This blog post will advocate for a business to adopt a strategy of uniquely positioning its products or services by segmenting the market, targeting desirable segments and communicating a unique position for the business to the chosen consumers or face potentially dire consequences.
The basis for the abovementioned claim comes from Michael Porter’s journal article titled “Operational Effectiveness Is Not Strategy” published in the Harvard Business Review 1996 in which he argues that for a business to achieve superior performance it must pursue both operational effectiveness and a strategy where it creates a difference (uniqueness) that it can preserve (Porter 1996, p.61).
Porter indicates that Operational effectiveness means performing similar activities better than rivals and it is not limited to efficiency as it could include better utilization of inputs, reducing defects, faster product development, etc. Porter claims that due to changing market conditions the pursuit of operational effectiveness has in recent times preoccupied business management to the detriment of pursuing a strategy of diversity (Porter 1996, p.61). This approach has not achieved superior profitability as “competitors can quickly imitate management techniques, new technologies, input improvements, and superior ways of meeting customer needs (Porter 1996, p.61)”.
Porter is adamant that competition which is solely based on operational effectiveness is mutually destructive, leading to wars of attrition that can be arrested by only limiting competition. He says that the tools for operational effectiveness draw companies towards imitation and homogeneity where the results are static or declining prices and pressure on costs (Porter 1996, p.64).
It is considered that there are signs of a war of attrition occurring in Australian retailing which at its roots maybe caused through striving for operational excellence leading to imitation and therefore homogenous businesses. Examples that spring to mind are the closeness of the business models of Woolworths and Coles, and Masters and Bunnings. Following is a discussion on how these businesses are performing.
Woolworths and Coles continue to experience sales growth however the entrance of Aldi with its unique strategy has lead Citi (cited Mehra, 2015) group to recommend “sell” for both Woolworths and Coles shares as they need to reset pricing on private labels to address the growth of Aldi. In 2014 UBS (cited LaFrenza, 2014) revealed that both Coles and Woolworths will respectively lose $250 to $350 million a year to Aldi and to stem the losses they need to diversify by differentiating their offerings via fresh food, service, in stock positions and loyalty programs.
Masters which has been launched by Woolworths to compete in the hardware sector has had trouble making inroads against Bunnings. Mitchell (2014) in the Sydney Morning Herald revealed that for 2014 Masters annualised sales fell by 10 percent whilst for the same time period Bunnings rose by 8.4 percent. In that same article a representative of Masters indicated that for the hardware sector where consumers visit stores between 6-8 times per year it was extremely difficult to draw customers away from other stores where they have entrenched buying habits. To combat this problem he flagged that Masters would be spending significant amounts on promotion. Saligari (cited by Mitchell 2014) of UBS indicated that Masters were in a make or break phase and increases in promotional expenditure should not be an issue.
Anecdotally it appears that Masters are attempting to imitate the incumbent Bunnings and this issue is addressed by Porter in his article. He says that it is an extremely difficult to imitate a business that has unique strategy as “efforts to create a new image typically cost tens or even hundreds of millions of dollars in a major industry –a powerful barrier to imitation (Porter 1996, p.69).”
Porter’s article is not an article on marketing and is more related to business processes and how the tight integration of these activities can deliver competitive advantage for a business that has a diversified position. Clearly though marketing is a key business process and the ability to segment the market, targeting desirable segments, and communicating a unique position for the business will be necessary in order to obtain Porter’s position of uniqueness.
To emphasise the need for targeting, segments and positioning Clifford, D and Cavanagh (cited in Dibb and Simkin 1991, p. 4) state “High-growth companies succeed by identifying and meeting the needs of certain kinds of customers, not all customers, for special kinds of products and services, not all products or all services. Business academics call this market segmentation. Entrepreneurs call it common sense.”
My colleague for the reflective essay assignment Tanaka Musiwa has posted a blog article which argues that business should not compete on price and this is particularly the case for a small business that is considering competing against a larger competitor. As mentioned above Porter indicates that competing on price is mutually destructive and symptomatic of business competition where firms fail to establish a diversified position in the market. Tanaka argues that the basis for competition should be one of pursuing a strategy of providing better value to a consumer than what a competitor can achieve. Whilst this blog indicates that segmenting, targeting and positioning is the answer to achieving a market position of uniqueness. Is it is imperative not to compete on price? If so then the next question is how does a business pursue a position of uniqueness or a strategy of providing better value? Are there good examples of this and can the position be maintained?