Marketing strategies: Knowing where your company fits
Every company should know the strengths they are employing to penetrate into the marketplace.
Michael Porter, known for his theories on economics, business strategy, and social causes is a Bishop William Lawrence University Professor at Harvard Business School. He has written that every company falls into one of two categories: cost advantage (in production or pricing) and differentiation from others in the market place. Additionally, a combination of pricing and niche marketing combine the two to focus on a narrow target segment.
Costing demands pricing in the market at a lower dollar amount to meet quality demands, together with sufficient demand to produce a profit. This can be achieved by gaining market share, thus higher margin velocity. Additionally, firms that can produce their products at lower costs by production efficiencies vertically integrating or innovation will, in the long run, remain profitable.
Firms that succeed in cost leadership role generally have better access to capital for investment in capital expenditures and inventory (in process and finished goods) control. They have a high level of efficiency in distribution that matches production capabilities. Not to be overlooked is the skill of designing products that will both meet customer desires and be put into production quickly and efficiently.
Using differentiation demands a keen sense of the marketplace. Their products provide attributes that are wanted by customers and are generally perceived to have a higher uniqueness. This allows companies to sell at a premium price. While a lower volume is attained, the higher margin per unit should result in total margin dollars being sufficient to cover fixed costs along with profits.
A strong sales team with its ear to the ground for new product demands, which also provides excellent customer service, should ensure longevity for the company. Additional attributes for companies using a differentiation strategy include: esearch and development, the ability to shift manufacturing quickly and having a reputation for quality.
A combination of cost advantage and differentiation leads to using a narrow focus strategy. Entering a narrow segment needs to exist on much lower volumes at a higher margin. Customers will absorb higher costs due to the limited supply of substitute products. Similar to differentiation, utilizing a focus strategy requires specific talents within the company. Companies must have a broad range of product development strengths and very specific customer knowledge.
Volume, quality, market and price each need to be added to the mix to determine which strategy a company should employ to grasp and hold their market share.