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Directional Policy Matrix

DPM analysis is aimed at determining the appropriate strategic planning goals and the right strategies to achieve those goals across the portfolio of products, strategic business units (SBUs) and markets.


In broad terms, the DPM is a framework and process to review the performance and relative potential of each product/SBU/market and to decide which products/SBUs/markets to:

  • Build/develop further/increase market share of
  • Maintain/resource to keep the status quo or current market share
  • Harvest/sell off or withdraw from having squeezed the last potential sales
  • Divest/drop or exit immediately.

DPM PROCESS
For best results, the DPM analysis should involve marketing, sales and operations managers in both plenary and group sessions. It is very important that all can contribute and thereby all can own the outcomes. In process terms, the DPM analysis involves nine steps.

1. DETERMINE MARKETS
The first step is to define and agree the markets/SBUs/product groups or segments that the business sees itself competing in. This should be heavily informed by the external perception – the customers. For example, in the case of the railway industry in the US market, customers re-defined the market as “transport” when the option of car and air travel became available. Once the markets have been defined, size them in current sales terms and at your future strategic goal date (say three or five years time).

2. DECIDE MARKET ATTRACTIVENESS FACTORS AND 3. WEIGHT/RANK
For each product/SBU/market segment, establish and agree the four key factors that define “attractiveness” relative to the overall market. You then weight their importance and score where these factors are likely to evolve over the planning period. This yields a ranking score, which plots that market on the “attractiveness” axis of the DPM Grid. Figure 5.1 is an example of market attractiveness ranking for a financial services product.

4. DEFINE THE CRITICAL SUCCESS FACTORS FOR MARKET POSITION AND 5. WEIGHT SCORE AND RANK
Decide what the critical success factors are in establishing a strong market position. Again, weight each factor and score it in relation to its evolution over the planning period. This then yields a market position ranking on the horizontal DPM Chart Axis (below). Figure 5.2 shows the market position for the same financial product above.

6. PLOT THE MARKET ATTRACTIVENESS/MARKET POSITIONS ON THE DPM CHART, 7. AGREE PLANNING GOALS,
8. SET OBJECTIVES. 9. DESIGN STRATEGIES.

Once each product/SBU/market segment has been scored and ranked, the results are plotted on the DPM chart. According to where each product/SBU/market segment lands in the nine sectors of the chart, there are planning goals recommended for future evolution. Guided by these planning goals, the management teams then set objectives and define strategies to realise those objectives.

MARKET POSITION
STRATEGIC DIRECTION
Assuming the product/SBU/market segment lands in the Medium Market Attractiveness and Strong Market Position Box, the planning goals become heavy investment in the attractive segments, build up ability to counter the competition and raise productivity to enhance profitability. The key objectives will include annual sales and profitability, and market share. The strategies to achieve these objectives that lead to the goals will be focussed on product (development and competitive insulation), sales process (effectiveness and efficiency), pricing (to maximise margin), image/brand (competitive insulation and to support premium pricing), customer understanding (to accelerate sales process) and service (productivity and competitive insulation). These are the factors assessed as underpinning future strength in market position.

The results of this DPM analysis are then incorporated in the business’s three to five plan and the annual business and marketing plan for execution.

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