Strategic Market Management, 9th Edition test_bank David A Aaker

Strategic Market Management, 9th Edition By David A. Aaker

Email: richard@qwconsultancy.com

TEST BANK for Strategic Market Management 9th Edition David A. Aaker ESSAY QUESTIONS 1.

What is the objective of external analysis? How would you distinguish between an effective and an ineffective external analysis? What would you say would be the most useful way to conduct an external analysis? Why? -Chapter 1 & 2-

2.

Describe and give examples of a well-developed business strategy including the four characteristics.

-Chapter 1-

3.

Discuss the advantages of a customizing rather than a standardizing marketing program in the context of a global strategy. When would customizing make sense?

-Chapter 13-

4.

Consider the implementation problems of merging Sears and Walt Disney. What synergy would you expect? How could you make sure that it materialized?

-Chapter 7 & 15-

5.

Describe scenario analysis using one of the cases discussed in the course as a vehicle to illustrate. What implementation problems would you expect if scenario analysis were to be adopted at Apple Computer?

-Chapter 5-

6.

American business have been accused of being short-sighted, looking at short-term financial performance instead of taking a longer-term view. What can a manager do to make sure that he or she is managing for the long term? How would you go about advising a department store to generate indicators of long-term success? Be specific.

7.

What are assumptions underlying the growth-share matrix? When are these assumptions likely to hold? What is the historical contribution of the growth-share matrix?

-Chapter 14-

8.

Discuss the considerations involved in making the decision to expand or broaden the product line.

-Chapter 12-

9.

Describe the distinctions between strategic commitment, strategic opportunism, and strategic adaptability.

-Chapter 7-

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10.

Describe and illustrate the following terms: -Scenario analysis - chapter 5 -Strategic uncertainties – chapter 2 -Synergy – chapter 7&15 -Strategic opportunism – chapter 7 -Strategic drift – chapter 7 -Key success factors – chapter 4&7 -Experience curve – chapter 8 -Silo barriers – chapter 15

11.

You have been given the task to evaluate a market opportunity for a firm. Give specific examples of the dimensions you would use to determine the attractiveness of a given market.

-Chapter 14-

12.

Discuss Competitor Analysis. In your discussion include the following: the objectives of competitor analysis and the elements of competitor analysis. You should use information from the course including articles, cases, and textbook material to support your answer.

-Chapter 3-

13.

Discuss Environmental Analysis. In your discussion include the following: the objectives of environmental analysis; the dimensions of environmental analysis; and how to deal with strategic uncertainty. Use information from the course including articles, cases, and textbook material to support your answer.

-Chapter 5-

14.

What at the payoffs to creating a new business? What are the risks?

-Chapter 12-

15.

Discuss Internal Analysis. In your discussion include the following: the objectives of internal analysis; the benefits of conducting an internal analysis; and the elements of internal analysis. Use information from the course including articles, cases, and textbook material to support your answer.

-Chapter 6-

16.

Discuss the concept of customer value proposition and give examples.

-Chapter 8-

17.

How could you energize a business? Illustrate your answer.

-Chapter 10What role does innovation have in strategy making? Give examples of firms who have a history of doing well with innovation and discuss the impact that has had on them.

-Chapter 1, 5, 10, & 12-

19.

20.

What is the innovator’s advantage? How can a firm enhance the chances that the innovator advantage will materialize?

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-Chapter 12OBJECTIVE QUESTIONS Note – These objective questions cover the material from the book. In general, a false answer is markedly at odds with material in the book. However, it may not be at odds with other written material. Therefore, it is important to position these questions as a test of a student’s competence with the book material.

Chapter 1 – Strategic Market Management: An Overview .

1.1 Five management tasks used to develop strategic competencies do not include the following: a. Strategic analysis b. Manage multiple business units c. Identify competitors d. Develop a sustainable advantage e. Develop a growth platform Answer: c. Identifying competitors is valuable but not one of the 5 management tasks.

1.2 The book suggests that many markets are dynamic and require new strategic models.

Answer: False—the book asserts that all markets are dynamic.

1.3 To develop a sustainable competitive advantage (SCA) in dynamic markets, a company must create multiple business units.

Answer: False. There are two routes to creating SCA’s, developing assets and competencies and creating and leveraging organizational synergies between multiple business units.

1.4 A business is generally an organizational unit that has a distinct business strategy and a manager with sales and profit responsibility.

Answer: True.

1.5 Synergy occurs when two businesses can reduce costs by sharing some asset such as a sales force or logistics system.

Answer: True.

1.6 A strategy should only involve one value proposition – otherwise chaos will occur.

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Answer: False. Most successful strategies involve more than one – for example, a customer value proposition that involves innovation and customer intimacy such as Virgin Atlantic Airways.

1.7 A strategic market management system will have more value for an organization that is not engaged in complex markets with multiple channels and regional variation in channels and products.

Answer: False. A strategic market management system is designed to help a company (complex or not) to deal with the rapid changes that can occur in a firm’s external environment.

1.8 The elements of strategy can be capsulated into four core elements--the product-market investment decision, functional area strategies, the customer value proposition, and the sustainable competitive advantage.

Answer: False the four elements are: 1) the product-market investment strategy 2) the customer value proposition, 3) assets and competencies and synergies, and 4) functional area strategies. So while a sustainable competitive advantage is the goal of a business strategy it is not one of the elements that make up a good business strategy.

1.9 A strategic competency is what a business unit does exceptionally well, such a manufacturing, promotion, distribution, etc. which has strategic importance to the business.

Answer: True. This is the definition of a strategic competency. .

1.10 According to the book, strategic marketing management has six objectives which include all except one of the following: (a) Precipitate the consideration of strategic choices. (b) Contribute to the bottom line success of the firm. (c) Force a long-range view. (d) Make visible the resource allocation decision. (e) Provide methods to aid in strategic analysis and decision-making.

Answer: B. There is nothing that will guarantee the success of a business. In fact, it is interesting to discuss that a strategy is evaluated after implementation; that is when it is known whether a strategy is successful or not. .

1.11 The four elements of a business strategy for a firm are the product-market investment decision, the functional strategies and program, the customer value proposition, and the __________ and _________.

Answer: assets and competencies. .

1.12

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The scope of a business is defined by the products it offers and chooses not to offer, by the markets it does and does not seek to serve, by the competitors it chooses to compete with or to avoid, and by its level of vertical integration.

Answer: True. This is the definition of a business scope.

1.13 Strategic marketing is involved in making decisions, some of which include investment decisions.

Of the following which is not an investment decision: (a) Invest for growth (b) Milk (c) Maintain (d) Liquidate (e) Innovation Answer: E. Innovation is a strategic option. .

1.14 An external analysis includes the analysis of the customers, the competitors, the markets/submarkets and the environment.

Answer: True.

1.15 According to the book, customer analysis involves identifying the organization’s customer segments and each segment’s motivations and priority needs.

Answer: False. See Figure 1.3.

1.16 Strategic market management is a system designed to help management both precipitate and make strategic decisions, as well as create strategic visions.

Answer: True. This is the definition of strategic market management.

1.17 Marketing’s role in strategy includes being the primary driver of strategic analysis.

Answer: True.

1.18 The strategic plan should be developed annually.

False. It should be continuously refined.

Chapter 2 – External and Customer Analysis 2.1 A strategic uncertainty identifies the most important strategic options.

Answer: False. Strategic uncertainties focus on specific unknown elements that will affect the outcome of strategic decisions.

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2.2 An external analysis process should be able to affect strategy and to generate or evaluate strategic decisions.

Answer: True. The external analysis process should not be an end in itself. It should be motivated throughout by a desire to affect strategy, to generate or evaluate strategic decisions.

2.3 The benefits sought from a product is a very useful segmentation variable, because the selection of benefits can determine a total business strategy.

Answer: True.

2.4 A scenario is an alternative view of the future environment that is usually prompted by an alternative possible answer to a strategic uncertainty or by a prospective future event or trend.

Answer: True. This is the definition of a scenario.

2.5 In a strategic context, segmentation means the identification of customer groups that respond differently from other groups to competitive offerings.

Answer: True. This is the definition of segmentation.

2.6 One of the tasks in customer motivation analysis is to determine the relative importance of the motivations.

Answer: True. The importance of the motivation will help determine the strategic role that motivation will play in the business strategy.

2.7 A customer analysis consists of three components; segmentation, customer motivation, and ________________.

Answer: Unmet needs. This is the definition of customer analysis. Customer analysis can be usefully partitioned into an understanding of how the market segments, an analysis of customer motivations, and an exploration of unmet needs.

2.8 Uncertainty can be handled by precipitating a strategic decision, by obtaining information to reduce the uncertainty, and by ___________.

Answer: Scenario analysis. The three ways of handling uncertainty are: 1) a strategic decision can be precipitated because the logic for a decision is compelling and/or because a delay would be costly or risky. Second, it may be worthwhile to attempt to reduce the uncertainty by information acquisition and analysis of an information-need area. Third, the uncertainty could be modeled by a scenario analysis.

2.9 To gain customers as active partners, managers should do all of the following except: a. Co-create personalized experiences © 2010 John Wiley & Sons

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b. Encourage active dialogue c. Ignore the complainers d. Mobilize customer communities e. Manage customer diversity Answer: c) ignore the complainers. Customers are increasing becoming active partners in the buying process, rather than being seen as passive targets of product development and advertising.

2.10 Toyota Scion is aimed at generation Y, the echo boomers.

Answer: True 2.11 The retro-sexual is an affluent urban sophisticate aged 20 to 40.

Answer: False. See The Male Shopper page 29.

2.12 In obtaining a list of motivations, a set of 10 individual interviews will generate 90 to 95% of the list.

Answer: False. See page 32.

2.13 Ethnographic research is used in B-to-B companies like Intel.

Answer: True 2.14 Dell’s Ideastorm is an external program designed to get input from customers.

Answer: True Chapter 3 – Competitor Analysis 3.1 One way to identify competitors is to group competitors according to the degree they compete for a buyer’s choice.

Answer: True. There are two ways to group competitors; one based on the customer’s perspective and the other is based on competitor’s strategies.

3.2 A strategic group is a customer segment that is strategically important to the business.

Answer: False. A strategic group is a group of firms that over time pursue similar competitive strategies, have similar characteristics, and have similar assets and competencies.

3.3

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One of the benefits of competitor analysis is that an understanding of the current strategy and the strengths and weaknesses of a competitor can suggest opportunities and threats that will merit a response.

Answer: True.

3.4 According to the book, mobility barriers are barriers inhibiting the movement of a person from one social class to another.

Answer: False. Each strategic group has mobility barriers that inhibit or prevent businesses from moving from one strategic group to another.

3.5 The competitive strength grid lists the product-markets served by each competitor and identifies for each product market the strengths of each competitor.

Answer: False. The competitive strength grid is a scale of the major competitors based on assets and competencies. It serves to summarize the position of the competition with respect to assets and competencies.

3.6 The value chain analysis is based upon the cost-benefit of the product as perceived by the customer.

Answer: False. The value chain is a tool to identify the value-add components of competitor. A business’s value chain consists of two types of value-creating activities that should be considered in assessing a competitor – support activities and primary activities.

3.7 The eight dimensions of competitor analysis include: current and past strategies; cost structure; exit barriers; objectives and commitment; size, growth and profitability; ______ and ______, ________, and ________; and _____ and _________.

Answer: Image and positioning, organization and culture, strengths and weaknesses. See page 65-68 for a discussion on understanding competitor analysis.

3.8 In conducting a competitor analysis, which of the following is not relevant: a. Accounting methodologies b. Market share c. Image d. Positioning strategy e. Objectives and commitments Answer: Accounting methodologies. Competitor analysis consists of an analysis of a competitor’s: image and positioning; objectives and commitment; current and past strategies; organization and culture; exit barriers; strengths and weaknesses; size, growth and profitability, 3.9

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Exit barriers are crucial to a firm’s ability to exercise an exit alternative. Which of the following is not an exit barrier? a. Managerial pride b. Government or social barriers c. Specialized assets d. High market growth rate e. Fixed costs Answer: d is the answer. High growth markets in most cases would not be an exit barrier.

Exit barriers include: specialized assets, fixed costs, relationships with other business units, government or social barriers, and managerial pride. See page 49 for a discussion on exit barriers.

3.10 In completing a checklist on competitor assets and competencies, some of the areas to be considered include all but one of the following: a. Company culture b. Innovation c. Manufacturing d. Management e. Strategic programming Answer: e) Strategic programming. Analysis of a competitor’s strengths and weaknesses include: innovation, manufacturing, finance-access to capital, management, marketing, and customer base.

3.11 In addition to current competitors, it is important to consider potential market entrants such as firms that might engage in all but one of the following: a. Retaliatory or defensive strategies b. Market expansion c. Forward integration d. Low-cost strategies e. Backward integration Answer: d. Potential market entrants might engage in the following: market expansion, product expansion, backward integration, forward integration, the export of assets, and competencies or retaliatory or defensive strategies.

3.12 The competitor analysis in almost all cases will benefit from considering both direct and indirect competitors.

Answer: True. By explicitly considering indirect competitors, the strategic horizon is expanded, and the analysis more realistically mirrors what the customer sees.

3.13 Potential market entrants might use all but one of the following to enter a market: a. Market expansion b. Market penetration © 2010 John Wiley & Sons

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c. Product expansion d. Backward/forward integration e. Export assets or competencies Answer: Market penetration. A company practicing market penetration is already in the market (market penetration involves increasing customer usage in an existing market).

3.14 Nintendo did not try to compete with Sony’s in terms of high tech digital graphics.

Answer: True 3.15 Some of the benefits of strategic groups include all but one of the following: a. Makes the process of competitor analysis more manageable. b. Refines the strategic investment decision. c. Includes a set of mobility barriers. d. They will be affected by and react to industry developments in similar ways. e. They produce strategic options.

Answer: e) they produce strategic options. Strategic groups do not themselves produce strategic options because strategic groups are tools used by the strategist to group similar competitors for analysis purposes.

Chapter 4 – Market/Submarket Analysis 4.1 A user gap is caused when one segment uses more of a product than another segment.

Answer: False. A new use, new user group, or more frequent usage could dramatically change the size and prospects for the market. It is not an evaluation of one segment versus another.

4.2 One goal of market and submarket analysis is to understand the dynamics of the market.

Answer: True.

4.3 Porter’s five factor model provides insight into the present and future profitability of an industry.

Answer: True.

4.4 Key success factors are assets and/or competencies that provide the basis for any competitor to be successful in an industry.

Answer: True.

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One of the most serious risks of high growth markets is the fact that the number of competitors attracted is likely to be high.

Answer: True.

4.6 Avoiding the small market can mean that a firm must later overcome the first-mover advantage of others.

Answer: True.

4.7 Porter’s five factor model involves--the intensity of competition, competition among existing firms, _________, _________, and __________.

Answer: Threat of substitute products, bargaining power of suppliers and bargaining power of customers. .

4.8 Ghost potential occurs when competitors get scared from competitive intensity and abandon a market.

False. Ghost potential occurs when a market seems so topical that the need is so apparent that growth seems assured but in fact the potential has ghost-like qualities caused by factors inhibiting or preventing its realization.

4.9 Which of the following is not an indicator of market maturity or decline? a. Customer disinterest b. Price Pressure c. Saturation d. Predictions for high growth e. Buyer sophistication and knowledge Answer: d) predictions for high growth. The fact that the market is in the maturity stage would suggest that growth trends have diminished.

4.10 Which of the following is not a risk of a high growth market? a. Overcrowding b. Superior competitive entry c. Projected high growth d. Changing KSFs e. Resource constraints Answer: c) projected high growth. High growth isn’t a risk; it is a positive force that should drive the market.

4.11

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Niche businesses can be economically unviable when choices are too abundant making marketing costs crippling.

Answer: True.

4/12 The Long Tail refers to the long sales flow obtained from a loyal customer.

Answer: False 4.13 Wal-Mart has a high level of customer power.

Answer: True 4.14 In forecasting market growth, the potential of technologies tend to be undervalued.

Answer: False Chapter 5 – Environmental Analysis and Strategic Uncertainty 5.1 One of the three components of environmental analysis is internal analysis.

Answer: False. The components of environmental analysis are: technological, government/ economic, and consumer trends.

5.2 The goals of environmental analysis are to identify fads, trends and events that will only affect strategy in a direct way.

Answer: False. The goals are to identify and evaluate only trends and events that will affect strategy directly and indirectly.

5.3 The three forms of innovation are ___________, ___________ and ___________.

Answer: Three forms of innovations are incremental, substantial and transformational innovation.

5.4 Innovations that are transformational or substantial tend to be employed by new participants in an industry rather than established players.

Answer: True.

5.5 A company who wants to gain credit for “green” programs can effectively ensure the ability to do so with _______________.

Answer: Branding.

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5.6 A reason to incorporate green programs into strategy or business models is cost savings.

Answer: True.

5.7 Demographic trends can be a strong indicator of the growth of a market and it can be predictable.

Answer: True.

5.8 It has been shown that, on average, increasing marketing budgets in recessions pays off during the recession and after as well.

Answer: True 5.9 The key to understanding trends is to interact with people of all types.

Answer: True 5.10 The ideal number of scenarios to work with is three to five.

Answer: False. Experience has shown that two or three scenarios are the ideal number to work with. Any more and the process becomes unwieldy and any value is largely lost.

5.11 A strategic uncertainty should be evaluated with respect to its impact and relevance to future strategy.

Answer: False. The extent to which a strategic uncertainty should be monitored and analyzed depends on its impact and immediacy.

5.12 Scenario analysis provides an alternative to investing in information to reduce uncertainty that is often an expensive and futile process.

Answer: True.

5.13 There are two types of scenario analyses: strategy-developing scenarios and decision-driven scenarios.

Answer: True.

5.14 In California, one-half of the state’s voters in a 2005 poll supported an aggressive attack on global warming.

Answer: False. The answer is two-thirds, not one-half.

5.15 © 2010 John Wiley & Sons

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A new generation of products such as the Boeing 747 would be considered a transformation innovation.

Answer: False. P. 80-81 shows that the Boeing 747 would be considered a substantial innovation.

Chapter 6- Internal Analysis 6.1 The goal of analysis is to develop strategies that either exploit a firm’s strengths or correcting / compensating for weaknesses.

Answer: True.

6.2 ROA is return on sales times asset turnover.

Answer: True. It can also be expressed by dividing profits by the assets.

6.3 ________________ is comparing the performance of a business component such as warehouse operations with similar operations in other companies.

Answer: Benchmarking.

6.4 Performance measures reflecting long-term profitability include all but one of the following: a. Outsourcing ability b. Product/service quality c. Customer satisfaction d. New product activity e. Relative cost Answer: (a) 6.5 One of the more important assets of many firms is the size of the customer base.

Answer: False. See Figure 6.1 6.6 All the following are guidelines for measuring customer satisfaction except __________. a. Identify causes of dissatisfaction that motivate customers to change brands b. Evaluate the lifetime value of customer to the product c. Track measures and compare to competitors d. Differentiate between dissatisfaction and dislike of product Answer: (d) Differentiate between absence of dissatisfaction and true affection or loyalty is not a guideline for measuring customer satisfaction.

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6.7 According to the book, strategies should be driven by three factors—organizational strengths and weaknesses, market needs, and environmental trends.

Answer: False. A successful strategy occurs when an organization’s strengths are matched against market needs and competitor weaknesses.

6.8 All the following are ways to increase shareholder value except: a. Invest in products that are low risk b. Reduce the cost of capital by increasing debt to equity ratio c. Earn more profit by reducing costs d. Use less capital e. Increase revenue without using more capital Answer: (a) To increase shareholder value, an organization does all of the above choices, except invest in products that are low risk.

6.9 Shareholder value analysis holds that the flow of profits emanating from an investment should exceed the cost of capital.

Answer: True.

6.10 One strength of shareholder value analysis is that it encourages priority to be given to other stakeholders.

Answer: False. It is a danger, not strength.

6.11 Competences should be evaluated based on strength and revenue potential.

Answer: False. Competences should be evaluated based on strength and impact.

6.12 Kunz found that in their passbook business, small customers were profitable.

Answer: False Chapter 7 – Creating Advantage, Synergy, and Strategic Philosophies 7.1 Among the critical determinants of an SCA is the choice of the product-market and the identity and nature of competitors.

Answer: True. The sustainable competitive advantage is determined by: the way a firm competes, the basis of competition, where a firm competes, and whom the firm competes against.

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An effective sustainable competitive advantage needs to be both meaningful and sustainable. And it should be substantial to make a difference.

Answer: True.

7.3 In the survey of 248 West Coast business managers, the most frequently mentioned SCA was financial resources.

Answer: False. Quality reputation is the correct answer.

7.4 The assets and competencies of an organization represent the most sustainable element of a business strategy, because these are usually difficult to copy or counter.

Answer: True.

7.5 If two businesses have synergy, their profitability operating together will be higher than if they operated separately.

Answer: True.

7.6 Synergy will result in one or more of the following: decreased revenues, increased operating costs, or increased investment.

Answer: False. As a result of synergy, the combined SBUs will have one or more of the following: (1) increased sales; (2) lower operating costs; and (3) reduced investment requirements.

7.7 Synergy in practice is difficult because it can be difficult to predict whether synergy will actually emerge.

Answer: True.

7.8 Strategic commitment is superior to strategic opportunism.

Answer: False. Both may work but require different systems, people, and culture.

7.9 Strategic intent is a sustained obsession with winning which involves a stretch of the organization and real innovation.

Answer: True.

7.10 An organization implementing a strategic commitment should have an on-line information system and be capable of fast response.

Answer: False. The response time is long term and not fast. Strategic vision is based on forward thinking and a long term perspective.

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7.11 Strategic drift is associated with an orientation toward the present.

Answer: True. Strategic drift results in investment decisions being made incrementally in response to opportunities (the present) versus being directed by a vision (long term).

7.12 To successfully manage a strategic commitment, a firm should have four characteristics--a clear future strategy, assets, competencies, and resources to implement the strategy, and _________, and _________.

Answer: Buy-in throughout the organization and patience.

7.13 To successfully manage a strategic commitment, a firm should have four characteristics. Which of the following is not one of the four? a. Senior management with MBAs b. Buy-in throughout the organization c. Assets, competencies, and resources to implement it d. Patience e. A clear future strategy Answer: a 7.14 A sustainable competitive advantage has several characteristics. Which of the following is not one of them? a. Sustainability b. They can be leveraged c. They should be supported by assets and competencies d. They cannot easily be neutralized by competitors e. They are easily copied Answer: (e) An SCA should not be easy to match or be neutralized by a competitor.

7.15 Synergy between firms can provide an SCA that is truly sustainable because it is based on the characteristics of a firm that are probably unique.

Answer: True.

7.16 Four factors are required for the creation of a sustainable competitive advantage. Which of the following is not one of those factors? a. Whom you compete against b. Basis of competition c. Where you compete d. Your strategic intent. © 2010 John Wiley & Sons

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e. The way you compete Answer: d.

7.17 The four strategic philosophies are strategic commitment, strategic opportunism, strategic vision and strategic intent.

Answer: False. The four strategic philosophies are strategic commitment, strategic opportunism, and strategic adaptability.

7.18 Key success factors (KSF’s) and sustainable competitive advantages (SCA’s) are different in that an SCA is necessary to compete and a KSF is the basis for a continuing advantage.

Answer: False. The KSF is actually necessary to compete and the SCA is the basis for a continuing advantage.

7.19 A key success factor can be a point of parity.

Answer: True.

7.20 Which of the following is not one of the three philosophies of developing strategy? a. Strategic Drift b. Strategic Opportunism c. Strategic Adaptability d. Strategic Commitment Answer: A. Strategic drift is a flaw of the strategic opportunism philosophy.

7.21 Strategic commitment has a long term perspective, while strategic opportunism is short term and strategic adaptability is medium term.

Answer: True.

7.22 In an organization that subscribes to a strategically adaptable mentality, it is okay to fail.

Answer: True. These organizations are entrepreneurial and encourage experimentation.

7.23 Strategic intent recognizes the essence of winning, involves stretching an organization to continue to improve old SCA’s or develop new ones, and requires real innovation.

Answer: True.

Chapter 8 – Alternative Value Propositions

8.1

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A value proposition is often an umbrella concept under which the supporting assets and competences and functional strategies and programs can be grouped.

Answer: True.

8.2 Business strategies should offer a clear value proposition to customers and be supported by assets and competencies and functional strategies and programs.

Answer: True.

8.3 A business strategy should be challenged with respect to whether it contains a real and perceived value proposition and whether that value proposition is relevant, ________ and ________.

Answer: sustainable, and feasible.

8.4 Value should be determined by the firm and not by the customer.

Answer: False. Value is more likely to be real if it is driven from the customer’s perspective rather than from the perspective of the business.

8.5 In the business-to-business space, more companies are trying to move from being component suppliers to being systems solution players because systems-based organizations will more likely to be more cost effective.

Answer: False. These companies are making this move because a systems-based organization will be more likely to control the customer relationship.

8.6 It is believed that corporate social responsibility does not create shareholder value but rather just enhances a brand image.

Answer: False. In one survey more than 90% thought that socially responsible management creates shareholder value.

8.7 Firms that chose customer relationship as a value proposition just need to provide good functional benefits of their product or service.

Answer: False. Firms that create intimacy deliver an experience that goes beyond functional benefits.

8.8 The six quality dimensions include: performance, conformance to specifications, features, customer support, process quality, and _________.

Answer: Aesthetic design.

8.9 In order for the quality option to be effective, a firm doesn’t need senior management commitment, because the quality department is in charge of the total quality management program.

Answer: False. See text under TQM. © 2010 John Wiley & Sons

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8.10 Most quality dimensions, such as performance, durability, reliability, and serviceability, are easy for buyers to evaluate.

Answer. False. Most quality dimensions, such as performance, durability reliability, and serviceability, are difficult if not impossible for buyers to evaluate.

8.11 With the experience curve, the total cost of a product will decline at a predictable rate as experience in building the product accumulates.

Answer: True. The experience curve suggests that a firm accumulates experience in building a product, its costs in real dollars (net of inflation) will decline at a predictable rate.

8.12 A signal of high quality for clothing is price.

Answer: True.

8.13 Schlitz improved its market position with its aggressive low-cost strategy.

Answer: False. Schlitz’s decision to reduce costs led to a loss of perceived quality that was disastrous.

8.14 The experience curve is automatic and occurs over time.

Answer: False. The experience curve is not automatic. It must be proactively managed.

8.15 A successful low cost strategy is usually multifaceted and supported by a cost-oriented culture.

Answer: True.

8.16 Niche specialists are successful because their strategies are based on commitment to a single product line or part of the market.

Answer: True.

8.17 To obtain significant operational economies, it is useful to examine the value chain and look for inherently high-cost components that could be eliminated or reduced.

Answer: True.

8.18 CSR refers to customer social relationship management.

Answer: False. CSR refers to Corporate Social Responsibility.

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8.19 An experience curve strategy will usually enhance product innovation.

Answer: True.

8.20 The low-cost strategic option consists of all of the approaches below except: a. Scale economies b. No-frills product/service c. Delivery of superior customer service d. Production/operations e. Experience curve Answer: c) Delivery of superior customer service. Customer service costs money.

8.21 Perceived value can be created without compromising the brand.

Answer: True Chapter 9—Building and Managing Brand Equity 9.1 The three types of brand assets are brand awareness, brand equity and brand loyalty.

Answer: False. The three types of brand assets are brand awareness, brand associations and brand loyalty.

9.2 Brand awareness serves to differentiate brands along a recall/familiarity dimension.

Answer: True.

9.3 Brand awareness does not provide competitive advantages, only key success factors.

Answer: False. Brand Awareness does provide SCA’s: signal of presence, commitment and substance, brand provides consumer with a sense of familiarity and salience that will determine consumer’s recollection at time of purchase.

9.4 Organizations can increase their likelihood of brand awareness by extending their presence outside the conventional media channels and using methods such as promotions, publicity and sampling.

Answer: True.

9.5 The Datsun name was just as strong as the Nissan name four years after the name change primarily because brand awareness is an asset that can be extremely durable and thus sustainable.

Answer: True. © 2010 John Wiley & Sons

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9.6 Which of the following is not a competitive advantage included in brand loyalty: a. Reducing marketing costs b. Entry to barrier c. Increased name recall at time of purchase d. Satisfied customer base projects successful product e. Provides time to respond to competitive moves Answer: c. Increased name recall at time of purchase. This characteristic is competitive advantage of brand awareness, not brand loyalty.

9.7 The ultimate measure of brand loyalty is that customers will recommend the brand to others.

Answer: True.

9.8 To manage customer loyalty, organizations will measure loyalty of existing customers, manage customer touch points, conduct exit interviews, maintain communication with customers, have a customer culture, measure the lifetime value of a customer, _______________ and _______________.

Answer: Reward loyal customers and make customers feel a part of the organization.

9.9 Brand association is anything directly related to the consumer’s memory to a brand.

Answer: False. Brand association is anything directly and indirectly related to the consumer’s memory to a brand.

9.10 Firms dependent on brand association position based on certain attributes are vulnerable to competitor innovation and shouting matches that lead to lost credibility.

Answer: True.

9.11 Maintaining relevance is the battle to stay associated with the product category in which the customer is interested.

Answer: True. See 9.12 The extremes on the relevance spectrum are ____________ and ____________. The middle of the spectrum belongs to ____________.

Answer: Trend neglectors and trend drivers; trend followers.

9.13

© 2010 John Wiley & Sons

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The strongest brands often offer emotional benefits. They are about the “I feel” statement. Other strong brand benefit offerings are a self-expressive benefits, which are all about the “I am.”

Answer: True 9.14 Brand identity is a set of current brand associations that the firm aspires to create or maintain.

Answer: False. A brand identity is an aspirational external brand image, which may not include elements that are currently present in the image. Brand image is the current image.

9.15 The three steps of creating a brand identity are _____________, _____________, and _____________.

Answer: Identifying characteristics that brand should stand for, defining the core identity and communicate the brand internally (the core essence.)

9.16 Brand identity serves to drive and guide strategic initiatives throughout organizations, drive the communication program and support the expression of the organization’s values and culture.

Answer: True.

9.17 Proof points are programs, initiatives, and assets that are planned to provide substance to the strategic position.

Answer: False. This statement is true we must add that proof points help communicate the strategic position.

9.18 A strategic imperative is an investment in an asset or program that is essential if the promise to the customers is to be delivered.

Answer: True.

9.19 Virgin has extended its brand into dozens of business areas including cola and jeans.

Answer: True Chapter 10—Energizing the Business 10.1 All of the following are examples of ways to stimulate basic business except: a. Expand buyer base b. Expand the loyal customer base c. Improve customer experience d. Eliminate inefficiencies e. Develop home-run marketing programs © 2010 John Wiley & Sons

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Answer: d. Eliminating inefficiencies is a method to improve organizational performance, but is not considered a way to “energize business.”

10.2 According to the book methods for increasing product usage include motivating heavy users to use more, making the use easier, providing incentives, remove or reduce reasons not to buy, provide reminder communications, reduce undesirable consequences of frequent use, and finding new uses.

Answer: True.

10.3 Differentiation is increasingly difficult to create and maintain as competitors proliferate products and quickly copy advances.

Answer: True.

10.4 A branded differentiator is an actively managed branded feature, ingredient or technology, service or program that creates a meaningful, impactful sustainable competitive advantage for a branded offering over an extended period of time.

Answer: False. It creates a meaningful, impactful point of differentiation. The brand equity around the point of differentiation creates a basis for an SCA, but is not the definition of the differentiator.

10.5 A branded energizer is defined in the book as a branded product or sponsorship that by association significantly enhances and energizes a target brand.

Answer: False. A branded energizer is a branded product, sponsorship, endorser, promotion, symbol, social program, CEO, or other entity that by association significantly enhances and energizes a target brand. The branded energizer and its association with the target brand are actively managed over an extended time period.

10.6 Branded energizers are defined to be part of the master brand offering, but do not promise any functional benefits.

Answer: False. Branded energizers are not part of the master brand offering and are connected to the master brand, but do not promise any functional benefits.

10.7 According to the book, celebrity endorsers should have five qualities—an appealing image, onbrand associations, the potential for a long-term relationship, a large following, and the absence of a negative reputation.

Answer: False. The first three are correct—the last two are potential to create programs around the endorser and being cost effective and available.

© 2010 John Wiley & Sons

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10.8 The four ways to grow a business are to go global, to energize the business, and to __________ and ____________.

Answer. Leverage the business and create a new business.

10.9 One of the creative thinking methods suggested in the chapter is to get a lot of options on the table.

Answer: False. Creative Thinking is located on pages 187-188.

10.10 A business can be energized by getting the brand to have a retail presence.

Answer: True 10.11 A branded differentiator should add differentiation, communication benefits and _____________ to the master brand.

Answer—credibility.

10.12 A branded energizer should add energy, personality, and credibility to the master brand.

Answer: False. Credibility is not added, but associations are the third added characteristic.

10.13 Existing product markets are often attractive growth avenues because a firm has a base on which to build and momentum that can be exploited Answer: True.

10.14 The book indicated that the Ford Explorer Eddie Bauer Edition has sold 100,000 vehicles since it was first introduced.

Answer: False—the correct number is one million.

Chapter 11—Leveraging the Business 11.1 Four questions were suggested in the book as being a good source of growth options. One was asking whether brand extensions are possible. Another was whether new distribution channels are available.

Answer: False. Which assets and competencies can be leveraged? What brand extensions are possible? Can the scope of the offering be expanded? Do viable new markets exist?

11.2 In leveraging an existing brand to move into a new market, the new brand may seek distance and autonomy from the existing brand. However with that distance, the risk of the venture increases.

Answer: True. © 2010 John Wiley & Sons

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11.3 Three steps to determine which assets and competencies should be leveraged were suggested.

The first was to inventory assets and competencies, the second was to find an area where the assets and competencies can be applied to generate advantage and the third was to analyze the potential synergy.

Answer: False. The third advantage is incorrect in the statement above. The correct answer is address implementation problems.

11.4 Brand extension evaluation asks three questions according to the book. Which of the following is not a brand extension question among the three? a. Will the brand extension be profitable? b. Will the extension enhance the brand name and image? c. Does the brand fit the new context? d. Does the brand add value to the offering in the new product class?

Answer: a.

11.5 Sub brands and endorsed brands are created when the parent company wants to prevent existing brands from damage and when an entirely new brand is not feasible based on lack of resources.

Answer: True.

11.6 Philip Morris was successful with 7-Up because of its distribution clout.

Answer: False. Morris failed with 7-Up for several reasons.

11.7 Entering into new markets or launching new products are met with the challenges of resistance to new products, lack firm’s assets and competencies in the new product’s market and organizational access to resources necessary for launches.

Answer: True.

11.8 When there is a real potential synergy, it will happen—otherwise it will simply be a hope.

Answer: False—implementation problems get in the way.

11.9 Budget Rent-A-Car experienced a surge of growth by entering the rental truck and travel arena.

Answer: False. Budget Rent-A-Car attempted a host of strategies without success to improve on their also-ran status, including efforts to enter the travel arena and the truck rental business.

11.10 According to Zook around one-third of successful sustainable growth companies had one or two repeatable formulas. © 2010 John Wiley & Sons

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Answer: False.

11.11 According to the book, market development is based on the premise that the right people are available for implementing the leveraged business.

Answer: False. Market development is based on the premise that the business is operating successfully; there is no point in exporting failure or mediocrity.

11.12 One-stop financial services was a winning strategy in the 1980s.

Answer: False.

Chapter 12—Creating New Business 12.1 Blue ocean businesses and red ocean businesses both generally allow for above average earnings.

Answer: False. See pages 217-218.

12.2 Barriers to long term success in existing product-markets do not include which of the following: a. Markets are so dynamic that this is easy to bet behind and become less relevant. b. Overcapacity in existing markets. c. Transparency issues. d. Fast responses by competitors e. Low cost benefit ratio for incumbent organizations.

Answer: e 12.3 Innovation can create what is often termed as __________.

Answer: First mover advantage.

12.4 Innovator’s advantage provides the competitive advantages such as competitors’ inability to respond in a timely manner, competitors’ inability to respond at all, or that the innovator cultivates a customer loyalty with its position in the market.

Answer: True 12.5 True market pioneers often survive because they enter the market first and build position and are able to withstand technological advances.

Answer: False. True market pioneers CAN survive because they enter the market first and build position BUT frequently aren’t able to withstand technological advances.

© 2010 John Wiley & Sons

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12.6 Successful early market leaders survive the difficulties of a first mover advantage by envisioning the mass market, maintaining managerial persistence, financial commitment, _____________ and _____________.

Answer: Relentless innovation and asset leverage.

12.7 Many blue ocean businesses can take one of two approaches to lower price points: ____________ or ____________.

Answer: Low-end disruptive innovation and focus on non-consumers (new-market disruptive innovation).

12.8 Low-end disruptive innovation is where industries are altered by emerging products that feature a price that appears dramatically low. Incumbent firms often employ this strategy.

Answer: False—it is usually newcomers to the market, not incumbent firms.

12.9 Kirin was unable to compete with Asahi in part because of the authentic label.

Answer: True 12.10 Curses that plague new businesses include success and substantial availability of resources.

Answer: True. More curses located on page 228.

12.11 Drucker advises innovators to try to innovate for the future.

Answer: False. Pages 221-222.

12.12 Transformational new business arenas can be based on offering a dramatically lower price point, analyzing alternative industries to find white space, offering a systems rather than components, building on customer insights or market trends and by collaborating with other people and firms.

Answer: True.

12.13 The highest rated brand on perceived innovativeness was iPod. Answer: False. It was Bluetooth.

12.13 Successful early market leaders tend to get traction in a smaller market before looking to the mass market.

Answer: False. See pages 220-221.

12.14 The book suggests that one of six ways that new business is typically formed involves new distribution channels.

Answer: False © 2010 John Wiley & Sons

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Chapter 13 – Global Strategies 13.1 A global strategy is a multinational strategy in which separate strategies are developed for different countries.

Answer: False. A global strategy is conceived and implemented in a worldwide setting.

13.2 Among the eight motivations for global strategies is to cross-subsidize businesses and to obtain scale economies.

Answer: True.

13.3 Accessing low-cost labor and materials is not a motivation for global strategies.

Answer: False.

13.4 Strong motivations for a standardized global brand and position are media spillover and crosscountry customer travel.

Answer: True.

13.5 A strategic alliance is a collaboration leveraging the strengths of two or more organizations to achieve strategic goals.

Answer: True.

13.6 One of the benefits of a strategic alliance is that it can help a firm overcome trade barriers. Another is that it can compensate for the absence of or weakness in any of the needed key success factors for a market.

Answer: True.

13.7 The key to success of strategic alliances is to maintain strategic value for each of the participants.

Answer: True.

13.8 Wal-Mart’s success in Germany shows the power of exporting a successful business model.

Answer: False. Wal-Mart failed in Germany because of an unsuccessful business model.

13.9 The eight motivations for global strategies are: to cross-subsidize, to dodge trade barriers, to access low cost labor/materials, to create global associations, to obtain global innovation, _________, __________, and ___________.

Answer: Obtain scale economies, access strategic markets, and access national incentives. © 2010 John Wiley & Sons

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13.10 A frequently unforeseen consequence of global expansion is that healthy markets, especially the home market, are put at risk by the diversion of resources.

Answer: True.

13.11 Four conditions under which organizations expanded globally and survived are: a repeatable formula for expansion, customer differentiation that travels, _____________, and _____________.

Answer: A strong core and industry economics.

13.12 An organization should enter countries in a sequential order.

Answer: False. The strategy to enter countries sequentially should be based on the strategic preferences of the organization. There are compelling factors to enter countries simultaneously as well.

13.13 Standardizing brand strategy leads to global market leadership.

Answer: False 13.14 The Ford Galaxy was a good example of the advantage of a common strategy across Europe.

Answer: False. See page 240.

Chapter 14—Setting Priorities for Businesses and Brands—The Exit, Milk, and Consolidate Options 14.1 Cash cows are units that should no longer absorb investments aimed at growing the business.

Answer: True.

14.2 The GE model is less complex than the BCG model.

Answer: False 14.3 An exit decision should be considered if the market demand, competitive intensity, or strategic fit is regarded unfavorably.

Answer: True. Market demand and competitive intensity are not correct. Strategic fit, market attractiveness, and business position should be considered in an exit decision if these are regarded unfavorably.

14.4 Motivations for exiting include avoidance of drain on profits by dog businesses in portfolio and purging businesses that do not fit the strategy of the firm. © 2010 John Wiley & Sons

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Answer: True 14.5 Implementing an exit decision is often delayed by managers who attempt to turn around a struggling business.

Answer: True.

14.6 Exit strategies should be considered in all of the following situations except: a. When the business position is weak. b. When a firm’s reputation is at stake. c. When demand is diminishing quickly with no impending resurgence. d. When the strategic direction of the firm has changed.

Answer: b. Though this may be a factor, this is not a defining characteristic for employing an exit strategy.

14.7 Biases inhibiting exit decisions are ______________ and ______________.

Answer: Reluctance to give up and confirmation bias. Reluctance to give up alludes to emotional ties that make the decision difficult, while the confirmation bias refers to the notion that people seek information that confirms their initial position.

14.8 A milk or harvest strategy aims to generate cash flow by reducing investment and operating expenses to a minimum.

Answer: True.

14.9 ____________ would be disciplined about minimizing the expenditures toward the brand and maximizing the short-term cash flow, while ___________ would sharply reduce long-term investment, but continue to support marketing and service operating areas.

Answer: A fast milking strategy; slow milking strategy 14.10 A hold strategy will be superior to a milk strategy when the market prospects and/or the business position is not as grim.

Answer: True.

14.11 A hold strategy may prevent a firm from making investments that would help retain product relevance.

Answer: True.

14.12

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Strategic brand consolidation process includes five distinct steps: identifying the relevant brand set, assessing the brands, ______________, creating a revised brand portfolio strategy and ______________.

Answer: Prioritizing brands and designing a transition strategy.

14.13 Business portfolio analysis provides a structured way to evaluate business units on two key dimensions: the attractiveness of the market involved and the strengths of competitor’s in that market.

Answer: False. The two key dimensions are attractiveness of the market involved and the strength of the firm’s position in that market.

14.14 Some of the conditions that favor a milking strategy include a price structure that is stable at a level that is profitable for efficient firms.

Answer: True.

14.15 Confirmation bias occurs when the objective information cast doubt on the sales projections of a business.

Answer: False. See page 257.

14.16 Andy Grove made the decision to get out of memory by pretending he was a new CEO brought in from the outside.

Answer: True 14.17 Centurion organized its brands into four groupings labeled blue, green, yellow and black.

Answer: False Chapter 15 – Organizational Issues 15.1 One dimension of organizational structure is the budgeting system.

Answer: False. The four key components of the organizational structure are: structure, systems, people, and culture.

15.2 The four dimensions of an organization include people, structure, ________, and _________.

Answer: culture and systems.

15.3 © 2010 John Wiley & Sons

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The virtual corporation is a team of people and/or organization formed for a particular client or job.

Answer: True.

15.4 An organizational culture involves three elements: a set of shared values, a set of norms of behavior, and a context or environment.

Answer: False. See Figure 15.3.

15.5 Of the following, which were among the six silo problems discussed in the book: i. Marketing resources are misallocated ii. Marketing management competence is weakened iii. People are not able to rotate throughout the organization Select one of the following a. None of the above b. One of the above c. Two of the above d. Three of the above.

Answer: (c). Point iii is not among the set.

15.6 In dealing with the silo problem, a CMO should be aggressive. Just being a facilitator is not going to get the job done.

Answer: False. In most cases, the CMO should take up nonthreatening roles, not be aggressive.

15.7 It is optimal to have the same planning system used by all silos.

Answer: True.

15.8 To make progress on the silo challenge, it is necessary to centralize and standardize.

Answer: False. Page 272.

15.9 In addition to knowledge of marketing, markets, and products, the central marketing staff needs to have knowledge of brands and the organization.

Answer: True 15.10 The CMO and the CMO staff are best sourced from inside the organization because of the value of relationships.

Answer: False.

15.11 © 2010 John Wiley & Sons

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In a matrix organization, everyone has a dotted line reporting arrangement with the CMO. Answer: False. A matrix organization allows a person to have two or more reporting links.

15.12 Norms can vary with respect to their intensity and with respect to the degree of consensus or consistency with which they are shared.

Answer: True.

15.13 Organizational culture provides the key to strategy implementation because it is such a powerful force for providing focus, motivation, and norms.

Answer: True.

15.14 Four key constructs that describe the organization include all but one of the following: a. People b. Competitor’s commitment c. Systems d. Culture e. Structure Answer: b Competitor’s commitment.

15.15 An organization’s culture involves all but one of the following: a. Symbolic actions b. Shared values c. Norms of behavior d. Managerial style of the CEO e. Symbols Answer: d Managerial style of the CEO. 15.16 According to the book, among the ways for the CMO to get the CEO on board with respect to silos is to make the silo problems visible, align the role of marketing with growth objectives, and get easy and visible wins.

Answer: True

© 2010 John Wiley & Sons

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SUPPLEMENTAL CASES Strategic Market Management 9th edition David Aaker Author Intel Samsung Electronics Xerox: The Early Years Intel Teaching Note Samsung Electronics Teaching Note Xerox: The Early Years Teaching Note

Intel During the 1990s, Intel achieved remarkable success in terms of increased sales, stock return, and market capitalization. Sales of its microprocessors went from $1.2 billion in 1989 to over $33 billion in 2000. The firm’s market capitalization grew to over $400 billion in just over three decades. Intel’s ability and willingness to reinvent its product line again and again, making obsolete business areas in which it had big investments, certainly played a key role in its success.

Its operational excellence in creating complex new products with breathtaking speed and operating microprocessor fabrication plants efficiently and effectively was also critical.

Intel’s sustained rise would not have happened without the firm’s ability to create and manage a brand portfolio that included a complex set of endorser brands and subbrands. The brand story really starts in 1978 when Intel created the microprocessor chip, the 8086, which won IBM’s approval to power its first PC. The Intel chip and its subsequent generations—the 286 in 1982, the 386 in 1985, and the 486 in 1989—defined the industry standard and made Intel the dominant brand.

In early 1991, though, Intel was facing competitive pressures from competitors who were making clones of the 386 and exploiting the fact that Intel failed to obtain trademark protection on the X86 series. Calling their products names like the AMD386, these firms created confusion by implying that an AMD386 was as effective as any other 386.

To respond to this business challenge, in the spring of 1991 Intel began a remarkable ingredient branding program, establishing the "Intel Inside" brand with an initial budget of around $100 million. (The logo—which has a light, personal touch, as if it was written on an informal note—was a sharp departure from Intel’s corporate “dropped-e” logo.) Under the branding program, computer manufacturers who properly displayed the Intel Inside logo received a 6% allowance on their purchases of Intel microprocessors, which could be used to pay for up to 50% of the partner’s advertising . Partners also were required to create subbrands for products using a competing microprocessor, so that buyers would realize that they were buying a computer without Intel Inside.

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This decision was very controversial within Intel. Many people argued that brand building was irrelevant for a firm that only sold to a handful of computer manufacturers; the money could be used for R&D instead. Within a relatively short time, however, the Intel Inside logo became ubiquitous, and the program was an incredible success. Even as the budget grew to well over $1 billion per year, the brand-building effort was perceived to generate such loyalty that it more than paid for itself.

For many years, a computer with an Intel Inside logo could be sold at around a 10% premium (for the whole computer, not just the Intel microprocessor). Because of the logo’s wide exposure, Intel was given credit for creating reliable and innovative products and for being an organization of substance and leadership—even though most computer buyers had no idea what a microprocessor was, or why Intel’s were better.

In the fall of 1992, though, when Intel was ready to announce the successor to the 486 chip, it faced increasing competitor confusion despite the Intel Inside campaign. A huge decision loomed. Calling the successor the Intel 586 would leverage the Intel Inside brand and provide familiarity to customers who had become accustomed to the X86 progression. Even so, Intel elected to give the chip a new name: Pentium.

Four key issues guided the decision to adapt the Pentium brand. First, it would avoid confusion with competitors who might also use the 586 name. Second, the cost of creating a new brand and transitioning customers to it, although huge, was within the capacity and will of Intel. Third, the Intel Inside equity and program could be leveraged by adding “Intel Inside” on the new Pentium logo, in essence making the former brand an endorser for the latter. Finally, a new name would signal that the product was a significant enough advance to support demand at a premium price, which was necessary to pay for a costly new fabrication plant.

A few years later, Intel developed an improved Pentium with superior graphic capability.

Rather than change the brand name itself, the firm added a branded technology, MMX, to the Pentium. This decision gave the Pentium brand more time to repay its investment, and it reserved the impact of announcing a new-generation chip for a more substantial technological leap. Subsequent generations did emerge and leveraged the Pentium name and equity with names like Pentium Pro (1995), Pentium II (1997), Pentium III (1999), and Pentium 4 (2000).

In 1998 Intel decided to extend its reach to mid-range and higher-end servers and workstations. To address this market, it developed features that allowed four or eight processors to be linked to supply the necessary computing power. This progress, however, raised a branding issue. On one hand, because the Pentium brand was associated with the lower-end personal computer market, it would not be regarded as suitable for servers and workstations. On the other hand, the market would not support developing yet another stand-alone brand alongside Intel Inside and Pentium. The solution was to introduce a subbrand, the Pentium II Xeon, in 1998. The subbrand distanced the new microprocessor enough from Pentium to make it palatable for the higher-end users. It also had the secondary advantage of enhancing the Pentium brand because it associated Pentium with a more advanced product.

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In 2001, the Xeon subbrand stepped out from behind the Pentium name. Technological advances (in particular, the branded NetBurst architecture) had dramatically improved the chip’s processing power. The Xeon brand had also become established, making it easier to support as a stand-alone brand, and initial trademark issues over the Xeon name had been resolved. Finally, because the target market had become even more important to Intel, having a brand devoted to it was now a strategic imperative.

In 1999 another problem or opportunity emerged. As the PC market matured, a value segment emerged, led by some competitors eager to find a niche and willing to undercut the Intel price points. Intel needed to compete in this market, if only defensively, but using the Pentium brand (even with a subbrand) would have been extremely risky. The solution was a stand-alone brand, Celeron. The brand-building budget, like that for many value brands, was minimal—the target market found the brand, rather than the other way around.

The decision was made to link the Celeron to Intel Inside, so there was an indirect link to Pentium. The trade-off was the credibility that the Intel endorsement would provide to Celeron versus the need to protect the Pentium brand from cannibalization and a tarnished image through association with a lower-end entry.

In 2001, Intel introduced the Itanium processor as a new-generation successor to the Pentium series. Why not call it the Pentium 5? The processor was built from the ground up with an entirely new architecture, based on a branded design termed Explicitly Parallel Instruction Computing (EPIC), and it had 64-bit computing power as opposed to the 32-bit Pentiums. Capable of delivering a new level of performance for high-end enterprise-class servers, the processor needed a new name to signal that it was qualitatively different than the Pentium.

In 2003, Intel introduced its Centrino mobile technology. The new processor provided laptop computers with enhanced performance, extended battery life, integrated wireless connectivity, and thinner, lighter designs. These groundbreaking advances promised to fundamentally affect personal lifestyles and business productivity by enabling people to “unconnect” (the Centrino advertising tag line is “Unwire Your Life”). The new Centrino logo reflects the Intel vision of the convergence of communication and computing, as well as a new approach to product development. Rather than simply pushing the performance envelope, this product responded to real customer needs as determined by market research.

The most dramatic element of the Centrino logo is its shape, a sharp departure from the rectangular design family that preceded it. The two wings suggest a merger of technology and lifestyle, a forward-looking perspective, and the freedom to go where you will. The magenta color used for the Centrino wing balances the Intel blue and visually connotes youth and excitement while suggesting a connection between technology and passion, logic and emotions.

The Intel Inside logo has also evolved. More precise, sophisticated, and confident, it now provides a link to the classic dropped-e Intel corporate logo and reflects a world in which the positives of the corporate connection and the loyalty program can be linked.

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For Discussion 1. The Intel Inside campaign started in the spring of 1991 and $100 million was budgeted for it in 1992. Was that worthwhile? Why would Compaq participate in the program? What about Dell? How would you evaluate the program? What alternatives does a competitor such as AMD have to combat the Intel Inside branding strategy?

2. In the fall of 1992, when the "586" chip was ready, would you have called it Intel 586 or i586, or would you have started over with a new name? What are the pros and cons of each alternative?

3. What effects did changing the brand name from X86 to Pentium and others have on Intel’s ability to manage the product life cycle of the newly branded products?

4. When would a new product require a new name (such as Pentium) versus a new subbrand (such as Xeon)?

5. Evaluate the Centrino brand strategy. Will it help Intel be relevant to the mobile computing world?

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Strategic Market Management 9th edition David Aaker Author

Samsung Electronics Samsung Electronics, which begin in 1972 as a manufacturer of cheap B&W TV sets, in 2002 had sales of over $34 billion and net profit of 5.9 billion dollars which was less than Microsoft’s profits but more than IBM and Nokia earned who were number three and four in industry profitability. In part due to product leadership Samsung achieved third place in world wide mobile handset sales closing on second (after Nokia), became the second place seller of semiconductors (after Intel) and was the largest manufacturer of television sets and computer monitors in the world.

The products delivered function and more. Their products from plasma TV screens to robotic vacuum cleaners to fridge-freezers that tell you when you are low on milk to bracelet cell phones were cool and had a buzz. Business Week recognized Samsung as the number one Information Technology company in the work and its brand was valued by Interbrand at 8.3 million dollars, the 34th most valuable brand in the world. This performance was astounding given the fact that only five years earlier Samsung was financially crippled in the face of a Korean economic crisis and some bad strategic decisions.

In some respects it was the worst of times in late 1996 when Yun Jong Yong became CEO. He addressed the financial crises in part by cutting some 24,000 people, shutting factories, and selling business units. But in the face of this adversity, he set the stage for gaining global leadership by enunciating a bold strategy.

The strategy had several components. First, Samsung would change its market position in the US and Europe from a price-oriented copy-cat manufacturer to a premium priced product leaders sold in the most upscale retail outlets. Essentially no part of his management team agreed with this direction as it meant walking away from much of their business and would be risky to implement. Second, Samsung would continue its policy to be vertically integrated and turn its memory and component design and manufacturing into an asset by providing direct access to the latest technology. Nearly all other firms felt that strategic flexibility required moving away from vertical integration. Third, Samsung would be a leader in creating new products that would be designed to be distinctive and cool. Further, the organization would become much faster to market with its new products. Fourth, it would build the brand especially outside Korea as brand would be crucial in becoming the leader in the coming years.

The new course was somewhat aided by the New Management initiative launched in 1993 by Lee Kun-Hee, the CEO of The Samsung Group of which Samsung Electronics is a part.

No less than a total change in the way that the group thinks, works and serves the customer, the initiative included a focus on quality, listening to the world’s markets, creating distinctive advantage, being the world’s best, anticipating the future, creating organizational environment to foster innovation and growth, and contribute to a better global society. The initiative was re-

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launched in 1996 as it had received little traction. As part of the re-launch, Lee set up in 1996 a training center for information related infrastructure topics.

There were several key aspects to the implementation of the strategy. One was the hiring of Eric Kim to be global marketing head in 1999. Kim, who left Korea at the age of 13, had an engineering and marketing background. He was determined to get the global silos to be on the same page. Toward that end he consolidated the disparate business operations and drove toward a single vision around the new cool, upscale brands with leadership technology around digital convergence. He replaced the 55 advertising agencies with one global agency. In part to emphasize the global future of Samsung, Kim made his first big presentation to 400 managers in English.

Another initiative was sponsorship and advertising. Yun believed that the new Samsung could best be communicated by sports sponsorship. The logic was that sports competition, which involved hard work by athletes striving to achieve ones highest potential, suited the industry and the associations that Samsung wanted to nurture. Sports also provided a stage to demonstrate technology. Samsung sponsored several events include the 1998 Bangkok Asian Games but the crown jewel was the sponsorship of the Olympics starting with the 1998 Winter games in Nagano Japan. In 1999 Samsung embarked in a $400 million advertising effort around the tagline DIGITall which signaled that Samsung was a leader in the digital convergence world and it would apply to all people and all products.

Among the misadventures of Samsung that contributed to the financial crises of 1997 was the AST adventure. AST in the early 90s was among the top four PC manufacturers in the US. However, they struggled to keep up and began losing money at an alarming rate in part because their acquisition of the Tandy PC business in 1993 was not managed well and because their product development tended to be late (they missed a Christmas selling season one year).

Meanwhile Samsung which had 30% of the computer market in Korea tried and failed in its effort to crack the critical US market, a failure attributed to a lack of marketing savvy and distribution clout. Their solution was to invest in AST in 1995 and buy the balance in 1997.

Inserting a Korean CEO in 1996 who instituted needed manufacturing efficiencies and some comarketing efforts with Disney. When that did not stem the tide at effort to focus on the business market failed, Samsung bailed out in December of 1998 after having lost well over $1 billion dollars.

For Discussion 1. Yun lacked support for his new strategy. Is it important that the strategy be accepted? That it be enthusiastically be embraced? How could the CEO make that happen?

2. What are the organizational implications of vertical integration and the new product program?

With respect to vertical integration, how would you make sure that the component suppliers are incented to become efficient even though their customer is captive?

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3. How would you change the reward system to reflect the new strategy? In the past all units have been largely measured on sales and market share.

4. Why didn’t Lee’s initiative gain traction in 1993? What is needed to make it happen?

5. How should Kim gain acceptance for himself and his ideas? Was it risky to speak in English?

In creating a global strategy would you use a top down or bottom up approach?

6. Do you agree with the logic of the Olympic sponsorship? How would you get organizational support for it? How would you decide what sports events to sponsor?

7. What was the objective of the AST acquisition? Why did it fail?

Source: Samsung Electronics Annual Reports—1997 to 2002. Cliff Edwards, Moon Ihlwan, & Pete Engardio, The Samsung Way, Business Week, June 16, 2003, pp. 56-61.

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Strategic Market Management 9th edition David Aaker Author

Xerox: The Early Days

When Chester Carlson invented xerography in the 1930s, he attempted to market his idea to a host of firms, including Kodak and General Electric. All viewed the rather crude invention as unnecessary in the face of carbon paper and the coated-paper copiers of the day. Finally, in the 1950s, a small firm took the gamble. The result was the Xerox 914, introduced in 1959, which truly revolutionized the copying industry. The first plain-paper copier, it was easy to use and operated at seven copies per minute. The 914 was responsible for the number of copies made in the United States increasing from 20 million to 9.5 billion in only ten years.

The Xerox business strategy through the 1970s involved several pillars. First, the machines were leased at $95 per month, including 2,000 free copies per month to firms who mistakenly felt that their use would never exceed that level. Second, an extensive direct sales and service operation was developed to market the 914 and more expensive models, all of which were relatively complex and needed informed salespeople and responsive service. Third, the R&D focused on the high end of the market, where the best margins were. The low end was virtually ceded to the Japanese, first with coated-paper machines and later with inexpensive plain-paper products. Fourth, international growth was based on a joint venture with Fuji.

The fifth pillar, a major strategic thrust for Xerox in the 1970s, was the “Office of the Future.” This concept recognized that the copier was only one instrument of office productivity and business communication, and Xerox wanted to be a leader in the broader playing field.

Clearly, the key to the strategy was a computer capability. To fill that gaping hole, Xerox in 1969 purchased Scientific Data Systems, a firm that targeted the scientific community, and changed its name to Xerox Data Systems (XDS). Despite pouring investment into XDS, the firm’s products for the business data-processing market never had any success in the office, Xerox’s territory. Further, the Xerox organization had too many layers of bureaucracy in too many locations to encourage the integration of computer and copier products. In 1975, after six years of losses, Xerox closed XDS, judging that the computer mainframe market was not part of its core business after all.

Competitors: Savin, Canon, IBM, and Kodak Savin was a small company obsessed with participating in the copier market and frustrated by the patent chokehold of Xerox. Finally, with the help of an Australian inventor and a consortium of firms from the United States, Germany, and Japan, Savin developed a liquidtoner approach that avoided Xerox patents. Its breakthrough became the Savin 750, manufactured by Ricoh in Japan and introduced in 1975 at $4,999, less than the annual lease price of a Xerox machine. Instead of a direct sales force, Savin sold through dealers who would contact Xerox customers with an attractive alternative when their contracts expired. Dealer service was feasible because the machine was relatively small and reliable; the Savin 750

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averaged 17,000 copies between failures. It made twenty copies per minute, the first in less than five seconds, a pace far superior to Xerox efforts at the low end. By 1977, Savin placed more copiers in the United States than Xerox. Meanwhile, Ricoh captured the top market share in Japan, as measured in units.

Canon also avoided the Xerox patents by developing an alternative technology that was licensed to other Japanese firms. Rather than using joint ventures, Canon deliberately decided to market its copiers throughout the world under its own name, even though that would mean relatively slow market penetration in a fast-moving industry. In the long run, keeping control of the brand and operations became a strength. Canon struggled in the United States until 1978, when its NP-80 combined with an aggressive advertising campaign to succeed in the midvolume market. By 1979, Canon became a leader among the Japanese copier firms. In 1982, it introduced its Personal Copier, which sold for under $1,000 and had a $65 disposable cartridge.

The slower copying speed was unimportant to the target customers, who wanted a small, inexpensive, worry-free machine for the home or office. In 1985, with Savin fading, Canon became the world leader in low-end machines and the second overall company behind Xerox.

IBM attempted through the 1970s to participate in the copier market with as series of products. It was generally unsuccessful, despite its famous name and a large sales force, in part because it was technologically behind and its products were unreliable.

Kodak entered the market in 1975 with its Ektaprint 100, a plain-paper copier that soon became the industry standard for reliability in the mid-volume market. The firm then developed a series of high-end machines that were by many measures the best in the industry. Kodak moved slowly, however, making sure the products were reliable, carefully building a strong service and marketing organization, and avoiding building capacity too quickly. Kodak was still able to move into fourth place in copier sales by 1985 because of its technology, reputation, and resources—and because Xerox was not successful in developing comparable products. A Xerox executive opined that if IBM, with its size and superior marketing skills, had the Kodak machine it would have aggressively captured market share at the middle and high ends, and Xerox would have been severely damaged.

Problems at Xerox After many years of dramatic success, Xerox faced significant threats in 1980. The firm managed to hold onto its dominance in medium- and high-speed machines, still controlling 60% of the market for machines over $40,000 in 1981. Performance at the lower end was much worse, however, and as a result Xerox’s share of U.S. copier revenues declined dramatically, from 96% in 1970 to 46% in 1980. Between 1976 and 1982, Xerox's share of worldwide copier revenues dropped from 82% to 41%. Why? How did this happen?

One problem was the development of an unwieldy bureaucracy. In 1966, an executive from Ford was brought in to control an undisciplined organization that was expanding at an unmanageable rate. The result was a divisional structure that looked too much like an auto firm, with a painfully complex and slow process of getting a product from design to manufacturing to

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marketing. Throughout this marathon, the product would be subjected to a system (adopted from NASA) of staged program management, which entailed constant review and criticism.

In part because of this organizational paralysis, Xerox was not able to respond to the Kodak threat at the high end of the market. Xerox had long prided itself on its superior technology, but it actually lagged behind in product development. In the 1970s, it only introduced three completely new machines, only one of which was a success—and that one cost more that $300 million to develop. For Xerox to have grown as it did during this decade was more a tribute to its sales force than to the quality of its products.

One of Xerox's major problems in the 1970s was its focus on making the largest, fastest, and fanciest machines. It paid far less attention to reliability, and therefore it was not prepared to compete with machines made by Kodak. Rather than being lean and trim, it became bloated and failed to locate low-cost outsourcing opportunities. When machines like the Savin 750 were introduced, Xerox could not compete in either price or quality.

Despite its large staff, Xerox was weak in customer and market research, even as it transitioned from being a virtual monopoly to a participant in a competitive market. In particular, Xerox gave no thought to the fact that its customers might be willing to trade speed for price and reliability, or that they might prefer to have smaller, slower machines rather than a few large, faster ones.

Xerox ignored the Japanese threat, allowing those firms to get a foothold at the low end of the market that they exploited by moving up. One rationale was that the early Japanese machines were of low quality and priced too high; the Savin 750 was a shock. A second rationale was that the margins at the higher end were much more attractive than those at the low end. Xerox, however, failed to recognize that the Japanese firms would use their advantage further down to climb the market ladder. There was also a strong “not invented here” syndrome.

After introducing its 2200 model in Japan in 1973, Fuji Xerox offered to export it to the United States, but Xerox refused, unable to believe that a Japanese product would be up to Xerox standards. It was not until 1979 that Xerox finally accepted a Fuji machine for the American market.

For Discussion 1. Identify and evaluate Xerox’s strategy in the 1960s. What entry barriers did Xerox create in that decade?

2. Identify and evaluate the strategies of Savin, Canon, IBM, and Kodak. How did each overcome Xerox's entry barriers? Kodak did not aggressively invest behind its equipment at a time when it held a significant technological edge. Why? 3. Why did Xerox lose position in the 1970s? How could that happen? How could a large successful, admired company be so clueless?

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4. What were the strengths and weaknesses of Xerox in the 1980s? What were its strategic imperatives?

5. Xerox had a research think tank in Palo Alto that essentially developed what became the Apple computer. When the Xerox organization was not interested, Steve Jobs and others accessed the concept and started Apple. Why do you think such a blunder happened?

Source: Drawn in part from John Hillkirk and Gary Jacobson, Xerox: American Samurai, New York: Macmillan, 1986, pp. 55-57.

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Strategic Market Management 9th edition David Aaker Author

TEACHING NOTES FOR SUPPLEMENTAL CASES: TN--INTEL 1.

In the spring of 1991 the Intel Inside campaign was started, and $100 million was budgeted in 1992. Was that worthwhile? How would you evaluate it? Why would Compaq or Dell participate?

What were the problems facing Intel?

1. Competitors were selling the Intel name 386/486.

2. Competitors were distorting it by selling different versions than Intel, even to the point of labeling as 486 what was really 386.

3. Losing control not only of the name but also the product.

Was the $100-million campaign worthwhile?

NO it was a mistake--spend $100 million on R&D or shareholders - OEMs just buy on price and specs and you need to compete on price and specs.

- End users just buy a 386 class machine from Compaq and don't care what chip is used.

If so it makes no sense--you hurt your cost structure--better spend on R&D. What about NutraSweet--was their campaign effective? They insisted that all use their logo.

YES it was a good move - It works by making people more familiar with Intel--people are reassured by the Intel name even though they have no clue as to how it differs--Why look into it - just buy Intel and be sure.

- Q exactly how.

- Intel gets the endorsement of IBM Compaq etc.

- There must be a reason that Intel is placed there--must be quality.

- Intel name means reliability, backward-compatible.

- In fact, there was a much higher incidence of buyers who spec’d Intel.

Note: What about the logo? Isn't it friendly?

Note: Compare the effectiveness of Intel Inside vs. a campaign telling people that Intel is better because of a dozen factual reasons. If you try to communicate a perspective that makes Intel look better, AMD will find another in which they are better and, as with aspirin, people will assume that all are same. Intel Inside is much harder to compete against.

Note: Intel Inside was really the idea of Dentsu who was trying to do something to make Intel better known and more prestigious in Japan.

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How to measure the results of Intel Inside - Measure the space advertisingDuring 18 months (1992 and first half of 1993), over 90,000 pages of OEM ads contained the Intel Inside Logo. If each page is seen by 100,000 people, that is 10 billion impressions.

- Measure the awarenessRecognized the brand (exact task unknown) NutraSweet 1992(when unknown) PC specifies (Job to specify) 80% 60% 90% Business end users 80% 46% - Measure the extra people will pay - Measure the market share/price - Measure the attitude toward - Measure the image of Intel

1993

80%

Why would Compaq or Dell participate?

1. To avoid being perceived as less than others on the chip side.

2. Because Intel pays for part of their ad and gives them access to their lowest advertising rate.

Actually the OEMs get a 3 percent merchandising credit that can be used to pay for up to 50 percent of the OEMs space advertising. In addition, they get another 2% if they will put the Intel Inside Logo on the case and shipping container.

2.

In the Fall of 1992, the "586" chip was ready. Would you call it Intel 586 or i586 or would you start over with a new name? What are the pros and cons of each alternative?

Pro for i586 - Draws upon the X86 equityCustomers already know what the product is.

- The Intel Inside provides a brand name that is Intel - you don't need another.

- Competitors will not be allowed to have the 586 name for nothing.

- A new name will cost a bundleDoes it really matter that much in customer choice?

Under a new name competitors will get 586 free.

Con for i586 - Competitors usurping--like a new chocolate company using Hershey, Intel doesn't own.

- Competitor game-playing generates confusion that Intel cannot control.

- Intel can control and own a new name.

If there is to be a new name—what is the criteria that should be used: Intel's Criteria Trademarkable Hard to copy Has positive associations

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Works worldwide Can effectively transition from generation to generation Supports Intel's brand equity Works with our partners' brand names Secondary goals Memorable Sounds technically sophisticated Suggests what the product is Other possible goals Associated with Intel Associated with microprocessors Funny names considered: iCUCyrix, iAmFastest, 586NOT!

3. When would a new product require a new name such as Pentium, a new subbrand such as Xeon.

It really depends on the separation needed between the brand and the new product from two perspectives. Will the new product help or hurt the brand? If it will hurt more separation is needed. And will the brand help or hurt the new offering? If it will be hurtful, more separation is needed. A new brand is the ultimate in separation and is very costly if feasible. A subbrand is often a good compromise but unless that subbrand is given resources, it may not be able to play the separation role.

4. Evaluate the Centrino brand strategy. Will it help Intel be relevant to the mobile computing world?

An important strategic initiative for Intel is to be relevant, indeed be a driver of the technology behind the mobile world. The Centrino is the brand asset that will represent the core of the business strategy. The brand name itself and its logo might be worth discussing. What associations do they have and are they the right ones? The more basic question is whether a microprocessor can be a diver of this space? If not, who? Will it be a computer manufacturer like HP or Dell? If so will a brand be involved?

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Strategic Market Management 9th edition David Aaker Author

TN--Samsung Electronics This case provides a look at one of the most successful and dramatic strategic successes by a large firm in the last decade or so. Highlighted are some organizational issues.

1. Yun lacked support for his new strategy. Is it important that the strategy be accepted? That it be enthusiastically be embraced? How could the CEO make that happen?

One approach is to engage in culture building activities around the new strategy; to be a consistent and vocal advocate and to invest in the strategic imperatives that are implied. Put your money where your mouth is, so to speak. Another is to identify those that really are not suited for the new approach and move them or get rid of them. Bring in new people that are suited. That will send a signal as well as provide support.

2. What are the organizational implications of vertical integration and the new product program? With respect to vertical integration, how would you make sure that the component suppliers are incented to become efficient even though their customer is captive?

Vertical integration means that very different people and cultures need to co-exist in the same organization. That means that the organization needs to be able to hire and keep happy very different types of people, structures, cultures and systems. To create faster product development cycles new organizational forms were used—such as virtual teams of engineers focusing on a product development project.

3. How would you change the reward system to reflect the new strategy?

In the past all units have been largely measured on sales and market share.

One change that was dramatic is that the key measure was price as compared to competition.

Business units were measured on their ability to create a premium priced position. Sales was mush less important although still in the formula.

4. Why didn’t Lee’s initiative gain traction in 1993? What is needed to make it happen?

The Samsung group is around $100 billion of which Samsung Electronics is around $34 billion.

It contains construction; real estate, heavy industry and even at one time a disastrous entry into automobiles. Most of these are much more established and “old school” than Samsung electronics. It is thus not easy to change without a dramatic change in CEOs and business

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strategies. Further, Lee probably has an inflated view of his influence on day-to-day operations and did not take the effort to develop programs to make it happen.

5. How should Kim gain acceptance for himself and his ideas? Was it risky to speak in English? In creating a global strategy would you use a top down or bottom up approach?

On one hand you want to be accepted but on the other you want to be a change agent. So being disruptive might be an acceptable risk. At that meeting Yun made the following remark—“Some of you may want to put Mr. Kim on top of a tree and then shake him down. If anybody tries that, I will kill you!!” That was a rather direct show of support although not a very positive one. The students might be asked if they would have felt that helpful if they were Kim. One thing that Kim did was to develop small pilot programs around going upscale in pricing and distribution and show that they were very successful. As a result retailers and other partners were supporters.

The process had to be top down or it would never happen.

What are the problems that you foresee in the global management structure? What changes would be

6. Do you agree with the logic of the Olympic sponsorship? How would you get organizational support for it? How would you decide what sports events to sponsor?

In this case Lee was very keen on sponsoring the Olympics partly because of an ego trip but also because it matched his strategic vision for the Samsung Group. Another route is to create an analytical model to evaluate sponsorships. It would start by determining the brand identity—the aspirational associations that Samsung is looking for. In doing that, care is needed to consider the different markets. Half the business is in components and they are not the same as the mobile phone buyers or the typical costumer electronics customer. You also have to realize that it is connection as well as association that is relevant.

7. What was the objective of the AST acquisition? Why did it fail?

The objective was to crack the US market using the marketing savvy and distribution clout of AST. They overestimated the AST brand and its organizational competitive which was weak.

The problems AST were having should have been a signal. They also were not able to keep the people—all the key people left within a year—a common problem in acquisitions. The students might be asked why and what could be done to retain talent. Then there was the Dell power that may have been difficult to anticipate. HP and Compaq were also successful competitors. The fact that they pulled the plug so fast is admirable. The students might be asked if they would have been so decisive.

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Strategic Market Management 9th edition David Aaker Author

TN-SAMSUNG For Discussion 1. Yun lacked support for his new strategy. Is it important that the strategy be accepted?

That it be enthusiastically be embraced? How could the CEO make that happen?

TM-- One approach is to engage in culture building activities around the new strategy; to be a consistent and vocal advocate and to invest in the strategic imperatives that are implied. Put your money where your mouth is, so to speak. Another is to identify those that really are not suited for the new approach and move them or get rid of them. Bring in new people that are suited. That will send a signal as well as provide support.

2. What are the organizational implications of vertical integration and the new product program? With respect to vertical integration, how would you make sure that the component suppliers are incented to become efficient even though their customer is captive?

TM-- Vertical integration firms Vertical integration means that very different people and cultures need to co-exist in the same organization. That means that the organization needs to be able to hire and keep happy very different types of people, structures, cultures and systems. To create faster product development cycles, new organizational forms were used—such as virtual teams of engineers focusing on a product development project.

3. How would you change the reward system to reflect the new strategy? In the past all units have been largely measured on sales and market share.

TM-- One change that was dramatic is that the key measure was price as compared to competition. Business units were measured on their ability to create a premium priced position.

Sales was mush less important although still in the formula.

4. Why didn’t Lee’s initiative gain traction in 1993? What is needed to make it happen?

TM-- The Samsung group is around $100 billion of which Samsung Electronics is around $34 billion. It contains construction; real estate, heavy industry and even at one time a disastrous entry into automobiles. Most of these are much more established and “old school” than Samsung electronics. It is thus not easy to change without a dramatic change in CEOs and business strategies. Further, Lee probably has an inflated view of his influence on day-to-day operations and did not take the effort to develop programs to make it happen.

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5. How should Kim gain acceptance for himself and his ideas? Was it risky to speak in English? In creating a global strategy would you use a top down or bottom up approach?

TM-- On one hand you want to be accepted but on the other you want to be a change agent. So being disruptive might be an acceptable risk. At that meeting Yun made the following remark— “Some of you may want to put Mr. Kim on top of a tree and then shake him down. If anybody tries that, I will kill you!!” That was a rather direct show of support although not a very positive one. The students might be asked if they would have felt that helpful if they were Kim. One thing that Kim did was to develop small pilot programs around going upscale in pricing and distribution and show that they were very successful. As a result, retailers and other partners were supporters. The process had to be top down or it would never happen.

What are the problems that you foresee in the global management structure?

6. Do you agree with the logic of the Olympic sponsorship? How would you get organizational support for it? How would you decide what sports events to sponsor?

TM-- In this case Lee was very keen on sponsoring the Olympics partly because of an ego trip but also because it matched his strategic vision for the Samsung Group. Another route is to create an analytical model to evaluate sponsorships. It would start by determining the brand identity—the aspirational associations that Samsung is looking. In doing that, care is needed to consider the different markets. Half the business is in components and they are not the same as the mobile phone buyers or the typical customer electronics customer. You also have to realize that it is connection as well as association that is relevant.

7. What was the objective of the AST acquisition? Why did it fail?

The objective was to crack the US market using the marketing savvy and distribution clout of AST. They overestimated the AST brand and its organizational competitive which was weak. The problems AST were having should have been a signal. They also were not able to keep the people—all the key people left within a year—a common problem in acquisitions. The students might be asked why and what could be done to retain talent. Then there was the Dell power that may have been difficult to anticipate. HP and Compaq were also successful competitors. The fact that they pulled the plug so fast is admirable. The students might be asked if they would have been so decisive.

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Strategic Market Management 9th edition David Aaker Author

TN--XEROX: FROM THE FIFTIES TO THE EIGHTIES The case describes Xerox and the copier industry through the mid-eighties. It can rather easily occupy two days, with the first day on the sixties and the second on the seventies and the eighties. The objectives are to: 1. Identify the key elements of a business strategy (Xerox and its competitors) and discuss their implications for the future competitive position.

2. Identify barriers to entry that were developed and see how they were overcome by Kodak, IBM, and the Japanese firms.

3. See the risks of a strong monopolistic position and of a diversification move.

4. Understand tradeoffs such as high performance vs. low cost and high reliability.

5. Understand the role of competitor analysis.

6. See alternative entry strategies of foreign competitors.

7. Assess assets and skills of a firm.

The following provide an overview of the industry that the students should understand: 1960’s: Xerox dominates and creates barriers.

1970’s: Xerox slept and was diverted. Market share fell from 96% to 46%.

1975: Savin 750 enters under $5,000.

Kodak Ektaprint 100 enters at high end.

1980: Cannon NP-200 follows in 1983 with the PC-10.

1980’s: Xerox wakes up.

Questions for Discussion

1. Identify and evaluate Xerox strategy in the 1960’s.

2. What entry barriers did Xerox create in the 1960’s?

3. Identify and evaluate the strategy of IBM, Kodak, Ricoh/Savin, Cannon, and Minolta. How did each overcome barriers?

4. Why did Xerox lose position in 1970’s?

5. What were the strengths and weaknesses of Xerox in 1980?

6. What should Xerox do to come back in the 1980’s?

1. IDENTIFY AND EVALUATE XEROX STRATEGY IN THE 1960’s There are seven strategy elements that can be identified and discussed. Each of them represents a key Xerox strategic choice and was not obvious even in retrospect. For each, the students can be asked to identify the strategy rationale and to determine if they would have pursued a similar strategy.

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Rented Equipment The original product was complex and risky to customers, who certainly did not want to spend a lot of money on buying a machine. The decision to lease was absolutely brilliant and helped make Xerox what it is today. Who could resist $90 a month and only four cents a copy after the first free 2,000? What happened was that firms grossly underestimated the usage levels which averaged 8,000 per month. In 1967, the average Xerox 914 made 100,000 copies per month. In an original evaluation of the machine in 1960, A.D. Little estimated a total world market of only 5,000. A key assumption A. D. Little made was that the machine would be sold instead of leased.

Leasing reduced the risk to the customer, created entry barriers to competition and allowed Xerox to control the supplies business, which was a gold mine. It did, however, have disadvantages. It raised the financing requirements for Xerox and put less pressure from the customer upon reliability. Worse, it made the firm have a vested interest in keeping the old technology/machines. This aspect undoubtedly cost Xerox later.

Sales/Service Network The machines were new to office management and continually broke down. Sales and service organizations were crucial to the strategy, and Xerox was strong in these areas from the start. However, these organizations were very costly for a firm that was struggling to finance the new product and its growth. The use of dealers or third party service organizations was an option that must have been attractive.

International--Joint Ventures The commitment to joint ventures can be criticized. First, it sacrificed substantial profits-Xerox got only 50% of Europe and Latin America and 25% of the Far East. Second, their communication with Fuji Xerox was a big problem. Xerox did not foresee the importance of exploiting Fuji-Xerox product development nor could it understand the possibility of the future Japanese competitors. If Xerox had been in Japan itself, the communication might have been better. The Savin experience is also relevant to evaluating joint ventures On the other hand, the joint ventures: - allowed Xerox to move quickly into Europe and Japan, bypassing the organizational, financial (costs of setting up a service operation and financing the leases), and cultural hurdles.

- provided substantial success that may simply not have occurred any other way. FujiXerox is often held forth as one of the U.S. success stories in Japan.

- provided autonomous product development.

Technology--Patents A key was clearly the technology and the patents that surrounded it. The importance of the Xerox 914 technology cannot be overestimated. One Xerox executive said that "we were able to sell almost anything we made at whatever price we wanted to charge." The issue is how best to maintain that strength.

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License CPC Technology The decision to license CPC technology did provide an entry for firms that later became important competitors. Why? First, it was good money. Second, it may have diffused some of the anti-trust pressure. Third, the CPC technology was regarded by Xerox as obsolete.

Ignore Low End The explicit decision to ignore the low end was fateful. In retrospect, a low end entry even if it was a money loser would have shut down a window of opportunity for other companies. In retrospect it seems dumb. However, at the time Xerox was stretched thin managing the growth despite their profitability and the money was clearly in the high end.

Diversification into the Office of the Future A very reasonable diversification move, the problem is that it diverted attention from the main product. More on this under Question 4.

2. WHAT BARRIERS WERE CREATED BY XEROX BY 1970?

A market structure analysis (using Porter's framework) could be quickly done. It would show that Xerox was in an incredible monopoly position and would demonstrate why they were making a ton of money. The barriers were: - Technology--Patents - Capital Cost Lease Base Sales/Service System - Xerox Name - Global Presence

3. IDENTIFY AND EVALUATE THE STRATEGY OF IBM, KODAK, RICOH/SAVIN, CANNON AND MINOLTA. HOW DID EACH OVERCOME BARRIERS? IBM The IBM strategy was basically to build a me-too product and rely upon its sales/service operation and its name. The strategy really did not work. Xerox sued for patent infringement and basically won. IBM's inferior product meant that IBM dug itself into a hole from the beginning.

Kodak The Kodak strategy was to attack the high end with a technologically superior product and to very slowly build an organization to support its product. Kodak explicitly decided to grow very slowly. As a result they developed a solid business. They were lucky in that they came out in 1975 expecting only a few years of superiority. They had, in fact, a window of over five years. Thus their slow approach didn't hurt them so much although it is clear that a more

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aggressive strategy would have enabled them to gain a much more dominant position. Some interesting questions to pose: • • •

What would have happened if IBM had the Kodak machine? (Xerox might have been killed.)

Why did Kodak rather than IBM generate the best technology? Was it an accident?

(Consider the technology behind Kodak. In fact most of the copier firms have photographic backgrounds.)

Should Kodak have been more aggressive? (Given their culture, it is not clear an aggressive push was even feasible for them.)

Savin/Ricoh The Savin 750, a reliable, 20 cps copier introduced for under $5,000 in 1975 was a bombshell. In had one-third the parts and weight of its Xerox competition and cost $500 to build. It had a 17,000 copies PR failure rate as compared to 6,000 for Xerox.

The technology barrier was overcome by the development of a new process that overcame the Xerox patents although their product came out 15 years after the 914. Could Xerox have pursued this technology and gotten patents on it as well? The problem is that unless you are driven by desperation, it is hard to exert the effort. It is rare that the market leader is the one that generates the new technologies.

The capital cost and sales/service system barriers were overcome by focusing upon reliability and cost and thus having a product that could be handled by dealers. The Xerox name was overcome by having dramatic price-performance superiority and the fact that they really didn't compete head-to-head against Xerox. The Savin team had perhaps a superior and more coordinated global presence than Xerox.

Canon Most of the Savin strategy applies to Canon. There are some differences. Canon did not use joint ventures and they marketed under the Canon name everywhere. The results are instructive. They introduced a good product in the early 1970’s which languished until the NP200 came out in 1980. Their decision not to joint venture or otherwise use an established American and European name and organization clearly hurt them in the seventies. Further, the effort to develop a global product and a global business had to be done alone. It was expensive and took a long time. However, in the long run it might have paid off. The Savin\Ricoh combination got into trouble when competition heated up in the eighties. Ricoh decided they needed to get out from under the joint ventures to compete. Canon was in a very good position in the eighties.

Minolta Minolta was forced by Ricoh and Canon to enter the PPC market in the late 1970s. They took a technology approach and attempted to create a better machine. Contrast that with the IBM me-too strategy.

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4. WHY DID XEROX LOSE POSITION IN THE SEVENTIES? Diverted by Office of the Future Xerox rather logically felt in the sixties that they had no more worlds to conquer in copiers, so they looked for new growth directions. Building from the copier base they chose office-of-the-future, a logical expansion direction as it moved toward the customer system and seemed to be supported by environmental trends. Thus, they bought a host of component firms and a mainframe manufacturer and set up PARC (Palo Alto Research Center) which had some of the best computer people around; in fact, it developed the software that was to be the basis of the Apple Mac system.

However, the firm was not able to keep the excitement and attention on copiers. The action was in the office product systems. Further, the office products and all the computer entries were disappointing or failures. Thus, the organization diverted resources to build/save this area of the future.

Diverted by Anti-Trust Cases The case documents how the firm got bogged down. The cost was not only the money and the time of the executives, but strategy options. Xerox had a tendency to be much less aggressive in pricing and product options. Prices were kept high which provided extra margins, but made it easier for the competition to come in.

Breakdown in Product Delivery System The Xerox organization simply could not deliver new products. There were two main reasons. The first was organizational. A new product concept had to go to drafting (to get it drawn), to service (to see if it could be serviced), to manufacturing (to see if it could be made cheaply), and then to marketing. The process virtually made it impossible to move quickly and to pursue good ideas.

Second, the communication was terrible. Even though the PARC group could have provided key breakthroughs in microprocessor communication, they were not consulted.

Instead, competing firms like Kodak and Minolta, solved the multiple microprocessor linkage problem in copiers. Xerox did not exploit what should have been substantial synergy.

The third was a preoccupation with speed and sophistication. Xerox wanted only to be fast, state of the art. Attributes of reliability and cost were not of any concern. Why? They were not close to either the customer or the competitors.

Arrogance about Xerox Technology Xerox seemed to believe that they were the only ones that could make a copier that was sophisticated. The patents were the ultimate protection. There are several partial explanations: • •

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They did not do good competitor analysis if they did any. This despite the presence of Fuji-Xerox which was in an excellent position to learn of competitors and in fact tried to communicate with Xerox.

They were a virtual monopoly until 1975 making incredible profits.

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They had a perception that the technology was extremely complex. They tended to use specially-made parts even for simple items such as screws. In contrast, the Japanese used as many standard parts as possible.

Turned Back On Low End The President of Canon, replying to a question about what he would have done in 1970 to forestall the competition, said that it was easy: he would have entered the low end. Xerox saw that the very early Japanese machines didn't work well and wrote them off. They turned their back on some viable Fuji-Xerox options. Their own efforts were not successful.

Why? There are some logical reasons besides their focus upon speed, their technological arrogance, and their failure to do competitor analysis. First, the use of dealers would create problems with their sales force and customers. Second, they would cannibalize the rest of their lines and hurt some very profitable products. Third, they would obsolete the lease base.

5. WHAT WERE STRENGTHS AND WEAKNESSES OF XEROX IN 1980?

Strengths-- Strong position in high-volume segment - Large installed base - Name - Sales/service network - Global presence - Wide product line - Some electronics capabilities Weaknesses - High manufacturing costs - Weak low-volume segment - Low reliability - Office automation position unclear

6. WHAT SHOULD XEROX DO TO COME BACK IN THE 1980's?

There are a variety of things that Xerox did starting in 1979 to turn things around and become competitive. They included the following seven strategies: 1. Competitive benchmarking. Xerox became serious about competitor analysis.

They got good information about competitor's costs and performance and projected them forward. They even benchmarked against non-competitors (such as the warehouse system of L.L. Bean) that did well in some aspect of their business.

2. Low cost goals. Xerox developed cost goals so that it would be competitive with the Japanese. That meant in part that reliability and cost increased in their priorities. One aspect of cost control was a reduction of staff so that the overhead was reduced. By

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1985 their overhead had been reduced from $500 million to $275 million and direct labor was only 10% of the cost. The parts inventory dropped from 3.3 months to 1.0 months.

3. Product quality goals. Xerox developed quantitative quality goals and dramatically improved quality. Their defects per machine in the 10-series were 65% of former products. A total organizational commitment to quality was initiated.

4. New product development. Xerox re-organized the new product development effort so that the process was streamlined and much faster. Teams of people now had responsibility for a new product development cycle. One product that took from $1,000 to $1,500 million and seven years would not take more than $300 million and four years.

5. Market research. Paying much closer attention to the customer was evidenced by formal marketing research, more concept tests, use tests, customer observations, surveys, etc.

6. Internationalization. Xerox attempted to turn the international presence into more of an asset by improving the co-ordination between the Xerox, Fuji-Xerox and RankXerox and using world-wide sourcing.

7. A new product line, the 10 series, which was first shipped in volume in 1983, was a key to the turnaround. It provided a technological advance that finally regained the technology position for Xerox. It used nine microprocessor brains to control quality and the processing. It had an advanced re-circulating document handler and organic photoreceptor which allowed the machine to be more compact.

The program worked in that the long steep slide in share was reversed and, in 1983, share actually went up two or three points. A Minolta executive was quoted as saying that "It appeared that we could kill Xerox too. Now I don't think so. Japanese people don't talk about it but Xerox is taking more and more market share back."

CONCLUSION In summary, the case brings home a number of points-1. The long-term importance of the strategic decisions to lease, to avoid the low end, to go for product sophistication, and to use joint ventures.

2. The arrogance of success/monopoly and the risk of diversification.

3. The risks to the country of anti-trust enforcement. Without the anti-trust efforts, the Japanese may not have ever arrived. Certainly this is arguable.

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4. The importance of organizational communication and structure.

5. The variety of ways of approaching global competition.

6. The importance of competitor analysis.

7. How entry barriers can be created and by-passed.

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