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Strategic Management

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StrategicManagement ­ MGT603
VU
Lesson 14
FUNCTIONS OF MANAGEMENT
Objectives:
Afterreading this lecture, youwill be able to know about the functions of management andhow firm
formulatestrategies in order to performthese functions.
Marketing:
Marketingcan be described as the process of defining, anticipating, creating, and fulfillingcustomers'
needsand wants for products andservices.
There are seven basic functions of marketing:
(1)Customer analysis,
(2)Selling products/services,
(3) Product and serviceplanning,
(4) Pricing,
(5)Distribution,
(6)Marketing research,and
(7)Opportunity analysis.
Understanding these functions helpsstrategists identify andevaluate marketing strengths andweaknesses.
CustomerAnalysis
Customeranalysis--the examination and evaluation of consumerneeds, desires, andwants--involves
administering customer surveys, analyzingconsumer information, evaluating marketpositioning strategies,
developing customer profiles, and determining optimal market segmentationstrategies. Theinformation
generated by customer analysis can be essential in developing an effective mission statement.Customer
profilescan reveal the demographiccharacteristics of an organization'scustomers. Buyers,sellers,
distributors, salespeople, managers, wholesalers,retailers, suppliers, andcreditors can all participate in
gathering information to identify customers'needs and wantssuccessfully. Successfulorganizations
continuallymonitor present andpotential customers' buyingpatterns.
SellingProducts/Services
Successfulstrategy implementation generallyrests upon the ability of an organization to sell some product
or service. Sellingincludesmany marketing activities such as advertising, sales promotion,publicity, personal
selling,sales force management, customerrelations, and dealerrelations. These activities areespecially
critical when a firm pursues a market penetration strategy. The effectiveness of various selling toolsfor
consumerand industrial products varies.Personal selling is mostimportant for industrialgoods companies,
and advertising is most important forconsumer goods companies.Determining organizational strengths
andweaknesses in the selling function of marketing is an important part of performing an internalstrategic-
management audit.
Withregard to advertising products andservices on the Internet, a newtrend is to base advertising rates
exclusively on sale rates. This new accountability contrasts sharply withtraditional broadcast andprint
advertising that bases rates on the number of persons expected to see a given advertisement. The newcost-
per-saleonline advertising rates arepossible because any Website can monitor whichuser clicks on which
advertisementand then can record whether that consumer actually buys the product. If there are no sales,
then the advertisement is free.
Themost popular type of Internetadvertisement is the banner. However,many people just ignore online
banneradvertisements.
Product and Service Planning
Productand service planning includes activities such as test marketing; product and brand positioning;devising
warranties;packaging; determining product options,product features, productstyle, and product quality;
deleting old products; and providingfor customer service. Product and service planning is particularly
important when a company is pursuing product development or diversification.
One of the most effective product andservice planning techniques is testmarketing. Testmarkets allow an
organization to test alternative marketing plans and to forecast future sales of new products. In conducting
a test market project, an organization mustdecide how many cities to include, which cities to include, how
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StrategicManagement ­ MGT603
VU
long to run the test, what information to collect during the test, and what action to take after the testhas
beencompleted. Test marketing is usedmore frequently by consumergoods companies than by industrial
goodscompanies. Test marketing canallow an organization to avoidsubstantial losses by revealingweak
productsand ineffective marketing approaches before large-scale productionbegins.
Pricing
Five major stakeholders affect pricingdecisions:
Consumers,
Governments,
Suppliers,
Distributors,
Competitors.
Sometimes an organization will pursue a forwardintegration strategy primarily to gain better controlover
pricescharged to consumers. Governments canimpose constraints on pricefixing, price discrimination,
minimumprices, unit pricing, priceadvertising, and price controls.
Competing organizations must be carefulnot to coordinate discounts, credit terms, or condition of sale;not
to discuss prices, markups, andcosts at trade associationmeetings; and not to arrange to issue new price
lists on the same date, to rotate lowbids on contracts, or to uniformlyrestrict production to maintain high
prices.Strategists should view pricefrom both a short-run and a long-run perspective, because competitors
cancopy price changes with relative ease. Often a dominantfirm will aggressively matchall price cuts by
competitors.
Withregard to pricing, as the value of the dollar increases, which it has been doing steadily,U.S.
multinationalcompanies have a choice. They can raise prices in the local currency of a foreigncountry or
risk losing sales and marketshare. Alternatively, multinational firms can keep prices steadyand face reduced
profitwhen their export revenue is reported in the United States in dollars.
Distribution
Distributionincludeswarehousing, distribution channels,distribution coverage, retail sitelocations, sales
territories, inventory levels andlocation, transportation carriers,wholesaling, and retailing. Mostproducers
today do not sell their goods directly to consumers. Various marketing entities act as intermediaries; they
bear a variety of names such as wholesalers,retailers, brokers, facilitators, agents,middlemen, vendors, or
simply distributors.
Distributionbecomes especially important when a firm is striving to implement a market development or
forwardintegration strategy. Some of the most complex and challengingdecisions facing a firmconcern
productdistribution. Intermediaries flourish in our economy because manyproducers lack the financial
resourcesand expertise to carry out direct marketing. Manufacturers who could afford to sell directly to the
publicoften can gain greaterreturns by expanding and improvingtheir manufacturing operations.Even
General Motors would find it very difficult to buy out itsmore than eighteen thousand independent dealers.
Successfulorganizations identify andevaluate alternative ways to reachtheir ultimate market.Possible
approaches vary from direct selling to usingjust one or many wholesalersand retailers. Strengthsand
weaknesses of each channel alternative should be determined according to economic, control,and adaptive
criteria. Organizations should consider the costsand benefits of various wholesalingand retailingoptions.
They must consider the need to motivate and control channelmembers and the need to adapt to changes in
the future. Once a marketing channel is chosen, an organization usually mustadhere to it for an extended
period of time.
MarketingResearch
Marketing research is the systematic gathering, recording, andanalyzing of data about problems relating to the
marketing of goods and services.Marketing research can uncover critical strengths and weaknesses,and
marketing researchers employ numerous scales,instruments, procedures, concepts,and techniques to gather
information.Marketing research activities support all of the major business functions of an organization.
Organizationsthat possess excellent marketing research skills have a definite strength in pursuing generic
strategies.
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StrategicManagement ­ MGT603
VU
OpportunityAnalysis
Theeighth function of marketing is opportunityanalysis, whichinvolves assessing the costs, benefits, and risks
associatedwith marketing decisions. Three stepsare required to perform a cost/benefitanalysis:
Compute the total costs associatedwith a decision,
Estimate the total benefits from the decision,and
Compare the total costs with the total benefits.
As expected benefits exceed totalcosts, an opportunity becomesmore attractive. Sometimes the variables
included in a cost/benefit analysis cannot be quantified or even measured,but usually reasonableestimates
can be made to allow the analysis to be performed. One key factor to be considered is risk.Cost/benefit
analyses should also be performed when a company is evaluating alternative ways to be sociallyresponsible.
MarketingAudit Checklist of Questions
Similarly as provided earlier formanagement, the following questionsabout marketing arepertinent:
1. Are markets segmented effectively?
2. Is the organization positioned well amongcompetitors?
3. Has the firm's market sharebeen increasing?
4. Are present channels of distribution reliable andcost-effective?
5. Does the firm have an effective sales organization?
6. Does the firm conduct marketresearch?
7. Are product quality andcustomer servicegood?
8. Are the firm's products andservices priced appropriately?
9. Does the firm have an effective promotion, advertising, andpublicity strategy?
10.Are marketing planning and budgeting effective?
11. Do the firm's marketing managers haveadequate experience and training?
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Table of Contents:
  1. NATURE OF STRATEGIC MANAGEMENT:Interpretation, Strategy evaluation
  2. KEY TERMS IN STRATEGIC MANAGEMENT:Adapting to change, Mission Statements
  3. INTERNAL FACTORS & LONG TERM GOALS:Strategies, Annual Objectives
  4. BENEFITS OF STRATEGIC MANAGEMENT:Non- financial Benefits, Nature of global competition
  5. COMPREHENSIVE STRATEGIC MODEL:Mission statement, Narrow Mission:
  6. CHARACTERISTICS OF A MISSION STATEMENT:A Declaration of Attitude
  7. EXTERNAL ASSESSMENT:The Nature of an External Audit, Economic Forces
  8. KEY EXTERNAL FACTORS:Economic Forces, Trends for the 2000ís USA
  9. EXTERNAL ASSESSMENT (KEY EXTERNAL FACTORS):Political, Governmental, and Legal Forces
  10. TECHNOLOGICAL FORCES:Technology-based issues
  11. INDUSTRY ANALYSIS:Global challenge, The Competitive Profile Matrix (CPM)
  12. IFE MATRIX:The Internal Factor Evaluation (IFE) Matrix, Internal Audit
  13. FUNCTIONS OF MANAGEMENT:Planning, Organizing, Motivating, Staffing
  14. FUNCTIONS OF MANAGEMENT:Customer Analysis, Product and Service Planning, Pricing
  15. INTERNAL ASSESSMENT (FINANCE/ACCOUNTING):Basic Types of Financial Ratios
  16. ANALYTICAL TOOLS:Research and Development, The functional support role
  17. THE INTERNAL FACTOR EVALUATION (IFE) MATRIX:Explanation
  18. TYPES OF STRATEGIES:The Nature of Long-Term Objectives, Integration Strategies
  19. TYPES OF STRATEGIES:Horizontal Integration, Michael Porterís Generic Strategies
  20. TYPES OF STRATEGIES:Intensive Strategies, Market Development, Product Development
  21. TYPES OF STRATEGIES:Diversification Strategies, Conglomerate Diversification
  22. TYPES OF STRATEGIES:Guidelines for Divestiture, Guidelines for Liquidation
  23. STRATEGY-FORMULATION FRAMEWORK:A Comprehensive Strategy-Formulation Framework
  24. THREATS-OPPORTUNITIES-WEAKNESSES-STRENGTHS (TOWS) MATRIX:WT Strategies
  25. THE STRATEGIC POSITION AND ACTION EVALUATION (SPACE) MATRIX
  26. THE STRATEGIC POSITION AND ACTION EVALUATION (SPACE) MATRIX
  27. BOSTON CONSULTING GROUP (BCG) MATRIX:Cash cows, Question marks
  28. BOSTON CONSULTING GROUP (BCG) MATRIX:Steps for the development of IE matrix
  29. GRAND STRATEGY MATRIX:RAPID MARKET GROWTH, SLOW MARKET GROWTH
  30. GRAND STRATEGY MATRIX:Preparation of matrix, Key External Factors
  31. THE NATURE OF STRATEGY IMPLEMENTATION:Management Perspectives, The SMART criteria
  32. RESOURCE ALLOCATION
  33. ORGANIZATIONAL STRUCTURE:Divisional Structure, The Matrix Structure
  34. RESTRUCTURING:Characteristics, Results, Reengineering
  35. PRODUCTION/OPERATIONS CONCERNS WHEN IMPLEMENTING STRATEGIES:Philosophy
  36. MARKET SEGMENTATION:Demographic Segmentation, Behavioralistic Segmentation
  37. MARKET SEGMENTATION:Product Decisions, Distribution (Place) Decisions, Product Positioning
  38. FINANCE/ACCOUNTING ISSUES:DEBIT, USES OF PRO FORMA STATEMENTS
  39. RESEARCH AND DEVELOPMENT ISSUES
  40. STRATEGY REVIEW, EVALUATION AND CONTROL:Evaluation, The threat of new entrants
  41. PORTER SUPPLY CHAIN MODEL:The activities of the Value Chain, Support activities
  42. STRATEGY EVALUATION:Consistency, The process of evaluating Strategies
  43. REVIEWING BASES OF STRATEGY:Measuring Organizational Performance
  44. MEASURING ORGANIZATIONAL PERFORMANCE
  45. CHARACTERISTICS OF AN EFFECTIVE EVALUATION SYSTEM:Contingency Planning