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Chapter 9: Selecting Marketing Strategies
Porter’s generic strategies: Low cost v differentiation
- If a successful firm’s winning formula is easy to copy, returns will not last long as rivals will offer
either a better price or a better product
...
A formula of this kind
represents a competitive advantage
...

- Five forces analysis considers the following strategies:
- new entrants
- substitute products
- the power of buyers
- the power of sellers
- the level of competition between firms
...

- Low producer cost + mainstream market = cost leadership
- Niche market + low producer cost = focused cost leadership
- High customer value + mainstream market = differentiation
- High customer value + niche market = focused differentiation
Cost leadership
- By pursuing a strategy of cost leadership, a firm sets out to become the lowest cost producer in its
industry
...

- Its products will tend to be standard and mass produced
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- A problem occurs if customers perceive the quality or value of the products as lower than
competitors
...

- A low cost strategy may arise because a business identifies an opportunity to reduce costs
...

- Improvements in productivity that reduce unit costs
- However, it is likely that competitors will be able to copy these ideas in the medium term
...

- Creating barriers to entry that prevent competitors from eroding its market
...
If consumers value this difference, it will benefit the firm in two ways:
- Increased sales volume
- Greater scope for charging a higher price
...
This may be real, such as a
different design or different components, or it may be based on image and branding
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Focus
- Cost leadership and differentiation have so far been applied to firms in mainstream mass markets
...

- The focus may depend on cost leadership or on differentiation, and is the basis of success for
most smaller and medium-sized enterprises
...

- Porter suggests that a firm must make a conscious choice about the type of competitive advantage
it seeks to develop
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Ansoff’s matrix
- Another decision-making tool for marketing planning and developing a sustainable marketing
strategy
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Ansoff’s matrix provides a useful framework for analysing a range of
strategic options in relation to risks and rewards
...

Existing products, existing markets
- Market penetration: promoting growth in existing markets with existing products
...

- As a strategy, market penetration has its limits and once the market approaches saturation,
another strategy must be pursued if a firm is to continue to grow
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- If this strategy is prompted by falling profits, then some form of retrenchment, such as
redundancies or the sale of assets, might be needed
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This might be appropriate if there is an
irreversible decline in demand or the firm cannot match new competitors
...
This might be appropriate in the short
term when the environment is static or the firm is waiting to see how a situation develops, but it is
not realistic or beneficial in the long term
...

- The development of a new market for the product is a good strategy if the firm’s core
competencies are related more to the product than to its experience with a different market
segment
...

New products, existing markets
- Here a product development strategy is followed, which may involve substantial modifications or
additions to a product range in order to maintain a competitive position
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- In some instances, products are changed completely, while in other cases, ‘spin offs’ are
developed
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- Product development is appropriate if a firm’s strengths are related to its customers rather than a
specific product
...

New products, new markets
- The strategy of launching new products in new markets is known as diversification
...

- Despite this, it may be the right choice if high risks are balanced by the chance of a high rate of
return
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Assessing the effectiveness of strategies
- Ultimately, the effectiveness of marketing strategies will be judged by the extent to which
achievements of the marketing function match its objectives
...

- In order to gain some understanding of the potential effectiveness of a given marketing strategy, a
business may use Porter’s generic strategies model or Ansoff’s matrix
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- Whether the strategy can be maintained over a long period of time, so that there will be
sufficient time in which the business can reap its reward
...

Ansoff’s matrix
- The model can be used to assess the degree of risk involved in a particular marketing strategy
...

- Product development and market development to increase the level of risk facing a business and
diversification is considered to be the most risky strategy of all
...

- Diversification into a new market with similar features to an existing market, and selling a new
product that is slightly modified from the original, may not present a huge risk for a business
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The methods, benefits and risks involved in international markets
- With increased globalisation and improved communications through improved transport links and
the development of the internet, more and more businesses are seeking market development
outside their country of origin
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The choice of method/s will depend on the
circumstances of the individual business
...

- If a business is unable to sell its products in international markets, it can always consolidate by
selling the same products in its country of origin
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With technological advancement
many of these services can be provided through the internet at similar costs to their provision for
the domestic market
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- A major disadvantage of exporting is that control of the marketing often passes out of the hands of
the company making the product
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Setting up a base overseas
- Overseas bases can be formed in one of two ways:
- Organic growth by funding the establishment of an overseas factory or outlet
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- For many businesses, setting up a base overseas not only saves transport costs, but also avoids
tariff barriers imposed by free-trade areas like EU, because the goods are manufactured in the
country in which they are sold
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- Joint ventures are becoming particularly popular with businesses trying to enter emerging markets

such as India or China
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- In these circumstances, a joint venture can prove to be a very effective combination of strengths
...

Franchising
- Reduces the risk to the franchisor, because if the business gets into difficulties in another country,
it is the franchisor who suffers most of this financial loss
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Licensing
- Permission to make a product in a certain country is given in the form of a licence granted by the
original manufacturer to a manufacturer in a different country
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Benefits to a business from international marketing
Achieving growth
- Many businesses find it becomes difficult to sustain growth in the domestic market
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- In some cases, further expansion may be limited by a government’s competition policy
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- A company’s products or services may provide greater opportunity for profitability because of the
nature of a particular overseas market

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