Chapter 7Imitation with a Twist: Strategies Small Business Management 4660
1. Prestrategy • What do you expect out of the business? • What is your product or service idea? • How innovative or imitative will you be? • What do you plan to sell-everyone or targeted markets? • Where do you plan to sell?
a. Owner Rewards • Universal - flexibility, personal growth and a solid personal income • Great wealth and developing a new product or service – mentioned occasionally • Add meaningful values • Extraordinary • Expectation - should be central
b. Product/Service Idea • Product or service - SECOND pre-strategy decision. • 37% of businesses start with an idea • another 21% have idea and desire to start a business simultaneously.
i. Industry Select an industry - offers: • High profit margin • Minimum of risk and competition • This combination is known as Industry Attractiveness.
ii. Imitation and Innovation • Owner wants to be a lot alike the rest of the industry but not exactly • Still want to have something that distinguishes them from their competition – special and better.
Differentiation Strategies • Imitative • Innovative • Incremental Innovation
a. Imitative strategy - do more or less what others do in an industry • Advantages include: • Can buy existing technology. • Vendors and service suppliers are familiar. • Customers already know about the product or service - don’t have to educate them. • Disadvantages ?
b. Innovative strategyis pursued by doing something very different than what’s been done before. • Advantage – making the business precisely fit - own ideas and preferences. • Main disadvantage - energy needed to market these products.
c. Add a few more significant changes in one or two key areas - following an incremental innovationapproach. Most companies operate somewhere on the continuum of purely innovative to “cloned,” imitative businesses and varying on degrees of similarity.
An opportunity that makes it possible for a new business to gain a foothold in a market • E.g. • Plant stem cell for slowing down biological aging iii. Entry Wedges:
Supply shortages. D > S E.g. Cosmetic products – halalantoyyiba - affordable • Unutilized resources. E.g. Part-time / home-based distributors • Contracting. Occurs when a customer is willing to sign a contract with a manufacturer E.g. Outsource production
Second sourcing • Avoid components - only from a single source • To provide customers with greater certainty of suppliers. • Market relinquishment. • Companies leave a market – Zaitun – ‘gunakantanpa was-was’ • Favored purchasing / support. • Government agencies / big businesses have policies for set-asides for Micro / SME E.g. MARA
iv. Markets • A market is a business term for the population of customers of product or service. • Look at Scale and Scope
Scale has to do with the market size. • May cover large portions of the populations – a mass market. • May also cover a narrowly defined segment of the populations – a niche market. • E.g. HalalanToyyiba customers
Most industries have both mass and niche markets • E.g. general skin care vs ‘halal’ skin care (special interest group)
Scope looks at the market’s geographic spread. • A market’s scope may be local, regional, national to global • Most small businesses tend to be local in scope. • Helps determine where to focus sales and advertising efforts.
2. Customers and Benefits • SECOND step - strategy process focuses on kind of customer to whom you want to sell and benefits and attract them. • It’s not about us – it’s about people • Emotional intelligence – the winning strategy
Certain groups of customers considered attractive: • Corporate customers: B2B sales exceed B2C. • Loyal customers: The ones who return - pre-sold. • Local customers: In the digital age “local” has more to do with the relationship. • Passionate customers: not only loyal but enthusiastic about your business.
Thinking about who - your potential customers – helpful - to find them. • One key decision in finding the customers - to offer them benefits. • Best way to find - ask the customers either directly or indirectly.
Benefits are how you appeal to your target customer base. • Value benefits • Displays characteristics related to the nature of the product or service
Include • Quality – offering high quality e.g. money back guarantees and warranties • Style – beautiful, popular and aesthetically pleasing • Delivery – speedy and on time delivery • Service – quality service after sales and personalised • Brand – represent a reputation
Cost benefits refers to the ways by which a company can keep costs low for the customers: • Include • Lower costs - Operating from home
Scale savings- Buying in volume • Scope savings- A multifunction skin care product – firming, glowing, anti-wrinkle, slow down aging • Learning – As company gets more experience – fewer mistakes and greater efficiencies • Organisational practices – mastered a promotion that is cheaper
3. Industry Dynamics and Analysis • THIRD step • In order to choose the best position • Look at the changes in competitors sales and profits in a particular industry • To make sure it is a good time to enter
Industries move in traditional ways: • During the introduction stage • Only a few companies. • Innovative approach. • Number of companies - sales grow slowly. • Most customers are not aware
Once customer are more aware - two possibilities in the growth stage: • Most products grow at a regular rate. • Some products - more or less meets customer demand. • Alternatively, a few other products – turn out to be extremely popular and hot • Some companies jump into the market to take advantage of this boom. • As the boom ends, there is a shake-outwhere many companies close down.
Boom or Shake-out - industry will reach a fairly stable number of companies with minor variations and a slow drop in numbers. • This is called maturity stage. • Eventually mature industries start a decline stage. • Some industries face death while others find a new life in a process called retrenchment.
4. Strategy Selection and Implementation • Differentiation • Cost • Focus
Differentiation strategies – aimed at mass markets – situations in which nearly everyone might buy • Extra value benefits – different from the competitors • E.g. Skin care product – halal, organic based, hygienic, affordable and online order
Cost strategies – also aimed at mass markets • Extra cost benefits – appeal to customers different from the competitors • E.g. Cheap skin care
Focus strategies – target a portion of the market – niche market – specialised market • Instead of selling to mass markets – target a certain group of customers • E.g. HalalanToyyiban – educated – internet generation
As an extension - supra-strategies can be pursued: • Craftsmanship Specialised and localised (e.g. HalalanToyyiba and local active ingredients) • Customization Custom features – high quality (e.g. Custom-made skin care vs mass produced skin care)
Super-Support Intensive personalized support after-sales service (e.g. online chat) • Serving the Underserved Ignored by large competitors (e.g. halalantoyyiban) • Elite High quality products with high prices (e.g. Polished packaging)
Single-mindedness Demonstrating exceptional expertise (e.g. normal skin care ingredients vs highly concentrated skin care ingredients) • Comprehensiveness Offering one-stop shopping with complete inventory, immediate delivery, knowledgeable staff (e.g. integrated social media)
Formula facilities Use a prepackaged business (e.gonline affiliates ready system to distribute) • Bare bones or no-frills provider Keep prices super low (below RM 10 skin care) • Cutting out the intermediary Eliminating retailers’ mark-ups (e.g. Sell direct via internet – no distributors)
5. Tool: SWOT Analysis • SWOT Analysis stands for strengths, weaknesses, opportunities and threats • Tool for strategy process. • SW = Internal Factors • OT = External Factors
Strengths - internal characteristics of business - give it an advantage over others • Weaknesses - internal characteristics that place companies at a disadvantage relative to others.
Opportunities - chances to make greater sales or profits in the environment. • Threats - elements of the environment that could cause trouble to the business.
SWOT - help organize the business strategies. • How? Ways to gather information: • From yourself • From others who know your companies or market or industry • From customers or potential customers • From brainstormingsessions
SWOT AnalysisCombinations • Strategic direction • Conceptualization of how a business might best move in response to findings of a SWOT analysis—Flaunt, Fix, Fight, Flee, Find, or Fire-up. Figure 7.4
Once the SWOT analysis is completed the best strategic direction can be determined: flaunt, fix, fight, flee, find, or fire-up. • S+O=Flaunt:focus efforts if strengths match opportunities • W+O=Fix weaknesses that get in the way of pursuing opportunities.
S+T=Fight threats with strengths. • W+T=Flee when threats are made worse by weaknesses.
S+W=Find specific market if your strengths match your weaknesses . • O+T=Fire-up the product or service is not distinctive enough to compete in the market.