Strategy clock

Strategy clock - differentiation ? Strategies in this zone seeks to provide products that offer benefits that differ from those offered by competitors. ? A range of alternative strategies from: differentiation without price premium (12 o’clock) –used to increase market share. differentiation with price premium (1 o’clock) –used to increase profit margins. focused differentiation (2 o’clock) –used for customers that demand top quality and will pay a big premium. –low price Low price combined with: low perceived product benefits focusing on price sensitive market segments –a ‘no frills’strategy typified by low cost airlines like Ryanair. lower price than competitors while offering similar product benefits –aimed at increasing market share typified by Asda /Walmart in grocery retailing. - hybrid ?Seeks to simultaneously achieve differentiation and low price relative to competitors. ?Hybrid strategies can be used: to enter markets and build position quickly. as an aggressive attempt to win market share. to build volume sales and gain from mass Production. –non-competitive ?Increased prices without increasing service/product benefits. ?In competitive markets such strategies will be doomed to failure. ?Only feasible where there is strategic ‘lock-in’or a near monopoly position. The supermarket retail revolution in the UK began in the late 1960s and 1970s as, initially, Sainsbury's began to open up supermarkets. Since the dominant form of retailing at that time was the corner grocery shop, Sainsbury's supermarkets were, in effect, a hybrid strategy: very clearly differentiated in terms of the physical layout and size of the stores as well as the quality of the merchandise, but also lower priced than many of the corner shop competitors. As more and more retailers opened up supermarkets a pattern emerged. Sainsbury's was the dominant differentiated supermarket retailer. Tesco grew as a 'pile it high, sell it cheap' no frills operator. Competing in between as lower priced, but also lower quality than Sainsbury's, were a number of other supermarket retailers. The mid-1990s saw a major change. Under the leadership of Ian Maclaurin, Tesco nade a dramatic shift in strategy. It significantly increased the size and number of its stores, dropped the 'pile it high, sell it cheap' stance and began offering a much wider range of merchandise. Still not perceived as equal to Sainsbury's on quality, it none the less grew its market share at the expense of the other retailers and began to challenge Sainsbury's dominance. However the big breakthrough came for Tesco when it also shifted to higher-quality merchandise but still at perceived lower price than Sainsbury's. In effect it was now adopting a hybrid strategy. In so doing it gained massive market share. By early 2007 this stood at over 30 per cent of the retail grocery market in the UK. In turn Sainsbury's had seen its share eroded to just 16 per cent, as it sought to find a way to resurrent its differentiated image of quality in the face of this competition. In the meantime, other competitive strategy positions had consolidated, the low-price strategy was being followed by Asda (Wal-Mart) which also had a 16 per cent share of the market and Morrison's (with 11 per cent). In the no-frills segment was Netto, Lidl and Aldi, all retail formats that arrived in the 1990s from European neighbours and with a combined share of around 6 per cent. The strategy of differentiation no longer really existed in a pure form. The closest was Waitrose (almost 4 per cent) emphasising a higher-quality image, but targeting a more select, upper-middle-class, market in selected locations. The focused differentiated stance remained the domain of the specialists: delicatessens and, of course in a London context, Harrods Food Hall. Launched in 1995, easyJet was seen as the brash young upstart of the European airline industry and widely tipped to fail. But by the mid-2000s this Luton-based airline had done more than survive. From a starting point of six hired aircraft working one route, by 2006 it had 122 aircraft flying 262 routes to 74 airports and carrying over 33 million passengers per annum and impressive financial results: ￡129m profit on ￡1619m revenue. The principles of its strategy and its business model were laid down in annual reports year by year. For example, in 2006: * The internet is used to reduce distribution costs... * Maximizing the utilization of substantial assets. * Ticket-less travel. * No 'free lunch'. * Efficient use of airports. It might also have added that other factors contributed to low costs: * A focus on the Airhus A319 aircraft, and the retirement of 'old generation' Boeing 737 aircraft, meant 'a young fleet of modern aircraft secured at very competitive rates' benefiting maintenance costs. And, since an increasing proportion of these were owned by easyJet, financing costs were being reduced. * A persistent focus on reducing ground handling costs. * In the face of rising fuel costs, hedging on future buying of fuel. In addition to all the factors above the 2006 annual report stated that easyJet's customer proposition is defined by low cost with care and convenience...