Positioning School

Lecture 4

First things first: What is positioning?

Positioning: Relative place, situation, or standing (Merriam-Webster).
In strategy: A relative standing in the economic marketplace vis a vis other actors/competitor.
The positioning school proposed that only certain strategies (or positions) are desirable in any
given industry and that these strategies/positions can be defended against competitors.

Positioning School: Activity

Positioning School: Origins

• Military: Delineation of types of strategies and matching those to the most suitable
conditions resulting in ‘maxims’: general rules of conduct.
• Influenced by Sun-Tzu’s ancient writing ‘The art of war’
• Still influential: sports, politics, business, and social networks (e.g., real housewives of
Beverly Hills).
• Difference: Organization strategy assumes competition; military strategy assumes conflict.
The Art of War - Grossly Oversimplified into 2 Big Ideas

An analyzable and observable condition in the military/organizational environment informs

strategy.

Positioning School: Origins

• Strategy boutiques (1960s-1980s).  consultancy
companies
• Positioning concepts as imperatives for organizations.
• Growth-share matrix
• Experience curves
• Toolsets

• Causal effects
• Systematic approach for relationships between external conditions and internal
strategies.
• Porter:
• Five forces
• Generic strategies
• Value chains

Positioning School: Characteristics & Premises

• Strategy making is a controlled, conscious process that creates deliberate strategies.
• Focus on generic strategies.

• Strategies are generic, identifiable positions in the marketplace.

• Marketplace is economic and competitive.
• Strategy formation is selection of generic position based on analytical calculation.
• Analysts (often external consultants) play a major role.

Positioning School: Generic Strategies

• An organization can only (successfully) apply one strategy. (However, different companies
can be different position in the same time)
• Analysts create and deliver results to managers who officially make decisions.
• Strategies are full-blown, and only afterwards implemented.

Positioning School: Process

Positioning School: Industry structure

Positioning School: Porter’s Five Forces
• Threat of new entrants: How easy is it for new entrants to enter the market?
• Economies of scale, start-up costs, customer loyalty, etc. à ‘barriers to entry’
• Bargaining power of suppliers: How many alternative suppliers are available?
• Bargaining power of customers: How dependent is the firm on a particular (group) of
customers?
• Threat of substitutes: Are there many substitute products in other markets?
• Intensity of rivalry: How competitive is the industry?

Positioning School: Porter’s Value Chain

• Based on the premise that a firm can be disaggregated to primary and support activities.
• Primary activities: Directly contributing to the flow of products/services to customers.
• Secondary activities: Support to primary activities.

Positioning School: Defend

• According to Porter’s view:
• Analyze industry structure à Identify & decide on position à occupy/create position
DEFEND
• Defensive strategies:
• Create economies of scale/scope;
• Lobby for regulations;
• M&As, alliances, etc.

Positioning School: Defensive Marketing1

This is not in the book
Roberts (2005, see link), proposes that by a pro-active analysis of (potential) rivals a firm can
anticipate rivals’ moves and act before they strike.

Positioning School: Game Theory

• Useful to examine competition and cooperation within small groups of firms.
• Modelling what rational, self-interested actors are likely to do in well-defined situations.
• Prisoner’s Dilemma: Cooperation would lead to best outcome, but because
communication is not possible, both players defect – outcome is not optimal.

Consider the rivalry between Coca-Cola and PepsiCo2. Coca-Cola wants to drop prices to expand
market share. Consequently, Pepsi will drop its prices to retain its market share. A price drop by
either firm is considered as defecting based on an implicit agreement to keep prices high and
maximize profits.

• Cooperation maximizes profits in the market (total 1000).

• Defection minimizes profits in the market (total 500).
• However; if the other party co-operates, you’ll be better of cheating.
• Side Note: In the scenario where both parties cooperate, and prices are higher than needed
there will be a ‘deadweight loss’.
• Deadweight loss: The loss that is equal to the benefits foregone by consumers who would
buy the product/service if it was priced according to defect price, but do not buy the product with
the cooperate price as this is higher than the price they are willing to pay.

Deadweight loss
This is not in the book
Check out:
https://pressbooks.bccampus.ca/uvicecon103/chapter/8-1-
monopoly/

Positioning School: Collusion

This is not in the book
That actors in the Prisoner’s Dilemma are not allowed to communicate is aligned with many anti-
collusion laws and agreements. Yet, collusion does happen.
• Explicit collusion: Firms in an industry/market directly negotiate agreements to reduce
competition (and cooperate).
• Mafia
• OPEC
• Recruitment agencies (UK 2004-2006)
• Construction fraud (NL 1990-2000)
• Tacit collusion: Firms in an industry/market cooperate to reduce competition, but they do
not have direct contact.
• Salt producers (UK 1980s)

Positioning School: Summary assumptions

• CEO/Head of organization is responsible for overall process.
• Analysts have a crucial role.
• Strategies appear full blown and detailed, made explicit, so they can be implemented.
• Analysis builds on industry structure that determines viable firm positions taking into
account competitive advantage.
• Useful in stable environments.

Positioning School: Criticism/limitations

• Separates thinking from acting.
• Excessive focus on competition.
• Bias towards the big and established.
• Reinforces existing categories.
• Economics over politics.

Positioning School: Criticism/limitations

• Criticizing is easy.
• Let’s try to understand how this school emerged and became influential although there
seem to be “obvious” flaws.

Positioning School: Contributions

• Analysis of environment
• Tools: Porter’s Five Forces and Value Chain