It’s important to recognise when a defensive strategy is the sensible approach in marketing and business. You make want to be more proactive but it can get you into trouble and especially if you don’t have the strengths to support an offensive strategy.
I use the SPACE analysis matrix to help ground management’s natural desire for growth and profit improvement and put it into perspective of the realities of the existing situation.
Defensive Strategy In SPACE
A defensive strategy is recommended by SPACE analysis when:
- The Industry Attractiveness / Competitive Advantage axis is negative; and
- The Financial Strength / Environmental Stability axis is also negative
It’s a bit like a seven stone weakling going into the boxing ring with Mike Tyson at his peak. It’s best not to stand around and try to fight.
Other Reasons To Follow A Defensive Strategy
A defensive strategy doesn’t have to come out of weakness but from strength.
Sometimes maintaining the status quo suits a market leader or someone who is operating under a high price umbrella of a market leader because profits are high and life is easy. This can be dangerous since the industry is inviting an aggressive move by a new entrant to the market but sometimes “a bird in the hand is better than two in the bush.”
Markets are very comfortable when competitors co-exist in their own little spaces and don’t threaten each other beyond localised skirmishes on the borders.
I’ve known plenty of business owners who don’t want to grow their businesses significantly. They don’t have the desire to manage a big business.
Defensive Strategy Options
Different defensive strategy options apply in different parts of the business.
Defensive Marketing Strategy
First be clear on which product-markets you want to defend, which you want to grow and which you will allow to be taken from you without a serious fight.
The growth-share matrix from the Boston Consulting Group may help as it looks across the market growth rates and your market share to create four categories:
- Stars – growing market, high share
- Cash cows – stable or shrinking market, high share
- Question marks – growing market, low market share
- Dogs – stable or shrinking market, low market share
While the framework can be criticised as too simplistic and I want to write more about the strategic options for dog businesses, the basic guidance is:
Stars – to grow aggressively
Cash cows – to defend strongly – these are your main source of profit and cash
Dogs – to harvest i.e. to let your market share drift away as you manage for short term cash and profit.
And question marks live up to their names.
Try to keep rational when things can get emotional. Compare the cost of reaction with the cost of inaction to make sure that what you intend to do makes economic sense.
Defending Your Market
If your important market comes under attack, you need to stand up and fight to protect what you have.
Be aware of the potential threats, what they are and where they may come from. Competitive analysis pays-off by understanding their objectives and their strengths and weaknesses.
If there is a potential weakness in your product or service, as shown by your customer value attribute map and it’s important to your differentiation strategy, close it.
If a competitor attacks you in a core customer account, fight back with equal or greater strength. Match the move with the customer and repeat at a core customer for the competitor. The aim is to signal that you don’t want an all out price war which will destroy industry profitability but you won’t allow aggressive moves to be rewarded.
Borrowing Defensive Strategy From Warfare To Marketing
Some very interesting books have been written comparing business strategy to warfare.
Typical defences are:
- The fortified position defence – building barriers to entry to make it difficult to be attacked
- Mobile defence – work to identify new market segments and supply tightly focused products s solutions to particular customers wants and needs
- Flanking defence – if you fear an attack at the low price end, you can introduce your own fighter brand as a deterrent. Yes it might take some of your sales away from your middle market brand but it may block a new competitor or make things much more difficult.
- Counter attack – sometimes it is better to response outside or your own market for fear of sparking a price war that damages all your sales in the core market so to send a signal to the aggressor, you can attack in their core market and cause them as much or more trouble as they are causing you.
Defensive Strategy In Business
Sometimes the focus on a defensive strategy is not to protect a market share position but to protect (or save) the entire business.
Common turnaround measures often include:
- Cost cutting
- Rationalisation of products – you can’t afford to carry passengers
- Capacity reduction
- Cash generation from the sale of unnecessary inventory and equipment
A defensive business strategy may even involve selling or closing large sections of the business which are draining profit or cash.
Returning to the SPACE analysis, focus should be spent improving the internal characteristics – financial strength and competitive advantage – to buy time for the external issues – environmental stability and the attractiveness of the industry to settle down.
More on Defensive Strategy
The books comparing military and business strategy are worth reading to give you a different perspective on business.
Michael Porter has a chapter on defensive strategy in his classic book on Competitive Advantage.