Selecting Marketing Strategies

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 Selling via overseas agents or distributors Opening an operation overseas Joint venture or buying a business overseas The UK business takes orders from international customers and ships them to the customer destination 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 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) 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 Uses existing systems e.g. e commerce Online promotion makes this costeffective 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 Disadvantages 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 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 Disadvantages 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 Local contact with customers & suppliers Quickly gain detailed insights into market needs Direct control over quality and customer service Avoids tariff barriers Disadvantages 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 Popular way of entering emerging markets Reduced risk shared with joint venture partner Buying into existing expertise and market presence Disadvantages 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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