Session 8
NICHE VERSUS BROAD STRATEGY
Niche versus Broad
• Review based on 247 new ventures revealed 8 distinctive
archetypes of competitive strategy for market entry with
both broad and niche strategies represented.
Resources:
• McDougall, P and Robinson, R. B. (1990) “New Venture
Strategies: An empirical identification of eight
‘archetypes’ of competitive strategies for entry.’ Strategic
Management Journal, Volume 11, 447-467.
• Also, Wickham, P. (2006) “Strategic Entrepreneurship”,
FT Prentice Hall, pages 361 – 365.
Entrepreneurial Entry
Strategies
• Entrepreneurs must select a product-market domain
in which to establish their venture.
• This refers to the scope of the product (range of
products) and the market segments.
• Must understand how customers distinguish the
range of products in the market – price, quality,
brand, imagery, market positioning and so on.
Entrepreneurial Entry
Strategies
• Wickham refers to five generic strategies:
– Focused entry – address a single well defined productmarket domain.
– Product spread – offering a wide range of products to a
single well-defined market.
– Customer spread – delivering an single or narrow range of
products to a wide base of customers.
– Adjacent – offering a wide range of products to a broad
customer base. All products-market segments are adjacent
in that the characterising features are continuous or related
to each other.
– Scatter – a variety of different products are offered to a
variety of different customers. The segments are not
adjacent.
Competitive approach
• Offer customers value that existing competitors to
not currently address:
–
–
–
–
–
Offer new product or service
Offer greater value
Create new relationships
Being more flexible
Being more responsive
Choice of strategy
•
Competitive versus product-market – depends on the characteristics of the
segment, the resources available and the characteristics.
Best approach depends
on market conditions
Product-market
domain entry
strategy
Attractiveness of
market opportunity
dependent on
venture resources
and capability
Approach to
competing
Resources and
capabilities
Viability of approach
depends on resources
available
Strategic heuristics
• This has been a formal approach to strategy –
entrepreneurs don’t need a formal knowledge to
implement strategy effectively.
• Having this knowledge will help you to resonate with
the approach taken by other practicing entrepreneurs
and it will help you to express it better.
• Heuristics are decision rules, based on knowledge and
experience. The heuristics and entrepreneur might
use will be based on their common-sense and
intuition.
Heuristics and CounterHeuristics
Strategic Theme
Heuristics
Counter-heuristics
Innovation
Avoid run of the mill products;
search out new ideas
Stick to what is tried and
tested. Keep an eye on one
or two key areas
Flexibility
Keep and open mind, try new
approaches. Success comes
from continual improvement.
Find a good way of doing
things and stick to it.
Vision
Develop a vision and don’t
compromise it. Share, don’t
negotiate.
Let your vision evolve, let
other contribute.
Start-up Strategy
Start small and build.
Go for it big time before
someone else does.
Using external support
Get professional help, seek
investors.
Professionals are a poor
investment, why aren’t
they rich.
Sharing information
With non-competitors at least.
Never give anything away.
Typical entrepreneurial myths
• New ventures must select competitive strategies to
penetrate markets previously served by others.
• Limited finance and HR support/knowhow; little or no
reputation; established competitors.
• Go for a niche strategy – to avoid competition.
• Specialised products, localised or based on craftsmanship.
• Opportunity too small to attract competition.
An alternative view
• Biggadike (1976) suggested that successful companies are
those that entre with aggressive share objectives, who
invest in marketing to build share rapidly.
• He argued that those with modest expectations, narrow
product lines, superior service and similar distribution
channels could not reasonably expect to achieve market
share.
• If you aim low, you will achieve low – the poor
performance of new ventures is self inflicted.
•
An alternative view
• MacMillian and Day (1987) also argue that the
performance of aggressive firms was superior to nonaggressive firms – also suggesting a self-fulfilling dynamic.
• Firms with an aggressive strategic posture (marketing and
investment decisions) rapidly capture a high market share
which leads to benefits, sales and ROI.
• They examined adolescent ventures and found that the
most successful were ‘aggressive, broadminded and
opportunistic’.
Yet more...
• Miller and Camp (1985) argued that if there was anything
to be gained by being more focused than your competitor,
it was only the undesirable distinction of being less
profitable.
• Firms pursing low cost strategies are less successful than
those pursuing high quality and differentiation.
• Aggressive strategies that were successful:
– Reconfiguration – doing what is being done, but better
– Redefine – the market, the product, or geographical scope.
– Outspend the industry leader.
New Venture Research
• The research reviewed 247 firms, against 9 factors
and distilled them into 8 clusters.
• Each cluster had a set of characteristics which might
be helpful in evaluating market entry strategies.
Cluster 1
• Aggressive growth strategy, via commodity type
products to numerous markets, with small customer
order:
– Broad product line
– This approach attracted outside investment
– Offered commodity type products, small orders,
needed wide range of customers to achieve growth
– Control of costs vital
– Committed to rapid growth
– Subcontracted out to meet peak growth and accepted
sporadic levels of customer need.
Cluster 2
• Aggressive growth, with price competitive new products
to large customers
– Focus on cost and price minimisation – control costs and
lower the price
– Attracted outside investment
– Seeks few large customers – emphasising reputation and
customer service.
– Aggressive marketing a broad range of commodity
products.
– Really difficult to manage cost leadership and
differentiation.
– Only group to focus on new product development strategy,
must continue to be innovative to be successful.
– May need to subcontract to meet demand, but be below
capacity at other times.
Cluster 3
• Aggressive growth, with narrow, specialist products. Prices
competitive to a few large customers
– This group was the smallest sector.
– Aggressive price and cost control and heavy on backwards
integration as they look for large scale entry.
– Rapid growth is ambitious, but with backwards integration
even more so.
– Most aggressive of the new entry strategies.
– Narrow range of non-commodity products sold to a small
range of customers who are locked in to long-term
contracts
– Limited growth, long term security
– Limited scope for product development.
Cluster 4
• Controlled growth with a broad product range to
many markets:
– Like the previous group, there is a desire for backwards
integration, but with a broader range of products.
Cluster 5
• Controlled growth via premium priced products sold
directly to customer:
– Focus on forwards integration
– Lack of emphasis on marketing and distribution
strategy with a strong focus on forwards integration
creating channels of distribution as a route to market
Cluster 6
• Limited growth with small niche markets offering
superior products and high customer service
– Focus on a single way to compete
– Reject brand influence, reject distributions channels,
reject forward integration.
– Strive for small scale entry and growth with an
emphasis on service quality and niche strategy.
– Does not lend itself to volume strategy, where
standardisation is necessary.
– Rarely justifies fixed capital investment.
Cluster 7
• Average growth via steady development of new
channels of distribution, brand/ID and heavy
promotion:
– Most favoured approach (27%) with an emphasis on
branding, marketing, plus multiple channels of
distribution.
– Rely on demand pull strategy through brand
recognition and identification.
– High levels of advertising and promotion
– Large customer case and numerous market segments
– Technology products favour this route – once the
product is developed the emphasis shifts to marketing
Cluster 6
• Limited growth with small niche markets offering
superior products and high customer service
– Focus on a single way to compete
– Reject brand influence, reject distributions channels,
reject forward integration.
– Strive for small scale entry and growth with an
emphasis on service quality and niche strategy.
– Does not lend itself to volume strategy, where
standardisation is necessary.
– Rarely justifies fixed capital investment.
Cluster 7
• Average growth via steady development of new
channels of distribution, brand/ID and heavy
promotion:
– Most favoured approach (27%) with an emphasis on
branding, marketing, plus multiple channels of
distribution.
– Rely on demand pull strategy through brand
recognition and identification.
– High levels of advertising and promotion
– Large customer case and numerous market segments
– Technology products favour this route – once the
product is developed the emphasis shifts to marketing
Cluster 8
• Limited growth selling infrequently products to
numerous markets with some integration:
– Focus on forward integration, cost and price control.
– Customers make infrequently purchases but the
venture serves a large number of people in numerous
markets, widely dispersed geographically.
– Lower price, consistent with intense price competition.
– Little money is spend on process or product
development.
– Forward integration puts product closer to the market
– this mitigates the impact of powerful buyers.
Conclusion
• Some small scale firms pursue strategies more
consistent with large scale entry, other prefer niche,
small scale strategies with incremental growth.