Strategy

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Strategy

• Lecture 8

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Strategy

• Greek word origin (400 B.C.)
• Pertained to the art and science of directing
  military forces

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Six Basic Strategies

• Stability
• Product Development
• Market Development
• Vertical Integration
• Merger
• Retreat

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Stability

• No new products, markets, acquisitions
• For example Retain current market share.
• For example 11 of market 110,000 unit sales

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Product Development

• New products for an existing market.
• Same customers will buy continuing line of
  products.
• Products aimed at same customer base.

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Product Development

• RCA TV, Video Recorders, Video Discs
• Cereals Plain, sugared, frosted, colors,
  shapes, characters, etc.

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Chocolate Frosted Sugar Bombs
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Market Development

• New markets for existing products
• New uses for existing products
• New geographic markets for existing products

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Market Development
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Market Development

• Japanese sports car to the U.S.
• Tried to get car renamed, because the translated
  name was Fairy Princess
• Automaker agreed to market the car using the
  internal production number

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Market Development

• 8 oz. Servings

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• U.S. per capita 310 / year
• Russia per capita / year
• China per capita / year

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Vertical Integration

• Firm incorporates pre- or post- operation
  enterprise into its business

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Tire Manufacturer Example
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Tire Manufacturer

• Rubber Tree Plantation
• Rubber Processing Plant
• Tire Manufacturer
• Retail Store
• Consumer

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Tire Manufacturer

• If buys out Rubber Processing Plant, this is
  known as Backward Vertical Integration
• Rubber Tree Plantation
• Rubber Processing Plant
• Tire Manufacturer
• Retail Store
• Consumer

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Tire Manufacturer

• If buys out Retail Store chain, this is known as
  Forward Vertical Integration
• Rubber Tree Plantation
• Rubber Processing Plant
• Tire Manufacturer
• Retail Store
• Consumer

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Vertical Integration

• Eliminates Middleman
• Which results in more profit potential for the
  firm
• ALSO

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Vertical Integration

• Reduces uncertainty
• For example, what happens if your supplier dries
  up?
• Or, your retail outlet no longer chooses to carry
  your product?

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Merger

• A type of diversification.
• Firm enters a related business area. Examples
  Mattel buys Tyco, Hershey buys Peter Paul.
• Firm enters unrelated business area. Example
  Ralston Purina buys the Blues

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Merger
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Merger

• PepsiCo owns Pepsi Cola
• PepsiCo owns Frito Lay

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PepsiCo
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Retreat

• Firm gets out of businesses it once thought were
  good opportunities.
• Example Ralston Purina

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Ralston used to own

• St. Louis Blues hockey team
• Tuna fishing operation
• Mushroom growing business

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Retreat at Ralston

• Sold off these divisions
• Got back to basics

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