Effective strategy choice

01 Nov 2007 • by Natalie Aster

Given current sharp competition and overabundance of players on the market, the effective marketing strategy is a key factor which governs company success on the market and brings it to a new business level.

Professional marketing researches may act as a viable tool for choosing the correct marketing strategy.

Marketing strategy actually implies long-term adjustment of company’s opportunities to market situation, thus correlating internal and external environments of company’s activity. Marketing policies at that level are executed through the following tools:

• development of a company’s organizational structure;
• organization of penetration into new trade markets;
• new commodity development and its introduction to the market;
• curtailment of business activity and abandoning those markets where stable revenues are hindered;
• entering new markets through JVs;
• cooperation with companies which already possess experience in successful activities on the required markets.

Marketing strategy also serves as the foundation of a marketing plan. A marketing plan contains a set of specific actions required to successfully implement a marketing strategy.

A strategy consists of well thought out series of tactics. While it is possible to write a tactical marketing plan without a sound, well-considered strategy, it is not recommended. Without a sound marketing strategy, a marketing plan has no foundation. Marketing strategies serve as the fundamental underpinning of marketing plans designed to fill market needs and reach marketing objectives. It is important that these objectives have measurable results.

A good marketing strategy should integrate an organization's marketing goals, policies, and action sequences (tactics) into a cohesive whole. Similarly, the various strands of the strategy, which might include advertising, channel marketing, internet marketing, promotion and public relations should be orchestrated. Many companies cascade a strategy throughout an organization, by creating strategy tactics that then become strategy goals for the next level or group. Each group is expected to take that strategy goal and develop a set of tactics to achieve that goal. This is why it is important to make each strategy goal measurable.

Marketing strategies are dynamic and interactive. They are partially planned and partially unplanned.

Successful marketing strategy means that the firm must find its own distinct marketing and technological area of competence and use these strengths to establish a position in the market. In order to do this, a consistent strategic thrust is essential. A constant presence is the only way to ensure a relatively stable and significant profile. Although strategic planning forms an indispensable first stage in the marketing process, the specific implementation largely determines ultimate success. Appropriate strategic conception is thus a necessary, but insufficient condition for successful marketing management.

Marketing strategy is based on five strategic concepts:

• choice of target markets;
• market segmentation, i.e. segmentation of competitive target markets within general approach;
• choice of methods for entering these markets;
• choice of marketing tools;
• selection of the time for entering the market.

The price-quantity strategy is widely used throughout the world. The price-quantity strategy is rooted in the power of low prices, such that the firm deliberately sacrifices more specific consumer demands. It is thus a suitable approach for late followers and is totally inappropriate for pioneers and early followers. The latter two groups need to establish entry barriers through building brand and firm loyalty, which can only be achieved when buyer-utility is placed in the forefront.

A weakness of the market-oriented strategies is that they pay inadequate attention to the threat posed by potential and actual competition. The competition-oriented strategy caters specifically for this aspect of market operation. Although catering for consumer preferences is obviously imperative, success will only be achieved if market position is secured adequately. Porter (1988) has suggested that cost and quality leadership as well as concentration on viable market niche's form the basis of a competitive strategy. Cost leadership entails reducing unit costs below that of the competition, in order to achieve competitive advantages through lower prices. This corresponds with the price-quantity strategy which is only likely to be successful in later phases of the market life-cycle.

With cost leadership strategy, the objective is to become the lowest-cost producer in the industry. Many (perhaps all) market segments in the industry are supplied with the emphasis placed minimising costs. If the achieved selling price can at least equal (or near) the average for the market, then the lowest-cost producer will (in theory) enjoy the best profits. This strategy is usually associated with large-scale businesses offering "standard" products with relatively little differentiation that are perfectly acceptable to the majority of customers. Occasionally, a low-cost leader will also discount its product to maximise sales, particularly if it has a significant cost advantage over the competition and, in doing so, it can further increase its market share. Examples of Cost Leadership: Nissan; Tesco; Dell Computers.

Quality leadership should provide an edge over competition through the differentiation of products. Quality leadership is only suited to the establishment of “standards” in the market so as to prevent or at least slow down the entry of followers into the market. Furthermore, it seems that only a flexible adaptation of product characteristics to cater for specific consumer needs will guarantee quality leadership and overcome consumer resistance to purchasing in the early stages of the product life-cycle. Finally, quality leadership facilitates higher market prices, thus shortening the pay-back cycle and counteracting the problem of shortening life-cycles.

Another fundamental strategy entails concentrating on a market niche. This form of strategy has proven to be especially useful in helping early and late followers to overcome market-entry barriers. However, it is a non-starter for pioneers, because in the earliest phases of market development, niches are generally not recognizable.

Gilbert and Strebel (1987) have proposed the so-called “outpacing strategies”, characterized by an alternative switching back and forth from quality to cost advantages in order to maintain competitive advantages over time. By doing so, the classically one-dimensional strategy becomes unified and dynamically viable.

The “outpacing strategy” was originally developed against the background of the automobile industry, but is distinctly relevant for other industries in general, because the benefits of a dynamically adaptive approach are so compelling. Typically, a firm which enters a market as a pioneer or early follower, uses a quality-oriented competitive strategy in an attempt to reach the accepted industry standard as rapidly as possible. This usually establishes a substantial barrier to (would-be) later followers and also raises the level of customer acceptance. As time progresses, not least because of experience or learning-curve effects, the firm needs to reap rationalization and degression potential in order to build market share. If the firm fails to succeed in this approach, competition will enter the market and cut prices aggressively. However, once they have gained a foothold in the market and the accompanying cost advantages, they too will have to reverse their strategy to one of quality orientation. Ultimately, each player seeks to “overtake” the other using the circumstantially appropriate mix of both quality and cost-based advantages.

Preference strategies apply various instruments of sales policies which do not depend from competition within price sector. The ultimate goal of this strategy is to create competitive advantages over other competitors. A competitive advantage is 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.

Differentiation strategy involves selecting one or more criteria used by buyers in a market - and then positioning the business uniquely to meet those criteria. This strategy is 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 charging a premium price that more than covers the additional production costs, and about giving customers clear reasons to prefer the product over other, less differentiated products. Examples of differentiation strategy: Mercedes cars; Bang & Olufsen.

In the differentiation focus strategy, a business aims to 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. The important issue for any business adopting this strategy is to ensure that customers really do have different needs and wants - in other words that there is a valid basis for differentiation - and that existing competitor products are not meeting those needs and wants. Examples of differentiation focus: any successful niche retailers; (e.g. The Perfume Shop); or specialist holiday operator (e.g. Carrier).

In cost focus strategy, 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". Examples of cost focus: Many smaller retailers featuring own-label or discounted label products.

If you decide to start a new business, marketing researches may include:

• Market analysis, identification of key players and their competitive strengths/limitations. It is vital to recognize possible threats and opportunities, as well as evaluate strengths and weaknesses.
• Investigation of competitive environment (target groups, pricing, applied marketing strategies, advertising policies, main competitive advantages). Evaluation of strengths, weaknesses, opportunities and threats (SWOT-analysis).
• Analysis of prospective consumers (consumers’ segmentation by gender, age, profit and psychographic characteristics).

If are going to tackle the issues of already existing business, market researches may include:

• analysis of proposed services;
• parameters of target audience.