8.2 Strategic Positioning: Choosing how to compete (includes Porters 4 generic strategies & Bowman's strategic clock)

Question 1

Porters model

What did he suggest needed to be adopted?

Answer 1

• Suggested four ‘generic’ business strategies can be adopted to gain competitive advantage.
• Strategies relate to the extent to which the scope of a business’ activities are narrow versus broad & extent to which business seeks to differentiate its products.

Question 2

What is the key strategic challenge for most businesses?

Answer 2

Find a way of achieving a sustainable competitive advantage over competing products & firms in a market.

Question 3

What effective strategies did Porter argue would give firms a competitive advantage?

Answer 3

Differentiation & low cost

Question 4

Porter

What is a competitive advantage?

Answer 4

Advantage over competitors gained by offering consumers greater value, either by offering lower prices or providing greater benefits & service that justifies higher prices.

Question 5

What is a businesses strategic position?

Answer 5

How a business perceives itself in relation to its competitors.

Question 6

How can we analyse a businesses strategic positioning?

Answer 6

Using Porter’s strategies & Bowmans strategic clock

Question 7

What did Porters strategies involve?

Answer 7

• Choosing a different set of activities to be able to deliver a unique mix of value relative to competitors.
• This value depends on the combination of benefits relative to the price paid.

Question 8

Porters strategies

What were the two approaches designed to help a business gain a competitive advantage?

Answer 8

• Cost- leadership strategy
• Differentiation strategy

Question 9

Porters strategies

What did Porter highlight that a low cost or differentiation strategy could be aimed at?

Answer 9

The market as a whole (mass), or at a small part (niche) of the market (focus strategy).

Question 10

Porters strategies

What did he describe the amount of the market targeted as ?

Answer 10

The competitive scope of the business!

Question 11

Porters strategies

What does a broad & narrow scope target?

Answer 11

Broad- focus on the target as a whole (mass)

Narrow- Focuses on a niche.

Question 12

What is the cost-leadership strategy?

Answer 12

• With this strategy- the objective is to become the lowest-cost operator.
• This typically involves production on a large scale which enables the business to exploit economies of scale.

Question 13

Why is cost leadership so important?

Answer 13

• Many (perhaps all) market segments in the industry are supplied with the emphasis placed on minimising costs.
• If the achieved selling price can at least equal (or near) the average for the market, then the lowest cost operator producer will (in theory) benefit from the best profits.

Question 14

Cost-leadership strategy

What is this strategy associated with?

Answer 14

• Large scale businesses offering standardised products.
• Relatively little differentiation.

Occasionally low cost retailer- will discount its products to maximise sales - particularly if has a significant cost advantage over competition & in doing so- can further increase its market share.

• Branding = relatively unimportant.

Question 15

How can cost-leadership strategy be achieved?

Answer 15

• High levels of productivity & efficiency.
• High capacity utilisation.
• Economies of scale- use of bargaining power to negotiate the lowest prices for productive inputs.
• Experience.
• Product/process design- Lean production methods (e.g. JIT)
• Access to the widest & most important distribution channels.
• Effective use of technology-in production process.

Question 16

What prices can a cost leader business charge?

Answer 16

Charge similar prices to its competitors to earn higher returns or can reduce prices below competitors & still make the same profit margin as them.

Question 17

Cost focus

What does a business seek?

&

What will the product be like?

Answer 17

• Seeks a lower-cost advantage in just one or a small number of market segments.
• Product will be basic- perhaps a similar product to the high priced & featured market leader, but acceptable to sufficient consumers
• Such products are often called “me toos”

Question 18

What is a differentiation strategy?

Answer 18

Aims to offer a product that is distinctively different from the competition, with the customer valuing that differentiation.

Question 19

Differentiation Leadership strategy

Answer 19

• Business targets much larger markets & aims to achieve competitive advantage through differentiation across the whole of an industry.
• Business provides some degree of uniqueness relative to its competitors, that is sufficiently valued by customers, allowing a price premium to be charged, often to reflect the higher production costs & extra value-added features provided for the consumer.

Question 20

What are the ways to achieve Differentiation Leadership?

Answer 20

• Superior product quality (features, benefits, durability, reliability)
• Branding (strong customer recognition & desire; brand loyalty.)
• Wide distribution across all major channels (i.e. the product or brand is an essential item to be stocked by retailers.)
• Sustained promotion- often dominated by advertising, sponsorship etc.

Question 21

What are examples of differentiated Leadership strategy?

Answer 21

Nike & Mercedes

Question 22

Differentiation focus strategy

What does a business aim to do in this strategy?

Answer 22

• Differentiate within just one or a small number of target market segments.
• The special customer needs of the segment mean that there are opportunities to provide products that are clearly different from competitors who may be targeting a broader group of customers.

Question 23

Differentiation focus strategy

What market is it classically for & how?

Answer 23

Niche maket!

Many small businesses are able to establish themselves in a niche market segment using this strategy, achieving higher prices than un-differentiated products through specialist expertise or other ways to add value for customers.

Question 24

What is Bowmans strategic clock?

Answer 24

A model that explores the options for strategic positioning, i.e. how a product should be positioned to give it the most competitive position in the market.

Question 25

What is the purpose of Bowmans clock?

Answer 25

* To illustrate that a business will have a **variety of options** of how to **position a product** based on **two dimensions**- **price** and **perceived value.** * From this, it is possible to **analyse the strategic positioning** a business has now and where it may want to be in the future.

Question 26

Bowmans strategic clock- what are the names of the different faces on the clock from 1-8?

Answer 26

1. Low price & low added value 2. Low price 3. Hybrid 4. Differentiation 5. Focused Differentiation 6. Risky High Margins 7. Monopoly Pricing 8. Loss of Market Share

Question 27

Bowmans strategic clock- clock positions What is the aim of a differentiation strategy?

Answer 27

* To offer customers the **highest level** of **perceived value.** * **Branding** plays a key role in this strategy, as does **product quality.** * A **high quality product** with **strong brand awareness** and **loyalty** is perhaps best-placed to achieve the relatively prices and added value that a differentiation strategy requires.

Question 28

Position 1- Low price and low value, what is this position like?

Answer 28

* **Not a very competitive** position for a business. * **Product** is **not differentiated** & the **customer** perceives **very little value**, despite a low price. * This is a **bargain basement strategy**. * The only way to remain competitive is to be as ‘cheap as chips’ and hope that no-one else is able to undercut you.

Question 29

Low price position- what is this like?

Answer 29

* Businesses positioning themselves here look to be the **low cost leaders** in a market. * A **strategy** of **cost minimisation** is required for this to be **successful.** * **Profit margins** on each product are **low**, but the **high volume of output** can still generate **high overall profits.** * **Competition** is usually **intense**, involving **price wars.**

Question 30

Hybrid position- position 3 What is this position like?

Answer 30

* Involves some element of **low price** (relative to the competition), but also some **product differentiation.** * Aim is to persuade consumers that there is **good added value** through the combination of a **reasonable price** and **acceptable product differentiation.** * This can be a very effective positioning strategy, particularly if the added value involved is offered consistently.

Question 31

**Differentiation** - position 4- what is it like?

Answer 31

* A differentiation strategy aims to offer customers the **highest level** of **perceived added value.** * **Branding** plays a key role in this strategy, as does product quality. * A **high quality product** with **strong brand awareness** and **loyalty** is perhaps best placed to achieve relative prices and added-value that a differentiation strategy requires.

Question 32

**Focused differentiation**- position **5**- what is this position like?

Answer 32

* This strategy aims to position a product at the **highest price levels**, where customers buy the product because of the **high perceived value.** * Positioning strategy adopted by **luxury brands**, who aim to **achieve premium prices** by highly targeted segmentation, promotion and distribution. * Done successfully, this strategy can lead to very **high profit margins** but only the **very best products** & **brands** can **sustain the strategy** in the **long-term.**

Question 33

**Risky high margins- position 6**- what is this strategy like?

Answer 33

* A **high risk strategy** that will **likely fail** eventually. * Businesses **set high prices** **without** offering **anything extra** in terms of **perceived value.** * If customers continue to buy at these high prices, the profits can be high. * Eventually, customers **will find a better positioned product** that offers more perceived value **for the same or lower price.** * Other than in the short-term, this is an **uncompetitive strategy.**

Question 34

Monopoly pricing- position 7 What is this strategy like?

Answer 34

* Where there a **monopoly** in a market, there is **only one business** offering the product. * Monopolist doesn’t need to be too concerned about what value customer perceives in product- **only choice** they have is to **buy or not.** * There are **NO alternatives**. * In theory the **monopolist** can **set whatever price they wish.** * Fortunately, **monopolies** are usually **tightly regulated** to prevent them from setting prices as they wish.

Question 35

Loss of market share (position 8) What is this strategy?

Answer 35

* **Position** = recipe for **disaster** in any **competitive market.** * Setting a **middle-range or standard price** for a **product** with **low perceived value** is **unlikely to win over many consumers** who will have **much better options** (e.g. higher value for the same price from other competitors.)

Question 36

Evaluating strategic positions using Bowmans clock What are the three positions, 6 & 7 & 8?

Answer 36

**Uncompetitive!!** **Price** is **greater** than **perceived value.** **Providing that the market** is operating **competitively,** there will always be **competitors** that offer a **higher perceived value** for the **same price**, or the **same perceived value** for a **lower price.**

Question 37

What influences a positioning strategy?

Answer 37

Competitors position. External environment. The strengths and competences of the business. The business itself- relates to the size, skills, assets \* culture of the business & its resulting strengths- what it is good at, known for & where wishes to go. Competition

Question 38

How may a business protect its competitive advantage?

Answer 38

Legal protection Control over resources

Question 39

What did John Kay say are the three sources of competitive advantage?

Answer 39

Innovation Architecture- relationships with suppliers & customers Reputation

Question 40

What is the value of different strategic positioning strategies?

Answer 40

* Although the model of Bowman is complex, it gives an insight into the different possibilities available to a business in terms of price & perceived value & enables people to understand trategic positioning. * Porters generic strategies of low cost vs differentiation are perhaps easier to use & may provide a better insight into the business world. * The message from both models is strategic positioning needs to be taken seriously & you need to ensure that the strategy chosen fits clearly with the mission & objectives & with how consumers perceive the organisaton & their expectations.

Question 41

How do the two strategies differ?

Answer 41

## Footnote Unlike Porter, the strategic clock model by Bowman: Focusses on the prices to customers rather than the costs to the organisation. Highlights the full range of options open to a business, whereas Porter’s model provides relatively few distinct choices in terms of strategic positioning.