Competitive Strategy 101

One of the concepts that I recall from my Competitive Strategy course at Harvard Business School (based on Michael Porter's Competitive Strategy book) is that to win in the marketplace, you need to pursue one of the following three competitive strategies - value, focus or differentiation. That is as true today as it has ever been.

In some categories, on some occasions and for some consumers, value is all that matters. When a purchase is not that important to us and we want to save money, we seek out value. There are many brands that deliver a good value these days. Amazon.com delivers value as do many other Internet brands. Ikea is all about value. H&M focuses on value, as does Walmart. Kia and Hyundai also focus on value. ALDI is known for delivering on value. And there are many no frills, low cost airlines that also focus on value. Increasingly, people shop Marshalls, Stein Mart, Tuesday Morning and T.J. Maxx for good value on name brands. 

And then there is focus. Bass Pro Shops focus on outdoorsmen, and especially fishermen. Orvis focuses on fly fishermen. Lane Bryant focuses on plus sized women and Big & Tall focuses on men's big and tall clothing. Pilot Flying J focuses on the needs of truckers. The Aspen Skiing Company focuses on skiing, as does Vail Resorts. Varsity Spirit Corp. focuses on cheerleading and dance. 

Finally, there is differentiation. Christian Louboutin shoes are differentiated as are Vilebriquin bathing trunks, Robert Graham shirts and Loudmouth apparel. MINI Coopers are differentiated as are Tesla automobiles. Opaque restaurants are differentiated as are Bojangles' Restaurants, Cracker Barrel restaurants and CoreLife Eateries. 

The trick is to know when to differentiate and in what ways and for which consumers. American markets are continuing to bifurcate. That is, most of these markets are tending to go upscale or downscale with fewer options in between. That is because the middle class is shrinking at the same time that more people are becoming increasingly affluent while others are struggling more and more financially.

Differentiation is most important in upscale markets. It is also important in categories through which consumers are making personal statements such as automobiles, home decor and clothing. 

But the need to differentiate (versus seeking out value) can be highly situational. For instance, I may be looking for value when purchasing a pair of khaki casual pants. Whereas, I might want to make a statement with a shirt that I would wear at a party or out on the town. In the latter instance, I am looking for something highly differentiated and am willing to pay extra for that differentiation. 

As a marketer, it is important to know what competitive strategy or strategies will work best for your brand and in what situations and with which consumers. 

Integrating Brand Strategy with Business Strategy

Not much has been written about the intersection of business strategy and brand strategy. It is surprising to me because this is the arena in which I most often find myself consulting. When I was at Harvard Business School my largest concentration was in business strategy. I was weaned on Michael Porter’s Competitive Strategy, Competitive Advantage and The Competitive Advantage of Nations. I am a firm believer that brand strategy, business strategy, business model strategy and competitive strategy need to be a finely woven tapestry. But to begin to envision this, we must understand the key components of each of these.

Organization/business strategy considers many things – mission, vision and values, organization culture, product/service portfolio, bundling/unbundling, market structure, entry barriers, exit barriers, market segmentation, market focus, proprietary technology, network effects, economies of scale, accessibility/distribution channels, value proposition, sources of differentiation, branding, business model/revenue sources, cost structure (including fixed vs. variable vs. semi-variable costs), vertical and horizontal integration, strategic partnerships, supply and demand, substitute products, disruptive technologies, societal trends, cash flow, organization structure, organizational agility, keys for executional success and sequencing of moves.

Related to this is an assessment of core competencies and value chain analysis. In what ways does your organization add value to the end product and in what ways are you spending money that does not affect the end product’s value? And are you capturing the value that you are generating?

Business model strategy considers how a variety of factors come together to create a profitable business model. Key to this are how you are going to generate revenue (target customers/customer base, revenue sources, distribution channels, etc.), what your gross margins will be (pricing strategy, cost structure, etc.), how you will operate the business, what your working capital will be (cash flow, reinvestment strategies, etc.) and your sources and costs of financing.

Competitive strategy focuses on achieving competitive advantage in the long run, often via one of these three approaches: cost leadership, competitive differentiation or customer segment focus.

Another discipline that can applied to strategy formulation is game theory. This fascinating branch of mathematics has real-world practical applications. If you can structure the competitive environment properly, you can insure a maximally positive outcome for your business. Another area that can inform strategy formulation is behavioral economics, that is, the study of human psychology and behavior as they relate to economic decision making.

Brand strategy should include target customer definition (including prioritization of need segments), competitive frame of reference, differentiating benefits, pricing strategy, distribution strategy and how one will achieve awareness, relevant differentiation, customer value, brand accessibility and emotional connection to the brand. Brand strategy can also include the brand archetype and personality, which are highly correlated with the organization’s culture.

As you can see, there are several points of intersection between these types of strategy. Here are just some examples:

• Mission, vision and values are closely related to brand essence and promise
• Organization culture generally has some alignment with brand archetype and personality
• Competitive frame of reference, market structure, market segments and target customers are fundamentally important to most of these strategies
• Product/service portfolio is the way the brand delivers on its promise
• The value proposition and sources of differentiation are closely related to brand positioning
• Business and brand strategy should consider accessibility and distribution
• Business model strategy, competitive strategy and brand strategy must consider pricing strategy
• Brand extension sometimes requires strategic partnerships
• All of these must consider societal trends to be viable in the long run

So, how does one insure that these strategies dovetail properly? Business strategy and business model strategy belong in the executive suite perhaps with the help of business strategy consultants. Competitive strategy links these to brand strategy.

Here are a few things that can help with integration. The brand strategy function should exist at a very high level in the organization. Graphic designers, copywriters and ad agency teams should not be crafting high-level brand strategy. They are too far removed from the work and discipline of business, business model and competitive strategy formulation. Marketing communication strategy and advertising campaign strategy are the appropriate level of strategy formulation for these functions.

Another integrating mechanism is the careful consideration of the nesting and sequencing of the strategic plans. That is, where does the brand plan fit into business planning?

One should also consider the role of brand metrics in a balanced scorecard.

Some organizations find that it is useful to use the brand as a way to rally the organization around its high level strategies. In this way, the brand positioning work may closely follow the establishment of the organization’s mission, vision and values.

Finally, it is important to have strategic thinkers and people firmly grounded in marketing research and analytical thought to be a part of the brand management team.  Brand management is a left brain/right brand activity. Strategic thought is as important as creative capacity.  And sometimes foundational research such as market assessment, attitude and usage studies, market segmentation studies, price sensitivity studies, volumetric forecasting and other types of predictive analysis inform strategy formulation in many of these spheres.

I wish you great success in integrating your business and brand strategies.

Recommended reading:

• Blue Ocean Strategy by W. Chan Kim
• Competitive Advantage by Michael Porter
• Competitive Strategy by Michael Porter
• Co-Opetition by Adam M. Brandenburger and Barry J. Nalebuff
• Crafting and Executing Strategy: The Quest for Competitive Advantage by Margaret Peteraf, John Gamble and A. J. Strickland III
• Creating Strategic Leverage by Milind M. Lele
• On Competition by Michael Porter
• Scaling Up by Verne Harnish
• The Art of Strategy by Avinash K. Dixit and Barry J. Nalebuff
• The Business Model Navigator by Oliver Gassmann, Karolin Frankenberger and Michaela Csik
• The Innovator’s Dilemma by Clayton M. Christensen
• Value Proposition Design by Alexander Osterwalder
• Zero to One by Peter Thiel

Considerations in Crafting Brand Strategy

These are just some of the considerations when crafting brand strategy:

• Who are this brand’s target customers and other audiences and why?
• Which customer groups are the largest, fastest growing, most profitable and most loyal to the brand?
• How aware are target customers of this brand within its most relevant product/service categories? Is it the first brand recalled within these categories?
• Have we defined the brand’s product/service categories in the most beneficial ways?
• How are the categories in which the brand operates changing? What are the brand strategy implications of this?
• What is this brand's competitive set? How are those brands positioned?
• What is this brand's mindshare?
• What does this brand stand for in the minds of its target audiences?
• Is the brand unique and highly desirable to the most important target customer groups? That is, does it have a unique value proposition?
• Is the unique value proposition sustainable? Can its value proposition be expanded upon and protected?
• What are the proof points for the brand’s promise or unique value proposition? What are the opportunities for additional proof points and reasons to believe?
• Does the brand connect with people emotionally?
• Does the brand stand for something?
• Does the brand have a unique set of values that align with its customers’ values?
• Does the brand’s meaning allow for growth across relevant new product and service categories?
• Are there also sub-brands, endorsed brands and named products in the brand’s architecture? Does each of these other entities serve a useful purpose?
• Can the brand architecture be simplified?
• Have we articulated the brand’s unique value proposition in a pithy tagline?
• Does the brand have a well-crafted story and elevator speech?
• Is the brand’s identity system powerful, nuanced, robust and flexible?
• Does the brand’s organization design reinforce the brand’s promise or work against it? If the latter, what must change?

As one can see from this list of considerations, brand strategy is much more than brand identity or communication strategy. I wish you great success in crafting your brand strategy.

Brand Strategy– A CEO’s Favorite Organization Alignment Tool

When we help organizations craft strategy for their organization brand, the chief marketing officer or another senior level marketer in the organization usually hires us. However, when we facilitate discussions and decisions regarding the organization’s mission, vision, values, essence, archetype, personality and unique value proposition, it is the CEO who gets excited because he or she knows that it is a mechanism to align and rally the leadership team and the entire organization around strategic direction.

We conduct these sessions with the CEO and his or her leadership team. When we conduct these sessions, we talk about business model, competitive environment and competitive strategy. We explore industry structure and sustainable competitive advantages. We also explore target markets and revenue sources. This is often informed by significant marketing research. The organization brand is synonymous with the organization itself so the organization brand strategy largely overlaps the organization’s business and competitive strategy. Having been schooled in Michael Porter’s competitive strategy frameworks at Harvard Business School, we integrate these into our process.

Brand strategy is not marketing strategy, and it is especially not marketing communications strategy. Yes, brand stories and marketing communications can result from the strategic process, but that is downstream. The purpose of brand strategy is to create a unique value proposition and a competitive advantage in the marketplace. This provides direction for corporate culture, organization design, systems, processes and other organization-wide decisions including investment decisions.  That is why CEOs love this process. It is a tool for them to explore, align and motivate their organizations around well thought through competitive strategies.

To learn more, go to www.brandforward.com. 

Sources of Competitive Information

Important sources of competitive information include:

• Competitor websites.
• Press releases. There are free online services that can send you daily e-mail messages with press releases on topics of interest to you.
• Industry analyst reports.
• Financial analyst reports. (If you have a Charles Schwab or Fidelity account, you can use their research functions to view company research reports from a wide variety of financial analysts.)
• News clipping services.
• OCRInternational (www.ocrinternational.com) and Avention (www.avention.com) consulting and research services.
• Harte Hanks (www.hartehanks.com), Hoovers (www.hoovers.com), and other company databases.
• Online database searching services, such as FirstSearch, ProQuest, and Lexis-Nexis Academic Universe.
• Services that track advertising spending.
• Search engines and intelligent agents.
• Online chat rooms, bulletin boards, and discussion groups.
• Product/brand review websites e.g. epinions.com (Brand Aid, Chapter 11 has more).
• Trade magazines.
• Trade shows.
• Competitor direct mail campaigns. Add a friend or relative to their lists.
• Your field sales force. Responding to the information they send from the field will encourage them to send more.
• Ex-employees from competitors’ firms. They may be under your employ now, or they can be identified from job search databases.
• Current customers. Many of them will pass on competitive communications they receive.
• Primary and secondary research (qualitative and quantitative, including brand equity studies). Make sure to investigate syndicated studies. Syndicated studies are typically published by large research firms such as ACNielsen, Harris Interactive, and Forrester Research. An example is IntelliQuest’s Computer Industry Media Study.
• Purchase and use a competitors’ products (i.e., become a customer). Your entire management team should do this; it is an excellent way to understand competitors’ customer experiences.
• Market tours. If you work in retail, visit stores that carry your competitors’ products and talk with the sales associates about their products and services and what the companies are like to work with.
• Competitive intelligence firms.

© 2015 by Brad VanAuken. Excerpted from Brand Aid, second edition. Available at Amazon and Barnes and Noble. 

Strategy

There are different types and levels of strategy. Marketing agencies, brand consultancies and general business consultancies operate in different ways regarding strategy. Here are some of the different types and levels of strategy:

• Business model strategy
• Competitive strategy
• Brand strategy
• Marketing strategy and planning
• Communications strategy and planning
• Media strategy and planning

At the highest levels of strategy, one thinks about category structure, entry barriers, exit barriers, core competencies, sustainable competitive advantages, economic and organization structures, scalability, leverage, network effects, investment rates and general competitive strategy.

At the next highest level of strategy, one thinks about brand strategy, product strategy, sales strategy, service strategy, distribution strategy and pricing strategy.  

Within brand strategy, one thinks about brand essence, brand archetype, brand personality, competitive frame of reference, sources of relevant differentiation and other components of brand positioning.

Further down the strategy hierarchy, one thinks about marketing objectives and strategies including target customers, product line breadth and depth, product functions and features, price points, specific distribution channels, marketing spending levels, marketing mix and marketing channels and approaches.

Next, one looks at communications strategy including key messages, specific campaigns and types of media used to communicate.

Finally, one focuses on the specific media used, how they are used, budget allocations for each, and timing, i.e. media strategy and planning.

When you ask for strategy help, it is important that you are thinking about it in the same way that the agency or consultancy you are hiring approaches it. That is, hire the appropriate partner based on the type of strategy with which you need help.

I wish you great success in crafting your business, brand and marketing strategies.