Product-market Strategy and Performance: An Analysis of the Miles and Snow Strategy Types Stanley F. Slater University of Colorado, Colorado Springs, USA, and John C. Narver University of Washington, Seattle, USA Introduction The Miles and Snow{I] typology of strategic behaviour has recently been the subject of much debate and research in strategic management and marketing, This typology has important implications for managers and scholars because it seems to represent generic approaches to business strategy very well and the theory tells us that there are important market level and business-specific factors which determine the effectiveness of the strategy types. Since 1987, over a dozen empirical studies (see{2] for an extensive review) and several conceptual pieces (¢.¢{3, 4) have been published in the management and the marke literature. However, previous research has been predominantly descriptive (eg{5-7). In this study, we examine the business characteristics which lead to superior performance for the Prospector, Analyser and Defender strategy types. ‘The Miles and Snow Strategy Typology Miles and Snow’s strategy types are primarily differentiated by the manne: in which each solves the entrepreneurial problem, the strategic management of its product-markets [8, p. 6]. Defenders attempt to create a stable domain by aggressively protecting their product-market. In contrast, Prospectors approach their environment more proactively and seek to identify and exploit new opportunities through both product and market development, Occupying the middle position, Analysers carefully explore new product and market opportunities while maintaining a core of skills, products, and customers. ‘After a business determines its product-market strategy, it must create a system for producing and distributing its products (the “engineering problem’), and must develop and implement organizational structures and processes which support its entrepreneurial and engineering solutions (the “administrative problem”), According to theory, Defenders invest heavily in “The comments of Sully Taylor and Mike Hitt are gratefully acknowledged. Product-market Strategy 33 Received March 1998, Revised June 1996, Eagan ara of Mati Cmte BaEuropean Journal of Marketing 27,10 34 technological efficiency and manage the organization with a functional structure and centralized control. Prospectors invest in multiple, flexible technologies, and utilize product management and decentralized control. Analysers invest in both stable and flexible technologies, and utilize matrix structures and complex co-ordinating mechanisms, A fourth usually unsuccessful type, the Reactor, has not been consistently described. In research on the Miles and Snow typology, the Reactor often has been characterized as having unique strategic qualities (e.g{9-11)) which rank below the Defender in such attributes as proactiveness, attitude towards growth, and intensity of environmental monitoring{5,7]. However, Miles et al {12, p. 553] say that it is the Prospector and Defender which occupy the opposite ends of a continuum of adjustment strategies, and elaborate further that (1, p. 557}, “the Reactor is a ‘residual’ strategy, arising when one of the other three strategies is improperly pursued”. In an analysis of businesses in the adhesives and sealants industry, Wright et al[13] found that a three-cluster solution which roughly corresponds with the strategy types was superior to a four-cluster solution, thus supporting the proposition that there are three natural entrepreneurial archetypes, rather than four. Performance Analysis Performance of the Miles and Snow strategy types is not clearly understood. Miles and Snow{1] propose that Prospectors, Analysers and Defenders have the opportunity to be equally successful, and that these three will consistently outperform Reactors. In support ofthe theory, Wright et al[13} present counter- propositions for how different strategy types could achieve superior performance. However, in their review of research on the typology, Zahra and Pearce{2] concluded that support for equal effectiveness among Prospectors, ‘Analysers and Defenders was mixed. And, in contrast ‘o the theory, Snow and Hrebeniak{9] found that Reactors outperformed Prospectors and Defenders in the air transport industry. Research Objective ‘The primary objective of this paper is to describe the influence on profitability of theoretically important business-specific variables for the Prospector, ‘Analyser, and Defender types. This is accomplished in two stages. In the first stage, we cluster business units based on the proactiveness, basis for competitive advantage, and market focus dimensions of entrepreneurial strategy as suggested by Walker and Ruekert{4] and Segev{14) and validate the clustering using other theoretically related variables, In the second stage, we analyse the relationships between organizational characteristics and profitability in the strategy types. We include important market structure variables in the model as controls. Characteristics of the Miles and Snow Strategy Typology Consistent with Miles and Snow(1] and Wright et al{13], we expect to find that a three-cluster solution will effectively summarize the data and that the profiles,of the clusters will correspond with the characteristics of the Prospector, Analyser, and Defender strategy types as described below. Proactiveness. Proactiveness, the aggressiveness with which businesses pursue growth opportunities in their product-markets, is the foundation for the Miles and Snow typology{8], Defenders isolate and protect a relatively stable market and seek growth through market penetration, In contrast, the Prospector's distinctive competence is in identifying and exploiting ne product and market opportunities. The Analyser extends into new products from a relatively stable base of customers and products. Thus, its growth can come from further market penetration as well as from new product and market development. Shortell and Zajae{I1, p. 826] found that the strategy types could be differentiated from one another based on the overall emphasis placed on “new services and markets” Basis for competitive advantage. Prospectors may use either low-cost or differentiation-based competitive advantagef4, p. 17]. Being first-movers, Prospectors have the opportunity to achieve a sustainable cost advantage from learning or experience effects{15, p. 133; 16, p. 42; 17, p. 406] or by pre-empting rivals in the acquisition of scarce assets such as raw materials or plant and equipment{17, p. 44]. While Defenders are generally thought to place the greatest importance on low cost, Smith ef al{7] found no significant difference between Prospectors’ and Defenders’ emphasis on low cost. However, pioneering new markets also requires high quality, high service, or the development of new product technologies[15, p. 133], which are characteristics of differentiation-based competitive advantage{ 18}. Prospectors must also differentiate their offerings from offerings by competitors in threatened industries as was the case when the compact disc player was introduced to compete with the traditional turntable. Low cost and Gifferentiation are not inconsistent with each other{17], Porter's{18] definition of stuck-in-the-middle notwithstanding. Consequently, Prospectors may rely on either differentiation-based competitive advantage or low-cost-based competitive advantage, or both. Analysers are followers. They usually enter new markets or introduce new products only after their viability has been demonstrated by Prospectors, This requires that Analysers maintain a dual technological core to continue to serve existing customers with existing products and also to be sufficiently technologically flexible to follow Prospectors rapidly with new products. Miles and Snow{1] suggest that since the Analyser’s operations can never be completely effective or efficient due to this dual focus, they must rely primarily ‘on differentiation to distinguish their offerings from competitors’ offerings and achieve competitive advantage. The Defender’s focus is on solving its engineering problem: “how to produce and distribute goods or services as efficiently as possible'[12, p. 551}. This is accomplished by focusing on a highly cost-efficient core technology and by developing highly efficient administrative systems. Thus, low cost is the Defender's basis for competitive advantage. Product-market Strategy 35