Alternative Business Strategies

1
Chapter 9

• Alternative Business Strategies
• Objective discussing what strategic alternatives
  can be considered

2
What are the strategic alternatives?

• What are the strategic alternatives that should
  be considered? Which one is optimal?
• Among the alternative business strategies,
  product life-cycle strategies and strategies
  for different industry positions will be
  discussed here.

3
Product Life Cycle

• PLC is an analysis of the actual or potential
  sales of a product or business segment through
  the various stages of its marketable life.
• It is a means of mapping the strategic direction
  of the product.
• The underlying idea here is that in order to set
  effective strategies for the long term, some
  knowledge of the general direction of similar
  businesses and the potential strategies that
  competitors will use is required.

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• Although PLC cannot set strict rules as to what
  strategy should be followed, various
  circumstances surrounding each stage of the PLC
  tend to suggest some options.
• The PLC analysis can be used to determine the
  most reasonable strategic options for a business
  and can also help to determine the potential
  strategies of competitors.
• The major drawbacks of this analysis is that it
  is difficult (1) to identify which stage of the
  PLC the product is in, (2) to determine the
  factors that affect the products movement
  through the stages, to forecast the (3) sales
  level at each PLC stage, (4) the length of each
  stage, (5) the shape of the PLC curve.

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• The PLC analysis can be applied to an industry
  (the PLC can show how the sales for all hotels or
  foodservice establishments are progressing),
  industry segment (which could represent sales for
  a segment e.g. foodservice industry is commonly
  divided into fast-food, casual-dining,
  fine-dining and institutional foodservice) ,
  concept (which would include types of businesses
  within each industry segment e.g. within
  fast-food segment, there are hamburgers, fried
  chicken, pizza, and Chinese food etc), brand
  (which includes each different hotel or
  foodservice company e.g. Hilton Hotels), product
  or service offering (each unique product or
  service appear in restaurants and hotels - fads),
  and location (which could refer to country,
  region, city, part of a city).

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Product Life-Cycle

• Sales and
• profits ()
• 
  
  Sales
• 
  
• Profits
• 
  
  Time
• Product Introduction Growth
  Maturity Decline
• Losses/ develop-
• invest- ment
• ment stage

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Introduction

• This phase is applicable only for new individual
  brands or for new concepts. Because the industry
  as a whole must be considered to be in the
  maturity stage.
• It is the highest-risk stage because the business
  is new and untested and experienced competitors
  are present.
• Profits will usually be limited by high opening
  costs and normal inefficiencies caused by lack of
  experience.
• Frequently, restaurants show excellent profits at
  the start, because of the curiosity factor,
  however, when the customers curiosity wears off,
  the restaurant needs to rely on its quality to
  keep sales up.

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• Since few customers may be aware of the business,
  extensive use of promotional strategies is
  required.
• New businesses generally have very little
  available cash for effective campaigns. This
  forces most businesses to rely heavily on
  product, pricing (market penetration pricing),
  and place (location and atmosphere) as their
  primary opening strategies.
• If the product is unique in a way that creates an
  exceptional amount of word-of-mouth advertising,
  then promotion will not be as necessary.

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Growth

• If the business, concept or segment survives the
  introduction stage, then it goes into a period of
  accelerated growth in sales.
• This means that the product has been accepted by
  target customers as a suitable alternative to
  previous choices. That is why, this is generally
  the most profitable stage for any product
  category.
• Suppliers are more numerous and also in their own
  growth stage, so prices for food, beverage and
  operating costs may be lower.

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• Competing firms will enter, since profits are up.
  If a business can dominate a market through a
  penetration strategy, high entry costs, or a
  reputation for excellence, then competitors may
  think twice before entering.
• The leader will face attacks from new entries and
  smaller followers. Unless major mistakes are
  made, most likely it would retain its position.

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Maturity

• Declining profits and price competition are the
  two indicators of the maturity phase. Sales are
  either increasing slightly or have leveled off.
• Sales increases will be limited to natural market
  expansion, much as the growth of the population
  in the region or country or when new occasions
  for use are developed.
• At maturity, there are often too many competitors
  chasing the same customer. Stronger concepts take
  business away from weaker competitors.

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• Promotional strategies will be stressed, but
  quality and value will be the lasting competitive
  advantages. Product differentiation will also be
  important, as customers grow tired of the same
  offerings.
• Entry or expansion for smaller competitors will
  come through the establishment of niches in the
  market. These will be either through a protected
  or unexploited location, or though developing a
  differentiated product.

13
Decline

• When products (restaurants) experience major
  declines in revenues and negative bottom lines,
  closing the doors is a viable option.
• However, this would not be feasible idea for a
  hotel losing money, since the hotel could have an
  asset value of several million dollars, owners
  are motivated to hold onto the property until a
  regular profit returns, or until a buyer is
  found.

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Strategies for Different Industry Positions

• Each business may decide, based on its position
  in the industry, what strategies are possible and
  logical for it to pursue.
• There are different expressions for a businesss
  position in its industry. Here, Kotlers
  categorization will be used market leaders,
  market challengers, and market nichers.
• Each market position dictates different
  strategies.

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The Leader

• Each segment within an industry will have a
  leader. For some segments, the lead position may
  not be easily recognized.
• For the hospitality industry, the primary measure
  of leadership is overall sales, plus unit sales
  for restaurants and REVPAR for hotels (average
  daily rate times occupancy percentage).
• Leaders will benefit from name recognition and
  financial resources, but each leaders primary
  focus will be on competing with rivals
  (challengers) within each market.

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• For leaders to remain on top, they must focus on
  protecting their strengths, basically they should
  continue to what got them to their present
  position.
• They must also incorporate strategies that will
  make it more difficult for challengers to gain
  momentum. This could be through increasing market
  penetration, product additions, or diversifying
  into related businesses (concentric
  diversification).
• A common problem for market leaders is that they
  may focus so much on their strengths and they may
  miss major shifts in their competitive
  environment.
• That is why, they should commit to core
  strategies, plus adopt successful strategies of
  market challengers and nichers.

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Challengers and Nichers

• Imitating the leader may allow a business to
  survive, but it is not enough in todays
  competitive environment. Therefore, for long-term
  success, every business must gain some type of an
  advantage.
• If a challenger or nicher is to increase its
  share of the market, it must not play by the
  rules of the leader, it must change the rules of
  the game with the goal of neutralizing or
  temporarily paralyzing the leader.
• Since, most often the leaders are large and have
  rigid organizational structures, they are slow in
  making rapid responses. There, the challenger has
  an advantage.

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• There are various types of attacks for the
  challenger or nicher. One is flanking attack to
  circumvent the strengths of the leader e.g.
  Dominos Pizza.
• The safest strategy for the nicher is to find a
  geographic niche that leaders or challengers are
  not likely to pursue.