Lecture 9a Strategic Choice

8/13/2019 Lecture 9a Strategic Choice

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Strategic Marketing

STRATEGIC CHOICE Introduction

Strategic Method- The concept of Alliances

- Methods/Scope of Alliances- Relationship Marketing

Strategic Positioning- Strategic Alignment of assets and competencies (i.e.

Matching organisational capabilities to identified Marketsegments)

- Positioning

- Brand strategy


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INTRODUCTION

There is a saying ,No man is an island. It is equally true that,

No business is an island.

No business exists in isolationthey depend on others to help deliver their productsto market. Why? Rarely can an organisation acquire all the skills and resourcesnecessary to match the requirements of the markets they seek to serve. As such all

organisations need to establish and develop relationships with their key stakeholders,not just simply customers, consumers or shareholders but suppliers, intermediaries,its community, employees even competitors.

Strategic method deals with how the necessary skill and resources are going to bebrought to bear by the organisation itself(internal or organic development)through an alliance,joint venture, mergeror acquisitions. Theoreticallyorganisations tended to do everything themselves, but even in recent yearsorganisation have tended to be leaner and carry only those resources and capabilities

that they need preferring to outsource or partner with others for any additionalresources or skills that may be required. Accessing the skills and resources neededfor the development of products and market position are at the core of marketingstrategy and can involve;


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Organic development - Organisation develops both its skills and resources.

Acquisition or merger - Joining with or taking over another organisation in order toachieve the necessary skills and resources.

Alliance - Here 2 or more organisations join together to share the costsand benefit of joint development operations, distribution ormarketing but retain their own identities and ownership.

Joint venture - This partnership is similar to alliances in that companies andgovernments join together to develop products often

requiring large investments (i.e. natural resources, extraction, aircraft

technology, space etc). However, control can be equally

shared or retained by one party.

The above collaborative ventures are seen by many to represent the future strategic

approaches that major organisations and others will need to seek in order to besuccessful in

the future.

Also, when considering inter-organisational relationships, or relationships with customers

increasingly there are moves away from conflict towards collaborative-based strategies &philosophies.


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The Concept of Alliance

At a strategic level, managers aim to add value by ensuring theorganisation has the right

level of assets and competencies. Increasingly, strategic theory recognisesthat it is neither

wise, nor feasible, to attempt to exclusively provide/or own their optimallevel of assets or

competencies. Rather than do everything themselves, it may be morefeasible to enter into

partnership arrangement with other organisations.

For example, Sony & Philips combined their technical expertise to develop a

range of

integrated MP3 players. They both benefited from sharing technology,product development

and distribution costs, economies scale etc.

STRATEGIC METHODS


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What motivates thiscollaboration?Globalisation - Many businesses today compete globally. Alliances

and joint ventures are means of responding to thischallenge. For example parts and components cannow be sourced, worldwide, or companies can morereadily seek partners to distribute these products inpreviously inaccessible markets

Assets and Competencies - Most organisations cannot effectively provide all the

skills and resources. The cost associated with productdevelopment may facilitate joint activity. This allowsfor market opportunities and new technologies to bedeveloped at a relatively lower cost.

Complimentary activities/ and or management skillscan lead to inter-organisational synergy (e.g. In-

House Cuisines, provides a restaurant delivery service

to a list of top restaurants. It even provides thewaiters. The service has been extended to hotels withthe Scottish Tourist Bored allowing hotels with limitedrestaurant service to retain their 3-star status usingIn-House Cuisine as a form of room service).

.


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Risk - The risk of going it-alone' oftenpromotes the collaboration as a means ofsharing or reducing the risk. In turn

cooperative ventures can promote industrystandards and common practice which act asbarriers to other competitors. For example,JVCs alliance with Sharp & Toshibaestablished VHS as the industry standard forvideo recorders.

Learning and Innovation

- Technology and skills transfer areoften essential in generatingmeaningful commercial benefit. Consider thealliance between VW and Skoda. Thiscollaboration has enhanced Skodas expertisein total quality management.


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Methods/Scope of Alliances The scope of alliance ranges from highly formalised agreements involving

ownership, to informal co-operation based on little more than a handshake. Johnson &

Scholes

summarised alliances into 4 main categories .

Acquisitions and Mergers - This often involves a formalised own ship. Itincludes cooperative or hostile take-overs. Commonly, this is driven by :

(a) efficiency gains via lower operating costs inareas of procurement, operational

scale, etc. (b) synergy effects via thecombined activity leading to greater addedvalue than one organisation could achieve on its own.For example, the merger of Leeds & HalifaxBuilding Societies led to the rationalisation of the branchnetwork (cost savings) but there were still more branchesavailable to the customers than over previouslythe case.

Joint Ventures - This involves independent organisationsentering (Consortia) specific project agreement andsetting up jointly owned ventures. Consortia

are groups of companies in partnership,normally to develop large scale-products (e.g.


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Contract and Licensing - These are legal or contractual agreementswhereby the right to a product/ activity is assignedto an independent operator. Common formsinclude subcontracting andfranchising arrangements. Such arrangements allow

the organisation to focus on its core activities whilecontracting out work to specialist operators. For

example, the UK prison service contracted outtransportation and custodial services to

Group-4 a privet security firm.

Alliances or Network - These are informal agreements of co-operation built on workingrelationships and mutual benefit asopposed to contractual agreement or ownership. For

an alliance to stand the test of time, there needs to be

strategic and cultural fit in that the core competenciesof the partners are such that they complimenteach other and that both organisations havesimilar aspirations, goals andattitudes. For example, a group of retailers

join together and launch a loyalty card as a response tocompetition (e.g. Nectar card).


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POSITIONING

Introduction

Organisations primarily make decisions about which markets to operate in and which

products/services to offer to those markets. Once decided, the next decision is about

determining on what basis it is going to compete in that chosen market. These decisionsare

clearly very much tied up with the process of segmentation, making it a strategic ratherthan

operational issue. P Kotler produced a 3-step segmentation approach in helping with those decision he

called

Target Marketing, as shown in figure 17. The first crucial step is to decide which specific

market segment(s) to consider operating in based on customer profiles and needs.Secondly,

the segment(s) identified have to be evaluated in terms of market attractiveness, growth,

market share and company capabilities etc, in order to decide which particularsegment(s) to

serve. Thirdly, having chosen a target market or markets the organisation has to decideon

what basis it will compete. How it will combine its assets and competencies to create a

distinctive offering in the market is what this section on positioning is all about.


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Step 1

Step 2

Step 3

Segmentation

Market Targeting

Positioning

Identifying market segments,

profiles and needs.

Evaluating market attractiveness.

Selecting market segment(s) toserve.

Creating a specific position in each

market segment.

TARGET MARKETING


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REQUIREMENTS FORSUCCESSFUL POSITIONING

Positioning by its nature is about differentiation being distinctive (i.e. different from the

competition). Because positioning is concerned with differentiation, success depends onthe

importance consumers attach to the nature and scope of the differentiation. The ideal

situation is for a product to be highly superior in those dimensions or attributes deemed

important by the targeted consumers. More often than not companies are successful onthe

basis of exceeding on one important attribute and have parity with competitors on the remaining attributes. For example, Crest toothpaste was the first to use fluoride while

Federal

Express pioneered overnight delivery of small packages. Very often, however, thesephysical

attributes can be quickly copied and so given equal parity, many more companies todayare

attempting to differentiate themselves on the basis of the services attached to theproduct,

such as; delivery time, repair and maintenance, credit and brand.

It helps, if what is important is also uniquewhich was certainly the case with Crest. Ifthe

differentiation is not really unique or important, companies are forced to rely on

advertising

that employs endorsements, celebrities and humour to position their products. In


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Finally, once they are met, the company needs to develop a single positioning claim thatwill

capture the importance and uniqueness of the product that makes it memorableand

believable. The focus should only be on a few key benefits so as not to confuse the

consumer and dilute the importance of the claim.

Glen Urban et al suggest that the key benefits should be identified in a statement calledthe

core benefit proposition which facilitates an identification of essential product features.For

example; Tylenol pain reliever offer an effective, fast and long lasting relief without an

upset

stomach or Anadin nothing works faster.

How to Assess a Products Current Position

There are basically 2ways of assessing the current position of a product offering relativeto

competitor; by

1. Physical Positioning

2. Perceptual Positioning


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Physical - Here the product is compared on some set of objectivephysical

characteristics, for example, Fords 2000 Galaxy vehicle was compared to Toyotas Previa

vehicle on the basis of seating capacity, engine type and size, city and motorway mileage,

length and price. This type of positioning is highly suited to industrial markets, but also

consumer markets in contributing to a better marketing/R&D interface by determining the

Key physical product features sought.

Structure of competition by revealing the degrees to which various brands compete withone another.

Product gaps.

Unfortunately in consumer markets in particular, the physical dimensions of alternative

offerings usually do not provide a complete picture of relative positions becausepositioning

ultimately takes place in the minds of consumers. Even when a products physical

characteristics, packaging, brand, price etc are designed to achieve a particular position inthe

market, the consumer may attach less importance to some of these characteristics or

perceive them differently from what the marketer expects. Also, customers attitudestoward a

product are often based on social or psychological attributes not amenable to objective

comparisons, such as, perceptions of the product's aesthetic appeal, sparkiness, quality,

status or image.

Consequently perceptual positioning must also be considered.


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Perceptual - Consumers often know very little about the essential attributes of many

products or services and even if they did, they would never understand them well enoughto

make comparisons between competitive offering. Consumers are not really interested in

the

physical attributes of a product in themselves rather they are more interested in whatthey will

do for them i.e.benefits. So in the case of the headache remedy, the product is judged

not on its ingredients, size or colour but on how quickly it brings relief. The toothpaste onthe

freshness of breath or whiteness of teeth, a beer on its taste and a vehicle on how comfortable it rides. Such perceptions are subjective, often never based on fact, but on

the

way the product is presented, past experiences with them or the opinion of others. So

physically similar products may be perceived as being different because of differenthistories,

names and advertising campaigns. For example, some people pay considerably more for

Anadin aspirin than for an unadvertised private shop label even though they areessentially

the same product.


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THE POSITIONING PROCESS

Determining the perceived positions of a set of product offerings and evaluating strategiesfor

positioning a new entry or repositioning an existing one involves 8 steps as shown below

in

figure 18. 1. Identify relevant set of competitive products.

2. Identify the key attributes that target market segments believe important

to buying decisions. This defines the product space in which positions

of current offerings are located.

3. Research sample of target market(s) about their perceptions of eachproduct on the key attributes.

4. Analyse the intensity of a products current position in the minds of its

target markets.

5. Determine the products position in the product space.

6. Determine the customers ideal position based on their preferredcombination of key attributes.

7. Examine the fit between preferences of market segments and current

position of product (market positioning).

8. Select positioning or repositioning strategy.

Figure 18


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Step 1 - Identify relevant set of competitive products.

Positioning analysis can take place at the company, product line, product category orbrand

levels. At the product category level, the analysis examines consumers perceptions about

the types of products they may consider as substitutes to satisfy the same basic need. For

example, a new instant breakfast drink would have to compete with other breakfast foods

such as bacon, eggs and cereals.

Positioning maps are used to show the location of the new product with that of competing

products. Marketing research is used to obtain customer perceptions of the new product concept relative to likely substitute products based on several critical attributes. Two

attributes

defining the product space in this exercise were identified as price and convenience of

preparation. The positioning maps as shown over in figures 19(a) and 19(b), enable

marketers to determine how their new breakfast drink compares with the competition.


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Expensive

Time

ConsumingQuick

Inexpensive

Bacon &

Eggs

Pancakes

Hot cereal Instant breakfastdrink

Cold cereal

a. Product category positions (breakfast foods market)

Figure 19 (a)


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High Price

per100 grams

High in

calories

Inexpensive Price

per 100 grams

Brand C

Brand B

b. Brand positions (Instant breakfast market)

Low in

calories

Brand A

Figure 19 (b)


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The proposed new drink occupies a distinctive position because potential customersperceive

it as a comparatively low-cost convenient breakfast food.

If following launch competitors introduce similar products/brands into the same product

category a marketer needs to find out how the brand is perceived compared tocompetitors

brands. Here the attributes of relative price per gram and caloric content are used todefine

the product space and with 3 different brands A, B and C, figure 19(b) compares their

relative positions. This brand level analysis is useful for helping marketers understand a brands

competitive strengths and weaknesses and for determining whether a brand should be

repositioned to differentiate and strengthen its position.


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Step 2 Identify the key attributes.

Customers position a product in their minds in relation to other products based on their

perception of the key attributes it contains. For example, consumers often see the key

attributes of Volvo as safety and durability. BMWs main attributes are based onperformance,

hence the advertising slogan The ultimate driving machine. P Kotler et al (1996)provided a

list of the more common types of attributes as:

a. Features Heinz positions its products on the physical features of noartificial colouring, flavouring or preservatives.

b. Benefits Colgate positions its razors on the closest shave a man canget.

c. Usage Occasions Spar convenience stores position themselves on the slogan8 til late, promoting the idea of using the shop out of

normal hours or near to their home. KitKat have a break,links the brand to tea and coffee breaks.

d. Users Ecocover cleaning products are positioned asenvironmentally friendly products for the green customer.

e. Activities Lucozade is positioned as a healthy drink for sportingactivities.

f. Personality Harley Davidson motorbikes are positioned as a machoproduct with free spirit.


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g. Origin Audi promotes its German origins by the use of theslogan Vorsprung derch technik positioning basedon German engineering excellence.

h. Competitors Pedigree pet foods positioned itself as the superior product

by stating Tests prove Pedigree is more nutritiousthan IAMs, costs less than IAMs and tastes greattoo.

i. Product Class Freeze dried coffee was introduced as a new and differentproduct compared to instant coffees. Kelloggs Nutrigrain

bars are positioned as morning bars, a substitute forthe breakfast cereal.

j. Price/Quality Wal-Mart has successfully positioned itself as the lowestprice seller of quality household products.

k. Endorsements A Swedish bed manufacturer positioned itself via the use of acampaign stating Discover why over 5,000 American

doctors and medical professionals prescribethis mattress. Nike use famous people like Michael Jordanto wear their shoes.

l. Symbol Esso petrol has used the symbol of the tiger to position itselfon strength and power in its market.


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Remember an important attribute will only become distinctive if your product is the onlyone to offer it. If others offer the same attribute then it ceases to influence a consumerspreference of a particular brand. While consumers may use many attributes to evaluate aproduct or brand, the actual number of attributes influencing a consumers choice istypically small. Plus, the more attributes used to position a product, the greater thechance of confusion even disbelief on the part of the consumer. The secret is to keep the

positioning as simple as possible.

Step 3 Determine consumer perceptions.

There are a number of techniques to collect and analyse customer perceptions about the

competitive positioning of alternative products on brands however, the two most usedare:

a. Discriminate AnalysisThis method first identifies the salient attributes consumers useto evaluate products and services and then gets them to rate them. The scores are thenplotted on a perceptual map.

b. Multi Dimensional Scaling This method requires the selection of specific products orbrands for consumers to judge on their basis of similarity to one another. Thus a pairedcomparison basis using 15 products would mean judging 105 pairs. The degree ofsimilarity of each pair is rated on a 10 point scale. The trouble is each comparison is on aone to one basis. So if the number of attributes is say 8 and the number of products forcomparison is 15 this would require a rating by each consumer of 105x8= 840 pairs. Thismay prove somewhat burdensome to a consumer and make computer output datadifficult to use.


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Step 4 Analyse the intensity of a products currentposition.

We tend to assume that just because a product/brand exists that consumers are awareand understand the brand. This is far from the truth. Too often consumers do not know aproduct exists and even if they did it may barely be visible on the radar screen. Forexample, in the last 10 years or so more than 200 new soft drinks have been introduced,most of which went unnoticed by consumers. A brand that is not known by a consumercannot, by definition, occupy a position in the consumers mind.

In order to be successful a brand must build awareness. The better known the brand the

greater the intensity of the brands recognition in filling a product space. To gainawareness and so improve the intensity of the brand the main opportunity lies inobtaining a profitable position within a market segment not dominated by a leadingbrand. For example, instead of trying to increase the intensity of the Glyndwr brand in thetraditional research led academic university market it could possibly seek to gain greaterawareness via the vocational university market segment.


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Step 5 Analyse the Products Current Position.

The only way to know if a brand occupies a strong position on a particular attribute is tocarry out marketing research using techniques discussed in step 3. Figure 20 over shows

the results of a retail positioning survey that portrays how consumers positioned anumber of womens clothing retailers in Chester. Respondents rated the various stores onthe two determinate attributes of value and fashionability. Some stores (e.g. Browns andTJ Hughes) occupy relatively distant positions from one another, indicating thatconsumers perceive them as being very different. Other stores occupy positionscomparable to one another (e.g. Pilot and Next) and are therefore seen as being verysimilar.

The positioning map over provides useful information about possible opportunities for

launching new store or repositioning of an existing store. By identifying empty spaceswhere no store is located such as the top right hand quadrant a new store may be locatedoffering the very latest fashion but at the highest price. However, whether the gap existsbecause it is simply unattainable will only be realised following further research to identifywhether there is a demand for such a store in Chester.


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High Price

Low Price

ConservativeFashion

LatestFashion

Figure 20

TJ Hughes

Browns

Pilot

Next

Primark

TopShop

GapM&S

TK Maxx

British Home

Stores

Dorothy Perkins

Ideal position

Ideal Position


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Step 6 Determine consumers preferred combination of attributes.

This is achieved by asking survey respondents to think of their ideal product or brandwithin a product category this in effect would represent a hypothetical brand possessingthe perfect combination of attributes from the consumers viewpoint. Respondents couldrate their ideal product (retailer) and existing products (retailer) on a number of keyattributes as shown by the circle in figure 20.

The hypothetical ideal position for one segment of womens clothing consumers isgrouped around the M&S, BHS and TopShop stores. However, in reality the ideal points ofsome customers may be actually closer to Browns or TJ Hughes as indicated in Step 7.

Step 7 Define market positioning and market segmentation.

To define a market segment you have to recognise the differentiation in benefits sought

by different customers. Differences between customer ideal points alluded to in Step 6,reflect variations in the benefits they seek, such that, a market positioning analysis can

simultaneously identify distinct market segments as well as the perceived positions ofdifferent brands. When customers ideal points cluster in two or more locations on theproduct space map, the analyst can consider each cluster to be a distinct marketsegment. For analytical purposes, each cluster is represented by a circle that enclosesmost of the ideal points for that segment. The size of the circle reflects the relative size orproportion of customers within a particular segment, as shown in figure 21.


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High Price

Low Price

ConservativeFashion

LatestFashion

TJ Hughes

Browns

Pilot

Next

Primark

TopShop

M&S

TK Maxx

British Home

Stores

Dorothy Perkins

7. Potential Gap

4.3.

2.

6.

Gap

5.

1.


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The previous survey suggested 7distinct segments on the basis of cluster of idealpoint. The store closest to each segment generally is seen as the market brandleader. Segment 5 is the largest segment and segment 1 is the smallest segment.Interestingly, segment 7 has no store close to its location and so is seen to

represent a gap in the market. By examining the preferences of customers indifferent segments together with their perception of the positions of existingbrands, marketers can learn much about

a. The competitive strength of different brands in different segments.

b. The intensity of the rivalry between brands in a given segment.

c. The opportunities for gaining a differentiated position within a targeted segment.

Step 8 Select positioning strategy

The final decision about where to position a new brand or reposition an existing oneshould be based on the market targeting analysis discussed earlier and the resultsof a market positioning analysis. The position chosen should match the preferencesof a particular market segment and should take account of the current positionsoccupied by competing brands.

Jobber (1995) identified four factors he considered critical for successful positioning.


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1. Credence - The attributes used to position a product have to beperceived to be credible by the market segment.

2. Competitiveness -The product should offer the customer benefits which

competitors are not supplying (e.g. Clairol launched anew herbal shampoo Herbal Essences in 1998 whichemphasised the brands wholesome ingredients. By2000 this was the fastest growing brand in themarket).

3. Consistency - A consistent message over time is invaluable inhelping to establish a position against all the otherproducts fighting for a share of the market. Anorganisation that keeps changing its message causesconfusion in the consumers mind.

4. Clarity - The positioning statement/message the organisationwants to put out needs to create a clearlydifferentiated position for the product in the minds ofthe targeted market segment. For example, the mediacampaign that offered the messageBread wi nowt taken out underlined the wholemealold world nature of Alisons bread.


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One view is that an organisation should simply identify one key attribute or unique selling

point (USP) for a product and concentrate purely on that aspect. For example, Gortex fabric is seenas the leading fabric for breathable waterproof, lightweight clothing material. According to Ries andTrout (1981), the most effective USPs are based on; quality, service, price, value or advancedtechnology.

An alternative approach to stressing a USP based on a functional aspect of the product is toconcentrate on an emotional selling proposition (ESP). The product can be distanced fromfunctionally similar rivals by appealing to unique emotional associations. For example,

BodyShop positioning in terms of no harm to animals, Alfa Romeos positioning on the

heritage and image of the traditional Italian sports car.

There is a view that more than one factor can be used to position a product. As shown earlier,

Volvo is positioned on safety and on durability. Whichever approach is taken, there are a

number of positioning mistakes that are often made.

Under-positioning - Here the intensity of the product/brands awarenessis too low and so target markets are not really awareif any distinguishing features.

Over-positioning - Here the brand is perceived in only a limited way.

Confused - Not sure what features or benefits are really beingoffered thats different from the competition.

Lecture 9a Strategic Choice

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