Functional Tactics & Implementation

Strategy Formulation | Types of Strategies | Implementation

Questions to Ask:

• Are you committed to implementing a plan to move your company forward?
• What are the names of the key people who need to buy in to the plan?
• How will you communicate the plan throughout the company?
• Will you commit money, resources, and time to support the plan?

Lally, R. (1997). Aligning Values with Strategies: Getting results for the Hands on Manager (Office Edition, pp. 6-9).

Identifying the specific definitions for an organization's formal values is often a fairly clean-cut task. Most companies include this information in their personnel handbook. Aligning the understanding of a company's informal values between executive management and many layers of subordinate employees can prove to be a more challenging task. So what are informal values? "You find them in questions like, "What does it take to get promoted," "What does it take to get fired"... "How late do I have to stay to be recognized as a hard-worker?" (Lally, 1997). Many of these questions can usually be answered by one's common sense. Although, it is most helpful to a company's employee body, to understand clearly all values, formal or informal. It is the manager who is usually charged with the task of communicating formal or informal values. How does this all relate to strategy? "Managers are good at creating strategies based on market conditions, but they often stop there without considering whether elements underneath the strategy--values, staff, and the rest--are aligned with it. If they aren't, the strategy fails" (Lally, 1997). The core idea is that regardless of how market conditions change, when the manager realigns his or her strategy, other organizational elements must also change. "Managers must facilitate changes in organizational structures, compensation, and the informal values so that they all line up with the strategy" (Lally, 1997). The manager should also work diplomatically with senior management in order to facilitate certain changes that require approval. Often, the manager has to entertain both the employees and senior management when working to accomplish strategy changes.

Clampitt, P., Berk, B. and Williams, M. (2001). Leaders as Strategic Communicators: Ivey Business Journal (2nd Edition, pp. 51-55).
Among the important traits of a great leader, being a strategic communicator stands out as the most important. Some leaders are naturally strategic communicators, most of us however, could always be much better. The difference between good and great is usually having a formula, a well thought out plan. A 2002 article, in the Ivey Business Journal, outlines four steps to follow in order to be an effective strategic communicator. The first step is to assess the context. "Effective leaders assess those they seek to influence. A proper assessment allows leaders to determine the group's limits and possibilities. Push too slow and key initiatives never get traction. Push too fast and they falter through sheer exhaustion" (Clampitt, Berk, and Williams, 2002). The second step is to craft a strategy. The leader must "select communication goals that are linked to the organizational goals...executives generally choose one of the five basic communication strategies:

• Spray & Pray: Executives shower employees with all kinds of information...
• Tell & Sell: Executives communicate a more limited set of messages, first telling employees about key issues, then selling them on the wisdom of their approach.
• Underscore & Explore: Executives focus on developing a few core messages clearly linked to organizational success, while actively listening for potential misunderstandings...
• Identify & Reply: Executives identify key employee concerns and then reply to them.
• Withhold & Uphold: Executives withhold information until necessary.

Underscoring a theme is not enough. To be effective, executives must play an active role in translating the theme into corporate priorities and objectives at each level of the organization" (Clampitt, Berk, and Williams, 2002). The third step is a simple one, the leader's communication strategy must be clear. The most important steps of this stage are "repetition and redundancy...identify and utilize opinion leaders...select the right channels" (Clampitt, Berk, and Williams, 2002). The fourth and final step in this process is to provoke dialogue. By obtaining feedback, a leader will be able to evaluate his or her own plan and learn any additional insight that maybe useful in the future.

Galpin, T. "Connecting Culture to Organizational Change" HR Magazine (March 1996,
p.84)

"Connecting Culture to Organizational Change" from HR Magazine clearly communicates how significantly difficult and complex it can be to accomplish this task. I extracted some ideas that seemed to effectively simplify this process. They are:

• Set specific, numeric expectations…using this strategy allows people in the organization to begin 'measuring the immeasurable.
• Keep it simple…
• Be creative…
• Involve managers and employees in designing there own measures
• Reward and recognize" (Galpin, 1996).

In addition to the preceding points it is essential to reward and recognize positive actions. Other important ideas include leading by example and focusing on consistent positive behavior.

Sussland. W.A. (2002). Connecting the planners and doers. Quality Progress. Vol. 35,
Issue 6, June 2002. Retrieved April 1, 2003 from the World Wide Web:
http://www.asq.org/pub/qualityprogress/past/0602/sussland.html.
Connecting the Planners and Doers, (2002), appearing in the journal Quality Progress presents the Two Rings model developed by the author, Sussland to link business strategy to its implementation. The outer ring of the model includes the key tasks of senior management which are to check, alert, plan and deploy (CAPD), in that order. The inner ring includes the key tasks of line management which are to plan, do, check and act (PDCA).
On the outer ring, check refers to reviewing the strengths, weaknesses, opportunities and threats of the organization through qualitative and quantitative measures. Alert signifies initiating proactive changes and developing contingency plans to respond to future trends. Plan refers to developing the strategic objectives and allocating resources to deploy the plan. Sussman describes deploy as linking "doing the right thing and doing it right" (p.6).
When top-down deployment is complete, the process reverses direction. Line management takes over and follows the inner ring processes of planning, checking, doing and acting. The process is complete when roles and responsibilities have been assigned, and resources allocated. Tasks representative of PDCA include the role of operations management to manage the actions planned, the use of resources, processes deployed, products and services delivered and the value chain of customers and suppliers.
Successful linking of business strategy and its implementation results in connecting the internal and external environments, connecting the past to the future and connecting all levels and functions of the organization. The Two Rings model is a systematic methodology to accomplish this linkage.

Implement Strategy

The author found hundreds of articles on grand strategies, and for the most part they all dealt with military or political issues. One would think that after two hours of searching, even someone who is poor at using search strings would have stumbled upon more business related articles. The attached article was the closest to "useful" that could be found. What caught the authors' eye was the narrative approach of putting the reader in the position of just having been promoted to an important position in a niche portion of a large company, and then asking that person to take the somewhat ethereal big picture strategies of the larger organization and apply them in some workable manner. The gist of the message was one of "marketing a process", not a "marketing process".

Resource Management

This proved to be an interesting site in that it took a flash card, or sound bit type of approach to discussing leadership characteristics, and the connections with proper employee resource management. The author especially liked the sections that contained "myth v. reality" comparisons. It could be argued that this site does not address a wide variety of resources other than personnel, but in the authors' opinion, the people are the most important resource. This site also included information on issues such as reward systems and employee empowerment. In retrospect, this site would probably be a more effective part of the tool kit if it was split up and scattered throughout the tool kit.

Strategy Formulation

"How to achieve the targeted results"
(Action plans, how to get there)

"There are three kinds of companies: those that make things happen, those that watch things happen, and the rest who wonder what happened." Anonymous

A successful business is about creating value for its customers, and the intent or plan should be to create more value than the competitors. This process involves matching the firm's resources and capabilities with the opportunities and challenges of the marketplace. A successful business strategy matches the firm's strengths (resources and capabilities) with market opportunities to create a sustainable competitive advantage by providing more value for its customers than competitors.

Three ingredients are necessary for a business to successfully steer a strategic course through market turbulence and become proactive in shaping events and competitive behavior to its advantage.

1. Mission - A strategic mission and vision that articulates the nature of the business and focuses the energies of all parts of the organization toward the task of outperforming the competition.
2. Market - A market orientation in which the beliefs and values that pervade the organization emphasize the need to put the customer first.
3. Measurement - A process for formulating, choosing, and evaluating the best strategy (Day, p. 20).

THOUGHTS ABOUT STRATEGY

Superior firm performance is generally attributed to its competitive advantage. Competitive advantage arises from leveraging a firm's unique skills and resources to implement value-creating strategy that competitors cannot implement as effectively. A sustainable competitive advantage occurs when the advantage is immune or not subject to erosion by competitor's actions.

Thus, a strategy is decisions and activities that enable a firm to achieve and sustain competitive advantage and to improve its performance. It is a game plan for moving the company into an attractive business position and building a sustainable competitive advantage (Thompson, p.43).

Strategy is a directional statement that serves as a central theme guiding and coordinating integrated actions in the pursuit of competitive advantage. It is a compass, not a detailed road map (Day, p21). Strategy is both

1. proactive (intended) deliberate and planned action
2. reactive (adaptive) as-needed reactions to unanticipated developments and fresh competitive pressures. (Thompson, p.9)

Strategy is a guide how to pursue the company's mission and strategic vision and how to achieve it. A competitive strategy specifies how a business intends to compete in the markets it chooses to serve (Day, p5). Strategy focuses on how to achieve performance targets, how to outcompete rivals, how to achieve sustainable competitive advantage, how to strengthen the company's long-term position, how to grow the business, how to satisfy customers, how to respond to changing market conditions, (Thompson, p.10, 42). Basically the central thrust of business strategy is how to build and strengthen the company's long-term competitive position in the marketplace.

Steps to Formulate a Competitive Strategy

Simply stated, strategy is an action plan that directs a firm in developing a competitive advantage. A sustainable competitive advantage arises from leveraging a firm's core competencies to create value for the customer. For a strategy to be successful, it must be consistent with the firm's mission/vision, objectives/goals, with its internal and external environment, and target market.

A pictorial representation of this process is as follows:

Formulating a competitive strategy is based upon the steps we have done thus far: (Porter, xix-xx)

Core Competencies

• What customer needs is our company uniquely qualified to meet?
• What is the business doing now? What are our core competencies?

Identification

• What is the current strategy?

Implied Assumptions

• What assumptions about the company's relative position, strengths and weaknesses, competitors, and industry trends must be made for the current strategy to make sense?

Mission

• What is our business and what are we trying to accomplish on behalf of our customers?

Vision

• What will our business look like in 5-10 years from now?

Establish Objectives

• In what areas will our business continue being actively involved in the future?

SWOT

• What is happening internally and externally?
• What is happening in the environment?
• Industry Analysis - What are the key factors for competitive success and the important industry opportunities and threats?
• Competitor Analysis - What are the capabilities and limitations of existing and potential competitors, and their probable future move?
• Strengths and Weaknesses - Given an analysis of industry and competitors, what are the company's strengths and weaknesses relative to present and future competition?

Develop Goals

• What is to be accomplished?
• Goals are developed after being filtered through a SWOT analysis.
• What are our specific, measurable targets?

Segment/Target Market

• What customers are we targeting?
• How should the firm differentiate and position itself in the target market?
• What should the business be doing?
• What are the feasible strategic alternatives given the customer analysis?
• Which alternatives best relates the company's situation to external opportunities and threats?

Strategy - "How to Achieve the Targeted Results"

With these steps completed, we are now able to formulate a strategy to provide direction to the company.

A company's strategy should be market-driven and customer-driven using outside-in strategic thinking aimed at boosting customer satisfaction and achieving sustainable competitive advantage. The company must study market trends, listen to customers, enhance the company's competitiveness, and steer the company in whatever new directions are dictated by market conditions and customer preferences. (revised Thompson, p.10)

A corporate planning director of a Fortune 500 MNC observes that "the process of strategic marketing is coming to be defined as the management of competitive advantage - that is, as process of identifying, developing, and taking advantage of opportunities that result in a tangible business advantage." Meeting these challenges requires developing market-driven strategies. The process involves becoming market-oriented, matching customer value opportunities with organization's distinctive capabilities, and developing internal and external strategic relationships. The basic initiative for guiding market-driven strategy begins by developing a market-oriented culture and processes in the organization" (Excerpt from: "Competitive Advantage in the Global Marketplace: a Focus on Marketing Strategy," by Thomas Hult, David Cravens, and Jagdish Sheth; Journal of Business Research, v51, 2001.)

Formulating a business strategy that yields sustainable competitive advantage requires some of the following actions: (Thompson p.11,48-49).

• Actions to strengthen the company's resource base and competitive capabilities
• Actions to strengthen the company's long-term competitive position and secure a competitive advantage (accelerate R & D, to broaden/narrow the product line, improve product design, alter product quality or add new features, introduce new technologies, modify customer service, outcompete rivals on the basis of superior resources and competitive capabilities.
• Actions to respond to changing industry conditions and other emerging developments in the external environment (shifting customer preferences, new government regulations, the globalization of competition, entry or exit of new competitors)
• Actions to capitalize on new opportunities
• Defensive moves to counter the actions of competitors and defend against external threats
• Actions to merge with or acquire a rival company or form strategic alliances and collaborative partnerships
• Efforts to alter geographic market coverage and degree of vertical integration
• Moves and approaches that define how the company manages key activities.
• Moves to unite strategic initiatives in the various functional area of business (manufacturing and operations; marketing, promotion, and distribution; R&D technology; human resources; financial) to build competitively valuable resource strengths and capabilities to support the company's competitive approach and overall strategy.

Representative Strategies

A company's competitive strategy consists of its business approaches and initiatives to attract customers and fulfill their expectations, to withstand competitive pressures, and to strengthen its market position (Thompson, p.135). Having identified and evaluated its major competitors, the company must design broad competitive marketing strategies by which it can gain competitive advantage by offering superior customer value. Competitive strategies have been classified to define marketing strategy in terms of a single-minded pursuit of delivering superior value to customers.

An competitive advantage typically is based on:

1. lower costs
2. a differentiated product
3. a focused in-depth understanding of the consumer

Examples of competitive advantages for:

1. Lower costs - Walmart
2. Differentiated product - IMB provides technology products that many business consumers would prefer to own. Harvard proves a business education that is truly unique.
3. Focused - Nordstroms provides products and services that exhibit a unique understanding of the more affluent consumer.

Each company must determine which strategy makes the most sense given its position in the industry, its objectives, opportunities, and resources (Kotler, p.685) Companies that pursue a clear strategy are likely to perform well. The firm that carries out that strategy best will make the most profits. Firms that do not pursue a clear strategy - "Middle-of-the-roaders" or stuck in the middle and do the worst (Kotler, p.686)

Generic Competitive Strategies

A generic business strategy classifies business strategies and approaches toward obtaining a sustainable competitive advantage into groups with a common thrust. There are a host of strategic thrust available. Being innovative, global, entrepreneurial, information technology based, or manufacturing could drive a strategy.

The basic differences among competitive strategies are:

1. whether a company's market target is broad or narrow
2. whether it is pursuing a competitive advantage linked to low costs, product or understanding your customer. Any complex strategy uses one of these as the basis. Michel Porter, an influential strategy researcher, has classified competitive positioning strategies: low cost, differentiation, and focus. The difference among the three generic strategies are illustrated in the following chart: (Porter, p.39).

The following are the most basic strategies. We will be choosing one of these for each of your segment/target markets.

Overall Low Cost Leadership Strategy
This strategy focuses on appealing to a broad spectrum of customers based on being the overall low-cost provider of a product or service. Overall low cost does not refer solely to price. It refers to the delivered cost to the customer. The company works to achieve the lowest costs of production and distribution so that it can price lower than its competitors and win a large market share (Kotler, p.686).

This strategy is aimed at achieving low-cost leadership industrywide. It is based on achieving a sustainable cost advantage in some important element of the product or service (Aaker, p.7). A low-cost provider is a powerful competitive approach in markets where many buyers are price sensitive. A low-cost leader's basis for competitive advantage is lower overall costs than competitors. Successful low-cost leaders are exceptionally good at finding ways to drive costs out of their business (Thompson, p. 135, 136). Ex. Dollar Tree Store, Walmart, Dell Computer

A low-cost leader has two options for achieving superior profit performance:

1. To use the lower-cost edge to under price competitors and attract price-sensitive buyers.
2. To refrain from price-cutting altogether, be content with the present market share, and use the lower-cost edge to earn a higher profit margin on each unit sold, thereby raising the firm's total profits and overall return on investment (Thompson, p. 136, 137)

The overall cost leadership position can be achieved through a high market share or through other advantages, such as favorable access to raw materials or state-of-the-art manufacturing equipment (Aaker, p.7). To achieve a cost advantage, a firm's cumulative costs across its value chain must be lower than competitors' cumulative costs. Keys to success in achieving low-cost leadership is to be proactive in restructuring the value chain, finding innovative ways to restructure processes and tasks, cut out frills, and provide the basics more economically (Thompson, p. 138, 145). A low cost strategy need not always be associated with low prices, because lower cost could lead to enhanced profits or increased advertising or promotion instead of reduced price (Aaker, p.7).

The more price sensitive buyers are and the more inclined they are to base their purchasing decision on which seller offers the best price, the more appealing a low-cost strategy becomes. A low-cost provider's product offering must always contain enough attributes to be attractive to prospective buyers. A low-cost leadership strategy works best when:

1. Price competition among rival sellers is especially vigorous.
2. The industry's product is standardized or readily available from other sellers.
3. There are few ways to achieve product differentiation, thereby making buyers very sensitive to price differences.
4. Most buyers use the product the same ways.
5. Buyers incur low switching costs.
   (Thompson, p. 146, 147)

Implementing:

Implementing overall low cost leadership strategy require different resources and skills. It also implies differing organizational arrangements, control procedures, and inventive systems. Some common implications are as follows: (Porter, p.40)

Defenses Against Five Competitive Forces: (Porter, p.36, 37)
The low-cost position protects the firm against all five competitive forces because bargaining can only continue to erode profits until those of the next most efficient competitor are eliminated.

Risks: (Porter, p.45)
Cost leadership imposes severe burdens on the firm to keep up its position, which means reinvesting in modern equipment, ruthlessly scrapping obsolete assets, avoiding product line proliferation and being alert for technological improvement. Some of these risks are:

• Technological breakthroughs can open up cost reductions for rivals that nullify a low-cost leader's past investments, learning, and gains in efficiency.
• Low-cost learning by industry newcomers or followers, through imitation or through their ability to invest in state-of-the-art facilities.
• Inability to see required product or marketing change because of the attention placed on cost.
• Inflation in costs that narrow the firm's ability to maintain enough of a price differential to offset competitors' approaches to differentiation.
• Getting carried away with overly aggressively price-cutting and ending up with lower, rather than higher, profitability.
• Not emphasizing avenues of cost advantage that can be kept propriety. Sustaining its cost in ways difficult for rivals to copy or match.
• Becoming too fixated on cost reduction. It can be pursued so zealously that a firm's offering ends up being too frills-free to generate buyer appeal.

Differentiation Strategy

This strategy concentrates on creating a highly differentiated product/service line and marketing program so that it is perceived to a broad spectrum of customers as being unique. The company focuses on superior performance by targeting an important customer benefit valued by a segment of market. Most customers would prefer to this product/service line if its price is not too high (Kotler, p.686). Ex. Victoria Secret, Marriott, IBM

A differentiation strategy is one in which the product offering is differentiated from the competition by providing value to the customer by product quality, perhaps by enhancing the performance, quality, prestige, features, service backup, reliability, or convenience of the product (Aaker, p.6,7). It seeks to differentiate the company's product/service offering from rivals' in ways that will appeal to buyers. (Thompson, p. 135).

Sustainable differentiation usually has to be linked to unique internal skills, core competencies, and capabilities. As a rule, differentiation yields a long-lasting and more profitable competitive edge when it is based on new product innovation, technical superiority, product quality and reliability, and comprehensive customer service. Such attributes are widely perceived by buyers as having value (Thompson, p. 148)

The competitive advantage for a differentiation strategy is either a product/service offering whose attributes differ significantly from the offerings of rivals or a set of capabilities for delivering customer value. Successful differentiation strategy begins with a deep understanding of what customers need and ends with building organizational capabilities to satisfy these needs better than rivals (Thompson, p.149-151)

Differentiation strategies work best in markets where: (Thompson, p.152)

1. There are many ways to differentiate the company's offering from that of rivals and many buyers perceive these differences as having value.
2. Buyer needs and uses of the item or service are diverse.
3. Few rival firms are following a similar differentiation approach.
4. Technological chance is fast-paced and competition revolves around evolving product features.

Implementing

Implementing differentiation strategy require different resources and skills. It also implies differing organizational arrangements, control procedures, and inventive systems. Some common implications are as follows: (Porter, p.41)

Defenses Against Five Competitive Forces: (Thompson, p.151, 152)
Differentiation results in enhanced buyer loyalty to a company's brand or model and greater willingness to pay more for it. It creates a defensible position for coping with the five competitive forces.

Risks: (Porter, p.46) (Thompson, p. 152)

Differentiation also involves a series of risks:

• The cost differential between low-cost competitors and the differentiated firm becomes too great for differentiation to hold brand loyalty. Buyers thus sacrifice some of the features, services, or image possessed by the differentiated firm for large cost savings.
• Over-differentiating so that price is too high relative to competitors or that the array of differentiating attributes exceeds buyers' needs
• Trying to charge too high a price premium. The bigger the price differential the harder it is to keep buyers from switching to lower-priced competitors. . Buyers are satisfied with a basic product and don't think "extra" attributes are worth a higher price.
• Buyers' need for the differentiating factor falls.
• Trying to differentiate on the basis of something that does not lower a buyer's cost or enhance a buyer's well-being, as perceived by the buyer.
• Imitation narrows perceived differentiation. Rapid imitation means that a firm never achieves real differentiation.
• Not understanding or identifying what buyers consider as value.

Focused Strategy

This strategy concentrates on a narrow market segment by offering niche customers a customized product or service that meets their tastes and requirements better than rivals' offerings. The company focuses on targeting an important customer benefit valued by a narrow segment of the market (could be a particular buyer group, segment of the product line, or geographic market). It concentrates its effort on serving a few market segments well rather than going after the whole market (Kotler, p.686). The entire focus strategy is built around serving a particular target very well. Ex. microbreweries, local bakeries, bed-and-breakfast inns, boutiques

A focuser's basis for competitive advantage is either

1. lower costs than competitors in serving the market niche
2. an ability to offer niche members something they perceive is better.

This strategy works best when: (Thompson, p.156)

1. It is costly or difficult for multisegment competitors to meet the specialized needs of the target market niche.
2. When no other rival is attempting to specialize in the same target segment.
3. When a firm doesn't have the resources or capabilities to go after a bigger piece of the total market.
4. When the industry has many different niches and segments, allowing a focuser to pick an attractive niche suited to its resource strengths and capabilities.

Defenses Against Five Competitive Forces: (Thompson, p.155,156)

A focuser's specialized competencies and capabilities in serving the target market niche provide a basis for defending against the five competitive forces.

Risks: (Porter, p.46) (Thompson, p. 156)

Focus involves yet another set of risks:

• The cost differential between broad-range competitors and the focused firm widens to eliminate the cost advantages of serving a narrow target or to offset the differentiation achieved by focus.
• The differences in desired products or services between the strategic target and the market as a whole narrows.
• Competitors find submarkets with the strategic target and out focus the focuser.

Stuck in the Middle Strategy
This is a losing strategy. Firms that do not pursue a clear strategy , called middle-of-the-roaders, do the worst. Do not be stuck in the "middle" trying to be successful at all three disciplines, because your firm will generally end up not being good at any one. Business that do not stand out as the lowest in cost, highest in perceived value, or best in serving some market segment encounter difficulties. Ex. Sears, Holiday Inn
(Kotler, p.686)

Market-Based Generic Strategies
These are similar to Porter's competitive two strategies, but market-based in their development. Market strategy has two fundamental objectives:

1. To create superior customer value. This is similar to achieving competitive advantage, but with a different emphasis. The superior customer value perspective, also known as market orientation, focuses everyone in the organization on customers' needs that than on competitors' products, thereby helping the business act rather than merely react.
2. To create economic value for the owners of the business. Superior economic performance is the result of a strategy that creates superior customer value (Slater, p.37)

It is believed that companies gain leadership position by delivering superior value to their customers. Michael Treacy and Fred Wiersema, in their book the Discipline of Market Leaders, 1995, suggest three generic market strategies - Product leadership, customer intimacy, and operational excellence (Slater, p.37). Companies can pursue any one of the market-based strategies for delivering superior customer value. Few firms can be the best at more than one of these disciplines. Leading companies focus on and excel at a single market-based generic strategy, while meeting industry standards on the other two. (Kotler, p.686, 287). Their success depends more on how well each is executed and less on the market environment of the business. The following is an explanation of the market-based strategies:

Operational Excellence

This strategy focuses on appealing to a broad spectrum of customers based on being the overall low-cost provider of a product or service because of the firm's focus on efficiency. The company provides superior value to their customers by offering them lowest total cost. It works to reduce costs and to create a lean and efficient value-delivery system. It serves customers who want reliable, good-quality products or services, but who want them cheaply and easily. (Kotler, p.686). Ex. Wal-Mart, Southwest Airlines, Dell Computer, and McDonalds.

Two operating characteristics common to these businesses are:

1. Commitment to standardization and simplicity. Ex.-McDonald's has developed a set of uniform procedures that provide for easy employee training and efficient operations.
2. The use of information technology. Ex. - Wal-Mart's competitive advantage is based on their investment in information technology that has resulted in the creation of a superior logistics capability (Slater, p.39).

Customer Intimacy

This strategy concentrates on a narrow market segment by a deep understanding of its customer and his perception of the value of the product or service offered. The company provides superior value by precisely segmenting its markets and then tailoring its products or services to match exactly the needs of targeted customers. It specializes in satisfying unique customer needs through a close relationship with and intimate knowledge of the customers. It builds detailed customer databases for segmenting and targeting, and empowers its marketing people to respond quickly to customer needs. It serves customers who are willing to pay a premium for a service, or special attention they receive (Kotler, p.686). Ex. Amazon, Land's End

Customer intimate business focuses on understanding the customer and his perception of the value of the product or service offered. Accompanying this orientation is a focus on the lifetime value of a relationship. It costs only about one-fifth as much to make an additional sale to an existing customer as it does to attract and sell to a new one. Thus the concepts of "customer equity" and "customer share" instead of market share are central to the customer intimacy business (Slater, p.38)

Product Leadership - This strategy concentrates on creating an innovative product/service line and marketing program so that it is perceived to a broad spectrum of customers as being leading-edge products or services. They provide superior value by offering its customers a continuous stream of state-of-the-art products or services. The company seeks to identify emerging opportunities and continuously strive to develop and deliver new products. They look for first mover advantages. It is open to new ideas, relentlessly pursues new solutions, and works to reduce cycle times so that it can get new products to market quickly (Slater, p.38, Kotler, p.686). Ex. Sony, Microsoft, and Nike

They key task for product leaders if to maintain an environment in which focused creativity can flourish. It requires a culture that encourages experimentation and risk-taking, one in which wee-developed plans that fail are often celebrated rather than punished. Product leaders usually work in multifunctional teams to shorten response times and development cycles. They recognize the importance of developing platform technologies and products that become the foundation for future products (Slater, p.39).

Types of Strategies

The basic differences among competitive strategies are:

1. whether a company's market target is broad or narrow
2. whether it is pursuing a competitive advantage linked to low costs, product, or understanding its customer. Any complex strategy uses one of these as the basis.

The following are the most basic strategies. We will be choosing one of these for each of your segment/target markets.

Cost:

Cost Leadership Strategy - (Operational)

This strategy focuses on appealing to a broad spectrum of customers based on being the overall low-cost provider of a product or service. Overall low cost does not refer solely to price. It refers to the delivered cost to the customer.
The company works to achieve the lowest costs of production and distribution so that it can
price lower than its competitors and win a large market share.

• Dollar Tree Store, Motel 6

Operational Excellence - (Market Focused)

This strategy focuses on appealing to a broad spectrum of customers based on being the overall low-cost provider of a product or service because of the firm's focus on efficiency. The company provides superior value to their customers by offering them lowest total cost. It works to reduce costs and to create a lean and efficient value-delivery system. It serves customers who want reliable, good-quality products or services, but who want them cheaply and easily.

• Wal-Mart, Southwest Airlines, Dell Computer, and McDonalds, Federal Express

Product/Service:

Differentiation Strategy - (Operational)

This strategy concentrates on creating a highly differentiated product or service line and marketing program so that it is perceived to a broad spectrum of customers as being unique. The company focuses on superior performance by targeting an important customer benefit valued by a segment of market. Most customers would prefer to this product/service line if its price is not too high.

• Victoria Secret, Marriott, IBM

Product Leadership - (Market Focused)

This strategy concentrates on creating an innovative product/service line and marketing program so that it is perceived to a broad spectrum of customers as being leading-edge products or services. They provide superior value by offering its customers a continuous stream of state-of-the-art products or services. The company seeks to identify emerging opportunities and continuously strive to develop and deliver new products.

• Sony, Microsoft, Nike, Johnson & Johnson

Customer:

Focused Strategy - (Operational)

This strategy concentrates on a narrow market segment by offering niche customers a customized product or service that meets their tastes and requirements better than rivals' offerings. The company focuses on targeting an important customer benefit valued by a narrow segment of the market (buyer group, segment of the product line, or geographic market). The entire focus strategy is built around serving a particular target very well.

• Microbreweries, local bakeries, bed-and-breakfast inns, boutiques.

Customer Intimacy - (Market Focused)

This strategy concentrates on a narrow market segment by a deep understanding of its customer and his perception of the value of the product or service offered. The company provides superior value by tailoring its products or services to match exactly the needs of targeted customers. It specializes in satisfying unique customer needs through an intimate knowledge of the customers. It builds detailed customer databases for segmenting and targeting, and empowers its marketing people to respond quickly to customer needs.

• Amazon, Land's End, Cable & Wireless, Home Depot

CRITERIA:

Now that you have a strategy for each customer group, make sure it is a winning strategy for your company. A winning strategy must build a competitive advantage that can become sustainable, fits the enterprise's situation, and improves company performance. The following criteria are to be used as thought proving questions. It is not necessary for your strategy to meet all these criteria. However, they are presented for your consideration.

Tests of a Winning Strategy

A winning strategy must build sustainable competitive advantage, fit the enterprise's situation, and improve company performance. Tests can be used to evaluate the merits of one strategy over another and to gauge how good a strategy is. The soundness of a competitive strategy depends on how well it can satisfy the following tests: (Thompson, p.62 and Day, p.35-37, 41)

Sustainable Competitive Advantage Test

A good strategy leads to sustainable competitive advantage. The bigger the competitive edge that a strategy helps build, the more powerful and effective it is.

• Will the strategy create and maintain a competitive advantage through some combination of lowest delivered costs, or superior customer value?
• Is there an effective match of core competencies with opportunities and threats?
• Is there a basis for a competitive advantage that is sustainable in light of probable competitive moves?
• Will the strategy put the business in a position to ward off known threats, exploit opportunities, enhance current advantages, or provide new sources of advantages?
• Can the strategy adapt to a broad range of foreseeable environments?
• How difficult will it be for competitors to match, offset, or leapfrog the expected advantages?
• Does the strategy enhance the company's competitive position for the long term?
• Does the build a company reputation and recognizable industry position?

The Goodness of Fit Test

A good strategy is tailored to fit the company's internal and external situation. Without tight situational fit, there's real question whether a strategy appropriately matches the requirement for market success.

• Is the strategy vulnerable to unacceptable environmental and internal uncertainties?
• Can these risks be managed or avoided?
• Does the strategy play aggressive offense to build competitive advantage and aggressive defense to protect it?

Performance Test
A good strategy boosts company performance.

• What are the gains in profitability?
• What are the gains in the company's competitive strength and long-term market position?
• What are the prospects for successful implementation, feasibility, supportability, consistency?

Competitive Advantages Do Diminish (Source Day, page 206-)

Most advantages are contestable as sustainability is only a matter degree. Consider a Price Advantage. It is only a matter of time before a competitor can easily counter the price because it becomes known to the marketplace. Due to reverse-engineering abilities, most product innovation is quickly contested. As such, a couple of mechanisms are at work in most markets to undermine the leader; however these factors can also benefit competitors seeking to attack.

• Protective barriers are weakened by technological and environmental changes. New technology allows followers to either match or leapfrog the leader.
• Competitors can quickly learn how to imitate the advantage sources of the leaders by researching the leader's mistakes, hiring key personnel, and conducting research to determine unfulfilled expectations of customers or the leader's channel.

The following are situations when basically no competitive advantage is secure:

• Highly turbulent environment.
• Few barriers to entering the industry.
• Low asset intensity.

However, there can be some redemption in developing invisible assets. These generally exist in the superior skills of personnel, the training or information they acquired, and their commitment to the organization. Another is a unique corporate culture (such as a customer orientation) and committed employees. Other invisible assets can exist outside the firm in a well-established brand name, exclusive sources of raw material, or in reliable channel relationships. The distinguishing features of invisible assets are:

1. They are unattainable with money alone, meaning difficult to copy.
2. They are time-consuming to develop.
3. Generally they are capable of multiple uses.

Strategic Identification (Aakers, p.6, 28-31)

The identification of strategic alternatives is based on the determination of:

Product Market Investment Strategy

The Product-market scope is defined by…

• Product expansion - the products it offers and chooses not to offer.
• Market expansion - the markets it seeks to serve and not serve, the competitors it chooses to compete with and to avoid.
• Vertical expansion - its level of vertical integration.

Growth directions

In the following product-market matrix, four growth options are shown.

• To penetrate the existing product market. A firm may attempt to attract customers from competitors or increase usage by existing customers.
• To Product expansion while remaining in the current market.
• Apply the same products in new markets.
• To diversity into new product markets.
• Vertical integration adds another dimension to the product-matrix
  

• Grow - invest to grow (or enter the product market.
• Maintain - invest only to maintain the existing position.
• Milk - Milk the business by minimizing investment.
• Withdraw - recover as many of the assets as possible buy liquidating or divesting the business.

• Product line strategy
• Pricing strategy
• Distribution strategy
• Communication messaging strategy
• Manufacturing strategy
• Information technology strategy
• Segmentation strategy
• Global strategy
• Internet strategy

• Consider scenarios suggested by strategic uncertainties and environmental opportunities/threats.
• Pursue a sustainable competitive advantage.
• Exploit organizational strengths or competitor weaknesses.
• Neutralize organizational weaknesses or competitor strengths.
• Be consistent with organizational vision/objectives.
• Achieve a long-term return on investment.
• Be compatible with vision/objectives
• Be feasible.
• Need only available resources.
• Be compatible with the internal organization.
• Consider the relationship to other strategies within the firm.
• Foster product portfolio balance.
• Consider flexible.
• Exploit synergy.

• Expand total market
• Protect market share
• Expand market share

• Full frontal attack
• Indirect attack

• Follow closely
• Follow at a distance

• By customer, market, quality-price, service
• Multiple niching

• Segmenting: determining distinct groups of buyers (segments) with different needs, characteristics, and/or behaviors. Can't serve all profitably.
• Targeting: process of evaluating each segments attractiveness and selecting.
• Positioning: arranging for a product to occupy a clear, distinctive, desirable place in target's mind relative to competitors.

• Shifting aging demographics
• Entertainment explosion
• High income consumers
• Convenience
• New media
• Importance of brands
• Quality, pricing, and service
• Cause-related marketing

• Product - goods &/or service combination that a company offers a target market;
  defined as an offering not just physical characteristics
• Price - amount of money consumers have to pay to obtain the product
• Promotion - activities that persuade target customers to buy the product
• Place - activities that make the product available

• Product: The product or service you are offering to your target market
• Price: The amount of money customers have to pay to obtain your product.
• Promotion: The activities that communicate the merits of the product and persuade target customers.
• Distribution: The company's activities that make the product available to target consumers.

• Customer Need
• Customer Cost
• Communication
• Convenience

• Attributes- products are a "bundle" of attributes, which include quality, features, and style & design.
• Branding- some type of designation that identifies the market or seller. Brand equity management is critical for 21st century marketers.
• Packaging- it is used not just to contain the product, but has promotional value as well.
• Labeling- at least product identification, but can extend to in-depth descriptions and promotion.
• Product support services - activities that augment the actual product.

• Product development begins when the company finds a new product. Sales are $0 and heavy investment.
• Introduction provides a period of slow growth with nonexistent profits due to extensive promotional costs.
• Growth is a period of rapid market acceptance and developing profits.
• Maturity is a period of slow growth, level profits, and increasing marketing expenditures to defend the product's position against competitors.
• Decline is a period of falling sales and profits.

• Too cost-oriented rather than customer value-oriented.
• Not revised often enough to reflect market changes.
• Not taking the other 3 tactics into consideration.
• Not varying enough for different products (in the mix), market segments, or purchase occasions.

• Looking at your strategic market objectives and associated goals
• Looking at the benefits you are providing your customer. Customers typically seek out products and services that provide the best value in terms of benefits received.
• Consider your costs for "production." Costs generally set the floor for pricing considerations.
• Assess your company and decide who should set the price.

• Reviewing your SWOT analysis. The nature of market demand will generally set the upper limit for pricing considerations.
• Considering how price sensitive your customers are.
  o Customer are not price sensitive when product is high in quality, prestige or exclusiveness. Substitutes are hard to find. Product price is low compared to customer's income.
  o Customer are price sensitive when products are commodities, similar across companies, and the market is flooded with substitutes.

Step One - Identify the target audience. In this plan you determined the customer segments, which are your target audience.
Step Two - Determine the communication goals. Your strategic market goals have been identified, but you may consider adding a goal here that directly relates to this communications plan and segment.
Step Three - Design the message. A good message gets a customer's attention, holds interest, arouses desire, and obtains action. A message must have content, structure, and a format.
Step Four - Select the communication tools, as listed above.
Step Five - Identify the message source. How is the message being communicated and is the source credible for the message being delivered?
Step Six - Evaluate the results. Did the message have the intended impact on the target audience? Measure the behavior of the target audience.

Information - Gathering and distributing market research and intelligence information about forces in the marketing environment needed for planning and aiding exchange.
Promotion - Developing and spreading persuasive communications about an offer or your company.
Contact - Finding and communicating with your customers.
Negotiation - Reaching an agreement on price and/or other terms of the offer so that ownership or possession can be transferred.
Physical distribution - Transporting and storing goods
Financing - Acquiring and using funds to cover the costs of the distribution

• Only 5% of the workforce understand their company's strategy
• Only 15% of executive teams spend more than one hour per month discussing strategy
• Only 25% of managers have incentives linked to strategy.
• Only 40% of organizations link budgets to strategy.
• 60% of organizations do not link strategy to budgeting
• 75% of organizations do not link middle management incentives to strategy
• 86% of executive teams spend less than one hour per month discussing strategy
• 95% of a typical workforce does not understand their organization's strategy
• the source of value has shifted from tangible to intangible assets, such as human and information capital, that today comprise 85% of the market value of a typical company.