Thursday, August 21, 2008

SME Marketing Strategy- The Strategic Group

1.1 SME-Strategic Groups

Strategic groups are very important component of Small and Medium Enterprises (SMEs) , which is characterized by limited resources in terms of manpower, finance and infrastructure as compared to large enterprises. SME's are often owner driven with little or no formal organizational structures. Often they are over dependent on few large customers and vulnerable to environmental changes. SMEs however have some inherent advantages as compared to large enterprises. Their smaller scale allows for greater flexibility in operations in order to respond to changing customer needs. They also respond to change faster , then their larger counter part.

It is found that ,SMEs are right now competing with large enterprises in several product markets. The challenge for them is to remain competitive and consistently deliver value to customers given their limited resources. This impacts their scale of operations. They are over-dependent on few large customers and are vulnerable to environmental changes. However they have some inherent advantages as compared to large enterprises. Their smaller scale allows for greater flexibility in operations and greater scope for customization in order to respond to changing customer needs. SMEs compete with large enterprises in several product markets. What strategies can they adopt to remain competitive and deliver customer value despite their small scale of operations? .

Within an industry there exist several ‘strategic groups ’i.e. groups of firms that have similar resources and pursue similar competitive strategies (Aaker, 2001). Strategic groups have entry as well as exit barriers.

A supplier group may be powerful if:
  1. It is dominated by a few companies and is more concentrated than the industry it sells to.
  2. Its product is unique and it has built up switching costs.
  3. It does not have any competitors in selling to the industry.
  4. It can integrate forward into the industry’s business.
  5. The industry is not an important customer of the supplier group.

A buyer group may be powerful if:

  1. It purchases in large volumes.
  2. The products it purchases from the industry are standard and undifferentiated
  3. The products it purchases form a component of its product and make up a significant fraction of its cost.
  4. It earns low profits and is therefore price sensitive.
  5. The industry’s product is unimportant to the quality of the buyer’s product.
  6. The industry’s product does not lead to cost reduction for the buyer.
  7. The buyer group can integrate backward into the industry’s business.

Substitute products place a ceiling on the prices charged by the industry and therefore limit the growth potential of the industry.

Marketing Strategy and Overall Business Strategy for Strategic Groups (SG):

Marketing Strategy flows from the overall business strategy of the organization. While the main focus of business strategy is to enhance economic value added (EVA) for the business, the main focus of Marketing Strategy is to enhance customer value (Brown, 1997). Business strategy is concerned with developing and allocating resources to achieve competitive advantage (Porter, 1980). Marketing strategy is concerned with creation of a market position based on this competitive advantage and customer perceptions of value. Marketing as a functional area has an interface with the external environment of the organization. Strategic activities in marketing are aimed at segmenting and targeting markets which an enterprise finds attractive and which it can effectively serve, as also the creation of a competitive position through its ‘offering’, i.e. the product and other elements of the marketing mix. Strategic activities in marketing have strong linkages with other functional areas of the business.

Attractiveness of a segment may depend on:

  • Resources available with the enterprise to create value for the segment through its offering
  • Macro environmental factors, which can impact consumer-buying behavior in the segment as well as value of resources.
  • Level of competitive activity in the segment in terms of number and size of competitors as well as value of competitive offerings.

Growth Strategy and Marketing Strategy for Strategic Groups (SG) of SME:

Most SG enterprises today operate in a dynamic business environment where growth has become a necessary objective for the survival and viability of the enterprise. However the growth strategy an enterprise selects will depend on its own resources to enhance customer value as well as the extent of competitive activity. Ansoff (1965) has suggested the following strategies that an organization can adopt in order to grow:

Present Products

New Products

Present Markets

Market Penetration:
-Increasing market share
-Increasing product usage

Product Development:
-Adding product features
-Developing new products

New Market

Market Development:
-Expand geographically
-Target new segments


Source: Aaker, 2001.


Aaker, David A (2001), ‘Strategic Market Management’, Sixth Edition, John Wiley and Sons, Inc.
Ansoff, H I (1965), ‘Corporate Strategy: An Analytical Approach to Business Policy for Growth and Expansion’, McGraw Hill.
Brown, L (1997), Competitive Marketing Strategy.
Iyengar, G, Bhupatkar, A P, Kandalgaonkar, S P (1998), ‘Strategic Planning and Organisational Development: The case of a technology company’, Management of Development, AMDISA-Excel Books.

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