9 Strategic Choice

Makerere University
Business School
Strategic Management Course
STRATEGIC CHOICE
Need for a strategy/strategies
 How do we get there?
 What direction should we take?
 No single strategy is the best in all
situations and at all times
 Align strategic choices to the situation
 Need for a consistent set of choices
 Decisions and actions / tactics in order to
outwit our rivals
 Without this consistent set of tactics,
synergy is lost
Strategy Selection
Selecting the best strategy that will
enable a firm achieve its goals.
Some strategy options are more
appropriate than others.
Strategists should evaluate the existing
alternatives before choosing the best
strategy
Evaluation and selection criteria
 Sustainable competitive advantage
 Corporate goals & objectives
 Organization policies and culture
 Cost of strategy failure
 Feasibility of the strategy
 Stakeholders reactions
The Generic Strategy Alternatives
These are the common strategic

approaches that can give a firm
sustainable competitive advantage.
There are several approaches:
 Michael Porter’s approach
 Igor Ansoff’s approach
 Glueck’s approach
 Kotler’s approach
 Tailor-made strategies
Michael Porter’s approach
 Overall cost leadership

 Differentiation
 Focus strategy
1.Overall cost leadership:
 Aim at being the lowest cost producer
relative to competitors
 Increases a firm’s profitability
 The market can enjoy affordable prices
2. Differentiation strategy
 Making oneself different from others

 Adding to customers perceived value of
the firm and its products
 Calls for continuous innovations
(customer- centred)
How to differentiate
 Image building
 High quality and distinctive products
 Superior customer services
 Unique design and packaging
 Convenient terms to customers
3. Focus strategy
 Involves segmenting the market
 Focusing on a given market
segment
 Calls for specialization in a
specific market segment (niche
marketing)
Why focus strategy?
 Different groups of buyers with different

needs
 No other rival is attempting to specialize
in the same segment
 A firm’s resources don’t allow it to spread
over the entire segment
 Where some segments are more attractive
than others
ANSOFF’S APPROACH
 Provides four strategic approaches

based on product and market
information
 Presented as a product/market matrix.
Existing New Products
Products
Existing Strategies Strategies

based on based on
Markets existing launching new
markets and or improved
products into
existing existing
products markets
New Strategies Strategies
based on based on
Markets finding new launching new
markets for products into
existing
products new markets
Existing Products-Existing Markets
1. Divestiture - It has reached maturity/you need
money for other ventures/in order to
concentrate on your core or more beneficial
business
2. Consolidation - You are enjoying a comfort
zone/need to go back to the basic (status quo)
3. Retrenchment - You have over expanded or
diversified ,you need to reduce your operating
costs; sell part of the business
4. Market penetration - Enter new markets with
a more attractive offer/buy out your close
rival through say an acquisition/use a strategic
alliance
New products-Existing markets
 No or less resources needed to develop the
market
 You need to develop a new product or
modify the current one for that market
 A product development strategy is the best
strategy
 Bench-mark this generic strategy and fine-
tune it to your competitive situation
Existing products-New markets
 No or less resources needed to develop the
product
 You need to develop the new market for
your product (s)
 A market development strategy is needed
using say; CRM tactics/customer care
practices/taking your products (services)
near your customers
 Refer to the current stage in the marketing
cycle as you fine tune this generic strategy
New product-New market
 A lot of risks and uncertainties involved;
you need to develop the new product for the
new market
 Minimize such risks through using a
competitive stepping stone
 Commonly used strategies in such
situations include; buying franchises,
strategic alliances, and use of pilot projects
among others
GLUECK’S APPROACH
 Stability strategy
 Expansion strategy
 Retrenchment strategy
 Combination
Stability Strategies:
 Strategies pursued with no or few
changes made in the firm’s products,
markets or functions.
 Ideal for those firms that are already
consolidated in the market.
Why stabilize?
The strategy is less risky
When a firm is doing well
Executives aren't creative and
innovative
Fear to disrupt routines
Environment is relatively stable
Fear of inefficiencies due to
expansion
Expansion Strategies
 Ideal where a firm wants to improve
its growth performance
 A firm adds to its markets and
functions.
 The firm increases the pace of its
activities
Why Expand?
 To survive in a volatile environment

 To provide variety to the market
 Sign of good performance
 Need to re-invest profits
 To enjoy economies of scale
 Motivates the firm
Retrenchment strategies:
A firm reduces its product lines,
abandons some market territories,
reduces its functions.
Looks like lean management
Firm reduces activities in those units
with negative or little cash flows.
The pace of operation and scope of
activities greatly reduces.
Why retrench?
 The firm is performing poorly
 The firm has tried all strategies and still
failed to succeed
 The firm needs funds to pursue better
opportunities elsewhere
 Turbulent environment
 External pressure
Combination strategies:
 A firm uses several of the above strategies
simultaneously to different portfolios of a
firm.
Kotler’s strategies.
 Looks at market positions of competing
firms
 The competitors are at war over these
competitive positions
 Different competitive positions require
different competitive strategies
 The positions include; market leader,
challenger, follower, and nicher positions
Market leader’s strategies
 Use strategies that help to expand or protect
market share
 Strategy depends on the situation at hand
 In internal and external environment
 “Apply the best science and art of war”
 You are the target for the challenger’s strategic
attacks. Those you lead also want to get where you
are and/or even overtake you;
a) Expanding the total market
1. Acquisitions and mergers
2. Franchises and / or international trade
3. Increase usage of your products
4. Finding new users/creating new demand
b) Protecting market share
Strategies involved:
• Defending your leading position and
competitive business walls
• Pro-reactive protection of your weak
flanks / pre-emptive defending
• Counter offensive defense
• Enter new markets for future defense
• Strategic withdrawal
Exhibit 17.9
Strategic Choices for Share Leaders in Growth Markets
Flanker strategy - Proactive

Flanker strategy - Reactive
Fortress
COMPETITOR Confrontation or position Contraction
OR strategy defense or strategic
POTENTIAL Proactive strategy withdrawal
COMPETITOR Reactive
LEADER
Market expansion
Source: Adapted from P. Kotler and R. Singh Achrol, “Marketing Warfare in the 1980’s” Reprinted with permission from Journal of Business Strategy, Winter 1981,
pp. 30-41. Copyright © 1981 by Warren, Gorham & Lambert, Inc., 210 South Street, Boston MA 02111. All rights reserved.
Market Challengers’ strategies
 They want to overtake the share leaders BUT
should also aggressively differentiate
themselves from fellow challengers using the
following alternatives;
1. Frontal / head-on / direct attack (strengths)
2. Flanking / indirect attack ( weak points)
3. By pass/ Leapfrogging
4. Encirclement / Guerrilla attack
Note
The market leader
 Is usually better in terms of resources & expertise
 Is also watching your attacking activities and looking
for strategies of how to deal with your challenge

 May react to swallow the attacker/challenger
To improve your market share, you need to build a

distinctive competitive advantage of your own; not
just imitating your market leader
Exhibit 17.12
Strategic Choices for Challengers in Growth Markets

Leapfrog
strategy/By Pass
Flanking
attack
Frontal
MARKET LEADER attack CHALLENGER
Encirclement strategy
Source: Adapted from P. Kotler and R. Singh Achrol, “Marketing Warfare in the 1980’s” Reprinted with permission from Journal of Business Strategy, Winter 1981,
pp. 30-41. Copyright © 1981 by Warren, Gorham & Lambert, Inc., 210 South Street, Boston MA 02111. All rights reserved.
Market followers' strategies
 Sometimes overlooked by the market
leader and challenger BUT may become
challenger and/or even overtake the
market share leader
 Their commonly used strategies;
1. Cloner (making a duplicate, replica, copy)
2. Imitator
3. Adaptor
Market Followers-cont
 Commonly found in oligopolistic industries
 Try to compete on dimensions other than
price (avoid price competition)
 Product value/quality
 Customer service
 Promotional effectiveness
 Distribution, etc
Market nichers
 Operate on high profit margins vs. high
volume
 Compete in well-defined market segments
(niches)
 They tend to specialize in that niche in terms of
customer category, products/services,
geographical area
 Successful nichers usually have a large share
of their niche
How to select a few from the many
generic/bench-marked strategies
 The common approaches;
1. The strategic choice matrix
2. SWOT analysis
3. Portfolio analysis
Factors determining the final
acceptance of the proposed strategy
by top management
1. Top management’s attitude towards risk
2. Top executives’ preference for past
strategy in relation to past performance
3. Their values including the shared values,
chief executive's beliefs and personal
intentions
4. CEO’s power relationship with other top
executives and subordinates

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Makerere University

These are the common strategic

 Overall cost leadership

 Making oneself different from others

 Different groups of buyers with different

 Provides four strategic approaches

Existing Strategies Strategies

 To survive in a volatile environment

Strategic Choices for Share Leaders in Growth Markets

Flanker strategy - Proactive

 Is also watching your attacking activities and looking

for strategies of how to deal with your challenge

To improve your market share, you need to build a

Strategic Choices for Challengers in Growth Markets

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