1.3 The Three Levels of Strategy

To understand marketing strategy, we must first consider the three levels of strategy within a firm or organization. In this section, we present the three levels of strategy along with accompanying questions to highlight the focus of each strategy.

1. Corporate Strategy

What businesses should we be in? At the corporate level, the firm considers the types of business or businesses 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, and Mug Root Beer), juices (Tropicana, Dole, and Naked), performance drinks (Gatorade and 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 and Life), pancake mixes and syrups (Pearl Milling Company), 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.

2. Strategic Business Unit (SBU) Strategy

How do we compete effectively in a given business? Once the firm decides which businesses to include in its portfolio, the next decisions are focused 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 the performance of the company’s strategic business units (SBUs) based on two criteria: market growth rate and relative market share. The vertical axis of the portfolio model shows the annual market growth rate of the SBUs’ industry as a measure of industry attractiveness. On the horizontal axis, relative market share represents the SBUs’ 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:

1. 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.

2. Cash cows. Cash cows are businesses that dominate in slow-growth markets. They typically generate more cash than they need, allowing the companies to allocate resources to other SBUs.

3. Question marks. SBUs in this quadrant have high growth and low market share, which poses 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.

4. 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.

3. Marketing Strategy

How do we orchestrate the marketing mix 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. We will discuss the marketing mix in more depth in the next section.