Chapter 3
Business Strategies and Their Marketing
Implications
I. “Business Strategies and Marketing Programs at 3M” discusses 3M’s utilization of
different business and marketing strategies in their many strategic business units to become the
leader in dozens of technical areas today.
II. Strategic Challenges Addressed in Chapter 3
One key reason for 3M’s continuing success is that all three levels of strategy within the
company have usually been characterized by good internal and external consistency, or
strategic fit.
Chapter 3 focuses on what marketing decision-makers can and should do to help ensure
that the strategic marketing plans they develop are appropriate in light of the available
resources and competitive thrust of the business that is their organizational home.
oFirst, it briefly examines the strategic decisions that must be made at the business
level, including how business units should be designed.
oNext, it examines the interrelationships between different business competitive
strategies and elements of the strategic marketing programs for the various products
within the business.
III. Strategic Decisions at the Business-Unit Level
The components of a firm engaged in multiple industries or businesses are typically called
strategic business units (SBUs).
The first step in developing business-level strategies is for the firm to decide how to divide
itself into SBUs. The managers in each SBU must then make recommendations about:
oThe unit’s objectives
oThe scope of its target customers and offerings
oWhich broad competitive strategy to pursue to build a competitive advantage in its
product-markets
oHow resources should be allocated across its product-market entries and functional
departments
A. How Should Strategic Business Units Be Designed?
Ideally, strategic business units have the following characteristics:
oA homogeneous set of markets to serve with a limited number of related
technologies
oA unique set of product-markets
oControl over those factors necessary for successful performance
oResponsibility for their own profitability
The three dimensions that define the scope and mission of the corporation also
define individual SBUs:
oTechnical compatibility, particularly with respect to product technologies and
operational requirements, such as the use of similar production facilities and
engineering skills
oSimilarity in the customer needs or product benefits sought by customers in
the target markets
oSimilarity in the personal characteristics or behavior patterns of customers in
the target markets
B. Business-Unit Objectives
Companies breakdown corporate objectives into subobjectives for each SBU.
In most cases, the subojectives vary across SBUs according to attractiveness of
their industries, the strength of their competitive positions within those industries,
and resource allocation decisions by corporate management.
A similar process of breaking down overall SBU objectives into a set of
subobjectives should occur for each product-market entry within the unit.
The sub objectives must reflect the SBU’s overall objectives, but, they may vary
across product-market entries according to the attractiveness and growth potential
of individual market segments and the competitive strengths of the company’s
product in each market.
C. Allocating Resources within the Business Unit
Once a SBU’s objectives and budget have been approved at the corporate level, its
managers must decide how the available resources should be allocated across the
unit’s various product-market entries.
oBecause this allocation process is quite similar to allocating corporate
resources across SBUs, many firms use similar economic value, value-based
planning, or portfolio analysis tools for both.
Value-based panning is not as useful a tool for evaluating alternative resource
allocations across product-market entries.
oThis is because the product-market entries within a business unit often share
the benefits of common investments and the costs of functional activities, as
when multiple products are produced in the same plant or sold by the same
salesforce.
IV. How Do Businesses Compete?
Most SBUs pursue a single competitive strategy—one that best fits their market
environments and competitive strengths—across all or most of the product-markets in
which they compete.
A. Generic Business-Level Competitive Strategies
Michael Porter distinguishes three strategies—or competitive positions—that
businesses pursue to gain and maintain competitive advantages in their various
product markets:
oOverall cost leadership
oDifferentiation—building customer perceptions of superior product quality,
design, or service.
oFocus—the business avoids direct confrontation with its major competitors
by concentrating on narrowly defined market niches.
Robert Miles and Charles Snow identified another set of business strategies based
on a business’s intended rate of product-market development (new product
development, penetration of new markets). They classify business units into four
strategic types:
oProspectors—focus on growth through development of new products and
markets.
oDefenders—concentrate on maintaining their positions in established
product-markets while paying less attention to new product development.
oAnalyzers—fall in between prospector and defender. An analyzer business
attempts to maintain a strong position in its core product-market(s) but also
seeks to expand into new—usually closely related—product-markets.
oReactors—are businesses with no clearly defined strategy.
Even though both Porter and Miles and Snow typologies have received popular
acceptance and research support, neither is complete by itself.
The text has combined the two typologies to provide a more comprehensive
overview of business strategies (Exhibit 3.2).
oEach of the strategic categories can be further subdivided according to
whether a business applies the strategy across a broadly defined
product-market domain or concentrates on a narrowly defined segment where
it hopes to avoid direct confrontation with major competitors.
B. Do the Same Competitive Strategies Work for Single-Business Firms and
Start-Ups?
Even small firms with a single business and only a few related product offerings or
startups with a single product must decide how they will compete.
oJust like a SBU in a major corporation, their competitive strategies should be
tailored to their unique resources and competencies and aimed at securing a
sustainable advantage over competitors. Therefore, the same set of strategies
is just as appropriate for small firms as for business units within larger ones.
However, there is one important differences between these smaller firms and
multi-SBU organizations:
oIn smaller single-business firms, the distinction between business-level
competitive strategy and marketing strategy tends to blur, and the two
strategies blend into one.
oMost start-ups do not have the resources to succeed by competing as a
“me-too” competitor in well-established product-markets. Therefore, while
the taxonomy of strategies is still relevant to entrepreneurial firms, in reality
most of them—at least those that stand a reasonable chance of success—
begin life as prospectors.
The critical question for a start-up firm are:
oWhat happens when the new product matures and competitors arrive on the
scene?
oShould the firm continue to focus on developing a stream of new products to
stay a step ahead of the competition, even though such a strategy would mean
paying less attention to its successful first entry?
oShould the firm switch to a defender strategy to leverage its initial success,
even though that would mean competing head to head with other, probably
bigger, competitors?
oShould the firm create two separate SBUs with different competitive
strategies, even though it is small and resources are limited?
C. Do The Same Competitive Strategies Work for Service Businesses?
Services can be thought of as intangibles and goods as tangibles.
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.”
The framework used to classify business-level competitive strategies in Exhibit 3.2
is equally valid for service businesses.
oSome service firms attempt to minimize costs and compete largely with low
prices.
oOther firms differentiate their offerings on the basis of high service quality or
unique benefits.
oSome service businesses adopt prospector strategies and aggressively pursue
the development of new offerings or markets.
oOther service businesses focus narrowly on defending established positions in
current markets.
oStill others can best be described as analyzers pursuing both established and
new markets.
D. Do The Same Competitive Strategies Work for Global Competitors?
In terms of the strategies describe in Exhibit 3.2, businesses that compete in
multiple global markets almost always pursue one of the two types of analyzer
strategies.
oThey must continue to strengthen and defend their competitive position in
their home country—and perhaps in other countries where they are well
established—while simultaneously pursuing expansion and growth in new
international markets.
A single SBU may need to engage in different functional activities (including
different strategic marketing programs)—and perhaps even adopt different
organizational structures to implement those activities—across the various
countries in which it competes.
E. Will the Internet change everything?
The Internet makes it easier for buyers and sellers to compare prices, reduces the
number of middlemen necessary between manufacturers and end users, cuts
transaction costs, improves the functioning of the price mechanism, and thereby
increases competition.
oOne possible outcome of all these changes is that it will be harder for firms to
differentiate themselves on any basis other than low price.
oAll the business-level competitive strategies focused on differentiation will
become less viable, whereas firms pursuing low-cost strategies will be more
successful.
As customers gather information from the Internet and become more informed they
are less likely to be swayed by superficial distinctions between brands. But if a firm
offers unique benefits that a segment of customers perceive as meaningful, it should
still be able to differentiate its offerings and command a premium price, at least
until its competitors offer something similar.
The Internet will make it easier for firms to customize their offerings and
personalize their relationships with their customers. Such personalization should
differentiate the firm from its competitors in the customer’s eyes and improve
customer loyalty and retention.