Whereas Michael Porter’s generic approach to competitive advantage gives substantial prominence to low cost, Cliff Bowman’s’ Strategy Clock’ looks at generic competitive advantage from a purely market-based perspective (MBV). He argues that competitive advantage is of no value unless it is of value to the customer and that a customer will always have a preference for such products or services over those of competitors. This may seem obvious but managers do sometimes fail to ask the most basic questions relating to what the market values.Bowman argues that customers may choose to purchase from one source rather than another because either a) the price ofthe product is lower than competition or b) the product from one firm is more highly valued by the customer than from another firm.
Important implications flow from these generalizations. /-. 4. Differentiation Perceived Added value 2. Low price FAILURE TEGIES 7 Low price/ Added value !-) Price based strategies: Routes I & 2.
Price o o Route l:’Cheap and nasty’ option which entails reducing price and perceived value- added and focusing on a price-sensitive segment.Might be valuable in segments of the market in which customers cannot afford to buy better goods, eg. clothing Route 2: Taken to seek advantage over competitors. Entails reducing price whilst try/ing to maintain quality. This can lead to imitation by competitors. Therefore the only way to offer advantage here is to consistently offer a lower price whilst competitors cannot do so to the same extent.
This strategy therefore favours cost leader- Companies which do not have cost leadership but chooses to compete on price can face reductions in margins leading to investment downturns. Hybrid strategy: Route 3. It is possible to sirnultaneously provide added-value in customer terms while keeping prices down. Japanese firms do this. Here the success of the strategy depends on the ability to both understand and deliver against customer needs whilst also having a cost base that permits prices which are difficult to imitate Value added or differentiation strategies: Route 4.
o Here there is a broad differentiation strategy offering added value over competitors at a similar or higher price. The aim is to achieve higher market share by offering better products at slightly higher prices. /CC: -$€)Focused differentiation: Route 5. . It may be that a business can compete by offering higher value to customers at significantly higher prices.
However, to do so usually means that the business is competing in a particular niche or segment, e. g. Specialist cars. It is important to be clear as to which market segment the firm is competing in, defined in terms of a coherent set of customer values and needs which is translated into action that satisfies customer values and needs, Failure strategies: Routes 6, 7,8. o Route 6 zuggests increasing price without increasing perceived value to that customer.
It is unlikely to ucceed unless the company is a monopoly. Route 7 is an even more disastrous extension of route 6. Route 8, reducing value while maintaining price, is also dangerous. Following this route will lead to rapid loss of market share. The strategy clock is then a market based model of generic sfiategy proportions.
It follows Porter to some extent but crucially roots out the question: what is of value to the user of the product or service? It does not deny that the cost base of an organisation is vitally important, but sees this as a means of developing generic strategies and not as a basis ofsuch strategies .t — /TCJ