Understanding Eight Competitor Positions
Customers have a wide variety of options in many open marketplaces where the majority of goods and services can be acquired from any number of businesses.
Companies in the market have an obligation to identify their competitive advantages and outperform rival businesses in satisfying client wants.
How then does one company outperform the competition given the intense competition that exists among businesses in a given market? And how do several businesses sell essentially the same items at various rates and to varying degrees of success when there are only a limited number of novel goods and services available?
This is a well-known query that has been posed by business people for ages. In his famous book “Competitive Strategy: Techniques for Analyzing Industries and Competitors,” released in 1980, Michael Porter distilled competition into three traditional tactics: cost leadership, product differentiation, and market segmentation.
These common tactics “represented the three ways in which a company could give its clients what they needed at a lower cost or with greater efficiency than rivals. Porter essentially argued that businesses compete either on price (cost), perceived value (difference), or by concentrating on a very specialized customer (market segmentation).
A fairly common approach to think of competitive advantage is to compete by offering cheaper pricing or more perceived value. However, many entrepreneurs felt that these tactics were a little too general and desired to consider various value and price combinations in greater detail.
Cliff Bowman and David Faulkner created Bowman’s Strategy Clock in 1996 as an alternative way to view Porter’s plans. This corporate strategy model increases Porter’s three strategic positions to eight, explains the cost and perceived value combinations that many businesses adopt, and determines the propensity of each approach to succeed.
Bowman’s eight distinct methods, which are distinguished by varied levels of price and value, are shown in Figure 1 below.
Bowman’s Strategy Clock, Figure 1.
Position 1: Low Cost/Low Value
Companies typically decide not to enter this category of competition. This is the “discount basement” section, and not many businesses want to be there. Instead, it’s a situation where they are compelled to compete because their offering lacks unique value. The only way to “make it” in this industry is to sell a lot of product at a reasonable rate and keep bringing in new clients. You won’t be winning any customer loyalty competitions, but if you can keep one step ahead of the consumer (we won’t name names here), you might be able to survive. Although the products are subpar, people are persuaded to give them a shot by the prices.
Position 2: Affordable
Leaders in low cost competition comprise the businesses in this category. These are the businesses that balance extremely low margins with enormous volume to drive prices to absolute minimums. Low cost leaders can maintain this strategy and grow into a dominant force in the market if they have a sizable enough volume or compelling strategic justification for their position. If they don’t, the prices could lead to price wars that only benefit consumers because they are unsupportable for any duration longer than the shortest. Walmart is a prime example of a low price rival that entices suppliers to compete by promising them exceptionally high volumes.
Position 3: Hybrid (Moderate Price/Moderate Differentiation)
Hybrids are fascinating businesses. In contrast to other low-cost competitors, they provide low-cost products with higher perceived values. Although volume is a problem, many businesses have a reputation for providing fair rates for reasonable items. Discount department stores are excellent examples of businesses that use this strategy. The consumer is guaranteed good value and quality at fair costs. The combo increases patron loyalty.
Position 4: Differentiation
Businesses that stand out from the competition give their customers great perceived value. They either raise their pricing and enhance their profit margins to be able to achieve this, or they maintain their prices low and try to capture more market share. With differentiation methods, branding is crucial since it enables a business to become synonymous with both quality and a certain price point. Reebok is a powerful brand that offers high value at a reduced premium; Nike is known for high quality and premium costs.
Position 5: Focused Differentiation
These are your designer goods, which are expensive and have a high perceived worth. Customers in this group will purchase products only based on perceived value. The product need not have a higher true value in order to command very high premiums; the perception of value is sufficient. Consider brands like Gucci, Armani, and Rolls Royce; clothing either conceals you or it doesn’t, and a car either drives you across the block or it doesn’t. You will pay the fee if you think that arriving in your Rolls Royce Silver Shadow is worth 25 times more than arriving in a regular Ford. These businesses thrive by targeting niche markets and operating at high margins.
Position 6: Price Increase/Standard Good
Occasionally, businesses will just raise their prices without improving the value side of the equation. They are more profitable when the price rise is accepted. When it isn’t, their market share rapidly declines until they raise their price or value. This tactic might be effective in the short run, but it is not sustainable given that a disproportionate price premium in a cutthroat market will eventually be exposed.
Position 7: Low Value/High Price
In a market where only one company provides the goods or service, this is an example of traditional monopoly pricing. Because clients would always pay the price you set if they require what you have to give, providing value is not a worry for monopolists. In a capitalist economy, monopolies, if they ever form, do not endure long, which is fortunate for customers since it forces businesses to compete on an even playing field.
Position 8: Standard Price/Low Value
Any business that employs this kind of strategy will see its market share decline. If your product is of low value, your sole option for selling it is through pricing. Selling day-old bread for fresh prices is not possible. You can suddenly have a marketable product if you mark it down a few cents. You cannot avoid that no matter how hard you try because that is how consumers generally behave.
Here are some queries you should ask yourself while you choose your competitive strategy.
-Are you a price leader if you plan to compete on price?
-Can you maintain a position as a cost leader? Can you manage your expenses and maintain a healthy margin?
-Are you able to take full advantage of all the cost advantages at your disposal? -Can you strike a balance between low pricing and the impression of too little value?
-Does your cost advantage only apply to a single or a small number of niche markets? Given the volume and margins you anticipate, are these segments strong enough to support your company?
-Do you have a well defined target market if you plan to compete on perceived value?
-Are you aware of the values that your target market holds most dear?
-Are you aware of how your competitors’ items are deemed to be worth?
-Are there points of distinction you can exploit that others find difficult to imitate?
-Do you have alternative strategies for differentiating yourself in case you lose your edge over the competition there?
Consider your organizational competencies when you consider how you want to position yourself. Even though you might wish to utilize a targeted differentiation strategy and promote your “designer” products, you must realize that it takes a special set of circumstances to build that kind of reputation in the industry. You should compete in a field where your competitive strategy makes sense “given your organization’s corporate strategy and competences, the resources at your disposal, the operating environment, and any market expectations you have previously set.
Major Points
A very helpful model to understand how businesses compete in the market is Bowman’s Strategy Clock. You can start choosing a position of competitive advantage that makes sense for you and your organization’s competencies by examining the various combinations of pricing and perceived value. This is an effective perspective on how to forge and maintain a competitive edge in a market-driven economy. Understanding these eight fundamental strategic positions will help you examine your existing strategy and see if any changes might help you be more competitive overall.
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