Competitive Positioning Strategy and Generic Recommendations for Management - Essay Example

School: Topic: Competitive positioning strategy and generic recommendations for management Lecturer: The current global market suffers competition and the competitive firm takes the market by force. The force with which the market is taken is directly defined by the extent to which the firm undertakes competitive positioning. This is because competitive positioning helps companies to identify the values or advantages they have over competitors that may be transferred unto the customer in creating competitive advantage. Competitive positioning has been noted to have both theoretical and practical underpinnings. Theoretically, a company may use the Bowman’s strategy clock to identify its competitive positioning strategy. This is because the Bowman’s strategy close helps companies to identify their unique competitive positioning based on their products or service and the pricing model they want to use with these. In a more practice term, companies are found to gain the best form of advantage with their competitive positioning when they are able to have a tangible competitive positioning action plan. This action plan may be composed of several practical tasks to be performed, including market profiling, customer segments, competitive analysis, among others. Contents Abstract 1 Introduction 4 Overview of competitive positioning and competitive advantage 4 Acquiring competitive advantage through the theoretical perspective of competitive positioning strategy 5 Low price/Low value 6 Low price 7 Hybrid 7 Differentiation 8 Focused differentiation 9 Increased price/standard product 10 High price/low value 10 Low value/standard price 11 Sustaining competitive advantage through practice 12 Market profile 12 Customer segments formation 13 Competitive analysis 13 Positioning strategy 14 Value proposition 14 Dominant competitive advantages 15 Conclusion 16 References 17 Introduction The world can now be referred to as a global village for several reasons. One of the most reasons is the fact that businesses can now move very easily from one point to another in attempt to expanding their market presence. But as companies move from one point to the other to do business, it is always important that they will appreciate the fact that there is competition within the places they go, a reason of which they must strategically place themselves in a way that makes them take all needed advantage on the market. Brown (2008) indicated that in any competitive market, the only guarantee for individual companies to succeed is for them to have a competitive advantage that is lasting. But for such an enviable competitive advantage to be developed, it is very important that a company will know what it has within its means and how it is positioned in the larger market that serves as an opportunity for improving its value (Porter, 1996). Overview of competitive positioning and competitive advantage Baumeister and Leary (2005) noted that customers today are highly enlightened about value creation, a reason for which they would select value as the best force factor for doing business with one company and not the other. This is where competitive positioning becomes an important phenomenon for the companies. This is because competitive positioning has been explained to be the process of identifying a company’s value relative to what competitors have (Magadley & Birdi, 2012). Competitive positioning is very important in acting as the first step to business growth. This is because it is only when the values within a company are known that the best means to utilize these to lead to growth can be talked about (Adler, 2002). It is not surprising that competitive positioning have always been linked with competitive advantage, which explains the factors and conditions within a company that makes consumers choose that company other that of other competitors. With the explanation given to competitive positioning, one gets the understanding that an accurate identification of a company’s values can ensure that companies are able to engage in competition by either trying to stay ahead of competitors in terms of value or catching up on competitors who may have better value (Brown & Scott, 2011). Acquiring competitive advantage through the theoretical perspective of competitive positioning strategy There are a number of theories and models that have been used to support the validity of competitive positioning as the starting point for any business growth agenda. One such theory or model is Bowman’s strategy clock. Bowman’s strategy clock has simply been referred to as a model that makes it possible for businesses to make sense of eight competitive positions within any typical market. This means that the Bowman’s strategy clock offers the company’s the competitive positions, based on which they are able to determine where they are or could best be to create value (Kotler, 1997). The eight aspects of the model and how they explain competitive positioning in theory have been presented in this section. By rightly developing their competitive positioning strategy, companies are then offered the opportunity of basing on these to achieve competitive advantage (Brown & Scott, 2011). This is because the competitive positioning strategy equips companies with they can do differently to achieve growth. Low price/Low value Using the low price/low value competitive position has been noted to be the bargain basement bin, which explains the position that a company is placed when it finds itself in a market where it is forced to compete with lack of differentiated value (Sankar, 2003). In essence, companies within this position are not considered to have much value in the products or services they offer. There are a number of factors that have been noted to account for such absence of value, including low intensity of competitive rivalry within the market or industry in question (Clulow, Gerstman & Barry, 2003). Customer perception and need for a particular product or service being provided may also create such form of low value. This is because when customers do not regard the use of a product or service highly, they place lesser expectation on its value (Kotler, 1997). Theoretically, when companies find themselves in a market or an industry with low quest for value, they are forced to also charge low prices. This is why this competitive position is referred to as the low price / low value position. In principle, low prices are used at this position because customers are hardly ready to pay more for a product or service they place less value on (Porter, 1996). Low price This is a competitive position used to describe companies known as low cost leaders. It has been explained that companies within this competitive position are different from others because they have the ability to drive prices low even though their values may not be low (Rainer & Turban, 2009). Low price is tagged in the Bowman’s strategy clock as an important competitive position because companies that use this positioning see it as a major way by which they attract the kind of customers their competitors cannot attract (Magadley & Birdi, 2012). There are several factors that have been attributed to the success of the low price competitive positioning. One of this is the ability of a company to minimize its cost of production. Theoretically, the extent of a company’s production cost directly affects its pricing strategy (Hampden-Turner & Trompenaar, 2010). This is because when cost of production is high, prices need to go high to avoid losses. The real value that companies using the low price competition positioning has therefore has to do with their ability to minimize cost through lean production (Comstock, Gulati & Liguori, 2010). Hybrid The hybrid position is made up of the combination of moderate price and moderate differentiation (Ireland, 2009). When compared to those offering low price, it would be seen that hybrid companies have products or services that may be generally regarded as higher value. Because of this, they may raise their prices higher than low price companies (Porter, 2008). A major advantage that places a company at the hybrid competitive position is the balance between volume and earning. This is because like those in the low price, they are forced to lower their production cost, making it possible for them to produce as many volumes of products as they want (Frank, 2008). But because of the moderate prices on their moderate value products, chances that there will be a rush for these products are high. A typical example of companies using the hybrid competitive position can be cited as discount departmental stores. This is because such stores have a reputation for their value products and yet charge moderate prices. Differentiation Even though the overall essence of competitive positioning is to find ways in which a company may differentiate itself from its competitors, differentiation when used as a competitive position may mean something more (Perreault, Cannon & McCarthy, 2014). Companies using differentiation competitive positioning tend to focus more on the provision of higher perceived value products and services (Baker, 2008). The advantage that these companies have for which reason they are able to offer such high perceived-value products and services include a highly skilled and innovative technology and workforce that makes it able to invent and introduce unto the market new products perceived to be high in value than what already exists (Rainer & Turban, 2009). One other advantage that makes differentiation possible is the operating capital of the company, where companies with higher operating capital have been noted to have the luxury of offering differentiation products and services given the fact that they have the means to affording the cost involved in production (Hampden-Turner & Trompenaar, 2010). Once differentiation is used, there is a corresponding increase in prices of products but the main attract for these companies is the fact that customers who are more concerned about value will select their products ahead of what other competitors offer. Focused differentiation In focused differentiation, companies introduce a new position in addition to the differentiation offered and this is focused positioning (Porter, 2008). A company may tout itself as having a focused differentiation competitive position when it has a uniquely identified market segment to which it offers its high perceived value products or services. By implication, the attention of such companies is not necessarily in the advantage they have in terms of the differentiated products and services but the advantage they have with the focused market that serves as a ready market for its products and services (Ireland, 2009). In effect, whiles those using differentiation target the larger market, those using focused differentiation are very specific about customers and that is the focus. Even though the focused differentiation may not guarantee a very large market size, Hubalek (2000) posited that it is very good in ensuring that a constantly ready to buy market exists for the company. Increased price/standard product This competitive position has been likened to a gamble but there are several theoretical justifications as to why it may work as a competitive positioning strategy. On the whole, when companies find themselves positioned at the increased price/standard product level, they simply decide to increase their prices without an increase in the value they offer (Portes & Rey, 2005). It has been deemed as a gamble because the increased prices must b accepted before they can enjoy profitability. There are a number of economic factors that can lead to increased price/standard product. One of these is when there is a sudden increase in utility prices or the exchange rate drops sharply within a very short time frame (Sørensen & Yosha, 2011). In any of these conditions, the cost of raw materials are likely to go up, meaning that when the same value of products or services are offered at the prices they used to be, the company will run at a lost. This is highly technical to use as competitive positioning because it is based on the assumption that buyers will be aware of the economic factors leading to the increased prices and embrace the new prices (Klenk & Komar, 2003). High price/low value This is similar to increased price/standard product but there is some level of difference when it comes to price of products and services. This is because in high price/low value, the prices are not just increased due to market conditions or factors. Rather, they prices are known to be high from the very onset (Meadows, 2008). In theory, this positioning has been found to work in cases where there is monopoly on the market (Kets de Vries, 2013). That is, because there is only one supplier of a particular type of product or service, that supplier or firm may decide to increase its prices without increasing its value (Trompenaar & Wooliams, 2003). Once prices are increased in such a situation, there is still chance that there will be patronage because of the scarcity of the product or service in question. The advantage here that creates the positioning therefore has to do with the monopoly that is enjoyed. Low value/standard price This may sound like low price/low value but it is not exactly the same as it. In low value/standard price, prices are not low from the onset. Rather, they become low due to prevailing factors on the market or within the company, which has led to a sudden or automatic low value (Arvanitis &Mikkola, 2012). Baker (2008) observed that most of the factors that may result in low value/standard price are internal, including the need to do away with old stock so as to bring in new ones that have higher value. Again, old stock that may be seen to have outlived their market relevance and demand trend may also be forced to be priced at standard levels (Collins, 2007). It is important to note that in theory, the company does not offer very low prices even though the value has reduced because doing so would mean that there will be lack of capital to start a new set of production (Khurana, 2002). It is for this reason that low value/standard price is considered risky to be used as a competitive positioning strategy since it may not meet the nature of consumer behaviour on the market (Meadows, 2008). Sustaining competitive advantage through practice In order to ensure that the competitive positioning concept does not only remain a theory but it practiced to yield a sustainable competitive advantage, Asdrubali, Sørensen and Yosha (2013) recommended the need for mangers to undertake competitive positioning action plan. A typical competitive positioning action plan is made up of specific tasks that the company performs in order to stay competitive. Six such tasks are discussed below. Market profile Market profiling is performed with the aim of helping the company have a deeper and better understanding of the market in which it operates (Trompenaar & Wooliams, 2003). This is because it is only when the overall market and its constituents are well understood that an individual company can truly know where it is positioned in such a market (Atwater & Pittman, 2006). The market profile therefore contains such inputs of the market including the size, competitors and stage of growth of the market. Access to such information makes decision making based on the market very easy and accurate. Such knowledge gained also affects the positioning that one gives to his or her company. Customer segments formation As part of the competitive positioning action plan, the company must practically be engaged in knowing its customer segments. Whiles discussing the theory, knowledge of the segment were mentioned as being important in such a competitive position as the focused differentiation. Labovitz (2005) actually observed that idea of the customer segment is needed even when a focused strategy is not being used. This is because the customer segment must be understood in order to know if the competitive positioning strategy being offered to it can be accepted by it (Aviat & Coeurdacier, 2007). One important information which the company may want to search for as part of the customer segment task is the identification of groups of prospects that have similar wants and needs. Competitive analysis Competitive analysis is one other task that must be performed under the overall competitive positioning action plan. As the name implies, the competitive analysis is in place to ensuring that the company understands how well it is placed in comparison to its competitors. Using a SWOT analysis can therefore be used as an important model for performing a competitive analysis that aims to know the internal position of the company (Conger, 2000). To know the competitive of the company in the larger industry, a PEST analysis may also be used (Sankar, 2003). While undertaking all these forms of analyses, it is always important to have the reason for doing them in mind, which is to tell how different the company is when compared to its competitors. Positioning strategy Greater part of how the company can practically undertake a positioning strategy has already been discussed under the Bowman’s strategic clock above. When putting the theory to practical use, the company may want to personally step out and go to the market, where it uses such means and procedures as qualitative data collection and quantitative data collection to measure or determine the needs of its customers in the segment formed. Once the segment has been contacted and it has been able to tell exactly what the segment require by way of product and price, it is then possible to balance these two with the selection of an appropriate positioning that meets the needs of customers. In effect, the positioning strategy to be used must tell how the company may offer its advantage based on the dynamics of the market (Portes & Rey, 2005). Value proposition According to Comstock, Gulati and Liguori (2010), no matter how low the value requirement of a competitive positioning may be, it is important that there will be an extent of value that is equal or above what customers require. On the whole, the extent of value to be offered will largely depend on the positioning strategy that is used. That is, the more value oriented the positioning strategy is, the more value the company must propose to offer (Perreault, Cannon & McCarthy, 2014). It is also important for companies to appreciate the fact that value does not always come from products or services offered. Rather, there may be several other means to doing this, including the use of such intangible thing as customer satisfaction promotions (Clulow, Gerstman & Barry, 2003). Dominant competitive advantages Even though the eventual outcome of the competition positioning is to create a competitive advantage, it is very understandable that within the company, there may be clarified and distinguished strengths that help it to offer whatever values it has more easily. These clarified and distinguished strengths when put together constitute the dominant competitive advantage for the organisation. It is expected that as part of the action plan, all such dominant competitive advantages and how they may be used for the growth agenda of the company be rightly stated (Homburg, Sabine & Harley, 2009). Ways by which the competitive advantage may be nurtured to grow beyond its current state must also be made very explicit in the action plan. Aaker (2008) lamented that most companies create competitive advantage but fail to nurture these to grow. It is against this backdrop that the action plan must clearly state and explain sustainability policies that may be used in ensuring that the dominant competitive advantage of the company can grow. Conclusion The global market may not be referred to as a fair playing ground because the resources available to individual companies that make it possible for them to compete may not be exactly the same. However, through such phenomenon as competitive positioning, companies are given an opportunity with which they can compete very effectively and to ensure growth. The reason this is said is that the report has been useful in appreciating the fact that competitive positioning creates a modality with which any company at all is able to have a very visual and clear scene of the market it finds itself, as well as the competitors with whom it competes. This is often done as the company tries to base on theory to find advantages within its means that differentiates it from other competitors. Once these advantages are known, they are turned into value creation opportunities, which make the companies highly acceptable to the consuming public. An overall recommendation that will be used to conclude the report is the need for companies to ensure that once they create competitive advantage through the use of competitive positioning, they will be able to nurture these to become sustainable. It is such sustainability that will ensure that they remain competitive in the market for very long a time. References Aaker, D. (2008). Strategic Market Management. New York: Alpha Press Limited. Adler, N. J. (2002). International Dimensions of Organizational Behavior. Cinncinati, OH, USA: Thomas Learning. Arvanitis, A & Mikkola A. (2012). Asset-Market Structure and International Trade Dynamics, The American Economic Review (Papers and Proceedings), 86, pp. 67-70. Asdrubali, P., Sørensen B. E., and Yosha O. (2013). 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