A grand strategy
is a comprehensive, long term plan of essential actions by which a film plans
to achieve its major objectives. The key factors being are market, product or
organizational development through acquisition, divestiture, diversification,
joint venture or strategic alliances. According to Wal-Mart its grand strategy
is that it used the strategy of paying
careful attention to its market segment of customers looking for quality at a
bargain price that’s it followed a low margin and high volume sales strategy so
to achieve its two main objectives which are, providing customers what they
want, when they want it, all at a value and secondly, treating each other as
they would hope to be treated, acknowledging their total dependency on their
associate partners to sustain success.
Porter described
an industry as having multiple segments that can be targeted by a firm. The
breadth of its targeting refers to the competitive scope of the business.
Porter defined two types of competitive advantage lower cost or differentiation
relative to its rivals.
COST LEADERSHIP STRATEGY
This strategy
involves the firm winning market share by appealing to cost-conscious or
price-sensitive customers. This is achieved by having the lowest prices in the
target market segment, or at least the lowest price to value ratio (price
compared to what customers receive). To succeed at offering the lowest price
while still achieving profitability and a high return on investment, the firm
must be able to operate at a lower cost than its rivals. There are three main
ways to achieve this.
Cost leadership
strategies are only viable for large firms with the opportunity to enjoy
economies of scale and large production volumes and big market share. Small
businesses can be cost focus not cost leaders if they enjoy any advantages
conducive to low costs. Innovation of products or processes may also enable a
startup or small company to offer a cheaper product or service where
incumbents' costs and prices have become too high.
A cost
leadership strategy may have the disadvantage of lower customer loyalty, as
price-sensitive customers will switch once a lower-priced substitute is
available. A reputation as a cost leader may also result in a reputation for
low quality, which may make it difficult for a firm to rebrand itself or its
products if it chooses to shift to a differentiation strategy in future.
In terms of the
Wal-Mart organization, its grand strategy is described in terms of porters cost
leadership strategy in that it sold cheaper goods so as to achieve its two long
term objective it has. With that the organization grew more than its rivals
because it then expanded internationally in terms of joint ventures,
acquisition and conglomerate.
DIFFERENTIATION STRATEGY
A
differentiation strategy is appropriate where the target customer segment is
not price-sensitive, the market is competitive or saturated, customers have
very specific needs which are possibly under-served, and the firm has unique
resources and capabilities which enable it to satisfy these needs in ways that
are difficult to copy. Successful differentiation is displayed when a company
accomplishes either a premium price for the product or service, increased
revenue per unit, or the consumers' loyalty to purchase the company's product
or service (brand loyalty). Differentiation drives profitability when the added
price of the product outweighs the added expense to acquire the product or
service but is ineffective when its uniqueness is easily replicated by its
competitors. Successful brand management also results in perceived uniqueness
even when the physical product is the same as competitors.
Differentiation
strategy is not suitable for small companies. It is more appropriate for big
companies. To apply differentiation with attributes throughout predominant intensity
in any one or several of the functional groups (finance, purchase, marketing,
and inventory.
FOCUS STRATEGY
This dimension
is not a separate strategy for big companies due to small market conditions.
Big companies which chose applying differentiation strategies may also choose
to apply in conjunction with focus strategies (either cost or differentiation).
On the other hand, this is definitely an appropriate strategy for small
companies especially for those wanting to avoid competition with big ones.
In adopting a
narrow focus, the company ideally focuses on a few markets targeted(also called
a segmentation strategy or niche strategy). These should be distinct groups
with specialized needs. The choice of offering low prices or differentiated
products/services should depend on the needs of the selected segment and the
resources and capabilities of the firm. It is hoped that by focusing your
marketing efforts on one or two narrow market segments and tailoring your
marketing mix to these specialized markets, you can better meet the needs of
that target market. The firm typically looks to gain a competitive advantage
through product innovation and/or brand marketing rather than efficiency. A
focused strategy should target market segments that are less vulnerable to
substitutes or where a competition is weakest to earn above-average return on
investment.
Having described
the Porters generic strategies, which imply that a firm positions itself by
leveraging its strengths. Porters argued that a firm strength fall into either
cost leadership or differentiation, thereby it results in his three generic
strategies which are explained above.
Wal-Mart grand
strategy according to Porter grand strategy is cost leadership strategy. This strategy calls for low cost producer in
an industry. The firm sells its products at an average industry price to earn a
profit higher than that of the rivals. The cost leadership strategy targets the
broader market. This strategy has helped Wal-Mart to become the low cost leader
in the retail market. It requires selling products at the lowest prices to
achieve economies of scale and attracts the pool of consumers and of which it
is exactly what Wal-Mart is doing. It sells products at much lower prices than
competitors do.
Wal-Mart must
continue to satisfy the needs of customers in places abroad like in the Asian
market. Lastly, Wal-Mart must continue offering lower prices to its consumers.
Miles and Snow's Strategies
Miles and Snow
identified four business-level strategies which are defender, prospector, analyzer
and reactor.
DEFENDER STRATEGY
Organizations
implementing the defender strategy attempt to protect their market from new
competitors. As a result of this narrow focus, these organizations seldom need
to make major adjustments in their technology, structure and or methods of
operation. Instead they devote primary attention to improving the efficiency of
their existing operations. Defenders can be successful especially when they
exist in a declining industry or a stable environment.
PROSPECTOR STRATEGY
Organizations
implementing a prospector strategy are innovative, seek out new opportunities,
take risks and grow. For an organization to implement this strategy it needs to
encourage creativity and flexibility. They regularly experiment with potential
responses to emerging environmental trends. Thus, these organizations often are
the creators of change and uncertainty to which their competitors must respond.
In such an environment, creativity is more vital than efficiency.
ANALYSER STRATEGY
Organizations
implementing analyzer strategies attempt to maintain their current businesses
in be somewhat innovative in their new businesses. Some products are targeted
in stable environments, in which an efficiency strategy designed to retain
current customers is employed. They attempt to balance efficient production for
current lines along with the creative development of new product lines.
Analyzers have tight accounting and financial control and high flexibility,
efficient production and customized products, creativity and low costs.
However, it is difficult for companies to maintain these multiple and
contradictory processes.
REACTOR STRATEGY
The firms that
follow a reactor strategy have no a consistent strategy-structure relationship.
Rather than defining a strategy to suit a specific environment, reactors
respond to environmental threats and opportunities. Sometimes these
organizations are innovative, sometimes they attempt to reduce costs and
sometimes they do both. Reactors are organizations in which top management
frequently perceive change and uncertainty occurring in their organizational
environments but are unable to respond effectively. Therefore failed
organizations often are the result of reactor strategies.
Having described
the Miles and Snows adaptive model, then we look at the Wal-Mart grand strategy
in terms of these adaptive models. In this case Wal-Mart seems to be following
the prospector strategy, whereby it is continually searching for more and new
opportunities. It means that the business thrives in the changing business
environments to have an element of unpredictability, and succeed by constantly
examining the market. Wal-Mart seems to be constantly responding to the
emerging environmental trends. The prospectors’ strategy involves pursuing
innovation and new opportunities; Wal-Mart has bought the idea of being
innovative by creating the one stop shop for the convenience of its customers
and also at reasonable price.
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