strategic choice
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STRATEGIC CHOICE
How do we get there?What direction should we take?
Need for a strategy/strategies
• No single strategy is the best in all situations and at all times
• Avoid casual bench marking by aligning your strategic choices to your situation
• We need a consistent set of choices/decisions and actions/tactics in order to outwit our rivals
• Without this consistent set of tactics, synergy is lost
Selecting the best Selecting the best strategy that will enable a strategy that will enable a firm achieve its goals.firm achieve its goals.Some strategy options are Some strategy options are more appropriate than more appropriate than others.others.Strategists should Strategists should evaluate the existing evaluate the existing alternatives before alternatives before choosing the best strategychoosing the best strategy
Criteria for evaluation and selection of strategy
•Sustainable competitive advantage
•Corporate goals & objectives
•Organization policies and culture
•Ethical issues•Cost of strategy failure•Feasibility of the strategy
•Stakeholders reactions
The Generic Strategy Alternatives.
Are the common strategic approaches that can give a firm sustainable competitive advantage.
Michael Porter’s approachIgor Ansoff’s approachGlueck’s approachKotler’s approachTailor-made strategies
Michael Porter’s approach
1.Overall cost leadership
2.Differentiation
3.Focus strategy
1.Overall cost leadership:• Aim at being the
lowest cost producer relative to competitors
• Increases a firm’s profitability
• The market can enjoy affordable prices
Making oneself different Making oneself different from othersfrom others
Adding to customers Adding to customers perceived value of the perceived value of the firm and its productsfirm and its products
Calls for continuous Calls for continuous innovations (customer- innovations (customer- centred)centred)
2. Differentiation 2. Differentiation strategy:strategy:
How can a firm differentiateHow can a firm differentiate Image buildingImage buildingHigh quality and High quality and distinctive productsdistinctive products
Superior customer Superior customer servicesservices
Unique design and Unique design and packagingpackaging
Convenient terms to Convenient terms to customerscustomers
3. Focus strategy3. Focus strategy Involves segmenting the Involves segmenting the
marketmarket Focusing on a given Focusing on a given
market segmentmarket segment Calls for specialization in a Calls for specialization in a
specific market segment specific market segment (niche marketing)(niche marketing)
Why focus strategy?Why focus strategy?Different groups of buyers Different groups of buyers with different needswith different needs
No other rival is No other rival is attempting to specialize in attempting to specialize in the same segmentthe same segment
A firm’s resources don’t A firm’s resources don’t allow it to spread over the allow it to spread over the entire segmententire segment
Where some segments are Where some segments are more attractive than othersmore attractive than others
ANSOFF’S APPROACH Provides four
strategic approaches based on product and market information
Came up with the product/market matrix.
Existing Existing ProductsProducts
New New ProductsProducts
ExistiExisting ng MarkMarketsets
Strategies Strategies based on based on existing existing markets markets and and existing existing productsproducts
Strategies Strategies based on based on launching launching new or new or improved improved products products into into existing existing marketsmarkets
New New MarkMarketsets
Strategies Strategies based on based on finding new finding new markets for markets for existing existing productsproducts
Strategies Strategies based on based on launching launching new new products products into new into new marketsmarkets
Existing Products-Existing Existing Products-Existing MarketsMarkets
1.1. Divestiture-It has reached maturity/you need Divestiture-It has reached maturity/you need money for other ventures/in order to money for other ventures/in order to concentrate on your core or more beneficial concentrate on your core or more beneficial businessbusiness
2.2. Consolidation-You are enjoying a comfort Consolidation-You are enjoying a comfort zone/need to go back to the basic (status zone/need to go back to the basic (status quo)quo)
3.3. Retrenchment-You have over expanded or Retrenchment-You have over expanded or diversified ,you need to reduce your diversified ,you need to reduce your operating costs; sell part of the businessoperating costs; sell part of the business
4.4. Market penetration-Enter new markets with Market penetration-Enter new markets with a more attractive offer/buy out your close a more attractive offer/buy out your close rival through say an acquisition/use a rival through say an acquisition/use a strategic alliancestrategic alliance
New products-Existing New products-Existing marketsmarkets
No or less resources needed to develop No or less resources needed to develop the marketthe market
You need to develop a new product or You need to develop a new product or modify the current one for that marketmodify the current one for that market
A product development strategy is the A product development strategy is the best strategy; refer to PLC as you craft best strategy; refer to PLC as you craft this strategythis strategy
Bench-mark this generic strategy and Bench-mark this generic strategy and fine tune it your competitive situationfine tune it your competitive situation
Existing products-New Existing products-New marketsmarkets
No or less resources needed to develop No or less resources needed to develop the productthe product
You need to develop the new market for You need to develop the new market for your product (s) your product (s)
A market development strategy is needed A market development strategy is needed using say; CRM tactics/customer care using say; CRM tactics/customer care practices/taking your products (services) practices/taking your products (services) near your customersnear your customers
Refer to the current stage in the Refer to the current stage in the marketing cycle as you fine tune this marketing cycle as you fine tune this generic strategygeneric strategy
New product-New marketNew product-New market
A lot of risks and uncertainties A lot of risks and uncertainties involved; you need to develop the involved; you need to develop the new product for the new marketnew product for the new market
Minimize such risks through using a Minimize such risks through using a competitive stepping stonecompetitive stepping stone
Commonly used strategies in such Commonly used strategies in such situations include; buying situations include; buying franchises, strategic alliances, and franchises, strategic alliances, and use of pilot projects among othersuse of pilot projects among others
GLUECK’S APPROACH
Stability strategy Expansion strategy Retrenchment strategy
Combination
Stability Strategies:•Strategies pursued with no or few changes made in the firm’s products, markets or functions.
•Ideal for those firms that are already consolidated in the market.
Why stabilize?The strategy is less riskyWhen a firm is doing wellExecutives aren't creative and innovativeFear to disrupt routinesEnvironment is relatively stableFear of inefficiencies due to expansion
Expansion Strategies A firm serves the market with
additional offers, adds to its markets and functions.
Firm increases the pace of its activities
Ideal where a firm wants to improve its growth performance
Why Expand?To survive in a volatile environmentTo provide variety to the marketSign of good performanceNeed to re-invest profitsTo enjoy economies of scaleMotivates the firm
Retrenchment strategies:A firm reduces its product lines,
abandons some market territories, reduces its functions.
Looks like lean management
Firm reduces activities in those units with negative or little cash flows.
The pace of operation and scope of activities greatly reduces.
Why retrench?• The firm is performing poorly
• The firm has tried all strategies and still failed to succeed
• The firm needs funds to pursue better opportunities elsewhere
• Turbulent environment
• External pressure
Combination strategies:
•A firm uses several of the above strategies simultaneously to different portfolios of a firm.
Kotler’s strategies.• Looks at market positions (shares) of
competing firms
• The competitors are at war over these competitive positions
• Different competitive positions require different competitive strategies
• The positions include; market leader, challenger, follower, and nicher mainly
Market leader’s strategies
• Those you lead also want to get where you are and/or even overtake you; you are the target for the challenger’s strategic attacks
• Use strategies that may help you to expand or protect your market share
• The best science and art of war/the general (strategy) depends on your situation at hand in your internal and external environment
a) Expanding your total market
1. Acquisitions and mergers
2. Franchises and/or international trade
3. Increase usage of your products
4. Finding new users/creating new demand
Protecting your market share (strategies involved)
1. Defending your leading position and competitive business walls
2. Pro-reactive protection of your weak flanks/Pre-emptive defending
3. Counter offensive defense
4. Enter new markets for future defense
5. Strategic withdrawal
Exhibit 17.9
Strategic Choices for Share Leaders in Growth Markets
COMPETITOROR
POTENTIALCOMPETITOR
Contractionor strategicwithdrawal
Market expansion
Flanker strategy - ProactiveFlanker strategy - Reactive
LEADER
Fortressor position
defensestrategy
Confrontationstrategy
ProactiveReactive
Source: Adapted from P. Kotler and R. Singh Achrol, “Marketing Warfare in the 1980’s” Reprinted with permission from Journal of Business Strategy, Winter 1981, pp. 30-41. Copyright © 1981 by Warren, Gorham & Lambert, Inc., 210 South Street, Boston MA 02111. All rights reserved.
Market Challengers’ strategies
• They want to overtake the share leaders BUT should also aggressively differentiate themselves from fellow challengers using the following alternatives;
1. Frontal/head-on/direct attack (strengths)
2. Flanking/indirect attack ( weak points)
3. By pass/ Leapfrogging
4. Encirclement/Guerrilla attack
Note
• The market leader is usually better than you in terms of resources/expertise
• They are also watching your attacking activities and looking for strategies of how to deal with your challenge
• Some market share leaders’ reactions may shallow the attacker/challenger
• To improve your market share, you need to build a distinctive competitive advantage of your own; not just imitating your market leader
Exhibit 17.12
Strategic Choices for Challengers in Growth Markets
MARKET LEADER
Flanking attack
Frontalattack
Encirclement strategy
Leapfrog strategy/By Pass
Source: Adapted from P. Kotler and R. Singh Achrol, “Marketing Warfare in the 1980’s” Reprinted with permission from Journal of Business Strategy, Winter 1981, pp. 30-41. Copyright © 1981 by Warren, Gorham & Lambert, Inc., 210 South Street, Boston MA 02111. All rights reserved.
CHALLENGER
Market followers' strategies
• Sometimes overlooked by the market leader and challenger BUT may become challenger and/or even overtake the market share leader
• Their commonly used strategies;
1. Cloner
2. Imitator
3. Adaptor
Market Followers-cont
• Commonly found in oligopolistic industries
• Try to compete on dimensions other than price (avoid price competition)
– Product value/quality
– Customer service
– Promotional effectiveness
– Distribution, etc
Market nichers
• Operate on high profit margins vs. high volume
• Compete in well-defined market segments (niches)
• They tend to specialize in that niche in terms of customer category, products/services, geographical area
• Successful nichers usually have a large share of their niche
How to select a few from the many generic/bench-marked strategies
• The common approaches;
1. The strategic choice matrix
2. SWOT analysis
3. Portfolio analysis
Factors determining the final acceptance of the proposed strategy by top management
1. Top management’s attitude towards risk
2. Top executives’ preference for past strategy in relation to past performance
3. Their values including the shared values, chief executive's beliefs and personal intentions
4. CEO’s power relationship with other top executives and surdodinates