The process of developing or formulating effective strategies looks at the situation as presented by the information we have. We then need to consider what the most effective strategies will be.
Levels of Organisational Strategy
Strategy for small organisations is a relatively simple matter as there is usually only one market/offer involved. As organisations become larger and more diversified in their activities, we find that strategic development occurs at three different levels.
The corporate-level strategy is a set of action plans and corresponding corporate-level goals. Corporate-level goals and action plans are expressed in terms of the firm’s collection of subsidiaries.
Strategic Business Unit (SBU) strategy is the managerial action plan for directing and running a particular business unit. SBU strategy deals with:
In contrast with the other levels of strategy, functional strategies serve as guidelines for the managers of each of the organisations departments (e.g. Production, Finance, and Marketing).
Operational strategies (Tactics)
This refers to how executives within each department (e.g. Sales Managers, Brand managers; Advertising Managers) plan to implement the Functional Level strategy (Refer to Section 7 on Implementation)
Generic Business Strategies
According to Michael Porter, superior value is created in three generic ways:
(1) by having a cost leadership advantage over competitors
(2) by using some differentiating technique to provide a “better” value offering.
(3) by focusing on what one does better than the competition
A Cost Leadership advantage is achieved when an organisation’s costs are lower than competitors’ costs.’ A cost leadership advantage generates superior profitability when buyers consider the firm s value offering to be comparable to the value offerings of competitors (so under-pricing competitors is not necessary to win sales).
There are two ways to pursue a cost advantage: (1) do a better job of controlling the cost driver’s vis-à-vis competitors; and (2) revamp the makeup of the activity-cost chain by doing things differently and saving enough in the process that customers can be supplied more cheaply.
Successful differentiation requires being unique at something buyers consider valuable.’ When differentiation offers value to the customer, it yields competitive advantage.
Successful differentiation allows an organisation to:
(1) Command a premium price; and/or
(2) Sell more units of its value offering at a given price; and/or
(3) Realise greater degrees of buyer loyalty.
Differentiation and the value of brand names
The value of the brand image also becomes an important element of the augmented offer. Brands are a major determining element in the repeat purchase of consumer value offerings, industrial value offerings, and an important way of adding differentiation at the augmented level. Value is added through the creation of brand image. The owners of strong brand names can command higher prices for their offerings.
A focuser excels in serving the target segment. A focuser can gain a segment-based competitive advantage whenever differences across segments make it more costly for broadly targeted competitors to meet the specific needs of buyers in the focuser’s target segments at the same time they are trying to serve other specific needs of buyers in other segments. This is the condition that makes focusing really attractive. A good focus strategy generally assumes that each organisation has a different focus, that no two organisations will focus in the same way in the same market.
Survival as a Basic Strategy
Although seldom recognised in strategy texts, an obvious criterion of organisational strength is the ability to survive.
We can develop a concept that success is based on two essential factors:
- Starting (being in the competition) and
- Finishing (surviving the competitive process)
Market Dominance Strategy
Typically there are four types of market dominance strategies that a marketer will consider: There are market leader, market challenger, market follower, and market nicher.
The market leader is dominant in its industry. It has substantial market share and extensive distribution arrangements. It is typically the industry leader in developing innovative new products and business methods.
Of the four dominance strategies, it has the most flexibility in crafting strategy. However it is in a very visible position and can be the target of competitive threats and government anti-combines actions.
Research (the PIMs study in the 1970s) concluded that market leadership was the most profitable strategy in most industries. Today we recognise that other strategies can also be effective.
The main options available to market leaders are:
- Expand the total market by finding new users or new uses of the product
- Expand the total market by encouraging more usage on each use occasion
- Protecting market share by developing new product ideas, improving customer service
- improving distribution effectiveness
- Expanding market share by targeting one or more competitors
A market challenger is an organisation a strong, but not dominant position that is following an aggressive strategy of trying to gain market share. It typically targets the industry leader.
The main principles involved are:
- Assess the strength of the target competitor.
- Understand the (amount of support) that the target can might muster.
- Choose only one target at a time.
- Find a weakness in the target’s position.
- Consider how long it will take for the target to realign their resources so as to reinforce this weak spot.
- Launch the attack on as narrow a front as possible. Whereas a defender must defend all their borders, an attacker has the advantage of being able to concentrate their forces at one place.
- Launch the attack quickly, and then consolidate.
- Some of the options open to a market challenger are:
- Discounting or price cutting
- Product line extensions
- New product introduction
- Increase product quality
- Improve service
- Find new distribution channels
- Improve and intensify promotional activity
A market follower is an organisation in a strong, but not dominant position that is content to stay at that position. The rationale is that by developing strategies parallel to those of the market leader, they will gain a good share of the market while being exposed to very little risk. This is a “play it safe” strategy. The advantages of this strategy are:
- No expensive R&D failures
- Being able to capitalise on the promotional activities of the market leader
- Low risk of competitive attack
- Save money avoiding a head-on battle with the market leader
Market specialist or nicher
In this niche strategy the firm concentrates on a select few target segments. This is also called a focus strategy. The objective is focusing marketing efforts on one or two narrow market segments and tailoring the marketing mix, the organisation can better meet the needs of that target market. The firm typically looks to gain a competitive advantage through effectiveness rather than efficiency. The most successful nichers tend to have the following characteristics:
- They tend to be in high value added industries and are able to obtain high margins.
- They tend to be highly focussed on a specific market segment.
- They tend to market high end products and are able to use a premium pricing strategy.
Strategic Considerations in the Product Life Cycle
Stages of the product life cycle
|Effects and responses||Introduction||Growth||Maturity||Decline|
|Competition||Generally none of importance||Emulators emerge.||Many rivals||Fewer in number with a rapid shakeout of weak members|
|Overall strategy||Market establishment; persuade early adopters to try the product||Market penetration; persuade mass market to prefer the brand||Defence of brand position; check the inroads of competition.||Probable preparations for removal; milk the brand|
|Profits||Limited due to development, high production and marketing costs||Reach peak levels as a result of high prices and growing demand,||Increasing competition cuts into profit margins and ultimately into total profits||Declining volume pushes costs up. If competition limited and demand remains substantial, a possibility for higher prices.|
|Selling (retail) prices||If competition is low and demand high prices can be high (skimming), If competition is keen or demand low, prices are likely to be low (penetration pricing)||High, to take ad vantage of good buyer demand||What the traffic will bear.||See above or low enough to permit quick liquidation of inventory|
|Distribution||Selective, as distribution is slowly built up.||Growing rapidly, employ trade discounts to gain more shelf space.||Intensive; heavy trade allowances||Selective;|
|Aim at the needs of early adopters and key target segments.
High, to generate awareness and interest among early adopters and persuade dealers to stock the brand
|Make more target segments aware of and build preference for the brand. Generate momentum and word-of-
|Most buyers are aware of brand characteristics. Use advertising as
a vehicle for differentiation among other wise similar brand benefits
|Minimum expenditures required .Focus on loyal users (Direct marketing)|
|Sales Promotion||Heavy, to entice target segments with samples, coupons, and other inducements to try the brand||Moderate, to create brand preference (advertising is better suited to do this job||Heavy, to encourage brand switching, hoping to convert some buyers into loyal users||Focus on Direct Marketing and website.|