Business must adopt a Strategy of Uniqueness Facilitated by Segmentation, Targeting and Positioning or Face a Potentially Dark Future! By Colin Kane Partner Tanaka Musiwa

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?

References

Dibb,S Simkin L 1991 ‘Targeting, Segments and Positioning’, International Journal of Retail &Distribution Management, Vol 19 Iss 3 p.p 4 Emerald Insight Complete Database

LaFrenza, C 2014 ‘The supermarket duopoly is starting to fray’ Australian Financial Review 15 November 2014 retrieved 30 March from http://www.afr.com/personal-finance/shares/the-supermarket-duopoly-is-starting-to-fray-20141115-11n8m4

 Mehra, P 2015, ‘Aldi’s private labels hurt Woolworths, Coles the most’ The Australian 22 January 2015 retrieved 30 March from http://www.theaustralian.com.au/business/news/aldis-private-labels-hurt-woolworths-coles-the-most/story-e6frg906-1227193415702

Mitchell, S 2014, ‘Woolworths’ hardware group Masters aims for spring renovation’ Sydney Morning Herald 1 September 2014 retrieved 30 March from http://www.smh.com.au/business/woolworths-hardware-group-masters-aims-for-spring-renovation-20140901-10b1th.html

Advertisements

6 thoughts on “Business must adopt a Strategy of Uniqueness Facilitated by Segmentation, Targeting and Positioning or Face a Potentially Dark Future! By Colin Kane Partner Tanaka Musiwa

  1. Hi,

    Thank you so much for sharing.

    Let us talk about one of your questions,’how does a business pursue a postiion of uniquness?’The answers can be found from what are the benefits from uniquness and where are they from?

    First,what are the benefits of unique positioning?In my views,only the companies had USP-Unique Selling Proposition,it could exploit its business successfully.More specifically,the only way to beat your rivals is to have your competitive advantage in the market that is your USP.Also,USP provides your a great approach to targeting your potential customers and increaing market share.It is also defined as one of key business strategies to win business by Porter.Aldi won some blank market opportunities from Coles and Woolths through its USP,while Master is an unsuccessful example as Master focused on how to imitate a business rather than developing its unique strategy.

    Second,where are they from?Positioning should be set after segmenting by companies.In another way,segementing is a great approach to helping companies to find market blank and also its USP.To combine these factors together,the companies can make competitive unique marketing strategies to develop its business as well as increaing its products or service’ market share in the market.

    Liked by 1 person

    • Thankyou for your response on my Blog. I will pursue some more reading on the best methods of finding a market blank and its Unique Selling Position. One example that came to mind the other day about finding a market blank was the low cost providers of campervan rentals such as Wicked campers

      Like

  2. A business should have a unique marketing strategy that suit its character specifically in order to have competitive advantages among rivals. This will give the company long-term position in the market and guarantee its market share.

    Like

  3. I think although competing for the lowest price is a great strategy for certain products, specially for low involvement products such as whats available at grocery stores or supermarkets, other factors come in to play for a high involvement products that are sought after and consumers are prepared to pay more money for. In this case companies need to apply a strategy to different market segments that they hope to target. Marketers can determine people’s attitudes and what they value and use this knowledge to communicate effectively

    Like

  4. The problem with competing on price alone is that you get these huge companies selling pretty much the same low-quality stuff in large amounts. There’s no distinction in quality, there’s no effort to reduce environmental footprint, or to support local producers.
    While a lot of blame is put on the consumer for wanting lower prices there must be room for other companies to position themselves as an alternative to the cheap mentality.
    My local (independent) supermarket sells mostly locally-produced goods, where one brand of milk states on the label that it ‘gives farmers a fair go’. Yes, it’s a smaller market than the Coles homebrands, but they’ve positioned themselves well, and are very popular among cafes and restaurants who want good quality produce.

    The comment about strategy being focused too much on operational effectiveness reminds me of ‘The Big Lie of Strategic Planning’ (https://hbr.org/2014/01/the-big-lie-of-strategic-planning) which states “Simply following competitors’ choices will never produce a unique or valuable advantage.”

    Like

  5. Competing on price is an interesting strategy it works for some firms, especially those firms with resources and capabilities such as Bunnings, Walmart…… Smaller firms find it harder to compete on price with big firms. As mentioned in one the above-mentioned entries, smaller firms usually adopt niche strategy, meaning that they need to know their customers very well. Even if a firm has resources and capabilities to play this kind of pricing game, it has to be careful. An article on “Winners and Losers in a Major Price War” based on empirical evidence in the Dutch retail sector written by Van Heerde,, H.J. Gijsbrechts, E. and Pauwels, K. published in Journal of Marketing Research in 2008, p.515 suggests the following:

    1. if the competitive situation is such that a price war is likely anyway, it is desirable to make the first strike because it may bring a first-mover advantage in price image improvement.
    2. caution should be made that high-end market players about the risk of using price as a competitive weapon because it may increase price (image) sensitivity. This could backfire if the high-end player’s price remains relatively high as a result of competitive reactions.
    3. discounters may actually benefit from a price war. They can advertise their low price levels, for which there may be increased consumer attention and sensitivity, leading to more store visits and expenditures.
    4. managers should not be too encouraged if a price war initially brings more visitors to their stores or buyers to their brands. A price move may reengage customers (Chen
    and McMillan 1992) to compare prices in the short run, but in the long run, they are expected to return to their usual shopping frequencies.
    5. to prevent a price war escalation, it may be a good idea first to analyze consumer responses when one market player begins to cut prices. If purchase behavior changes only modestly or temporarily, it may be better to focus on marketing-mix instruments other than price to win back
    customers. If the changes are strong, there is little resort other than to respond by offering price reductions as well, possibly spiraling down to a price war.
    6. channel power is a major asset when a retailer is involved in a price war. In the Dutch price war, Albert Heijn initiated the price war when it still had market leadership and was widely regarded as offering superior service and quality. (in other words, the market leader making initiated the price war is considered as providing superior service and quality).
    7, it seems particularly unwise to provoke competitors with a competitor-focused goal, such as becoming less expensive than the market average. Instead, it seems better to focus on the savings for consumers.

    So, is competing on price good? Well, maybe.

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s