Business strategies can be categorized in many ways. One popular method uses the typology put forward by American academics Raymond E. Miles and Charles C. Snow in their 1978 book on Organization Strategy.
Miles and Snow's typology
Miles and Snow identify three types of competitive strategies, those adopted by defender, analyzer and prospector types of organization, and a fourth, non-strategic type of organization, whose competitive behaviour is reactive to the perceived environmental conditions within which it operates.
[Miles, R. E. ''et al'']
Organizational Strategy, Structure, and Process
''The Academy of Management Review'', July 1978, Vol. 3, No. 3, pp. 546-562, accessed 20 December 2022 For convenience the reactor type of approach is often characterised as a form of competitive strategy.
Prospector strategy
This is the most aggressive of the four strategies. It typically involves active programs to expand into new markets and stimulate new opportunities.
New product development
In business and engineering, new product development (NPD) covers the complete process of bringing a new product (business), product to market, renewing an existing product or introducing a product in a new market. A central aspect of NPD is prod ...
is vigorously pursued and offensive marketing warfare strategies are a common way of obtaining additional
market share
Market share is the percentage of the total revenue or sales in a market that a company's business makes up. For example, if there are 50,000 units sold per year in a given industry, a company whose sales were 5,000 of those units would have a ...
. They respond quickly to any signs of market opportunity, and do so with little
research
Research is "creativity, creative and systematic work undertaken to increase the stock of knowledge". It involves the collection, organization and analysis of evidence to increase understanding of a topic, characterized by a particular att ...
or analysis.
A large proportion of their revenue comes from new products or new markets. They are often highly
leveraged
In finance, leverage (or gearing in the United Kingdom and Australia) is any technique involving borrowing funds to buy things, hoping that future profits will be many times more than the cost of borrowing. This technique is named after a lever ...
, sometimes with a substantial equity position held by
venture capitalist
Venture capital (often abbreviated as VC) is a form of private equity financing that is provided by venture capital firms or funds to startups, early-stage, and emerging companies that have been deemed to have high growth potential or which hav ...
s. The risk of product failure or market rejection is high. Their market domain is constantly in flux as new opportunities arise and past
product
Product may refer to:
Business
* Product (business), an item that serves as a solution to a specific consumer problem.
* Product (project management), a deliverable or set of deliverables that contribute to a business solution
Mathematics
* Produ ...
offerings atrophy.
They value being the first in an industry, thinking that their “
first mover advantage
In marketing strategy, first-mover advantage (FMA) is the competitive advantage gained by the initial ("first-moving") significant occupant of a market segment. First-mover advantage enables a company or firm to establish strong brand recognition ...
” will provide them with premium pricing opportunities and high margins.
Price skimming
Price skimming is a price setting strategy that a firm can employ when launching a product or service for the first time. By following this price skimming method and capturing the extra profit a firm is able to recoup its sunk costs quicker as we ...
is a common way of recapturing the cost of development. They can be opportunistic in
headhunting
Headhunting is the practice of hunting a human and collecting the severed head after killing the victim, although sometimes more portable body parts (such as ear, nose or scalp) are taken instead as trophies. Headhunting was practiced in hi ...
key employees, both technical and managerial.
Advertising
Advertising is the practice and techniques employed to bring attention to a product or service. Advertising aims to put a product or service in the spotlight in hopes of drawing it attention from consumers. It is typically used to promote a ...
,
sales promotion
Sales promotion is one of the elements of the promotional mix. The primary elements in the promotional mix are advertising, personal selling, direct marketing and publicity/public relations. Sales promotion uses both media and non-media marketing ...
s, and
personal selling
Personal selling occurs when a sales representative meets with a potential client for the purpose of transacting a sale. Many sales representatives rely on a sequential sales process that typically includes nine steps. Some sales representative ...
costs are a high percentage of sales.
Typically the firm will be structured with each
strategic business unit
A strategic business unit (SBU) in business strategic management, is a profit center which focuses on product offering and market segment. SBUs typically have a discrete marketing plan, analysis of competition, and marketing campaign, even though t ...
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
In microeconomics, management and international political economy, vertical integration is a term that describes the arrangement in which the supply chain of a company is integrated and owned by that company. Usually each member of the suppl ...
, offer a limited range of products, or offer better
quality
Quality may refer to:
Concepts
*Quality (business), the ''non-inferiority'' or ''superiority'' of something
*Quality (philosophy), an attribute or a property
*Quality (physics), in response theory
*Energy quality, used in various science discipli ...
products or
customer service
Customer service is the assistance and advice provided by a company to those people who buy or use its products or services. Each industry requires different levels of customer service, but in the end, the idea of a well-performed service is that ...
. 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 segment
In marketing, market segmentation is the process of dividing a broad consumer or business market, normally consisting of existing and potential customers, into sub-groups of consumers (known as ''segments'') based on some type of shared charact ...
s. Most sales tend to be repeat or replacement purchases. Individual strategic business units typically have moderate to low levels of autonomy.
Analyzer
The analyzer is in between the defender and prospector. They take less risk and make less mistakes than a prospector, but are less committed to stability than defenders. Most firms are analyzers. 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
A core competency is a concept in management theory introduced by C. K. Prahalad and Gary Hamel.Prahalad, C.K. and Hamel, G. (1990)The core competence of the corporation", Harvard Business Review (v. 68, no. 3) pp. 79–91. It can be define ...
. Rather than develop wholly new products, they make incremental improvements in existing products. Rather than expanding into new markets, they gradually expand existing markets. They try to maintain a balanced
portfolio
Portfolio may refer to:
Objects
* Portfolio (briefcase), a type of briefcase
Collections
* Portfolio (finance), a collection of assets held by an institution or a private individual
* Artist's portfolio, a sample of an artist's work or a ...
of products with some stable income generators and some potential winners. They watch the developments in their industry closely, but don’t act until they are sure that the time is right.
Reactor
A reactor has no proactive strategy, often reacting to events as they occur. Such businesses respond only when they are forced to by
macro environmental pressures. This is the least effective of the four strategies. It is without direction or focus.
Miles, Snow ''et al.'' (1978) have identified three reasons why organizations become reactors:
* Top Management may not have clearly articulated the organization's strategy.
* Management does not fully shape the organization's structure and processes to fit a chosen strategy.
* Tendency for Management to maintain the organization's current strategy-structure relationship despite overwhelming changes in environmental conditions.
See also
*
Marketing strategies
Marketing strategy allows organizations to focus limited resources on best opportunities to increase sales and achieve a competitive advantage in the market.
Strategic marketing emerged in the 1970s/80s as a distinct field of study, further build ...
*
Marketing warfare strategies
Marketing warfare strategies represent a type of strategy, used in commerce and marketing, that tries to draw parallels between business and warfare and then applies the principles of military strategy to business situations, with competing firms ...
*
Strategic planning
Strategic planning is an organization's process of defining its strategy or direction, and making decisions on allocating its resources to attain strategic goals.
It may also extend to control mechanisms for guiding the implementation of the st ...
*
Strategic management
In the field of management, strategic management involves the formulation and implementation of the major goals and initiatives taken by an organization's managers on behalf of stakeholders, based on consideration of Resource management, resour ...
*
Porter generic strategies
Porter's generic strategies describe how a company pursues competitive advantage across its chosen market scope. There are three/four generic strategies, either lower cost, differentiated, or focus. A company chooses to pursue one of two types of ...
References
Further reading
* Walker, O. and Ruekert, R. (1987) Marketing's role in the implementation of business strategies, ''Journal of Marketing'', July 1987, pg 31.
* Boyd, H. and Walker, O. (1990) ''Marketing Management, A Strategic Approach'', Boston, Irwin, 1990, {{ISBN, 0-256-05827-X
Marketing strategy