8.7 Strategic Positioning

Strategic Positioning

Strategic positioning is about figuring out where your firm fits in the competitive landscape and how it will compete. It pulls together everything from the earlier parts of this unit: your industry analysis, your internal resources, and the strategies available to you. The goal is to carve out a position that competitors can't easily copy.

Elements of Strategic Position

Three main elements shape a firm's strategic position: the competitive environment, the firm's resources, and the industry situation.

Competitive environment assesses how intense competition is in the industry. This is Porter's Five Forces framework in action:

• Rivalry among existing competitors determines pricing pressure and competitive intensity. In the airline industry, for example, price wars are common because rivals compete aggressively on the same routes.
• Bargaining power of suppliers affects cost control. Rare earth metal suppliers in the electronics industry hold significant power because few alternatives exist.
• Bargaining power of customers influences pricing and margins. Large retailers like Walmart can pressure suppliers into lower prices because they buy in such massive volume.
• Threat of new entrants evaluates how easily new competitors can enter. High capital requirements in the automotive industry create barriers that keep most potential entrants out.
• Threat of substitutes assesses whether alternatives could replace the firm's offerings. Streaming services, for instance, have largely substituted for traditional cable TV.

Resources are the assets and capabilities a firm can leverage to create value. They fall into two categories:

• Tangible resources are physical assets you can quantify: financial resources (cash, investments, access to capital like Apple's large cash reserves) and physical resources (equipment, facilities, distribution networks like Amazon's warehouse system).
• Intangible resources are harder to measure but often more valuable competitively: human resources (employee skills and expertise, like Google's engineering talent), innovation resources (patents and proprietary technology, like pharmaceutical drug patents), and reputational resources (brand image and customer loyalty, like Rolex's luxury positioning).

Core competencies sit at the intersection of these resources. They're the unique capabilities that give a firm its competitive edge, things the firm does better than anyone else.

Industry situation describes the current state and structure of the industry:

• Industry life cycle stage tells you where the industry sits in its evolution:

  1. Introduction: Few competitors, high uncertainty, unproven market (e.g., early virtual reality)
  2. Growth: Rapidly expanding demand, increasing competition (e.g., electric vehicles)
  3. Maturity: Stable market, established players, slower growth (e.g., soft drinks)
  4. Decline: Shrinking demand, consolidation, intense competition (e.g., landline telephones)

• Industry structure refers to how competitors are distributed:

  • Fragmented industries have many small competitors with no dominant player (e.g., local restaurants).
  • Consolidated industries are dominated by a few large firms (e.g., commercial aircraft with Airbus and Boeing).

• Strategic groups are clusters of firms within an industry that follow similar strategies or have comparable resource profiles. Identifying which strategic group your firm belongs to helps clarify who your closest competitors really are.

Selection of Competitive Strategy

Generic competitive strategies represent the broad approaches a firm can take:

• Cost leadership focuses on achieving the lowest cost structure in the industry. Firms pursue economies of scale, efficient operations, and tight cost control to offer lower prices than competitors. Walmart's "everyday low prices" model is the classic example.
• Differentiation emphasizes offering unique products or services that customers value enough to pay a premium for. Apple's investment in design, innovation, and brand experience allows it to charge higher prices than most competitors.
• Focus targets a narrow market segment with specialized offerings tailored to that group's specific needs. Whole Foods Market built its position by focusing on health-conscious consumers willing to pay more for organic and natural products.

Selecting the right strategy involves matching your firm's internal capabilities to the external competitive landscape. Here's how that process works:

1. Evaluate the firm's capabilities and resources. Assess strengths and weaknesses in areas like cost efficiency, innovation, and brand equity. Toyota's lean manufacturing capabilities, for instance, naturally support a cost leadership strategy.
2. Analyze rival positions. Study competitors' strategies and market positions to spot gaps or weaknesses you can exploit. Under Armour found an opening by focusing on performance apparel, differentiating itself in a market dominated by Nike and Adidas.
3. Choose a strategy that leverages your strengths while avoiding head-on competition with stronger rivals. Netflix chose streaming as a differentiation strategy partly to sidestep direct competition with traditional media companies that dominated physical distribution.

Strategic intent is the ambitious, long-term goal that guides decision-making and resource allocation over time. It keeps the firm focused on where it wants to be, not just where it is now.

Creation of Unique Positioning

Creating a unique strategic position means developing a value proposition that clearly sets the firm apart. This involves three steps:

1. Identify key success factors in the industry. What drives customer choice and profitability? In e-commerce, for example, convenience and product selection are critical. If you can't deliver on those, your positioning won't hold.
2. Develop a distinctive value proposition. This communicates how your offerings create unique value relative to competitors. Patagonia's commitment to environmental sustainability isn't just marketing; it's a value proposition that resonates with a specific customer base and differentiates the brand from other outdoor apparel companies.
3. Align activities and resources to support the position. Every part of the value chain should reinforce the strategy. Zara's vertically integrated supply chain allows it to move designs from concept to store shelves in weeks, directly supporting its fast fashion positioning.

Once a unique position is established, competitive advantage follows through two paths:

• Attracting customers with superior value builds loyalty and market share. Tesla's electric vehicles draw environmentally conscious consumers who see the brand as aligned with their values.
• Generating profit through pricing or efficiency. Differentiated firms like Louis Vuitton earn high margins through premium pricing, while cost leaders like Costco earn profits through high volume at low margins. Both approaches work, but they require very different operational setups.

Strategic fit is what ties all of this together. It means a firm's activities are mutually reinforcing, each one supporting and strengthening the others. A firm with strong strategic fit is much harder to imitate because competitors would need to replicate the entire system, not just one piece.

Innovative Strategies for Market Leadership

• Blue ocean strategy focuses on creating entirely new, uncontested market space rather than fighting over existing customers. Instead of competing within known boundaries, firms redefine the playing field so competition becomes irrelevant.
• Value innovation is the cornerstone of blue ocean strategy. It means simultaneously pursuing differentiation and low cost, creating a leap in value for both buyers and the company. Cirque du Soleil is a well-known example: it reinvented the circus by eliminating costly elements (animal acts) while adding theatrical and artistic value, attracting a completely new audience.
• Sustainable competitive advantage is achieved when a firm's unique position is difficult for competitors to imitate or substitute. The more tightly integrated and distinctive a firm's activities are, the more durable its advantage becomes.