Business Strategies

Business strategy describes how a particular business intends to succeed in a chosen market place against its competitor. Intelligent business strategies are the cornerstone of successful business venture. It can be reason for small players in the market giving bigger players a run for their money. It represents the best attempt that the management can make at defining and securing the future of that business.

Business strategies are broadly classifier under three categories – Prospector Strategy, Defender Strategy and Analyser Strategy. Each strategy, if implemented effectively, making use of all favourable external factors, can make for an industry leader company. Additionally, each business strategy focuses in on a select segment of the market; therefore it is possible for two competitors in the same industry to be equally successful if they are using different business strategies to target different segments of the market.

Prospector strategy

This is the most aggressive of all strategies. It involves active programs to expand into new markets and stimulate new opportunities. New product development is vigorously pursued and attacks on competitors are a common way of obtaining additional market share. They respond quickly to any signs of market opportunity, and do so with little research or analysis. A large proportion of their revenue comes from new products or new markets. They are often highly leveraged, sometimes with a substantial equity position held by venture capitalists. The risk of product failure or market rejection is equally high. Their market domain is constantly in flux as new opportunities arise and past product offerings atrophy. They value being the first in an industry, as that their “first mover advantage” will provide them with premium pricing opportunities and high margins. Price skimming is a common way of recapturing the cost of development. They can be opportunistic in headhunting key employees, both technical and managerial. Advertising, sales promotion, and personal selling costs are a high percentage of sales. Typically the firm will be structured with each strategic business unit having considerable autonomy. The industry that they operate in tends to be in the introduction or growth stage of its life cycle with few competitors and evolving technology

Defender strategy

This strategy entails a decision not to aggressively pursue markets. As a result, they tend to do none of the things prospectors do. A defender strategy entails finding, and maintaining a secure and relatively stable market. Rather than being on the cutting edge of technological innovation, product development, and market dynamics, a defender tries to insulate themselves from changes wherever possible. In their attempt to secure this stable market they either keep prices low, keep advertising and other promotional costs low, engage in vertical integration, offer a limited range of products or offer better quality or service. They tend to be slower in making decisions and will only commit to a change after extensive research and analysis. Their goals tend to be efficiency oriented rather than effectiveness oriented. The industry tends to be mature with well-defined technology, products, and market segments. Most sales tend to be repeat or replacement purchases. Individual strategic business units typically have moderate to low levels of autonomy.

Analyser strategy

The analyser is in between the defender and prospector. They take less risk and make fewer mistakes than a prospector, but are less committed to stability than defenders. Most firms are analysers. They are seldom a first mover in an industry but are often second or third place entrants. They tend to expand into areas close to their existing core competency. Rather than develop wholly new products, they make incremental improvements in existing products. Rather than expand into wholly new markets, they gradually expand existing markets. They try to maintain a balanced portfolio of products with some stable income generators and some potential winners. They watch closely the developments in their industry but don’t act until they are sure that the time is right.

In my next post on Business Strategies, I will be writing over how some companies leverage with their unique position to create market niche around themselves.