The aim of any business is to find a market position that is both profitable and defendable in its markets of choice, and such a position can only be achieved through differentiated products or lower relative costs, that is, by either serving different needs from competitors, or serving the same needs in different ways. When your business occupies a market position that is both profitable and that you can protect, we say that it has been strategically positioned within that market, and as we saw in our strategy
principles, there are only two ways to create such a position: through differentiated products, or through lower relative unit costs. Differentiation means that your products and services are both unique and valuable to your target consumers, while lower relative costs on the other hand mean that those products and services are produced at a lower cost per unit than competing solutions. Strategic positioning therefore reflects the choices that you make with
respect to two things: 1] The kind of value that your products and services will offer to target consumers [the products’ “Value Proposition”], and 2] How that value will be created differently from other companies [which is characterized through your business’s
“Value Chain”]. Unless you offer products and services that are both unique AND valuable to target buyers [the Differentiation part], or to some extent difficult to copy [the Value Chain part], your profitability will be vulnerable to the attack of competitors with similar capabilities, and also well-funded copycats. Conversely,
a company which positions itself through a differentiated value proposition, or through a “distinctive”, difficult to copy Value Chain, will be better equipped to retain its position over a longer period of time.
The strategic positioning of each of your businesses should translate into superior earnings
since they will be able to either command higher prices, drive superior levels of demand or produce higher margins than other companies within the same industry. In this article, we review a few core concepts about strategic positioning, based on our book Strategy for Executives, which can now be download for free here. Here is a quick rundown of the subjects that we will cover in this article: The next sections explain these sections in more
detail. Now let’s dive in. The first order of business for any established company is to protect the profits produced by its core business or businesses. Before thinking about new products, growth initiatives or the latest management
trend, you must have a solid but realistic plan to protect that core source of value and fight, bite and scratch to defend it if necessary. A company that doesn’t have its core business under control, or that prioritizes other areas, growth for example, is at risk of failing at both. The only way to effectively protect your business, that is, to ensure that it has a market position that is both profitable and defendable, is through the strategic positioning of its products and
services. Strategic positioning makes choices about how a business will “deliberately” protect core profits from
industry forces and retain a profitable position in the market. Based on our discussions about business strategy, there are only three ways to do that: Notice that we say “lower prices” and not “lower costs” since they are, obviously, different things. While costs are the result of choices that a company makes in its Value Chain, price on the other hand is a “decision” that comes out of a positioning
strategy and is usually established based on the relative price of a set of competing solutions. The challenge for executives when it comes to a business’s strategic positioning is in continually finding a “profitable” but “defensible” position in a marketplace, either through a differentiated offer, lower prices or a combination of both, where the company can maximize returns to shareholders for every dollar they invested in that business. As a result of the dynamics and
complexity of markets and competition, this market position [which classic strategists call a “Competitive Advantage”] becomes a bit of a moving target [a fast-moving one in some industries], making strategic positioning more like a “process” to continually adjust the perception of your business’s products and services in the minds of your target customers. Back to Top A challenge that you continually face as a business executive is the persistent threat that other companies could copy what you are doing once you find a market position where you make superior profits. A lot of information about a company’s strategy and its financial performance, especially for public companies, is available to the world at large, making business strategy a little bit like a quiz competition where all the
participants know the right answers. What is strategic positioning?
Explaining ‘Strategic Positioning’
Finding
and Protecting a Positioning Strategy
Your competitors know the dimensions of value that you focus on, your customer satisfaction rates, the names of your employees, who your partners are and your prices, and with a little bit more research they may also get to know your costs so they could, therefore get to know your margins and measure the success of your whole strategy.
If you think about it, Pepsi knows Coca-Cola’s strategy, the same way as Target knows Walmart’s strategy and just as any furniture vendor knows Ikea’s strategy, yet they have all managed to find a position in their respective markets where they are profitable and difficult to challenge or imitate.
So the challenge for you as an executive is in carving out a market position where you can make good margins and lift some competitive advantages that keep copycats at bay. Those advantages may be in the form of strong brands, robust distribution, exclusive access to key resources or channels, or just a very distinctive [e.g. proprietary] way to make and deliver your products and services.
Because commoditization can happen to product features [e.g. computer memory and toothpaste whiteness], to the product itself [e.g. fast internet and generic drugs] or to how your products are made [e.g. computer assembling and manufacturing], their strategic positioning therefore must be an iterative process to continually monitor your business’s performance and adjust its strategic direction accordingly.
In general, the process to find and defend a profitable market position can be described in four different steps:
- Market segmentation: Find effective ways to classify customers and slice the market into groups that share common characteristics that make them approachable through the same value networks.
- Choose target markets: Based on your segmentation of the market and your value proposition research, select the segments that you are going to target within those markets.
- Craft your market positioning strategy: Make decisions about how you will position your products with the selected target consumers, which can be done through product features and benefits, pricing, sales, distribution and promotion efforts.
- Monitor and adjust: Once your strategy has been deployed, measure the traction you get with your target consumers and the performance of your marketing efforts, validating previous assumptions and adjusting your market positioning preferences accordingly as new information becomes available.
Proper systematic feedback may call for adjustments or additions of product features, pricing models, distribution channels and/or promotion efforts.
The goal of this iterative process is to find a profitable position where your business is most difficult to be challenged by potential competitors and where your products and services are less likely to be commoditized.
A company doesn’t need to destroy its competitors to win in a competed market. The beauty of strategy comes from its diversity, which is what allows multiple players to win at the same time within the same industry.
In essence, the idea with this iterative process is to zig when others zag. If competition for a particular segment is tough, you must move into a different market position or just target different customers.
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Strategic Positioning Examples
We said in //strategyforexecs.com/business-strategy/other articles that the only ways to defend a profitable market position are through differentiated value, that is products and services that are perceived as both unique and valuable by target consumers, or through lower prices than comparable solutions.
But the real beauty of strategy is in how a business can combine these two dimensions in a number of ways to find and nurture unique market positions for its products and services that are both profitable and sustainable over the foreseeable future.
This creates a diversity of choices that gives customers options and at the same time creates a playground where multiple players can win at the same time within the same industry.
The strategy game is then about finding and retaining that market position where you can create superior profitability.
To measure such position, you may use perception maps to track where products in your market are positioned with respect to each other in the minds of target consumers.
For example, if you were mapping the soft drink industry, you could see how Gatorade is well positioned as a product with a high perceived value in the sports drink segment, while Powerade is positioned as a low-price solution within the same market.
Coca-Cola’s strategy is to position its Powerade product as a low-price alternative within the sports drink market, rather than trying to outcompete Pepsi’s Gatorade for the premium customers.
Gatorade’s customers are willing to pay higher prices for a high-quality sports drink, but Coca-Cola figured that there was an underserved price-sensitive segment of buyers who would be happy to pay less for a more basic product infused with electrolytes and vitamins, so they decided to position its Powerade product as a low-price alternative to Gatorade.
However, to tackle the premium segment of the market, Coca-Cola acquired Glacéau in 2007, bringing brands such as VitaminWater and SmartWater into its portfolio.
Although the price of Powerade is around half of its equivalent Gatorade, the bigger size of the market it targets helps Coca-Cola compensate for lower per-unit margins, so that the product could be equally or even more profitable than Gatorade.
In strategy lingo, Powerade’s market positioning strategy is to be the “price-leader” of the sports drink segment.
Contrast that with the strategy of Dr Pepper Snapple Group [NYSE: DPS] which owns more than 50 popular brands of beverages including Canada Dry, 7Up, Snapple, Hawaiian Punch, Mott’s, Orange Crush and Sunkist all of which occupy leadership positions in the soft drink market.
DPS’s products are unique in what they offer and are positioned in the minds of buyers as top brands in their respective categories, or to use some words you may be familiar with, DPS’s products are “differentiated”.
Sunkist’s orange and grape flavored drinks are well-positioned with respect to similarly flavored products, and so are Canada Dry in the ginger ale category, 7Up in the lime flavor, and Dr Pepper in the Cherry soda group, while DPS didn’t need to destroy Coke or Pepsi for its products to achieve this market position.
There are four main levers that you can act upon to help differentiate your products and services: your product’s features and benefits, how you promote them, your approach to sales and distribution, and your pricing options.
Of course, differentiation and low-price are by nature relative terms, since the movement of your products in a perception map depends on the efforts that the other players are making.
In other words, while the map is a snapshot at a given point in time, the landscape is actually moving, and the results of any efforts to position your brands must take into account the efforts being made by other companies trying to move around in the map.
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Linking Your Marketing Strategy with Your Operations
We mentioned earlier how a strategy that is both profitable and defendable is only achievable through a differentiated value proposition or through a distinctive value chain.
In plain English, that means that your products and services should be different AND valuable to your target consumers, or to some extent they should have something that is difficult for your competitors to imitate.
Strategic positioning therefore demands clear decisions about the value that your products and services will offer, and how those products and services will be made and delivered by your company profitably.
So in essence, you need a market strategy to identify and define market opportunities, and an operations strategy that makes decisions about how you will configure your value chain [assets, processes and human resources] to capture that opportunity profitably.
Although each case is unique and depends on the specific type of company and industry where you operate, we could say that in general the strategy process follows a sequence which usually starts at the market level, through some kind of market research or discovery process, which then leads on to the definition of a target market, value propositions and business models, and that from there it keeps moving upstream to the optimization and streamlining of the activities in the business’s value chain that will support the capture of those opportunities.
Although many rightly argue that a “forward” approach is also feasible, where an organization analyzes its capabilities and then goes out to find opportunities that fit its strengths, it doesn’t seem to be the norm, and we consider those as sales efforts rather than strategy formulation. Ideally, the process should flow from market opportunities to operations.
Once you understand your market positioning intentions clearly, you can then move on to define the metrics that will measure your performance and the constraints of your operations.
Things like demand forecasts, seasonality and prices must be translated from your market strategy into capacity needs, dependability, flexibility and maximum costs allowed for your operations.
With those metrics at hand, you can then set your operational priorities, that is, the factors that your operation teams must focus on to support your market strategy. If your strategy is based on differentiation, for example, you may have to put more emphasis on the factors that make your products different.
In the case of Uber, to use a familiar example, the company must focus on developing the capabilities that supports its business model, in this case data analytics, geo-location and artificial intelligence, and leave cloud servers [where its application runs], car insurance and other non-critical business areas to third parties that can do a better job at them.
You need to have a clear understanding of your operational priorities, and put the corresponding plans in place to support, develop and invest in those capabilities.
With those priorities well established, you can do a better job at configuring and optimizing the activities in your value chain and defining more specific things like project capacity and making location decisions.
You must be extremely careful when evaluating capacity investments, since hard assets could eventually become stranded costs if your business doesn’t succeed as expected. You should also consider how your proposed capacity plans might play out against the capacity plans of other companies attacking the same segments.
If too much capacity accumulates in a particular market, its players may be forced to start price wars as a way to stay in business.
Boeing and Airbus have several times engaged in races to produce the largest planes, but they both know there is not enough of a market for two aggressive players producing huge planes.
Sometimes the numbers would suggest that very large scales are needed to turn a profit [like with Tesla’s Gigafactory for example], but the larger these numbers are, the higher the risks of dragging out large fixed costs for a long time [or even forever] if demand never catches up as you expect.
Other important value chain decisions involve the labor needed, in both quantity and quality.
Highly skilled labor is sometimes hard to find, and so is cheap labor in high quantities, so those considerations must also be seriously pondered.
Operations is usually seen as a technical subject but it should not be. It is a fundamental component of strategic positioning and is all about making your marketing plans, hence your strategy, happen.
Without a good operations strategy, there would be no such things as competitive advantages, superior profitability or sustainability.
In a dynamic environment, operations and marketing must be always aligned to ensure that your organization is efficiently using its resources and that profitability is always maximized.
To do that, you must have a clear understanding of the markets and opportunities you are going after and ensure that your value chain is optimized to capture them. Any changes in the market or in your operations that require modifications in who you target or how you target them must be properly addressed by your tactical teams and looped back in.
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Testing the Defensibility of Your Strategy
To test the defensibility of your strategy from an operational standpoint, you can benchmark your operations against those of other companies, especially potential competitors, to gauge whether they would have cost advantages delivering YOUR value proposition with THEIR value chain.
In other words, could your closest competitors make the same products that you make but cheaper if they wanted to?
This type of introspective analysis can help you understand how much of your performance has to do with a cost advantage and how much is due to differentiation.
For example, if you realize that a potential competitor would have a cost advantage delivering a product that’s identical to yours, that would be a signal that your market position is at risk.
In response, you could help protect your position against a potential attack by investing more in non-product [i.e. market positioning] efforts such as branding and promotion, or by improving relationships with strategic customers.
If your close competitors can’t match your costs with their value chain, it means that you have the cost advantage [at least for now] and they don’t pose a threat in the short term [unless they are willing to subsidize losses to compete]. In that case you can just focus on strengthening your value chain and expand that advantage for as long as possible.
An example can probably help clarify these points. Let’s say that executives at Dr Pepper Snapple Group, owners of the Sunkist soda brands, realize that Coca-Cola could deliver a similar product at lower costs per unit. If that was the case, Sunkist should use the positioning levers to improve at the non-product factors that make its products stand-out with its buyers such as branding, flavors and distribution.
If on the other hand they do this exercise and conclude that Coca-Cola couldn’t deliver a similar product cheaper, then Coke is not a current threat to Sunkist and they can remain focused on tangible factors such as operations and keeping that cost advantage.
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Best Strategic Positioning Books
The content of this website has been extracted in its entirety from Strategy for Executives, a book that provides a fundamental, but practical, framework to understand and create a good strategy from scratch, applicable to the dynamic conditions that modern executives face in pretty much every market today.
There are many great business strategic positioning books to choose from, including our all-time favorites The Innovator Solution by Clayton Christensen and Understanding Michael Porter by Joan Magretta, but why go through all these different frameworks and ideas, some of them outdated, when you can get a unified map to strategy that incorporates all of them in a single framework?
Strategy for Executives, which is now free to download here, is based on extensive multi-year research, where we broke down the most popular strategy frameworks of the last 40 years, extracted their core ideas, and tied them all together into a single didactical and self-contained body of knowledge.
The research was led by Sun Wu, a seasoned Fortune 500 executive with more than 15 years of real-life experience, complemented by a thorough revision of more than 300 books and research papers, and over 500 hours of videos, interviews and formal training.
The result is a combination of fundamental concepts and a concise map to the strategy choices that modern executives have to make to thrive in today’s highly competitive markets.
Every concept in the book is explained from scratch so that plain and simple, this is the only strategy book that you and your teams will ever need.
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References
Sun Wu’s Strategy for Executives can now be downloaded for free here.
Magretta, Joan. Understanding Michael Porter: The Essential Guide to Competition and Strategy. Harvard Business Review Press. Kindle Edition.
Strategic Positioning, Institute for Strategic Competitiveness. //www.isc.hbs.edu/strategy/business-strategy/Pages/strategic-positioning.aspx
Hooley, Graham; Piercy, Nigel; Nicoulaud, Brigitte; Rudd, John M. Marketing Strategy and Competitive Positioning. 6th edition [Jan 2018]. Pearson.
Dawar, Niraj; Bagga, Charan K. A Better Way to Map Brand Strategy. Harvard Business Review. June 2015. //hbr.org/2015/06/a-better-way-to-map-brand-strategy
Powerade Wikipedia page. //en.wikipedia.org/wiki/Powerade
Van Mieghem, Jan A.; Allon, Gad. Operations Strategy: Principles and Practice. Second Edition. Dynamics Ideas LLC. //www.kellogg.northwestern.edu/faculty/vanmieghem/books.htm#ops%20strat