Exhaustive Study Notes: Strategic Planning, SBUs, Ansoff Matrix, and BCG Model

Overview of Chapter 1 Topics

  • The study of marketing begins with two foundational strategic subjects:

    • Strategic Planning

    • Market Planning

McDonald's Strategic Evolution Case Study

  • Historical Focus and Design (Children & Families):

    • Target Audience: Historically centered almost exclusively on children and young families.

    • Play Structures: Included physical play structures, climbing equipment, and indoor play spaces (such as the Fall Center playgrounds) where children congregating and getting caught up was a central draw.

    • Aesthetics & Decor: Characterized by bright primary colors, plastic furniture, and large painted exterior/interior murals featuring brand characters.

  • Modern Facility and Operational Transformation:

    • Exterior & Interior Design: Play structures have been largely phased out in newer locations. Modern store designs adopt a utilitarian, industrial, clean, and streamlined aesthetic.

    • Atmosphere: Features free Wi-Fi, modern adult-oriented furniture resembling an IKEA catalog aesthetic, neutral color palettes, and an overall mature ambience.

    • Menu Expansion & Healthier Initiatives:

    • Pricing has generally increased while product variety expanded.

    • Menu diversification includes salads, wraps, yogurt parfaits, Angus burgers, and specialty coffee lines (McCafé).

    • Kids' Menu Modifications: Swapped standard French fries for apple slices and soft drinks for milk options.

    • Marketing & Mascot Shift:

    • Ronald McDonald has been largely removed from primary advertising campaigns.

    • Contemporary advertising focuses predominantly on teens and young adults enjoying social experiences.

  • External Environmental Drivers of Change:

    • Publicity & Social Perception: Significant negative publicity surrounding child obesity, unhealthy fast food, and parental responsibility pushed the brand to reshape its public image.

    • Demographics:

    • Decline in birth rates led to fewer child customers overall.

    • Generational cohort shifts: Millennials represent the largest generational cohort, and together with Gen Z, form the primary consumer demographic.

    • Legal & Regulatory Factors:

    • Banning of trans fats across several municipal and state jurisdictions.

    • Regulatory limits placed on soft drink portion sizes.

    • Mandatory disclosure of calorie counts for every item directly on menu boards.

    • Strategic Reality: Businesses cannot directly control macro-environmental forces (laws, demographic shifts, social trends, or technological changes); they can only strategically plan how to respond to them.

Strategic Planning

  • Definition of Strategic Planning:

    • Strategic planning is the managerial process of creating and maintaining a good fit between an organization's objectives, resources, and its evolving/ever-changing market environment.

    • It requires active monitoring of macro-environmental shifts (legal, demographic, technological, competitive, and social trends) and adapting internal operations to ensure long-term viability and profitability.

    • It focuses on long-term directional decisions rather than short-term tactical operations.

  • Organizational Execution:

    • Conducted by top management and executive leadership.

    • Key responsibilities include determining long-term corporate direction, establishing the organizational mission, defining business domains, and selecting target markets.

Strategic Business Units (SBUs)

  • Definition of a Strategic Business Unit (SBU):

    • An SBU is a subgroup, sub-unit, or distinct business division within a larger corporation, or a specific product line within a single business enterprise.

  • Core Characteristics of an SBU:

    • Has a distinct mission statement and specific target market.

    • Exercises control over its own dedicated organizational resources.

    • Competes against a specific set of direct competitors.

    • Plans its strategy independently of other SBUs within the parent organization.

    • Functions as a distinct profit center aiming to generate returns.

  • Corporate Examples of SBUs:

    • Disney: Acquisition of 21st Century Fox as a strategic subgroup.

    • PepsiCo: Composed of distinct SBUs including Pepsi beverage products, Frito-Lay snack foods, Gatorade sports drinks, and Quaker Oats brand products.

    • Amazon: Composed of diverse SBUs including:

    • E-commerce operations (amazon.comamazon.com).

    • Amazon Web Services (AWS) providing cloud computing platform infrastructure.

    • Whole Foods Market.

    • Amazon Fresh (Grocery retail testing automated checkout using overhead camera arrays, motion sensors, and machine-learning algorithms to track physical item selection and account billing without physical checkout lines).

Ansoff's Opportunity Matrix

  • Overview:

    • Strategic framework developed by Igor Ansoff to identify sales growth strategies by matching existing or new products against existing or new markets/customer groups.

  • Matrix Layout:


Present Market (Existing Customers)

New Market (New Customer Groups)

Present Product (Existing Products)

Market Penetration

Market Development

New Product (New Products)

Product Development

Diversification

  • The Four Growth Strategies:

    1. Market Penetration:

    • Definition: Increasing sales of existing products to existing customer groups.

    • Tactics: Price discounts/promotional deals, loyalty app programs (e.g., Chick-fil-A mobile rewards), introducing new uses for existing products, and increasing advertising density to maintain top-of-mind brand awareness.

    1. Product Development:

    • Definition: Creating and selling new products to existing customer groups.

    • Examples: McDonald's introducing specialty coffees, salads, and wraps to existing store patrons; Coca-Cola expanding its lineup to include Diet Coke, Coke Zero, and flavored Coke variants; Vera Bradley launching a new line of lunchboxes aimed at its existing customer base.

    1. Market Development:

    • Definition: Selling existing products to new customer groups or target markets.

    • Tactics: Geographic expansion into new regions, territories, or international markets (e.g., McDonald's opening stores in new global markets; Netflix expanding streaming service distribution into Brazil).

    1. Diversification:

    • Definition: Introducing brand-new products into entirely new markets or lines of business outside current operations.

    • Example: Starbucks acquiring and expanding Ethos Water into retail grocery channels to support clean water development initiatives.

Boston Consulting Group (BCG) Portfolio Matrix

  • Overview:

    • A strategic planning tool used to evaluate an organization's portfolio of SBUs, helping planners determine which business units to invest in, grow, hold, harvest, or divest.

  • Evaluative Criteria (Axes):

    • Market Growth Rate (y-axis): The annual sales growth percentage of the overarching industry or product category in which the SBU competes (not the SBU's internal sales growth rate).

    • Relative Market Share (x-axis): The ratio of an SBU's market share relative to the market share held by its single largest direct competitor.

  • The Four Quadrants:

    1. Stars:

    • Characteristics: High Market Growth Rate, High Relative Market Share.

    • Description: Market leaders operating in rapidly expanding industries.

    • Example: Apple Watch within the wearable technology sector.

    • Strategic Action: Build—Invest heavily to fund rapid growth and maintain competitive leadership.

    1. Cash Cows:

    • Characteristics: Low Market Growth Rate, High Relative Market Share.

    • Description: SBU that generates more cash than required to maintain its market share due to its dominant position in a mature, low-growth industry.

    • Example: Apple iPhone (operating in a saturated smartphone market with an industry growth rate of approximately 4%4\% to 14.3%14.3\%).

    • Strategic Action: Hold—Maintain current market share without injecting excessive new capital; allocate excess generated cash flow to support Stars and Question Marks.

    1. Question Marks (Problem Children):

    • Characteristics: High Market Growth Rate, Low Relative Market Share.

    • Description: SBUs competing in rapidly growing markets that have failed to capture significant market share.

    • Example: Apple TV within the streaming platform industry.

    • Strategic Action: Build (reinvest capital to convert into a Star) OR Harvest/Divest (if competitive positioning cannot be achieved).

    1. Dogs:

    • Characteristics: Low Market Growth Rate, Low Relative Market Share.

    • Description: SBUs with minimal market share operating in stagnant or declining industries.

    • Example: Apple iPod (discontinued product line).

    • Strategic Action: Divest (liquidate or sell off) OR Harvest (gradually phase out).

  • Strategic Resource Allocation Strategies:

    • Build: Inject capital and resources to grow market share (suited for Stars and promising Question Marks).

    • Hold: Preserve market share and optimize cash generation (suited for strong Cash Cows).

    • Harvest: Slowly phase out the SBU over time to maximize short-term cash flow without making further long-term capital investments (suited for Cash Cows late in their product life cycle, Question Marks, or legacy Dogs).

    • Historical Analogy: Tab soda (Coca-Cola's early diet soft drink from the 1980s marketed by Christie Brinkley) was harvested over decades before final discontinuation.

    • Divest: Instantly drop, sell, or liquidate the business unit (suited for unprofitable Dogs and unviable Question Marks).

Practical Application: Portfolio Matrix Case Analysis

  • Hewlett-Packard (HP) SBU Analysis:

    • Fax Machines:

    • Classification: Dog (Low market growth rate, low relative market share).

    • Strategy: Divest or Harvest (phase out gradually as lingering commercial customers transition away).

    • HP Desktop Printers:

    • Classification: Cash Cow (Low market growth rate in a mature category, dominant relative market share).

    • Strategy: Hold (maintain dominant position and use cash flow to fund high-growth divisions).

    • Gaming Systems:

    • Classification: Question Mark / Problem Child (High market growth industry, low relative market share around 5%5\% relative to market leaders).

    • Strategy: Build (invest heavily to capture share) or Divest/Harvest (if capital costs outweigh growth potential).

    • Enterprise Wi-Fi Products:

    • Classification: Star (High market growth industry, leading market share position).

    • Strategy: Build (continue reinvestment to maintain market leadership).

Exam Preparation and Model Drawing Requirements

  • Ansoff's Opportunity Matrix Assessment Format: Tested primarily via multiple-choice and fill-in-the-blank scenario recognition.

  • BCG Portfolio Matrix Assessment Format: Tested via a mandatory application discussion question.

  • Grid Construction Protocol:

    • No pre-drawn grid outlines will be provided on the exam.

    • The entire matrix must be rendered from memory:

    • Y-Axis Label: Market Growth Rate (High/Low) — Memory Rule: "Trees grow UP."

    • X-Axis Label: Relative Market Share (High/Low).

    • Quadrant Identification: Correctly place Stars, Question Marks (Problem Children), Cash Cows, and Dogs.

    • Strategic Moves: List correct corresponding actions (Build, Hold, Harvest, Divest) for each quadrant.