Lecture 2: Resource allocation

Question 1

what are the 2 dimensions of resource allocation

Answer 1

horizontal and vertical

Question 2

what does horizontal RA consist of

Answer 2

• strategic dimension
• portfolio management

Question 3

horizontal RA

Answer 3

• different products or brands
• most strategic level
• complicated

Question 4

vertical RA

Answer 4

• secondary decisions (i know i want to invest in brand A but how)
• 4Ps are important (should i invest in price reduction or promotional campaigns)

Question 5

why is portfolio management necessary

Answer 5

• avoid cannibalisation
• avoid redundant brands
• don’t forget about old brands

Question 6

types of portfolio management:

Answer 6

• branded house
• house of brands

Question 7

branded house

Answer 7

put the brand name on everything that you do
- eg Virgin

Question 8

branded house disadvantages

Answer 8

• halo effect: if you (dont) like virign you (wont) will buy the other brands
• can only target those that like the Virgin brand
• consist image
• synergy effect

Question 9

branded house advantages

Answer 9

• pour all resources into one big brand and then roll out different categories -> efficient
• consistent image
• synergy effect

Question 10

house of brands

Answer 10

one parent brand that rolls out different brands
- eg P&G, Unilever

Question 11

disadvantage house of brands

Answer 11

• build every brand up from scratch -> more expensive

Question 12

advantage house of brands

Answer 12

• risk management -> if one brand image gets damaged it doesnt affect the other brands
• target different customer segments
• can own both premium and value-driven brands in same category
• can go for brand associations most valuable in every category

Question 13

disadvantage of large brand portfolios eg Unilever or P&G

Answer 13

• fragmentation of marketing resource, opportunity cost
• destroying economies of scale
• management attention dilution
• brand blurring: brands start loosing meaning because they stop serving most important function

Question 14

BCG matrix

Answer 14

• helps managers decide what to invest in and what to deinvest
• profits lag the development of the market

Question 15

relative market share

Answer 15

• horizontal axis
• how do i define the market or segment
• 1 is midpoint = duopoly, 0=monopoly
• high zone = market leaders
• calculated by your market share/ LARGEST competitor market share

Question 16

market growth rate

Answer 16

• vertical axis
• more subjective -> mid point depends on market and industry
• it is the same for all brands in that segment
• is it NOT about how much the brand is growing but about the market
• good to compare matrices over time

Question 17

cash cow

Answer 17

• high RMS, low MG
• in rapidly growing markets, costs are higher and competition is more intense hence CC make more money than stars
• CC are in mature markets hence higher profits
• resources should come from CC and be invested into ? which turn into star or dog.

Question 18

advantages BCG

Answer 18

• easy to perform
• quick overview of strategic positions of business portfolio
• good starting point for more thorough analysis
• everyone known it
• clients expect it

Question 19

evolution BCG

Answer 19

• Stars should become cash cows eventually, that is our goal
• Dogs should be retired, they do not serve a very long-term function and it is usually too late to turn
  them into cash cows
• Dogs can become question marks when the market picks up growth again (they usually grow fastest at
  the beginning)

Question 20

disadvantages BCG

Answer 20

• what about brands on the boundary
• huge impact of market definition
• no dynamic information which is crucial for RA
• MS and industry growth doesnt equal profitability
• defends the cash cow and dotcom mentality
• synergies between units

Question 21

brand renewal matrix

Answer 21

1. identify brand portfolio
2. assess brand contribution
3. asses market position
4. sort by strategic importance
5. brand portfolio plan

Question 22

1. identify brand portfolio

Answer 22

• not as straightforward
• too much focus on prominant brands and risk neglecting older brands, underexploited equities, struggling brands, quasi brands/nicknames, partner brands
• attentional blindness

Question 23

2. assess brand contribution

Answer 23

• how much is it adding to the firm
• Look at P&L table, take contribution after marketing, deduct hidden costs (e.g. overhead, bad PR, management time, complexity of value chain) and add hidden benefits (e.g. supermarkets have to stock Sprite because they want Coca Cola, line extension possibilities)

Question 24

3. assess market position

Answer 24

• sort into problems and opportunities
• brand traction: how strong is a brand today
• brand momentum: where is the brand heading

Question 25

4. sort by strategic imperative