In many free markets, customers can get most of the products and services they need from different companies and therefore have a wide range of choices to choose from.
Gain Competitive Advantage in the Market.
The job of companies in the market is to find their competitive advantage and respond better to the needs of customers than other companies.
Now the question is that despite the high level of competition among companies operating in a market. How can a company gain a superior competitive advantage over its competitors?. When there are a limited number of unique products and services in a market. How do companies sell the same products at different prices and achieve different success rates?
This is an old question that professional businesses have been trying to answer for generations. In 1980, Michael Porter published his book Competitive Strategy. Which categorizes competition into three classic strategies.
These general strategies outline three ways in which an organization can provide customers with what they want. At a better price or more effectively than competitors. Porter says that companies compete in the following areas. Price (cost leadership), the value perceived by customers (differentiation). Or focusing on a specific group of customers (market segmentation). Gain Competitive Advantage in the Market.
Competition through price reduction or offering more value has become one of the. Most important ways of looking at a competitive advantage. But for many business owners. These strategies were too general. And they wanted to look at the different combinations of value and price in more detail. Gain Competitive Advantage in the Market.
Cliff Bowman. And David Faulkner presented Bowman’s Strategy Clock in 1996 with a different look at Porter’s general strategies. This model of corporate strategy increases Porter’s three strategic choices to eight choices. Explains the different combinations of value and cost used by companies. And examines the likelihood of each succeeding. Gain Competitive Advantage in the Market.
The following figure shows eight different Bowman strategies that are characterized by different price and value levels. Bowman’s strategy. Gain Competitive Advantage in the Market.
Position 1: Low price / low value.
Usually, companies do not choose to compete in this category. In this situation. The company has the least bargaining power and companies usually do not like to be in this position. In fact, sometimes companies are forced to operate in this situation because their products do not offer different values.
The only way to succeed in such a situation is to be cost-effective by increasing your sales volume. And constantly attracting new customers. Gain Competitive Advantage in the Market.
In this situation, you can not succeed in attracting customer loyalty. But as long as you are one step ahead of the consumer, you may be able to succeed in your business. In this situation, the quality of the products is low. But their price makes it attractive for the customer to try it for once.
Position 2: Low price.
Companies competing in this category have cost leadership on their agenda. These companies keep prices as low as possible and rely on low-profit margins and high sales volumes. If companies that put cost leadership on their agenda can have a high volume of sales or have other strategic reasons for being in this position, they can use this approach sustainably and become a strong player in the market.
But otherwise, they will start price wars that will only benefit the customers and all sides of the competition will suffer. Walmart is a good example of a company with low pricing and cost leadership. By promising to sell at very high volumes, the company persuaded suppliers to put low prices on their agenda.
Position 3: Combined (average price, average differentiation).
Companies that choose a combined position are interesting companies. They offer low-priced products, but the products they offer have a greater perceived value to customers than other low-priced competitors. Sales volume is an important issue here as well, but these companies are known for offering fair prices for popular products. Discount stores are a good example of following this strategy. They offer good quality and value at a reasonable price. Such a combination attracts customer loyalty.
Position 4: Distinction.
Companies that offer different offers to their customers to achieve the highest level of value perceived fall into this category. To this end, these companies either raise prices and, by increasing profit margins, ensure their stability or survival, or lower prices and seek greater market share. In differentiation strategies, branding is important, because it creates the conditions for the quality and price of the company to be associated in the minds of customers. Nike is known for offering high-quality products at a high price, and Reebok is another strong brand that offers high-quality products at a lower price.
Position 5: Focused differentiation (focus on differentiation).
In this situation, products with high perceived value and high prices are offered. In this category, consumers buy products only on the basis of their value and do not pay much attention to the price. Products do not necessarily have to be of high value in and of themselves. It is important that customers value these products and the so-called value perceived by the customer of the products is high and they are willing to pay a high price for them. Consider brands such as Gucci, Rolex and Mercedes Benz. Whatever clothes you wear meets your need for clothing and you can go from place to place with any car. But if, for example, you see that riding a Mercedes-Benz is 25 times more expensive than riding a Hyundai, you are willing to pay several times more for it.
Position 6: More price / standard product.
Sometimes companies take the big risk of raising prices without changing the quality of their products. If this price increase is met with acceptance by customers, the company can use the profits without worry. But if this does not happen and the customers do not accept the price increase, the company will face a decrease in its market share until it either reduces the price or increases the value in proportion to the price. This strategy may work in the short term, but it can not be counted on in the long run because in a competitive market a mismatch between the new price and the value of the product will soon be discovered and will lead to customer reactions.
Position 7: High price / low value.
It is a traditional monopoly pricing method in a market where only one company is a supplier of products or services. When operating in a monopoly market, you do not have to worry about increasing the value of the product in proportion to its price. Because if customers need your product, they have to pay the price you set anyway. Fortunately, in economics, the monopoly market is rare, and even if it is, it will not last long, and other companies will enter the market to gradually eliminate this monopoly.
Position 8: Low value / standard price.
Any company that follows this type of strategy will lose its market share. If you have a low-value product, the only way you can sell it is to offer it at a low price. You can not sell a second-hand item at a new price! In such cases, you can reduce the price of your product, make it marketable. This is the nature of customer behavior and you can not change it no matter how hard you try.
Positions 6, 7 and 8 are not sustainable competitive strategies and can not be used in a competitive market in the long run. When the price is higher than the perceived value of the product, you will face tough competition. There are always competitors who offer customers higher quality products at a lower price than you. Therefore, you must determine the value and price of your products correctly.
There are some questions to ask yourself when deciding which competitive strategy to follow:
If you want to compete on price:
- Do you have cost leadership and can you offer the lowest prices?
- Can you maintain your cost leadership position? Can you steadily control your expenses and maintain a good profit margin?
- It also, Can you take advantage of all the cost savings?
- It also, Can you make sure that the low price of your products does not make the customers think that the reason for the low price of your products is their low quality?
- Are the benefits you have to reduce costs limited to a few small market segments? Given the sales volume and profit margins you have in them, do these divisions have the ability to ensure the survival and continuity of your business?
If you want to compete on customer perceived value:
- Have you defined your target market correctly and well?
- Do you know the true values of your target market?
- Are you aware of the perceived value of your competitors’ products by customers?
- Are there areas, where you invest in differentiation and others, can not easily imitate you?
Do you have any alternative methods of differentiation that you can use when you lose your competitive advantage in an area?
- When analyzing how to position yourself, carefully consider your organization’s capabilities. When you want to apply a focused differentiation strategy to your products and market, you need a unique set of conditions to achieve your target market reputation.
- Therefore, it is better to compete in areas where your competitive strategy is consistent with your company’s capabilities, company strategy, the environment in which you operate, and the market expectations you have chosen.