SU3001
Strategic Management: Possible Strategies
(Generic, but different)
Dr David R Moore
Market Based Strategy
• Market-based options build on analysis of customers
and competitors.
• Special attention paid to portfolio matrix, value chain, and
sustainable competitive advantage (higher than average
profit).
• Intention is to aim for use of generic strategies.
• Three accepted generic strategies.
• Cost Leadership (typically low-cost)
• Differentiation
• Focus
Low-cost Leadership
Any firm able to achieve lowest costs has a clear
sustainable competitive advantage.
Low cost producers sell standard “no-frills” product and
place considerable emphasis on economies of scale.
Profit gained derives from assertion that Low cost Leaders
should be able to sell their product at around average
market price
Average
Industry Price
Competitor X
Low cost
Leader
‘Profit’ Y
Cost of
Product to X
Company Y
Cost of
Product to Y
The more tightly the market is defined, the more effective
the strategy: Global; National; Regional; Local.
National (UK) average house price: £202,210 (£244,376)
Scotland average house price: £168,023 (£267,722)
Local (Aberdeen) average house price: £248,484
Further focus Scotland v UK:
Flat - £134,299. (£230,176). Semi - £154,146. (£210,647).
Detached - £258,344 (£328,976).
http://www.abdn.ac.uk/business/documents/Aberdeen_Housing_Market_Report_2015Q3.pdf Average prices Aberdeen and suburbs.
Possible Problems:
• If LcLeaders sell considerably below the average price of
the market, there is a risk that customer perception of
value will be reduced – product or service seen as
“cheap and nasty”.
• Marketing needs to reflect an accurate perception of the
customer’s needs: ‘cheap’ may be an important factor,
but ‘value’ may be more important.
Differentiation
Output(s) of an organisation meet the needs of (some)
customers in the market better than other organisations’.
Organisations able to differentiate are able to charge higher
than the average market price.
• Underlying philosophy is concept of market segmentation
• Differentiation products or services have “bells and
whistles” and sold to a specific segment of the market
• Can the extra cost can be recovered from the customer?
• Successful differentiation may encourage competitors to
copy, and enter same market place segment.
Niche:
Strategy selects a segment in market and tailors
strategy to serve that segment to exclusion of
others.
– Niche is small and may have limited long-term growth;
– Niche is specialist and may disappear over time.
• The organisation’s strategy is to achieve
competitive advantage in those segments rather
than overall in the market.
• May use either Low-cost Leadership or
Differentiation to achieve this.
Possible Problems:
Generic strategies risk becoming “stuck” in the middle as a
result of failing in applying each strategy.
• An organisation in this position will compete at a
disadvantage to the cost leader, differentiator of focuser.
• Organisation will be much less profitable than
competitors achieving generic strategy.
• Possible to implement a more specific strategy as
identified through tools such as the strategy clock.
• Route 1 – No frills; likely to be segment specific
• Route 2 – low price; risk of price war and low margins
• Route 3 – hybrid; low cost base and reinvestment in low
price and differentiation
• Route 4 – Differentiation; high perceived value by the
user
• Route 5 – Focused differentiation; perceived added value
to a particular market segment
• Routes 6, 7, & 8 – likely routes to failure!
Before an organisation can make strategic decisions it
must recognise its own capabilities and its core
competencies (internal analysis).
SWOT
• Draws together internal and external analysis and
evaluates the strategic capabilities of the organisation
examined:
– Strengths and Weaknesses – internal analysis
– Opportunities and Threats – external analysis
STRENGTHS
• Market dominance
• Economic scale
• Low-cost position
• Good leadership and
management skills
• Strong financial and cash
resource
• Manufacturing ability, age of
equipment, etc
• Good reputation,
• Etc., etc.
OPPORTUNITIES
• New markets and
segments
• New products
• Diversification
opportunities
• Market growth
• Competitor weakness
• Change in political /
economic environment,
• Etc., etc.
Some problems:
• Assumption that the analysis is bound to be correct if it
contains every issue and is truly comprehensive – this is
wrong!
• Compilation of long lists with little logic, argument or
evidence shows poor consideration and lack of
judgement has been used.
• Avoid them!
Strategy Process Overview:
1. Goal-setting; clarify the vision.
2. Analysis; gather much relevant
information and data.
3. Strategy formation; review the
information.
4. Strategy implementation; the
action stage.
5. Strategy monitoring; performance
measurements.
SU3001
Strategic Management: Possible Strategies
(Generic, but different)
Dr David R Moore