Going away from the traditional definitions, Abhishek Sareen lays out a new definition of what strategy means in business, based on his 16+ years of experience in marketing, retail and business management.
When it comes to business and marketing, strategy is a very overused term. It’s spoken very frequently in discussions, papers and presentations. However, very rarely is the meaning of strategy understood properly. You will find several definitions and books explaining different types of strategy. The way most businesses and people talk about strategy, they actually mean game plan. But a plan is not strategy, it is just a part of it. So before we dwell further, let me tell you what I have learnt from my experience.
What is Strategy
In business, strategy, at its simplest, can be defined as the process of prioritizing the allocation of resources at hand. In any environment, whether its business scenario or a board game, we have limited resource at our disposal. In order to overcome the problem at hand and achieve a successful result, one needs to allocate their resources like time, money, inventory, skills, etc., in such a way that we get the best result keeping in mind our competition & environment we are operating in.
Another way of defining strategy is knowing what to do, when there is nothing to do. If your current tasks are all done, and you still know what to do next, that means you have a clear strategy. Tactic, on the other hand, is knowing what to do now.
Understanding Strategy through an Example
One of the best analogies that I can provide you to understand strategy is through the game of chess. Chess in my view is the most strategic game I can think of. Here the two players start with equal resources i.e. pieces, equal time to execute their plan (one move at a time) and they can view their opponent’s moves very clearly. In chess, the general starting strategy is to allocate your resources or position your pieces in such a way that they provide you with best offence and defense positions to counter your opponent, with the objective of checkmating your opponent.
If you have not been able to deploy your resources properly, that is, if they are not contributing to your goal, it means they are redundant and not strategically placed. In chess, one needs to defend and attack at the same time, that too in alternate moves, as your opponent is also making their moves. Thus one needs to prioritize their allocation of resources for defense and attack.
Strategy vs. Objective
Business objectives can be defined as goals that a company wants to achieve based on its current resources, either in the short or the long term. On the other hand, strategy can be defined as the priority order in which these goals should be achieved by the company. Based on my above definition, a business can only have a strategy once its goals are clear. That’s why strategy is actually based on objectives.
It’s All about Prioritization
The business environment is very similar; every company has limited resources. They need to have a clear aim or goal in their mind that they want to achieve. Since one can never have too many resources or too big a goal, companies need to prioritize their goals. Prioritizing is of utmost importance. If everything is a priority, then nothing is a priority. If companies are not utilizing their resources effectively, they may be overrun by their competition. And this is why strategy is important, so that a business can survive both in the short and long term.
Companies need to have short term and long term view of their environment. They need to sell their product or services in the short term, and at the same time create a better product or service for the future. They need to create value at all times. Value here is the benefit received by a customer with respect to price paid. Companies need to maximize the value in order to win over their competition in order to maximize their profit.
Example of Product Strategy
For example, imagine there is an apparel brand whose strategy is to provide their customer with the best (widest or most unique) color options. They allocate a major chunk of their resources here in achieving this. Since this apparel brand aims to offer the best colors, they would not be very competitive when it comes to quality and price compared to some of their competitors. However, by focusing in one clear area i.e. colors, they would be providing a higher value to their customers who prioritize color while making their purchase decision. Brands like Benetton and Color Plus are real-life examples that pursue a similar strategy focusing on color.
It would be ideal for any brand to provide the quality, price and product range to their customers. However, this is rarely possible, as when everything is a priority, then nothing is.
Prioritizing gives us an understanding of where to allocate our resources and where we shouldn’t. It may seem prioritizing is an easy task at first, but it isn’t. You may set your priorities, but ensuring you follow them is also sometimes a challenge. Prioritization is not just about understanding what your business needs the most, or what goal should be achieved first. It’s also about deciding what goals should be left for stage 2.
Types of Business Strategy
Strategy has different connotation is different areas. For example, corporate level strategy means what businesses a company should enter, or exit, in order to keep thriving and drive profits. People mention terms like digital strategy, financial strategy, marketing strategy, retail strategy and many more. However, there are 2 major types of strategy that others are just a part of. These can be explained as follows.
Sales strategy would be prioritizing which kind of sales channel to focus on and which region to operate in. Once we limit ourselves to certain geographies, certain type of customer, certain type of sales channel (retail, e-commerce, distribution, etc.), only then are we able to make a considerable impact and provide value through sales process. For example, Coca Cola is one brand that has laid high emphasis on distribution, they operate on of the biggest distribution networks. They provide value to their customer by being available everywhere, even in the remotest of areas.
Product strategy would be to prioritize which aspects of the product we shall focus upon. There are three broad areas where companies could provide value to their customers:
- Innovation leader: Brands who invest highly in newer technologies. Their products may be expensive, but they are at the forefront of technology or design. For example:
- Mercedes invests in safety and comfort technologies; their S-Class model range is the segment leader. Note that Mercedes is not known for high performance.
- Tesla has invested in a bulk of their resource in battery and ADAS technologies, and thus are a leader in those fields.
- Quality leader: Brands who invest highly and focus on their product reliability and overall quality. For example:
- Toyota is well known for its car brands like Camry and Corolla, which are highly reliable. They are not known for their looks, design or performance, however when it comes to reliability they are ahead of their competition.
- Samsung in consumer durables like washing machine or fridges, is a brand known for reliability. They may not be very innovative, not very cheap but their products are considered reliable.
- Woolworths, a retail brand, is focused toward offering quality of merchandise to its customer, and does not offer the cheapest products.
- Cost leader: Brands who try to focus on cost of production and offer the most affordable options to their customers. For example:
- Nissan & Renault have a range of products that are highly affordable models, like the Sandero and Dacia Duster.
- Retail brand, Walmart, offers the cheapest possible merchandise to its customers and thus has positioned itself as a cost leader. It may not offer the best retail shopping experience; however, its customers are sure to find the best deals.
Brands may operate differently in different markets. In some markets they may be cost leader and in some a quality leader. A lot depends, who are the existing brands they are competing with, and when did they enter a particular market. For example, Skoda which is more often a value of money car option in European markets, when it entered India, it positioned itself as premium brand, until its parent brand VW entered.
They could introduce different product ranges, which would operate with different strategies. At times they may have outlier products. For example, Nissan, which usually operates as a cost leader has a product like GTR, which is a premium & high performance sports car. I’ll discuss the brand and merchandising strategy more in-depth in an another article, as it’s quite a vast topic.
Abhishek Sareen is a sales & marketing professional with over 16 years of experience. He started his career as a management consultant at Kurt Salmon Associates and has worked in marketing & brand management, international business in sectors like precision steel tubes for automotive industry, consumer goods and retail.
He’s is a passionate cyclist and participated in several endurance competitive events. His interests are in behavioral psychology, economics and chess. He is a graduate in Computer Science and an MBA in Marketing. He completed his executive education from IIM-A in 2016 focusing on business strategy.