Selecting marketing strategies
two different strategic approaches to marketing will be considered:
- Porters generic strategies
- Ansoffs matrix
Porter Generic Strategies
every business strategy needs to find a basis for competitive advantage that can be defended afainst the forces of competition. this means that business strategy must involve the analysis of Porters 5 competitive forces.
the 5 forces analysis considers thefollowing factors:
- new entrants
- substitue products
- the power of buyers
- the power of sellers
- the level of competition between firms
Porters work suggest that firms achieve substantive competitive advantage do so through one of 3 generic strategies - cost leadership, differentiation and focus
- by pursuing a strategy of cost leaderhsip, a firm sets out to become the lowest cost producer in its industry.
- it does this by producing on a large scale and gaining economies of scale.
- its products will tend to be standard and mass produced
- a low-cost strategy may arise because a business identifies an opportunity to reduce costs. this may result from a nuber of soruces
- the intro of a new method of production
- discovery of a new source of supply that is cheaper than that available to competitors
- new technology allowing a business to cut costs
- a new method of distribution or rental payments
- improvements in productivity that reduce unit costs
- permanent cost leadership is difficult to achieve but may be created by:
- a patent on the process that allows a business to reduce unit costs
- achievements of economies of scale by the business as a result of its scale
- creating barriers to entry that prevent competition from eroding its market
- in order to compete in a mass market, a firm needs to make sure that its product is different from competitors products.
- if consumers value this difference, it will benefit the firm in two ways:
- increased sales volume
- greater scopefor charging a higher price
- differentiation, aka value leadership, can be based on a number of characteristics, such as :
- superior performance
- product durability
- after sales service
- design, branding and packaging to improve attractiveness of a product
- clever promotional and advertising campaigns to boost brand images and sales
- different distribution methods
- pursuing a policy of differentiation can add value by creating a USP.
- this may be real, such as a different design or different components to it, may be based on image and branding.
- the key to success with this strategy is to try to reduce costs in areas that do not affect the uniqueness of the product and to identify the features that add value to the product without leading to significant increases in costs.
- by pursuing focus on a strategy, a firm picks a segment of the market that is poorly served by the main players in the industry and then adopts either a cost leadership strategy or a differentiation strategy to target the segment or niche
- is another decison making tool for marketing planning and developing a suitable marketing strategy.
- it provides a useful framework for analysing a range of strategic ptions in relation to risks and rewards
existing products, existing markets
- is a low risk strategy because the firm is working in areas in which it has both knowledge and experience
existing products, new markets
- more risky because firm will not be familar with the needs and wants of the market
new products, existing markets
- more risky than simply trying to increase market chare, will need extensive R&D funding
new products, new markets
- high risk strategy because it requires both product and market development and may be outside the core competencies of the firm
assessing the effectiveness of marketing strategies
- Porters Generic Strategies - this model can be used to assess the possible effectiveness of a strategy involving low cost, differentiation or focus. in each case the model will be used to examine the following feature of the atrategy:
- whether the strategy provides a significant advantage to the business, through a much lower level of costs in comparison to competitors, clear differentiation from competitors products or a successful focus not enjoyed by rival in the nich market
- whether the strategy can be maintained over a long period of time, so that there will be sufficient time in which the business can reap its rewards
- whether the strategy appeals to sufficient numbers of customers to allow the business to reach its targets
- ansoffs matrix- this model can be used to assess the degree of risk involved in a particular market strategy. in general terms, market penetrations is least risky when considering the 4 quadrants. prod development and market development increase the levels of risk facing a business, and diversification is considered the most risky. however, it can oversimplify the level of risk and doesnt take account of what competitors are doing or what they are planning for future, nor does it take account of how competitors will react to the selected strategy and in what timescale.
methods of expanding into international markets
- setting up a base overseas
- joint ventures
- achieving growth
- boosting profitability
- spreading costs
- helping international competitiveness
- improving understanding of markets
- cultural, social and language factors
- business practice
- economic/operational/political factors