Defensive Strategy (marketing)
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Defensive Strategy Marketing

Defensive strategy is defined as a marketing tool that helps companies to retain valuable customers that can be taken away by competitors.[1] Competitors can be defined as other firms that are located in the same market category or sell similar products to the same segment of people.[1] When this rivalry exist, each company has the challenge to protect its brand, growth expectations and profitability in order to have a strong competitive advantage and an adequate reputation among other brands. In order to reduce the risk of money losses, firms have to take action and take their competition away from the industry.[1]

Importance of defensive strategy

Telstra Dome in Docklands

Incumbents usually appear when a company is profitable or economically successful and other competitors fight against it to reach that position in the market.[2] Customers are essential for a business growth but a company can't control their product and services preferences, so firms have to do the impossible to keep the satisfaction of customers at any cost. It is important to give the customers what they want and say what they want to hear.[2]

For example, in the late 1990s the Australian telecommunication company Telstra was facing the fear of competition for the first time due to the facts that a new entrant called Optus was already threatening the company's operation.[2] The managers of Telstra knew that they have to act quickly and decided to implement a defensive strategy. They created a model to predict consumers' responses and Telstra redesigned its internal operations leaving Optus in a vulnerable situation. The company gained more market share and reputation.[2]

Blockbuster store in Australia

When technology is changing, companies tend to have more risk of losing potential customers with other firms.[3] For example, Blockbuster was one of the biggest and recognized DVD rental company around the world. When Netflix appeared in the industry, Blockbuster had to take a defensive strategy to fight against that strong competitor.[3] The company launched an online platform where people had to pay a little amount of money and watch movies online.[3] This strategy was useful at first but Netflix offers were preferred by a lot of people in economic terms. Blockbuster went into bankruptcy and liquidated its stores because they were losing so much money.[3]

There are two main assumptions of the defensive strategy:[4]

  1. Attacking the benefits, which means that companies have to seek the way of weaken the product of the competition.
  2. Highlighting the risks, which means that company has to take into consideration the risk that could face and protect its brand.

Elements

Starbucks shop in Washington DC

There are three strategies considered as essential elements of defensive strategy:

Retrenchment

Strategy that has to be taken into account when the firms are planning to establish a new defensive strategy. It consists in the reduction of the expenses by selling assets or having employees' layoffs in order to increase the profitability of the company.[5] This forces employees to manufacture the company's products with limited resources or with cheaper raw material.[5] For example, in years before 2009, Starbucks has had 600 closings in the United States and 61 in Australia. In 2009 the CEO of Starbucks, Howard Schultz, was planning on closing 300 company - operated stores around the world and 200 of them were established in the United States. After all that, the company planned to open 140 stores in the United States and 170 stores globally spread in the same year. In order to accomplish that, the firm wanted to cut 700 work positions all over the world. Also, Starbucks was planning on entering to the value - meal race in order to compete with the McDonald's new McCafé coffee bars and to survive the global recession.[5]

There are five guidelines that explain the situations when retrenchment has to be implemented:[5]

  1. When organizations have a clear knowledge of whom is their competence but has failed to focus and achieving their goals.
  2. When a company is the weaker competitor in an industry or market place.
  3. When an organization doesn't operate with efficiency, scarcity of employee motivation, low reliability and high level of stress due to the fact that employees have to increase their operation level.
  4. When the enterprise has failed to take advantage of external opportunities, focus on internal strengths and ignoring competence threats. This leads the company to have a mismanagement and disorganization inside it.
  5. When an organization has developed too fast its internal operation so it needs a pause and a quick rearrangement.

Divestiture

I happens when the company sells a part of the firm's assets in order to accomplish a certain objective such as having more returns or reduce debts.[5][6] Usually, the companies that implement this strategy want to invest that capital in order to have higher revenue that can be beneficial for the firm in the future.[5] This strategy has helped some organizations to get more focused on their core business and improve their performance in the market. It is common that enterprises sell their poorly assets or divisions, but the global economic collapse forced them to negotiate even their valuable properties and goods.[5] It can be compared with the retrenchment tool but with the difference that divestiture don't fire employees in order to cut costs.

Tenaya Capital

For example, in 2009 Ailing Lehman Brothers Holdings divested its venture-capital division as the firm sold part of the assets in order to have enough cash and pay their debts. The acquiring firm, HarbourVEst Partners LLC, changed the name of the Lehman division to Tenaya Capital.[7][5]

Liquidation

Hard Rock Park in Myrtle Beach, South Carolina. This park was liquidated in 2009.

Liquidation is the hardest strategy to perform by a company because it means that it went into bankruptcy.[5][8] This can be caused because the operation and administration of the firm was not appropriate or the managers were not trained enough to control the activities of the firm. In this case, the unique solution is to sell all the company's assets in small parts to shareholders, stakeholders or other companies that are economically solvent.[5] Although this is a tough decision, it is better to stop the operational chaos instead of continuing losing more money.[5]

For example, in 2009 the Hard Rock Park in Myrtle Beach located in South Carolina was liquidated just nine months after its inauguration, despite of two years of non-stoppable construction. This thematic park was expected to be the greatest one in South Carolina's history, but it was only generating $20 million in ticket sales which was below the $24 million in annual interest that they had to pay.[5] The projection was to receive at least 30,000 people per day, but tourist were not interested in the attractions and the owners were losing huge amounts of money.[5]

Types

There are two types of defensive marketing strategies:

Pre-entry defensive strategies

Process of persuasive actions that a company executes in order to defeat competitors. It consists in conveying other potential firms that the entry to the market is a difficult goal to achieve and can be unprofitable, even if this statement is not completely proved.[9] Those actions include signaling, fortify and defend, covering all bases, continuous improvement, and capacity expansion.[9]

Signaling

Marketing plan of potential firms

Type of announcement or news that a company perform in order to let others know its plan to take an action. Announcements can be accomplished through press releases, journal news, interviews, television, etc.[9] These messages can have the same objective or a different one. A firm can be protected and keep potential competitors away from the industry by using the threat of retaliation. Enterprises improve their brand reputation for continuous retaliation by the form they have responded to past attacks and the way they behavior in defending their market share.[9]

Fortify and defend

These actions are the responsible of building barriers of entry for other companies that can be strong competitors.[9] Companies often tend to enter to the marketing environment and to the industry just because they have an opportunity of earning high profitability and revenue. By minimizing the economic expectations of the competitor and discouraging them, companies are eliminating them from the competitive process without attacking them.[9]

Marketing mix in strategic management

Cover all bases

It is also known as a generation or creation of a product, which means that companies have to introduce new products to guarantee a variety of vast product line or to fill spaces in the market place. Covering all bases can include the introduction of multiple versions of a product referring to models or product types.[9]

Continuous improvement

This action means that a company have to improve its intern operations in order to have a recognition and a strong competitive advantage.[9] The improvements can be done by reducing costs, product quality, development of a new product, production process, and distribution channels. The firms choose the areas they want to improve depending on the values and the core business of the organization.[9] Also, innovation is an important element to take into account that can provide a differentiated and unique marketing mix.[9]

Capacity expansion

Manufacturing firms can create excess capacity in order to restraint the entry of competitors. When a potential entrant realizes that the industry has excess capacity, it won't have the motivation to enter because it would be considered as a company like the rest and not an important one.[9] Capacity expansion is a trustworthy restraint strategy if capacity costs are high because if it is low or capacity can be used for other aims, it would be easy for rivals to enter.[9]

Post-entry defensive strategies

These strategies are defined as actions or decisions that companies take in order to protect their position in the market environment from potential firms that have already entered to the industry and can take the market share away. Those actions include defending position before competitors become established, introducing fighting brands, and adopting cross-parry strategies.[9]

Defend position before entrant becomes established

When an organization is new in the market place, its main goal to accomplish is to get properly established consolidating its position and expanding into new market segments. Usually, new competitors are dangerous because they tend to break game rules when they enter into the industry. Also, they create innovative products and this can threat the competitive advantage of other companies.[9]

Established enterprises need to defend their position while new competitors are vulnerable rather than waiting until they become serious threat. Market leaders are responsible of sending out a clear message "to would-be-challengers that aggressive behavior, such as price cutting or entering core segments, will not be tolerated and that it will be met with a rigorous and painful retaliation".[9]

Introduce fighting brands

Fighting brands are implemented by enterprises to fight a competitor's brand that threatens one of their major brands.[9] Competing brands are usually lower costs versions of the firm's premium brands that call for same quality at a lower price. Introducing fighting brands can be an attractive strategy because they help fight off a price-cutting brand that is threatening the core brand of the company while conserving its important image and profitability.[9]

Adopting cross-parry strategies

This strategy is implemented when a competitor challenges a firm in one specific area, and as a result of that, the company chooses to challenge this competitor in another area. To indirectly attack the competitor's core area or business is a way of defending the company's reputation all over the world.[9]

Dimensions

There are five dimensions of defensive strategy:[10]

Dimension Meaning Items for measuring
Personal communication[11][12] Sharing important information and having an effective communication between seller and buyer or customer.[11][12] - Personal communication to customers. - Time designated for effective communication with customer.
Process for an effective communication
- Customer can complain or show happiness through communication.
Firm-customer's trust

development[11][13]

Confidence between employees inside the organization and with the customer.[11][13] - Trust the employees to achieve the organization's goals.

- Give reliable information to customers.

- Know that customers are trustworthy.

Bonding development[14][15] Create bonds and a business relationship between the company and its clients.[14][15] - Establish a long-term relationship with the customers.

- Cooperation to have an adequate control of the company.

Customer complaint management[16] Is defined as the company's ability to deal with complains of potential customers in order to maintain its reputation.[16] - The enterprise provides a division for customer service.

- The company has the responsibility to train its employees so they can deal with customer's discontent.

- Firms gives compensation if customers have a reason to complain.

Switching barriers[12] The company generates barriers in order maintain the profitability and keep customers.[12] - The customer feels happy and trust the company's products or services.

- The organization gives discount for continuous buyers.

- Originality of the firm's brand and product. This gives the company a strong competitive advantage.

References

  1. ^ a b c Ogden, Mike (1999). "Master four strategies of marketing warfare". Jacksonville Business Journal: 1. 
  2. ^ a b c d Roberts, John (2009). "Defensive Marketing: How a Strong Incumbent Can Protect Its Position". Harvard Business Review: 150-151. 
  3. ^ a b c d Teece, David (2010). "Business Models, Business Strategy and Innovation" (PDF). 
  4. ^ "The Best Defense". strategy+business. Retrieved . 
  5. ^ a b c d e f g h i j k l m David, Fred (2011). Strategic Management: Concepts and Cases - Thirteenth Edition. New Jersey: Prentice Hall. pp. 146-151. 
  6. ^ "What is divestiture? definition and meaning". BusinessDictionary.com. Retrieved . 
  7. ^ Tenaya Capital
  8. ^ Staff, Investopedia (2003-11-23). "Liquidation". Investopedia. Retrieved . 
  9. ^ a b c d e f g h i j k l m n o p q r Yannopoulos, Peter (2011). "Defensive and Offensive Strategies for Market Success" (PDF). 
  10. ^ Heriyati, Pantri (2010). "Offensive and Defensive Competitive Marketing Strategy:The Development of Construct & Measurements". Asean Marketing Journal: 40. 
  11. ^ a b c d Morgan and Hunt, (1994), The Commitment-Trust Theory of Relationship Marketing, Journal of Marketing, Vol. 58, p 20-38.
  12. ^ a b c d Sorce, Patricia and Kimberly Edwards (2004), Defining Business-to-Consumer Relationships: The Consumer's Perspective, Journal of Database Marketing & Consumer Strategy Management, p.255.
  13. ^ a b Berry, Leonard L., and A. Parasuraman (1991), Marketing Services: Competing Through Quality, FreePress, New York, NY.
  14. ^ a b Callaghan, M., McPhail J., and Oliver .H.M. Yau (1995), Dimension of Relationship Marketing Orientation, in Sin, Leo Y.M., Alan C.B. Tse, Oliver H.M. Yau and Jenny S.Y. Lee (2002), The Effect of Relationship Marketing Orientation on Business Performance in a Service-Oriented Economy, Journal of Services Marketing, Vol. 16, p. 656.
  15. ^ a b Cross, Richard, and Janet Smith (1995), Customer Bonding; Pathway to Lasting Customer Loyalty, Illinois, NTC Business Book.
  16. ^ a b Fornell, Claes and B. Wenerfelt, (1987), Defensive Marketing Strategy by Customer Complaint Management: A Theoretical Analysis, Journal of Marketing Research, Vol. 24, p. 337.

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