STRATEGIC IDEA

STRATAGEM

With objectives having been determined, the marketing planner seeks to find the means of fulfilling or surpassing them. The planning process will lead to those means being detailed in a marketing plan. That plan is determined only after the vital and basic determination of how to reach the objective. I refer to finding and defining the key idea(s), which we may call the stratagem or strategic idea.

Idea is the term we have used this far, for it is a congenial term to use, but it is not specific enough. It is better to use the equivalent term of stratagem, that has a more precise meaning.

In a dictionary you may find stratagem defined in general terms as: "any trick or scheme for achieving some purpose." In this module it is: "the scheme or concept that marketing selects for achieving its assigned objectives." It is the key idea(s) that are the basis for a marketing program's anticipated success. To repeat, there must be an effective stratagem, or an objective is meaningless.

It would be futile to attempt some marketing stratagem unless it is:


I stress the third requirement: Implementation is vital, and we must keep in mind that how a plan is executed can make the difference between success and failure.

Decisions on stratagems need to go beyond the general idea of a scheme, which is too hazy. It should proceed through a refinement until stated so clearly that the strategist can estimate its results and its resource needs. Another reason for demanding its concrete expression is to compare each strategic idea with alternative ideas.

A REPERTOIRE OF STRATAGEMS

The conceiving and developing of marketing stratagems are key tasks in modem enterprises. They are difficult, and the rewards for strategic capability are growing. It takes keen minds to interpret a market situation and to create an optimal strategy that capitalizes on the opportunities.

Planners must have extensive knowledge of optional strategic ideas. To have a set or repertoire of various stratagems (with insights on when each is applicable) is a vital asset. That may be obtained partly by formal education, but more by experience, watching others and learning by trial and error. This module will describe some ways to classify stratagems and a number of options. A classification scheme allows planners to evoke or retrieve the relevant stratagems from human or computer memory easily.

ALTERNATIVE STRATAGEMS

A single great idea often is the core of an effective marketing program. A single stratagem, however, may not suffice because it deals with only one aspect of the problems that are confronted. Consider a real estate firm that has been serving only industrial real estate. It has determined that its goal can be attained best through serving institutional buyers with premises similar to its current listings. But this entails modifications of its listing stock and radical change in its personnel. A composite of stratagems would be needed to capture market share of a new set of competitors and to establish a new selling team.

Classification of stratagems plays an essential part in finding the relevant alternatives. The classification of primary marketing stratagems relates to the purposes, "against" whom or what does it apply? It has only three categories:

  1. Markets
  2. Competitors
  3. Product position

The examples under each category will differ, and we are not going beyond to the determination of subcategories. To orient this subject within the overall strategic planning subject,, it is the middle box in the diagram below:







STRATEGIC
OBJECTIVES

PRIMARY
MARKETING
STRATAGEMS

MARKETING
FUNCTION
STRATAGEMS







Markets
Competitors
Products
Position

Products
Prices
Promotion
Distribution



In the right hand box is what we know as the “marketing mix”. Its strategic decisions are secondary to and directed by the primary stratagems. It entails both objectives and stratagems (like the primary stage), but we do not clutter this overview by inserting objectives in it.


MARKETS

With its overall objective of placing the firm in an optimal market position, marketing's primary strategies tend to include those relating to markets. One category is the primary stratagems for defining the markets the firm intends to serve.

TARGETING OPTIONS (AS GENERALITIES) are within four categories

1. MARKET AGGREGATION (OR UNDIFFERENTIATED MARKETING) results in one offering aimed at the total market. Market aggregation does not recognize market segments. Instead it tries to satisfy the greatest number of buyers with a
single product

2. MARKET SEGMENTATION. This approach is an attempt to d evelop an offering that appeals to some part of the aggregate market. For market segmentation to be effective, the following conditions should exist:

  1. It is necessary to identify and categorize actual or potential buyers into mutually exclusive groups (segments) that have relatively homogeneous responses to marketing-mix variables.

  1. It must be possible to identify characteristics of the mutually exclusive groups that can be used as a basis for directing specialized marketing efforts to the different groups, recognizing the heterogeneity of the groups.

The isolation of those behavioral and demographic variables unique to Jennings Homes buyers (rather than L J Hooker Homes buyers) illustrates an attempt to use differences in buyers to formulate a marketing strategy. Even if the detailed information were available on Jennings buyers, it would be hard to obtain measures of marginal response to marketing variables for individuals and groups of people. This limitation, however, does not negate the usefulness of the fundamental concept that knowledge of different reactions to marketing inputs is essential to the structuring of efficient marketing plans.


  1. MULTISEGMENT APPROACH. Diagram 2 illustrates a multisegment approach for a all purpose builder such as Lend Lease. A multisegment approach is that used by an organization in trying to provide multiple offerings to appeal to two or more market segments. For example, Jennings offers low level residential as well as up market residential cottages.

The multisegment strategy allows the enterprise to increase its share of the market by recognizing the heterogeneous wants and desires of submarkets. Although there may be additional costs of planning, organizing, and controlling the multiple offerings designed for different markets, these increases can be offset by developing better convergence between the offerings and the various submarkets.

  1. MARKET CONCENTRATION STRATEGY. This targeting strategy focuses on efforts to serve one market segment. Many companies have found it efficient to gain a large share of a segment of the market. JBL illustrates this segment as it has concentrated on the middle industrial warehuse sector to the exclusion of others. JBL was successful because it recognized the huge dimensions of an illserved segment of the industrial warehouse market.

JBL is in contrast with a number of large builders that use a multisegment approach in trying to appeal to all warehouse market segments. Lend Lease build and market largely to large prestige clients.

Its efforts on the luxury segment of the automobile market. The average price of its automobiles is significantly higher than that of American cars. Only one out of every two hundred cars purchased is a Mercedes. Figure 6-3 illustrates the market concentration strategy used by Mercedes-Benz. Note that the luxury market is a small portion of the total market. Over the years, changes in the Mercedes marketing strategy (with emphasis on luxury and distinctiveness) have helped to develop a luxury sports offering.

Through a market concentration strategy, the enterprise can achieve a strong market position because of its greater knowledge of the desires and wants of a specific submarket. Furthermore, many operating economies can result because of specialization in production, distribution, and promotion. It is widely believed that vast social and economic changes have broken traditional mass markets into smaller segments. Companies have discovered that the key to profits lies in pinpointing and delivering what these new consumer groups want.

We have described market-oriented stratagems with regard to targeting those who compose a selected market. This identification is essential in order to study and to reach that market's members. However, more basic than identification is defining the unique needs and wants of those buyers which the marketer is going to satisfy. The successful stratagem involves uncovering unmet, potent needs and offering uniquely attractive solutions to them.

This requires what we might call "the three Is": identification, insight, and ingenuity. The sequence of determining such a stratagem might work in either direction: (1) ingeniously perceive a strong need that awaits solution and then identify those who comprise the demand for it; or (2) identify a growing market and then search for its significant needs and wants.
If a broadly felt and permanent human want is found, one may expand by concentrating on it, as has Bradford Phillips. He bought a little company that sold an unrelated array of merchandise (which he dropped) and chose one primary stratagem: make ordinary products handier.

He changed its name to one connoting that virtue: Totes, Inc. He began with boots that fold inside a pocket and over a quarter century has contrived foldup umbrellas, hats, scarves, bags, and so forth, with splendid success.

Segmented market stratagems need not be focused on one or a few market needs. Particularly in service industries, a marketer may make a wide offering of products, each serving some segment, without great investment.
Publications are such an industry, and we cite the American Marketing Association's own Marketing News. This biweekly has rotated editorial features or special issues so that each issue caters to a certain segment of marketers. Below are its issues' special subjects:


By a specific focus in each issue, Marketing News has afforded the firms that sell to each of these markets (such as consulting, research, and data source firms) an economical advertising medium and thereby swelled its own advertising revenues.

We began this subject with four stratagems for market targeting, but in view of the multiplicity of needs or wants that are potentially profitable, there are always many optional stratagems.

COMPETITION

We have stated that one type of stratagem usually required in marketing planning focuses on markets. In addition to dealing with that aspect, competition usually will be a significant factor too. These will be discussed in two categories: combat stratagems and position stratagems.

COMBAT STRATAGEMS

Except in the rare cases of a virtual monopoly in an industry, firms must find ways to develop a competitive advantage. They must take offensive or defensive action to create a defendable position in an industry. "Firms have discovered many different approaches to this end, and the best strategy for a given firm is ultimately a unique construction reflecting its particular circumstances. -4 The intricacy of competitive stratagems was indicated by Porter, on whose studies we are drawing. He divided competitive combat stratagems into three types:


These primary determinations would be components of the total marketing strategy (a subject we will reach shortly).

There is a fourth option which may not be considered worthy of mention: simply to copy the strategy of the leading competitor. That is often referred to as going "head on" against competition, as contrasted with making an "end run," which the above three types do. We would not recommend going "head on" unless one has much stronger resources to wear down rivals, and a bright marketer usually would find a different way of making an efficient end run.

Overall cost leadership stratagems may be achieved by these means:


While quality and service cannot be ignored, low cost relative to competition is the core of this stratagem. Whirlpool, Goodyear, Inland Steel, and Caterpillar have exemplified low-cost positions.

Predicting how costs fall or production will rise is vital in developing overall cost leadership. A low-cost position depends on high market share, favorable materials sources, and other factors. It may be achieved by gaining a low cost of capital outlays, aggressive pricing, and willingness to take early losses while building the top market share in the product line. Texas Instruments was long the shining example of winning with this stratagem (in electronic components, calculators, etc.), but later was an example of its dangers. TI attempted this in home computers but sustained a $183 million loss on them in the second quarter of 1983. Soon TI withdrew from that market.

Why TI did so poorly in what was one of the best growth markets of the 1980s was because it overestimated demand and underestimated the speed with which competitors would introduce more advanced, more cost-effective systems. Further, TI (and Atari, which lost $300 million) waited too long before introducing their lower-cost machines.

Differentiation stratagems involve creating something that is perceived industry wide as being unique. It can follow numerous approaches that are based on unique product features, unique distribution methods, or being different in other dimensions. This is employed constantly, and we will cite a single example.

There is an old saying which says, "If you build a better mousetrap the world will beat a path to your door. " Well, occasionally bigger is synonymous with better, as is the case with Prince Manufacturing Inc.'s larger tennis racket design.

Prince developed the big racket in the mid-1970s, but it was slow to catch on despite claiming to provide more powerful shots and a "sweet spot" three and one half times larger than a conventional racket. Pros shunned the new racket (only three players used the Prince rackets in the 1978 U.S. Open), but by 1982 many top players were using big rackets.

The larger racket is considered to come under the "high-priced racket" category, in which sales had been slipping until Prince revolutionized the industry. Prince, which is the only large racket with a patent on its design, owns between 30 and 40% of the market. 6

Differentiation provides insulation against competitive rivalry because of brand loyalty and less concern about price. The customer loyalty and need for a competitor to overcome uniqueness provide entry barriers. Interestingly, achieving differentiation may preclude gaining a high market share due to the perception of exclusivity.

Market segmentation stratagems rest on the premise that the firm is better off serving a narrow segment of customers that it would be by competing more broadly. All the factors discussed in market segmentation apply here. The market segmentation stratagem achieves low cost or differentiation or both in its narrow target market. The segment of the market served could relate to buyer groups, geographic areas, or any other way to segment markets.
The positions of differentiation, overall cost leadership, and market segmentation. The stratagems differ in dimensions other than the functional difference. Efforts to implement them involve different skills that are resource requirements as well as organization requirements.

COMPETITIVE POSITION STRATAGEMS

The size and position of a firm in the market are competitive factors in strategic planning. Competitive position is a given factor in the situation for an already existing firm or product. Its position may be satisfactory, or it may be an undesirable one, for which there might be a stratagem that would alter it favorably.

We describe four types of competitive positions, and a choice among them 'forms part of the stratagems in planning. 7 A firm with the largest market share is known as the market leader, while firms with a low market share concentrated in specific market segment are called market nichers. Between these two types of firms are those that are called market challengers and marketfollowers.

A common strategic goal is to increase market share. Market leaders, such as Anheuser-Busch and General Motors, try to hold on to their existing market shares. The number-two and number-three competitors, such as Miller Brewing and Ford aggressively try to catch the leaders. In this section we discuss how marketing strategy depends on an analysis of competitive positions.

MARKET LEADER

Within an industry, a single company will usually dominate its competitors and hold the largest market share. The dominant firm tends to be a leader in providing new products, distribution networks, promotional coverage, and price adjustments. The leader is recognized by competitors, suppliers, and sometimes regulators as being dominant in the industry.

The competitors' stratagem may involve confronting, ignoring, or copying the leader; whereas the dominant firm attempts to maintain its leadership position. This position may be defended by increasing the size of the total market, maintaining the current market share, or expanding the current market share.

Total market size can be expanded by locating new users, such as Diet Coke did with its ad campaign, "Just for the taste of it." This implied that even someone who was not a regular diet cola consumer could enjoy Diet Coke. This approach helped Coca-Cola make Diet Coke the number-one diet soft drink in less than six months. Finding new users for a product can also increase market share. For example, Arm & Hammer has touted expanded use of baking soda, such as air freshening (in refrigerators) and as a substitute for toothpaste. Market share can also be enlarged by increasing the number of times that individuals use the product. Listerine attempted to increase market share of its mouthwash by suggesting that individuals rinse twice per day--once in the morning and again before going out at night.


MARKET CHALLENGER

The firms that follow the market leader can be considered market challengers if they decide to confront the leader and others to increase market share or market followers if they maintain their current market share. These companies tend to be smaller in scale than the market leader. A market challenger can increase share by attacking its competitors directly (Pepsi vs. Coke), emphasizing areas where competitors are weak (Wal-Mart did not take on K-Mart directly, but instead sought to position its stores in smaller communities, knowing K-Mart had a stronghold on the larger cities), or taking market share from smaller competitors.

Strategies that a challenger can utilize include cutting the price, offering less expensive and poorer-quality products, offering higher-quality products, enlarging the product line, improving the product, reducing the cost, expanding the promotion, increasing the services, and improving the distribution.

To succeed, a challenger must usually develop more than one stratagem. A complete strategy formulated successively will generally be more successful than relying on a single element. Ford has confronted General Motors by emphasizing product quality, design, economy, and value.

MARKET FOLLOWER

While some companies following the market leader attempt to increase market share, not all choose this stratagem. Some companies may feel that there is more to be lost than gained by attacking competitors who are stronger and will last longer in battle. Unless new product developments or distribution breakthroughs occur, a follower stratagem may be adopted. The market follower must maintain current customers and capture its share of new ones. Costs must be kept low while product quality is high. Market followers may be as profitable as or more profitable than the leaders. Chrysler has been forced into more of a follower role instead of acting

as a direct challenger to the much larger and financially superior General Motors. But Chrysler ranks higher than General Motors in innovativeness.
In industries with minimal product differentiation, similar service provision, and high price consciousness, price battles may occur at any time. Therefore a longer-term perspective is often taken, and short-term customer grabbing through price drops is ignored. These companies choose instead to parallel the leader in price and service offerings, which tends to stabilize market share over time.

MARKET NICHER

Niche stratagems are now used broadly across practically all industries. They are a promising option for companies that are not market leaders. So common is the stratagem that Forbes magazine's annual listing of the 200 best small companies in America is entitled its "Niche List. Its "best of the brightest" small firms are in a variety of niches, such as: superpremium ice cream, credit card loss notification, unique mutual funds, uncooked pizza, and custom bar-coded shelf labels.

Serving a niche or segment of a product market is a feasible way for many smaller firms to gain and hold market share. The ultimate market niche is large enough in size and purchasing power to provide acceptable profits, show potential in terms of expansion, and be ignored by market leaders and significant competitors. Unique efficiency may be developed to service the market niche, while goodwill developed with customers allows defense of that position against major competitors.

A striking example has been American Motors, desperate for survival, emphasizing its four-wheel-drive Jeep--the chief product line that remained when Chrysler purchased the company.

Successful low-market-share firms invariably have some common characteristics. They compete only in areas where their particular strengths are most highly valued. They make efficient use of limited R&D budgets. They specialize rather than diversify and emphasize profits rather than sales growth or market share.

PRODUCT POSITION

The product's (or product line's) position is the third dimension that usually has to be provided in marketing strategies. The other two, of course, are markets and competition. Product position stratagem relates to both, for its purpose is to create in the target market's perceptions-the desired image relative to competitors' products. When marketers have this stratagem determined, it serves as their objective for creating an appropriate marketing mix.

Positioning stratagems frequently have an explicit or implicit competitive frame of reference. A new or lesser brand may exploit a well-established competitor's image that it relates to its own. If effective, this stratagem makes buyers believe that one's brand is as good as or better than that of a named competitor. The classic case was Avis car rentals, whose campaign theme was: "We're number two, so we try harder. " Avis positioned itself as a major car rental firm along with the leader (Hertz) and away from the actual close third to Avis (which was National). Positioning often is the crucial stratagem dimension because it can be central to customer choice decisions.

Product positioning may involve decisions in three strategic aspects:


Position can be the heart of successful strategies, and they may prove to be durable. Rolls-Royce's position as the world's most elegant and expensive line of automobiles has proved to be impregnable. 7-Up created a unique position as the Uncola, but eventually both Coca-Cola and Pepsi-Cola found stratagems to overtake it with nocaffeine brands in their product lines. Selsun Blue positioned itself as the more effective dandruff shampoo, but Head & Shoulders outflanked it with a broad position, appealing to both the dandruff and cosmetic (beautiful hair) markets. The latter reached and kept the leadership position among shampoos.

THE COMPOSITE STRATAGEM

In introducing the three typical focuses of stratagems (market, competition, and product position), we noted that a marketing strategy usually must provide a way of dealing with each of those elements. Sometimes the challenge is coping with one element, but a composite of two or more stratagems tends to be more usual. It is a challenge indeed to discover and select compatible stratagems aimed at multiple focuses, but that is needed in a complete strategic plan.

Suppose that your firm had competed in its industry for many years, but with a low market share. The directors set an objective of breaking away from the many competitors and winning major market share. Stressing a competitive focus, you choose a cost leadership stratagem as the appropriate way to capture market share. That alone is not enough to guide strategic planning. A big question is: What is the ideal target market in which to promote your low-price position? You clearly need a market stratagem too.

Our discussion of stratagems concludes with striking case of how a small firm's owner used an excellent set of stratagems.

THE LITTLE BLACK BOOKS

David Collischon in 1980 paid $16,000 to buy a small firm with only $27 in fixed assets. A poor bargain? Well, in 1987 the owners (Collischon and his wife) went public with the firm, selling its stock for around $28 million, while still retaining a 68% share of ownership. The success story hinges on brilliant marketing strategy.

Collischon was an English publishing executive who had noticed in a London shop the Filofax looseleaf organized booklet system. He became intrigued by the product's lack of recognition to the point where he and his wife started a tiny mail order business in his suburban house with one of Filofax's small, pocket-sized organizers. He said, "We thought we might get a good holiday out of it." More than that, their sales took off and yielded by 1980 the $16,000 to buy the sleepy Filofax firm.

As Business Week described it, what Collischon was really buying was:

. . . the Filofax system: a six-ring leather binder that can hold appointment books, address pages, and scores of other items. [He] updated the inserts . . . [and then] persuaded many of Britain's fashionable department and stationery stores to take on the line. . . .

Besides offering hope of order to the confused, Filofax comes with a healthy dose of snob appeal. How else to explain the crocodile version or the $500 ostrich skin model. Colischon has proved a master of gimmicky marketing. Last Christmas he put out a limited edition of 200 Filofaxes made from reindeer hides salvaged from a 200-year-old shipwreck. Proceeds from the $240 items went to a charity, but the press spilled gallons of ink on the ploy.

"We have never spent a penny on advertising," says Collischon. II

At the time of that article, Collischon was proceeding with distribution in the United States and Japan using proceeds from the stock sale. We marvel at the marketing skill he displayed, but our topic is stratagems. Which types had he employed for Filofaxes?

Several stratagems may be identified in his approach, and we could debate which one was central. We suggest that the cue is the "snob appeal," which was irresistible. That is, a product position apart from any ordinary looseleaf personal record books was attained through developing a system of many forms available in customized binders, offered at very high prices. It was an image of quality products with systems of innovative inserts. (In fact, the sale of additional inserts has become the greater part of the business.) The target market stratagem was aiming at men and women of upscale income who sought personal prestige. Ways were created of turning the Filofax into an obsession among them, in which they vied to make a system perfectly tuned to their needs. The competitive combat stratagem clearly was one of differentiation.

Filofax-type opportunities and David Collischons who can choose excellent stratagems are uncommon, but they illustrate what can be accomplished in this key phase of strategic planning and the synergy of the right set of stratagems for a situation.

SUMMARY

The second half of a strategy is the strategic idea. The strategic objective, the other half, was discussed above. Instead of the term "strategic idea," we use its more precise (and less clumsy) synonym: stratagem.

Strategic objectives and stratagems must coexist (neither is any good without the other), and a marketer needs to acquire a repertoire of optional stratagems and insights on when to choose them. Those options have to be arranged systematically, according to some classification method.

The broadest categorization is according to purposes. We proposed a threeway breakdown by what a stratagem would apply to: markets, competitors, and product positions.

Market stratagems were then given four options: market aggregation, market segmentation, multisegmentation, and market concentration. The important point is to define the unique wants and needs of targeted markets.

For competition, there are three types of combat stratagems: differentiation, overall cost leadership, and market segmentation (which has two uses).

Position stratagems can be described as: market leader, market nicher, market challenger, and market follower. These three sets of categories can be integrated into composite stratagems.


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