strategic-management

142 PART 2 • STRATEGY FORMULATION
• When the market shares of major competitors have been declining while total
industry sales have been increasing.
• When the correlation between dollar sales and dollar marketing expenditures historically
has been high.
• When increased economies of scale provide major competitive advantages.
Market Development
Market development involves introducing present products or services into new geographic
areas. For example, Retailers such as Wal-Mart Stores, Carrefour SA, and Tesco PLC are
expanding further into China in 2009/2010 even in a world of slumping sales. Tesco is
opening fewer stores in Britain to divert capital expenditures to China. French hypermarket
chain Carrefour is opening 28 stores in China in 2009, up from 22 in 2008. Wal-Mart
opened 30 stores in China in 2008 and plans to nearly double that number in 2009. Wal-
Mart had roughly 250 stores in China at year-end 2009. Housing goods giant Ikea plans to
build two more stores in China in 2009 to have eight stores total. All of these market development
strategies come in the face of a slowing Chinese economy and faltering consumer
confidence among Chinese consumers.
Delta Air Lines in 2009 began serving 15 new international destinations as part of a
strategy by the Atlanta-based carrier to derive more traffic from international routes. This
market development strategy is being implemented largely by deploying its recently
acquired Northwest Airlines big jets from unprofitable domestic routes to global routes,
especially into Asia, where Delta previously had only a few routes.
PepsiCo Inc. is spending $1 billion in China from 2009 to 2012 to build more plants,
specifically in western and interior areas of China. Also in China, PepsiCo is developing
products tailored to Chinese consumers, building a larger sales force, and expanding
research and development efforts. China is Pepsi’s second-largest beverage market by
volume, behind the United States. Pepsi owns Lay’s potato chips and in China sells the
chips with Beijing duck flavor. Pepsi has 41 percent share of the potato chip market in
China. Pepsi’s new market development strategy is aimed primarily at rival Coke, which
dominates Pepsi in the carbonated-soft-drink sector in China; Coke has a 51.9 percent
share of the market to Pepsi’s 32.6 percent.
Yum! Brands Inc., the parent company of Pizza Hut, KFC, and Taco Bell, recently
said it would open 500 new KFC restaurants in China in 2009. In addition to these stores,
Yum Brands is opening 900 other restaurants outside the United States in 2009. Yum
Brands’ most profitable brand has been Taco Bell, so the company plans to open these
restaurants in both Spain and India in 2009. Taco Bell’s target market is young consumers
ages 16 to 24. The company’s new strategic plan includes selling many if not most of its
stores worldwide to existing franchisees or new investors.
These six guidelines indicate when market development may be an especially
effective strategy: 10
• When new channels of distribution are available that are reliable, inexpensive, and
of good quality.
• When an organization is very successful at what it does.
• When new untapped or unsaturated markets exist.
• When an organization has the needed capital and human resources to manage
expanded operations.
• When an organization has excess production capacity.
• When an organization’s basic industry is rapidly becoming global in scope.
Product Development
Product development is a strategy that seeks increased sales by improving or modifying
present products or services. Product development usually entails large research and development
expenditures. Google’s new Chrome OS operating system illuminates years of
monies spent on product development. Google expects Chrome OS to overtake Microsoft
Windows by 2015.