Business Strategies for Market Dominance and Growth
Mature Industries
Mature industries are dominated by a small number of large companies whose actions are highly interdependent (when one company is doing something, it affects what other companies are doing as well).
Evolution: The industry becomes consolidated as a result of the intense competition during the shakeout stage. Business-level strategy is based on how established companies collectively try to reduce the strength of competition. Actions by one company affect the entire industry.
Main Strategies:
- Deter Entry: Make it difficult for new companies to enter the market by creating barriers like high costs or strict rules.
- Product Proliferation: Offering a wide range of products to meet diverse customer needs and saturate the market (e.g., restaurants offering fast food, casual dining, and fine dining options to cover different market segments).
- Maintaining Excess Capacity: Keeping extra production capacity to respond to demand changes quickly and discourage competitors.
- Price Cutting: Strategically lowering prices to attract more customers and make it unappealing for new entrants (e.g., supermarkets lowering prices to keep competitors from entering the area).
- Manage Industry Rivalry: Reduce direct competition among established companies to maintain market stability.
- Price Signaling: Communicating price intentions to competitors discreetly (e.g., a gas station adjusting discounts, signaling nearby stations to follow suit).
- Capacity Control: Managing production to avoid oversupply, which can lead to price drops (e.g., a chocolate company limiting production during holidays to keep prices steady).
- Price Leadership: A dominant company sets the industry price, and others often follow (e.g., a large airline setting ticket prices that smaller airlines match).
- Nonprice Competition: Focusing on product features or service quality rather than price (e.g., a coffee shop improving coffee quality and ambiance instead of lowering prices).
Declining Industries
In declining industries, market demand has leveled off or is falling, and the size of the total market starts to shrink.
Reasons:
- Technological Change: New innovations make older products or services obsolete (e.g., DVDs replaced by streaming services).
- Social Trends: Changes in consumer preferences or habits (e.g., decline in cigarette consumption due to health concerns).
- Demographic Shift: Population changes reduce demand (e.g., fewer births leading to lower demand for baby products).
Strategies:
- Leadership: A company aims to dominate the shrinking market (e.g., a newspaper invests in digital content to attract the remaining audience).
- Niche: Focus on specific segments where demand is still stable or declining slowly (e.g., a photography company shifts to offering specialized film cameras for hobbyists).
- Harvest: Reduce investment, cut costs, and focus on maximizing cash flow as the business winds down (e.g., a landline phone company stops upgrading systems and focuses on serving existing customers).
- Divestment: Sell the business before it becomes unprofitable (e.g., a toy company sells its brand to another company when demand drops due to fewer young children).
Fragmented Industries
Fragmented industries consist of many small to medium-sized companies. It is easy for new players to enter due to low economies of scale. Customers often prefer unique, smaller-scale offerings. High diseconomies of scale discourage mass production.
Main Strategies:
- Chaining: Create a network of stores to reduce costs (e.g., a bakery expands across cities while keeping consistent quality).
- Franchising: Sell the brand and business model to others to scale (e.g., McDonald’s uses franchising to expand globally).
- Horizontal Mergers: Merge or acquire similar companies to grow faster (e.g., two local coffee shops merge to compete with chains).
- IT and Internet: Use technology to innovate and improve efficiency (e.g., a local florist introduces online ordering for better reach).
Embryonic and Growth Industries
These industries emerge due to technological innovation and expand rapidly as customer demand grows.
- Embryonic: Market develops as innovators/early adopters try the product.
- Growth: First-time buyers increase, creating rapid expansion.
Main Strategies:
- Crossing the Chasm: Adapt the product to attract the early majority (e.g., Tesla shifted from luxury models for early adopters to affordable ones for mass markets).
- Address Barriers: Improve product quality and reduce costs to increase adoption (e.g., smartphones became mainstream as prices dropped).
- Market Education: Teach customers about product benefits (e.g., early days of electric vehicles focused on environmental benefits).
International Strategy Framework
- Internationalization Drivers: Reasons to expand (e.g., market demand, cost efficiency).
- Geographic Advantages: Benefits from specific locations (e.g., resources, proximity).
- Market Selection: Choosing which markets to enter.
- Mode of Entry: How to enter (e.g., partnerships, exports).
International Strategy
International strategy is a range of options for operating outside an organization’s country of origin. Global strategy involves high coordination of extensive activities dispersed geographically in many countries around the world.
Internationalization Drivers
Reasons for internationalization include an increased customer base, lower production costs, economies of scale, and avoidance of protectionist policies.
Modes of International Market Entry
- Exporting: Selling products made in one country to customers in another.
- Advantages: Economies of scale in the home country; the internet can facilitate exporting marketing opportunities.
- Disadvantages: Dependence on export intermediaries; transportation costs.
- Joint Ventures and Alliances: Partnering with a local company to share resources and risks in a foreign market.
- Advantages: Shared investment risk; complementary resources.
- Disadvantages: Difficult to find a good partner; loss of competitive advantage.
- Licensing: Allowing another company to use your brand, technology, or product in exchange for payment.
- Advantages: Contractual source of income; limited economic and financial exposure.
- Disadvantages: Difficult to identify a good partner; loss of competitive advantage.
- Greenfield Investment: Setting up or buying a company in a foreign country to control operations directly.
- Advantages: Full control; rapid market entry through acquisitions.
- Disadvantages: Substantial investment and commitment.
Types of Acquisition Integration
Based on how the acquiring company handles the acquired business:
- Stand-Alone: The acquired company operates independently with minimal changes.
- Absorption: The acquired company is fully merged into the acquiring company, adopting its systems and culture.
- Best of Both: Combines the strengths of both companies to create a new, improved organization.
- Transformation: A complete overhaul, using the acquisition as a catalyst for change in both companies.
Sources of Superior Performance
1. Above-Normal Profits
This is the ultimate goal: to earn profits higher than the industry average, or what is known as “above-normal” profits. Companies achieve this by either avoiding competitors or by being better than the competition.
2. Avoid Competitors
This involves choosing markets or strategies where competition is minimized.
- Attractive Industry: Entering an industry with favorable conditions (e.g., high growth, few competitors).
- Entry Barriers: It is hard for new competitors to enter due to high costs, regulations, or other challenges, making the industry more attractive.
- Attractive Strategic Group: Operating within a group of similar companies with distinct characteristics that set them apart.
- Mobility Barriers: Barriers that make it difficult for other companies to move into this strategic group, which protects those within it from competition.
- Attractive Niche: Targeting a smaller, specific segment within a larger market.
- Isolating Mechanisms: Unique features or advantages (e.g., strong brand loyalty) that make it difficult for competitors to replicate or attract the same customers.
3. Be Better Than the Competition
Another path to above-normal profits is to outperform competitors directly.
- Cost Advantage: Being able to produce or deliver products at a lower cost than competitors, which allows the company to either lower prices or enjoy higher margins.
- Differentiation Advantage: Offering unique products or services that justify higher prices, often due to unique features, branding, quality, or customer experience that competitors cannot easily replicate.
Differentiation
Differentiation involves creating unique value for customers by offering products or services that stand out from competitors. Unlike competing solely on price, differentiation focuses on features, design, branding, or emotional appeal that customers are willing to pay a premium for.
Types:
- Tangible Differentiation: Physical features like product size, color, performance, or additional services (e.g., a smartphone with a superior camera and sleek design).
- Intangible Differentiation: Emotional or psychological aspects, like status or brand image (e.g., luxury brands like Rolex, which offer exclusivity and prestige).
- Total Customer Responsiveness: Differentiation isn’t just about the product; it’s about the overall relationship with the customer.
Differentiation from the Demand Point of View
To identify differentiation opportunities, focus on customer needs and preferences by considering:
- The Product: What needs does the product satisfy? What attributes do customers find important (e.g., quality, performance, design)?
- The Customer: What criteria do they use to choose products (e.g., functionality, convenience)? What motivates their decisions (e.g., price, emotional connection)? How do demographic, social, or psychological factors influence them? Example: Younger customers might value sustainability, while older ones may prioritize reliability.
- Price Premium: Which product attributes allow you to charge a higher price? Focus on features that customers value and are willing to pay extra for.
- Formulating a Differentiation Strategy: Position your product based on its unique features. Target the right customer group that values those features. Balance costs and benefits of differentiation to ensure profitability.
Goal: Align your product or service with what customers value most, making it their preferred choice over competitors.
CAGE Analysis: Mona de Seda’s Expansion into India
1. Cultural Distance
- Status-Consciousness (6): Indian culture emphasizes social hierarchy and prestige, especially in jewelry, which is deeply tied to social status. Marketing campaigns must highlight jewelry as a symbol of achievement and social recognition, focusing on quality and exclusivity.
- Excellence-Oriented (7): Both Spain and India value craftsmanship and quality. Mona de Seda can leverage this by emphasizing their attention to detail and combining traditional motifs with modern aesthetics.
2. Administrative Distance
- Corruption (India: 5, Spain: 7): Corruption can delay permits and increase operational complexity, particularly in rural areas. Collaborating with trusted local partners and focusing on metro regions can help mitigate these challenges.
- Ease of Operations (India: 5, Spain: 7): Store and supply chain setup frequently suffers from administrative difficulties. The early obstacles can be reduced by beginning with e-commerce platforms or forming alliances with well-known shops.
3. Geographical Distance
- Climate Risk Index (India: 4, Spain: 6): India faces extreme weather conditions that can disrupt supply chains. Mona de Seda should invest in robust logistics planning and inventory management to avoid delays during monsoon seasons.
- Urbanization and Market Access (India: 6, Spain: 7): The densely populated towns of India have enormous potential for business. In locations like Delhi and Mumbai, flagship stores may attract wealthy clients who are more accustomed to international brands.
4. Economic Distance
- Economic Growth Rate (India: 7, Spain: 4): India’s fast-growing economy and rising disposable income provide a promising market for affordable luxury jewelry. This growth can help Mona de Seda capture a significant market share.
- Inflation (India: 5, Spain: 7): Moderate inflation affects purchasing power but does not severely impact the growing middle-class demand for affordable luxury products. Pricing strategies should remain competitive and transparent to appeal to cost-conscious buyers.
Cultural Distance and Recommendations for Mona de Seda’s Entry into India
Mona de Seda faces a total cultural distance score of 55/77 when entering the Indian market.
Significant cultural traits influencing this expansion include:
- Fraternal (Score: 7): Both Spain and India value teamwork and community bonds, providing an opportunity to align the brand’s messaging with Indian societal values.
- Excellence-Oriented (Score: 7): High value in quality and craftsmanship aligns with Indian consumer expectations for jewelry.
- Status-Conscious (Score: 6): Indian culture places significant emphasis on jewelry as a status symbol, especially for weddings and festivals.
- Indirect Communication (Score: 6): Subtle marketing approaches with emotional storytelling will be crucial.
- Risk-Taking (Score: 3): India’s cautious nature in financial decisions requires affordable luxury positioning to build trust.
- Worldly and Autonomous (Scores: 3 and 5): Urban consumers are open to global brands, but familial influences remain strong in decision-making.
Recommendations for Entry Mode:
- Establish Local Partnerships: Collaborate with local Indian jewelry retailers or high-end department stores for distribution. This will help Mona de Seda leverage existing trust and networks.
- Urban Flagship Stores: Open flagship stores in metropolitan cities like Mumbai, Delhi, and Bangalore. These urban centers have affluent and trend-savvy consumers who are familiar with global luxury brands.
- E-Commerce and Digital Strategy: Launch on popular Indian platforms to reach a tech-savvy audience.
- Sustainable and Affordable Positioning: Highlight sustainable practices (e.g., ethically sourced materials) to appeal to younger, eco-conscious consumers.
- Marketing Strategy: Use emotional storytelling in advertisements focused on family, celebrations, and cultural milestones.
A combination of local partnerships, urban flagship stores, and a strong e-commerce presence ensures Mona de Seda adapts to India’s cultural and economic environment while maintaining its global brand identity. Balancing tradition with modernity in designs and marketing will enable success in the Indian jewelry market.