Study of Competitive Positioning (Essay Sample)

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Topic: Study of Competitive Positioning
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Abstract
Competitive positioning is a useful modality by which companies gain competitive advantage. This is because through competitive positioning, companies come to appreciate the different ways in which they are distinct from their competitors, as well as ways in which they can base on their distinctions to create value. As the modern consumer becomes highly informative on their needs, value creation is something that companies cannot overlook and expect to grow. It is against this backdrop that Porter’s five forces have been identified as a useful theoretical framework that may be used companies around the world in understanding the industry in which they compete. Based on the forces, how the company is positioned against customers, suppliers, new entrants, substitute products, and existing competitors are made known to the company. Once this is done, a practical approach such as the drawing of positioning map may be used for the purpose of competitive positioning. Drawing as used in this context refers to the practical activities performed by the company such as quantitative data collection on primary product benefit and prices of competitors, based on which position plotting can be done with the aim of becoming more attractive to consumers.
Contents TOC \o "1-3" \h \z \u Abstract PAGEREF _Toc409118070 \h 2Introduction PAGEREF _Toc409118071 \h 4Defining a competitive positioning PAGEREF _Toc409118072 \h 4Theoretical perspectives of competitive positioning PAGEREF _Toc409118073 \h 5Why Porter’s five forces work in theory PAGEREF _Toc409118074 \h 5The forces and how they help in determining strategic positioning PAGEREF _Toc409118075 \h 6Benefits of using the five forces as the theoretical framework for competitive positioning PAGEREF _Toc409118076 \h 9Recommendations for practical application of theory on competitive positioning PAGEREF _Toc409118077 \h 9Drawing positioning map PAGEREF _Toc409118078 \h 10Define the market PAGEREF _Toc409118079 \h 10Determine the primary benefit and choose the price PAGEREF _Toc409118080 \h 10Plot positions and draw expected price line PAGEREF _Toc409118081 \h 11Interpreting the positioning map PAGEREF _Toc409118082 \h 12Valuing intangible benefits PAGEREF _Toc409118083 \h 12Anticipating shift in the value of benefits PAGEREF _Toc409118084 \h 13Finding paths of least resistance PAGEREF _Toc409118085 \h 13Conclusion PAGEREF _Toc409118086 \h 14References PAGEREF _Toc409118087 \h 14
List of Figure
TOC \h \z \c "Figure" Figure 1: Porter's Five Forces PAGEREF _Toc409118088 \h 6
Introduction
All companies that take advantage of the open ended nature of the globalised market also appreciate one challenge and this has to do with the competitive nature of the market. Grant (2008) emphasised that through globalisation, companies have the advantage of expanding very quickly across the globe but this opportunity also exists for their competitors and rivals. As a result, it creates a system of survival of the fittest, where individual companies have to put in extra effort to ensuring that they survive the completion on the market. It is in such a competitive business environment that strong companies are differentiated from weak ones. Meanwhile, Itami (1987) posited that for a company to be regarded as a strong company in a competitive market is something that can be taken by choice, depending on the ability of the company to have a workable competitive positioning. This paper therefore discusses ways in which companies may use both theory and professional practice to gain competitive advantage by defining their competitive position.
Defining a competitive positioning
Kong (2008) noted that the competitive positioning of a company is about defining how to differentiate what the company offers with the aim of creating value for the market. To this end, it is important that a company can clearly know the things that set it apart from its competitors and emphasise on these to create value. Companies that identify their competitive positioning effectively have been noted to create a competitive advantage for themselves. This is because customers place emphasis on those the differentiations offered by the company to settle it over other competitors (Prahalad & Hamel, 1990). Having a competitive positioning can therefore be likened to winning the mindshare in the marketplace through the use of the things that differentiates a company from others (Taylor, 2014). For this to be done effectively, some of the areas of the market that may be focused include market profile, customer segments, competitive analysis, and method of delivering value (Aoki, 2006).
Theoretical perspectives of competitive positioning
There are a number of theories that have been used in conceptualising how and why competitive positioning works. One of these is Porter’s five forces of competitive position analysis. Below, why the Porter’s five forces framework works in theory for conceptualising competitive positioning, analysis of the five forces and advantages with using the forces are presented.
Why Porter’s five forces work in theory
In various academic journals, the validity of Porter’s five forces in conceptualising the competitive positioning of companies is presented. In the first place, Porter (1980) explained that the five forces makes it possible for companies to determine the competitive intensity of the market in which they operate. Meanwhile, without clearly knowing the level and extent of competition, it is virtually impossible for a company to determine how well it can position itself to be above its competitors (Porter, 1979). At the same time, it is only when a company competitively positions itself above its competitors that competitive advantage can be secured. Hamel (2006) also explained that the five forces works in theory because it helps companies to know the extent of their attractiveness in the market. When discussing the main forces, it would be known that companies are able to determine how well they are attracted to customers and suppliers. With this idea, they are able to know their weak points and strengths within the market, based on which the right competitive positioning is done.
The forces and how they help in determining strategic positioning
The figure below summarises the five forces as developed by Michael Porter
Figure SEQ Figure \* ARABIC 1: Porter's Five Forces
The first threat emphasised in the framework is threat of new entrants. As the name suggests, this force helps companies to know the level of strength of new entrants in taking a share of the existing market (Fast, 2005). With such knowledge about the threat of new entrants developed, the company gains a theoretical understanding on how it should position itself against the new entrant. It was for this reason that Barney (2011) explained that companies do not require the same level of efforts and resources in dealing with every other new entrant. It is important that the efforts and resources allocated to a particular entrant will neither be considered as underestimated or overestimated. But to know the right level of resources and efforts to allocate to each new entrant, the company will need to understand the threat that the entrant poses either through a qualitative mechanism or quantitative mechanism (Porter, 1985).
The bargaining power of suppliers is the second force, which describes the extent to which suppliers are able to put pressure on companies to pay more for the supplies they receive from them (Ghemawat, 1986). This force is very important in competitive positioning because such things as inventory and supply chain management all come to play in competitive positioning (Bean & Gros, 2012). For example, companies that always run out of stock due to poor inventory and supply chain management are likely to have their customers shifting to other competitors who can guarantee constant supply. Meanwhile, the sort of engagement the company has with suppliers can directly affect inventory and supply chain management. Understanding the extent of supplier threat therefore puts the company in position to rightly deal with the supplier in such a way that the company does not loss at the expense of the supplier. Companies that rely on several suppliers or use internal supplies have been noted to have better control over the threat of suppliers (Lieberman & Montgomery, 1988).
Another force noted by Porter is the bargaining power of consumers. Porter (2008) described the bargaining power of consumers as an important force that directly impacts on the attractiveness of the company on the market. This is because the bargaining power of consumers determines the extent to which consumers are able to force companies to reduce prices (Miller, 1992). On the other hand, companies that are generally regarded as value and quality oriented are attractive to consumers and so their bargain for prices to come down is less (Hofer & Schendel, 2008). Meanwhile, it has already been stated that a company’s present state of attractiveness of the company is an important determinant in formulating competitive positioning. Using the framework to measure the bargaining power of consumers therefore plays an important role in competitive positioning because it makes the company understand how it ought to position itself to gain consumer attractiveness and thus minimise the bargaining power of suppliers.
There is also the force of threat of substitute products and services. As the name implies, this force determines the availability of substitute products and services and the attractiveness of these substitutes in making consumers choose them over what the company has to offer (Eaton &...