How to frame strategies for runner-up firms & weak and crisis ridden firms

Competitive moves are the strategic actions which are taken up by the firm in order to compete with its rivals and move ahead of its competitors and become a market leader. They take the competitive steps to gain market share and build a good market position.

Strategies for Runner-up Firms

Runner-up firms are also called as second tier firms. They have lesser market share than first tier industry leaders. Some of them are upcoming market challengers who use offensive strategies in order gain market share and build a good market position whereas some firms who tries to improve their cost by concentrating only on serving a small portion of the market.

Hurdles for the firms with less market share

In large sized industry, size may be the success factor however it could be difficult to attain that success by small firms whose market share is smaller. Hence, firms with small market shares must overcome the following abstracts,

  1. Must avoid dis-economies of scale in manufacturing, distribution, marketing and sales promotion
  2. Facing hurdles in gaining customer awareness
  3. Less access for the usage of mass media advertising
  4. Lack of ability to access capital requirements when a large scale economy has a dominating cost advantage over their competitors

Small share firms may have only two feasible strategic options

  • Make offensive moves for gaining market share and sales
  •  Withdraw from the business either immediately or gradually

Most of the competitive strategies used by a small share firm for gaining market share and getting critical economies of scale are based on

  •    Fixing low prices to get more customers from their weak higher-cost rivals
  •    Acquiring or merging with rival firms for achieving the required large scale economies
  •    Investing in those facilities and equipment which saves cost by relocating their        operations to those countries which have relatively lower costs
  •   Taking up innovative technology or making new radical changes in value chain in order to get huge cost savings

Many small and medium-sized firms earn good profits and have a good reputation with customers.

Strategic Approaches for Runner Up Companies

Runner-up firms have a good amount of flexibility and they may consider and one of the following approaches,

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1)    Using offensive strategies to construct the market share

A runner-up firm can rarely improve its competitive position if it tries to copy the strategies of a leading firm.In offensive strategy, a cardinal rule is not to attack a leader head on with an imitative strategy even if it has the resources and staying power. Additionally, if the challenger has five percent share in the market and if it needs twenty percent share to get good returns, it needs to have a creative approach to competing rather than simply “trying harder”. The best “mover and shaker” offensives for any ambitious runner up company are the following approaches,

  • Introducing a good innovative technology
  • Bringing in new and better products to the market before the rivals and building a good reputation for product leadership
  • Being more quick, innovative and adaptive to the changing market conditions and customer expectations than slower to change market leaders
  • Having a good strategic alliance with key distributors, dealers or marketers of complementary products
  • Innovative ways to cut down the costs and using that lower price in attracting and driving customers from higher costs, higher price rivals
  • Building up a good differentiation strategy on the basis of premium quality, superior technology, outstanding customer service, quick product innovation and convenient options for online shopping

2)    Achieving growth through Acquisition Strategy

Some runner-up firms merge or acquire rival firms and form an enterprise which has a great competitive strength and larger market share. For this enterprise to succeed, it is important that the senior management must have the skills to control the operations of the acquired companies by avoiding overlapping or duplication, by generating efficiency, by saving costs and using combined resources in such a way to generate stronger competitive capabilities. For instance, many book publishers have grown by acquiring small publishers. Similarly, many banks have grown during the past decade by acquiring small regional and local banks.

3)    Vacant-niche Strategy

In this strategy, the firms concentrate on specific customer groups or end-use applications which the market leaders have ignored or bypassed. A perfect vacant-niche is the one which has a sufficient size and scope for being profitable, potential to grow, which is well suited for the firm’s own capabilities etc.

4)    Specialist Strategy

A specialist firm puts all its competitive effort on one technology, product or product family, end-user or market segment. Their aim is to train that resource strength and capabilities of the company for building competitive advantage by having leadership in a specific area. In high-tech industries, many companies concentrate on being a leader in a particular technology. They have a competitive advantage in having a superior technological depth, highly trained technical expertise and capability of consistently winning over the rivals by introducing new technologies.

5)    Superior Product Strategy

This approach uses a differentiation-based focused strategy for having a product of superior quality or unique attributes. Sales and marketing constantly make efforts for quality-conscious and performance-oriented buyers. Fine craftsmanship, excellent quality, new product innovation or close contacts with the customers for persuading their input for developing a better product usually strengthens the superior product approach.

6)    Unique Image Strategy

Some of the runner up firms uses strategies in such a way that they look unique from their rivals. These distinctive-image strategies may include, making a reputation for lowest price charge, proving goof quality products at a lower price, giving high quality of service to the customers, designing unique attributes in a product, introducing new products and being a leader in it or using new and creative advertising. For example, Apple computers made it easy and simple for its customers to use its Macintosh PCs.

7)    Content follower strategy

This strategy purposely avoids making trend-setting moves or in aggressively trying to steal the customers from their leaders. They prefer such moves which do not lead to competitive revenge usually selecting differentiation strategies. Instead of initiating and challenging, they react, respond and rarely go out to compete with leaders for the price. They simply try to maintain their market position. The marketers of private label products copy many features of name-brand products and sell them to those buyers who are price conscious at a price lower than the well-known brands and therefore they tend to be the followers.

Strategies for weak and crisis-ridden business

A turnaround strategy is needed when a business is going into crisis and it is necessary to reserve the situation as early as possible. For preparing a situation turnaround strategy, the management must first diagnose why the performance is poor. Is it because of the weak economy that the sales are dropping? Was the competitive strategy not chosen properly? Does operating costs were high? Was there a scarcity of important resources? Had a workable strategy been poorly executed? Was there an overload of debts?

The second task for the management is to decide whether the business can be served or not. Some of the root causes of trouble in business are low sales growth, taking too much of debt, inability to use plant capacity due to which there are huge fixed costs, failure of research and development, ineffective innovation, frequently changing the strategies, beaten up by the competitors, etc. In order to overcome these problems and achieve a successful business and not to turnaround, a firm can follow any of the following actions,

Selling off assets

This strategy is used by firms when cash flow is an important aspect and when the practical ways to create cash are,

  1. Through selling off some of the assets of the company
  2. Through retrenchment
  3. Sometimes the assets are not sold by a crisis-ridden firm for unloading the losing operations but for raising funds to save and strengthen the remaining activities of the business.

Strategy Revision

If a strategy has resulted in weak performance, the overhauling of the strategy can be done by,

  • shifting to a new approach in order to rebuild the market position
  • overhaul internal operations and functional area strategies in order to support the same overall business strategy
  • merge with another firm in the industry and prepare a new strategy of the new firm based on the strength
  • reducing the core products and customers and closely match them with the strength of the firm

The best path depends on the existing conditions in the industry, strengths and weaknesses and competitive abilities of the firm.

Boosting revenues

Increasing of revenues always aim at generating and increasing sales. There are many options like price cuts, increasing promotion, bigger sales force, better customer services and quick improvements in products. It is necessary to increase the revenues and sales volumes when,

  • It is not possible for the operating budget to maintain a break even and reduce expenses
  • The key profitability is to make complete use of existing capacity

if the buyers are not price sensitive because of the variable features of the product then the fastest way to increase short term revenues is to increase prices rather than volume building price cuts.

Cutting costs

This strategy is best used when the sick firm’s value chain and cost structure are so flexible that it can allow it to recover when the costs of the firm are very high when the firm is close to its break-even point when inefficiencies of the firm can be identified and easily corrected.

Combined actions

The combination turnaround strategies can be used in unpleasant situations where it is essential to quick actions. Similarly, combined actions are taken when new managers are brought in and are freely allowed to make the necessary changes, if the problem is more critical more would be its strategic initiatives.