STRATEGIC POSITIONING
As a source for competitive advantage
WHAT IS STRATEGIC POSITIONING
Strategic positioning refers to a company’s position in its reference environment with respect to the various sectors/businesses/products in which it operates or wishes to operate, taking into account external attractiveness and competitive capabilities.
Carrying out strategic positioning analysis is fundamental to the formulation of the strategy that a given company decides to implement, as it allows the current and desired future situation to be detected.
In order to determine the strategic positioning, it is necessary to start with the analysis of the corporate strategy, this being the concluding moment.
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STRATEGIC BUSINESS ANALYSIS
Strategic business analysis can be divided into two phases:
- strategic analysis of the external environment;
- strategic analysis of the internal business environment.
To carry out the external strategic analysis, it is essential to take as a reference:
- environmental scenario;
- industrial sector and its business areas;
- critical success factors and the value chain;
- competitors.
The analysis of these components makes it possible to identify risks or threats and opportunities, which define the level of attractiveness of the company’s business.
Attractiveness refers to the current and prospective existence of a situation in which the opportunities outweigh the risks and, consequently, it is attractive to engage in business activities. The level of attractiveness makes it possible to guide medium- and long-term strategic business decisions.
Once the external attractiveness has been analyzed, it is necessary to move on to the internal strategic analysis, i.e. the state of the company’s internal situation, up to the development of a real strategic audit, aimed at judging the company’s competitive capacity in the various businesses. The assessment starts with the clarification of the company’s mission, the main purpose of the company’s existence, and the expression of what it believes in and what it is capable of doing.
On the basis of the above, we proceed with the assessment of the company’s situation with respect to results achieved (market share, image, profitability, customer satisfaction, etc.), supply factors (quality, price, range, distribution, sales network, service, communication, etc.), capacity factors (management, finance, human resources, etc.), so as to identify, with respect to critical success factors and the reference competition, the state of strengths and weaknesses.
From the synthesis of strengths and weaknesses, one identifies what is the company’s competitive capability in the examined businesses. Competitive capability is understood as the business situation in which the strengths outweigh the weaknesses and, consequently, it is possible to compete victoriously in the market.
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STRATEGIC POSITIONING THEORIES
Porter’s theories
Porter, in defining the strategic positioning, emphasizes the importance of managing the insertion into the competitive landscape and the strategy to be pursued in order to win the customer order to increase sales.
The five competitive forces model
This model is the tool through which companies can assess their competitive position, identifying the forces operating in the economic environment that, through their action, deliver long-term profitability to the company. The forces act continuously and, if not promptly monitored and addressed, lead to a loss of competitiveness.
The actors of these forces are:
- competition between the companies present;
- entry of new competitors;
- the threat of substitutes;
- bargaining power of suppliers;
- bargaining power of customers.
The analysis of these forces allows the company to obtain a complete picture of its competitive position, make strategic decisions, and establish the attitudes and behavior to be adopted toward these forces.
The model makes it possible to identify, beyond the complexity that characterizes each sector, which factors are critical to compete in a given industry.
Porter’s competitive strategies
For each competitive strategy implemented by the company, a competitive advantage is developed that is particularly significant for the chosen potential target customers, and policies are identified to be implemented in order to sustain these competitive advantages over time.
Competitive advantage over competitors can be built through:
- a significantly lower cost strategy than its competitors, allowing it to charge lower prices and achieve the desired profits;
- a significant differentiation of products and services from those of competitors in order to provide superior value to the customer;
- Both strategies can be combined with two others: a) address a broad spectrum of market segments; b) focus competition on one or a few segments.
Before adopting either strategy, it is necessary to identify: the variety of products, the distribution channels, the target audience to be served, the geographical area to be covered, and the related sectors in which one intends to compete.
The enterprise must choose between a broad target or a narrow target. Combining the chosen target with the two competitive strategies results in four variations of the strategies:
- Cost leadership: the company or business unit designs, produces, and sells products with the same characteristics as its competitors, but more efficiently. The aim is to reduce costs on all fronts: fixed costs, research, and development, services, sales force, advertising, etc. As a result of lower costs, the leader is able to charge lower prices than its competitors and thus achieve higher profits. Thanks to this strategy, the company has a defense against rivals, continues to make profits even when competition is intense, and can acquire large market shares.
- Differentiation: A strategy aimed at mass markets and involves the creation of products or services for which the company can charge a higher price than the average (premium price). Differentiation can be based on technology, image, services, and distributor network and sources of differentiation can emerge from any element of the marketing mix. It is a strategy that can yield higher than average margins because differentiation creates customer loyalty and reduces customer price sensitivity.
- Cost focus: a cost-based strategy that focuses on a particular group of potential consumers or a specific geographic area and aims to serve only this niche by foregoing the others. Through this strategy, the company seeks economies of scale that may be overlooked by larger competitors. The strategy is based on the belief that the company, by focusing on a limited target group, can create efficiencies superior to those of its competitors.
- Focus on differentiation: this strategy also focuses on a particular group of potential customers, a segment, or a geographic area. The company seeks differentiation within the segment or a small number of segments that represent its targets. The specific needs of the segment give it the opportunity to differentiate its products or services from competitors who may have chosen the strategy of serving a larger number of customers.
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The BCG matrix
The BCG matrix method, Boston Consulting Group, is the most famous portfolio management tool and is based on product life cycle theory. The BCG matrix can be used to determine which priorities should be given, in the portfolio, to the products of the business unit and ensure long-term value creation. A company uses an industry’s growth rate and competitive position to compare the strategic positioning of different business areas and make strategic suggestions.
The parameters used in classifying the products or segments in which the company operates are:
- Market growth rate: measures the attractiveness of the market;
- Market share: measures the strength of the company in that market.
The four categories of the BCG matrix
Four categories can be identified from the combination of these two elements:
Stars: they absorb the resources needed to grow the segment. They are promising, but will soon become cows, so investment is needed (high growth, high market share).
Question marks: they constitute untapped opportunities, as the market growth rate is high, a company has not yet achieved a significant market presence. A selection has to be made in order to identify the really leading businesses (high growth, low market share).
Cash cows: the presence of enormous competitive strength within a declining market, so they generate more cash flow than any possible reinvestment within them. They provide a secure source of cash to invest in the development of the company’s other businesses (low growth, high market share).
Dogs: seriously loss-making business, characterized by low attractiveness and deep weakness. Cash flows are barely sufficient to maintain the business. In the absence of growth possibilities, the strategy to be adopted is reaping or disinvestment (low growth, low market share).
The advantages of the BCG matrix
- Quick and easy analysis;
- Managers should not have a large amount of information at their disposal for the purpose of analyzing the variables that determine to position;
- analysis is versatile;
- provides a useful starting point for analysis and discussion of the competitive position and strategy of individual businesses.
The disadvantages of the BCG matrix
- Discounted presence of size-related economies;
- conceptual and application simplification;
- market share as the only achievable goal;
- ambiguity in quantitative references;
- does not allow the application of creativity and management knowledge;
- objective and automatic results.
The McKinsey matrix
The McKinsey matrix is a model that enables an analysis of individual strategic business units for the enterprise and can be used to support strategic analysis in four fields of application:
- resource allocation: the attractiveness of a strategic business area is examined in relation to the attractiveness of the sector and competitive positioning;
- business strategy formulation: it indicates the strategic approach to be followed with respect to investment opportunities, suggesting possible repositioning of the business;
- portfolio balance sheet analysis: balancing is about cash flow and growth;
- definition of performance targets: positioning determines profit potential.
The two axes of the matrix are the level of attractiveness of the sector and the competitive position of the individual business unit of the company.
The advantages of the McKinsey matrix
- It allows a balanced portfolio to be identified;
- defines investment priorities for the company’s various businesses;
- provides logical and rational directions for the development of the individual business units, in line with the position in both internal and external dimensions;
- allows an analysis of both the current situation and the future situation;
- guides the process of allocating resources between the various businesses.
The disadvantages of the model
- Excessively difficult to use;
- indeterminacy and subjectivity;
- aggregation of factors;
- provides general guidance and food for thought;
- subjective and random judgements in the placement of products within the matrix.
COMPETITIVE POSITIONING
Competitive positioning is the process by which one identifies the position that a particular product/service occupies in the mind of the consumer compared to all competing products.
This process starts with the identification of the factors that were taken into account by consumers in a given segment at the purchasing stage (relevant purchasing factors), develops with the detection of the judgments that consumers make about competing products, makes it possible to analyze the position that products occupy in the consumer’s mind, and identifies the ways in which it is possible to distinguish oneself from competitors and gain a competitive advantage.
The objective is to give the product its own personality so that it can be positioned distinctively from the competition. The distinctiveness of a product or service vis-à-vis that of competitors is determined by giving prominence to specific features over others.
This represents a crucial strategic choice since it is on the basis of the identification of these characteristics that consumers will make their purchasing decisions. In addition, all the factors of the marketing mix (product, price, point of sale, and communication) can influence the competitive positioning of a product or service, so a clear definition of the positioning strategy is required to ensure that the activities of the marketing plan are consistent with each other and provide support.
The moments of the competitive positioning process
- The first moment is one of analysis and is part of analytical marketing and aims to identify market trends in terms of supply and demand by specifying which factors are relevant to the products being considered;
- The second moment, which is part of strategic marketing and involves strategic planning and subsequent control, defines which marketing factors to use in order to achieve the desired positioning and the control procedures to be put in place in order to achieve the desired objective.
The seven stages of competitive positioning
This process can be broken down into seven stages, the first five falling within the first moment and the remaining two within the second:
- identification of the needs sought and the lifestyle for each segment;
- specification of factors evoked in the purchase decision;
- definition of products that the consumer simultaneously considers when purchasing;
- analysis of the relevant factors identified relating to the products under consideration;
- graphical representation of the competitive positioning of different products;
- identification of the ideal positioning and subsequent formulation of the desired positioning;
- control of the position actually acquired on the market.
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