Lecture 9 Strategic Choice

8/13/2019 Lecture 9 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 Market segments)

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 products to

market. Why? Rarely can an organisation acquire all the skills and resources necessary 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 be brought to

bear by the organisation itself(internal or organic development) through an alliance,

joint venture, mergeror acquisitions. Theoretically organisations tended to do everything

themselves, but even in recent years organisation have tended to be leaner and carry only those resources and capabilities that they need preferring to outsource or partner with others

for any additional resources or skills that may be required.

Accessing the skills and resources needed for the development of products and market

position are at the core of marketing strategy 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 to

achieve the necessary skills and resources.

Alliance - Here 2 or more organisations join together to share the costs

and benefit of joint development operations, distribution or

marketing but retain their own identities and ownership.

Joint venture - This partnership is similar to alliances in that companies and

governments 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 be successful 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 the organisation has the right

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

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

competencies. Rather than do everything themselves, it may be more feasible 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 this

collaboration?Globalisation - Many businesses today compete globally. Alliances and

joint ventures are means of responding to this challenge. .

For example parts and components can now be sourced,

worldwide, or companies can more readily seek partners

to distribute these products in previously inaccessible

markets.

Assets and Competencies - Most organisations cannot effectively provide all the skills

and resources. The cost associated with product development may

facilitate joint activity. This allows for market opportunities and new

technologies to be developed at a relatively lower cost.

Complimentary activities/ and or management skills can lead to inter-

organisational synergy (e.g. In-House Cuisines, provides a restaurantdelivery serviceto a list of top restaurants. It even provides the

waiters. The service has been extended to hotels with the Scottish

Tourist Bored allowing hotels with limited restaurant service to retain

their 3-star status using In-House Cuisine as a form of room service).

.


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Risk - The risk of going it-alone' often promotes thecollaboration as a means of sharing or reducing the risk .

In turn cooperative ventures can promote industrystandards and common practice which act as barriers to

other competitors. For example, JVCs alliance with

Sharp & Toshiba established VHS as the industry standard

for video recorders.

Learning and Innovation - Technology and skills transfer are often essential ingenerating meaningful commercial benefit. Consider

the alliance between VW and Skoda. This

collaboration has enhanced Skodas expertise in 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. It includescooperative or hostile take-overs. Commonly, this isdriven by :

(a) efficiency gains via lower operating costs in areas ofprocurement, operational scale, etc.(b) synergy effects via the combined activity leading to

greater added value than one organisation could achieveon 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 previously

the case.

Joint Ventures - This involves independent organisations entering(Consortia) specific project agreement and setting up jointly owned

ventures. Consortia are groups of companies inpartnership, normally to develop large scale-products(e.g. Euro-fighter).


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Contract and Licensing - These are legal or contractual agreements whereby the

right to a product/ activity is assigned to an independent

operator. Common forms include subcontracting and

franchising arrangements. Such arrangements allow

the organisation to focus on its core activities while

contracting out work to specialist operators. For

example, the UK prison service contracted out

transportation and custodial services to Group-4a

privet security firm.

Alliances or Network - These are informal agreements of co-operation builton working relationships and mutual benefit as

opposed 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 competencies of

the partners are such that they compliment each other

and that both organisations have similar aspirations,goals and attitudes. For example, a group of retailers

join together and launch a loyalty card as a response to

competition (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 decisions are

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

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 particular segment(s) to

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

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 FOR

SUCCESSFUL POSITIONING Positioning by its nature is about differentiationbeing distinctive (i.e. different from the

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

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 on the

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, these physical attributes can be quickly copied and so given equal parity, many more companies today are

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

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. If the

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 addition, the

positioning claim must be believableif it is to be effective. Ideally, the credibility of the claim

can be demonstrated by salespeople or by using well known third party references such as

Consumer Reports to authenticate the claim.


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

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 called the

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 relative to

competitor; by

1. Physical Positioning

2. Perceptual Positioning


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Physical - Here the product is compared on some set of objective physical

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 with one 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 because positioning 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 in the

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

perceive them differently from what the marketer expects. Also, customers attitudes toward 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 enough to

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 what they will

do for themi.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 on the

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 different histories,

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

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

the same product.


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THE POSITIONING PROCESS Determining the perceived positions of a set of product offerings and evaluating strategies for

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 or brand

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 customers perceive

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 to competitors

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

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 on performance,

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 no

artificial colouring, flavouring or preservatives.

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

get.

c. Usage OccasionsSpar 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 as

environmentally friendly products for the green customer.

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

activities.

f. Personality Harley Davidson motorbikes are positioned as a macho

product with free spirit.


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g. Origin Audi promotes its German origins by the use of the slogan

Vorsprung derch technik positioning based on German

engineering excellence.

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

by stating Tests prove Pedigree is more nutritious thanIAMs, costs less than IAMs and tastes great too.

i. Product Class Freeze dried coffee was introduced as a new and different

product compared to instant coffees. Kelloggs Nutrigrain

bars are positioned as morning bars, a substitute for the

breakfast cereal.

j. Price/Quality Wal-Mart has successfully positioned itself as the lowest

price seller of quality household products.k. Endorsements A Swedish bed manufacturer positioned itself via the use of a

campaign stating Discover why over 5,000 American

doctors and medical professionals prescribe this mattress.

Nike use famous people like Michael Jordan to wear their

shoes.

l. Symbol Esso petrol has used the symbol of the tiger to position itself

on strength and power in its market.


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Remember an important attribute will only become distinctive if your product is the only one to

offer it. If others offer the same attribute then it ceases to influence a consumers preference

of a particular brand. While consumers may use many attributes to evaluate a product or

brand, the actual number of attributes influencing a consumers choice is typically small. Plus,

the more attributes used to position a product, the greater the chance 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 brandshowever, the two most used are:a. Discriminate AnalysisThis method first identifies the salient attributes consumers use to evaluate

products and services and then gets them to rate them. The scores are then plotted on a perceptual

map.

b. Multi Dimensional ScalingThis method requires the selection of specific products or brands for

consumers to judge on their basis of similarity to one another. Thus a paired comparison basis using 15

products would mean judging 105 pairs. The degree of similarity of each pair is rated on a 10 point

scale. The trouble is each comparison is on a one to one basis. So if the number of attributes is say 8and the number of products for comparison is 15 this would require a rating by each consumer of

105x8= 840 pairs. This may prove somewhat burdensome to a consumer and make computer output

data difficult to use.


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Step 4 Analyse the intensity of a products current position.

We tend to assume that just because a product/brand exists that consumers are aware and

understand the brand. This is far from the truth. Too often consumers do not know a product

exists and even if they did it may barely be visible on the radar screen. For example, 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 consumer cannot, 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 gain awareness

and so improve the intensity of the brand the main opportunity lies in obtaining a profitable

position within a market segment not dominated by a leading brand. For example, instead of

trying to increase the intensity of the Glyndwr brand in the traditional research led academic

university market it could possibly seek to gain greater awareness 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 to carry

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 a number of

womens clothing retailers in Chester. Respondents rated the various stores on the two

determinate attributes of value and fashionability. Some stores (e.g. Browns and TJ Hughes)

occupy relatively distant positions from one another, indicating that consumers perceive them

as being very different. Other stores occupy positions comparable to one another (e.g. Pilot

and Next) and are therefore seen as being very similar.

The positioning map over provides useful information about possible opportunities for launching new store or repositioning of an existing store. By identifying empty spaces where

no store is located such as the top right hand quadrant a new store may be located offering

the very latest fashion but at the highest price. However, whether the gap exists because it is

simply unattainable will only be realised following further research to identify whether there is

a demand for such a store in Chester.


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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 brand within a

product categorythis in effect would represent a hypothetical brand possessing the perfect

combination of attributes from the consumers viewpoint. Respondents could rate their ideal

product (retailer) and existing products (retailer) on a number of key attributes as shown by

the circle in figure 20.

The hypothetical ideal position for one segment of womens clothing consumers is grouped

around the M&S, BHS and TopShop stores. However, in reality the ideal points of some

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 of different

brands. When customers ideal points cluster in two or more locations on the product space

map, the analyst can consider each cluster to be a distinct market segment. For analytical

purposes, each cluster is represented by a circle that encloses most of the ideal points for that segment. The size of the circle reflects the relative size or proportion 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 ideal point. The

store closest to each segment generally is seen as the market brand leader. 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 in different segments together with their perception of the positions

of existing brands, 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 one should

be based on the market targeting analysis discussed earlier and the results of a market positioning analysis. The position chosen should match the preferences of a particular market

segment and should take account of the current positions occupied 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 be perceived

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 a newherbal shampoo Herbal Essences in 1998 which

emphasised the brands wholesome ingredients. By 2000 this

was the fastest growing brand in the market).

3. Consistency -A consistent message over time is invaluable in helping to

establish a position against all the other products fighting for a

share of the market. An organisation that keeps changing its

message causes confusion in the consumers mind.

4. Clarity - The positioning statement/message the organisation wants

to put out needs to create a clearly differentiated position for

the product in the minds of the targeted market segment. For

example, the media campaign that offered the message

Bread wi nowt taken out underlined the wholemeal old 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

seen as the leading fabric for breathable waterproof, lightweight clothing material. According

to Ries and Trout (1981), the most effective USPs are based on; quality, service, price, value

or advanced technology.

An alternative approach to stressing a USP based on a functional aspect of the product is to

concentrate on an emotional selling proposition (ESP). The product can be distanced from

functionally 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 awareness is too low

and so target markets are not really aware if any distinguishing

features.

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

Confused - Not sure what features or benefits are really being offered

thats different from the competition.

Lecture 9 Strategic Choice

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