Successful strategic positioning
A successful strategy leads to increased revenue from the target audience, and sometimes outside of it. It goes without saying that companies also hope to achieve greater profits in doing so, but this depends on the operational costs. The desired strategy shows an upwards-trending line of revenue and profits. But that dream is cruelly disrupted: all good things must come to an end.
The strategy’s life cycle
The central tenet behind the strategy’s life cycle is that revenue will not keep increasing forever, due to all kinds of factors (saturation, competition, etc). At some point – we don’t know when – revenue will stabilize and then decrease. The organization can’t keep generating the same revenue using the old strategy. At this point, it’s time for a new product offering, strategy, or cycle.
The strategic life cycle consists of four phases: birth > growth > maturity > downfall. Some position an extra phase between maturity and downfall: a second wind. One more sign of life before the downfall. In the strategy’s birth phase, the business will have to determine which strategic position they think they can claim, considering their competitors. Frequently that will be a niche market: a market with a limited number of competitors.
Anticipating future difficulties
Many strategic minds see strategic positioning as an essential choice: what is our value proposition, and for whom? In other words: which kinds of products and services will the organization offer, and for which types of customers? It’s a matter of anticipating the difficulties of the market in the future. It’s important that this positioning suits the organization’s possibilities. Especially in the beginning, there’s a great risk of failures: big investments are required, people have to be hired. The risks have to be weighed and calculated.
The organization’s provisions
Once the strategy proves to be successful, growth soon follows. It becomes clear which needs the organization is meeting. This information can be used to further refine the market segmentation and product differentiation in order to serve specific customers. This also provides greater risk control. The growth has consequences: the organization has to scale up and the structure has to adapt. The growth often reinforces itself, which can lead to euphoria: the winner takes it all! In order to help your organization provide the right needs, we’ve developed several training courses to help you define the right strategy.
Growth never continues indefinitely. The strategy will reach a stage of maturity, and the organization will experience this in increasingly severe ways. Decisions have to be made more procedurally, and professional managers will have to assist or replace the entrepreneur. They will focus more on costs and tend to follow competitors. The management burden will increase while the rate of growth further declines.
Management won’t be resting on their laurels, but developing initiatives to regain the upwards momentum. There are always options, such as:
- Maintaining growth by selling products in new markets.
- Captivating your target audience(s) with innovative products or complementary products.
- Increasing process quality by using state-of-the-art technology.
- More efficiency and cost reduction through process innovation.
Steady profit growth
The steady profit growth of well-known DIY stores like Praxis, Gamma, and Karwei until 2009 wasn’t just a lucky shot. The success can be explained by the greater disposable income of consumers and a lot of people moving. As a side effect, many new home owners got into DIY. The economic crisis of 2008 put the DIY stores’ profits under a lot of pressure. Management of the stores wanted to regain the momentum. There are DIY stores that expanded their offerings with items like bicycles and home appliances.
Other DIY stores focused on segments of the market, such as home products. The stores individualized: one focused on advice while the other focused on inspiration. This certainly had an effect, but it’s anyone’s guess whether the existing DIY stores can maintain their strategic positions. While the sales surface increased significantly, the sales volumes in 2014 decreased by over 30% compared to 2008.
Competition from an unusual corner
New competitors appeared, often from a completely different market. Internet stores like Bol.com and Coolblue saw a gap in the market and started focusing on DIY too. In 2015, several large international DIY chains like Bauhaus and Hornbach also took root in The Netherlands, with big plans for expansion. With their megastores, sharp pricing, and level of service, the strategic positioning of the known players was put under a lot of pressure.
Lessons from the life cycle
Kim Warren connects three fundamental questions to the strategic life cycle:
- Why? In other words, why are we at this point of the life cycle? Management has to know where they are and be able to explain why. Only then can management adequately answer the next two questions.
- Where? Where do we end up if we continue our strategy unchanged? At the end of the life cycle, that will lead to an accelerated deterioration, leading to the organization’s dissolution.
- How? How can we perform better and, if the strategy is in its advanced stages, prevent the looming downturn? In the last case, the strategy has to be drastically revised. The difference between “where now” and “how better” is one way of indicating that there’s a large strategy gap.
Important lessons from the life cycle
- The strategic positioning will last years. Leadership deliberately chooses to enter a certain market with certain products and services. Management rarely chooses a different positioning afterwards. The quality of this decision is, therefore, of vital importance: find the best positioning!
- Management has to focus on stretching the maturity phase. The organizational performance continually develops, influenced by the life cycle’s logic. Management is initially focused on achieving as much growth as possible. But then the key phase of maturity approaches: the costs increase and the competition introduced eye-catching innovations. By streamlining processes and making small changes, for example by introducing product varieties, in order to meet changing market demands, this phase can be stretched. Thus, the inevitable downfall is delayed, and with it the moment where management is forced to jettison the existing positioning. Jettisoning may be a stretch: in practice, you may be forced to keep stretching. It’s also possible that the existing value proposition no longer applies to the original target audience, but that it appeals to a new target demographic. Of course, the original target audience could also “fall for” a new value proposition. The relationship to the past is not easily severed, in any case.