Michael Porter suggests four basic competitive positioning strategies thatcompanies can follow — three winning strategies and one losing one.10 The threewinning strategies are:Competitive Strategies • 1, Overall cost leadership. Here the company works hard to achieve thelowest costs of production and distribution, so that it can price lower thanits competitors and win a large market share. Texas Instruments andAmstrad are leading practitioners of this strategy. In the steel industry, big isnot beautiful any more; small mini-mills, including Nucor and ChaparralSteel, which use electric furnaces to convert scrap metal, arc undercuttingthe large integrated suppliers.2, Differentiation. Here the company concentrates on creating a highlydifferentiated product line and marketing programme, so that it comesaeross as the class leader in the industry. Most customers would prefer toown this brand if its price is not too high. Bose and Glaxo follow thisstrategy in ultra-small speakers and ethical drugs, respectively.3, Focus. Here the company focuses its effort on serving a few marketsegments well rather than going after the whole market. Many firms innorthern Italy excel at this. Among them are Luxottiea, the world's leadingmaker of spectacle frames, pasta makers Barilla and many dynamic smallfirms in the Prato textile industry. In 1993 Nbvo No relist was Denmark'stwelfth largest company by turnover, but made more profits than any otherby focusing on Insulin and industrial enzymes. It is a research-led companythat 'continues to take market share away from Its competitors on the backof sophisticated delivery systems'."Companies that pursue a clear strategy - one of the above - are likely to performwell. The firm that carries out that strategy best will make the most profits. Firmsthat do not pursue a clear strategy - middle-of-the-roaders — do the worst.Olivetti, Philips and International Harvester all came upon difficult times becausethey did not stand out as the lowest in cost, highest in perceived value or best inserving some market segment. Middle-of-the-roaders try to be good on allstrategic counts, but end up being not very good at anything.

More recently, two marketing consultants, Michael Treacy and FredWiersema, offered a new classification of competitive marketing strategies. Theysuggest that companies gain leadership positions by delivering superior value totheir customers. Companies can pursue any of three strategies — called valuedisciplines - for delivering superior customer value. These are:

1. Operational excellence. The company provides superior value by leading itsindustry in price and convenience. It works to reduce costs and to create alean and efficient value delivery system. It serves customers who wantreliable, good quality products or services, but who want them cheaply andeasily. Examples include Virgin Direct and Dell Computer.2. Customer intimacy. The company provides superior value by preciselysegmenting its markets and then tailoring its products or services to matchexactly the needs of targeted customers. It specializes in satisfying unique

eustomer needs through a close relationship with and intimate knowledge ofthe customer. It builds detailed customer databases for segmenting andtargeting, and empowers its marketing people to respond quickly tocustomer needs. It serves customers who are willing to pay a premium to getprecisely what they want, and it will do almost anything to build long-termcustomer loyalty and to capture customer lifetime value. Examples includeHarrods, BA and Kraft General Foods. Product leadership. The company provides superior value by offering acontinuous stream of leading-edge products or services that make their own and competing products obsolete. It is open to new ideas, relentlesslypursues new solutions, and works to reduce cycle times so that it can getnew products to market quickly. It serves customers who want state-of-the artproducts and services, regardless of the costs in terms of price orinconvenience. Examples include Nokia, Tefal and Nike.

Some companies successfully pursue more than one value discipline at thesame time. For example. Federal Express excels at both operational excellenceand customer intimacy in the US. However, such companies are rare - few firmscan be the best at more than one of these disciplines. By trying to be good at all ofthe value disciplines, a company usually ends up being best at none.Treacy and Wiersema have found that leading companies focus on and excelat a single value discipline, while meeting industry standards on the other two.They design their entire value delivery system to support single-mindedly thechosen discipline. For example, Benetton knows that customer intimacy andproduct leadership are important. Compared with other clothes shops, it offersgood customer service and an excellent product assortment. Still, it offers lesscustomer service and less depth in its product assortment than some otherretailers do. Instead, it focuses obsessively on operational excellence - onreducing costs and streamlining its order-to-deli very process in order to make itconvenient for customers to buy just the right products at the lowest prices.Classifying competitive strategies as value disciplines is appealing. It definesmarketing strategy in terms of the single-minded pursuit of delivering superiorvalue to customers. It recognizes that management must align every aspect of thecompany with the chosen value discipline - from its culture, to its organizationstructure, to its operating and management systems and processes.

Where to compete?

Segment StrategyAfter evaluating different segments, the company must now decide which and howmany segments to serve. This is the problem of target-market selection. A targetmarket consists of a set of buyers who share common needs or characteristicsthat the company decides to serve. Figure bellow shows that the firm can adopt oneof three market-coverage strategies: undifferentiated marketing, differentiatedmarketing and concentrated marketing.

* Undifferentiated MarketingUsing an undifferentiated marketing strategy, a firm might decide to ignoremarket segment differences and go after the whole market with one offer.

Three alternative market-coverage strategic?be because there are weak segment differences or through the belief that theproduct's appeal transcends segments. The offer will focus on what is common inthe needs of consumers rather than on what is different. The company designs aproduct and a marketing programme that appeal to the largest number of buyers.It relies on quality, mass distribution and mass advertising to give the product asuperior image in people's minds. Advertising and promotions have to avoid alienatingsegments, and so are often based on product features, like 'Polo, the mintwith the hole', or associated with a personality of broad appeal, like Esso's tiger.Un differentiated marketing provides cost economies. The narrow productline keeps down production, inventory and transportation costs. The undifferentiatedadvertising programme keeps down advertising costs. The absence ofsegment marketing research and planning lowers the costs of market researchand product management.Most modern marketers, however, have strong doubts about this strategy.Difficulties arise in developing a product or brand that will satisfy all consumers.Finns using undifferentiated marketing typically develop an offer aimed at thelargest segments in the market. When several firms do this, there is heavy competitionin the largest segments and neglected customers in the smaller ones. The

result is that the larger segments may be less profitable because they attractheavy competition. Recognition of this problem has led to firms addressingsmaller market segments. Another problem is erosion of the mass market ascompetitors develop new appeals or segments. For example, Polo mints havefaced attacks from competitors aiming at different benefit segments: Extra Strongmints for people who want a strong taste and Clorets as breath fresheners. At thesame time, Polo faces direct competition from similarly packaged Trobor Mints inEurope and Duplex in .south-east Asia.

Differentiated Marketingdifferentiated marketingA marker-coverage strategy in which a firm decides to target several market segments anddesigns separate offers for each.Using a differentiated marketing strategy, a firm decides to target several marketsegments and designs separate offers for each. General Motors tries to produce acar for every 'purse, purpose and personality'. By offering product and marketingvariations, it hopes for higher sales and a stronger position within each marketsegment. GM hopes that a stronger position in several segments will strengthenconsumers' overall identification of the company with the product category. Italso hopes for greater repeat buying because the firm's offer better matches thecustomer's desire.Originally Martini products were not marketed separately. Advertisingconcentrated on the Martini brand and its exciting international lifestyle:'anytime, anyplace, anywhere'. That changed to having the main Martini brandsaimed at clearly defined target markets:eoiicentrated marketingA market-coverage strategy in which a firm goes after a large share of one or a fewsubmarkets.• Martini Rosso, the most popular variety, is aimed at a broad sector of themarket. Its ads show it being enjoyed by an attractive young couple with'Our martini is Rosso' or by a small chic group relaxing in elegant surroundings: 'The bitter sweet sensation'.• Martini Bianco is targeted at people in their twenties who like light alcoholic drinks. It is shown being casually drunk with ice by a sporty, boisterous set, out of doors: 'The sunny side of life'.• Martini Extra Dry is for the sophisticated drinker. The advertising focuses onthe bottle and the product in an atmosphere of quiet sophistication.4-1

Differentiated marketing typically creates more total sales than does undifferentiatedmarketing. KLM could fill all the seats on its New York flights chargingAPEX fares, but its own income and the number of flyers are increased bysegmenting the market. In the main cabin or on the upper deck of each Boeing747-400 taking off from Sohiphol Airport, there will be about 300 economypassengers. Some of these, holding restricted APEX tickets costing aboutDFl 1,000, will be sat next to people who have paid over DFl 2,000 for the sameflight. They may have booked late or have an open ticket. Forward of them will beabout SO Flying Dutchmen, KLM business-class passengers whose companies paidDFl 6,000 for each seat. In the extreme nose could be about 20 first-class passengersat over DFl 10,000 each. The flight could not operate if everyone paid APEX

fares because the Boeing would be full before the airline had covered the operatingcost. If only full economy fares were charged, many passengers could notafford to fly, so an economy-class 747-400 could not he justified. Also, some firstclasspassengers would be deterred from travelling with the crowd. First-classpassengers demand big seats, and their catering alone costs over DFl 250 each,but they help maximize the revenue of the airline and the number of peopleflying.

Concentrated MarketingA third market-coverage strategy, concentrated marketing, is especiallyappealing when company resources are limited. Instead of going after a smallshare of a large market, the firm goes after a large share of one or a few submarkets.For example, Oshkosh Trucks is the world's largest producer of airportrescue trucks and front-loading concrete mixers. Recycled Paper Productsconcentrates on the market for alternative greeting cards, and Ecover concentrateson a narrow segment of environmentally friendly detergents. Concentratedmarketing is an excellent way for small new businesses to get a foothold againstlarger competitors.Through concentrated marketing, a firm can achieve a strong market positionin the segments (or niches) it serves because of its greater knowledge of thesegments and its special reputation, Tt also enjoys many operating economiesbecause of specialization in production, distribution and promotion. A firm canearn a high rate of return on its investment from well-chosen segments.At the same time, concentrated marketing involves higher than normal risks.A particular market segment can turn sour. For example, when the 1980s boomended, people stopped buying expensive sports cars and Porsche's earnings wentdeeply into the red. Another risk is larger competitors entering the segment. Highmargins, the glamour and lack of competition in the sports car market hasattracted Mazda, Toyota and Honda as powerful competitors in that market.Fashion changes can also damage the niche's credibility. The yuppies who madePorsche's fortunes in the 1980s are over the recession, but have grown up andnow have kids and a different lifestyle. Big. chunky, luxuriously appointed 4 x 4land cruisers are what they want now.

• Choosing a Market-(Coverage Strategy)Many factors need considering when choosing a market-coverage strategy. Thebest strategy depends on company resources. Concentrated marketing makessense for a firm with limited resources. The best strategy also depends on thedegree of product variability. Undifferentiated marketing is suitable for uniformproducts such as grapefruit or steel. Products that can vary in design, such ascameras and cars, require differentiation or concentration. Consider theproduct's stage in the life cycle. When a firm introduces a new product, it is practicalto launch only one version, and undifferentiated marketing or concentratedmarketing therefore makes the most sense. In the mature stage of the product lifecycle, however, differentiated marketing begins to make more sense. Anotherlactor is market variability. Undifferentiated marketing is appropriate whenbuyers have the same tastes, buy the same amounts and react in the same way tomarketing efforts. Finally, competitors' marketing strategies are important.

When competitors use segmentation, undifferentiated marketing can be suicidal.Conversely, when competitors use undifferentiated marketing, a firm can gain byusing differentiated or concentrated marketing.

Whom to compete against?

Identifying the Company's CompetitorsNormally, it would seem a simple matter for a company to identify its competitors.Coca-Cola knows that Pepsi is its strongest competitor; and Caterpillarknows that it competes with Komatsu. At the most obvious level, a company candefine its product category competition as other companies offering a similarproduct and services to the same customers at similar prices. Thus Volvo mightuse Saab as a foremost competitor, but not Fiat or Ferrari.In competing for people's money, however, companies actually face a muchwider range of competitors. More broadly, the company can define its productcompetition as all firms making the same product or class of products. Volvocould see itself as competing against all other car manufacturers. Even morebroadly, competitors might include all companies making products that supplythe same service. Here Volvo would see itself competing against not only other carmanufacturers, but also the makers of trucks, motor cycles or even bicycles.Finally and still more broadly, competitors might include all companies thatcompete for the same consumer's money. Here Volvo would see itself competingwith companies that sell major consumer durables, foreign holidays, new homesor extensive home repairs or alterations.Companies must avoid 'competitor myopia'. A company is more likely tobe 'buried' by its latent competitors than its current ones. For example,Eastman Kodak worries about growing competition for its film businessfrom Fuji, the Japanese filmmaker. However, Kodak faces a much greaterthreat from the recent advances in 'digital camera' technology. Thesecameras, sold by Canon and Sony, take video still pictures transmitted ona TV set, turned into hard copy and later erased. What greater threat isthere to a film business than a filmless camera?2

Creating Competitive AdvantagesindustryA group affirms which offer a product or class of products chat are close substitutes for eachother. The set of all sellers of a produce or

• The Industry Point of ViewMany companies identify their competitors from the industry point of view. Anindustry is a group of firms that offer a product or class of products that are closesubstitutes for each other. We talk about the car industry, the oil industry, thepharmaceutical industry or the beverage industry. In a given industry, if the priceof one product rises, it causes the demand for another product to rise. In thebeverage industry, for example, if the price of coffee rises, this leads people toswitch to tea or lemonade or soft drinks. Coffee, tea, lemonade and soft drinks aresubstitutes, even though they are physically different products. A company muststrive to understand the competitive pattern in its industry if it hopes to be an

effective 'player' in that industry.

• The Market Point, of ViewInstead of identifying competitors from the industry point of view, the companycan take a market point of view. Here it defines its task competition as companiesthat are trying to satisfy the same customer need or serve the same customergroup. From an industry point of view, Heineken might see its competition asBeck's, Guinness, Garlsberg and other brewers. From a market point of view,however, the task eompetition may include all 'thirst quenching' or 'socialdrinking'. Iced tea, fruit juice, 'designer' water and many other drinks couldsatisfy the needs. Similarly, Crayola might define its task competitors as othermakers of crayons and children's drawing supplies. Alternatively, from a marketpoint of view, it would include as competitors all firms making recreational productsfor the children's market. Generally, the market concept of competitionopens the company's eyes to a broader set of actual and potential competitors.This leads to better long-run market planning.The key to identifying competitors is to link industry and market analysis bymapping out product/market segments. Figure 12.2 shows the product/marketsegments in the toothpaste market by product types and customer age groups. Wesee that P & G (with several versions of Crest and Gleam) and Colgate-Palmolive{with Colgate) occupy nine of the segments; Lever Brothers (Aim), three; andBceeham (Aqua Fresh) and Topol, two. If Topol wanted to enter other segments, itwould need to estimate the market size of each segment, the market shares of thecurrent competitors, and their current capabilities, objectives and strategies.Clearly each product/market segment would pose different competitive problemsand opportunities.