Foundations of Marketing

by Jonathan Groucutt

Chapter 6: Strategy in Marketing

The Seminar Room

General

Flanking Movements

Companies with heritage brands cannot be complacent simply because their brands are well established within the marketplace. New competition for consumer purchasing power, for instance, can come from similar types of products or services. Consider the following example:

Major coffee brands competed against other coffee brands (including own label products). Coffee contains caffeine, a physiologically active ingredient that provides the ‘lift’ or energy surge that stimulates brain activity. Caffeine relieves fatigue, makes us more alert and able to think faster.

While there have been caffeine tablets available from chemists and drug stores they were not seen as any threat to the coffee drink. Coffee, as well as providing a ‘lift’ is also a social drink.

What changed was the introduction of caffeine drinks in a can. These were supported by inventive emergent marketing campaigns. This meant that many of these caffeine drinks out flanked major coffee brands to gain market share. Now the competition is much more than another brand of coffee.

Dicum, G. and Luttinger, N. (1999) The Coffee Book: Anatomy of an Industry from Crop to the Last Drop. New York: The New Press.


Pan European

Acquisitions to Gain Markets and Market Share

Normally companies aim to gain market share through the implementation of a strategy and the deployment of various tactics (for instance promotional activities). However, companies can also gain market share through various forms of strategic alliances, thus working in co-operation with other companies. The Star Alliance and OneWorld airline alliance are good examples of such strategic alliances.

However, companies may also seek expansion through mergers with other companies or acquisition of companies. Acquisitions or takeovers can be either friendly (the target company want to be acquired) or aggressive (where the target company doesn’t want to be taken over by another company per se or the specific company initiating the activity). However, the right acquisition not only opens up market opportunities it demonstrates the value of a particular brand, as stated in Chapter 7: The Branding of Products and Services (the section on Valuation and Equity).

While a company may consider, for instance, the acquisition of another company regulatory obstacles may need to be overcome (see Chapter 2: The Marketing Environment). These obstacles may be for sound customer-centric or nationalistic reasons. For example, the acquisition may create a monopolistic situation that could be detrimental to consumers due to limited choice. Moreover, a government may prevent an acquisition on the grounds of national security. The acquisition of a defence contractor, for instance, could reveal national secrets and jeopardize the supply of components to the country’s defence forces.

However, a government through its regulators may impose legislation on the grounds of national interests to protect indigenous industries. This is an approach that France has taken. On the one hand the French government encourages the acquisition of French and international companies by French companies. For example, Pernod Ricard acquired the British drinks group Allied Domecq, and Vendi with 92% of the Universal Music Group, 99% of Universal Games and 18.5% of NBC Universal, the film, television and theme park operation.

On the other hand it has become very protectionist where many ‘traditional’ industries are concerned. In December 2005 the French Government issued a decree that stated that they would block any foreign acquisition of 11 designated industrial sectors. While these included defence and specific biotech industries, they also included casinos, champagne and yoghurt making (Group DANONE is the world’s largest yoghurt marker). According to French President Chirac:

“The priority for France is to protect its industrial competitiveness.”

This approach clearly demonstrates a passionate cultural stance. Many cultures are being either swamped by another or becoming a bland amalgam.

Some commentators take the view that such an approach will clearly be detrimental to France over the longer term. However, it may not be as clear- cut as they suggest. What do you think could be the long-term implications of such an action? Could other countries retaliate in kind against French companies? Would there not be greater opportunities if the non-defence French companies merged with others? Could they not become larger as a result?


The Library

The Institute for Strategy and Competitiveness: www.isc.hbs.edu

This highlights the work of Professor Michael Porter at Harvard Business School.

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