con la frequenza delle lezioni di Strategy and Marketing e studio autonomo di eventuali libri di riferimento in preparazione dell'esame finale o della tesi. Non devono intendersi come materiale ufficiale dell'università Politecnico di Milano - Polimi o del prof Noci Giuliano.

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