Business Strategies: Innovation, Imitation, and Competition
Business Strategies: Innovation and Imitation
Businesses can choose from various strategies to compete in the market. Two primary approaches are innovation and imitation.
Imitation Strategy
Imitation involves replicating an existing successful product, often with slight modifications. This strategy is common for products in the introductory or growth phase. Key players in this strategy include:
- Innovative company: Develops the technology for the new product.
- Product pioneer company: Creates the first product model.
- Market pioneer company: Successfully sells the product and establishes market presence.
Considerations for Imitation
- Imitators benefit from lower costs compared to innovators.
- Imitation can be a source of learning and a significant business driver.
- Continuous innovation is the best defense against imitation.
- Imitation can incentivize further innovation and prevent monopolies.
- Technical and strategic barriers are more effective than legal barriers in preventing imitation.
Advantages of Innovative Companies
Entry Barriers
- Economies of scale
- Patents and intellectual property rights
- Preferential access to resources
- Positive brand image
- Ideal market positioning
Consumer Behavior
- Increased brand recognition and recall
- Influence on product attributes and standards
- Favorable brand perception and image
- Reduced risk perception
- Opportunity for ideal positioning
Advantages of Imitating Companies
Free Rider Effect
- Lower investment in research and development
- Savings on human capital development
- Reduced product explanation costs
Reduced Uncertainty
- Accurate information on market potential
- Benefit from demand stimulation by innovators
Types of Imitation Strategies
- Low price strategy: Relies on product standardization.
- Superior product strategy: Requires advanced technology and R&D capabilities.
- Market power strategy: Leverages company size and influence.
Competitive Strategies
Cost Leadership
Cost leadership focuses on achieving the lowest production costs to maximize profits. This allows companies to offer competitive prices or maintain higher profit margins.
Possible Risks
- Technological obsolescence
- Cost inflation
- Ignoring changing customer needs
Differentiation
Differentiation involves offering unique product features or services that customers value, justifying premium pricing.
Possible Risks
- Underinvestment in differentiating factors
- Unjustified high prices
- Imitation by competitors
Examples
- Häagen-Dazs: Creates a unique ice cream experience with innovative flavors and textures.
- Starbucks: Offers a differentiated coffee experience and premium products.
Business Orientations
- Reactive: Lacks strategy, avoids risks, and only responds to external pressures.
- Defender: Focuses on maintaining stability, efficiency, and a limited product range.
- Analyzer: Makes moderate changes to products and markets, follows innovators.
- Prospector: Pursues new markets and opportunities, values pioneering.
Kotler and Singh’s Competitive Strategies
- Leader: Holds the largest market share, is innovative, and sets industry standards.
- Challenger: Competes aggressively with the leader and other competitors.
- Follower: Offers competitive advantages at lower costs, with minimal innovation.
- Specialist: Focuses on a niche market with high prices and strong convictions.
Divestment Strategies
Divestment involves selling or discontinuing products due to declining sales, new product launches, or changing consumer preferences.
Possible Costs of Weak Products
- Management time
- Price and inventory adjustments
- Small production runs
- Marketing and sales efforts
- Negative impact on company image