Strategy Rests on Unique Activities

Source: Vecteezy

Competitive strategy is about being different; it’s about choosing a different set of activities to deliver a unique mix of value. Many managers describe strategic positioning in terms of their customers but the essence is in the activities — choosing to perform activities differently or to perform different activities than rivals. Otherwise, a strategy is nothing more than a marketing slogan that will not withstand competition.

Southwest, for instance, tailors all its activities to deliver low-cost convenient service on its particular type of route. It does not offer meals, assigned seats, interline baggage checking, or premium classes of service. In contrast, a full-service airline in trying to be everything to everyone has an adverse influence on its overall operations.

Ikea, the global furniture retailer based in Sweden, also has a clear strategic positioning — it targets young furniture buyers who want style at a low cost. However, what makes this marketing concept into a strategic positioning is the tailored set of activities that make it work. Like Southwest, Ikea has chosen to perform activities differently from its rivals; for instance, self service, self pick up and delivery, in-store child care, extended hours etc.

The Origins of Strategic Positions

According to Porter, strategic positions emerge from 3 distinct sources, which are not mutually exclusive and often overlap:

1. First, positioning can be based on producing a subset of an industry’s products of services which is referred to as variety-based positioning; it is based on the choice of product or service varieties rather than customer segments. An example can be taken of the Vanguard Group, a leader in the mutual fund industry, whose investment approach deliberately sacrifices the possibility of extraordinary performance in any one year for good relative performance in every year. Similarly, Jiffy Lube International specializes in automotive lubricants and does not offer other car repair or maintenance services. The people who use Vanguard of Jiffy Lube are responding to a superior value chain for a particular type of service. A variety-based positioning can serve a wide variety of customers, but for most it will meet only a subset of their needs.
2. A second basis for positioning is that of serving most or all the needs of a particular group of customers, referred to as needs-based positioning. This arises when there are groups of customers with differing needs, and when a tailored set of activities can serve those needs best. An example can be taken of the Bessemer Trust Company that targets families with a minimum of $5m in investable assets who want capital preservation combined with wealth accumulation. By assigning one sophisticated account officer for every 14 families, Bessemer has configured its activities for personalized service. Meetings, for example, are more likely to be held at a client’s ranch or yacht than in the office. Citibank’s private bank, on the other hand, services clients with minimum assets of about $250,000 who, in contrast to Bessemer’s clients, want convenient access to loans — from jumbo mortgages to deal financing. In contrast to Bessemer, Citibank has a lower manager-to-client ratio of 1 to 125, with biannual meetings offered only for the largest clients. Both Bessemer and Citibank have tailored their activities to meet the needs of a different group of private banking customers. The same value chain cannot profitably meet the needs of both groups.
3. The third basis for positioning is that of segmenting customers who are accessible in different ways. This is referred to as access-based positioning wherein access can be a function of customer geography or customer scale — or of anything that requires a different set of activities to reach customers the best way. An example of this is Carmike Cinemas that operates movie theaters exclusively in cities and towns with populations under 200,000. How does Carmike make money in markets that are not only small but also won’t support big-city ticket prices? It does so through a set of activities that result in a lean cost structure. Carmike’s customers can be served through standardized, low-cost theater complexes requiring fewer screens and less sophisticated projection technology than big-city theaters. The company’s proprietary information system and management process eliminate the need for local administrative staff beyond a single theater manager. Moreover, it also reaps tailored benefits from centralized purchasing, lower rent and payroll (because of its locations), and rock-bottom corporate overhead of 2% compared to the industry average of 5%. Rural versus urban-based customers are one example of access driving differences in activities. Serving small rather than large customers or densely rather than sparsely situated customers are other examples in which the best way to configure marketing, order processing, logistics, and after-sales service activities to meet the needs of distinct groups will often differ.

It’s important to highlight that positioning is not about carving out a niche. A position emerging from any of the sources can be broad or narrow. A focused competitor, such as Ikea, targets the special needs of a subset of customers and designs its activities accordingly. Focused competitors thrive on groups of customers who are overserved (and hence overpriced) by more broadly targeted competitors, or underserved (and hence underpriced). A broadly targeted competitor — for example, Vanguard or Delta Airlines — serves a wide array of customers, performing a set of activities designed to meet their common needs. It ignores or meets only partially the more idiosyncratic needs of particular customer groups. Whatever the basis — variety, needs, access, or some combination of the three — positioning requires a tailored set of activities because it is always a function of differences of the supply side; that is, of differences in activities.

Having defined positioning, we can begin to answer the question about what strategy is; in essence, strategy is the creation of a unique and valuable position, involving a different set of activities. If there were only one ideal position, there would be no need for strategy. The essence of strategic positioning is to choose activities that are different from rivals’. If the same set of activities were best to produce all varieties, meet all needs, and access all customers, companies could easily shift among them and operational effectiveness would determine performance.

Highlight — ‘Finding New Positions: The Entrepreneurial Edge’

New entrants often discover unique positions that have been available but simply overlooked by established competitors. New entrants can prosper by occupying a position that a competitor once held but has ceded through years of imitation and straddling. And entrants coming from other industries can create new positions because of distinctive activities drawn from their other businesses, for instance, CarMax borrowing heavily from Circuit City’s expertise in inventory management, credit, and other activities in consumer electronics retailing.

Most commonly, however, new positions open up because of change. New customer groups or purchase occasions arise; new needs emerge as societies evolve; new distribution channels appear; new technologies are developed; new machinery or information systems become available. When such changes happen, new entrants, unencumbered by a long history in the industry can often more easily perceive the potential for a new way of competing. Unlike incumbents, newcomers can be more flexible because they face no trade-offs with their existing activities.