chapter 5 (partial): business strategy: strategic metrics

Chapter 5 (Partial):

Business Strategy: Strategic Metrics

Disclaimer:

• All logos, photos, etc. used in this presentation are the property of their respective

copyright owners and are used here for educational purposes only

© Stephan Sorger 2015 www.StephanSorger.com;Marketing Analytics:Bus.Strategy-Metrics Ch.5.1

http://www.stephansorger.com/

Outline/ Learning Objectives

Topic Description

Scenarios Review strategic scenarios facing most companies

Metrics Discuss metrics to measure strategic-level performance

Brand Review metrics to measure brand-related performance

Customer Review metrics to measure customer-related performance

Product Review metrics to measure product-related performance



Marketing Mix

Business Operations

Strategy

Strategic Metrics

Results

Analytics Approach to Strategy

Strategic Metrics: “Big Picture”

Marketing Mix: 4Ps: Product

Price

Place

Promotion

Business Operations: Supporting Functions

Identify 3 typical strategic scenarios



Market

Entry

Market

Approach

Market

Growth

Strategic Scenarios

Typical Major Strategic Decisions for Most Companies:

-Market Entry: Should I enter this market?

-Market Approach: How should I engage with this market?

-Market Growth: How can I grow within the market?



Market Entry

Market Entry

Market Exit

Strategic Scenario: Market Entry

Organic growth: Entering markets by growing internal process and product/service line

Acquisition-driven growth: Entering markets by acquiring companies already in the market

Market Entry: Apply competitive advantages to characteristics of market

Market Exit: Leave flat or shrinking markets, or those suffering from intense competition

Example: Diaspora

in social networking

Example: Siemens

in radiation therapy



Generic Strategy

Cost Leadership

Differentiation

Focus

Strategic Scenario: Market Approach

Southwest Airlines

in airlines

New York Times

in newspapers

Sunglass Hut

in niche retailing



Market Penetration

Growth

Market Development

Product/Service Development

Diversification

Strategic Scenario: Growth

Expedia

in travel booking

Dunkin Donuts

in international expansion

L’Oreal

in haircare

GE

in multiple markets

Existing offerings; Existing markets

Existing offerings; New markets

New offerings; Existing markets

New offerings; New markets



Strategic Scenario Relevant Strategic Metrics

Market Entry/ Exit Market size

Market growth rate

Market Approach Revenue

Profit

Market Growth Year on year growth

CAGR

Strategic Metrics: Strategic Scenarios



Metric Description and Example

Market Size Calculation of potential revenue available in market

Example: Smartphone apps:

Market size of $15B +

Execution: See chapter 2 for market sizing

Market Growth Rate Periodic evaluation of market to monitor growth

Wang Laboratories:

Failed to notice shrinking market for word processors

Execution: See growth rates slides later in this module

Strategic Metrics: Market Entry and Exit




Revenue Sales of goods and services into market

Example Reports Total Revenue

Revenue by Business Unit

Revenue by Product/ Service

Revenue by Geographic Region

Revenue by Segment

Strategic Metrics: Market Approach




Profit Revenue, less costs of doing business

Example Reports Profit by Business Unit

Profit by Product/ Service

Profit by Geographic Region

Profit by Segment

Contribution Margin (Selling Price per Unit – Variable Cost per Unit)

(Selling Price per Unit)

ROMI Return on marketing investment

(Revenue from Marketing) * (Contribution Margin) – 1

Marketing Spending

Strategic Metrics: Market Approach




Year on Year Growth Increase (or decrease) in revenue, profit, etc.

from one year to the next; also called Y.OY. Growth

Y.O.Y Calculations Example: Apple Annual Report, 2011

Revenue (2010)=$65.2B; Revenue (2011) = $108.2B

Y.O.Y. Growth = [$108.2B - $65.2B] / $65.2B = 66%

CAGR Compound Annual Growth Rate

Increase (or decrease) in revenue, profit, etc.

over a period of years (more than 2 years)

Microsoft Excel: XIRR function to calculate CAGR

CAGR Calculations (Ending Value) ^ (1 / Number of Periods) – 1

(Starting Value)

Revenue grows from $100K to $150K over 3 years:

$150,000/$100,000 ^ 1/3 - 1 = 14.5%

Strategic Metrics: Market Growth




Brand Recognition Ability to confirm prior exposure to the brand

Kellogg’s: Recognize cereal box in supermarket aisle

Brand Recall Ability to retrieve brand from memory

Roto-Rooter: First name people remember

Strategic Metrics: Brand Development




Brand Depth Ease with which brand comes to mind

GE: Associated with appliances

Brand Breadth Range of usage scenarios for brand

Greyhound: Limited use by professionals





Brand Equity Index Measures relative strength of brands

Equation (Effective market share) * (Relative Price) * Durability

Effective Market Share Weighted average of brand’s market share in all

segments, weighted by each segment’s proportion

of sales

Relative Price (Price of our brand ) / (Price of other brands)

Durability % of Customers who continue to purchase brand

in the following year





CLV Customer Lifetime Value

Example: Netflix: Long-term retention important to high CLV

Equation Margin * (Retention Rate) / (1 + Discount Rate–Retention Rate)

Margin Revenue generated by the customer, less costs to service

Discount Rate Cost of capital; Similar to interest rate on loan

Retention Rate % of Customers who remain loyal over time

Calculation If margin = $72/year; Retention = 99.5%/year; Discount = 5%/yr

CLV = ($72) * (0.995) / (1 + 0.05 – 0.995) = $1302.55

Strategic Metrics: Customer Development




Customer Profit Profit made per customers

(Customer revenues) – (Customer costs)

Example: American Airlines AAdvantage customer loyalty program

Tier 1: Executive Platinum

Tier 2: Gold, Platinum

Tier 3: No loyalty status

Strategic Metrics: Customer Development



Product/Service Development

Metrics

Development Process Metrics Development Innovation Metrics

Product/Service Development: Metrics Categories

Measure ability to innovate Measure competitive advantage in

product or service development



Quality-Oriented Capabilities

Responsiveness Capabilities

Customization Capabilities

Low Cost Capabilities

Development

Process

Metrics

Product/Service Development: Process Metrics

Dell: Configure PC to your liking

Boeing: DFM and DFA on F-18

Oneida Healthcare: Ongoing training

Zynga: Daily software builds



Major Enhancement

Minor Enhancement

Breakthrough Products

Next Generation Products

Development

Innovation

Metrics

Correction/ “Bug Fix”

Product/Service Development: Innovation Metrics

Changes industry

Example: Original Apple iPhone

Significant advancement

Example: iPhone 3 4

Fix mistake

Example: iPhone 4 antenna

Noticeable improvement

Example: iPhone 4S Siri

Extend product to new users

Example: 8GB 16GB



Innovation Category Quarter 1 Quarter 2 Quarter 3 Q4

Breakthrough 5% 10% 10% 10%

Next Generation 10% 20% 20% 20%

Major Enhancement 15% 30% 30% 30%

Minor Enhancement 40% 30% 30% 30%

Correction/ Bug Fix 30% 10% 10% 10%

Total 100% 100% 100% 100%

Product/Service Development: Innovation Metrics

Track % of each type of project over time



Check for Understanding

Topic Description

Terminology Know terms relating to basic strategic scenarios

Strategic Metrics Review metrics for market entry, approach, and growth

Brand and Customer Review metrics for brand and customer performance

Products and Services Review metrics to measure product performance



chapter 5 (partial): business strategy: strategic metrics

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