Some of the terms used in the matrix are explained below:
‘Fast grow means grow business faster than the rate of growth in the market
‘Grow with the industry’ means grow the business at the average rate of growth in the market
‘Focus’ means continue the product in the same market.
‘Find niche’ means develop a small segment of the market for the product
“Retrench’ means cut expenditure and reduce investment.
“Renew’ means introducing new and improved features for the product
“Harvest’ means treat the poduct as ‘cash cow,’ milk the product and do not invest further.
“Withdraw or phased out or abandon’ means leaving the market because no more realisable or reasonable profit coming from the product.
Limitations of ADL Matrix
No standard length of the life cycle is required
It is considered out of the dept while determining the industry life cycle
Length of the life cycle might be influenced by competitors of the firm.
Each competitor has a certain philosophy of doing business, a certain internal culture, and certain guiding beliefs. Philip Kotler argued that most competitors fall into one of four categories:
The laid-back competitors: A competitor that does not react quickly or strongly to a rival’s move. Example is Guinness Dubic Malt drink competitive rection against
Nigerian Bewery Amstel Malta.
The selective competitor: A competitor that reacts only to certain types of attack. It might respond to price cuts, but not to advertising expenditure increases. Examples are Shell and Mobil in Nigeria.
The tiger competitor: A competitor that reacts swiftly and strongly to any assault. Example is Procter and Gamble’s (P&G) assault on Lever Brother’s detergent market.
The stochastic competitor: A competitor that does not exhibit a predictable reaction pattern. There is no way of predicting the competitor’s action on the basis of its economic situation, history, or anything else. Many small businesses are stochastic competitors, competing on miscellaneous fronts when they can afford it.
Companies and other commercial enterprises in the competitive market should seek to gain an advantage over their competitors. Such advantage is established through creation of a unique factor that gives the company an edge over other rivals in the industry. Such area of distinctive advantage is called unique selling point (USP) or differential factor of a firm.
Competitive advantage ultimately arises from the customers’ perception rather than what the company calls it. What constitute ‘best value to one customer might not give ‘best value to another, because customers have different perceptions of value. Companies have to make strategic decision about their value proposition to the market in order to gain competitive advantage. It is expedient to state that value comes from: a low price, features of the product, product accessibility to customers (both real and imagined), are what give the best value’ to a group of customers in the market.
Possessing some competitive advantage over rivals firm is sine-qua-non to the success of any firm. It is the reason why customers prefer the company’s product over
the products of a competitor. The numbers of customers that buy a company’s product determine the percentage of market share of that company in the market. Ability to
gain market share translates to companies’ profitability. Porter argued that two factors affect the profitability of companies:
Industry structure and competition within the industry
Achieving a sustainable
Strategies for Competitive Advantage
Several approaches to identifying and choosing business strategies for competitive advantage are explained here. One of such approaches is using strategic clock.
THE STRATEGIC CLOCK
The strategic clock was suggested by Bowman (1996) as a way of looking at combinations of price and perceived benefits. As said before, value is not what the companies call it but about the opinion of the customers. Companies should understand customers’ behaviour and what best combination of the two they should try to offer. Companies also use strategic clock to assess the strategies of their competitors and the combination of price and benefits they are offering.
The strategic clock has two dimensions: Price and perceived benefits. The dimensions are on a scale ranging from ‘low’ to ‘high’ Series of business strategies are represented by the hand of the clock pointing in the direction of a combination of price and perceived benefits.
The different positions on the clock represent a set of generic business strategies for achieving competitive advantage and different combination of price and perceived
benefits, where customers have different requirements in terms of value and money. The business strategies are grouped into five business strategies that might enable a firm to gain competitive advantage, and strategies that will fail because they cannot provide competitive advantage.
The strategic clock might be a useful basis for making analysis of a competitors strategies and how to find appropriate combination of price and perceived benefits that it should offer to customers. The five business that might succeed include:
a ‘no frills’ strategy (position 1 on the clock)
a low price strategy (position 2)
a hybrid strategy (position 3)
a differentiation strategy (position)
a focused differentiation strategy (position 5)
No frills strategy: Position 1
A no frills strategy is to offer product or service at a low price with low perceived benefits. Customers in this category are price conscious and happy to buy at the lowest possible price. This is common with most Nigerians who prefer what money can buy more quantity, less quality at the lowest price possible in as much it satisfies the basic or immediato nised) to a more expensive qualitative and gratifying good. Many Nigarane prefer to buy inferior Chinese precies than quality home grown Products because they offer lower prices
Low price strategy Position 2
Customers perceive products in this capacity as average that gives normal benefits is not regarded as a low quality prochet even though the price is low compared with similar products in the market.
Only the market leader who happens to be the least cost producer can use this Strategy successfully. The introduction of such price leads to price war among vals firms in the industry Only the lowest cost producer could win such a price war.Although a low price strategy can be applied in segments of the market, lower than similar products For example, supermarkets like Shoprite in Lagos or Hallmark in Benin City offer their own brand products at prices that are lower than similar tranded
Hybrid strategy: Position 3
This is a strategy that offer a below average selling price and higher than average benefits to customers. It is a combination to achieve a mix between a low price strategy and a differentiation strategy. To achieve this mid-point position, the company should be able to offer ils products or services at a low cost and provides larger benefits to customers. A situation where Nigeria exports her brent crude oil and then buys back its refined products at exorbitant rate is an irony. The services of Federal Medical Centres across the country is a good example
Differentiation strategy: Position 4
Differentiation strategy involves charging average prices for a product or service to appear to offer more benefits than rival products or services. Companies try to differentiate their own particular product from competitors’ products with features that do not offer exactly the same benefits in quality, design and value.
The strategy is to make a product or service appear to offer more benefits than rival products or services. Customers therefore perceive that they are getting more benefits for every naira they spend. Example is Coca-cola table water (eva) compared to other
table water brands.
Focused differentiation strategy: Position 5
A focused differentiated strategy offers a product at higher than average price that offers above-average benefits. Such products are branded premium products so that their high price can be justified. Example of products that this strategy applies to include Bugatti and Ferrari sports cars. Services include Golden Gate Hotel in Ikoyi Lagos, Transcorp hotel in Abuja, Lagos Business School etc.
Business strategy on the clock that will fail
The area that pictures those strategies that will fail indicates some business strategies that will not succeed because they do not help the company gain competitive
advantage in the market. Strategies that could be described as ‘three o’clock” to ‘six o’clock’ on the strategic clock are inferior to strategies on other parts of the clock. Such products perceived benefits are below average and cannot be sold successfully when there are lower-priced products offering same benefits. Customers will not want to pay for product which in their opinion cannot give them extra benefits.
Conclusion on strategic clock
Each business strategy aims to meet the needs of customers or a large proportion of potential customers in the market. However, what constitute customers’ benefits of a product may not necessarily have to be product design or quality. Other values such as fast delivery, convenience of purchase, availability in stock, accessibility, after sales service etc. might constitute satisfaction for customers. It is then pertinent to
understand the critical success factor (CSFs) for each position on the clock.
The pressing question should be what exactly does ‘above average’ benefits means? The value of a product or service actually lies with the customers who perceive what create extra benefits.
Porter’s generic strategies for competitive advantage Porter suggested similar strategies to those shown on the strategic clock for sustaining competitive strategy. They clude:
a cost leadership strategy
a differentiation strategy
a focus strategy
Porter argues that firms should give a set of benefits called ‘value proposition’ that the product or service will provide different from those that any competitor offers.
Value proposition can be created in two ways:
Operational effectiveness – Doing same thing better than competitors.
Strategic positioning – Doing things uniquely different from competitors.
Operational effectiveness sets the basis for a cost leadership strategy and strategic positioning provides basis for a differentiation strategy.
Cost Leadership Strategy
Cost leadership means the lowest cost producer in the market. Companies with cost leadership strategy are able to compete effectively on price because they can sell their products more cheaply than competitors and still make a profit. Some of its features are:
Excellent systems of cost control to achieve low cost advantage
Takes advantage of lowest price to gain competitive advantage
It must be large enough to take advantage of economies of scale
It must sell large quantities of products to make reasonable profit.
A cost leadership strategy is similar to a ‘low price strategy or a ‘no frills’ strategy on the strategic clock.
Differentiation in marketing means making a product different from rival products in way customers can identify with. That ‘difference is the unique selling point (USP)
which is value proposition that provide greater benefits than competitors.
To maintain differentiation strategy, companies should invest in innovation to deliver better products and services.
Consumer markets are often segmented and company might decide to focus on a particular segment as target market for their product. Unlike the previous two strategies discussed, focus strategy concentrate on selling product to a particular segment of the market or customer.
The strategy here is to seek competitive advantage within a market segment through:
Cost leadership within the market segment, or
Product differentiation within the market segment.
Porter six principles of strategic positioning
It is important to summarise Porter’s views on how a firm can achieve sustainable competitive advantage in the market.
Principle 1. The strategic goal for a company should be to achieve a long term goal of return on capital employed (ROCE). Maximising sales or market shares relative and
does not necessarily provide a net return on investment.
Principle 2: The strategy must offer a unique selling proposition for the customer. Such value proposition might be for customers in the entire market, or for customers in a segment or niche of the market.
Principle 3: A company must possess a distinctive competence to provide a distinctive value chain that offers customers more values than competitors.
Principle 4: Companies should select strategies that involve some trade-offs. This means there must be opportunity cost of selecting one strategy over other alternative
Principle 5: All the elements of the value that provide utility should be linked together and reinforce each other as value chain.
Principle 6: Business environment is dynamic. There should be continuity of strategic direction. The strategy cycle must continue. When one strategy fails to achieve
objective, turnaround strategy should be applied.
Lock-in strategy is targeted at acquiring and retaining customers. It is another approach to gain competitive advantage in the market. The idea of lock-in is that when a customer has made an initial purchase of a company’s product, it is committed to make a repeat purchase in the future.
Strategies in Hypercompetitive Market
Cost advantage is relative in a volatile and dynamic business environment like Nigeria market where any attempt at cost leadership receives aggressive challenge from the competitors.
Strategies that might be embraced in a hypercompetitive market are as follows:
• Introduce a new product with shorter life cycle to compete against established products of competitors
Imitate competitors. This might remove the competitive advantage they currently enjoy
Respond to competitor’s strategy quickly before they gain a strong competitive edge
Concentrate on a small market segments that might be overlooked by the competitors
Companies should be proactive and act unpredictably with innovations.
Form strategic alliance with smaller competitors to compete with the market leader.
We can further classified firms by the role they play in the target market as a leader follower, challenger or nicher.
The leader is the firm that sells most products in the market. This firm has the largest market share in the relevant product market. It usually leads other firms in price changes, new product introductions, distribution coverage, and promotion intensity Examples are Microsoft (computer software), Coca-Cola (soft drinks), Procter and Gamble (consumer packaged goods), Kodak (photography). McDonalds (fast foods) Gillette (razor blades) etc.
Remaining number one calls for action on three fronts. First, the firm must find ways to expand total market demand. Second, the firm must protect its current market share through good defensive and offensive actions. Third, the firm can try to increase ts market share further, even if market size remains constant
Market challengers are firms that are not the market leader, but occupy second third and lower position in an industry. They are often called runner-up. They can attack the leader and other competitors in an aggressive bid for further market share. Examples
include Pepsi-Cola Vs Coca-Cola, Toyota Vs General Motors, Canon Vs Xerox, Bic V$ Gillette. Tantalizers Vs Mr Biggs etc.
A market challenger may adopt general attack strategies including frontal, fark encirclement, bypass and guerilla attacks or they may adopt specific attack strategies
including price discount, cheaper goods, prestige goods, product differentiation product innovation, manufacturing cost reduction, intensive advertising promotion etc.
If a challenger goes after the market leader, its objective might be to Wrest cetain market share. If the attacking company goes after a smal local company, its objectve
might be to drive that company out of existence. By and large, a challenger rarely improves its market share by relying on only one strategy. Its success depends on
combining several strategies to improve its position over time
Many companies prefer to follow the strategic lead provided by the market leader (or challenger) rather than challenging them. Followers do not have any ambition to be the
market leader. Instead, they present similar offer to buyers, usually by copying the leader. This is not to say that market followers lack strategies. Four broad strategies
can be distinguished
Counterfeiter: The counterfeiter duplicates the leader’s product; package and sells it on the black market or through disreputable dealers. The Nollywood industry and book authors are victims of this malaise in Nigeria.
Cloner: The cloner emulates the leader’s product, name, and packaging, with slight variations. Clones are a fact of life in the computer business.
Imitator: The imitator copies some things from the leader but maintains differentiation in terms of packaging, advertising, pricing and so on. The leader does not mind the
imitator as long as the imitator doesn’t attack the leader aggressively.
Adaptor: The adaptor takes the leader’s product and adapts or improves on them. More often, adaptors grow into the future challenger, as many Japanese firms have done after adapting and improving products developed in America and Europe.
The follower is often the major target of attack by the challengers. Strategically. follower must keep their manufacturing costs low and their product quality and services
high. Followers must also enter new markets as they open up. Normally, followers earn less than the leaders and so, to be a market follower is often not a rewarding path.
An alternative to being a follower in a large market is to be a leader in small market or niche. A nicher is a firm that targets a particular market segment or market niche for its
product, and does not have any ambition to gain a position in the larger market.
Nichers are not necessarily smaller firms that avoid collision course with larger firms by targeting small markets of little or no interest to the larger firms. Large firms are increasingly setting up business units or companies to serve niches. Example is Addidas athletic shoe company that targets the sports market segment. Market niching
is more profitable in that the nicher ends up knowing the customers so well that it meets their needs better than other firms that are selling to this niche casually. The nicher achieves high margin, whereas the mass marketer achieves high volume.
The three strategy areas of nichers include: creating niches, expanding niches, and protecting niches. Because niches can weaken, firms must continually create niches
by developing strength in two or more niches to increase its chances of survival. Firms entering a new market should aim at a niche rather than the whole market.