MG – UNIVERSITY KOTTYAM BBA PROGRAMME (CBSC) SEMESTER – 6

SUBJECT CODE - BA6CRT29 & SUBJECT – STRATEGIC MANAGEMENT

MODULE – 3 STRATEGY FORMULATIONS

“Strategy formulation is the process of determining appropriate courses of action for achieving
Organisational objectives and thereby accomplishing organizational purpose.”

STEPS OF STRATEGY FORMULATION

1. Establishing objectives:

The key component of strategy statement is to set the long-term objectives the organization. Objectives of the
firm act as a foundation or base on the strategy is based. Hence objectives should be properly defined. But
objectives should be realistic in nature and achievable, E.g. if the firm's aim is to expand the business, firm has
to pursue a growth strategy.

[Link] of External Environment:

External environmental analysis is the process of analyzing the external environment for assessing the
opportunities and threats to the enterprise, Strategic managers must identify and analyses national and global
environmental factors to understand how each of them affects their industry and their firm. Unless the strategic
manager understands the pressures and powers of all these forces, he cannot make appropriate strategic
decisions for the uncertain future.

3. Analysis of Internal Environment:

Internal analysis involves identifying the business' strengths and weaknesses, by analyzing its competencies. A
business's competencies are its resources and capabilities that allows the business to differentiate itself and its
products and services, or reduce its costs, when compared with competitors. A business' resources are its assets,
which may be tangible assets, such as equipment or technology, or intangible assets such as brands, knowledge
and expertise.

4. Fixing Quantitative Targets:

In this state a firm may set quantitative target for some of its objectives. At this stage, the purpose is not to set
targets for comparison with future outcomes, but to set global targets for the firm as a whole, so as to assess the
contribution that may be made by different product areas or operating divisions.

5. Relating Targets to Divisional Plans:

This step of strategy formulation identifies the contribution that can be made by each division or product group
within the corporation and for this purpose, a provisional strategic plan must be developed for each sub-unit.
These plans should be based upon the analysis of macroeconomic trends and the competitive environment
specific to the sub-unit. Corporate targets when related to divisional plans ensure better chance of their
attainment.

6. Gap Analysis:

Gap Analysis is the identification and analysis of a gap between planned or desired performance. The
organization must analyze critically its previous performance, its present condition and the desired future
conditions. Such an analysis helps to reveal the extent of gap that exists between the present reality and future
aspirations of the organizations. The organization also tries to estimate its likely future state if the present trends
and activities continue.

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7. Choice of Strategy:

This is the final stage in the formulation of corporate strategy. The best course of action is actually chosen after
considering organizational goals, organizational strengths, potential and limitations as well as the external
opportunities. Different strategies are evaluated from different angles and the appropriate strategy is chosen.

Strategic Alternatives

Strategic alternatives give an organisation the opportunity to choose the best strategy by conducting a detailed
evaluation of the strategic alternatives. Formulation of strategic alternatives allows an organisation to face
changing conditions with courage and confidence. Strategic alternatives give the organisation greatest chance of
success, as they are measured by revenue growth and ability to meet the challenges posed by the environment.
They facilitate the choice of the best strategy from the alternatives

TYPES OF STRATEGIES

There is no single strategy that fits for the entire organisation. Most organizations formulate strategies at three
distinct levels of the organisation. They are corporate, business and functional levels. The first two levels
provide a rich combination of strategic alternatives for organizations.

1. Corporate Level

2. Business level [Link] level

I. CORPOTATE STRATEGY

Types of Corporate Strategies

Strategies at the corporate level may be broadly classified into three. They are:

A. Growth / Expansion strategies

B. Stability strategies

C. Defensive / Retrenchment strategies.

A. Growth or Expansion Strategy

Growth strategies are the most widely pursued corporate strategies. Companies that do business in expanding
industries must grow to survive. A company can grow internally by expanding its operations or it can grow
externally through mergers, acquisitions, joint ventures or strategic alliances. Growth strategy is adopted to
accelerate the rate of growth of sales, profits and market share faster by entering new markets, acquiring new
resources, developing new technologies and creating new managerial capabilities. Growth offers economies of
scale and scope to an organization, which reduce operating costs and improve earnings.

Reasons for Pursuing Growth Strategies

1. To obtain economies of scale: Growth helps firms to achieve large-scale operations, whereby fixed costs can
be spread over a large volume of production.

2. To attract merit: Talented people prefer to work in firm with growth.

3. To increase profits: In the long run, growth is necessary for increasing profits of the organisation,
especially in the turbulent and hyper-competitive environment.

4. To become a market leader: Growth allows firms to reach leadership positions in the market. Companies
such a Reliance Industries, TISCO etc. reached commanding heights due to growth strategies.

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5. To fulfil natural urge: A healthy firm normally has a natural urge for growth. Growth opportunities provide
great stimulus to such urge. Further, in a dynamic world characterized by the growth of many firms around it, a
firm would have a natural urge for growth.

6. To ensure survival: Sometimes, growth is essential for survival. In some cases, a firm may not be able to
survive unless it has critical minimum level of business. Further, if a firm does not grow when competitors are
growing, it may undermine its competitiveness.

Categories of Growth Strategies

Growth strategies can be divided into three broad categories:

a. Intensive Strategies

b. Integration Strategies

c. Diversification Strategies

Intensive Strategies

Without moving outside the organisation's current range of products or services, it may be possible to attract
customers by intensive advertising, and by re-aligning the product and market options available to the
organisation. These strategies are generally referred to as intensification or concentration strategies. By
intensifying its efforts, the firm will be able to increase its sales and market share of the current product line
faster.

Thus, there are three important intensive strategies:

a. Market penetration

b. Market development

c. Product development

a. Market Penetration or Concentration Strategy: Market penetration seeks to increase market share for
existing products in the existing markets through greater marketing efforts. This includes activities like
increasing the sales force, increasing promotional effort, giving incentives etc.

b. Market Development Strategy: Market Development strategy tries to achieve growth by introducing
existing products in new markets. The two possible methods of implementing market development strategy are,
(a) the firm can move its present product into new geographical areas or (b) the firm can expand sales by
attracting new market segments.

c. Product Development Strategy: Expansion through product development involves development of new or
improved products for its current markets. The firm remains in its present markets but develops new products
for these markets. Growth will accrue if the new products yield additional sales and market share.

Integration Strategies

Integration basically means combining activities relating to the present activity of a firm. Such a combination
done on the basis of the industry value chain. A company performs a number of activities to transform an input
to output. These activities include right from the procurement of raw materials to the production of finished
goods and the marketing and distribution to the ultimate consumers.

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There are many forms of integration, but the two major ones are:

1. Vertical integration

2. Horizontal integration.

Vertical Integration

Vertical integration refers to the integration of firm involved in different stages of the supply chain. Thus, a
vertically integrated firm has units operating in different stages of supply chain starting from raw material to
delivery of final product to the end customer. Vertical integration may be:

a) Backward integration, or

b)Forward integration.

a) Backward integration: Backward integration involves gaining ownership or increased control of a firm
suppliers. For example, a manufacturer of finished products may take over the business of a supplier who
manufactures raw materials, component parts and other inputs. Brooke Bond's acquisition of tea plantations is
an example of backward integration.

b) Forward integration: Forward integration involves gaining ownership or increased control over distributors
or retailers. For example, textile firms like Reliance, Bombay Dyeing, JK Mills (Raymond's) etc. have resorted
to forward integration by opening their own showrooms.

Merits of Vertical Integration

1. A secure supply of raw materials or distribution channels.

2. Control over raw materials and other inputs required for production or distribution channels.

3. Access to new business opportunities and technologies.

4. Elimination of need to deal with a wide variety of suppliers and distributors.

5. Increase entry barriers to potential competitors, for example, if the firm can gain sole access to scarce
resource.

6. Facilitate investment in highly specialized assets in which upstream or downstream players may be reluctant
to invest.

Demerits of Vertical Integration

The downside risks of an integration strategy to a company include

1. Difficulty of effectively integrating the firms involved.

2. Incorrect evaluation of target firm's value.

3. Overestimating the potential for synergy between the companies involved,

4. Creating a combination too large to control,

5. The huge financial burden that acquisition entails,

6. Potentially higher costs due to low efficiencies resulting from lack of supplier competition

7. Developing new core competencies may compromise existing competencies.

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Horizontal Integration

Horizontal integration is a strategy of seeking ownership or increased control over a firm's competitors. Horizon
growth can be achieved by internal expansion or by external expansion through mergers and acquisitions of
firms offer similar products and services. One of the clearest example of horizontal integration is Facebook's
acquisition, Instagram in 2012. Both Facebook and Instagram opera in the same industry (social media) and
were in similar production stages in regard to their photo-sharing service Facebook, looking to strengthen its
position in the social sharing space, saw the acquisition of Instagram as an opportunity to grow its market share,
reduce competition and access new audiences.

Benefits of Horizontal Integration

1. Economies of scale -achieved by selling more of the product, for example, by geographic expansion.

2. Economies of scope -achieved by sharing resources common to different products. Commonly referred to as
synergies'.

3. Increased bargaining power over suppliers and downstream channel members.

4. Reduction in the cost of global operations made possible by operating plants in foreign markets.

5. Synergy achieved by using the same brand name to promote multiple products.

Diversification Strategies

Diversification is the process of adding new businesses to the existing businesses of the company. In other
words, diversification adds new products or markets to the existing ones. A diversified company is one that has
two or more distinct businesses. The diversification strategy is concerned with achieving a greater market from a
greater range of products in order to maximize profits. From the risk point of view companies attempt to spread
their risk by diversifying into several products or industries.

Types of Diversification

1. Concentric diversification. 2. Conglomerate diversification.

1) Concentric or Related Diversification

Adding a new, but related business is called concentric diversification. It involves acquisition of businesses that
are related to the acquiring firm in terms of technology, markets or products. The selected new business has
compatibility with the firm's current business.

Example: Nilkamal plastic is started with plastic chairs. It started manufacturing other plastic furniture like
table, wall mounted shelves etc. this is a related diversification.

Concentric diversification may be of three types:

i. Marketing-related Diversification:

A similar type of product is offered with the help of unrelated technology For e.g. a company in the sewing
machine business diversifies into kitchenware and household appliances The market relatedness here is in terms
of the common distribution channel for sewing machines, kitchenware and household appliances.

ii. Technology-related Diversification:

A new product or service is provided with the help of related technology. For e.g. a leasing firm offering hire
purchase services to institutional customers also starts consumer financing for purchase of durables to individual

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customers. The technology relatedness here is in terms of the procedure of the financing services institutional
and individual customers.

iii. Marketing and Technology-related Diversification:

A similar type of product or service is provided with the help of a related technology. For e.g. a synthetic water
tank manufacturer makes other synthetic items such as pre- fabricated doors and windows for residential and
commercial establishments, sold through its hardware suppliers network.

2. Conglomerate or Unrelated Diversification

Adding a new, but unrelated business is called conglomerate diversification. The new business will have no
relationship to the company's technology, products or markets. For example, ITC which is basically a cigarette
manufacturer has diversified into hotels, edible oils, financial services etc. Similarly, Reliance Industries, which
is basically a textile manufacturer, has diversified into petro chemicals, telecommunications, retailing etc.

Rationale or Reasons For Diversification

a. Economies of Scale and Scope (Synergy): The merger of two companies producing similar products should
allow the combined firms to pool resources and attain lower operating costs. By making optimal use of existing
marketing, investment, operating and managerial facilities of the two combining firms and eliminating
redundant and overlapping activities, the combined entity can lower the operating costs and increase operational
efficiency

b. Widen Market Base and Enhance Market Power: Large number of collaborations and acquisitions are
aimed 2 expanding the market for the firm's products.

C. Profit Stability: Acquisition of new business can reduce variations in corporate profits by expanding the
company lines of business

d. Improve Financial Performance: Large firms general cash that can be invested in other ventures. A firm
may also be tempted to exploit diversification opportunities because it has liquid resources far in excess of the
total expansion needs

e. Growth: The most important factor that motivates management to diversify is to achieve higher growth rate
than which is possible with intensification strategy. If the management feels that the existing products and
markets do not have the potential to deliver expected growth, the only alternative they have is to diversify into
new territories.

f. Counter Competitive Threats: Organizations are driven at times towards external diversification through
merger by competitive pressures. Such a strategic move is expected to counter the competitive threats by
reducing the intensity of competition.

g. Regulatory Factors: A large number of organizations have diversified their operations geographically to
exploit opportunities in different regions and countries and also to take advantage of the incentives being offered
by the various governments to attract investment.

B. STABILITY OR STATUS QUO STRATEGIES

A strategy wherein firm chooses to keep its business definition unaltered is said to be a stability strategy. It aims
at maintaining the existing business course without any significant variations or additions. Stability strategy
signifies that a firm stays with the same business or product markets and functions as at present, maintaining

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more or less the same level of effort as at present. For example, a copier machine company tried to improve its
company and product Image through better customer service.

Reasons for Pursuing Stability Strategy

1. The firm is doing well or perceivers itself as successful. Management does not always know what
combinations of decisions are responsible for this. So we continue the way we always have around here.

2. A stability strategy is less risky. A high percentage en changes fail, whether we are talking about new product
or new ways of doing things.

3. It is easier and more comfortable for all concerned pursue a stability strategy. No disruptions in routine take
place.

4. The environment is received to be relatively stable, with few threats to cause problems or few opportunities
the firm wishes to take advantage of.

5. Too much expansion can lead to inefficiencies. In effect many decision makers do not perceive a significant
gap between the future level of goal attainment they except to reach and their ideal objectives.

VARIANTS OF STABILITY STRATEGY

1. Pause Strategy: Pause strategy is breathing spell strategy. The objective of the firm under this strategy is
to make the factors of production more productive 19 assure future rapid growth. When the firm has running and
running, there is need for pause to regain the stamina to run further

2. No Change Strategy: A no change strategy is a decision to do nothing new i.e., continue current operations
and policies for the foreseeable future. If there are no significant opportunities or threats operating in the
environment or if there are no major new strengths and weaknesses within the organisation, the firm may decide
not to do anything new.

3. Profit Strategy: The profit strategy is an attempt to artificially maintain profits by reducing investments and
term expenditures. Rather than announcing the company's poor position to shareholders and other investors at
large, top management may be tempted to follow this strategy. Obviously, the profit strategy is useful to get
over a temporary difficulty, but if continued for long, it will lead to serious deterioration in the company's
position.

C. RETRENCHMENT/ DEFENSIVE STRATEGY

Retrenchment strategies, also known as defensive strategy, are the last resort strategies. A company may pursue
retrenchment strategies when it has a weak competitive position in some or its entire product lines resulting in
poor performance - sales are down and profits are dwindling. In an attempt to eliminate the weaknesses that are
dragging the company down, management may follow one or more of the following retrenchment strategies.

1. Turnaround

2. Divestment

3. Bankruptcy

4. Liquidation

1. Turn-around Strategy: Turnaround means reversing a negative trend or converting an unprofitable or sick
business into profitable one. A firm is said to be sick when it faces a severe cash crunch or a consistent

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downtrend in its operating profits. Such firms become insolvent unless appropriate internal and external actions
are taken to change the financial picture of the firm. This process of recovery is called "turnaround strategy.

"Turnaround means making the company profitable again."

Features of Turnaround

1. Objective: The strategy does not aim at selling or disposing of loss making unit but works to improve the
performance of the unit by re-arranging the available resources.

2. Long Term Strategy: Turnaround is one type of long term strategy and does not aim at providing temporary
relief or short cut method to company problems. It studies the problem in-depth and tries to solve it forever.

3. Scope of Turnaround: The scope of turnaround is confined to sick or loss making industrial units. It is a
type of crisis management. Turnaround is not short cut or magical formula. It cannot work on all sick units
under all circumstances. It is effective in case of loss making units but having growth or future prospects.

4. Requires Co-operative effort: Turnaround strategy can be effective only when there is co-operation from all
parties concerned. The parties involve:

 Employees
 Shareholders
 Bank and FI
 Other concerned parties

5. Involves restructuring: Turnaround is possible only when the company decides to restructure its operations.
It may include marketing restructuring whereby marketing of loss making products are stopped or when the
outdated machinery is replaced i.e. technological restructuring and so on.

6. Internally or externally: Turnaround can be undertaken by company's own experts or by outside

consultants. Both have their advantages and limitations e.g. internal experts are aware of the company's culture,
resources, level of technology better, however they may be biased as their interest are involved. External experts
may unbiased but their suggestions may not be practical and the sentiments of the employees may not be
considered. So an organization must strike a proper balance between using internal and external experts.

7. Involves re-planning: Turnaround necessitates the planning. It involves re-arranging the structure to convert
a loss making unit into profitable one, Si environmental factors are dynamic, it would make the company sick
and unless resources are rearranged as re-planned, turnaround is not possible.

8. Involves money: When products become obsolete, there is decline in its demand e.g. Pagers. Here in order to
ha a turnaround, technological restructuring, marketing restructuring etc. is necessary which may involve a lot
of money. Thus turnaround is not possible for all companies especially if they do not have extra resources at the
disposal

9. Permanent effect: Turnaround involves a permanent effect on the structure and operations of the company
This is because the company may close its unviable product out of the existing range of product or may change
the technology from labour intensive to capital intensive thereby reducing the workers or even amalgamate with
some other company thereby forming a totally new entity.

10. Optimum utilization of resources: The company which is suffering losses, is not is a position to make an
optimum utilization of human, physical and financial resources. Turnaround involves restructuring and
reorganizing these resources. It tries to focus the resources on profitable ventures and to discontinue the non-
profitable ones.

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Reasons for Turnaround Strategy

a) Continuous losses

b) Negative cash flows

c) Declining market share

d) Deterioration of physical facilities

e) Overstaffing, high employee turnover

f) Non-competitive products or services

g) Mismanagement

h) Increasing debt.

2. Divestment or Divestiture strategy: Selling a division or part of an organisation is called divestiture. When
a firm fails to turn-around, it resorts to divestiture as next step. Divestiture is generally used as a part of
turnaround strategy to get rid of businesses that are unprofitable, that require too much capital or that do not fit
well with the firm's other activities.

Reasons for Divestment

a) Persistent negative cash flows from a unit that create financial pressure on the company as a whole.

b) Inability of the company to face increasing competition in a particular business.

c) The company is unable to carry out the technological up-gradation necessary for the unit's survival.

d) The project is unviable and its sale proceeds c generate better return in some other business

e) A business acquired earlier proves to be a mismatch and cannot be integrated into the company.

3. Bankruptcy: This is a form of defensive strategy. It allows organisations to file a petition in the court for
legal protection to the firm, in case the firm is not in a position to pay its debts. The court decides the claims on
the company and settles the corporation's obligations.

4. Liquidation Strategy. Liquidation occurs when an entire company is dissolved and its assets are sold. It is a
strategy of the last resort. When there are no buyers for a business which wants to be sold, the company may be
wound up and its assets may be sold to satisfy debt obligations. Liquidation becomes the inevitable strategy
under the following circumstances:

a. When an organisation has pursued both turnaround strategy and divestiture strategy, but failed.

b. When an organisation's only alternative is bankruptcy. A company can legally declare bankruptcy first and
then wind up the company to raise needed funds to pay debts.

c. When the shareholders of a company can minimize their losses by selling the assets of a business.

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COMBINATION STRATEGIES

A company can pursue a combination of two or more corporate strategies simultaneously. But a combination
strategy can be exceptionally risky if carried too far. No organisation can afford to pursue all the strategies that
might benefit the firm. Difficult decisions must be made. Priorities must be established. Organisations like
individuals have limited resources, so organisations must choose among alternative strategies. In large
diversified companies, a combination strategy is commonly employed when different divisions pursue different
strategies. Also, organisations struggling to survive may employ a combination of several defensive strategies.

II. BUSINESS LEVEL OR GENERIC STRATEGIES

Each business should have its own business strategy business strategy is basically a competitive strategy and is
concerned more with how a business competes successfully in the chosen market. Business strategy is guided by
the direction set by the corporate strategy. It translates the direction and intent generated at the corporate level
into objectives and strategies for individual business units.

1. Cost leadership

2. Differentiation

3. Focus.

These are called 'generic' because they can be used in a variety of situations, across diverse industries at various
stages of development.

1. Cost Leadership Strategy: Cost leadership is a strategy whereby a firm aims to deliver its product or service
at a price lower than that of its competitors. Customers prefer a lower cost product, particularly if it offers the
same utility to them as comparable products available in the market. When all organizations offer products at a
comparable price, the cost leader organization earns higher profits owing to the low cost of its products. A firm
can attain the status of a cost leadership by:

a. Matching the product and processes structures that result in reduced process cost.

b. Managing projects scientifically that reduces time over run and cost over-run.

c. Streamlining research and development function in process and product improvement leading to lower cost
and better quality.

Example of organization using cost leadership business strategy: Gujarat Co-operative Milk Marketing
Federation, the country's largest co-operative, known better by its brand name Amul, operates in the branded ice
cream market on the lower cost platform. It has the backing of a large co-operative dairy network, whose
constituents are located across the country and an efficient supply-chain in place for procurement of high quality
milk.

Benefits associated with cost leadership strategy

1. Cost advantage is possibly the best insurance against industry competition. An organization is protected
against the ill effects of competition if it has a lower cost structure for its products and services.

2. Powerful suppliers possess higher bargaining power to negotiate price increases for inputs. Organizations that
possess a cost advantage are less affected in such a scenario as they can absorb the price increases to some
extent.

3. Powerful buyers possess higher bargaining power effect a price reduction. Organizations that posse cost
advantage can offer price reduction to some extent in such a case.

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4. The threat of cheaper substitute can be offset to some extent by lowering prices.

5. Cost advantage acts as an effective entry barrier for potential entrants, who cannot offer the product service at
a lower price.

2. Differentiation Strategy: The differentiation strategy is an attempt to gain a competitive advantage by

producing a product or making available a service that gives additional benefit to customers. Differentiation
consists of offering a product or service that is perceived as unique or distinctive by the customer. This allows
firms to command a premium price or to retain buyer loyalty because customers will pay more for what they
regard as a better product. A differentiation strategy can be more profitable than a cost leadership strategy
because of the premium price.

Products can be differentiated in a number of ways so that they stand apart from standardized products:

1. Superior quality

2. Special or unique features

3. More responsive customer service

4. New technologies

5. Dealer network.

Example of differentiation strategy: Gillette India differentiates its razor blades on the basis of quality unique
three blades razor system that gives superior shave. It has differentiated its shaving gel on the basis of economy
- one drop is enough and one tube lasts for months. As a result of such differentiation the firm has gained a large
market share.

3. Focus Strategy: The third business level strategy is focus. Focus is different from other business strategies as
it is segment based and has narrow competitive scope. Whenever a company plans to serve the needs of a
specific segment or a customer group based on income, age, geographical area or a product line, it follows focus
strategy. This strategy involves the selection of a market segment, or group of segments, in the industry and
meeting the needs of that preferred segment (or niche) better than the other market competitors. This is also
known as a niche strategy. In focus strategy, the competitive advantage can be achieved by optimizing strategy
for the target segments.

III. FUNCTIONAL LEVEL STRATEGY

Functional Strategy is the approach taken by a functional area to achieve corporate and business unit objectives
and strategies by maximizing resource productivity. It is concerned with developing and nurturing a distinctive
competence to provide 'a company or business unit with a competitive advantage. Functional strategies are
essential to implement business strategy. In fact, the effectiveness of a corporate or business strategy execution
depends critically on the manner in which strategies are implemented at the functional level. The functional
strategy clarifies the business strategy, giving specific short-term guidance to operating managers in the areas of
operation marketing, finance, HR, R&D etc., and increases the likelihood of their success.

Functional level strategy is associated with strategies in the areas of:

1. Operations

2. Marketing

3. Finance

4. Human resources

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5. Research and development.

Operations Strategy

Operations management is the core function of any organisation. This function converts inputs (raw materials,
supplies, machines and people) into value added outputs. Operations management covers all manufacturing
processes in an organisation and includes raw material sourcing purchasing, production, distribution and
logistics. This function contributes to the organisation's ability to add value to the goods and services.

Importance of Operational Strategy

The key to successful survival of an enterprise is how efficiently the production activity is managed. The two
major factors that contribute to business failures are: obsolescence of the product line and excessive production
costs. These factors themselves have been the outcome of ineffective production Planning. Operations strategy
plays a crucial role in shaping the ultimate success of a firm. It enables an organisation to make optimal
decisions regarding product, production capacity, plant location, choice of machinery and equipment,
maintenance of existing facilities and host of other aspects of production

Marketing Strategy

Marketing is considered as one of the most important functions of organization. In the present day it is
considered to be the activities related to identifying the needs of customers and taking such actions to satisfy
them in return of some consideration. In marketing it is more important to do what is strategically right than
what is immediately profitable i.e. marketing always look for long term profit and growth rather immediate
profit.

Plans and policies related to marketing have to be formulated and implemented on the basis of the 4 P's of the
marketing mix, i.e. product, price, place and promotion. In case of services, the same is extended to 7 P's, i.e.
product price, place, promotion, people, physical evidence and process

1. Product: The most basic marketing mix tool is product which stands for the firm's tangible offer to the
market including the product quality, design, features, brand packaging, services, warranties etc.

Product Mix: Product mix refers to a group of products manufactured or traded by the firm to strengthen i
presence in the market, increase its market share increase the sales turnover for more profitability. It is defined
as the overall products offered by a firm to the customers. According to Philip Kotler, "product mix is the set of
all product lines and items that a particular seller offers for sale to buyers".

2. Price: A critical marketing mix tool is price, namely, the amount of money that customers have to pay for the
product. It includes deciding on wholesale and retail prices, discounts, allowances, and credit terms. Price
should be commensurate with the perceived value of the offer, or else buyer will turn to competitors in choosing
their products.

Price Mix: Price mix is an umbrella which is used to cover all the factors associated with pricing such as unit
price, discount to be offered, pricing strategies, price discrimination (different prices for different groups of
consumers for identical products offered by the firm) and terms of credit to be allowed to customers.

3. Place: This marketing mix tool refers to distribution. It stands for various activities the company undertakes
to make the product easily available and accessible to target customers. It includes deciding on identify, recruit,
and link various middlemen and marketing facilitators so that efficiently supplied to the target market.

Place Mix: Place mix refers to the combination of all decisions related with the flow of goods from the place of
manufacturer to the place of consumers. The major components of place mix are: Distribution channel,
Transportation, Warehousing, Inventory management, Order processing.

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4. Promotion: The fourth marketing mix tool, stands for the various activities the company undertakes to
communicate its products' merits and to persuade target customers to buy them. It includes deciding on hire,
train, and motivates salespeople to promote its products to middlemen and other buyers.

Promotion Mix: The overall marketing communication programmes of a firm are known as promotion mix.
The major elements of promotion mix are as follows:

Advertising: Advertising through television, newspaper etc.

Personal selling: Canvassing customers personally or through telephone and other electronic means, sales
presentations etc.

Sales promotion: Providing incentives to customers such as gifts, scratch cards, discount offers etc.

Publicity: Giving favourable presentations and about the product and its features in the media news Expanded
Marketing Mix

In addition to the traditional four Ps the new mix are: marketing

5. People: All human actors who play a part in delivery of the market offering and thus influence the buyer's
perception, namely the firm's personnel and the customer.

[Link] evidence: The environment in which the market offering is delivered and where the firm and
customer interact

7. Process: The actual procedures, mechanisms and flow of activities by which the product / service is
delivered.

Financial Strategy

In the financial management area, the major concern of the strategy relates to the acquisition and utilisation of
funds, Major issues involved are the sources from where the funds will come, from equity or by borrowing.
How much of the borrowing will be short-term and how much long-term. In terms of usage of funds, the policy
decisions would relate to whether and to what extent funds have to be deployed in fixed assets and current
assets. The long-term or capital investment decisions relate to buying or leasing the fixed assets.

Components of Financial strategy

 Financing decision
 Investment decision
 Dividend decision
 Working capital management

Financing Decision: For successful implementation of the chosen strategy, availability of fund is a major
prerequisite to be taken care of by the management. There are different sources for collecting fund like issue of
shares, debentures, loan financial institutions etc. The need, purpose, object and cost involved may be factors
influencing the selection of a suitable source of financing.

Investment decision: A decision should be taken about which assets are to be purchased. Adequate fund should
be provided for fixed capital and working capital purposes. The investment decision can be classified under two
headings:

(a) Long term investment decision and

(b) short term investment decision.

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Dividend decision: A decision has to be taken whether all the profits are to be distributed to retain all the profits
in business or to keep a part of profits in business and distribute others among shareholders.

Working capital management: Working capital is required for day-to-day running of business. It is also
referred to as management of current assets. The more commonly sources of short-term finance are: Trade
credit, Bill discounting, Bank loans, Commercial paper, Overdraft, etc.

Human Resource Strategy

Strategic responsibilities of the human resource manager include assessing the staffing needs and developing a
staffing plan for effectively implementing the other formulated strategies. This plan must consider how best to
manage employee costs and also include how to motivate employees and managers. The human resource
department must develop performance incentives that clearly link performance with pay. The process of
empowering managers and employees through their involvement yields the greatest benefits to organizations. A
well-designed strategic-management system can fail if insufficient attention is given to the human resource
dimension.

Organization should have effective human resource planning, employment, training, appraisal and rewarding
system. An organization's recruitment, selection, training. performance appraisal, and compensation practices
can have a strong influence on employee competence is very important.

• Recruitment and selection: The workforce will be more competent if a firm can successfully identify,
attracts, and select the most competent applicants.

• Training: The workforce will be more competent if employees are well trained to perform their jobs properly.

• Appraisal of Performance: The performance appraisal is to identify any performance deficiencies

experienced by employees due to lack of competence. Such deficiencies, once identified, can often be solved
through counselling, coaching or training

• Compensation: A firm can usually increase the competency of its workforce by offering pay and benefit
packages that are more attractive than those of their competitors. This policy enables organizations to attract and
retain the most capable people.

Research and Development Strategy

Research and development (R&D) can play an integral part in overall company's strategy implementation. R&D
employees and managers perform tasks that include transferring complex technology, adjusting processes to
local raw materials, adapting processes to local markets, and altering products to particular tastes and
specification: Strategies such as product development, market penetration, and concentric diversification require
that new products be successfully developed and that old products be significant improved. But the level of
management support for R&D is often constrained by resource availability.

STRATEGIC CHOICE

Once strategic alternatives (corporate level and business level strategies) are identified, a firm has to choose the
strategic alternative(s) it will adopt.

Strategic choice involves the selection of one or more strategies that an organisation will use to achieve its
objectives. According to Glueck and Jauch, "strategic choice is the decision to select from among the alternative
grand strategies considered, the strategy which will best meet the enterprise objectives. The decision involves
focussing on a few alternatives, considering the selection factors, evaluating the alternatives against these
criteria and making the actual choice

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STEPS IN THE PROCESS OF STRATEGIC CHOICE

1. Focusing on Strategic Alternatives:

First of all the various alternative strategies from which choice will be made are identified. It is neither possible
nor worthwhile to consider all possible alternatives. Therefore, in practice, strategists focus on only those
alternatives which are relevant and feasible.

2. Evaluating Strategic Alternatives:

Once the few feasible alternatives are identified, these are thoroughly analysed and compared with one another.
Strategic analysis helps to answer questions such as: which industries to enter or exit, which businesses to
acquire or divest, which products and markets to retain or grow or divest. Each alternative is evaluated in terms
of its capability to help the firm to achieve its objectives. The pros and cons of each alternative are analysed.

3. Considering Decision Factors:

The criterion used in the evaluation of strategic alternatives consists of several objective and subjective factors.
These factors are known as decision factors.

4. Choosing from among the Strategic Alternatives:

The evaluation of strategic alternatives reveals the most suitable alternative(s) under the present situations.
Choice of strategy is, therefore, the last step. The firm may choose one or more alternatives foe implementation.

FACTORS INFLUENCING STRATEGIC CHOICE

1. Objective Factors: The strategic intent and SWOT analysis of an organization are the main objective factor
in strategic choice. The strategic intent defines what an organization should do and why. Every organization
attempts to choose strategies that will help it in achieving its strategic intent.

2. Subjective Factors: Strategic decision makers, after comprehensive strategy examination, are often
confronted with several viable alternatives rather than the luxury of a clear-cut, obvious choice. Under these
circumstances, several factors influence the strategic choice decision Some of the more important are: Role of
past strategy, Degree of the firm's external dependence, Attitudes toward risk, Internal political considerations
and the CEO, Timing, Competitive reaction.

1) Role of Past Strategy:

A review of past strategy is the point at which the process of strategic choice begins. As such, past strategy
exerts considerable influence on the final strategic choice. Whenever the past strategists are assigned the job of
crafting new strategies, they are more likely to adopt a strategy that is very close to the past strategy.

2) Degree of the Firm's External Dependence:

A comprehensive strategy is meant to effectively guide a firm's performance in the larger external environment.
Owners, suppliers, customers, government, competitors, and unions are a few of the elements in a firm's
external environment. A major constraint on strategic choice is the power of environmental elements in
supporting this decision. If a firm is highly dependent of one or more environmental factors, its strategic
alternatives and ultimate choice must accommodate this dependence. The greater a firm external dependence,
the lower its range and flexibility in strategic choice.

3) Attitudes toward Risk:

The attitude of top management and strategic managers also influence choice of strategy, When they are willing
to take risk, the range and diversity of strategies expand. Where management is risk averse, the diversity of

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choices is limited, and risky alternatives are eliminated before strategic choice re made. Risk oriented managers
prefer offensive, opportunistic strategies.

4) Internal Political Considerations:

Power/political factors influence strategic choice. A major source of power in most organizations is the chief
executive officer (CEO). When CEO begins to favour a particular choice, it is often unanimously selected.

5) Timing Considerations:

The time element can have considerable influence on strategic choice. In case sufficient time is not available,
the strategic managers are unlikely to complete the necessary analysis and in a hurry may take a decision which
could be disastrous. Another perspective is the timing of the strategy.

6) Competitive Reaction:

The strategic managers have to consider the likely response of the competitor to the proposed strategies. For
example, if management chooses an aggressive strategy that directly challenges a key competitor, that
competitor can be expected to form an aggressive counterstrategy. Management of the initiating firm must
consider such reactions, the capacity of the competitor to react, and the probable impact on the chosen strategy's
success.

CONTINGENCY STRATEGY

Strategic choice is made on the basis of certain conditions, assumptions and premises. When there is a change of
conditions, shift in assumptions and the premises do not turn out to be wholly valid, then the strategy chosen
becomes partly irrelevant. The strategies would need to be modified. Often, the shift in assumptions is sudden,
leaving very little time for the strategists to reorient strategies. Contingency strategies are formulated in advance
to deal with uncertainties that are a natural part of the business. Most changes occur in the company's
environment. Certain components of the environment, such as the social environment, alter gradually, and such
can be anticipated well in advance. Then there are other types of environment, for instance, the market,
regulatory or the international environment, where changes could be sudden and leave little time for the
strategists to readjust to the situation.

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