1.3The Three Levels of Strategy
To understand marketing strategy, we must first consider the three levels of strategy within a firm or organization. In the next section, we present the three levels of strategy along with accompanying questions to highlight the focus of each strategy.
What businesses should we be in? At the corporate level, the firm considers the types of business to include in its portfolio. Pepsico, for example, competes in three specific businesses: beverages, salty snacks, and packaged food. In the beverage business, the company offers soft drinks (Pepsi, Mountain Dew, Mug Root Beer), juices (Tropicana, Dole, Naked Juices), performance drinks (Gatorade, Propel), and bottled water (Aquafina). In the salty snack business, the company offers a variety of chips, pretzels, dips, and salsas under the Frito Lay brand. The Quaker brand anchors the packaged food group with ready-to-eat cereals (Cap’n Crunch, Life), pancake mixes and syrups (Aunt Jemima), granola bars (Quaker), and side dishes (Rice-A-Roni). With these chosen businesses, Pepsico specializes in areas that draw on common core skills and resources. This specialization supports much of the research on strategy; that is, specialists perform better than generalists.
Strategic Business Unit (SBU) Strategy
How do we compete effectively in a given business? Once the firm decides which businesses to include in the portfolio, the next decisions focus on how to perform and compete in the given business categories. For example, now that Pepsico has decided to compete in the salty snack business, how can the company play to its strengths given the opportunities in the marketing environment?
The Boston Consulting Group’s portfolio model
The Boston Consulting Group’s portfolio model provides a useful approach for measuring performance of the company’s SBUs based on two criteria: market growth rate and relative market share. The vertical axis uses annual market growth rate of the SBU’s industry as a measure of industry attractiveness. On the horizontal axis, relative market share represents the Strategic Business Unit's (SBU) strength in the industry. The resulting quadrants provide a portfolio analysis for allocating company resources among SBUs. The growth-share matrix classifies four types of SBUs:
Stars. SBUs in the high-growth and high-share quadrant represent the company’s shining businesses. These businesses are dominant players in fast-growing markets. They may require significant cash investment to support their rapid growth. Often, these financial investments come from cash cows. As the market growth rate slows, these businesses generally become cash cows.
Cash cows. Cash cows dominate in slow growth markets. They typically generate more cash than they need. This allows the company to allocate resources to other SBUs.
Question marks. SBUs in this quadrant, high growth and low market share, pose investment dilemmas for the company. Which businesses should the company invest in and try to move to star status and which businesses should the company eliminate? Generally, significant investment, from cash cows, is required to develop these businesses.
Dogs. Dogs have little hope of becoming stars or cash cows. They are in slow-growth industries with relatively low market share. They may generate enough cash to support themselves, but the company may elect to drop these businesses in order to allocate resources to more promising SBUs.
How do we orchestrate the marketing mixvariables to deliver value to a particular market segment? At this level, each functional area of the company—finance, human resources, marketing, and supply chain—has a strategy that is consistent with the SBU strategy and the corporate strategy. Marketing strategy addresses a specific target market with a cohesive marketing mix of product, place, price, and promotion.
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