C

H
A
P
T
E
R

THREE

Business Strategies
and Their Marketing
Implications
McGraw-Hill/Irwin

Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

Ideal Characteristics of SBUs

o A Homogeneous set of markets
to serve with limited number of
related technologies
o A Unique set of productmarkets
o Control over factors necessary
for successful performance
o Responsibility for their own
profitability
3-2

Dimensions That Define Individual SBUs

o Technical compatibility
o Similarity in the customer needs or the
product benefits sought by customers
in the target markets.
o Similarity in the personal characteristics
or behavior patterns of customers in
the target markets.

3-3

Generic Business-Level Competitive Strategies

o Michael Porter distinguishes three strategies
o Overall cost leadership
o Differentiation
o Focus
o Robert Miles and Charles Snow classify
business units into four strategic types:
o Prospectors
o Defenders
o Analyzers
o Reactors

3-4

Definitions of Miles and Snows Four Business Strategies

o Prospector
o Focus on growth through the development
of new products and markets.
o Defender
o Concentrate on maintaining positions in
established product-markets while paying
less attention to new product development.
o Analyzer
o Attempt to maintain a strong position in its
core product-market(s)
o Seek to expand into new product-markets.
o Reactors
o Businesses with no clearly defined
strategy.
3-5

Exhibit 3.2

Combined Typology of Business-Unit Competitive Strategies

Heavy emphasis

Differentiation
Cost leadership

Competitive strategy

Prospector

Units primarily
concerned with
attaining
growth through
aggressive
pursuit of new
product-market
opportunities

Emphasis on new product-market growth

Analyzer

Defender

Units with
strong core bus.;
actively seeking
to expand into
rel. prod-mkts
with
differentiated
offerings

Units primarily
concerned with
maintaining a
differentiated
position in
mature
markets

Units with
strong core
bus.; actively
seeking to
expand into rel.
prod-mkts with
low-cost
offerings

Units primarily
concerned with
maintaining a
low-cost
position in
mature markets

No emphasis
Reactor

Units with no
clearly defined
productmarket
development or
competitive
strategy

3-6

Lets combine the two perspectives and examine the book

retailing industry
Heavy emphasis

Competitive strategy
Cost leadership Differentiation

Prospector

Units primarily
concerned with
attaining
growth through
aggressive
pursuit of new
product-market
opportunities

Emphasis on new product-market growth

Analyzer

Defender

Units with
strong core bus.;
actively seeking
to expand into
rel. prod-mkts
with
differentiated
offerings

Units primarily
concerned with
maintaining a
differentiated
position in
mature
markets

Units with
strong core
bus.; actively
seeking to
expand into rel.
prod-mkts with
low-cost
offerings

Units primarily
concerned with
maintaining a
low-cost
position in
mature markets

No emphasis
Reactor

Units with no
clearly defined
productmarket
development or
competitive
strategy

3-7

Service Businesses
o What is a service?
o A service can be defined as any activity or benefit
that one party can offer to another that is essentially
intangible and that does not result in the ownership
of anything. Its production may or may not be tied
to a physical product.
o Services
o Can be thought of as intangibles and goods as
tangibles.
o Can rarely be experienced in advance of the sale,
while goods can be experienced, even tested,
before purchase.

3-8

The Impact of the Internet

o The Internet:
o Is primarily a communications channel.
o Makes it easier for buyers and sellers to
compare prices.
o Reduces the number of middlemen
necessary between manufacturers and end
users.
o Cuts transaction costs.
o Improves the functioning of the price
mechanism.
o In addition, it makes it easier for firms to
customize their offerings and personalize their
relationships with their customers.

3-9

Exhibit 3.4

How Business Strategies Differ in Scope, Objectives, Resource Deployments, and Synergy

Dimensions

Scope

Goals and objectives

Adaptability (new product
success)
Effectiveness (inc. mrkt
share)
Efficiency (ROI)

Resource deployment
Synergy

Low-cost defender

Differentiated defender

Mature/stable/well-defined
domain; mature tech. and
cust. segments

Mature/stable/well-defined
domain; mature tech. and
cust. segment

Very little

Little

Low

Low

High

High

Generate excess cash (cash

cows)

Generate excess cash (cash

cows)

Need to seek operating

synergies to achieve
efficiencies

Need to seek operating

synergies to achieve
efficiencies

3-10

Exhibit 3.4

How Business Strategies Differ in Scope, Objectives, Resource Deployments, and

Synergy
Dimensions
Scope

Goals and objectives

Adaptability (new
product success)
Effectiveness (inc. mrkt
share)
Efficiency (ROI)

Prospector
Broad/dynamic domains;
tech. and cust.
segments not wellestablished

Analyzer
Mixture of defender and
prospector strategies

Extensive
High

Mixture of defender and

prospector strategies

Low

Resource deployment

Need cash for prod.

development (question
marks or stars)

Need cash for prod.

development but less so
than do prospectors

Synergy

Danger in sharing operating

facilities and programs
better to share
tech./marktg. Skills

Danger in sharing operating

facilities and programs
better to share
tech./marktg. skills

3-11

Environmental Factors Favorable to Different Business

Strategies
External
Factors

Prospector

Analyzer

Differentiated
Defender

Low-Cost
Defender

Industry
and market

Industry in
introductory or
early growth
stage of life
cycle; many
potential
customer
segments as
yet unidentified
and/or
undeveloped.

Industry in late
growth or early
maturity stage of
life cycle; one or
more product
offerings
currently targeted
at major
customer
segments, but
some potential
segments may
still be
undeveloped.

Industry in maturity
or decline stage of
life cycle; current
offerings targeted
at all major
segments; sales
primarily due to
repeat
purchases/replace
ment demand.

Industry in
maturity or
decline stage of
life cycle; current
offerings
targeted at all
major segments;
sales primarily
due to repeat
purchases/replac
ement demand.

3-12

Environmental Factors Favorable to Different Business Strategies

(continued)

External
Factors

Prospector

Analyzer

Differentiated
Defender

Low-Cost
Defender

Technology

Newly
emerging
technology;
many
applications as
yet
undeveloped.

Basic
technology
well
developed
but still
evolving;
product
modifications
and
improvement
sas well as
emergence
of new
competing
technologies
still likely.

Basic
technology fully
developed and
stable; few
major
modifications or
improvements
likely.

Basic
technology fully
developed and
stable; few
major
modifications or
improvements
likely.

3-13

Environmental Factors Favorable to Different Business Strategies

(continued)
External Factors

Competition

Prospector

Few
established
competitors;
industry
structure still
emerging;
single
competitor
holds
commanding
share
of major
market
segments.

Analyzer

Differentiated
Defender

Low-Cost
Defender

Large number of
competitors, but
future shakeout
likely; industry
structure still
evolving; one or
more competitors
hold large shares
in major segments
but continuing
growth may allow
rapid changes in
relative shares.

Small to moderate
number of wellestablished
competitors;
industry structure
stable, though
acquisitions and
consolidation
possible; maturity
of markets means
relative shares of
competitors tend
to be reasonably
stable over time.

Small to
moderate
number of wellestablished
competitors;
industry
structure stable,
though
acquisitions and
consolidation
possible;
maturity of
markets means
relative shares
of competitors
tend to be
reasonably
stable over time.

3-14

Environmental Factors Favorable to Different Business Strategies

(continued)
External
Factors

Prospector

Analyzer

Differentiated
Defender

Low-Cost
Defender

Businesss
relative
strengths

SBU (or
parent) has
strong R&D,
product
engineering,
and
marketing
research and
marketing
capabilities.

SBU (or parent)

has good R&D,
product
engineering,
and marketing
research
capabilities, but
not as strong as
some
competitors;
has either lowcost position or
strong sales,
marketing,
distribution, or
service
capabilities in
one or more
segments.

SBU has no
outstanding
strengths in R&D
or product
engineering; costs
are higher than at
least some
competitors;
SBUs outstanding
strengths are in
process
engineering and
quality control
and/or in
marketing, sales,
distribution, or
customer services.

SBU (or parent)

has superior
sources of supply
and/or process
engineering and
production
capabilities that
enable it to be lowcost producer;
R&D, product
engineering,
marketing, sales, or
service capabilities
may not
be as strong as
some competitors.

3-15

Differences in Marketing Policies and Program Components across

Businesses Pursuing Different Strategies
Strategy
Marketing Policies and Program
Components
Product policies
Product-line breadth relative to
competitors
Technical sophistication of products
relative to competitors
Product quality relative to competitors
Service quality relative to competitors
Price policies
Price levels relative to competitors
Distribution policies
Degree of forward vertical integration
relative to competitors
Trade promotion expenses as percent of
sales relative to competitors

Prospector

Differentiated
Defender

Low-Cost
Defender

+
+

+
+

?
?

+
+

Key: Plus sign (+) = greater than the average competitor.

Minus sign (-) = smaller than the average competitor.
Question mark (?) = uncertain relationship between strategy and marketing policy
or program component.

3-16

Differences in Marketing Policies and Program Components across

Businesses Pursuing Different Strategies (continued)
Strategy
Marketing Policies and Program
Components

Promotion policies

Advertising expenses as percent

of sales relative to competitors

Sales promotions expenses as

percent of sales relative to
competitors

Salesforce expenses as percent of

sales relative to competitors

Prospector

Differentiated
Defender

Low-Cost
Defender

Key: Plus sign (+) = greater than the average competitor.

Minus sign (-) = smaller than the average competitor.
Question mark (?) = uncertain relationship between strategy and marketing policy or
program component.

3-17

Changing Business Strategies for a Changing Market

o Effective implementation of different
business strategies requires different:
o Functional competencies and resources
o Organizational structures
o Decision-making and coordination
processes
o Reward systems
o Personnel
o It is very difficult for an entire SBU to make a
successful transition from one basic strategy
to another.
3-18