Marketing Strategy and Value Innovation

Lecture 3
Topic: Strategy

Lecturer: Ambreen B. Haris

Institute of Business Management, Karachi
Topic: Strategy

 Article: What is Strategy?

 Author: Michael E. Porter
 Harvard Business Review; Nov-Dec 1996
Article 1: What is Strategy?

 Operational Effectiveness is not a strategy.

 Operational Effectiveness: TQM, benchmarking,
time-based competition, outsourcing, partnering,
re-engineering and change management.

 Necessary but not sufficient

 Sometimes difficult to have sustainable
profitability
 Answer is to move away from viable competitive
positions
Operational effectiveness OE vs.
Strategy
 Objective for both is Profitability
 Works in different ways.
 Strategy: Find that difference that your
company can preserve.
 Great value to customers at comparative
cost.
 Charge higher unit per average price at a
lower average unit cost.
OE vs. Strategy

 OE was heart of Japanese companies in 1980s

 OE: Performing similar activities better than
rivals
 For. Eg. Efficiency, reducing defects, developing
better products faster
 Sony, Canon, sega - exceptions

 Strategic Positioning: performing different

activities from rivals or performing similar
activities in different ways.
Strategy rests on Unique Activities

 Case of Southwest Airlines

 Short-haul, low-cost, point to point service
between mid-sized cities and secondary airports
in large cities.
 Price and convenience-sensitive travelers.
Strategy rests on unique activities

 Case of Ikea
 Ikea targets young furniture buyers who want
style at low cost
 DIY
 Extra services like play area for kids and extended
hours
Finding new positions: The
entrepreneurial Edge
 Mail-order catalogs for customers who want
convenience
 Case of CarMax by Circuit City Stores.
 Refurbishing cars extensively, haggle free, in-
house customer financing
 New positions open up because of change.
The Origins of Strategic Positions

 Three distinct sources

1. Variety-based positioning
 Subset of an industry’s products or services.
 E.g Jiffy Lubes: Specialists in Lubricants for
Automotives. No other car repair or maintenance
 Can serve a large array of customers but mostly
will meet only a subset of their needs.
2. Need-based Positioning:
 Serving most or all the needs of a particular group
of customers.
 Close to traditional thinking about targeting a
group of customers with differing needs.
 E.g. Ikea
 Same customer can have differing needs based on
occasion. E.g. travelling on business, travelling for
pleasure.
 Bessimer Trust Company
3. Access-based Positioning:
 Segmenting customers who are accessible in
different ways.
 Needs might be similar to other customers but
reaching them is different.
 E.g. Carmike Cinemas: movie theatres in towns
with population under 200,000.
 Rural vs. urban-based customers
POSITIONING IS A TAILORED SET OF ACTIVITIES
Strategy

 Creation of a unique and valuable position

involving a different set of activities.
 If one ideal position, there would be no need
for strategy.
 Connection between porter’s competitive
strategies (1985)
 Ikea: Focus
 Southwest Airlines: Cost leadership
 Neutrogena: Differentiation
Sustainable strategic position
requires trade-offs
 Tradeoff create the need for choice and
purposefully limit what a company offers
 Continental Airline start Continental Lite in
competition with Southwest Airlines. It failed.
 Neutrogena soap, trades off aggressive
advertising, supermarkets, deodrants and skin
softeners.
 Instead distribution in drugstores, slow, more
expensive manufacturing process to mold soap.
Fit Drives Both Competitive
Advantage and Sustainability
 OE is about achieving excellence in individual
activities
 Strategy is about combining activities.
 Southwest core competency: whole system
of activities not a collection of parts.
 A strategic fit: locks out imitators by creating
a chain.
Vanguard Activity System
Southwest Activity System
Ikea Activity System
Types of Fits

1. Simple Consistency. E.g Vanguard

2. When Activities are reinforcing E.g. Bic,
Neutrogena
3. Optimization of effort E.g Gap
Rediscovering Strategy

 The failure to choose

 Failure to have a strategy is sometimes due to
external threats.
 Tradeoffs or making choices seems confusing
 Easy to imitate
 OE seems rational, concrete and actionable.
The Growth Trap

 To grow and do everything is a trap

 E.g. Maytag Corporation
 E.g. Neutrogena
Profitable Growth

 Deepening the strategic position rather than

broadening and compromising it
 Leveraging the existing activity system that
any rival can’t imitate.
 The role of leadership is important.
Conclusion

 Core Strategy:
 Define Position
 Make Trade off
 Strategic Fit