Table of Content
- Business Strategy Definition
- Marketing Strategy
- Classification Of Business Strategies
- Corporate Strategies
- Generic Strategies
- Market Strategies
- Competitive Strategies
- Growth Or Investment Strategies
- Growth matrix strategies in products and markets
- Growth matrix strategies-market share
- Intensive Growth Strategies
- Growth Strategies for Integration
- Growth Strategies for Diversification
- Mix Or Operational Marketing Strategies
Business Strategy Definition
The business strategy becomes the set of actions that lead to the achievement of a sustainable competitive advantage over time and feasible to be defended before the competition, through the harmonization between the resources and capacities existing in the company and its environment, in order to meet the objectives and needs of the various groups participating in the business organization.
In the current circumstances, with a dynamic and changing business environment, it is essential to develop the necessary skills to adapt adequately to change, using the anticipation and ability to generate and promote entrepreneurial ideas, which implies exercising a proactive strategic direction, inventing the business environment and its reality, trying to make the company subsist successfully, instead of towing the events ahead of the foreseeable future.
The innovation of products and / or services is very important, since only by continuously improving them will it be possible to survive in today’s markets, trying to be pioneers in the market with an adequate strategic vision for new products and services.
Within a Marketing Plan it is essential to carry out a systematic planning process or Strategic Plan, which facilitates the subsequent definition of a Marketing Plan in its strategic (long and medium term) and operational (short term or annual) perspectives.
The fundamental thing is to carry out a good corporate strategy, within the strategic plan, that defines the mission, vision and business, to then define the generic, competitive and functional strategies.
The strategies of a company must have the following characteristics:
- They must be the means or forms that allow achieving the objectives; the objectives must be the “ends” and the strategies “the means” that allow them to be achieved (Effectiveness).
- They should guide the achievement of the objectives with the least amount of resources, and in the shortest possible time (Efficiency)
- They must be clear and understandable to everyone.
- They must be aligned and consistent with the values, principles and culture of the company
- They must adequately consider the capacity and resources of the company.
- They must represent a challenge for the company.
- They must be able to execute in a reasonable time.
For an SME, the most suitable strategic approaches are to set customer loyalty as a priority strategic objective, so companies must work on the two basic pillars of the loyalty strategy; Relational marketing while maintaining a good customer relationship strategy and managing perceived value with the commitment to provide the customer with a perceived value that is superior to that of competitors.
We can cite three different approaches to set a strategic competence adopting new positions that attract new customers to the market, using the vision of the future to determine where the opportunities lie and build a range of key factors that will serve as a launching pad for new products and services, namely.
- Internationalization with Business Units reinventing industries and regenerating strategies
- Improving Value Processes through a Process Re-engineering and Continuous Improvement techniques.
- Loyalty to Loyal Customers by restructuring the client portfolio and reducing its size
Classification Of Business Strategies
To review the large number of strategies that have been defined in the course of time, from the so-called art of war to the game of chess itself. Also, for 50 years, numerous strategies oriented to the world of business business have emerged, being its authors John von Neumann, Morgenstern, Steiner, Drucker, Ries, Tout, Senge, Hammer, Yip, Calzon, Hamel, Ansoff, Buzzell, Gale, Sultan, Utteeback, Abernathy, Miles, Snow, Hofer, Schensel, Vesper. Porter, Kotler, Signh, Wissema, Mintzberg, The Boston Consulting Group, Mc Kinsey, Little, Shocron Benmuyal Association, Accenture, Strategos, Galler, Kaplan, Norton etc.
Compiling these strategies from different authors I have dared to proceed to a classification that tries to order them by grouping them into six families of corporate, generic, market, competitive, growth and functional or operational strategies of the marketing mix.
A Corporate Strategy: it consists in making long-range decisions about the company’s scope of action. These decisions are configured around the following three dimensions: vertical, horizontal and geographical.
Vertical Integration Strategy
The vertical dimension includes the successive productive phases that must be carried out to obtain the final product that the consumer purchases. The strategic decisions in this dimension must determine which of these phases are carried out by the company and which do not consist in the grouping within the same company of several consecutive productive processes, although technologically separable, necessary for the production of a good or service. The production of any good or service requires the realization of a series of successive activities that begin with the obtaining of the raw materials and ends with the distribution of the finished goods.
Advantage: better quality, punctuality, use of equipment, space, personal skills and high volume of specialization and efficiency.
Regarding the orientation of the integration there are two types, namely:
- Vertical backward integration: carrying out activities of the vertical chain prior to the essential or main activity of the company, such as asking whether it should directly manage its own sources of raw materials, etc.
- Vertical integration forward: carrying out vertical chain activities after the main activity of the company, such as asking if they should have their own distribution network for their products, etc.
Horizontal Diversification Strategy
The horizontal dimension refers to the number of different businesses in which the company is present. The company diversifies its horizontal scope of activity as it enters new businesses. It represents the business portfolio of a company, that is, the variety of sectors in which it is present and the variety of products offered within each sector.
Advantages: Simplification in management, clarity of objectives, unique image, better knowledge; Disadvantages: greater business risk due to environmental changes, less flexibility and adaptation.
There are two types:
- Related diversification: there is some kind of relationship between business.
- Diversification not related : there is no relationship between business.
Strategy according to geographical scope
The geographical dimension refers to the spatial presence of the company’s activities, being able to be local, regional, national, international and global: It is possible to develop different marketing plans for different geographical areas, and even in one area you can have vigor to a national plan and another regional or local one. In this case, special attention should be paid to coordination so that there are no contradictions between them. This strategy generally occurs when you want to find new markets or increase the number of customers.
- Multinational Strategy:The international sphere must be a source of competitive advantages over national competitors. Internationalization: offer goods and services to new markets, conceiving appropriate, attractive, complete and profitable offers. From the market point of view it is to look for customers and consumers for the company’s products and services abroad. Business internationalization processes tend to encourage the development of all the countries that are involved, since each of them contributes certain resources to the process.
- Transnational Strategy:The objective is to simultaneously achieve global efficiency and adaptation to the needs of each market, flexible coordination. Companies that follow a Transnational Strategy argue that the flow of skills and product offerings should not be in a single way, from the local company to the foreign subsidiary, as in the case of companies that follow an international strategy. On the contrary, the flow must also be from the subsidiary abroad to the local country, and from one foreign subsidiary to another. These companies try to simultaneously achieve advantages of low cost and differentiation, which is not easy because a level of local acceptance capacity increases costs
- Global strategy:Globalization does not mean that companies become multinationals, the key is the approach to national markets, companies consider these national markets as segments of a larger, global market. The competitive advantage of a global approach goes beyond cost advantages, there are strategic advantages. The company manufactures more standardized products worldwide with the aim of achieving global efficiency, high coordination and centralization of decisions at the headquarters to exploit interdependencies, and high intra-business trade.A global strategy can reduce global costs in different ways:
- Economies of Scale: can be done by combining production or other activities for two or more countries.
- Lower factor costs: can be achieved by taking manufacturing or other activities to low-cost countries.
- Concentrated production: means reducing the number of products that are manufactured, from many local models to a few global ones.
- Flexibility: one in which it can be exploited by passing production from one site to another in a short time, in order to take advantage of the lowest cost at any given time.
- Increase in negotiating power: with a strategy that allows production to be transferred between multiple manufacturing sites in different countries.
- Multidomestic Strategy The companies that follow a Multidomestic Strategy tend to establish a complete set of value creation activities, which include Production, Marketing and Research and Development, in any major national market where they conduct their business.
Organizational strategies in business units
Organizational unit, managed with a responsibility according to its position in the organization, which brings together all or most of the basic business functions, directing and coordinating activities related to a product or range of products that meet a specific needs profile from the market or from a geographical area.
Organizational Strategies consist of:
- Establish an international network of business business units
- Continuous training of essential knowledge in each business unit
- Implement horizontal structures matrixed by key processes
- Orient the organization towards a process of proactive and continuous change
On the other hand, the most used strategies to determine which objectives, strategies and budgets should be assigned to each Organization are divided into four possibilities, namely:
- Build: The objective is to increase the market share of the UEN, even if you have to reduce profits to achieve it.
- Maintain : The objective is to keep the UEN participation fee.
- Harvest : The objective is to increase the income of the UEN in the short term, regardless of the long-term effect, this strategy being interesting when you have a confusing future.
- Divest : The objective is to sell or liquidate the business, because resources can be better used at another strategic level.
This strategy will be applied when:
- The company has followed the shrinking strategy, but has not been able to achieve improvements.
- A UEN needs more resources than the company can provide
- A UEN is responsible for the bad results of the company.
- A UEN does not adapt to the company because of markets, customers, managers, employees, values or needs, radically different.
- A large amount of money is required in a short time, and this cannot be obtained from reasonable sources.
- Antitrust laws threaten the company
Negotiation strategies between companies
It is related to the establishment of cooperation agreements with other companies to develop joint projects.
- Strategic alliances.:As a larger number of companies and organizations are created, firms find it too expensive to develop all the capabilities they need, so alliances or knowledge links are created, and this can be tactical and strategic. The company creates a variety of links with customers, suppliers, universities and other bodies, strengthening each other and supporting the long-term objectives of the company, so the links of knowledge are obviously strategic. Companies must strive to find partners to take advantage of their strengths or reduce their weaknesses. To do this, they must establish alliances or well-developed agreements that allow companies to obtain more sales and reduce their costs.Within the field of strategic alliances we can consider four types, namely:
- Alliances to manufacture products or provide service
- Promotional alliances
- Logistics alliances (storage and delivery)
- Collaborations in prices.
- Mergers:It consists of integrating two business organizations forming a single company, usually with loss of legal personality, to achieve economies of scale and scope. It can be done by absorption, pure fusion or with partial contribution of assets.
- Join Ventures:Two parent companies create a daughter company with 50% participation. That daughter company is led by a team that emerged after the agreement that involves some activities and what this company seeks is to achieve a certain objective. The Joint Venture or Shared Risk Strategy is carried out when the benefits for companies are to improve their communications and networks, globalize their operations and reduce their risks. The requirements for success are that each company must provide something distinctive (technology, distribution, basic research or production capacity). The risk is the involuntary transfer of important capabilities or technologies to the other company, which does not include the contract ( for the day-to-day operational treatment). It is convenient to perform a Join Venture when:
- A company partners with another to benefit from the issuance of public shares as a source of capital.
- The distinctive competences of two or more companies complement each other.
- Some project has a very profitable potential, but it requires a huge amount of resources and risks.
- two or more small companies have trouble competing with a large company.
- There is a need to introduce a new technology at full speed.
- Acquisition:This is the purchase of other companies, although it can also be carried out through a participation in another company or creation of a control portfolio, which can be absolute or majority, depending on whether more than 80 or 50% of the capital is acquired Social.
Functional or operational strategies
The functional strategy focuses on how to use and apply resources and skills within each functional area of each business or strategic unit, in order to maximize the productivity of those resources.
A company needs a functional strategy for each important business activity and for each organizational unit, so a business needs as many functional strategies as the number of main activities it has. The functional strategy, even if it has a more limited sphere of action than the business business, adds relevant details to your overall action plan. It aims to establish or strengthen specific competencies and competitive skills calculated to improve its market position. Like the competitive strategy, the functional strategy must support the company’s overall strategy, as well as its competitive approach.
The main responsibility for devising strategies for each of the various business processes and functions is usually delegated to the heads of the respective functional departments and to the administrators of the activities.
For functional strategies to be effective, they must be translated into specific approaches to each activity in the value chain, and resources must be concentrated on key process factors. They can really be considered as the hinge between the global corporate strategy and the action plans for the implementation of the business strategy.
Below we will mention some of the feasible strategic actions for some of the functional areas mentioned:
- Technological Strategy –
- Purchase or development of technologies
- Technological cooperation Strategic Alliances. Acquisitions of innovative companies
- Delimitation of base, key and emerging technologies
- Innovative Strategy Technological leader Innovative offensive
- Leader follower strategy. Innovative Defensive
- Imitation strategy of other companies in a delimited and protected environment.
- Niche technology strategies.
- Opportunistic strategy Find the weakest point of the competitor and start the corresponding activity there.
- Dependent Strategy Stable and lasting relationship with one or more client companies
- Rationalization.Select specific key technologies to maintain competitive position and eliminate other non-defensible ones
- Production Strategy
- Study of the technical process necessary for the development of a new product
- Operating system design. Productive capacity. Production process.
- Programming system and production control..Just-in-time, MRP, TOC, flexible system, continuous process, etc.
- Support technologies CAD, CAM, CIM,…
- TPM Maintenance
- Total quality.TGM
- Human Resources Strategy
- Design of the activities of selection, valuation, remuneration and development of the human factor
- Commitment of all members of the company in a vision of the future and shared value system
- Personnel mobilization in a common direction.
- Establish a motivational and flexible promotion and career plan, with continuous training
- Financial Strategy
- Selection of investments. Renewal. Extension. Replacement.
- Economic-financial positioning. ROI and solvency. Independence Ratio
- Financial structure. How to finance investments in fixed and current assets
- Selection of appropriate funding sources
- Dividend Policy
- Sales staff strategies It is necessary to determine whether a sales staff structure should be incorporated into the marketing plan. In this case it will be necessary to calculate sales estimates; if necessary, links between sales and marketing must be created.
- Expenditure strategies It is necessary to decide whether sales of products, warehouses, geographical regions, or more consumers will be increased or decreased. In many cases it is impossible to increase sales without increasing the budget.
It is possible to talk about the existence of certain priority models that are established in response to environmental conditions, product life, financial criteria, market position, internal capabilities, access to resources, and that define strategic lines.
These alternatives are known by the name of Generic Strategies, a notion that was born in the 80s and guides us, given its descriptive power, about some of the best known types of strategies. The implementation of these generic strategies requires a total commitment and the support of all the organizational elements of the company.
Porter identified three generic strategies that could be used individually or together, to create in the long term that defensible position that exceeded the performance of competitors in an industry. Therefore, we can identify three generic strategies to create a competitive position, make it defensible in the long term and stand out from competitors in the sector.
They can be classified according to the competitive advantage pursued (costs or differentiation) and the breadth of the market to which the company is directed (all or only some segments). This way the three kinds of generic strategy are determined: General Leadership in Costs, Differentiation and High Segmentation or Focus.
It consists of taking offensive or defensive actions to create a long-term defensible position in a sector and successfully face the five competitive forces and stand out above the competitors in the sector.
Differentiation and Cost Leadership strategies are not incompatible, as all the evidence can be combined, there are positive correlations between both types of competitive advantage. Similarly, efforts to differentiate and concentrate the attack on a specific market segment at the same time can be an effective conjunction Combined strategies, in addition to being stronger, make it difficult to be deciphered and copied by competitors.
Each company tries to achieve the three generic strategies so that it can be differentiated by having very low costs and satisfying the needs of each type of consumer or client. Each type of strategy requires a different company structure and even different company cultures.
Usually you have:
- creativity and innovation in the case of differentiation
- The service in the case of specialization
- Standardization and large series in the case of cost leadership
A company must choose which of these possible strategies it needs.
The three generic strategies outlined here belong to the static strategy models that describe the competition at a specific time. They were useful when in the world the changes took place slowly and when the objective was to maintain a competitive advantage. The reality is that the advantages only last until our competitors copy or exceed them. Copied or exceeded the advantages become a cost. The copier or the innovator can only exploit their advantage, for a limited period of time before their competitors react. When competitors react, the original advantage begins to weaken and a new initiative is needed
The Cost Leadership Strategy
This was a very popular strategy in the 70’s, due to the deep-rooted concept of the experience curve. Maintaining the lowest cost against competitors and achieving a high volume of sales was the central theme of the strategy. Therefore the quality, the service, the reduction of costs through greater experience, the efficient construction of economies of scale, the rigid control of costs and, particularly, of the variable costs, were matters of strict and constant scrutiny. If the company had a low cost position, it was expected that this would lead to profit above the industry average and protect it from the five competitive forces.
It originates when a company is able to provide the consumer with a surplus comparable to the rest of its competitors but at a significantly lower cost. Normally, the company that has a cost advantage offers a product with a perceived benefit lower than that of its competitors, that is, at a lower price it supplies a product or service similar to that of the competitors. This strategy really consists in achieving total cost leadership in an industrial sector through a set of policies oriented towards this objective.
In a sector where economic incomes are stagnant and commodity prices tend to grow, it is likely to assume that maintaining a low-cost position can make it possible for the company to obtain higher than average returns. This will allow you to set your prices at the same level or below the competition. To achieve these goals, the structure and culture of the company, as well as the attention of the Directorate, must be oriented to cost control. The greatest risk is that technological changes quickly nullify the advantage obtained and low-cost technology spreads rapidly among competitors. It requires the aggressive construction of facilities capable of producing large volumes efficiently, with great cost reduction based on experience, It is based on the productivity dimension, which is linked to technology, economies of scale and the experience curve. Companies with a high market share can opt for this strategy. The objective of this strategy is to obtain a low unit cost in relation to competitors. The low cost strategy is not only about reducing some costs but also about applying the cost reduction in almost all areas of the company, but without deteriorating the expectation that the client has, nor the essence of the business itself.
This strategy serves as protection against the 5 competitive forces:
- It allows to resist better before the direct competitors in a price competition, and still, obtain a better relative utility
- Strong distributors can only lower the price, to the best placed alternative competitor with the highest unit cost.
- A low cost protects against increased supplier prices and is a barrier to new competitors and substitute products.
The risks of this strategy are:
- That the technological changes annul the advantages obtained by the investments made and by the benefits of the experience curve.
- The diffusion of technology at low cost, among newcomers and imitators.
- The inability to detect in time the changes demanded by the market in products, due to an excess of attention to cost problems
- The relative inflation of the costs of the company, which reduces the spread of margins necessary to be imposed against the competition.
The resources needed to implement this strategy are:
- Continuous Investments
- High technical competence
- Close monitoring of manufacturing and distribution processes
- Standardized products that facilitate production.
The differentiation strategy
A second strategy was to create the product or service something that was perceived throughout the industry as unique. Differentiation was considered as the protective barrier against competition due to brand loyalty, which as a result should produce a lower price sensitivity.
Differentiating meant sacrificing market share and getting involved in expensive activities such as research, product design, high quality materials or increasing customer service. However, this situation of incompatibility with the low cost leadership strategy did not occur in all industries and there were businesses that could compete with low costs and prices comparable to those of the competition.
This differentiation strategyIt is used when a company is able to create more value than competitors by offering a product of greater perceived benefit, incurring a higher cost. Normally, the company that has an advantage in differentiation offers a product at a higher price than the competitors, but with differentiated characteristics by which the consumer is willing to pay that price premium.
Therefore, it consists in creating to make the company perceived as unique in the market. Customer loyalty is pursued, to achieve isolation with respect to competitive rivalry. The challenge is that when a product ceases to be exclusive, it no longer serves the differentiation strategy. Imitations also reduce the impact of this strategy.
Several nuances about the differentiation strategy can be mentioned concluding that there is a differentiation strategy for innovation, marketing, quality and service, through a design, image or brand, technology, customer service, etc.
It produces high margins to deal with the power of the supplier and mitigates the power of the buyer since they lack comparable alternatives and therefore less price sensitive.
The objective of this strategy is to give the product distinctive qualities:
- Important for the buyer.
- That they differ from the competition.
- Submit the demand to the offer.
Some mechanisms to achieve differentiation are:
- Brand image.
- Technological advance recognized.
- Exterior appearance.
- After sales service.
This strategy serves as protection against the 5 competitive forces:
- It allows the direct competitors to resist better by “not being substitutable” for the product, by increasing loyalty, decreasing price sensitivity and improving profitability.
- The entry of new competitors will be more difficult due to customer loyalty
- The higher profitability, supports an increase in supplier prices.
- Distinctive qualities and loyalty, protect from substitute products.
This strategy allows you to place a higher price, which is willing to pay the market, assume the additional costs, which imply the distinctive qualities of the product, achieve a lower price sensitivity, with respect to demand, obtain a higher profitability than the competition.
This strategy is not always compatible with a high market share.
The risks of this strategy are that:
- The price differential necessary to maintain the element of differentiation becomes too high, in relation to the prices of competitors.
- The needs of the buyers for a differentiated product dissipate due to its banalization.
- Imitations reduce the impact of differentiation.
The resources needed to implement this strategy are:
- Investment and skill in operational marketing (advertising).
- Ability to analyze and anticipate the evolution of market needs.
- R&D coordination with production and marketing
The approach strategy or high segmentation
The third strategic one was to focus on a specific group of customers, a segment of the product line or a geographic market. That is, it focuses on the needs of a single market segment, a segment of the product line, or a geographic market. It is based on the premise, which can serve a narrow strategic objective (niche), more effectively or effectively, than competitors that compete more generally.
The company focuses its products on a market segment (niche), so that it can achieve a continuous and growing sales volume in each of them. It seeks to meet the needs of the segment, better than competitors that target the entire market. This strategy allows to obtain a high participation in the chosen segment but low at the level of the total market.
The strategy was based on the premise that the company was in a position to serve a narrower strategic objective more efficiently than competitors with wide coverage. As a result, the company differed by better serving the needs of a specific target market, or reducing costs by serving that market, or both.
This involves focusing in particular on the market on a group of buyers of a segment of the product line or in a geographic market. The company can thus serve its strategic objectives better, more effectively than the competitors that do so in general. Even if the approach does not achieve low cost or differentiation, from the perspective of the market as a whole, it reaches one or both of these positions against the objective of its limited market.
It focuses on the needs of a single market segment, without intending to target the entire market. It seeks to meet the needs of the segment, better than competitors that target the entire market.
This strategy, it implies differentiation or advantage of costs or both, but only with respect to the chosen segment. This strategy allows to obtain a high participation in the chosen segment but low at the level of the total market, with yields higher than the average of its industrial sector.
The risks of this strategy are that:
- The price differential, in relation to non-specialized competing products, may become too important (eliminating the distinctive advantage of costs or differentiation)
- The differences in the desired products or services between the segment and the global market can be dissipated.
- The covered segment can be subdivided into my specialized sub-segments.
The market analysis is adequate to specify the corporate mission, the scope of the business and consider the real and potential substitute products and competitors. However, if we want to specify the company’s commercial policy, it will be necessary to define the groups of consumers or customers that have homogeneous needs within each product-market, that is, consider the segmentation of the product-market unit, defining the target market and its hedging strategy
Market entry strategies
Conduct studies to determine the market to which the product is directed to be able to build specific strategies. We can expand to a new market, focus on a market with great potential, etc.
The market strategies in a broad product-market are:
- The single objective market method : segment the market and choose one of the homogeneous segments, as the firm’s target market.
- The multiple target market method : segment the market and choose two or more segments, each of which will be treated as a separate target market, which needs a different commercial mix.
- the combined target market method : combine two or more sub-markets in a larger target market as the basis for a strategy.
- Another way to guarantee success is to focus on market niches.
A good option is to use Entry Strategies in Foreign Markets, some of which we will mention below:
- Export It is the simplest and most traditional way to begin internationalization. Production is maintained in the country of origin and the product may undergo some transformation if required. This alternative avoids the costs of establishing manufacturing operations and supports the realization of cost savings based on location and experience curve, but has transportation costs and tariff barriers. This type of internationalization is good when: the company is small and has no means to manufacture abroad or there is political risk abroad.
- Licenses – Agreement whereby the licensee buys the rights to manufacture products of a foreign company in his country. The main advantage is that the company does not have to bear the costs and risks of opening, being very attractive for companies that lack capital or do not wish to commit financial resources. They have, however, advantages derived from the lack of control over manufacturing, marketing, strategic functions, not being useful for companies seeking a high degree of coordination and vertical integration.
- Franchises It is used by service companies. The advantages are similar to those of the license having fewer disadvantages since there are no pressures to look for low costs through the experience or location curve, however it does limit global strategic coordination
- Joint-Ventures These are joint ventures that, acting in a foreign country, are not the absolute property of the parent company… This type of company implies a greater commitment with respect to international action than the export or the establishment of contracts, but implies a greater risk and reduced flexibility of behavior. The main advantages are the source of learning, technological and product knowledge, enabling risk sharing; On the other hand, the disadvantages derive from the possible loss of control of knowledge and the lack of strict control over the subsidiary.
- Own subsidiaries They are their own productive units to serve local markets from their own countries. The fundamental difference with companies with joint ventures is that the parent company does have full control over operations, avoiding shared management and lack of flexibility. This alternative is useful when the competitive advantage is based on the control of certain technological skills; however, it is a more expensive alternative and assumes great risks by ignoring the new market.
Basic Strategies of the SWOT analysis
The use of SWOT or SWOT analysis is a good practice to be able to deduce the basic strategies or key factors to increase the competitiveness of a business organization. To do this, it is convenient to cross the results of environmental studies with their threats and opportunities, with the strengths and weaknesses of the organization. Thus we will obtain four types of strategies:
- Defensive Of the crossing of threats with weaknesses
- Adaptive Crossing opportunities with weaknesses
- Reactive Crossing threats with strengths.
- Offensives Crossing opportunities with strengths
Coverage strategies of market segments
The reference market is the most suitable competitive benchmark of the company, the relevant market is that part or segment of the reference market in which the company actually competes. It is not often that a company can operate in all the products-markets that result from the fragmentation of its reference market, rather, it usually does so in a limited plot of it, in the relevant market part.
It is about choosing a target market or set of segments adjusted to the objectives, resources and capabilities of the company.
We will have several alternative strategies of coverage of the reference market, namely:
- Concentration strategy: the company tries to focus on a single product-market as a strategic objective. It is a characteristic strategy of small specialist companies with limited resources.
- Expansion to several segments or product specialist : It consists of specializing in a product and serving various segments with it. Thus we can use a strategy of technological specialization, where the company uses a specific technology that satisfies all groups of buyers who seek the same benefit
- Expansion of the product line or customer specialist. The company is directed with several products, usually belonging to the same line or family of products, to a single segment large enough and profitable not to require others. The company uses a specialization strategy based on the size of the buyers, so which chooses to satisfy a generic need of a single group of buyers in all possible technological forms.
- Differentiation with selective or complete coverage of the reference market : It consists in differentiating the supply of products in order to meet the needs of multiple market segments. With this strategy it is possible to opt for a practically total coverage of the product-market or for a selective specialization.
Creating a unique experience for the consumer is a strategy that has been proven to work and is a safe bet if it is carried out, it is to focus on getting the client to live an exceptional, unique, different experience and that will make him willing even to pay more money for a product or service similar to the one you can find in the competition.
When the needs of the consumers are similar, the size of the small market-product and the simple structure, and a few powerful companies dominate a market of low competitive intensity and high economies of scale in production and marketing, a preference should be given to Mass marketing strategy with full coverage.
Reinvent our business model: On many occasions, we strive to improve our product or service, adding features, functionalities, flavors or textures and yet we do not achieve the intended objectives. There are times when all this does not work and that before continuing along the same path it is advisable to stop and consider what the real business model is that we undertake and try to reinvent ourselves, not focusing on doing better but on doing it differently.
Strategies of the attractive matrix of the market-competitiveness
This attractive-competitiveness matrix, developed by the consulting firm Mc Kinsey and the General Electric company, tries to catalog the company’s products according to a set of criteria based on the profitability used to compare the advantages of investing in a business or other. The MK-GE approach proposes a series of strategies that are considered suitable for each of the nine areas of the matrix in which the business to be considered is located. These strategies are:
- Effort in investment and growth : The products located in this area have the leading position in a very attractive market, which should have priority when allocating resources in order to maximize the unbeatable prospects they have and Hold your strengths.
- Investment and selective growth Due to its average position, the segments with the highest growth should be identified and the investment of sufficient resources to maintain, at least, the current position and solve the weak points. It is located in areas of high and medium attractiveness of the market with medium or strong competitiveness of the company’s products., When the products are located in market segments with an adequate average attractiveness, they must be provided with sufficient funds to maintain and They even exceed their position.
- Opportunistic selection : The products in this area could become the future leaders of the company given the high level of market attractiveness, so it is necessary to select those products that have a greater growth potential to invest and improve their position competitive, giving up those products that are not expected to grow in the future.
- Selectivity: In those businesses in which the competitive position and market attractiveness is average, it is advisable to selectively invest wisely, specializing only in markets that are at least stabilized, being, on the other hand, interesting to carry out actions aimed at concentrating on markets of Medium return and low risk.
- Harvest through invisible tactics. This is the process of controlled divestment by the company, keeping the product at minimum cost levels in the hope of obtaining the highest short-term profitability.
- Protective selection. The strategy for these products must not only allocate resources from other businesses, but not even the total cash flows must be reinvested. These are products located in declining markets, which either seek market gaps for a profitable specialization, or tries to achieve maximum profitability in a short period of time squeezing the market.
- Harvest through visible tactics. The company has certain advantages over the competition, so you must take advantage of them in your divestment process, explicitly considering the exit from the market.
- Quick divestment : Sales or disposal alternatives will be contemplated so that the company’s portfolio and its margin are less damaged as compared to its current buyers. The objective of this strategy is to seek to raise capital for other strategic acquisitions or investments. It may be part of a shrinking strategy, to get rid of unprofitable businesses, that require too much capital or that do not fit the company’s “mission.”
In this matrix, the size of the circle represents the size of the market and the circular sector the market share. Each business is rated in two large dimensions: market attractiveness and competitive position. The success or failure of companies varies to the extent that it is located in attractive markets and possess the competitive advantages to achieve profitability.
The matrix of MK-GE is divided into nine cells and, these, in turn, in three zones according to which the company must invest / grow, selectively seek profits or harvest / divest.
Strategies of the life cycle matrix of the industry-competitive position
These are the so-called organic matrices, developed by Arthur D Little, taking into account the life cycle of the industry and the business organization, establishing the following stages or states for the industry:
- Emerging or newly created or introductory (embryonic) industries, and based on technological innovations, new consumption needs, changes in relative costs and other economic or sociological changes that take the new product or service to the level of commercial opportunity potentially viable.
- Industry growth or strategic sectors constituting continuously rising demand, exploiting sophisticated technology and capital intensive normally tip.
- Mature industries in maturity phase, composed of sectors with mature and widespread technologies, with important market shares and cash flows and which basically supports the creation of the GDP of the country in question.
- Industries in decline or in crisis (aging), integrated by sectors with little future and low profitability, due to obsolete technology and a decreasing demand for the appearance of substitute goods or changes in consumer preferences.
As for the business organization itself, the following will be considered as vital stages of development: Creation, Development, Maturity and Decline.
The criteria used by ADL to explain the competitive position are the following: profitability, degree of vertical integration, level of utilization of productive capacity, protection of products by patents, technological level and cost level.
The use of organic matrices that take into account the stages of the life cycle of the industry or the organization to analyze the competitive positions of the company, in its aspects or criteria of dominant, strong, favorable, sustainable or unfavorable and marginal With the four vital stages of emergency or embryonic growth, maturity and decline or aging, they serve to combine the life cycle with the competitive position and financial situation respectively.
The matrices will always have the life cycle of the industry or the organization in the abscissa axis, in order to have the evaluation of the competitive position or the financial situation of the company in the axis of ordinates.
The construction of the matrix with the axes of the life cycle of the industry and the competitive position of the business will help to choose the strategy that best suits each business, applying a series of basic strategies for each of the possible combinations of the competitive position and the degree of maturity of the industry. In the matrix represented, four basic areas have been materialized, which are usually expressed according to the investment needs to which they give rise, and then be outlined in a table where the strategic actions to be followed are specified in greater detail, so that each strategy report your own level of investment, benefits and risk.
It has been proven that The strategic risk inherent in a business is normally a function of its situation in the product-market evolution matrix. Thus we have that the risk is maximum for units with a marginal competitive position in an industry in its introduction or embryonic stage, and minimum in the case of a business whose competitive position is dominant in a market in its maturity phase.
According to the phases of market evolution we can consider the following basic strategies.
- Consolidate: At the stage of introducing a product into the market, it is essential to design an optimal product for the chosen market, considering whether your destination is to meet the preferences of only a group of consumers with a single-niche strategy, or you can launch two or more products to capture two or more consumer groups with a multi-niche strategy, or, finally, the new product can be designed for the average market consumer with a new market strategy. For SMEs, the strategy of a single niche makes more sense, while for large companies it is better to opt for a mass market by designing an average product in terms of its number of functions. Once the product is launched,
- Maintain: Once the product is consolidated in the market, a phase of growth begins, in which sales will increase, generating benefits to the company, so that what follows is to follow a strategy that allows maintaining the competitive position with respect to the existing competition That may have arisen.
- Select: When the maturity phase of the product’s life is reached, it will happen that the competitors will cover all the main segments of the market and even invade the segments occupied by others, producing a fragmentation of the market, At this time it is convenient to carry out a selection of the most desired attributes by the consumers of the product to proceed to a consolidation of the market caused by the appearance of a new attribute of the product which lengthens the stage of maturity.
- Liquidate: When the market demand for existing products begins to decrease the market will have entered the phase of decline or aging, which will happen well because the total level of needs decreases or because a new technology replaces the existing one. In this case, if the new technology that feeds a new product life cycle is not available, a liquidation or disinvestment strategy must be carried out. The liquidation strategy is to recognize the defeat. Recognizing defeat is an emotionally difficult strategy. It is better to stop operating, than to keep losing money. The settlement must be done when:
- The company has followed the shrinking strategy and the dispossession or divestment strategy and neither has succeeded
- The only other alternative of the company is bankruptcy, since the liquidation allows, in order to obtain as much money as possible for the assets.
- The shareholders of the company can minimize their losses by selling the assets of the company.
- The Combination Strategy (of the previous ones): A company that struggles to survive can use a combination of divestment, liquidation and shrinkage at the same time.
The economic results of a company not only depend on the structural conditions of the industry, but also on its specific ability to create value for the consumer, and this is the competitive strategy, in determining how to create and strengthen the competitiveness of the business to long term.
The competitive activity in the market is materialized in the variety of offers made by the different competitors in order to attract consumers. Each product offered carries an implicit consumer surplus implicitly. The consumer tries to choose that offer that provides a greater surplus.
The creation of value is the fundamental element of the competitive strategy. Having a competitive advantage means being able to create more value than competitors. By creating more value, the company is able to provide the consumer with a surplus equivalent to or greater than that of the competitors, while obtaining a greater benefit. The variables related to the creation of value are the cost and the benefit perceived by the consumer. Both variables determine the two ways in which the company can create value and gain a competitive advantage: reducing costs or increasing the benefit perceived by the consumer.
The analysis of competitiveness allows us to evaluate the importance of competitive advantage in relation to the most dangerous competitors, and identify their competitive behaviors.
If there is great competition in the sector in which we move, we will be obliged to build special strategies towards competitors. These strategies depend on the situation; You can try to establish the product as different from that of the competitors, or differentiate it from the product of a specific competitor, or you can make a special promotion when the arrival of an important competitor is expected, etc.
Strategies according to the role before the competitors
They were competitive strategies created by Kotler and Sisnh in response to the role they play in relation to competitors, since the most appropriate strategies will always depend to a large degree on whether the company is a leader, challenger, follower or specialist in the market.
For Philip Kotler, there are four competitive position strategies, which basically depend on the size of the company and the market position. That is why it does not stop considering factors such as company resources, competition strategies, purchasing behavior of the segment, stage of the product life cycle, as well as the characteristics of the economic situation.
In most industrial sectors there is a company recognized as a leader, which has the largest market share . The leading company, is the one that occupies the dominant position within a market, and is recognized as such by its competitors. It is the reference pole, which competitors try to challenge, attack, imitate or avoid. It is the one that holds the largest market share. Directs other companies in price changes, new product introductions, distribution coverage and communication intensity. Challengers, followers and specialists live challenging their strengths or taking advantage of their weaknesses. Leader strategies are applied in parallel.
In order for the leading or dominant company to remain as number one, it must act on three fronts, expanding total market demand, protecting its current share with defensive and offensive actions and trying to increase the aforementioned market share, even when its size is keep constant.
Then, the market leader faces three fundamental strategic options, namely.
- Total demand expansion through the incorporation of new users, new uses and increased frequency of use
- Expansion of its participation as long as profitability increases and its strategy does not provoke a violent reaction from the remaining competitors or from any force in the environment
- Defense of its current market share trying to neutralize the actions of its competitors.
Large companies attack the entire market, to achieve greater participation and high profitability (ROI), for economies of scale. Small companies obtain high returns (ROI) by targeting narrower segments and developing the tasks of a specialist. Medium-sized companies are the ones with the lowest returns.
- Total market expansion. – The total market expansion occurs in the early stages of the life cycle, when demand is expandable. It is the natural responsibility of the leader to develop global demand. It is achieved through the incorporation of new users, new uses and greater frequency of use:
- Increase in new consumers or occupancy rate (same segments, new segments or new geographical areas). Strategically, strategies for market penetration, market development (new segments or new geographic areas) and product development can be used. Tactically, if a segment does not know the product, the strategies of the communication variable should be used. If you resist the price, you should use the strategies of the price variable and if you require certain attributes or differential benefits, you should use the product strategies
- Increase in average consumption or penetration rate (increase in frequency of consumption and / or increase in volume consumed per occasion). Tactically, if all the benefits offered by the product are unknown, the strategies of the communication variable should be used (it should be educated).
- Increase due to new uses of the product. Strategically, continuous research & development strategies (laboratory, client discoveries) can be used.
- Offensive or Expanding the market share or share Market leaders can increase their profitability by increasing their market share. It deals with the defense of the market position or share with an expansion of the current market share. It seeks to improve profitability, by raising relative market share, due to the effects of the experience curve and economies of scale. It will be applied as long as profitability increases and its strategy does not provoke a violent reaction from the remaining competitors or some other force in the environment. Since the cost derived from the attempt to increase the quota may exceed revenues, before considering this strategy the company should take into account the following three factors:
- The possibility of provoking an antitrust reaction, since competitors are likely to prevent a company from making too many incursions into its market shares, equating this action to a monopoly search.
- The economic cost, since exceeding a limited market share, profitability will begin to decrease.
- Companies, in their attempt to increase their market share, can design an erroneous marketing mix strategy, which will not increase their profits.
- Defensive market share. In addition to expanding the size of the market share, the leading company must continually defend its business from rival attacks. The objective of a defensive strategy is to reduce the probability of attack, divert it to less threatening areas and / or reduce its intensity. The best defense is a good offense. They seek to protect the market share, constraining the action of the most dangerous competitors. It is adopted by innovative companies, which once opened the market, are attacked by impersonating competitors. The mechanisms used by this strategy are:
- Continuous innovation and technological advancement (new products and services).
- Market consolidation through the use of intensive or massive distribution (efficiency).
- Maintenance of low costs and prices in line with consumer value
- Product and / or brand extensions to cover all segments (varieties).
- Product depth to cover all segments (sizes).
- Price and advertising war.
- Blockade of suppliers and distributors to the competition.
The leader must consider which segments to defend, even at the cost of losses, not in the development of innovative ideas about new products, in the service of consumers, in the effectiveness of distribution and in cost reduction, so as to increase continuously its competitiveness and its value for consumers. You can defend all your positions in the market, you must concentrate your resources where it is worthwhile. The leader must not conform to his current state, but must lead the sector.
The market leader must prudently consider which territories to defend, even though this entails a loss and which ones to abandon, since it is not feasible to defend all their positions in the market, having to concentrate its resources where they are most needed.
The primary objective of the defensive strategy is to reduce the probability of attack, divert attacks to less dangerous areas and reduce their intensity.
As defensive market share strategies, we will have the following:
- The Fortified Position It consists in developing an impregnable strength around the actual product or current territory, compromising important resources of the company. In this case the basic idea of defense is to build an invulnerable fortification around the entire territory of the company, although it is prudent that the leading companies not only defend their territory, they must also devote their resources to diversification in other territories.
- The Flanks Defense: It consists of erecting posts, to protect a weak front or to serve as an invasion base for a counterattack. The leading company raises defenses that protect its weak fronts or that serve as a starting point for a counterattack if necessary.
- The Preventive Defense: A more aggressive defense maneuver will be to launch an attack on the enemy before it begins its attack on the company. Therefore, it consists in launching an attack on the followers (potential challengers), before they start an offensive against the company (attack strategy), or a guerrilla action on the market: hitting a competitor here, another there and keep everyone out of reach (attack strategy), or an enveloping attack on the market (enveloping attack strategy). It seeks to minimize the offensive initiative of the competitors and always keep them on the defensive. Preventive strokes have a psychological reward, deter followers from becoming challengers.
- Counteroffensive Defense: Most market leaders respond with a counterattack when they feel attacked. It consists of counterattacking in response to a challenger’s attack. The leader cannot remain passive in the face of a decrease in prices, a lightning war of sales promotion, a product improvement or an invasion of a challenger’s sales territory. The leader may use a frontal attack and / or by the flanks and / or envelope or clamp (attack strategies). Sometimes, it may be worth a small initial setback, to allow the challenging offensive to develop fully before the counterattack. An effective counterattack consists in invading the main territory of the challenger rival,
- The Mobile Defense: The leader’s mobile defense not only implies the aggressive defense of their territory, but also the extension of their territory towards new ones that may be used in the future as defensive or offensive centers. It consists in extending the domain over new territories, which could function as future defensive or offensive centers. It uses market expansion and market diversification as innovation strategies. A company expands through an expansion and diversification of the market. The expansion of the market means that the company is oriented towards the fundamental generic need that satisfies and is involved in R&D in the whole range of technology of that need. Pure diversification is the other alternative, making it in unrelated industries.
- The Contraction Defense planned: The big companies are aware that they cannot defend their entire territory. It consists of renouncing the weakest territories and reallocating resources to the most powerful. It is a movement to consolidate one’s own competitive strength in the market and concentrate resources on strategic positions. It is also called Strategic Withdrawal. The objective of this Shrinking strategy is to strengthen the company’s basic distinctive competence. The actions for shrinkage are:
- Sale of land and buildings.
- Elimination of product lines.
- Closing of marginal businesses
- Closure of obsolete factories.
- Process automation.
- Employee cut.
- Deployment of deep systems for cost control
This shrinking strategy should be performed when:
- The company is one of the weakest competitors in the industry.
- The company is affected by inefficiency, low profitability, low employee mood and shareholder pressure to improve results.
- The company has not been able to capitalize on external opportunities, minimize external threats, take advantage of internal forces and overcome internal weaknesses.
- The company has grown so much and so fast that a major internal reorganization is needed.
In general terms, the companies that dominate a market are strong, especially in one or two segments, which will be those that defend with greater zeal, which implies that they leave other segments with less protection, which will allow the use of attack tactics. The challenging companies try to aggressively expand their market share by attacking the leader, companies below this or existing companies in the market, being able to choose between a wide range of strategic options with different types of attack. Normally they are the companies that occupy the second, third or lower positions in an industry. These companies can opt for two different positions: attack the leader and other competitors (challengers) or continue on their own path without disturbing (followers).
The challenger’s strategies are aggressive strategies against the leader, whose objective is to improve market share or defeat it.The first thing a challenger must do is define a strategic objective, deciding who to attack to increase their market share. The decisions that a challenger must make are:
What size of competitor to attack and who?
- Attack on the market leader: It is a highly dangerous strategy, but it is also the most profitable… It makes sense if the leader does not serve the market well. The key to the decision is the analysis of the need or dissatisfaction of consumers. The alternative strategy is to overcome the innovation leader. These companies tend to suffer from obsolete products, too high prices and customer dissatisfaction for many other reasons.
- Attack on competitors of the same size: It makes sense when competitors do not work well or do not have adequate financing. The key to the decision is the analysis of consumer satisfaction and the potential for innovation.
- Attack on smaller competitors in the market: These are local and regional companies. It makes sense when competitors do not work well or do not have adequate financing. Absorption is the alternative strategy to improve market share
Which or which of the 5 attack strategies to use? Once the opponent and the strategic objective have been defined, the following attack strategies may be used :
- Frontal Attack This tactic of frontal attacks tries to compete directly with the competitor that dominates the market, with its own characteristics and its own weapons. It consists of a direct attack on the opponent with all the forces (resources). Strengths and not weaknesses are attacked. The result will be a function of the forces (resources), duration and resistance. There are two types of frontal attack: pure and modified.
- In the pure frontal attack, it directly confronts the products, advertising, price and other variables of the opponent’s marketing mix. To be successful, the challenger requires some advantage over the competitor, and deploy 3 to 1 potential resources.
- In the modified frontal attack, where the attacking company matches the competitor in all aspects, but offers a difference in prices as a central element to cause the change of supplier. Therefore, he faces the opponent directly, lowering the price. It is successful, if the opponent also does not decrease the price and if the market is convinced to have a product equal to or greater than that of the competitor. The price-modified frontal attack is based on the fact that greater market share will lead to lower costs due to economies of scale.
- In the focused frontal attack instead of facing the competitor in the entire market, the attacking company focuses, with similar products and prices, on some important clients and tries to take them away from the competitor.
- In the innovative frontal attack in which the attacking company focuses on its ability to introduce constant and significant improvements in its products.
- Attack on the flanks: Flanking tactics consist of attacking competitors in areas or segments of the market where they show greater signs of weakness, or preferably, in areas or segments where their presence is very small or non-existent.. It is based on the pure marketing philosophy about the discovery of needs and their satisfaction, in the best possible way. It is more likely to succeed than the frontal attack. It is a strategy that revolves around a central market need, neglected by competitors. The purpose of this tactic is to confront one’s own strengths with the weaknesses of the companies that are already in the market that are intended to penetrate, for which the development of an area or market niche that serves as a “head” is sought. of beach ”in enemy territory, and then launch a frontal attack on the heart of the market. An opponent is less secure on the flanks (sides) and rear, than in the front where the attack awaits. The “blind sides” or weak points, are the natural targets for the attack. Weaknesses are attacked and not strengths. A frontal attack may appear, but the real attack may be carried out on the flanks (sides) or in the rear, taking the opponent off guard (turning maneuver). The attack on the flanks (sides) is used when there are fewer resources than the opponent. It may be an attack on a geographical segment or a segment of needs, which leaders or competitors do not attend to or serve poorly. In the It may be an attack on a geographical segment or a segment of needs, which leaders or competitors do not attend to or serve poorly. In the It may be an attack on a geographical segment or a segment of needs, which leaders or competitors do not attend to or serve poorly. In the Geographic flanking attacks are neglected geographical areas by large competitors. In the flanking by segments, the attack focuses on a segment of the market that is not being properly served because it shows very own characteristics and needs that are not being adequately satisfied by products that target the largest segments of the market.
- Surround attack: These enveloping tactics are implemented by attacking enemy positions on different fronts and with different weapons. Its objective is to surround the enemy in order to force the competitor to disperse their resources and efforts, so that the attacker makes sure that may not take retaliatory actions or significant counterattacks. It seeks to capture a greater proportion of the opponent’s territory, through a broad “lightning attack.” It consists in the launching of a great offensive on several fronts, which will lead the opponent to defend himself both frontally, as on the flanks (sides) and in the rear at the same time. Everything offered by the opponent and more will be offered to the market, so that he cannot refuse the offer. A greater amount of resources is required than the opponent. It is used when it is considered that a rapid and massive attack will break the opponent. For an enveloping attack to succeed, the challenger requires 3 to 1 potential resources on the opponent. There are two basic types of enveloping tactics:
- Envelope against the product: it is based on entering the market with a wide variety of qualities, styles and characteristics to oppose the product line of the attacked competitor, thereby expanding the existing offer in the market.
- Envelope against the market. In this case, the attacking companies enter the market with products aimed at all segments, including both the main core of the market, as well as the less important segments and even the adjacent markets.
- Deviation Attack: Deviation tactics are based on the criterion that one way to compete is not to compete. It is the most indirect attack strategy. It means ignoring the opponent and attacking easier markets, to increase resources. The company that enters the market decides not to compete directly with competitors, in any of its markets or segments, and directs its efforts towards one of the following options:
- Development of new products
- Diversification to participate with unrelated products
- Participate in different geographic markets
It is achieved through:
- Pure diversification (unrelated products).
- The development of new geographic markets.
- The shift to superior technology, to replace current market products (innovation), and then perform a frontal attack. The strategy of adoption of new technologies is currently used in high-tech industries.
- Guerrilla Attack It is a strategy for smaller and less resourceful competitors. It consists of launching small intermittent attacks, on different territories of the opponent, in order to annoy and demoralize it, to gain a permanent “beach head” in narrow territories. The key to this strategy is that the opponent’s resource drain must be greater than that of the attacker. The most commonly used means are price decreases and intense public-promotional campaigns. The two alternatives of guerrilla attack are:
- Few major attacks
- Many minor continuous attacks, creates a greater cumulative impact, in terms of disorganization and confusion in the opponent. It is more effective to attack small, isolated and weakly defended markets. It is an expensive strategy, not of “low resources” in financial terms, but less than a frontal attack, of flanks (sides) or envelope. It is more a preparation for “war” than a war in itself.
The guerrilla tactic finally has as its main purpose:
- Harass and demoralize the enemy
- Divert attention while preparing a major attack
- Drain competitor’s resources
The strategies mentioned are very broad and include a series of specific attack strategies such as.
- Discount strategy: The challenger can sell comparable products, but at a lower price.
- Strategy with cheaper products: A product of medium-low quality is offered at a much lower price.
- Strategy with prestigious products: The challenger launches a high quality product and establishes a price even higher than the leader.
- Product proliferation strategy: The challenging company can attack the leader with a broader offer, offering a wider field of choice to consumers.
- Product innovation strategy: The challenger follows a product innovation strategy to attack the leader
- Service improvement strategy: The challenger offers new or better services to its customers.
- Innovation strategy in distribution The challenging company develops a new distribution channel.
- Operational cost reduction strategy: The challenger can reduce its production costs through a more efficient supply strategy, lower personnel costs or more modern production equipment.
- Advertising investment strategy: The challenger attacks the leader by increasing his investment in promotions and advertising
The challenger rarely increases its market share by applying only one of the aforementioned attack strategies. Its success depends on the combination of a series of strategies aimed at improving the company’s position in the market over time.
Many companies prefer to follow than challenge the market leader. Followers are the companies that play the leader’s rules and do not bother him. The strategy is based on the fact that an imitation of products can be as profitable as an innovative one, because it does not have to bear the sunk costs of R&D, nor those of market education. In oligopolistic industrial sectors with high levels of capital, with homogeneous products, with few opportunities for differentiation and with comparable service qualities, price sensitivity is high, which raises the probability of a price war in the face of an attack: the shares of Market show high stability in these markets. The followers, should retain their customers and know when to win a fair proportion of new customers, should try to provide distinctive advantages to their markets: location, services and financing. They are a target, of attack for the challengers. The follower should try to keep production costs low and the quality of the product and service high, as well as try to enter new markets when they open, which does not mean being passive or a copy of the leader.The follower must define a growth trajectory that does not invite reprisals from the leader.Four types of specific strategies can be distinguished for follower companies, namely:
- The Clone Strategy: Emula products, distribution, advertising and other variables of the leader. It does not give rise to anything, acts as a parasite of the leader’s investments. It is a “forger”, which produces copies of the leader’s product.
- The Strategy of the Imitator: Copy some things from the leader, but maintain the differentiation in terms of packaging, advertising, prices and other variables. The leader does not worry about the imitator, as long as he does not attack it aggressively
- The Adapter Strategy: Take the leader’s products, adapt them and sometimes improve them. You can choose to sell to markets other than the leader, to avoid a confrontation
- The strategy of the Counterfeit: Double the product and packaging of the leader and sell it through the black market or distributors of very doubtful reputation.
Specialist in niches
It is based on the saying: «Mouse head and not lion’s tail». It is another alternative for a follower. It is to be a leader, but, in a small market segment, (niche ). Generally, small businesses try to avoid more powerful ones by targeting small markets that interest them little or nothing. Avoid competing with large companies, by setting small goals or, no interest for them. One way to guarantee success is to focus on market niches. He is interested in one or several niches, which are not served by large companies.
The niche must have:
- Sufficient size and purchasing power, to be profitable
- Growth potential
- Disinterest for potential competitors
- The company must have the skills and resources to serve it in a superior way
Niche specialists can achieve high profitability with low participation in the total market. The reason is that the specialist ends up knowing the clients so well that he meets their needs better than the mass competitors. The specialist company achieves a higher margin. The mass company achieves a greater volume.
Niche specialists have three tasks: create, expand and protect niches.
The risk of the strategy is that niches can be depleted, weakened or attacked. Niche specialist companies must continuously create new niches. Multiple niches are preferable to unique niches, because they increase the chances of survival.
Strategies of the matrix of competitive advantages
A company should always try to differentiate itself significantly from the competition. The BCG (Boston Consulting Group) designed a set of four types of sectors based on the number of possible competitive advantages or sources of differentiation and their importance or potential as a competitive advantage.
The defined sectors are:
- Fragmented sectors: They are those in which companies can find many opportunities for differentiation, but each of them is unimportant. They are usually many small or medium-sized companies, in which none acquires a dominant position (restoration, fashion, furniture) with what will be difficult to acquire. There will be businesses with good or bad profitability depending on their relative advantages, significant positions. Here we will have a transformation strategy through which a company will be able to create restructuring conditions for the sector in question.
- Specialization sectors: These are those in which companies find many opportunities for differentiation, and each of them provides good results. There are multiple competitive strategies based on differentiation (software, training), which allows some important competitive advantage to be achieved for any company… In this type of sector, small businesses can be as profitable as large ones. Profitability is usually linked to small units that distinguish themselves from their competitors through a clear differentiation in their niche market.
- Sectors of stagnation: They are those in neutral, in which there are few competitive advantages and which are also of little importance. There is very little chance of improving results, although it can change through collaboration between companies or external regulation. An example is the steel industry, where it is difficult to differentiate the product or reduce production costs. Profitability is little related to market penetration. The differences between industries and sectors are very small because of few advantages between them.
- Volume sectors: Are those in which companies can obtain only a few competitive advantages, but of great importance. The cost advantage is decisive in this case, with size being a key factor (automobile, appliances). In this type of sector, profitability correlates positively with the size of the company and its market share, the advantages derived from economies of scale being important…
Competitive strategies for adapting to market changes
-These competitive strategies of Miles and Snow are characterized by a different form of adaptation to market changes, the company expressing its entrepreneurial spirit and emphasis on the development of markets and products. Thus we will have the following four types of strategy:
- Prospector or Explorer: Typical at the stage of introduction into the industry of a new product. The company is characterized by the following premises.
- It is permanently active in the search for new opportunities
- It aims to be a pioneer in new products and in reaching new market segments, even if high returns are not obtained.
- It operates within a broad development of its reference market, which also periodically redefines.
- Analyzer: In use especially in the stage of growth of the life of a product. Characterizing in:
- It focuses on maintaining your core business, even if you give up the launch of new products and 7 or the exploration of new markets.
- Make more moderate changes than in the prospector stage in redefining your reference market
- Try to maintain a stable and limited line of products and services, while betting on the development of a select group of promising products.
- In dynamic markets they are followers of the innovative ones and in mature markets they try to be efficient and prudent.
- Defender: Preferably used in the maturity phase of the life of a product. In this strategy its characteristics are:
- Try to get and maintain a safe and stable position in the products in your portfolio.
- It concentrates its efforts on increasing efficiency by optimizing internal operations with low costs.
- Offers a relatively limited range of products
- It does not lead any technological progress in its industrial sector.
- It tends to ignore changes not directly related to its area of operations.
- Reactive: Typical strategy within the phase of decline or aging of a product. It is characterized in:
- It lacks any competitive strategy.
- Its market orientation is very weak.
- Reliable to the risks inherent in the development of a new product and market.
- It does not show proactivity or aggressiveness in its commercial strategy
- It does not act on its environment, since it only reacts when it is pressed by it.
When the business is not going well, sales fail, poor organization, bad management, economic crisis, may be due to internal factors or external factors. Although the company has only one activity, it is clear that it wants to continue with it and that is why it tries to redirect it. If we are interested in business continuity, we proceed with: sanitation strategy. If we are not interested, we can consider harvest, divestment or liquidation strategies.
These are three strategies that are adopted considering the amount of resources allocated to divestment, namely:
- Sanitation or maintenance strategy It implies the maintenance of the position reached in the corresponding product-market. It is located at an intermediate point between investment and divestment. It will consist in curbing the decline in sales and profits, and attempts will be made to redirect the management to put the company in conditions to resume its growth. The following should be done:
- Cost reduction.
- Elimination and resignation of assets.
- Renegotiate debts.
- Management changes
- Restructuring of the organization.
- Harvest strategy: It is halfway between sustaining the situation and elimination, moving towards the rapid recovery of investments made and obtaining cash surpluses, thereby reducing investments and operating expenses to a minimum. This harvest can be fast or slow, where the first implies a strong reduction in operating expenses and a minimization of the amounts to be invested in the business. The slow harvest implies a sharp decline in long-term investment, in production and R&D, and a slow withdrawal of resources in areas such as marketing and services. It is about reducing investments in an activity to reduce costs and generate cash flows that support activities with more future. Long and medium term support is withdrawn but not short term. The harvest strategy is indicated in the following circumstances:
- When, despite investments in a product, money is being lost and there are few prospects for change
- If you are making money, but future prospects are not attractive, or they fit the long-term objectives of the organization.
- When the product is approaching obsolescence and has a limited temporary future.
- Divestment or liquidation strategy: Disinvestment is about the sale of a part of the company or activities to find resources in activities with higher expectations. Smaller dimension that allows its relaunch. This strategy involves a restructuring of the company. In the case of the liquidation strategy, it implies the cessation of the activity because it is not possible with the company, because in case of doing so the loss experienced would be greater. The difficulties are usually the possession of specific assets, interrelationships between the different parts of the company and resistance by managers. The circumstances that favor the elimination of products from a company’s catalog is the decrease in sales,
Growth Or Investment Strategies
In the embryonic stage of the life cycle of the industry, all companies (strong or weak competitive position), emphasize the development of a distinctive skill so the investment needs are greater. The purpose of this strategy is to generate market share by developing a stable and exclusive competitive advantage that attracts customers, it will be the success or failure of management.
For Philip Kotler, there are 3 types of growth opportunities. The cost and benefit analysis allows to determine the most convenient strategy for the product and the brand. Growth is also necessary, in order to survive the attacks of competition, due to the economies of scale and the experience curve that can be achieved. They seek to grow within the current business of the company They seek to grow within the reference market in which the company operates. It is used when the opportunities offered by the products available and the markets it covers have not been fully exploited.
Growth matrix strategies in products and markets
The problem is how to carry out the growth, for which the use of the Ansoff Growth Matrix can be useful. Structure the different types of strategies, whose objective is growth, depending on the product offered (current or new) and the market on which it is acted (current or new).According to the Ansoff Growth Matrix, if the organization wishes to grow, you must decide what the product mix should be – markets you want to work on
- Grow with current products and in current markets: increasing sales volume to your current customers or finding new customers for your products in the same segment.
- Grow in new markets with current products: a great skill in the Marketing area is required.
- Grow with new products in today’s markets: requires R&D area skills.
- Growing with new products towards new markets: occurs to organizations that do not visualize opportunities in their markets.
Below is a power point representation of the application of the Ansoff matrix in a carpentry company, defining growth strategies in its products and markets.
Growth matrix strategies-market share
The growth-market share matrix, conceived by the North American consulting firm Boston Consulting Group is one of the first instruments created to facilitate the strategic analysis of the different products that constitute the portfolio of a company. This matrix develops a graphic scheme, where without losing the individuality of each product, it is possible to verify the effect achieved by all the other products in the portfolio, in order to help the distribution of resources among the different products. It is based on the hypothesis that financial or flows cash movements are related to the market situation, ie depending on the relative market share and growth rate of the market, interacting, thus market variables with varying financial.
In the matrix the vertical axis represents the degree of attractiveness measured by the market growth rate and the horizontal axis will be the competitiveness measured as the market share, taking the value of the market share with respect to the most important competitor or market leader. If the market is very fragmented, the relative share of the three main competitors is calculated.
The growth rate of the vertical axis reflects the growth in sales volume of the market in which the company operates. The position on the matrix indicates the strategy to follow since it will allow to appreciate the financial needs and the potential for profitability.
The company’s products are positioned in the matrix through circles whose diameter must be proportional to the sales with respect to the total products represented, finally configuring a graph with four quadrants with their respective strategies, namely:
- Star Products: The appropriate strategies will protect the possession of the market share by reinvesting the benefits in the form of price reductions, improvements in product quality, increased market coverage or emphasis on communication policies.
- Products Cows or cash generators: These will not need major reinvestment to maintain their competitive position, being the main support to finance the research and development department. Strategies should be aimed at maintaining their market dominance, including the investments in technology necessary to sustain their leadership.
- Disaster Products: In this case of products with low growth and low participation, the following types of strategies should be considered:
- focus on a specific segment of the market that can be dominated and protected from tougher competition.
- Follow a strategy to minimize costs and maximize cash flows for the life of the product
- Divest by selling the business or some of its products or brands to other companies
- Leaving or eliminating the product line in a serious situation
- Dilemma Products: The best strategy, in this case, would be to make an investment of resources in order to expand market share, which will have to move these products to the star quadrant, although, if this is not feasible, it is possible to consider the abandonment of the business by going to any of the actions indicated above.
Intensive Growth Strategies
In the case of companies that already have an implementation in a market, they can implement certain strategies aimed at finding these new opportunities. Basically we can cite four different strategies to focus that search.
- The first strategy would be the development of products, it is intended to achieve more market or access markets that were previously not reached through the improvement of previous products, improved products, or through the sale of products that change the meaning and conception of the benefits to consumers, which would lead us to innovative products.
- Another strategy is the development of markets, basically taking the business towards geographical areas, types of consumers or market segments that had not been worked on until now.
- The third is market penetration, this is a business expansion strategy that is based on trying to increase the degree of penetration or participation in our target market through an additional dedication of our resources, increasing the degree of commitment of the company in the same type of business to which it was dedicated
- Finally, we can find new business opportunities through diversification, that is, to move towards business models, markets, or activities different from the usual ones. This strategy is usually the most convenient in times of crisis and turbulent changes.
In two power point representations that I include below I try to schematize the competitive strategies, considering the study of the strategic axes and defining the growth and diversification strategies with a matrix of new and current products and markets to establish market penetration strategies, expansion of the same, diversification and development of new products. It also presents a table of the classification of competitive strategies in their different phases, citing those of external and internal growth in their respective expansion or diversification of products or markets.
Market Penetration Strategy
It consists of increasing the participation in the markets in which it operates and with the current products. They seek to increase sales of current products in current markets. The mechanisms to achieve market penetration are:
- The development of primary demand is achieved:
- Increasing the penetration rate. The increase in the penetration rate is to achieve a higher volume of consumption per occasion and / or a higher frequency of consumption in current customers, through new uses of the product.
- Increasing the occupancy rate. The increase in the occupancy rate is to attract new customers who are not consumers of the product, through the increase in advertising, sales promotion and / or the price decrease.
- Increase in market share, attracting customers from the competition.
- The increase in market share, attracting customers from the competition is achieved:
- Increasing the exclusivity rate. This is achieved:
- When there is no brand loyalty in the competition.
- Improving the product and service offered.
- Repositioning the brand.
- Reducing the price
- Strengthening the distribution network.
- Using sales promotions
This strategy is used in non-expandable markets and / or at the stage of maturity of the life cycle.
- Acquisition of markets: The acquisition of markets seeks to increase market share, through:
- The purchase of a competing company (horizontal integration)
- The creation of a joint venture (joint venture or joint venture)
- Defense of the position in the market: The defense of the market position is achieved:
- Improving the product and repositioning it-
- With a defensive price strategy (low price)
- Strengthening the distribution network.
- Strengthening or redirecting sales promotions.
- Reorganization of the distribution channel: to serve underserved markets. The reorganization of the distribution channel, to serve underserved markets is achieved:
- Using more effective distributors.
- Setting minimum quantities per order to intermediaries
- The reorganization of the market: to improve profitability is achieved:
- Focusing on the most profitable segments.
- Reducing the number of customers, eliminating the unprofitable.
- Selectively abandoning unprofitable segments.
It will be applied when:
- The current markets are not saturated with the service product.
- You can increase the usage rate of current customers (penetration rate).
- The market share of competitors has decreased and the market has grown.
- The correlation of sales in currency and expenses in the marketing mix variables has been historically high.
- Increasing economies of scale offers important competitive advantages
Basic Market Development Strategies
This strategy involves looking for new applications for the product that capture other market segments than the current ones in marketing the product in other geographical areas. It seeks to increase market share, with current products in new markets. The analysis to define the defensible advantage is:
- What are the key success factors in the product-market?
- What are the company’s strengths and weaknesses in relation to these factors?
- What are the strengths and weaknesses of the company versus the competitors in relation to those same factors?
Thus, the company can:
- Evaluate the nature of the advantage, in relation to the best placed competitor
- Create a distinctive competitive advantage, defensible, durable, sustainable, maintainable and non-reversible.
- Try to neutralize the competitive advantage of the competition
The three mechanisms to achieve development for markets are:
- Entrance to new areas, regions or countries. The entry to new areas, regions or countries is achieved:
- Through local distributors and / or tradings
- Creating your own distribution network
- Through the purchase of a foreign company, which operates in the same sector (vertical and / or horizontal integration)
- Creation of new objective segments. The creation of new objective segments is achieved:
- Selling the product to another group of buyers, positioning it differently.
- Developing new categories in the product line
- Introducing an industrial product in a consumer market
- Introducing the product in another industrial sector
- Development of new distribution channels. The development of new distribution channels is achieved:
- Developing an intensive distribution (direct or indirect or mixed), selective or exclusive.
- Creating a franchise network.
Market development strategies rely mainly on the distribution and marketing of the company.
This strategy is applied when:
- There are new distribution channels that are reliable, cheap and of good quality.
- There are new markets that have not been touched or are not saturated.
- The company has the capital and human resources necessary to manage expanded operations.
- The company has excessive production capacity.
- The company’s basic industry is acquiring global reach at high speed
Product Development Strategy
The company can launch new products that replace the current ones or develop new models that involve improvements or variations. It seeks to increase market share, with new products in today’s markets. They seek to increase sales, developing improved or new products in today’s markets.
The seven mechanisms to achieve product development are:
- Modification or adaptation of current products, with new features or attributes. , You get:
- Increasing versatility with new functions.
- Adding social or emotional value.
- Improving safety or comfort.
- Extension of the product mix with new products. The extension of the product mix with new products is achieved by:
- New models or shapes (line extension, multiple brands or new brands).
- New sizes (presentations).
- Several versions in flavors, smells, colors (line extension).
- New packaging
- Rejuvenation of the product line, restoring functional or technological competitiveness. The rejuvenation of the product line, restoring functional or technological competitiveness, is achieved:
- Generating more powerful products.
- Launching organic products.
- Improving aesthetics
- Development of new innovative products. The development of new innovative products is achieved:
- Developing new products, which will jump radically to the competition (frog jump strategy)
- Creation of different quality levels, for different segments. The creation of different quality levels, for different segments, is achieved:
- Determining the range of attributes desired by consumers.
- Establishing quality standards for each attribute.
- Establishing a quality control program.
- Acquisition of a product line by buying from a competitor (horizontal integration). The acquisition of a product line, buying from a competitor (horizontal integration), is achieved:
- Buying a company with a line of complementary products (horizontal integration).
- Subcontracting maquila to sell with the own brand.
- With the creation of a joint venture (joint venture or joint venture)
- Rationalization of a product mix to improve profitability. The rationalization of a product mix to improve profitability is achieved:
- Focusing on the most profitable products.
- Reducing the number of products, eliminating the unprofitable
- Selectively abandoning unprofitable products.
The levers used in this strategy are research and development, product policy and segmentation analysis.
Product Development is done when:
- The company has products that are in the maturity stage of the product life cycle.
- The company competes in an industry that is characterized by the speed of technological advances.
- Competitors offer better quality products at comparable prices.
- The company competes in a high growth industry.
- The company has a very solid capacity for research and development
Specific product development strategies
They may be the following:
- Offer maximum product quality: Penetrate the mind of the consumer and leave a mark of the brand, it is the objective of any marketing department, although that destination has different paths, and one of them is to associate our brand with the image of quality, so that just thinking about it, the client does not need to provide more information about it. There are customers who want the best and only the best, and if we give it to them we will have captive and addicted customers to our brand…
- New product development strategy: To do this you will have to:
- Be innovative : Innovation, innovation, innovation. In some companies this is a maxim that pursues them in any approach because they have assumed it as one of their competitive advantages, and if we wanted to put a name to this concept, Sony is one of the brands that we could say that has adopted this principle with more assiduity over time. If the customer perceives that our brand is constantly launching products that represent a step forward, it associates it, and reinforces it against the competition. And this does not mean that we talk only about technology products, but that it is applicable to any sector and to any type of company.
- Be the best in Design: This strategy is based on something as simple as that there are kind of people who not only like and prefer, but they need be close and live with appliances and elements that are well designed. It is a reality and you have to take advantage of it, because there is a market for products with design.
Growth Strategies for Integration
They seek to grow, either with their own structure or through the acquisition of companies, through businesses related to current businesses. The principle that sustains them, is that sometimes, sales and profits can be increased within the same industrial branch.
They are justified, if profitability can be improved, controlling different activities of strategic importance in their current industrial sector.
There are three integration strategies, which are set out below:
Upward Integration Strategies (Regressive or Backward)
They seek to stabilize and protect the source and supply costs of strategic importance. They are necessary, if the suppliers do not have resources or technological knowledge, for the manufacture of the components or materials.
Backward disintegration makes sense in industries with global sources of supply. Globalization has led companies to reduce their number of suppliers and demand higher levels of services and quality. Today, companies have fewer suppliers with closer and lasting relationships, since keeping track of so many is very expensive.
Mergers, acquisitions and removals allow increasing economies of scale and improving the transfer of resources and skills.
This strategy will be applied when:
- Current suppliers are expensive, unreliable or unable to meet the needs of the company in terms of manufacturing parts or component parts, processing or processing materials and raw materials.
- There are not many suppliers and if there are many competitors.
- The company competes in an industry that is growing at high speed (the risk is that if the basic industry fails, the company will have implicitly decreased its diversification capacity).
- The company has the necessary human and capital resources to manage the new business of supplying its own inputs.
- The advantages of having stable prices are many (the company can improve its input costs)
- Current suppliers have high profit margins (the company could profitably manufacture its products and put more competitive prices on them).
- The company needs to acquire a high-speed input that it needs
Progressive Integration Strategy (Forward or Downward)
They seek to ensure control of the distribution channel, without which the company could be suffocated. With this strategy the total profitability of the company could be increased.
In the consumer markets a franchise system, an exclusivity contract or a network of own points of sale could be used. An objective of this strategy could be to achieve better information and understanding of the needs and behaviors of consumers.
In industrial markets, the goal is to take care of the transformation or incorporation down.
Franchises are one of the effective and common ways to apply this strategy. these allow business to expand rapidly and distribute costs and opportunities among several people.
Your application will be made when:
- The company’s current distributors are too expensive, unreliable or unable to meet the company’s distribution needs.
- The existence of good distributors, is so limited, that it offers a competitive advantage to companies that integrate forward.
- The company competes in an industry that is growing and is expected to continue growing a lot (the risk is that if the basic industry fails, the company will have implicitly decreased its diversification capacity).
- The company has the necessary human and capital resources to manage the new business, for the distribution of its own products.
- The advantages of having a stable production are many (the company can improve the forecasts of the demand of its products).
- Current distributors and retailers have high profit margins (the company could profitably distribute its own products and put more competitive prices on them).
Horizontal Integration Strategies
Seeks to strengthen the competitive position, absorbing or controlling some competitors:
To do this, you will use the following mechanisms:
- Neutralizing a competitor that hinders.
- Reaching the optimum point to obtain the effects of economies of scale.
- Benefiting from complementary product lines
- Looking to have access to distribution networks or market segments
It will be applied when:
- The company can acquire monopolistic characteristics in an area or region, without being affected by the antitrust law.
- The company computes in an industry that is growing.
- Economies of scale produce important competitive advantages.
- The company has capital and human talent to manage the expanded company.
- Competitors are failing because of the lack of administrative experience or because they need certain resources that the company does have (not that they are failing because industry sales decrease).
Growth Strategies for Diversification
One can grow, through businesses unrelated to those currently in the company. They are justified, when good opportunities can be found outside of current business (a combination of attractive industry and company strengths). Thus we have that if in the current industrial sector there are no opportunities for growth or profitability, it is because:
- There is a dominant position of competition.
- The market is in decline.
- It seeks to disperse or reduce the risk of the company
The diversification growth strategies are:
The Concentric or Proximity Diversification Strategy
It is based on taking advantage of the technical, commercial, etc., experience of the company to guide its investments in one direction or another, towards products and markets closer to the current ones.
With the same infrastructure and / or technology, new products are developed, aimed at them or new customers. It leaves its industrial and commercial sector to add new, but complementary activities in the technological and / or commercial level. It benefits from the synergy of the complement of activities, also attracting new buyers.
This strategy is taken into account when:
- The company competes in an industry that grows slowly or does not grow.
- When adding new, but related, products can be offered at very competitive prices.
- New, but related, products have seasonal sales levels that balance the company’s existing highs and lows.
- The company’s products are in the stage of product life cycle decline.
- The company has a solid management team.
The Strategy of Simple Diversification or reinforcement
New products with new technologies in new markets or in which the company has no experience. With other infrastructure and / or current technology, new products are developed, aimed at current customers. Horizontal development can be done with similar products in new markets or vertical integration with new products in similar markets.
This strategy can be divided into two facets, namely.
- Horizontal development strategy Represents the development of the company through products made with technologies similar to the current one, with which the company can offer a range of improved, differentiated, or new products, but within a productive chain.
- Vertical integration strategy This strategy is based on the concept of market internalization and the way to eliminate competitors in intermediate activities, in order to strengthen the strategic position and soften the risk.
It will be taken into account when:
- The company’s revenues rise significantly due to the increase in new products.
- The company competes in a very competitive and / or growthless industry (low margin and profit industry).
- Current distribution channels can be used to market new products to current customers.
- New products have anti-cyclic sales patterns, compared to current products.
The Conglomerate or Total Diversification Strategy
It is the most ambitious alternative with more risk since in this diversification the company can lose its identity with respect to its main field of activity, acting in totally different products and markets. It is usually produced by an external growth process, based on mergers and absorption rather than internal growth. With other infrastructure and/or technology and with another commercial activity, different from the current ones, new products are developed aimed at other clients. Enter new activities, unrelated to their traditional activities, both technologically and commercially. Seeks to rejuvenate the portfolio of activities. It is the most risky and complex strategy.
Peter Drucker believes that the success of a diversification strategy is the existence of a common point between the new activity and the current activity, whether market, technology or production processes
The logical mechanisms of the diversification strategy are:
- Defensive strategic objective: Replace a declining activity.
- Strategic offensive objective: Conquer new positions.
- Expected results of economic value: Growth, Profitability.
- Expected results of coherence or complementarity: Know-How.
It will be done when:
- The basic industry of the company is registering less and less annual sales and profits.
- The company has capital and managerial talent to compete successfully in a new industry.
- The company has the opportunity to buy an unrelated business that seems an attractive opportunity to invest
- There is financial synergy between the acquiring and the acquiring company.
- Existing markets for the company’s current products are saturated.
- The company can be accused of monopolistic acts
International Diversification Strategy
Any of the above diversification strategies is complemented by international diversification, which simply represents the development of the company’s economic activity in other countries.
It can be done with direct or indirect investment strategies, based on Join-ventures or with equity participations and creation of subsidiaries with absolute control or indirectly, through contractual systems that do not require a capital investment, as you can be via patents, technical assistance, concessions, franchises, etc.
Mix Or Operational Marketing Strategies
This strategic level is the last to consider as continuity the selected strategies and their projection towards the internal organization of the company, selecting the marketing mix tools, which in each specific case and always depending on the strategic objectives set, are more effective and suitable for its realization.
For better management of marketing strategies, these are usually divided or classified into strategies aimed at four aspects or elements of a business: strategies for the product, strategies for the price, strategies for distribution, and strategies for promotion or communication. Set of elements known as the 4 Ps or the marketing mix (or mix).
Let’s see some examples of marketing strategies that we can apply for each element that makes up the marketing mix:
Streamline the product range
Alternative uses of the product, or methods to encourage loyalty can be studied. More efficient ways of manufacturing the product and methods to increase its profitability should be sought. The packaging is another point to consider, a change in the packaging can help rejuvenate the product.
The product is the good or service that we offer or sell to consumers.
Some strategies that we can design related to the product are:
- include new features to the product, for example, give new improvements, new utilities, new functions, new uses.
- include new attributes to the product, for example, give it a new design, new packaging, new colors, new logo.
- launch a new product line, for example, if our product is jeans for ladies, we can choose to launch a line of shoes for ladies.
- expand our product line, for example, increase the menu of our restaurant, or take out a new type of shampoo for another type of hair.
- launch a new brand (without having to take the one we already have out of the market), for example, a new brand dedicated to another type of market, for example, one with greater purchasing power.
- include new additional services that give the customer greater enjoyment of the product, for example, include home delivery, installation service, new guarantees, new payment facilities, more advice on purchasing.
The value proposition
As Michael Porter reminds us, the competitive strategy is to be different. It means deliberately choosing a different set of activities to provide a unique mix of value. A value proposition is a business strategy that maximizes demand through optimally configuring supply.
Select and rank the specific elements of a product or service that are most valued by demand, making them affordable according to the capabilities of the company that offers them.
A properly structured value proposition goes beyond the simplicity of “generating added value” without order or hierarchy of elements. It recognizes that there are elements that generate value that are essential but unattractive, where complying with them does not represent any merit in the eyes of the lawsuit but its absence is seriously penalized. It assigns its fair value to differentiation and makes positioning sustainable. It locates elements promoting the loyalty of the target group, truly effective in the long term and not precisely focused on reward programs. With all this, it makes a precise selection of value generating elements, to make an optimally valuable proposal for the clientele.
The value proposition work method recognizes that in a competitive environment, the offer must be directed to a target market, not to an indistinct market segment, nor to the entire potential market. In the design of a value proposition, market segmentation processes are used in geographic, demographic terms to link them to those groups of people where the possibilities of commercial success are maximized by finding affinity and relevance between the interests of the demand and the supply capabilities.
The value proposition is also a strategic approach and therefore synthesizes findings to focus supply activity towards the most useful elements while simplifying purchase decisions for demand. By reducing the complexity and number of alternatives in purchasing decisions, the value of the offer is increased.
The customer value proposition defines the company in the eyes of the customer. Value proposals dictate what activities should be carried out, the same being the basic ingredients to obtain competitive advantages that create value for customers.
Then you have to:
- find out which customers to serve, and improve the value of the products and services we offer
- align customers with value propositions and with the power of strong competitive advantages and processes involved.
- Think like customers, to decide which market niche to attack, making sure to deliver more value than the competition
From the perspective of value propositions to customers we can consider three different strategies to follow:
- Product leadership
- Operational excellence
- Customer Linkage
In the power point slide that I include, we specify the characteristics, types of clients according to the value proposition, the most relevant activities and the management indicators or meters for each of the strategies mentioned above.
Create a unique experience for the consumer
Another strategy that has been proven to work and is a safe bet if it is carried out, is to focus on getting the client to live an exceptional, unique, different and unique experience. That will make you willing to pay even more money for a product or service similar to what you can find in the competition.
Market research strategies
Improve the product, take out new products, evaluate the product, see what people want, it is essential for a company to remain competitive or get it done; Therefore market research is the engine to ensure the perpetual success of the company.
The price is the monetary value that we assign to our products when offering them to consumers. One factor to consider is whether lower or higher prices will be set than those of the competition; Both strategies can produce satisfactory results. You can also determine if prices will be the same in different geographical areas.
Some strategies that we can design related to price are:
- launch a new product with a low price, so that, in this way, we can achieve rapid penetration, rapid reception, or we can make it quickly known.
- launch a new product with a high price, so that, in this way, we can take advantage of purchases made as a product of novelty, or so that we can create a sense of quality.
- reduce the price of a product below the competition, so that, in this way, we can attract a larger clientele. Or we can block it and win the market.
They are the strategies of penetration, distribution and coverage. This strategy is developed in a different way depending on whether it is a sale to retailers, a mass product or a company with industrial customers. It is necessary to determine in which area the efforts should be redoubled, and if new warehouses, the means of transport, the desired coverage, adequate penetration in the existing and new markets, etc. are needed.
The distribution consists in the selection of the places or points of sale where our products will be offered or sold to consumers, as well as in determining the way in which the products will be transferred to said places or points of sale.
Some strategies that we can apply related to distribution are:
- Offer our products via Internet, phone calls, mailing, home views.
- make use of intermediaries and, thus, achieve greater coverage of our products or increase our points of sale.
- locate our products in all the points of sale and for having (intensive distribution strategy).
- locate our products only at the points of sale that are convenient for the type of product we sell (selective distribution strategy).
- locate our products only at a point of sale that is exclusive (exclusive distribution strategy).
Strategies for promotion or communication
People have to know your product, because if you don’t know your product, nobody will know that it exists and therefore nobody will buy it. The promotion consists of communicating, informing, making known or reminding the existence of a product to consumers, as well as persuading, stimulating, motivating or inducing its purchase, acquisition, consumption or use.
The promotions are made to cover specific needs in a limited period of time. There are many ways to promote your product. Some strategies that we can apply related to the promotion are:
- Ad strategies: It is necessary to fully define the type of ads and communication that is intended to be established, if the idea is to obtain benefits in the short or long term, if it is to be identified by price, any specific advantage, exclusivity, etc.
- Place advertisements on company vehicles, or on public transport vehicles.
- Create traditional or electronic newsletters.
- publish ads in newspapers, magazines or the Internet
- Advertising strategies: You must determine if an advertising campaign is going to be carried out, of what type, etc. If it is possible to replace a promotion with an advertising campaign, or it is possible to adapt a promotion to generate advertising, create signs, panels, posters, posters, brochures, catalogs, flyers or business cards.
- Create new offers such as the 2 x1, or to be able to purchase a second product at half price for the purchase of the first.
- Offer coupons or discount codes.
- give gifts for the purchase of certain products.
- Offer quantity discounts or seasonal discounts.
- organize raffles or contests among our clients
- Participate in fairs.
- put tasting stations
- Organize events or activities.
- sponsor someone, some institution or some other company.
Next we will quote the nine Specific Strategies of Operational or Tactical Marketing to carry out the five Attack Strategies that we mentioned above, namely:
- Price Discount Strategy: It consists of selling a comparable product at a lower price. For it to work, the challenger must convince customers that the product or service is comparable to that of the leader. Customers must be sensitive to price differences and not be loyal to the current supplier. The market leader must refuse to lower the price despite the attack
- Cheaper Goods Strategy: It consists of offering a product of average or lower quality at a much lower price. It works when there is a sufficient segment of buyers interested only in the price. The risk is that they can be attacked by cheaper goods companies. The defense to this situation is to try to improve the quality over time.
- Prestige Assets Strategy: It consists of launching a higher quality product and charging a higher price than the leader. Then, some companies launch lower priced products to take advantage of their charisma.
- Product Proliferation Strategy: It consists in launching a greater quantity of products, offering greater options to the client
- Product Innovation Strategy: It consists in developing innovative products that surpass the leader (frog jump strategy). The innovation strategy is the one that most benefits the consumer.
- Enhanced Services Strategy: It consists of offering new or better customer services.
- Distribution Innovation Strategy: It consists in discovering or developing a new distribution channel.
- Production Cost Reduction Strategy: It consists in looking for lower production costs than competitors, through more efficient acquisitions, lower labor costs and more modern reduction equipment. The lower costs allow you to assign more aggressive prices and gain greater market share.
- Intensive Advertising Promotion Strategy: It consists in raising advertising and promotion expenses. It is not a demand-sensitive strategy unless the product or advertising message shows superiority over the competition.