by M. Dana Baldwin, Senior Consultant

Strategic Planning Expert

In strategic planning, there are five basic strategies one may pursue: Expand, Maintain, Contract, Milk or Withdraw.  The most aggressive strategy is Expand.  What does an Expand strategy encompass?

First, let’s define the Expand strategy so we have a basis on which to base discussion.  The dictionary defines expand as: to increase the extent, number, volume, or scope of, to enlarge. We further define an expand strategy as one in which we are growing significantly faster than the market or market segment is growing overall.

To follow an expand strategy, a company must decide to provide the resources which will support the targeted growth rate.  It implies that the company’s growth will absorb much of the real growth of the markets in which the company is competing.  It also implies that the company is willing to take on competitors in order to take market share from them, in addition to absorbing the growth in the market place itself.

Before we select the expand strategy, we need to look in depth at each market segment to see whether it will qualify for an expand strategy.  What are the requirements that a market segment should have in order to be eligible for an expand strategy?

First, we need to be able to have sufficient resources, both people and money, to properly support the strategy to expand our sales volume in each affected market segment.  An expansion strategy can be quite expensive, and will likely absorb a lot of time of some key people in your company.

Second, it should be in a relatively attractive market.  We use a 3 x 3 matrix to demonstrate how attractive a market segment is, and also how strong a competitor we are relative to our own competition.

When you look at the matrix above, you can readily see that the market attractiveness for the suggested strategy of expand is high.  Notice too, that the competitive strength (vertical axis) may range from being a weak competitor/new entry to being a strong, dominant competitor.  Our goal over time is to move our competitive position up the axis to the strongest possible competitive position.

Often it won’t make a lot of sense to expand in a less attractive market segment.  The one exception for this is in a moderately attractive market in which you are the dominant player.  If the potential for a good long term reward is present in a moderately attractive segment where you are a strong number one, then expand should certainly be considered.

Many companies simply do not have the depth of resources – usually people resources – to support too many expand strategies.  Companies need to select the few markets where they want to expend the resources to significantly gain market share.  Focusing resources is paramount to any plan’s success – so your team should not try to expand in all markets.  Rather, we suggest pick the 2-3 that, given the effort, will deliver the most bang for your buck.  We find that if you force the team to pick only 2-3 expand strategies immediately, a few “winners” will be chosen.  This selection of only a few “expands” helps ensure that a team will be successful on the chosen markets.

In conclusion, an expand strategy is a strong bet on your company’s ability to grab market share at a rate higher than the market is expanding, with the goal of increasing your return on investment over time.  This means you will aim to increase your top line sales and bottom line profits at a rate higher than the additional costs you will be incurring in your expansion efforts.

For detailed directions for using the expand strategy in your Simplified Strategic Planning process go to Simplified Strategic Planning book.

M. Dana Baldwin is a Senior Consultant with Center for Simplified Strategic Planning, Inc. and can be reached at baldwin@cssp.com.

© Copyright 2010 by Center for Simplified Strategic Planning, Inc., Ann Arbor, MI — Reprint permission granted with full attribution.

By Denise Harrison, Vice President

By M. Dana Baldwin, Senior Consultant

Strategic Planning Expert

Pricing can be very tricky in times like the ones we are going through currently.  Too high a price and you can lose considerable volume, customer loyalty and market share.  Too low a price could lead to diminished profits, commoditization of the brand or product/service and lower long term prospects.  The key is to strategically determine the pricing band, which is best for your product/service in light of current conditions.

To do this, you need to determine where your products and services are positioned in your market places.  Each one of your offerings needs to be analyzed in terms of where it is located on a spectrum from pure specialty to pure commodity. 

We define a pure specialty product as one, which is priced to take advantage of the uniqueness of the product or service.  Key characteristics of a specialty product or service include:

• Unique “product” or “packaging” – “packaging” equals services wrapped around the product/service offered
• Market perceives clear superiority of the product or service provided
• Sales result from having the right product at the right price
• Strong margins/profits on each individual sale
• Value-based pricing – taking advantage of what the market and competition will allow to maximize profitability
• Exceed customer requirements – providing the extra services which add perceived value
• High level of customer support – to keep the perception of value valid

By comparison, a commodity product or service has very different characteristics.  They include:

• Little differentiation between products/services offered by all competitors
• Substitutability – One company’s offering is little different from another
• Sales result from low price
• Weak margins/profits due to tight margins
• Competitive pricing in order to gain market share
• Meet customer requirements – no added services can be afforded
• Order taking – because there is no budget for added services

Almost all products and services have some of each characteristic – commodity and specialty.  The challenge is to determine the behavior of the specific product or service in each market in which it competes.  You need to determine where each offering is located on the spectrum between pure commodity and pure specialty.  You also need to determine what the overall characteristics of each market segment are, to see where you are competing.  For example, are you providing a specialty product in a mostly commodity market?  Entirely feasible to do, but you must know this or your pricing could be hurting your profitability by being too low. 

An example of this is windshield washer fluid (appropriate for this time of year).  This is basically a commodity market, with the majority of sales of the blue fluid centered in a narrow band within a few cents of each other.  There is a specialty part of this market, however.  Some people buy the green version, which contains more alcohol and more soap, allowing better functioning at lower temperatures and with the ability to clean the windshield better.  The price of the green fluid is considerably higher, due to the higher performance and specifications.  This green fluid is a specialty item in a mostly commodity market.  If the vendors of the green fluid were to price their product at or near the price of the blue fluid, they would be leaving money on the table.

By properly understanding the positioning of their product, the makers of the green windshield washer fluid can keep their profitability higher and keep their perceived value high to command the higher price. 

Some additional thoughts: 

Pricing policy is one of the most strategic issues that a company can deal with-both for the short term and the long term.  It is tied to market strategy (expand, maintain etc.)  e.g., do we need to buy our way into a market?  Do we need to do some pre-emptive price-cutting to make a market a competitor is eyeing less attractive? 

In custom manufacturing, cost-plus std. margins can be the kiss of death.  You either over-price and lose the business or leave money on the table and get the business. 

Competitive intelligence needs to feed into pricing as well. 

You may want to take a look at Tom Ambler’s 2-part article “Mining Your Unexploited Value”.  It offers a process to address the pricing issue.

M. Dana Baldwin is a Senior Consultant with Center for Simplified Strategic Planning, Inc. and can be reached at baldwin@cssp.com.

© Copyright 2010 by Center for Simplified Strategic Planning, Inc., Ann Arbor, MI — Reprint permission granted with full attribution

Strategic Planning Expert

By M. Dana Baldwin, Senior Consultant

We often get questions asking what the difference is between a Business Plan and a Strategic Plan.  The first difference is there is a significant difference in intent.  A Strategic Plan is focused on improving a company’s performance, exploiting opportunities and building market share.  A Business Plan is most often used at the beginning of a company’s existence to define the initial goals and objectives of the company, its structure and processes, products and services, financial resources, staffing/talent needs and all of the basics which go into forming a company and getting it functioning.

Elements of this plan usually include:

1.      What products and services the company will offer to the marketplace.

2.      What types of customers the company will target

3.      What skills and capabilities the company will need to compete effectively and where the company will obtain those skills and capabilities

4.      Determining trends in the marketplace, and the characteristics of the market segments the company will initially pursue

5.      Developing how you will sell into the market segments you are intending to pursue.  What demographics will you target?  What are their buying behaviors?  How will competition likely react to your company entering these markets?

6.      What will your costs be in each of the parts of the company?  How will you fund them during the start up phase?  What are your first and second year projections for revenues and expenses?  How will you make a profit?

Usually a business plan is an overall guide to setting up your business, although some will use it as a more detailed one year plan based on the Strategic Plan. Often there is considerable overlap between the two plans inasmuch as they will often cover similar ground.  Generally, however, we envision a business plan as the blueprint for setting up your company and getting it started, and a strategic plan as the ongoing game plan to continually improve market share, volume and profitability.

The intent of a strategic plan is to develop a much more targeted vision of where you want to take your business in the future and how you will accomplish your strategies, goals and objectives, once the business is established and ongoing.  Strategic planning is the 30,000 foot view of where we take the company.  In your strategic planning, your focus turns more toward looking at the current situation, analyzing what your strengths and weaknesses are, determining how best to build on your strengths and avoid being trapped by your weaknesses. 

You will look for your strategic competency, which we define as a sustainable competitive advantage built on the skills, processes and knowledge contained within your company.

By building on your strategic competency, making it better and even more effective as a sustainable competitive advantage, you will improve the opportunities to excel as a company, gaining market share and profitability.

All of the elements of strategic planning, starting with your current situation, working through the analyses of your company, your markets, competition, opportunities and finding out where you may have gaps between your current performance and where you should be in the future, lead to the development of logical, attainable (yet ambitious) strategies which will head you toward winning a higher market share and better profits.

M. Dana Baldwin is a Senior Consultant with Center for Simplified Strategic Planning, Inc. and can be reached at baldwin@cssp.com.

© Copyright 2009 by Center for Simplified Strategic Planning, Inc., Ann Arbor, MI — Reprint permission granted with full attribution

By Steve Rutan

The recovery will come.  Regardless of whatever pain and turmoil you may have been through during the last year, you have managed to survive.  It’s time to begin thinking about what you need to do in order to be ready for better times ahead.  While you cannot be sure of the timing, you can prudently prepare yourself for the upswing.  Here are three important actions that you should be taking right now:

1.      Sustain your Marketing Message

2.      Align your Supply Chain

3.      Assess your Human Capital

Consider this recovery planning effort to be the opposite of the contingency planning you do when you are bracing for a downturn.  The potential for increased sales, profits and market share will be realized by those companies that are ready when the party starts.

Sustain Your Marketing Message

It is wise to maintain your marketing efforts during a downturn.  Depending on how hard hit you have been in the last several months, you may have made drastic reductions in your marketing efforts and expenditures.  Regardless of the present condition of your marketing program, it is time now to polish your message and begin to get your customers excited about your products and services again.  Use the resources at your disposal and the weeks or months that remain before the recovery gains serious momentum to renew your customers’ inclination to buy from you. 

Align Your Supply Chain

As they say in business: Timing is everything.  Constantly monitor your prospects for improving sales and strive to completely understand the impact that your supply lead times will have on your ability to satisfy demand as it picks up speed.  You want business to improve; your suppliers are also eager to see you increase your orders.  Spend extra time in contact with your vendors and make sure you are prepared to match your lead times with the pace of increased sales.  The idea here is to make sure you do not drop a single order due to a shortage on the supply side of your business equation.  When the recovery picks up steam, expect that the entire supply chain will need to re-stock inventories to be responsive to rising demand.  Your readiness in this area not only puts you in a position to recover your lost sales, it allows you to gain market share if your competition is not taking similar steps

Assess Your Human Capital

You may still be reeling from the anguish of having released valued long-term employees.  As business picks up, you will be more likely to be in hiring mode again.  With the same energy and analytical skills that you dedicate to examining your physical supply lines and support services, it is time to assess your human capital needs and tune up your recruiting and hiring processes.  There is plenty of talent available in the market right now.  Be ready to support all aspects of your business as the economy and your customers’ activity levels provide you with the confidence to re-load.

If short-term cash flow is still a compelling tactical concern, plan your near-term expenditures around variable costs and minimize your financial risk.  Spend money on activities that are connected directly to near-term sales and profits. 

·        Add marketing money where it is most likely to recapture sales immediately. 

·        Begin to replenish your supplies inventory in those areas that are likely to be translated into sales, cash flow and profits as soon as possible. 

·        Add people to operations processes that will directly contribute to your bottom line. 

By following these three guidelines, you will see the short-term tactical benefits to your business health that will enable you to once again pursue your long-term strategic aspirations.

Steve Rutan is a Senior Consultant with Center for Simplified Strategic Planning, Inc. He can be reached at rutan@cssp.com.