Page 74 - Marketing Management

DEVELOPING MARKETING STRATEGIES AND PLANS | CHAPTER 2 51

PORTER’S GENERIC STRATEGIES Michael Porter has pro-
posed three generic strategies that provide a good starting point for
strategic thinking: overall cost leadership, differentiation, and focus. 34
• Overall cost leadership. Firms work to achieve the lowest produc-
tion and distribution costs so they can underprice competitors
and win market share. They need less skill in marketing. The
problem is that other firms will usually compete with still-lower
costs and hurt the firm that rested its whole future on cost.
• Differentiation. The business concentrates on achieving supe-
rior performance in an important customer benefit area valued
by a large part of the market. The firm seeking quality leader-
ship, for example, must make products with the best
components, put them together expertly, inspect them carefully,
and effectively communicate their quality.
• Focus. The business focuses on one or more narrow market seg-
Customers can travel virtually
ments, gets to know them intimately, and pursues either cost
leadership or differentiation within the target segment. anywhere in the world via flights
on Star Alliance airlines.
The online air travel industry provides a good example of these three strategies: Travelocity is
pursuing a differentiation strategy by offering the most comprehensive range of services to the
traveler; Lowestfare is pursuing a lowest-cost strategy; and Last Minute is pursuing a niche strat-
egy by focusing on travelers who have the flexibility to travel on very short notice. Some
companies use a hybrid approach.
According to Porter, firms directing the same strategy to the same target market constitute a
strategic group. 35 The firm that carries out that strategy best will make the most profits. Circuit
City went out of business because it did not stand out in the consumer electronics industry as low-
est in cost, highest in perceived value, or best in serving some market segment.
Porter draws a distinction between operational effectiveness and strategy. Competitors can quickly
copy the operationally effective company using benchmarking and other tools, thus diminishing the
advantage of operational effectiveness. Porter defines strategy as “the creation of a unique and valu-
able position involving a different set of activities.” A company can claim it has a strategy when it
“performs different activities from rivals or performs similar activities in different ways.”
STRATEGIC ALLIANCES Even giant companies—AT&T, Philips, and Nokia—often cannot
achieve leadership, either nationally or globally, without forming alliances with domestic or multi-
national companies that complement or leverage their capabilities and resources.
Just doing business in another country may require the firm to license its product, form a
joint venture with a local firm, or buy from local suppliers to meet “domestic content” require-
ments. Many firms have developed global strategic networks, and victory is going to those who
build the better global network. The Star Alliance brings together 21 airlines, including
Lufthansa, United Airlines, Singapore Airlines, Air New Zealand, and South Africa Airways, in a
huge global partnership that allows travelers to make nearly seamless connections to hundreds of
destinations.
Many strategic alliances take the form of marketing alliances. These fall into four major categories.
1. Product or service alliances—One company licenses another to produce its product, or two
companies jointly market their complementary products or a new product. The credit card
industry is a complicated combination of cards jointly marketed by banks such as Bank of
America, credit card companies such as Visa, and affinity companies such as Alaska Airlines.
2. Promotional alliances—One company agrees to carry a promotion for another company’s
product or service. McDonald’s teamed up with Disney for 10 years to offer products related
to current Disney films as part of its meals for children.
3. Logistics alliances—One company offers logistical services for another company’s product.
Warner Music Group and Sub Pop Records created the Alternative Distribution Alliance
(ADA) in 1993 as a joint venture to distribute and manufacture records owned by independ-
ent labels. ADA is the leading “indie” distribution company in the United States for both
physical and digital product.
4. Pricing collaborations—One or more companies join in a special pricing collaboration. Hotel
and rental car companies often offer mutual price discounts.