Recent findings suggest significant shifts in consumer behavior: according to a 2022 study by S&P Global, brand loyalty plummeted to 49.5% in June, marking the lowest monthly figure since September 2014 (Libby, 2022). Concurrently, Sitecore® highlights shifting Gen Z shopping behaviors, where 37% have abandoned purchases or posted negative reviews due to subpar digital experiences—a demographic wielding up to $143 billion in purchasing power (Sitecore, 2021). In an era of declining consumer brand loyalty, effectively communicating business offerings and unique value propositions is essential.
To lay the foundation for strategizing a competitive strategy and market positioning, we draw upon the expertise of Michael Porter, a distinguished economist and Harvard University Professor renowned for his expertise in competitive strategy, similar to Peter Drucker's influence in business management. Porter's insights on differentiation and positioning offer valuable guidance in fortifying competitive advantage in an increasingly competitive marketplace.
10 Insights from Michael Porter on Achieving a Competitive Advantage
Below are lessons from Michael Porter's quotes that stress the importance of aligning customer needs with strategic objectives, distinguishing operational effectiveness from strategy, and ensuring alignment between organizational vision and strategic decisions.
Align customer needs with strategic objectives
Quote: “Some managers mistake “customer focus” to mean they must serve all customer needs or respond to every request from distribution channels.”
Insight: Some managers may mistakenly believe that being customer-focused requires them to cater to every single demand or request, regardless of whether it aligns with the company's overall strategy or resources. This misunderstanding can lead to inefficiencies or strategic misalignment if not managed properly.
Balance short-term operational improvements with long-term strategic planning and innovation
Quote: “Managers must clearly distinguish operational effectiveness from strategy.”
Insight: Operational effectiveness concerns the efficient execution of current processes and goals, focusing on improving productivity and reducing costs. In contrast, strategy involves making informed decisions about competitive positioning, long-term goals, and creating sustainable advantages in the marketplace. Managers need to understand this distinction to ensure that operational improvements align with broader strategic objectives and contribute meaningfully to the organization's long-term success.
Say “no” to strategies that are misaligned with long-term targets
Quote: “Strategy is making trade-offs in competing. The essence of strategy is choosing what not to do.”
Insight: Choosing what not to do is essential because it enables a business to prioritize resources, capabilities, and efforts towards activities that are most likely to create competitive advantage and long-term value. By defining what activities or markets to avoid or minimize, a company can concentrate on areas where it can excel and achieve strategic goals more effectively. Thus, strategy is about making thoughtful decisions and sacrifices to shape a distinct competitive position and maximize overall success.
Familiarize yourself with industry relationships and dynamics
Quote: “Understanding industry structure is also essential to effective strategic positioning.”
Insight: Industry structure refers to the framework that outlines the relationships and dynamics among competitors, suppliers, customers, and other stakeholders within a particular industry. Effective strategic positioning involves understanding this structure because it helps businesses identify opportunities and threats, determine where they can create value, and formulate strategies that capitalize on their strengths relative to competitors. By understanding industry structure, businesses can make informed decisions about how to differentiate themselves, allocate resources efficiently, and position themselves advantageously within the competitive landscape.
Scan the market for potential substitutes, even if they seem unrelated
Quote: “Substitutes are always present, but they are easy to overlook because they may appear to be very different from the industry’s product.”
Insight: In competitive strategy, understanding substitutes is important because they can pose a threat to a company's market position and profitability. Even if substitutes appear dissimilar on the surface, they can attract customers away from the industry's offerings if they provide comparable benefits or advantages. Therefore, businesses must be vigilant in identifying and assessing potential substitutes to anticipate competitive pressures and strategically position themselves to mitigate these risks.
Focus on differentiation beyond price
Quote: “Rivalry is especially destructive to profitability if it gravitates solely to price because price competition transfers profits directly from an industry to its customers.”
Insight: When companies compete primarily by lowering prices, profitability can be severely affected. This price-centric competition transfers potential profits from companies to customers, as lower prices reduce per-unit revenue without necessarily reducing costs. Over time, sustained price competition can erode industry profitability, diminish incentives for innovation and quality improvements, and create a cycle where companies struggle to maintain sustainable margins. Therefore, strategic differentiation beyond price is crucial for companies to preserve profitability and sustain competitive advantage in the long term.
Don’t just do it better, do it differently
Quote: “It's not a matter of being better at what you do—it's a matter of being different at what you do.”
Insight: To stand out and succeed in a competitive market, businesses should focus on offering unique value propositions or approaches that distinguish them from competitors. Instead of solely improving upon existing standards or practices (which competitors can also do), businesses should innovate and find ways to offer something distinct—whether it's through unique features, customer experiences, pricing strategies, or other factors. By being different rather than just better, businesses can carve out a niche, attract customers who value their unique offerings, and achieve sustainable success in the marketplace.
Set goals and targets
Quote: “If a strategy meets a goal: It's working. If a strategy meets a target: It's a success.”
Insight: A strategy proves effective when it successfully achieves the broader goals set forth. Goals represent the overarching outcomes, such as market expansion or customer satisfaction improvement, that the strategy aims to accomplish. Targets, on the other hand, are specific metrics or milestones that indicate progress toward those goals. The quote emphasizes that a strategy is considered successful if it not only meets its intended goals but also achieves the specific targets along the way, demonstrating tangible progress and effectiveness in strategic execution.
Align goals with the organization's vision
Quote: “Sound strategy starts with having the right goal.”
Insight: A sound strategy hinges on aligning with a clearly defined objective that reflects the organization's overarching aspirations. By setting the right goal, organizations ensure their strategies are purposeful, focused, and aligned with long-term vision. This approach facilitates informed decision-making on resource allocation, prioritization of initiatives, and measurement of success, ultimately guiding coherent and impactful execution of strategies that contribute meaningfully to organizational growth and achievement.
Prioritize strategic education
Quote: “The best CEOs I know are teachers, and at the core of what they teach is strategy.”
Insight: The most effective CEOs not only lead their organizations but also serve as educators within them, focusing on teaching strategic thinking. They prioritize imparting knowledge and insights that enable their teams to understand, develop, and execute strategies that align with the organization's long-term goals. By emphasizing strategic education, CEOs ensure that their teams are equipped to make informed decisions, navigate challenges, and sustain competitive advantage. This approach fosters a culture of strategic alignment and proactive leadership throughout the organization, crucial for achieving sustained success and growth.
References
Libby, T. (2022, August 29). Sharing insights elevates their impact. S&P Global. https://www.spglobal.com/mobility/en/research-analysis/brand-loyalty-declines-to-eight-year-low.html
Sitecore. (2021, April 21). Brands at Risk of Being “Cancelled” by Gen Z, New Research Finds. PR Newswire; Sitecore. https://www.prnewswire.com/news-releases/brands-at-risk-of-being-cancelled-by-gen-z-new-research-finds-301269352.html
Copyright © 2024 by Arete Coach™ LLC. All rights reserved.
Comments