Strategic Management: Possible Strategies (Generic, but different) SU3001 Strategic Management: Possible Strategies (Generic, but different) Dr David R Moore

Market Based Strategy Market-based options build on analysis of customers and competitors. Special attention paid to portfolio matrix, value chain, and sustainable competitive advantage (higher than average profit). Intention is to aim for use of generic strategies. Three accepted generic strategies.

Cost Leadership (typically low-cost) Differentiation Focus

Low-cost Leadership Any firm able to achieve lowest costs has a clear sustainable competitive advantage. Low cost producers sell standard “no-frills” product and place considerable emphasis on economies of scale. Profit gained derives from assertion that Low cost Leaders should be able to sell their product at around average market price

Low cost Leader ‘Profit’ Y Average Industry Price Cost of Product to X Cost of Product to Y Low cost Leader ‘Profit’ Y Competitor X Company Y

National (UK) average house price: £202,210 (£244,376) The more tightly the market is defined, the more effective the strategy: Global; National; Regional; Local. National (UK) average house price: £202,210 (£244,376) Scotland average house price: £168,023 (£267,722) Local (Aberdeen) average house price: £248,484 Further focus Scotland v UK: Flat - £134,299. (£230,176). Semi - £154,146. (£210,647). Detached - £258,344 (£328,976). http://www.abdn.ac.uk/business/documents/Aberdeen_Housing_Market_Report_2015Q3.pdf Average prices Aberdeen and suburbs.

Possible Problems: If LcLeaders sell considerably below the average price of the market, there is a risk that customer perception of value will be reduced – product or service seen as “cheap and nasty”. Marketing needs to reflect an accurate perception of the customer’s needs: ‘cheap’ may be an important factor, but ‘value’ may be more important.

Differentiation Output(s) of an organisation meet the needs of (some) customers in the market better than other organisations’. Organisations able to differentiate are able to charge higher than the average market price. Underlying philosophy is concept of market segmentation Differentiation products or services have “bells and whistles” and sold to a specific segment of the market Can the extra cost can be recovered from the customer? Successful differentiation may encourage competitors to copy, and enter same market place segment.

May use either Low-cost Leadership or Differentiation to achieve this. Niche: Strategy selects a segment in market and tailors strategy to serve that segment to exclusion of others. Niche is small and may have limited long-term growth; Niche is specialist and may disappear over time. The organisation’s strategy is to achieve competitive advantage in those segments rather than overall in the market. May use either Low-cost Leadership or Differentiation to achieve this.

Possible Problems: Generic strategies risk becoming “stuck” in the middle as a result of failing in applying each strategy. An organisation in this position will compete at a disadvantage to the cost leader, differentiator of focuser. Organisation will be much less profitable than competitors achieving generic strategy. Possible to implement a more specific strategy as identified through tools such as the strategy clock.

Route 1 – No frills; likely to be segment specific Route 2 – low price; risk of price war and low margins Route 3 – hybrid; low cost base and reinvestment in low price and differentiation Route 4 – Differentiation; high perceived value by the user Route 5 – Focused differentiation; perceived added value to a particular market segment Routes 6, 7, & 8 – likely routes to failure!

Before an organisation can make strategic decisions it must recognise its own capabilities and its core competencies (internal analysis). SWOT Draws together internal and external analysis and evaluates the strategic capabilities of the organisation examined: Strengths and Weaknesses – internal analysis Opportunities and Threats – external analysis

STRENGTHS Market dominance Economic scale Low-cost position Good leadership and management skills Strong financial and cash resource Manufacturing ability, age of equipment, etc Good reputation, Etc., etc.

OPPORTUNITIES New markets and segments New products Diversification opportunities Market growth Competitor weakness Change in political / economic environment, Etc., etc.

Some problems: Assumption that the analysis is bound to be correct if it contains every issue and is truly comprehensive – this is wrong! Compilation of long lists with little logic, argument or evidence shows poor consideration and lack of judgement has been used. Avoid them!

Strategy Process Overview: Goal-setting; clarify the vision. Analysis; gather much relevant information and data. Strategy formation; review the information. Strategy implementation; the action stage. Strategy monitoring;  performance measurements.

Strategic Management: Possible Strategies (Generic, but different) SU3001 Strategic Management: Possible Strategies (Generic, but different) Dr David R Moore