Selecting Marketing Strategies
The marketing strategy challenge
To find a way of achieving a sustainable competitive advantage over the other competing products and firms in a market
What is a competitive advantage?
An advantage over competitors gained by offering consumers greater value, either by means of lower prices or by providing greater benefits and service that justifies higher prices
Porter’s Generic Strategies
Introducing Porter’s approach
• Porter suggested four "generic" business strategies that could be followed in order to gain competitive advantage
• The differentiation and cost leadership strategies seek competitive advantage in a broad range of market or industry segments
• By contrast, the differentiation focus and cost focus strategies are best used in a narrow market or industry
Cost leadership (1)
With this strategy, the objective is to become the lowest‐cost producer in the industry. This typically involves production on a large scale which enables the business to exploit economies of scale.
Cost leadership (2)
• Why is cost leadership important?
– If selling prices are broadly similar, the lowest‐cost producer will enjoy the highest profits
• Suitable markets for this strategy?
– Standard product
– Little product differentiation
– Branding relatively unimportant
Likely attributes of a cost leader
• High levels of productivity
• High capacity utilisation
• Use of bargaining power to negotiate the lowest prices for production inputs
• Lean production methods (e.g. JIT)
• Effective use of technology in the production process
• Access to the most effective distribution channels
Cost focus
• Here a business seeks a lower‐cost advantage in just one or a small number of market segments
• The product will be basic ‐ perhaps a similar product to the higher‐priced and featured market leader, but acceptable to sufficient consumers
• Such products are often called "me‐too's"
Differentiation focus
Differentiation focus is the classic niche marketing strategy
A business aims to differentiate within just one or a small number of target market segments For differentiation focus to work…
• Market segmentation
– Clearly identifiable customer needs and wants
– A valid basis for differentiation
– Business able to meet the needs of the segment
• Some possible approaches
– Higher / highest quality
– Specialist expertise / experience
– Exclusiveness (e.g. through distribution)
Differentiation leadership
With differentiation leadership, the business targets much larger markets and aims to achieve competitive advantage across the whole of an industry
Differentiation leadership (2)
• Involves selecting one or more criteria used by buyers in a market ‐ and then positioning the business uniquely to meet those criteria
• Usually associated with charging a premium price for the product ‐ often to reflect the higher production costs and extra value‐added features provided for the consumer
• Differentiation is about giving customers clear reasons to prefer the product over other, less differentiated products
• The strategy is not easy and it requires substantial and sustained marketing investment. Ways to achieve differentiated leadership
• Superior product quality (features, benefits, durability, reliability)
• Branding (strong customer recognition & desire; brand loyalty)
• Industry‐wide distribution across all major channels (i.e. the product or brand is an essential item to be stocked by retailers)
• Consistent promotional support – often dominated by advertising, sponsorship etc
Ansoff Matrix
A marketing planning model that helps a business determine its product and market
strategy
Ansoff Matrix – the Grid
How does the Ansoff Matrix work?
• Ansoff’s matrix suggests that a business’ growth strategy depends on whether it markets new or existing products in new or existing markets
• The output from the matrix is a series of four suggested growth strategies which set the direction for the business strategy Market penetration – main aims
• Maintain or increase the market share of current products
• Secure dominance of growth markets
• Restructure a mature market by driving out competitors
• Increase usage by existing customers
Business
as usual
Evaluating market penetration
• The business is focusing on markets and products it knows well
• It is likely to have good information on competitors and on customer needs
• Unlikely to need significant new market research
• But will the strategy deliver enable the firm to achieve its growth objectives?
Product development
A growth strategy where a business aims to introduce new products into existing markets
Evaluating product development
• A strategy that often plays to the strengths of an established business
• Strong emphasis on effective market research (insights into customer needs) and successful innovation
• A great way of exploiting the existing customer base
• Being first to market is important
Market development
A growth strategy where the business seeks to sell its existing products into
new markets
Different approaches to market development • New geographical markets; e.g. exporting
• New product dimensions or packaging (e.g. sizes, flavours, features)
• New distribution channels (e.g. using e‐
commerce and mail order)
• Different pricing policies to attract different customers
Evaluating market development
• Often more risky than product development
• Existing products may not suite new markets (exporting often problematic)
• A logical strategy where existing markets are saturated or in decline
• Significant government support for this strategy – particularly keen to encourage international trade
Diversification
The growth strategy where a business markets new products in new markets
Evaluating diversification
• Inherently risky strategy
– No direct experience of the product or market
– Few economies of scale (initially)
– However, if successful, overall risk of the business is spread
• Approaches
– Innovation & R&D: develop new solutions
– Acquire an existing business in the market
– Extend an existing brand into the market
The attraction of international markets
• Stronger economic growth in emerging economies such as China, India, Brazil and Russia
• Market saturation and maturity (slow or declining sales) in domestic markets
• Easier to reach international customers using e‐commerce
• Greater government support for businesses wishing to expand overseas Main methods of trading internationally
Exporting direct to international customers
The UK business takes orders from international customers and ships them to the customer destination
Selling via overseas agents or distributors
A distribution or agency contract is made with one or more intermediaries
Distributors & agents may buy stock to service local demand
The customer is owned by the distributor or agent
Opening an operation overseas
Involves physically setting up one or more business locations in the target markets
Initially may just be a sales office – potentially leading onto production facilities (depends on product)
Joint venture or buying a business overseas
The business acquires or invests in an existing business that operates in the target market
Key international risk factors
• Cultural differences
– A business needs to understand local cultural influences in order to sell its products effectively. For example, a product may be viewed as a basic commodity at home, but not in the target overseas market. The sales and marketing approach will need to reflect this.
• Language issues
– Although the common business language worldwide is now English, there could still be language issues. Can the business market its product effectively in the local language? Will it have access to professional translators and marketing agencies?
• Legislation
– Legislation varies widely in overseas markets and will affect how to sell into them. A business must make sure it adheres to local laws. It will also need to consider how to find and select partners in overseas countries, as well as how to investigate the freight and communications options available.
Option: Exporting Direct
Advantages
Disadvantages
Uses existing systems – e.g. e‐
commerce
Online promotion makes this cost‐
effective
Can choose which orders to accept
Direct customer relationship established
Entire profit margin remains with the business
Can choose basis of payment – e.g. terms, currency, delivery options etc
Potentially bureaucratic
No direct physical contact with customer
Risk of non‐payment
Customer service processes may need to be extended (e.g. after‐sales care in foreign languages)
Option: Sell Via Agents / Distributors
Advantages
Disadvantages
Agent of distributor should have specialist market knowledge and existing customers
Fewer transactions to handle
Can be cost effective – commission or distributor margin is a variable cost, not fixed
Lost profit margin
Unlikely to be an exclusive arrangement – question mark over agent and distributor commitment & effort
Harder to manage quality of customer service
Agent / distributor keeps the customer relationship
Option: Open Overseas Operation
Advantages
Disadvantages
Local contact with customers & suppliers
Quickly gain detailed insights into market needs
Direct control over quality and customer service
Avoids tariff barriers
Significant cost & investment of management time
Need to understand and comply with local legal and tax issues
Higher risk
Option: Joint Venture or Acquisition
Advantages
Disadvantages
Popular way of entering emerging markets
Reduced risk – shared with joint venture partner
Buying into existing expertise and market presence
Joint ventures often go wrong – difficult to exit too
Risk of buying the wrong business or paying too much for the business
Competitor response may be strong
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