8.2 - Choosing how to compete

• Positioning


  Where you place your brand and products in relation to others
• Positioning Strategy


  An important Strategic Choice
• Strategic positioning


  Choosing how to compete with the other businesses in the market
• A business's positioning strategy is part of the marketing strategy - the choice influences the general direction a business develops in and affects all areas of the business
• Different positioning strategies


  • They work for different companies
  • It is important to choose the right strategy-it should play to the company's strengths and give them a competitive advantage
  • The wrong positioning strategy can be disastrous-value products with too high a price and luxury products with too low a price will fail
• Factors affecting positioning strategy


  • The product itself
  • The state of the economy
  • The company's image and resources
  • The company's mission
• Competitive Advantage

  Customers see an advantage to buying its products compared to its competitors' products
• Competitive advantages


  Often gained through a firm's core competences
• Types of competitive advantage (Porter)


  • Cost advantage
  • Differentiation advantage
• Cost advantage


  Selling a similar product at a lower cost than its rivals
• Cost advantage strategies


  • Low-cost airlines like Easyjet and Ryanair use a "no frills" strategy to keep their costs at a minimum -they use cheaper airports like Luton and cut out travel agents' fees by using online booking
• Differentiation advantage


  Selling better products at the same or a slightly higher price
• Product differentiation


  Offering a product that consumers see as different from competitors' products
• Benefits of competitive advantage


  • Sell a high volume of products at a low price and make a large profit
  • Sell enough products at a high price to make a large profit
  • Build brand loyalty as customers associate the particular advantage with the brand, which makes them more likely to choose that brand in the future
• Challenges of maintaining competitive advantage


  • Maintaining low cost production might be difficult
  • Competitors can lower their prices or copy your unique features
  • Consumer tastes can change
  • A changing economy can alter the demand for luxury or value products
• Businesses need to continuously monitor both internal and external factors in order to keep their advantage
• Porter's Three Generic Strategies

  Competitive strategies based on the strengths of low costs and differentiation
• Cost Leadership


  • Cost leadership strategy calls for the lowest cost of production for a given level of quality
  • Big firms with large and efficient production facilities, benefiting from economies of scale, can use this strategy
  • In a price war, the firm can maintain profitability while the competition suffers losses
  • If prices decline, the firm can stay profitable because of its low costs
• Differentiation


  • Differentiation strategy requires a product with unique attributes which consumers value, so that they perceive it to be better than rival products
  • Unique products allow businesses to charge premium prices
  • Businesses that are innovative, have strong branding and offer quality products can benefit from this strategy
  • Risks include imitation by competitors and changes in consumer tastes
• Focus


  • Focus strategy concentrates on niche market segments to achieve either cost advantage or differentiation
  • This strategy suits firms with fewer resources who can target markets with specific needs
  • A firm using this strategy usually has loyal customers, making it very hard for other firms to compete
• Porter's Strategic Matrix


  Helps a business choose its positioning strategy based on its competitive advantage and its market scope
• Porter's strategic matrix


  • A business can place itself in a particular section depending on whether it's aimed at a broad or narrow market (also known as a niche market), and whether it offers cheaper products than competitors or unique, quality products
• Jewellery market


  • Accessorize (broad market, low prices)
  • Tiffany & Co. (narrow market, high-quality, premium prices)
• Bowman's Strategic Clock


  Shows different positioning strategies based on different combinations of price (from low to high) and perceived added value or benefits (also from low to high)
• Bowman's strategic clock shows that some positioning strategies are likely to be more successful than others
• Bowman's strategic clock


  Similar to Porter's strategic matrix, but goes into a bit more detail
• Position 1


  • Low price products with low added value, only successful if high volume
• Position 2


  • Corresponds to the cost leadership section of Porter's strategic matrix
• Position 3


  • Modest prices with a relatively high perceived added value
• Position 4


  • Corresponds to the differentiation section of Porter's strategic matrix
• Position 5


  • Corresponds to the differentiation and focus section of Porter's strategic matrix
• Positions 6-8


  • Combine a high price with fairly low perceived added value, will ultimately fail unless a company has a monopoly