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COMPETITIVE BUSINESS STRATEGY

Researchers have identified general categories of business-level competitive strategies


based on overall patterns of purpose, practice, and performance in different businesses.
Michael Porter distinguishes three strategiesor competitive positionsthat businesses
pursue to gain and maintain competitive advantages in their various product-markets:
(1 overall cost leadership! (" differentiationbuilding customer perceptions of
superior product #ualit$, design, or service! and (% focus, in &hich the business avoids
direct confrontation &ith its ma'or competitors b$ concentrating on narro&l$ defined
market niches. Porter describes firms that lack a distinctive strateg$ as being (stuck in
the middle) and predicts that the$ &ill perform poorl$.
Robert Miles and *harles +no& identified another set of business strategies based on a
business,s intended rate of product-market development (ne& product development,
penetration of ne& markets. - .he$ classif$ business units into four strategic t$pes:
prospectors, defenders, anal$/ers, and reactors. 01hibit 2.1 describes each of these
business strategies briefl$. 3s $ou can see, businesses pursuing a prospector strateg$
focus on gro&th through the development of ne& products and markets. %M,s drug
deliver$ business unit illustrates this. 4efender businesses concentrate on maintaining
their positions in established product-markets &hile pa$ing less attention to ne&
product development, as is the case &ith %M,s industrial tape business unit. .he
anal$/er strateg$ falls in bet&een these t&o. 3n anal$/er business attempts to maintain
a strong position in its core product-market(s but also seeks to e1pand into ne&
usuall$ closel$ relatedproduct-markets. 5inall$, reactors are businesses &ith no clearl$
defined strateg$.
0ven though both the Porter and Miles and +no& t$pologies have received popular
acceptance and research support, neither is complete b$ itself. 5or e1ample, a defender
business unit could pursue a variet$ of competitive approaches to protect its market
position, such as offering the lo&est cost or differentiating itself on #ualit$ or service.
.hus, &e have combined the t&o t$pologies in 01hibit 2." to provide a more
comprehensive overvie& of business strategies. 01hibit 2." classifies business strategies
on t&o primar$ dimensions: the unit,s desired rate of product-market development
(e1pansion and the unit,s intended method of competing in its established product-
markets.
0ach of our strategic categories could be further subdivided according to &hether a
business applies the strateg$ across a broadl$ defined product-market domain or
concentrates on a narro&l$ defined segment &here it hopes to avoid direct
confrontation &ith ma'or competitors (the focus strateg$ of Porter. 3lthough this
distinction is useful, it is more germane to a discussion of the business,s target market
strateg$ than to its competitive strateg$. Most businesses compete in a reasonabl$
consistent &a$ across all of their product-markets, &hether their domain is broad or
narro&.
01hibit 2." describes onl$ si1 business strategies, rather than the eight that one might
e1pect. 6e vie& reactor and prospector business units as t&o homogeneous categories.
0vidence suggests that a substantial portion of businesses fall into the reactor categor$.
7ne stud$, for instance, found that -8 out of "%" businesses e1amined could be
classified as reactors. 9 :$ definition, ho&ever, such businesses do not have &ell-defined
or consistent approaches either to ne& product development or to &a$s of competing in
e1isting product-markets. ;n other &ords, reactors have no clear competitive strateg$.
.herefore, &e &ill largel$ ignore them during the rest of this discussion.
Prospectors are also sho&n as a single strategic categor$ in 01hibit 2." because the
desire for rapid ne& product or market development is the overriding aspect of their
strateg$. .here is little need for a prospector business to consider ho& it &ill compete in
the ne& product-markets it develops because it &ill face little or no competitionat
least not until those markets become established and other firms begin to enter.
START-UP BUSINESS STRATEGY
0ven small firms &ith a single business and onl$ a fe& related product offerings or start-
ups &ith a single product must decide ho& the$ &ill compete. 3nd 'ust like an +:< in a
ma'or corporation such as %M, their competitive strategies should be tailored to their
uni#ue resources and competencies and aimed at securing a sustainable advantage over
e1isting or potential competitors. .herefore, the same set of generic competitive
strategies are 'ust as appropriate for small firms as for business units &ithin larger ones.
5or e1ample, :elvedere vodkamade b$ a small distiller$ in Polandhas captured a
substantial share of the prestige segment of the =orth 3merican vodka market b$
stressing the five-centur$ tradition of its production process and the superior #ualit$ of
its imported product: in other &ords, b$ pursuing a ver$ effective differentiated
defender strateg$.
>o&ever, there is one important difference bet&een single-business and multi-+:<
organi/ations. ;n smaller single-business firms the distinction bet&een business-level
competitive strateg$ and marketing strateg$ tends to blur and the t&o strategies blend
into one. :elvedere,s competitive strateg$, for instance, is essentiall$ the same as the
market positioning for its primar$ product: a product that offers higher #ualit$ than
competing brands because it is made &ith old-fashioned methods and ingredients that
have not changed for centuries. 3nd the elements of its marketing strateg$ all flo& from
that competitive? market positioning: a premium price, advertising that stresses the
product,s long histor$ and old-fashioned production practices, traditional packaging,
and the like.
3nother difference applies to entrepreneurial start-ups. Most start-ups do not have the
resources to succeed b$ competing as a (me-too) competitor in a &ell-established and
highl$ competitive product-market. :$ definition the$ do not have an established
market position to defend. .herefore, &hile the ta1onom$ of competitive strategies is
still relevant to entrepreneurial firms, in realit$ most of themat least those that stand a
reasonable chance of successbegin life as prospectors. .he$ compete primaril$ b$
developing a uni#ue product or service that meets the needs and preferences of a
customer segment that is not being &ell served b$ established competitors. .he critical
#uestion for a start-up firm, though, is, 6hat happens &hen the ne& product matures
and competitors arrive on the scene@ .his and similar issues related to strategic change
are e1amined in more detail later.
SERVICE BUSINESS STRATEGY
6hat is a service@ :asicall$, services can be thought of as intangibles and goods as
tangibles. .he former can rarel$ be e1perienced in advance of the sale, &hile the latter
can be e1perienced, even tested, before purchase. <sing this distinction, a service can
be defined as (an$ activit$ or benefit that one part$ can offer to another that is
essentiall$ intangible and that does not result in the o&nership of an$thing. ;ts
production ma$ or ma$ not be tied to a ph$sical product.)
6e t$picall$ associate services &ith nonmanufacturing businesses, even though service
is often an indispensable part of a goods producer,s offering. +ervices such
as applications engineering, s$stem design, deliver$, installation, training, and
maintenance can be crucial for building long-term relationships bet&een manufacturers
and their customers, particularl$ in consumer durable and industrial products
businesses. .hus, almost all businesses are engaged in service to some e1tent.
AMan$ organi/ations are concerned &ith producing and marketing a service as their
primar$ offering rather than as an ad'unct to a ph$sical product. .hese organi/ations
include public-sector and not-for-profit service organi/ations, such as churches,
hospitals, universities, and arts organi/ations. .he crucial #uestion is this: .o be
successful, must service organi/ations emplo$ different competitive strategies than
goods manufacturers@
.he frame&ork &e used to classif$ business-level competitive strategies in 01hibit 2." is
e#uall$ valid for service businesses. +ome service firms, such as +uper B or 4a$s ;nn in
the lodging industr$, attempt to minimi/e costs and compete largel$ &ith lo& prices.
7ther firms, like Marriott, differentiate their offerings on the basis of high service
#ualit$ or uni#ue benefits. +imilarl$, some service businesses adopt prospector
strategies and aggressivel$ pursue the development of ne& offerings or markets. 5or
instance, 3merican 01press,s .ravel Related +ervices 4ivision has developed a variet$ of
ne& services tailored to specific segments of the firm,s credit-card holders. 7ther service
businesses focus narro&l$ on defending established positions in current markets. +till
others can best be described as anal$/ers pursuing both established and ne& markets.
5or instance, 0mirates, an airline &hose competitive strateg$ is discussed in 01hibit
2.% , might best be described as a differentiated anal$/er.
3 stud$ of the banking industr$ provides empirical evidence that service businesses
actuall$ do pursue the same t$pes of competitive strategies as goods producers. .he %"2
bank *07s &ho responded to the surve$ had little trouble categori/ing their institution,s
competitive strategies into one of Miles and +no&,s four t$pes. 5ift$-four of the
e1ecutives reported that their banks &ere prospectors, BC identified their firms as
anal$/ers, 1-C as defenders, and %1 as reactors.
Exhibit 9.3 Emirates AirlineCompeting for Business Travelers while Building
New Markets
>abib 5ekih &as traveling the Mideast as a salesman for 0uropean planemaker 3ir-bus
in 12B-, the $ear 4ubai,s ruling famil$ started a small airline called 0mirates to shuttle
Pakistani &orkers bet&een Darachi and 4ubai aboard t&o leased planes. (=obod$
believed 0mirates could be a successful airline,) recalls 5ekih, &ho no& heads 3ir-bus,
Mideast subsidiar$. (;t &as the 'oke of the da$.)
0mirates is a 'oke no longer. ;t has gro&n into the &orld,s tenth-largest airline, earning
E1.F- billion in profits in "88C on sales of nearl$ E11." billion. 7ne important factor
underl$ing 0mirates, success is simpl$ the geographic location of 4ubai. ;t provides a
convenient hub that has enabled 0mirates to offer more convenient routes for business
travelers shuttling bet&een 0urope or the <nited +tates and 3sia. 3nd the rapid gro&th
of man$ 3sian economies in recent $ears has, in turn, generated increased demand and
ne& customers for 0mirates, flights. 7f course, man$ other airlines fl$ bet&een 3sia and
the 6est, so 0mirates has attempted to strengthen and defend its share of that market
b$ offering superior service. ;ts aggressive purchasing of ne& planes from both :oeing
and 3irbus gives it one of the $oungest and most efficient fleets of an$ airline. 3nd
innovative services such as a "88-channel in-flight entertainment s$stem and
sumptuous travelers, lounges have helped keep 0mirates, flights more than C8 percent
full. .hus, 0mirates is a good e1ample of a service firm pursuing a differentiated
anal$/er strateg$it differentiates itself &ith superior service in competitive markets
&hile developing ne& routes bet&een 3sia and the 6est to capture ne& customers in
that rapidl$ gro&ing segment of the business travel market.
GLOBAL BUSINESS STRATEGY
;n terms of the strategies described in 01hibit 2." , businesses that compete in multiple
global markets almost al&a$s pursue one of the t&o t$pes of anal$/er strateg$. .he$
must continue to strengthen and defend their competitive position in their home
countr$and perhaps in other countries &here the$ are &ell established&hile
simultaneousl$ pursuing e1pansion and gro&th in ne& international markets.
6hen e1amined on a countr$-b$-countr$ basis, ho&ever, the same business unit might
be vie&ed as pursuing different competitive strategies in different countries. 5or
instance, &hile %M,s industrial tape group competes like a differentiated defender in the
<nited +tates, *anada, and some 0uropean countries &here it has established large
market shares, it competes more like a prospector &hen attempting to open and develop
ne& markets in emerging economies such as *hina and Me1ico.
.his suggests that a single +:< ma$ need to engage in different functional activities
(including different strategic marketing programsand perhaps even adopt different
organi/ational structures to implement those activitiesacross the various countries in
&hich it competes. 5or e1ample, >ua&ei .echnologies *o., located in +hen/hen, *hina,
&as able to compete ver$ effectivel$ in its home market as a lo&-cost anal$/er. .he
compan$ earned E".F billion in revenues in "881 selling ;nternet s&itches and routers
patterned after the e#uipment manufactured b$ *isco +$stems and 3lcatel, but at prices
as much as F8 percent lo&er. >o&ever, onl$ 18 percent of those revenues came from
outside *hina. ;n order to compete more effectivel$ in the developed markets of 0urope
and =orth 3merica, >ua&ei had to e1pand its product line and develop ne& e#uipment
&ith more innovative features and greater functionalit$. ;n other &ords, it had to
compete more like a prospector in those markets. *onse#uentl$, the firm greatl$
increased its RG4 spending and product development efforts. ;t also developed
marketing programs geared to generating brand a&areness and trial among potential
customers. 5or the time being, >ua&ei relies heavil$ on alliances &ith established
distributors and value-added resellers to develop and implement marketing programs in
developed markets. 5or instance, the Hierling Iroup serves as >ua&ei,s distributor in
Ierman$, and the firm has also signed a distribution deal &ith ;:M. 3s a result of these
strategic ad'ustments, >ua&ei,s contract sales topped E19 billion in "88C, and more
than C" percent of those sales came from outside *hina.
SCOPE O COMPETITIVE STRATEGY
:oth the breadth and stabilit$ of a business,s domain are likel$ to var$ &ith different
strategies. .his, in turn, can affect the variables the corporation uses to define its various
businesses. 3t one e1treme, defender businesses, &hether lo&-cost or differentiated,
tend to operate in relativel$ &ell-defined, narro&, and stable domains &here both the
product technolog$ and the customer segments are mature.
3t the other e1treme, prospector businesses usuall$ operate in broad and rapidl$
changing domains &here neither the technolog$ nor customer segments are &ell
established. .he scope of such businesses often undergoes periodic redefinition. .hus,
prospector businesses are t$picall$ organi/ed around either a core technolog$ that might
lead to the development of products aimed at a broad range of customer segments or a
basic customer need that might be met &ith products based on different technologies.
.he latter is the approach taken b$ %M,s drug deliver$ s$stems business. ;ts mission is to
satisf$ the health needs of a broad range of patients &ith ne& products developed from
technologies dra&n from other business units &ithin the firm.
3nal$/er businesses, &hether lo&-cost or differentiated, fall some&here in bet&een the
t&o e1tremes. .he$ usuall$ have a &ell-established core business to defend, and often
their domain is primaril$ focused on that business. >o&ever, businesses pursuing this
intermediate strateg$ are often in industries that are still gro&ing or e1periencing
technological changes. *onse#uentl$, the$ must pa$ attention to the emergence of ne&
customer segments and?or ne& product t$pes. 3s a result, managers must revie& and
ad'ust the domain of such businesses from time to time.
OB!ECTIVES O COMPETITIVE STRATEGY
3nother important difference across generic business-level strategies &ith particular
relevance for the design and implementation of appropriate marketing programs is that
different strategies often focus on different ob'ectives. +:< and product-market
ob'ectives might be specified on a variet$ of criteria, but to keep things simple, &e focus
on onl$ three performance dimensions of ma'or importance to both business-unit and
marketing managers:
1. Effectiveness. .he success of a business,s products and programs relative to those of
its competitors in the market. 0ffectiveness is commonl$ measured b$ such items as
sales gro&th relative to competitors or changes in market share.
". Efficiency. .he outcomes of a business,s programs relative to the resources used in
implementing them. *ommon measures of efficienc$ are profitabilit$ as a percent of
sales and return on investment.
%. Adaptability. .he business,s success in responding over time to changing conditions
and opportunities in the environment. 3daptabilit$ can be measured in a variet$ of
&a$s, but the most common ones are the number of successful ne& products introduced
relative to competitors or the percentage of sales accounted for b$ products introduced
&ithin the last five $ears.
>o&ever, it is ver$ difficult for an$ +:<, regardless of its competitive strateg$, to
simultaneousl$ achieve outstanding performance on even this limited number of
dimensions, because the$ involve substantial trade-offs. Iood performance on one
dimension often means sacrificing performance on another. 5or e1ample, developing
successful ne& products or attaining share gro&th often involves large marketing
budgets, substantial up-front investment, high operating costs, and a shaving of profit
marginsall of &hich reduce R7;. .his suggests that managers should choose a
competitive strateg$ &ith a vie& to&ard ma1imi/ing performance on one or t&o
dimensions, &hile e1pecting to sacrifice some level of performance on the others, at
least in the short term. 7ver the longer term, of course, the chosen strateg$ should
promise discounted cash flo&s that e1ceed the business,s cost of capital and thereb$
increase shareholder value.
3s 01hibit 2.F indicates, prospector businesses are e1pected to outperform defenders on
both ne& product development and market-share gro&th. 7n the other hand, both
defender strategies should lead to better returns on investment. 4ifferentiated
defenders likel$ produce higher returns than lo&-cost defenders, assuming that the
greater e1penses involved in maintaining their differentiated positions can be more than
offset b$ the higher margins gained b$ avoiding the intense price competition lo&-cost
competitors often face. 7nce again, both lo&-cost and differentiated anal$/er strategies
are likel$ to fall bet&een the t&o e1tremes.
RESOURCE "EPLOYMENT AN" COMPETITIVE STRATEGY
:usinesses follo&ing different strategies also tend to allocate their financial resources
differentl$ across product-markets, functional departments, and activities &ithin each
functional area. Prospectorand to a lesser degree, anal$/erbusinesses devote a
relativel$ large proportion of resources to the development of ne& product-markets.
:ecause such product-markets usuall$ re#uire more cash to develop than the$ produce
short term, businesses pursuing these strategies often need infusions of financial
resources from other parts of the corporation. ;n portfolio terms, the$ are (#uestion
marks) or (stars.)
4efenders, on the other hand, focus the bulk of their resources on preserving e1isting
positions in established product-markets. .hese product-markets are usuall$ profitable!
therefore, defender businesses t$picall$ generate e1cess cash to support product and
market development efforts in other business units &ithin the firm. .he$ are the (cash
co&s.)
Resource allocations among functional departments and activities &ithin the +:< also
var$ across businesses pursuing different strategies. 5or instance, marketing budgets
tend to be the largest as a percentage of an +:<,s revenues &hen the business is
pursuing a prospector strateg$! the$ tend to be the smallest as a percentage of sales
under a lo&-cost defender strateg$. 6e discuss this in more detail later.
SOURCES O SYNERGY AN" COMPETITIVE STRATEGY
:ecause different strategies emphasi/e different methods of competition and different
functional activities, a given source of s$nerg$ ma$ be more appropriate for some
strategies than for others.
3t one e1treme, the sharing of operating facilities and programs ma$ be an
inappropriate approach to gaining s$nerg$ for businesses follo&ing a prospector
strateg$. 3nd to a lesser e1tent, this ma$ also be true for both t$pes of anal$/er
strategies. +uch sharing can reduce an +:<,s abilit$ to adapt #uickl$ to changing market
demands or competitive threats. *ommitments to internall$ negotiated price structures
and materials, as &ell as the use of 'oint resources, facilities, and programs, increase
interdependence among +:<s and limit their fle1ibilit$. ;t is more appropriate for such
businesses to seek s$nerg$ through the sharing of a technolog$, engineering skills, or
market kno&ledgee1pertise that can help improve the success rate of their product
development efforts. .hus, %M,s drug deliver$ s$stems business attempts to find
medical applications for ne& technologies developed in man$ of the firm,s other
business units.
3t the other e1treme, ho&ever, lo&-cost defenders should seek operating s$nergies that
&ill make them more efficient. +$nergies that enable such businesses to increase
economies of scale and e1perience curve effects are particularl$ desirable. .he$ help
reduce unit costs and strengthen the strateg$,s basis of competitive advantage. .he
primar$ means of gaining such operating s$nergies is through the sharing of resources,
facilities, and functional activities across product-market entries &ithin the business
unit or across related business units. 0merson 0lectric, for instance, formed an
(operating group) of several other&ise autonomous business units that make different
t$pes of electrical motors and tools. :$ sharing production facilities, marketing
activities, and a common salesforce, the group &as able to reduce the costs of both per-
unit production and marketing.
Deciding When a Strategy Is Appropriate: The Fit between Bsiness Strategies
and the En!iron"ent
:ecause different strategies pursue different ob'ectives in different domains &ith
different competitive approaches, the$ do not all &ork e#uall$ &ell under the same
environmental circumstances. .he #uestion is, 6hich environmental situations are
most amenable to the successful pursuit of each t$pe of strateg$@ 01hibit 2.- outlines
some ma'or market, technological, and competitive conditionsplus a business units,
strengths relative to its competitorsthat are most favorable for the successful
implementation of each generic business strateg$. 6e ne1t discuss the reasons each
strateg$ fits best &ith a particular set of environmental conditions.
PROSPECTOR STRATEGY
3 prospector strateg$ is particularl$ &ell suited to unstable, rapidl$ changing
environments resulting from ne& technolog$, shifting customer needs, or both. ;n either
case, such industries tend to be at an earl$ stage in their life c$cles and offer man$
opportunities for ne& product-market entries. ;ndustr$ structure is often unstable
because fe& competitors are present and their relative market shares can shift rapidl$ as
ne& products are introduced and ne& markets develop.
:ecause the$ emphasi/e the development of ne& products and?or ne& markets, the
most successful prospectors are usuall$ strong in, and devote substantial resources to,
t&o broad areas of competence: first, RG4, product engineering, design, and other
functional areas that identif$ ne& technolog$ and convert it into innovative products!
second, marketing research, marketing and salesfunctions necessar$ for the
identification and development of ne& market opportunities.
;n some cases, ho&ever, even though a prospector business has strong product
development and marketing skills, it ma$ lack the resources to maintain its earl$ lead as
product-markets gro& and attract ne& competitors. 5or e1ample, Minnetonka &as the
pioneer in several health and beaut$-aid product categories &ith brands like +oftsoap
li#uid soap and *heck-<p pla#ue-fighting toothpaste. >o&ever, because competitors
like Procter G Iamble and *olgate-Palmolive introduced competing brands &ith
advertising and promotion budgets much larger than Minnetonka could match, the firm
&as eventuall$ forced to change its strateg$ and concentrate on manufacturing products
under licenses from larger firms.
ANALY#ER STRATEGY
.he anal$/er strateg$ is a h$brid. 7n the one hand, anal$/ers are concerned &ith
defendingvia lo& costs or differentiation in #ualit$ or servicea strong share position
in one or more established product-markets. 3t the same time, the business must pa$
attention to ne& product development to avoid being leapfrogged b$ competitors &ith
more technologicall$ advanced products or being left behind in ne&l$ developing
application segments &ithin the market. .his dual focus makes the anal$/er strateg$
appropriate for &ell-developed industries that are still e1periencing some gro&th and
change as a conse#uence of evolving customer needs and desires or continuing
technological improvements.
3utomobile manufacturing is an e1ample of such an industr$. *ompetitors are relativel$
fe& and &ell established, the market is relativel$ mature, but technolog$ continues to
advance. 3nd recent changes in the industr$,s environmentsuch as rising fuel prices
and concerns over the impact of auto emissions on global &arminghave underscored
the need for more efficient and ecologicall$ friendl$ technologies. .hus, auto
manufacturers around the &orld, including .o$ota, >onda, Ieneral Motors, and man$
others, are investing billions in a variet$ of different technologies to develop a ne&
generation of cars, as described in 01hibit 2.9 .
.he actions of .o$ota and >onda illustrate one problem &ith an anal$/er strateg$. 5e&
businesses have the resources and competencies needed to successfull$ defend an
established core business &hile generating revolutionar$ ne& products at the same time.
+uccess on both dimensions re#uires strengths across virtuall$ ever$ functional area,
and fe& businesses (or their parent companies have such universal strengths. 3lso,
defending a successful core business can produce a corporate culture and policies that
are difficult to change and that ma$ resist the kind of innovative thinking and risk taking
needed to develop radical ne& products. .herefore, anal$/ers are often not as innovative
in ne& product development as prospectors. 3nd the$ ma$ not be as profitable in
defending their core businesses as defenders.
Exhibit 9.# Analyzer Strategies in the Auto ndustry
Iiven that .o$ota &as alread$ selling more than %88,888 of its Prius gasJelectric
h$brids annuall$ b$ "88B, it &as in the strongest position to respond to the double
&hamm$ of rapidl$ rising gas prices and gro&ing concerns over auto emissions and
their impact on global &arming that caught the auto industr$ off guard that $ear. .he
firm,s strateg$, at least for the short term, is to rapidl$ e1pand its h$brid offerings and
invest in RG4 to further improve their efficienc$. .&o ne& h$brid modelsincluding
one in the firm,s Ke1us lu1ur$ lineare scheduled for introduction to the market in
"882. 3nd a ne& version of the Prius, &hich promises to be lighter, more fuel efficient,
and available &ith optional solar panels on the roof, is also planned for the same $ear.
3ll told, .o$ota forecasts global sales of its gasJelectric h$brids &ill reach 1 million units
a $ear b$ the earl$ "818s.
Konger term, the compan$ is e$eing plug-in electric cars. .o that end, .o$ota has
created a special batter$ research division, complete &ith more than 188 dedicated
engineers.
>onda also plans to beef up its h$brid offerings in the short term, but it &ill also offer
ne& clean-diesel engines&hich are purportedl$ "- percent more fuel efficient than gas
enginesin its larger cars, including those that carr$ the lu1ur$ 3cura brand.
5or the longer term, ho&ever, >onda is focusing on fuel cell vehicles &hich run on
li#uid h$drogen and emit onl$ &ater. ;n "88B the firm began production of a fuel cell
model called the 5*L *larit$ &hich can go "B8 miles on a tank of h$drogen and boasts
better fuel efficienc$ than comparable four-seater gas or h$brid cars. 6hile >onda &ill
lease 'ust "88 *larities in the <nited +tates and Mapan through the earl$ "818s, it hopes
to have the technolog$ read$ for the mass market &ithin 18 $ears. :ut since ever$ *larit$
made in "88B cost an estimated E1 million to produce, cost reductions via economies of
scale and e1perience &ill be critical for the car,s future.
:ack in "88%, &hen the environment facing the auto companies &as not #uite so bleak,
Ieneral Motors had pulled the plug on an e1perimental electric carthe 0H-1and took
a loss of about E1 billion. ;t is a bit surprising, then, that IM,s strateg$ focuses heavil$
on a plug-in electric called the *hevrolet Holt. .he firm increased its RG4 budget for
"88B b$ more than E1.- billion to speed the development of the Holt. 4ue in late "818,
the sedan &ill charge from a household electric socket in si1 hours and run for F8 miles
before a small gas engine fires up to recharge the batter$, e1tending the car,s range to
about 988 miles. +ince the small engine does nothing but run a generator, the car is
e1pected to go over 188 miles per gallon of gas.
IM sa$s the Holt &ill be priced around E%8,888 to EF-,888 and &ill cost onl$ about
E%88 per $ear for the electricit$ to keep it charged. Iiven the technical challenges
involved, ho&ever, it remains to be seen &hether the firm can meet its "818 deadline
and hold production costs lo& enough to 'ustif$ such relativel$ modest prices.
;n Mune of "88B, Datsuaki 6atanabe, .o$ota,s president, said, (6ithout focusing on
measures to address global &arming and energ$ issues, there can be no future for our
auto business.) .he interesting #uestion is &hich of the man$ ne& technologies being
pursued b$ .o$ota, >onda, IM, and others &ill prove the most effective and appealing
means of addressing those issues.
"EEN"ER STRATEGY
3 defender strateg$ makes sense onl$ &hen a business has something &orth defending.
;t is most appropriate for units &ith a profitable share of one or more ma'or segments in
a relativel$ mature, stable industr$. *onsistent &ith the (constant improvement)
principles of total #ualit$ management, most successful defenders initiate process
improvements, product improvements, or Kine 01tensions to help protect and
strengthen their established positions. :ut the$ devote relativel$ fe& resources to basic
RG4 or the development of innovative ne& products. .hus, a defender strateg$ &orks
best in industries &here the basic technolog$ is not ver$ comple1 or &here it is &ell
developed and unlikel$ to change dramaticall$ over the short term. 5or instance,
Pillsbur$,s prepared-dough products +:< no& part of the Ieneral Mills *ompan$
has pursued a differentiated defender strateg$ for $ears. .he unit generates substantial
profits from &ell-established refrigerated dough products like Pillsbur$ *rescent rolls
and Irands biscuits. :ut &hile it has introduced a number of line e1tensions over the
$ears, most have been reconfigurations of the same basic dough-in-a-can technolog$,
such as +oft :readsticks.
"i$$erentiate% "e$en%ers .o effectivel$ defend its position b$ differentiation, a
business must be strong in those functional areas critical for maintaining its particular
competitive advantages over time. ;f a business,s differentiation is based on superior
product #ualit$, those ke$ functional areas include production, process engineering,
#ualit$ control, and perhaps product engineering to develop product improvements. .he
effort to develop and maintain a #ualit$ differentiation can be &orth&hile, though,
because evidence suggests that superior product #ualit$ has a strong impact on a
business,s return on investmentan important performance ob'ective for defenders.
Regardless of the basis for differentiation, marketing is also important for the effective
implementation of a differentiated defender strateg$. Marketing activities that track
changing customer needs and competitive actions and communicate the product
offering,s uni#ue advantages through promotional and sales efforts to maintain
customer a&areness and lo$alt$ are particularl$ important.
L&'-C&st "e$en%ers +uccessful implementation of a lo&-cost defender strateg$
re#uires the business to be more efficient than its competitors. .hus, the business must
establish the ground&ork for such a strateg$ earl$ in the gro&th stage of the industr$.
3chieving and maintaining the lo&est per-unit cost usuall$ means that the business has
to seek large volume from the beginningthrough some combination of lo& prices and
Promotional 0ffortto gain economies of scale and e1perience. 3t the same time, such
businesses must also invest in more plant capacit$ in anticipation of future gro&th and
in state-of-the-art e#uipment to minimi/e production costs. .his combination of lo&
margins and heav$ investment can be prohibitive unless the parent corporation can
commit substantial resources to the business or unless e1tensive sharing of facilities,
technologies, and programs &ith other business units is possible.
.he lo&-cost defender,s need for efficienc$ also forces the standardi/ation of product
offerings and marketing programs across customer segments to achieve scale effects.
.hus, such a strateg$ is usuall$ not so effective in fragmented markets desiring
customi/ed offerings as it is in commodit$ industries such as basic chemicals, steel, or
flour, or in industries producing lo&-technolog$ components such as electric motors or
valves.
6hile lo&-cost defenders emphasi/e efficienc$ and lo& price as the primar$ focus of
their competitive strateg$, it is important to keep in mind that businesses pursuing
other strategies should also operate as efficientl$ as possible given the functional
activities necessar$ to implement those strategies. +ome of the most effective businesses
are those that &ork simultaneousl$ to lo&er costs and improve #ualit$ and service. 3nd
operating efficienc$ is likel$ to become even more critical as the ;nternet makes it easier
for customers to compare prices across alternative suppliers or to obtain lo&-price bids
via (bu$ers, auction) sites, such as &&&.Metal+ite.com. :usiness units t$picall$
incorporate a number of distinct product-markets. 3 given entr$,s marketing manager
monitors and evaluates the product,s environmental situation and develops a marketing
program suited to it. >o&ever, the manager,s freedom to design such a program ma$ be
constrained b$ the business unit,s competitive strateg$. .his is because different
strategies focus on different ob'ectives and seek to gain and maintain a competitive
advantage in different &a$s. 3s a result, different functions &ithin the +:< and
different activities &ithin a given functional area, such as marketingare critical for the
success of different strategies.
.here are, therefore, different ke$ success factors inherent in the various generic
business strategies. .his constrains the individual marketing manager,s freedom of
action in t&o basic &a$s. 5irst, because var$ing functions &ithin the business unit are
more important under different strategies, the$ receive different proportions of the
+:<,s total resources. .hus, the +:<,s strateg$ influences the amount of resources
committed to marketing and ultimatel$ the budget available to an individual marketing
manager &ithin the business unit. +econd, the +:<,s choice of strateg$ influences both
the kind of market and competitive situation that individual product-market entries are
likel$ to face and the ob'ectives the$ are asked to attain. :oth constraints have
implications for the design of marketing programs for individual products &ithin an
+:<.
;t is risk$ to dra& broad generali/ations about ho& specific marketing policies and
program elements might fit &ithin different business strategies. 6hile a business
strateg$ is a general statement about ho& an +:< chooses to compete in an industr$,
that unit ma$ comprise a number of product-market entries facing different competitive
situations in various markets. .hus, there is likel$ to be a good deal of variation in
marketing programs, and in the freedom individual marketing managers have in
designing them, across products &ithin a given +:<. +till, a business,s strateg$ does set
a general direction for the t$pes of target markets it &ill pursue and ho& the unit &ill
compete in those markets. 3nd it does have some influence on marketing policies that
cut across product-markets. 01hibit 2.C outlines differences in marketing policies and
program elements that occur across businesses pursuing different strategies, and those
differences are discussed belo&.

PRO"UCT POLICIES
7ne set of marketing policies defines the nature of the products the business &ill
concentrate on offering to its target markets. .hese policies concern the breadth or
diversit$ of product lines, their level of technical sophistication, and the target level of
product #ualit$ relative to competitors.
:ecause prospector businesses rel$ heavil$ on the continuing development of uni#ue
ne& products and the penetration of ne& markets as their primar$ competitive strateg$,
policies encouraging broader and more technicall$ advanced product lines than those of
competitors should be positivel$ related to performance on the critical dimension of
share gro&th. .he diverse and technicall$ advanced product offerings of %M,s drug
deliver$ s$stems +:< are a good e1ample of this.
6hether a prospector,s products should be of higher #ualit$ than competitors, products
is open to #uestion. Nualit$ is hard to define! it can mean different things to different
customers. 0ven so, it is an important determinant of business profitabilit$. .hus,
>ambrick suggests that in product-markets &here up-to-the-minute st$ling or technical
features are ke$ attributes in customers, definitions of #ualit$, high-#ualit$ products
ma$ pla$ a positive role in determining the success of a prospector strateg$. ;n markets
&here the critical determinants of #ualit$ are reliabilit$ or brand familiarit$, the
maintenance of relativel$ high product #ualit$ is likel$ to be more strongl$ related to the
successful performance of defender businesses, particularl$ differentiated defenders.
4ifferentiated defenders compete b$ offering more or better choices to customers than
do their competitors. 5or e1ample, %M,s commercial graphics business, a ma'or supplier
of sign material for truck fleets, has strengthened its competitive position in that market
b$ developing products appropriate for custom-designed signs. <ntil recentl$, the use of
film for individual signs &as not economical. :ut the use of computer-controlled knives
and a ne& +cotch-brand marking film produce signs of higher #ualit$ and at lo&er cost
than those that are hand-painted. .his kind of success in developing relativel$ broad
and technicall$ sophisticated product lines should be positivel$ related to the long-term
R7; performance of most differentiated defender businesses.
>o&ever, broad and sophisticated product lines are less consistent &ith the efficienc$
re#uirements of the lo&-cost defender strateg$. 5or one thing, maintaining technical
sophistication in a business,s products re#uires continuing investments in product and
process RG4. 5or another, broad, comple1 lines can lead to short production runs and
larger inventories. +ome of the efficienc$ problems associated &ith broader, more-
customi/ed product lines ma$ disappear, ho&ever, &ith continuing improvements in
computer-assisted design and manufacturing, Process Reengineering, and the like.
;nstead of, or in addition to, competing on the basis of product characteristics,
businesses can distinguish themselves relative to competitors on the #ualit$ of service
the$ offer. +uch service might take man$ forms, including engineering and design
services, alterations, installation, training of customer personnel, or maintenance and
repair services. 3 polic$ of high service #ualit$ is particularl$ appropriate for
differentiated defenders because it offers a &a$ to maintain a competitive advantage in
&ell-established markets.
.he appropriateness of an e1tensive service polic$ for lo&-cost defenders, though, is
more #uestionable if higher operating and administrative costs offset customer
satisfaction benefits. .hose higher costs ma$ detract from the business,s abilit$ to
maintain the lo& prices critical to its strateg$, as &ell as lo&ering R7;at least in the
short term. 5urther, a recent stud$ of C1 +:<s pursuing a range of competitive strategies
suggests that investments aimed at improving service efficienc$ and thereb$ reducing
costs generall$ do not have as positive an impact on a unit,s financial performance as
service improvements aimed at increasing revenues via improved customer satisfaction
and lo$alt$.
PRICING POLICIES
+uccess in offering lo& prices relative to those of competitors should be positivel$
related to the performance of lo&-cost defender businessesfor lo& price is the primar$
competitive &eapon of such a strateg$. >o&ever, such a polic$ is inconsistent &ith both
differentiated defender and prospector strategies. .he higher costs involved in
differentiating a business,s products on either a #ualit$ or service basis re#uire higher
prices to maintain profitabilit$. 4ifferentiation also provides customers &ith additional
value for &hich higher prices can be charged. +imilarl$, the costs and benefits of ne&
product and market development b$ prospector businesses re#uire and 'ustif$ relativel$
high prices. .hus, differentiated defenders and prospectors seldom adhere to a polic$ of
lo& competitive prices.
"ISTRIBUTION POLICIES
+ome observers argue that prospector businesses should sho& a greater degree of
for&ard vertical integration than defender businesses. .he rationale for this vie& is that
the prospector,s focus on ne& product and market development re#uires superior
market intelligence and fre#uent reeducation and motivation of distribution channel
members. .his can best be accomplished through tight control of compan$-o&ned
channels. >o&ever, these arguments seem inconsistent &ith the prospector,s need for
fle1ibilit$ in constructing ne& channels to distribute ne& products and reach ne&
markets.
3ttempting to maintain tight control over the behavior of channel members is a more
appropriate polic$ for defenders &ho are tr$ing to maintain strong positions in
established markets. .his is particularl$ true for defenders &ho rel$ on good customer
service to differentiate themselves from competitors. .hus, it seems more likel$ that a
relativel$ high degree of for&ard vertical integration is found among defender
businesses, particularl$ differentiated defenders, &hile prospectors rel$ more heavil$ on
independent channel memberssuch as manufacturer,s representatives or &holesale
distributorsto distribute their products.
:ecause prospectors focus on ne& products &here success is uncertain and sales
volumes are small in the short run, the$ are likel$ to devote a larger percentage of sales
to trade promotions than are defender businesses. Prospectors rel$ on trade promotion
tools such as #uantit$ discounts, liberal credit terms, and other incentives to induce
cooperation and support from their independent channel members.
PROMOTION POLICIES
01tensive marketing communications also pla$ an important role in the successful
implementation of both prospector and differentiated defender strategies. .he form of
that communication, ho&ever, ma$ differ under the t&o strategies. :ecause prospectors
must constantl$ &ork to generate a&areness, stimulate trial, and build primar$ demand
for ne& and unfamiliar products, high advertising and sales promotion e1penditures are
likel$ to bear a positive relationship to the ne& product and share-gro&th success of
such businesses. .he drug deliver$ +:< at %M, for instance, devotes substantial
resources to advertising in professional 'ournals and distributing samples of ne&
products, as &ell as to maintaining an e1tensive salesforce.
4ifferentiated defenders, on the other hand, are primaril$ concerned &ith maintaining
the lo$alt$ of established customers b$ adapting to their needs and providing good
service. .hese tasks can best be accomplishedparticularl$ in industrial goods and
services industriesb$ an e1tensive, &ell-trained, &ell-supported, salesforce. .herefore,
differentiated defenders are likel$ to have higher salesforce e1penditures than are
competitors.
5inall$, lo&-cost defenders appeal to their customers primaril$ on price. .hus, high
e1penditures on advertising, sales promotion, or the salesforce &ould detract from their
basic strateg$ and ma$ have a negative impact on their R7;. *onse#uentl$, such
businesses are likel$ to make relativel$ lo& e1penditures as a percentage of sales on
those promotional activities.
What I$ the Best %ar&eting 'rogra" $or a 'rodct Does (ot Fit the Bsiness)s
*o"petiti!e Strategy+
6hat should a marketing manager do if the market environment facing a particular
product or service demands marketing actions that are not consistent &ith the overall
competitive strateg$ of the business to &hich it belongs@ 6hat if, for e1ample, the
product,s target market is rapidl$ becoming more mature and competitive, but it is
housed in a prospector business unit that does not have the cost structure or the
personnel to allo& the aggressive pricing or e1cellent customer service that ma$ be
needed for the product to compete successfull$@ 7r &hat if ne&l$ emerging technolog$
demands that a mature product categor$ undergo an innovative redesign even though
the defender +:< does not have e1tensive RG4 and product development capabilities@
;f a business unit is focused on a single product categor$ or technological domainas is
the case &ith %M,s industrial tape unitthe ideal solution might be for the &hole +:< to
change its strateg$ in response to shifting industr$ circumstances. 3s the product
categor$ matures, for instance, the +:< might s&itch from a prospector to an anal$/er
strateg$, and ultimatel$ to one of the defender strategies.
.he problem is that effective implementation of different business strategies re#uires
not onl$ different 5unctional *ompetencies and resources but also different
organi/ational structures, decision-making and coordination processes, re&ard s$stems,
and even personnel. :ecause such internal structures and processes are hard to change
#uickl$, it can be ver$ difficult for an entire +:< to make a successful transition from
one basic strateg$ to another. 5or e1ample, man$ of 0merson 0lectric,s +:<s
historicall$ &ere successful lo&-cost defenders, but accelerating technological change in
their industries caused the corporation to tr$ to convert them to lo&-cost anal$/ers &ho
&ould focus more attention on ne& product and market development. ;nitiall$,
ho&ever, this attempted shift in strateg$ resulted in some culture shock, conflict, and
mi1ed performance outcomes &ithin those units.
;n vie& of the implementation problems involved, some firms do not tr$ to make ma'or
changes in the basic competitive strategies of their e1isting business units. ;nstead, the$
might form ne& prospector +:<s to pursue emerging technologies and industries rather
than e1pecting established units to handle e1tensive ne& product development efforts.
+imilarl$, as individual product-market entries gain successful positions in gro&ing
markets, some firms move them from the prospector unit that developed them into an
e1isting anal$/er or defender unit, or even into a ne&l$ formed +:<, better suited to
reaping profits from them as their markets mature. 5or e1ample, a number of innovative
products developed at %M, such as Post-it repositionable notes, have en'o$ed sufficient
success that ne& business units &ere formed to concentrate on defending them as their
markets matured. Man$ successful entrepreneurial start-ups eventuall$ reorgani/e into
t&o or more business units, one to continue prospecting ne& products and markets and
another to defend the firm,s initial product offering as its market matures.
5inall$, some firms that are technological leaders in their industries ma$ divest or
license individual product-market entries as the$ mature rather than defend them in the
face of increasing competition and eroding margins. .his approach is relativel$ common
at firms such as %M and 4uPont.
:ecause the marketing manager responsible for a given product-market entr$ is usuall$
most closel$ tuned-in to changes in the market environment, he or she bears the
responsibilit$ for pointing out an$ mismatches bet&een &hat is best for the product and
the capabilities of the organi/ational unit to &hich it belongs. .he marketer should
develop a marketing strateg$ that makes the most sense in light of a detailed anal$sis of
the available customer and competitive information and present a strong case for the
resources necessar$ to implement the plan. ;f those resources are not available &ithin
the business unit, or if the marketing strateg$ is inconsistent &ith the +:<,s ob'ectives
or competitive strateg$, top management faces a choice of moving the product to a more
benign unit of the firm or re'ecting the recommended strateg$. ;f the strateg$ is re'ected,
the marketer &ill likel$ have to make compromises to the strateg$ to make it fit better
&ith the competitive thrust of the +:<, even though an attractive opportunit$ ma$ be
lost. :ut if the marketer has great confidence in the recommended strateg$, he or she
might opt to #uit the firm and pursue the opportunit$ else&here, as &as the case &ith
Mim 6atkins as discussed in 01hibit 2.B .
Exhibit 9., !im "atkins Takes a #ike
6hen he &as a product manager at the Pillsbur$ *ompan$ in the earl$ 12C8s, Mames 4.
6atkins became convinced that micro&ave technolog$ represented a ma'or opportunit$
for the packaged food industr$. *onse#uentl$, he developed a marketing plan that
proposed the pioneering development and aggressive introduction of a line of
micro&avable food products, starting &ith micro&ave popcorn. >o&ever, the business
unit he &orked forand the entire Pillsbur$ *ompan$ at that time&as focused on
defending strong positions in established markets, largel$ through incremental line
e1tensions and product improvements. ;n other &ords, it &as pursuing more of an
anal$/er strateg$. 3s a result, top management re'ected 6atkins,s proposal as being too
risk$ and re#uiring resources and capabilities that &ere in short suppl$.
6atkins subse#uentl$ #uit Pillsbur$, founded a ne& firm called Iolden Halle$
Micro&ave, attracted venture capital, hired some food scientists to do the necessar$
RG4, and began to market 3ct;; micro&ave popcorn through large mass merchandisers
such as 6al-Mart. 3s 6atkins had predicted in his original marketing plan, the
availabilit$ of micro&avable foods spurred a rapid increase in consumer demand for
micro&ave ovens, &hich in turn increased demand for more micro&avable foods. >is
ne& compan$ gre& rapidl$, and a fe& $ears later he sold it to *on3gra for man$ millions
of dollars.
:ut don,t be too critical of Pillsbur$. Kike a good anal$/er, the compan$ avoided pla$ing
the risk$ role of the pioneer, but it eventuall$ responded to the gro&ing potential of
micro&ave technolog$ and successfull$ launched its o&n line of micro&avable foods,
including popcorn.