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Generic marketing strategies
75
Generic marketing Graham
strategies
J. Hooley
Aston lJnil,ersity, Birmingham.
UK
James E. Lynch Leeds Unilvrsity,
Leeds, UK
David Jobber Bradford Management
Centre. Bradford,
Final version received
March
UK
I991
A sample of 616 single business companies to investigate
the nature
of generic
marketing
UK industry. A wide range of marketing -marketing
objectives,
strategic
Five generic strategies
were identified attitudes,
criminant hitherto.
market
targeting,
and were analysed
and performance
The theoretical,
by
using dis-
analysis. The study provides more in-depth
into the nature of marketing
in
used to cluster strategies.
market
type, corporate
data
strategies
strategy components
focus,
quality and price positioning-were
provided
insights
strategies than has been possible
practical
and methodological
impli-
cations are discussed.
Generic marketing
strategy
The identification and evaluation of business strategies has been an important research domain in recent years. One strand of research has examined the concept of strategic types or groups (e.g. Cool and Schendel, 1987; McGee and Thomas, 1986). This research has been valuable in supplementing the structure-conduct-performance model by postulating more complex causal links (McGee and Thomas, 1986). Various approaches to grouping strategies have been employed in practice however, with wide variations in the variables used to Correspondence
to: Professor Graham
ness School, Aston University, Intern.
J. of Research
J. Hooley,
Birmingham
in Marketing
9 (1992)
Aston
B4 7ET,
Busi-
UK
75-89
North-Holland
0167~8116/92/$05.00
0 1992 - Elsevier
Science Publishers
define strategy and methodologies used to gather data. Based on economic theory Porter (1980, 1985), for example, used case observations of a variety of businesses to derive four types of strategy: industry-wide cost leadership, industry-wide differentiation, focused cost leadership, and focused differentiation. Miles and Snow (1978) also identified four strategy typologies-defenders, prospectors, analysers and reactors-based upon case data from four industries. The key dimension which distinguished these strategies was the degree of adaptive capability in product or market development; reactors, for example, possessed little adaptive capability while prospectors were characterized by the high level of adaptation through identifying and capitalizing on emerging market opportunities. Cool and Schendel (1987) focused on one industry and formed their groupings from quantitative analysis of six types of variables -range of market segments, types of prodcommitucts, research and development ments, marketing commitment and size. McKee et al. (1989) also focused on one industry and quantitatively analyzed relationships between market environment, organizational strategy type, marketing tactics and performance. Yet another approach (Douglas and Rhee, 1989) has been to survey a wide range of businesses using a restricted set of competitive strategy variables-relative emphasis on various marketing mix variables, relative market scope or product line breadth, and the degree of vertical integration and synergy with other product businesses in the company. While all of these approaches have provided valuable insights into the nature of strategic typologies, there remains a lack of empirical evidence which examines a wide
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76
G.J. Hooky et (11. / Generic marketing strategies
range of marketing variables across a diverse set of industries and environments. Such an analysis would provide, a greater depth of understanding of the nature of strategic marketing typologies and their correlates. In particular, this paper investigates the relationship between strategy type on the one hand and market served, corporate attitudes and performance on the other, using data from a large scale survey of senior marketing executives in the UK. In so doing this work seeks to redress the balance of empirical work which is largely North American-based to date. Relating strategic type to environment and performance has been the focus of much research in recent years (e.g. Dess and Davis, 1984; Galbraith and Schendel, 1983; Hambrick, 1983; Miller, 1986; Snow and Hrebiniak, 1980). This paper extends that research by incorporating a combination of marketing variables that hitherto have not been examined in the literature to describe strategic marketing types. Furthermore, the paper explores the relationship between marketing strategy and corporate attitudes which has not been researched extensively. This is surprising given the well-established link between attitudes and behaviour in the psychology and marketing literature (e.g. Ajzen and Fishbein, 1977; Bagozzi, 1982).
Methodology A series of 25 in-depth interviews were held with chief marketing executives from a locally-based sample of companies listed in the Kompass register. These interviews allowed the development of variables to measure and specific research questions. They were followed by a series of pilot interviews to check the adequacy of the questionnaire. The research was conducted by drawing a subset of businesses from a larger survey of marketing in the UK (see Hooley et al.,
1988). The base survey was mailed to a stratified sample of companies drawn from Dun and Bradstreet mailing lists. The sample was stratified by Standard Industrial Classification (SICs) and further stratified by size to avoid small company over-representation. The 5000 questionnaire mail-out (using two waves> produced a response rate of 27% which is in line with other industrial mail surveys (see Hart, 1987). Subsequent analysis of response data and a follow-up telephone survey of non-respondents confirmed that the respondent base was broadly representative of the original sampling frame and, hence, of UK industry. The subset of businesses used in the research reported here comprised single business companies only so that the corporate performance data collected on the questionnaire could be directly related to the (single) environment and strategy deployed. In total 616 single business companies were available for analysis. While no claim is made that this sub-sample is representative of British industry (our interest is solely on comparisons within the sub-sample by environment and strategy), it should be noted that a wide spread of business types were represented. Inevitably, however, there is an inherent bias towards smaller and medium sized operations, since only single business companies were selected. The actual replies to the questionnaire were a blend of factual and judgemental. Anonymity of reply was considered essential to a good response rate and so individual replies could not be checked for factual accuracy. However, subsequent cross-checking of responses against industry and category norms supported the broad representativeness of the sample. Identification et
of generic marketing
Following the approach al. (1986) hierarchical
strategy
adopted by Doyle clustering using
G.J. Hooky et 01. / Generic markemg
Ward’s method was employed to look for generic marketing strategies. The technique searches for clusters of objects (strategies in this case) which retain a reasonable degree of internal homogeneity while exhibiting a high level of external heterogeneity. Five main marketing strategy components were used in the clustering process (see O’Shaughnessy, 1984). These had been explored in the preliminary, depth interviews, and were considered by respondents to be relevant indicators of marketing strategy. Each is discussed briefly below: Marketing
struregies
77
reduction. Although these are not always mutually exclusive, the exploratory interviews revealed that managers did consider them as alternative options while recognizing, for example, that an additional benefit which may arise from winning market share may be lower costs. Again it might be expected that market expansion as a focus is best suited to growth markets, market share to mature markets (where any gains in sales will, by definition, come at the expense of competitors) and cost reduction/ productivity improvements to declining markets (as part of harvesting strategies).
objecthles Market
Most textbooks on marketing (see, for example O’Shaughnessy, 1984) stress that the starting point for strategy development is to clearly define objectives. Three types of marketing objectives were considered: defensive (defend, hold position or prevent decline); steady sales growth; and aggressive sales growth or market domination. Doyle et al. (1986) showed stark differences in their matched sample between Japanese and British marketing objectives, the former being mainly aggressive and the latter mainly defensive. This was, perhaps, hardly surprising given that the research was conducted in the British market where the Japanese firms were, by definition, attacking markets once dominated by the UK companies. Further, across stage of product life cycle it might be expected that the more aggressive objectives would be pursued in growth markets (see Doyle, 1976) while defensive strategies could be more suited to mature or declining markets. Strategic focus Having set objectives, the focus for achieving them needs to be decided. Three main foci are common: expand the market; win market share; focus on productivity and cost
targeting
To implement the focus, marketers can aim at the whole market, selected target segments or at individual customers. It is to be expected that the choice of appropriate targeting will be most closely related to the diversity of customer wants and needs. In homogeneous markets where most customers want essentially the same products and services, whole market targeting might be more likely -while in segmented or fragmented markets more selective targeting could be expected. Quality positioning Having chosen its market targets, the company then decides on its competitive positioning. Quality can be pitched higher, the same or lower than the competition. In more rapidly changing markets, especially where technology is changing rapidly, we might expect higher quality positions to be adopted. In these markets, quality is often associated with technological advance by customers. In declining, slowly changing markets, however, only average quality may be pursued in order to keep costs down. While recent research (e.g. Phillips et al., 1983) has shown that high quality need not mean high costs (indeed in
G.J. Hooley Ed al. / Generic marketing strategies
78
some industries a higher level of quality can itself result in lower costs, through lower wastage and fewer returns) for many companies quality and costs represent a trade-off decision. As noted above, customer perceived quality is often an indicator of degree of differentiation achieved in the market place.
mature markets where product standardised.
Clustering
quality has
on strategies
Each of the five original strategy variables listed above was classified into three dummy (0, 1) variables resulting in a total of fifteen strategy variables for the cluster analysis. This was necessary as the options under each question could not be considered an interval scale. Using Ward’s method of hierarchical clustering on SPSSX Release 3.1 five main strategy clusters were identified and are presented in Table 1. It should be noted that underlying the use of cluster analysis here to identify generic marketing strategies are a number of key assumptions:
Price positioning As with quality, price can be pitched above, the same as or below that of the competition. While in most (but not all) markets a low price, other things being equal, is likely to be most successful in market terms (sales volume and share of market) the combination of price and quality is crucial to financial performance. We might, for example, expect low relative prices to be most successful in
Table1 Generic
marketing
strategies GMS2 (172)
GMS3 (167)
17%
15% 68%
13% 68%
t128
17%
39% 54%
GMSl
(113) Marketing ohjectil.es Defend/prevent decline Steady sales growth Aggressive sales growth or market domination Strategic focus Expand the market Win market share Cost reduction/productivity improvement Marketing targeting Whole market Selected segments Individual customers
I%
GMS4 (78)
GMS5 (86)
4% 92%
89% 4%
199
4%
7%
40% 47%
25% 61%
48% 4 1s
17% 12%
,$ = 148 V = 0.000 1
6%
13%
148
11%
71%
V = 0.36
48% 27% 24%
18% 59% 22%
5% 619 34%
0% 67% 32%
20% 21% 51%
x’= 156 (T = 0.0001 V = 0.30
79% 18% 3%
1% 98% 2%
100%
44% S5% 3%
xX=323 (T = 0.0001 V = 0.52
88% 0% 13%
5% 89% 7 $2
0% 100% 0%
5% 79% 17%
,$ = 444 (r = 0.0001 V= 0.61
Co,?lprlilil’e pusirio??i&q a. Quality relative to major competitors Higher 69% 29% The same Lower 3% b. Price relative to major competitors 15% Higher The same 62% 23% Lower
0 c;> 0%
x2=420 I7 = 0.000 1 l’= 0.61
G.J. Hooley et al. / Generic marketing strategies
(a) First, the analysis assumes that the five original strategy variables are uncorrelated with each other. Each are treated as independent of one another. Cross-tabulation and chi-square tests were used to test this assumption and no significant relationships were found. (b) Second, the analysis assumes that each variable is of equal importance or weight in strategy determination. This assumption is clearly debatable. It might be argued, for example, that the setting of objectives is the starting point of strategy (as most leading textbooks on strategy do), and hence should receive greater weight than focus, targets or positioning. Others might argue that the positioning options open to a company (through its derived cost structure and its technical ability) dictate, in turn, the objectives open to it. In the preliminary interviews we found instances of both. approaches. Our approach was, therefore, not to assume a hierarchy of strategy formulation but to examine simultaneously and equally weighted all five main factors that emerged from the literature and the preliminary interviews. Had the factors been weighted it is possible that a different structure could have emerged. In the absence, however, of any theoretical or empirical grounds to justify a weighting scheme we are confident that .the method adopted has resulted in statistically sound and operationally useful clusters. Further research might usefully be addressed at deriving, theoretically and empirically, weights for strategy variables. (c) Third, all five variables are assumed to be useful in creating and differentiating between generic strategies. This assumption is, in fact, a subset of assumption (b) above where some might argue that one or more variables should have a weight of zero. It is clear from the values of Cramer’s V in Table 1 that objectives and positioning variables were more powerful in forming the strategy clusters than were focus and targeting.
79
Equally, however, the two latter variables did contribute significantly to cluster definition and without their contribution the high predictive ability of the model (reported as the second test for cluster clarity below) would have been significantly reduced. We conclude that all five are useful as determinants and descriptors of generic marketing strategy. (d) Fourth, the analysis assumes that five strategy variables are sufficient in distinguishing generic marketing strategies: Many other variables could have been included in the analysis (e.g. competitive advantage pursued, advertising and promotions strategy, distribution strategy etc). The inclusion of further strategy variables would have had the effect of producing fragmentation of the strategic groups and, indeed, resulted in groups that would have their strategies highly specifically defined. Problems again, however, would have resided in which variables to include and what weight to give them (clearly with a more extended set of strategy variables the weighting issue becomes increasingly critical). Our limitation of the analysis to the five key variables reported above does, we believe, focus on the essence of generic differences between strategies. Within each generic strategy we would expect differences in implementation (viz. competitive advantage pursued, advertising, promotion etc.) to exist. While we are, therefore, confident that the five strategy variables used are both necessary and sufficient there is clearly scope for further research to extend, reduce, supplant or weight the marketing strategy components. A notorious problem in cluster analysis (see Saunders, 1980) is deciding on how many clusters are needed to adequately describe both the diversity and the similarity in a population. Textbook application of the method of looking for “elbows” in the scree diagram failed to identify a single best solu-
tion. Judgement was, therefore, employed in selecting an appropriate solution. In this case the 4, 5 and 6 cluster solutions were each examined both for their clarity of cluster descriptions and their practical applicability. The 6 cluster solution resulted in the further splitting of a small cluster into two very similar smaller clusters. For practical purposes these two smaller clusters were adopting virtually indistinguishable strategies. The 4 cluster solution, however, resulted in the merging of two quite distinct clusters and the loss of cluster clarity. The 5 cluster solution, therefore, appeared the most useful classification. The clarity of the clusters was tested in two ways. First using chi-square and Cramer’s V. Table 1 shows that the five clusters were very distinct across the original five strategy variables. The Cramer’s I/ statistics in particular show a very strong association between strategy clusters and the original strategy variables. A second test for cluster clarity was made using discriminant analysis. A discriminant model was built from a random half of the sample and then used to predict cluster membership for the remaining half. The discriminant model successfully predicted 86% of cases used to build it and 83% of non-included.cases adding confidence to the quality of the solution adopted. The five strategies are described below: GMSl -Aggressive growth objectives through high value positioning
GMSl involves aggressive or market domination goals (82%) often through market share gain (54%) or total market expansion (39%). The modal targeting approach is to aim at the whole market (48%) although targeting selected segments (27%) and individual customers (24%) is also practised. Typically positioning involves the marketing of high quality products (69%) at similar
prices (62%). Clearly this is a differentiation strategy (Porter, 1985) pursuing Kotler’s (1991) “high value” price/quality strategy. GMS2--Steady sales growth through selective targeting and premium positioning
Under GMS2, a high proportion of companies seek steady sales growth (68%) either through market share gain (47%) or market expansion (40%). Selected segments (59%) are targeted through higher quality products (79%) at higher prices (88%) than competitors (“premium” price/quality positioning). This strategy resembles the focused differentiation strategy of Porter (1985). GMS3-Steady sales growth through selective targeting and average positioning
Steady sales growth (68%) goals are pursued through a focus on market share (61%) by concentrating on selected segments of the market (61%) or individual customers (34%). The positioning adopted is average quality (98%) at average prices (89%) (“average” price/ quality positioning). Of the strategies identified (but not recommended) by Porter (1985) this most closely resembles “stuck in the middle” as no advantage either through quality differentiation or low costs is created. GMS4-Steady sales growth through selective targeting with high quality products
GMS4 has a clear objective of steady growth (92%) with a focus on total market expansion (48%) or winning market share (41%) by targeting selected segments (67%) or individuals (32%). In these respects it is similar to GMS2 and GMS3. In the positioning adopted, however (higher quality (loo%), same prices (loo%)), it is more closely related to GMSl (“high value” positioning). This positioning was the clearest of any of the strategies examined. The high quality
G.J. Hooley et al. / Generic markehqy
stance to selected. targets again resembles the focused differentiation strategy of Porter (19851, but not charging the premium price that would normally be associated with the strategy as a value signal. GMSS-Defensive duction ment
objectives through cost reand productivity improve-
The final strategy identified was primarily defensive in nature (89%), achieved through a focus on cost reduction and productivity improvement (71%). Most often this strategy was geared to very selective targeting of individual customers (51%) with similar (53%) or higher (44%) quality at similar (79%) prices (“average” to “high-value” positioning). This strategy is similar to that of focused cost leadership (Porter, 1985). It should be noted that, with the notable exception of GMSl, the strategies identified typically involved a high degree of focus (on selected market segments or on individual customers). Few respondents were adopting a market wide strategy. This was to be expected as the sample comprised single business companies who, by definition, tended to be small or medium sized operations. For these companies, focusing may be essential if competing against larger companies. The market wide strategies are most likely to be pursued by large companies.
Generic marketing strategies and market type
In order to further understand the application of these generic marketing strategies respondents were asked to indicate the nature of the market in which the business operates. Thus measurements of market growth rate, diversity of customer wants and needs, the degree to which customer require-
srrategres
XI
ments were changing, the speed of technological change were taken. Respondents were asked to indicate which of three statements was closest to describing their market. For example for technological change the three change is responses were “technological rapid”, “technological change is slow” and “there is no change in technology”. Each possible response was treated as a dummy variable and used in a stepwise discriminant analysis using Wilks method and default entry and exit criteria (Norusis, 1988). Ten variables entered the model, which is given in Table 2. As Table 2a shows, two functions account for 87% of variance and consequently these will be used to identify market factors which are most useful in discriminating between strategies. The pooled within group correlations given in Table 2b indicate that function 1 is primarily concerned with intense competition while function 2 is mainly described by fluid competitive structure, new and growing markets, mature and stable markets and rapid change in customer requirements. Since these variables are most useful in discriminating between strategies, the percentage of companies reporting operating in these environments are given in Table 3. A basic proposition of the product life cycle model is that different strategies will be more appropriate at different stages of market maturity (Doyle, 1976; Kotler, 1991). In this case strong differences were found in the deployment of the five strategies over the different stages. As expected the most aggressive growth oriented strategy, GMSl, was most adopted in new and growing markets. Also heavily employed in these growing markets was GMS4, the steady growth, highly focused strategy with high quality positioning. The common denominator of these two strategies is the positioning adopted-high quality at average prices. This high-value positioning may be used as a powerful incentive to expand the whole market.
82
G.J. Hooley et al. / Generic marketing strategies
Table 2 Discriminant
analysis:
Generic
marketing
strategy
and market
type ten variables
entered
the model
a. Standardised canonical discriminant funcrion coefficients Market a. b. c. d. e. f. g. h. i. j.
type
Function
Intense competition New and growing Weak competition No competition Consumer markets Mature and stable Fluid competitive structure Industrial markets Rapid change in customer requirements No technological change
Percent
of variance
Market
tvpe
Function
I
0.53 * 0.39
22%
11%
2%
l,ariables and canonical discriminant
Function
- 0.22
- 0.07
j
-0.17
GMSl GMS2 GMS3 GMS4 GMSS
*
0.69 * 0.18 -0.50
*
0.15
1
2
strategy
and market
Function
- 0.38 0.09 0.28 -0.19 - 0.05
The other two steady growth strategies, GMS2 and GMS3, were both often found in mature and stable markets. These strategies Table 3 Marketing
Function
3
4
- 0.34 0.09 0.52 * - 0.07
0.10 -0.31 0.18 0.09 0.24 0.59 *
at group means
Function
0.23 0.11 0.15 0.22 - 1.01
Function
3
0.05 0.22 -0.12 - 0.28 - 0.02
4
- 0.08 0.05 - 0.05 0.12 0.00
differ in the positioning adopted (the former being premium, the latter average) but they share a common clear focus on gains through
type GMSl
GMS2
GMS3
GMS4
GMSS
60% 28%
40% 46%
37% 49%
56% 33%
30% 43%
35%
25%
23%
29%
18%
39%
30%
23%
35%
31%
Market growth New and growing Mature and stable Comperitive structure
Fluid Speed of change in customer needs
Rapid
4
functions
-0.18 - 0.20 0.05 0.34 * 0.54 * 0.05 0.14 0.28 * 0.14 -0.31
0.01
discriminant functions eramated
Function
Function
*
-0.33
0.09
c. Canonical
2
0.36
d e f
0.04
Function
65%
- 0.29
-0.12
3
0.01 0.43 0.49 -0.10 0.23 0.50 - 0.35 0.27 0.33 0.64
-0.71
0.25
Function -0.12 -0.14 0.03 0.40 0.91 0.01 0.07 0.73 0.17 - 0.33
-0.14 0.23
2
0.62 - 0.42 0.21 0.09 0.06 0.31 - 0.28 0.10 - 0.40 0.14
C
g h i
Function
1.69 0.62 1.26 0.44 0.24 0.38 0.22 - 0.02 -0.13 -0.15
b. Pooled within group correlations between discriminating
a b
1
G.J. Hooley et al. / Generic marketing strategies
market share improvements (especially GMS3) as would be expected in maturity, and a targeting on selected market segments. PLC theory suggests that more mature markets are likely to be more segmented, hence the need for clearer targeting at this stage of the life cycle (Doyle, 1976). Other distinctions between market environment and strategy are revealed by this analysis. GMSl clearly tends to be associated with markets in which competitive structure is fluid (35%) and speed of change in customer needs is rapid (39%). GMS4 also (although to a slightly lesser extent) has a similar profile. However, GMSS is much less likely to be found in industries with fluid competitive structures. This suggests that a defensive cost reduction posture is more likely to exist in more stable competitive environments.
Generic marketing attitudes
strategy
and
corporate
Discriminant analysis was again used to determine those corporate attitudes which best distinguished between marketing strategies. Respondents indicated their corporate attitudes towards strategic priorities over the last/next five years, new product development, risk taking, competition, the role of marketing over the last five years, and the role of marketing in strategic marketing planning. They were asked to indicate which of a number of statements (normally three) best represented their company’s attitude towards these issues. For example regarding competition, respondents could choose between “ignore it”, “take on any” and “avoid it”. Fourteen variables entered the model. These are displayed in Table 4. Two functions accounted for 89% of variance (see Table 4a) and will be used to identify significant variables. Function 1 is largely de-
83
scribed by the variables “take on any competition” and “marketing has no role in strategic planning”. Function 2 is associated with “lead the market with new product development”, “avoid competition”, “ignore competition”, “take moderate risks”, “imitate in new product development” and “major role for marketing in strategic planning”. Thus attitudes towards new product development, marketing’s role in strategic planning and competitive stance are the major discriminators between generic marketing strategies. The percentage responses are shown in Table 5. This table clearly reveals the variation in attitudes which underpin the five generic marketing strategies. It was clear that the companies adopting the most aggressive marketing strategy (GMSl) also adopted the most pro-active approach to new product development, rarely being prepared to follow competitors, more often developing new products to lead their markets. In contrast, the companies operating the “stuck-in-the-middle” strategy (GMS3) and the defensive cost-cutting strategy (GMSS) were most likely to adopt a competitor imitation posture. In parallel with these findings GMSl was associated with the highest percentage of companies reporting that marketing played a major role in strategic planning while companies in the GMS3 and GMSS clusters reported the lowest percentages. Analysis of attitudes towards competition revealed that predictably the most aggressive marketers with the widest market targeting (GMSl) were most prepared to take on any competition (73%). Companies adopting the most clearly targeted strategies (GMS3, GMS4 and GMSS) were more likely to avoid competition if possible. This suggests that for many of the companies aiming at tightly focused segments of the market, a major reason for this may be to avoid competition, in addition to utilising the company’s strengths to the best effect.
84
Generic mance
G.J. Hooley et al. / Generic marketing strategies
marketing
strategies
and
perfor-
respondents also reported performance improvement over the last financial year and relative to major competitors. In both cases the criteria used were profit, ROI, sales and market share. Although not ideal, self-reported measures were used because of the impossibility of obtaining hard data across these measures and for such a large number
A number of self-reported performance measures were used in this study covering both financial and marketing based criteria. Absolute performance was measured by average ROI and profit margin percentages; Table 4 Discriminant
analysis:
Generic
marketing
strategy
and corporate
attitudes
a. Standard canonical discriminant function coefficients Corporate
attitude
Function
a. NPD to lead the market b. Take on any competition c. Avoid competition d. Ignore competition e. Last five year’s priorities good short run profits f. No change in the role of marketing over the last five years g. Marketing has no role in strategic planning h. Take moderate risks i. Imitate in NPD j. High risk, high return k. Major role for marketing in planning I. Last five years priorities long run market position m.Next five years priorities short term profits n. Marketing less important than five years ago Percentage
attitude
between discriminating Function
a b :
f” g h i j k
1 m n c. Canonical
2
Function 0.20 -0.11 0.29 0.08 1.14 0.25 0.00 - 0.44 -0.21 - 0.80 - 0.02 1.54 - 0.22 1.23
62%
27%
7%
3
Function 0.91 - 0.46 - 0.58 -0.18 0.71 0.57 0.14 0.04 0.80 - 0.03 0.05 0.39 - 0.25 0.16 4%
cariables and canonical discriminant functions Function
2
Function
0.26 0.33 * 0.06 0.01
-0.53 * - 0.22 -0.29 0.51 **
0.28 - 0.32 0.06 0.32
- 0.11 0.24 -0.34 * 0.06 - 0.02 0.09 0.22 - 0.03 - 0.26 - 0.03
0.27 0.25 0.16 0.38 * 0.42 * -0.32 -0.35 * - 0.25 - 0.06 0.18
-0.41 0.25 - 0.04 0.09 - 0.35 -0.37 - 0.09 0.50 -0.28 0.23
3
Function
4
0.33 0.04 - 0.06 0.20
*
* * * *
0.24 * 0.40 0.05 - 0.07 0.27 0.06 0.06 -0.19 -0.11 0.16
discriminant functions ecaluated at group means Function
GMSl GMS2 GMS3 GMS4 GMS5
1
Function - 0.37 0.13 0.57 - 0.20 0.69 0.20 0.04 0.46 0.13 0.16 - 0.29 0.41 - 0.34 0.25
of variance
b. Pooled within group correlations Corporate
1
0.21 1.66 1.38 1.02 0.89 -0.13 - 0.23 0.22 0.09 0.18 0.06 0.64 - 0.38 0.02
- 0.23 0.17 0.22 0.23 - 1.28
1
Function - 0.49 -0.19 0.47 0.10 0.01
2
Function -0.20 0.11 -0.13 0.34 -0.01
3
Function -0.12 0.17 0.01 -0.21 - 0.01
4
4
85
G.J. Hooley et al. / Generic marketing strategies
Table 5 Marketing
strategy
and corporate
attitudes GMS2
GMQ
GMS4
GMSS
Approach to new product del,elopment 16% lmttate competitors 69% Lead the market
20% 67%
34% 44%
18% 59%
24% 39%
Role of marketing in strategic planning 4% None 50% Major
6% 44%
9% 34%
6% 37%
21% 25%
14% 73% 14%
12% 65% 23%
6% 60% 35%
9% 56% 35%
10% 53% 37%
53%
59%
71%
68%
59%
GMSl
Approach to competition Ignores it
Takes on any Avoid it Approach to taking risks Moderate risks
of companies. We recognise that such unsubstantiated measures should be used with caution. Self-reported measures have, however, been effectively used in a number of recent Table 6 Discriminant
analysis:
Generic
marketing
strategy
studies (e.g. Anderson and Zeithaml, 1984; Douglas and Rhee, 1989; Hambrick, 1983). Discriminant analysis was once again used to determine the performance measures that
and performance
a. Standardised canonical discriminant function coefficients Performance
measure
Function
a. Better
sales than major competitors b. Better sales than last year c. Better market share than last year d. Better profit than competitors e. Better profit than last year f. Better market share than competitors Percent
of variance
1
*
Function
0.76 0.06 0.37 0.01 0.22 - 0.06
- 0.53 0.73 0.00 - 0.62 - 0.08 0.61
75%
17%
2
Function
-
3
Function
0.49 -0.16 0.33 - 0.26 0.71 - 1.05
- 0.34 0.65 0.25 0.79 - 0.44 - 0.49
6%
2%
b. Pooled within group correlations between discriminating cariables and canonical discriminant functions Performance
measure
Function
1
Function
: fi
0.88 * 0.46 0.43 0.71 *
-0.19 0.66 * -0.56 0.26 *
;
0.71 * 0.37
0.11 0.13
2
Function
3
Function
- 0.27 0.13 - 0.27 0.07
-0.18 0.49 0.51 0.27
- 0.62 0.59 *
- 0.07 0.25
c. Canonical discriminant functions evaluated at group means Function GMSl GMS2 GMS3 GMS4 GMSS
0.47 0.16 -0.13 -0.18 -0.52
1
Function 0.09 -0.18 0.09 0.22 -0.13
2
Function -0.11 0.07 0.01 0.11 -0.12
3
Function - 0.02 0.00 0.07 - 0.08 - 0.04
4
4
4
G.J. Hooley et al. / Generic marketing strategies
86
were most useful in distinguishing between strategies. Table 6a shows that six variables entered the model and that the first two functions accounted for 92% of variance. Table 6b indicates that three marketing measures adequately describe function l-better sales than competitors, better market share than last year and better market share than competitors. Function 2 is described by better sales than last year and better profit than competitors. Thus marketing variables (4) are more effective in discriminating between the performance of the five generic marketing strategies than financial criteria (1). In particular, absolute financial performance indicators were poor discriminators. The percentage of companies in each strategic type indicating better performance under each of the five performance criteria is given in Table 7. Across all five criteria the aggressive strategy (GMSl) performed best with the highest percentage of companies reporting better performance. These results must be tempered, however, with the knowledge that GMSl is very often .applied in growth markets where sales growth opportunities are presumably higher. The worst performing strategy on all but one criteria was GMSS, the defensive strategy. While it is unfair to expect an increase in sales or share under this strategy as these goals were not pursued, it might have been expected that the cost reduction and productivity focus chosen would have had a more positive impact on profit. The worst financial
performance compared to competitors was reported under GMS4. This also is to be expected since GMS4 involves offering high quality products at average prices. However, we might have expected better marketing performance to have resulted. Overall, the most aggressive strategy (GMSl) seems most successful followed by the less aggressive, more focused growthorientated strategy GMS2, which was second on four out of the five performance criteria. The least successful strategy overall was the defensive GMSS.
Summary and conclusions
Five clear generic marketing strategies have been identified that differ across five key strategic dimensions of objectives, focus, targeting, quality and price positioning. A summary of the nature of these typologies and their correlates is given in Table 8. This typology extends the work by Porter (1980, 1985) and Miles and Snow (1978) by focusing on a wide range of marketing variables and by being more representative in that the data were gathered from a large cross-industry sample of (albeit single) business units. This has produced a richer tapestry of marketing strategies employed by businesses than hitherto and has provided some evidence of their relative performance profiles. Interestingly these strategies resemble (but do not equate to) the Porter (1980) strategies of market
Table 7 Performance by generic marketing strategy GMSl
GMS2
GMS3
GMS4
GMSS
62% 44%
65% 38%
65% 36%
47% 20%
39% 39% 31%
29% 25% 24%
19% 22% 22%
26% 14% 15%
Performance improcement ocer last financial year
Better sales Better market share
75% 57%
Performance relatice to major competitors
Better profit Better sales Better market share
40% 51% 47%
G.J. Hooley et al. / Generic marketing
wide differentiation, focused differentiation (through different positioning& stuck-inthe-middle and focused cost leadership. No market-wide cost leadership strategy emerged from the analysis, perhaps as a result of sampling smaller, single business companies. Furthermore the distinction between industry-wide and focused differentiation was not totally clear with both approaches being used in almost identical numbers in GMSl. Two of the strategies also possessed some characteristics of Miles and Snow’s (1978) prospector and defender categories. Based upon their work prospectors are pro-active, creating change and uncertainty to which competitors must respond; they are pioneers offering a frequently changing product line
Table 8 Key dimensions
of the five generic
marketing
87
strategies
and seeking new market opportunities. The aggressive growth strategy (GMSl) which is associated with expanding markets, a pro-active stance in new product development and placing a high degree of emphasis on marketing would appear to resemble this type. Furthermore, their defenders tended to emphasize efficient products and strong financial controls and conduct very little new product-development, characteristics which clearly resemble GM%. However, the characteristics of their analyses and reactor categories find no close parallels within our strategies GMS2, GMS3 or GMS4. This suggests that, from a marketing perspective, strategic nuances should take account of positioning strategy, competitive advantage and
strategies
GMSl
GMS2
GMS3
GMS4
GMS.5
Name
Aggressors
Premium pos. segmenters
Stuck-inthe-middlers
High value segmenters
Defenders
Strategic objective
Aggressive sales growth/domination
Steady sales growth
Steady sales growth
Steady sales growth
Defend/ prevent/decline
Strategic focus
Win share/ expand market
Win share expand market
Win share
Win share/ expand market
Cost reduction/ productivity improvement
Market targeting
Whole market
Selected segments
Selected segments
Selected segments
Individual customers
Competitive positioning
Higher quality/ same price
Higher quality/ higher price
Same quality/ same price
Higher quality/ same price
Same or higher quality/same price
Market
New. growing; fluid competition: rapid change in customer needs
Mature stable
Mature stable
New, growing
Mature stable
Pro-active NPD; marketing important; take on any competition;
Pro-active NPD; marketing important; take on any competition
Imitate/lead in NPD; take on/ avoid competition
Pro-active
Follower in NPD; marketing of limited importance; take on/avoid competition
Best across financial and marketing based criteria
Good across most criteria
Mediocre
type
Corporate attitudes
Performance
and
and
take on/ avoid competition
Mediocre, esp. on profit criterion
NPD;
and
Worst performance overall
88
G.J. Hooley et al. / Generic marketing strategies
type of market served-all factors which successfully distinguished the marketing approaches taken in our sample of firms but were not measured in the Miles and Snow (1978) study. This study is the first to investigate the association between marketing strategy and underlying corporate attitudes. Attitudes towards new product development, marketing’s role in strategic planning, competition and risk taking were useful in discriminating between generic marketing strategies. There clearly exist wide variations in the attitudes of managers towards marketing’s role in corporate affairs. It is worthy of note that the clusters which exhibited the most positive attitudes towards marketing (GMSl and GMS2) also recorded the best performance. The findings also provide additional evidence regarding the inadequacy of traditional theories of the market structure-conduct-performance link which argue that conduct (strategy) options are often dictated by industry structure. While Table 3 showed clear association between conduct and industry structure it should be noted that each of the strategies was found in a wide variety of industrial environments. The generic marketing strategies were distinguished along five performance criteria and further analysis clearly identified the differences in performance. These results supplement the growing list of studies (e.g. Douglas and Rhee, 1980; McKee et al., 1989) which suggest that strategy is a key moderating variable affecting performance and should be central to any specification of causal linkages. Beyond these substantive contributions, the research had methodological implications also. First the ability of “performance relative to competitors” to discriminate between strategies despite its, perhaps, crude usage in our study, and the cross-industry failure of absolute measures suggests that future studies should include the former type of criteria. The tendency has been for abso-
lute measyres to predominate (not without success, viz. Douglas and Rhee, 1989), but these findings suggest that tighter relational criteria may produce greater discriminatory power. Second, the findings suggest that the Miles and Snow typology may be too broad to distinguish between all of the major strategic types which can occur in cross-industry studies. Researchers should be aware that their categories may not capture important differences in marketing behaviour identified by this research. Finally, the limitations of this study should be stated. By analysing single business firms, our findings cannot be generalized across the whole of UK industry. Nevertheless, a wider range of industries and environments than in most previous studies were captured by our research method. Second, the cross-sectional nature of our data makes the determination of causation hazardous. This limitation is mitigated to some extent by the fact that Miles and Snow (1978) found their strategy types to be relatively enduring orientations. This suggests that strategy is not a function of performance variations. Nevertheless, there is clear case for longitudinal studies to confirm the strategy-performance link.
References Ajzen.
1. and M. Fishbein,
A theoretical Psychological Anderson. life
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Bulletin
Bagozzi,
R.,
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and C.P. Zeithaml,
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124. differences Management
1980 generic strate-
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organizational performance. Academy of Management Journal 27. 467-488. Douglas, S.P. and D.K. Rhee. 1989. Examining generic competitive strategy types in U.S. and European markets. Journal of International Business Studies 50, 437-463. Doyle, P., 1976. The realities of the product life cycle. Quarterly Review of Marketing (Summer), l-6. Doyle, P., J. Saunders and V. Wong, 1986. A comparative investigation of Japanese marketing strategies in the British market. Journal of lnternational Business Studies 46, 2746. Galbraith, C. and D. Schendel, 1983. An empirical analysis of strategy types. Strategic Management Journal 4, 153-173. Hambrick, D.C.. 1983. Some tests of the effectiveness and functional attributes of Miles and Snow’s strategic types. Academy of Management Journal 26. 5-26. Hart, S., 1987. The use of the mail survey in industrial market research. Journal of Marketing Management 3. 25-38. Hooley. G.J., J.E. Lynch, R.W. Brooksbank and J. Shepherd, 1988. Strategic marketing environments. Journal of Marketing Management 4, 131-147. Kotler, P.C., 1991. Marketing management, analysis, planning, implementation and control. 7th ed. Englewood Cliffs. NJ: Prentice Hail International. McGee, J. and H. Thomas, 1986. Strategic groups: Theory, research and taxonomy. Strategic Management Journal 7. 141-160.
89
McKee. D.O.. P.R. Varadarajan and W.M. Pride, 1989. Strategic adaptability and firm performance: A marketcontingent perspective. Journal of Marketing 53, 21-35. Miles. R.E. and CC. Snow, 1978. Organizational strategy, structure and process. New York, NY: McGraw-Hill. Miller, D.. 1986. Configuration of strategy and structure: Towards a synthesis. Strategic Management Journal 7, 233-249. Norusis, M.J., 1988. SPSS/X advanced statistics manual. Chicago, IL: SPSS Inc. O’Shaughnessy. J., 1984. Competitive marketing, London: George Allen and Unwin. Phillips. L.W.. D.R. Chang and R.D. Buzzell, 1983. Product quality, cost position and business performance: A test of some key hypotheses. Journal of Marketing 47. 26-43. Porter, M.E.. 1980. Competitive strategy. New York, NY: Free Press. Porter, M.E.. 1985. Competitive advantage. New York, NY: Free Press. Saunders. J., 1980. Cluster analysis for market segmentation. European Journal of Marketing 14, 422-435. Snow, C.C. and L.G. Hrebiniak, 1980. Strategy. distinctive competence and organizational performance. Administrative Science Quarterly 25, 317-336.
Generic marketing Graham
strategies
J. Hooley
Aston lJnil,ersity, Birmingham.
UK
James E. Lynch Leeds Unilvrsity,
Leeds, UK
David Jobber Bradford Management
Centre. Bradford,
Final version received
March
UK
I991
A sample of 616 single business companies to investigate
the nature
of generic
marketing
UK industry. A wide range of marketing -marketing
objectives,
strategic
Five generic strategies
were identified attitudes,
criminant hitherto.
market
targeting,
and were analysed
and performance
The theoretical,
by
using dis-
analysis. The study provides more in-depth
into the nature of marketing
in
used to cluster strategies.
market
type, corporate
data
strategies
strategy components
focus,
quality and price positioning-were
provided
insights
strategies than has been possible
practical
and methodological
impli-
cations are discussed.
Generic marketing
strategy
The identification and evaluation of business strategies has been an important research domain in recent years. One strand of research has examined the concept of strategic types or groups (e.g. Cool and Schendel, 1987; McGee and Thomas, 1986). This research has been valuable in supplementing the structure-conduct-performance model by postulating more complex causal links (McGee and Thomas, 1986). Various approaches to grouping strategies have been employed in practice however, with wide variations in the variables used to Correspondence
to: Professor Graham
ness School, Aston University, Intern.
J. of Research
J. Hooley,
Birmingham
in Marketing
9 (1992)
Aston
B4 7ET,
Busi-
UK
75-89
North-Holland
0167~8116/92/$05.00
0 1992 - Elsevier
Science Publishers
define strategy and methodologies used to gather data. Based on economic theory Porter (1980, 1985), for example, used case observations of a variety of businesses to derive four types of strategy: industry-wide cost leadership, industry-wide differentiation, focused cost leadership, and focused differentiation. Miles and Snow (1978) also identified four strategy typologies-defenders, prospectors, analysers and reactors-based upon case data from four industries. The key dimension which distinguished these strategies was the degree of adaptive capability in product or market development; reactors, for example, possessed little adaptive capability while prospectors were characterized by the high level of adaptation through identifying and capitalizing on emerging market opportunities. Cool and Schendel (1987) focused on one industry and formed their groupings from quantitative analysis of six types of variables -range of market segments, types of prodcommitucts, research and development ments, marketing commitment and size. McKee et al. (1989) also focused on one industry and quantitatively analyzed relationships between market environment, organizational strategy type, marketing tactics and performance. Yet another approach (Douglas and Rhee, 1989) has been to survey a wide range of businesses using a restricted set of competitive strategy variables-relative emphasis on various marketing mix variables, relative market scope or product line breadth, and the degree of vertical integration and synergy with other product businesses in the company. While all of these approaches have provided valuable insights into the nature of strategic typologies, there remains a lack of empirical evidence which examines a wide
B.V. All rights reserved
76
G.J. Hooky et (11. / Generic marketing strategies
range of marketing variables across a diverse set of industries and environments. Such an analysis would provide, a greater depth of understanding of the nature of strategic marketing typologies and their correlates. In particular, this paper investigates the relationship between strategy type on the one hand and market served, corporate attitudes and performance on the other, using data from a large scale survey of senior marketing executives in the UK. In so doing this work seeks to redress the balance of empirical work which is largely North American-based to date. Relating strategic type to environment and performance has been the focus of much research in recent years (e.g. Dess and Davis, 1984; Galbraith and Schendel, 1983; Hambrick, 1983; Miller, 1986; Snow and Hrebiniak, 1980). This paper extends that research by incorporating a combination of marketing variables that hitherto have not been examined in the literature to describe strategic marketing types. Furthermore, the paper explores the relationship between marketing strategy and corporate attitudes which has not been researched extensively. This is surprising given the well-established link between attitudes and behaviour in the psychology and marketing literature (e.g. Ajzen and Fishbein, 1977; Bagozzi, 1982).
Methodology A series of 25 in-depth interviews were held with chief marketing executives from a locally-based sample of companies listed in the Kompass register. These interviews allowed the development of variables to measure and specific research questions. They were followed by a series of pilot interviews to check the adequacy of the questionnaire. The research was conducted by drawing a subset of businesses from a larger survey of marketing in the UK (see Hooley et al.,
1988). The base survey was mailed to a stratified sample of companies drawn from Dun and Bradstreet mailing lists. The sample was stratified by Standard Industrial Classification (SICs) and further stratified by size to avoid small company over-representation. The 5000 questionnaire mail-out (using two waves> produced a response rate of 27% which is in line with other industrial mail surveys (see Hart, 1987). Subsequent analysis of response data and a follow-up telephone survey of non-respondents confirmed that the respondent base was broadly representative of the original sampling frame and, hence, of UK industry. The subset of businesses used in the research reported here comprised single business companies only so that the corporate performance data collected on the questionnaire could be directly related to the (single) environment and strategy deployed. In total 616 single business companies were available for analysis. While no claim is made that this sub-sample is representative of British industry (our interest is solely on comparisons within the sub-sample by environment and strategy), it should be noted that a wide spread of business types were represented. Inevitably, however, there is an inherent bias towards smaller and medium sized operations, since only single business companies were selected. The actual replies to the questionnaire were a blend of factual and judgemental. Anonymity of reply was considered essential to a good response rate and so individual replies could not be checked for factual accuracy. However, subsequent cross-checking of responses against industry and category norms supported the broad representativeness of the sample. Identification et
of generic marketing
Following the approach al. (1986) hierarchical
strategy
adopted by Doyle clustering using
G.J. Hooky et 01. / Generic markemg
Ward’s method was employed to look for generic marketing strategies. The technique searches for clusters of objects (strategies in this case) which retain a reasonable degree of internal homogeneity while exhibiting a high level of external heterogeneity. Five main marketing strategy components were used in the clustering process (see O’Shaughnessy, 1984). These had been explored in the preliminary, depth interviews, and were considered by respondents to be relevant indicators of marketing strategy. Each is discussed briefly below: Marketing
struregies
77
reduction. Although these are not always mutually exclusive, the exploratory interviews revealed that managers did consider them as alternative options while recognizing, for example, that an additional benefit which may arise from winning market share may be lower costs. Again it might be expected that market expansion as a focus is best suited to growth markets, market share to mature markets (where any gains in sales will, by definition, come at the expense of competitors) and cost reduction/ productivity improvements to declining markets (as part of harvesting strategies).
objecthles Market
Most textbooks on marketing (see, for example O’Shaughnessy, 1984) stress that the starting point for strategy development is to clearly define objectives. Three types of marketing objectives were considered: defensive (defend, hold position or prevent decline); steady sales growth; and aggressive sales growth or market domination. Doyle et al. (1986) showed stark differences in their matched sample between Japanese and British marketing objectives, the former being mainly aggressive and the latter mainly defensive. This was, perhaps, hardly surprising given that the research was conducted in the British market where the Japanese firms were, by definition, attacking markets once dominated by the UK companies. Further, across stage of product life cycle it might be expected that the more aggressive objectives would be pursued in growth markets (see Doyle, 1976) while defensive strategies could be more suited to mature or declining markets. Strategic focus Having set objectives, the focus for achieving them needs to be decided. Three main foci are common: expand the market; win market share; focus on productivity and cost
targeting
To implement the focus, marketers can aim at the whole market, selected target segments or at individual customers. It is to be expected that the choice of appropriate targeting will be most closely related to the diversity of customer wants and needs. In homogeneous markets where most customers want essentially the same products and services, whole market targeting might be more likely -while in segmented or fragmented markets more selective targeting could be expected. Quality positioning Having chosen its market targets, the company then decides on its competitive positioning. Quality can be pitched higher, the same or lower than the competition. In more rapidly changing markets, especially where technology is changing rapidly, we might expect higher quality positions to be adopted. In these markets, quality is often associated with technological advance by customers. In declining, slowly changing markets, however, only average quality may be pursued in order to keep costs down. While recent research (e.g. Phillips et al., 1983) has shown that high quality need not mean high costs (indeed in
G.J. Hooley Ed al. / Generic marketing strategies
78
some industries a higher level of quality can itself result in lower costs, through lower wastage and fewer returns) for many companies quality and costs represent a trade-off decision. As noted above, customer perceived quality is often an indicator of degree of differentiation achieved in the market place.
mature markets where product standardised.
Clustering
quality has
on strategies
Each of the five original strategy variables listed above was classified into three dummy (0, 1) variables resulting in a total of fifteen strategy variables for the cluster analysis. This was necessary as the options under each question could not be considered an interval scale. Using Ward’s method of hierarchical clustering on SPSSX Release 3.1 five main strategy clusters were identified and are presented in Table 1. It should be noted that underlying the use of cluster analysis here to identify generic marketing strategies are a number of key assumptions:
Price positioning As with quality, price can be pitched above, the same as or below that of the competition. While in most (but not all) markets a low price, other things being equal, is likely to be most successful in market terms (sales volume and share of market) the combination of price and quality is crucial to financial performance. We might, for example, expect low relative prices to be most successful in
Table1 Generic
marketing
strategies GMS2 (172)
GMS3 (167)
17%
15% 68%
13% 68%
t128
17%
39% 54%
GMSl
(113) Marketing ohjectil.es Defend/prevent decline Steady sales growth Aggressive sales growth or market domination Strategic focus Expand the market Win market share Cost reduction/productivity improvement Marketing targeting Whole market Selected segments Individual customers
I%
GMS4 (78)
GMS5 (86)
4% 92%
89% 4%
199
4%
7%
40% 47%
25% 61%
48% 4 1s
17% 12%
,$ = 148 V = 0.000 1
6%
13%
148
11%
71%
V = 0.36
48% 27% 24%
18% 59% 22%
5% 619 34%
0% 67% 32%
20% 21% 51%
x’= 156 (T = 0.0001 V = 0.30
79% 18% 3%
1% 98% 2%
100%
44% S5% 3%
xX=323 (T = 0.0001 V = 0.52
88% 0% 13%
5% 89% 7 $2
0% 100% 0%
5% 79% 17%
,$ = 444 (r = 0.0001 V= 0.61
Co,?lprlilil’e pusirio??i&q a. Quality relative to major competitors Higher 69% 29% The same Lower 3% b. Price relative to major competitors 15% Higher The same 62% 23% Lower
0 c;> 0%
x2=420 I7 = 0.000 1 l’= 0.61
G.J. Hooley et al. / Generic marketing strategies
(a) First, the analysis assumes that the five original strategy variables are uncorrelated with each other. Each are treated as independent of one another. Cross-tabulation and chi-square tests were used to test this assumption and no significant relationships were found. (b) Second, the analysis assumes that each variable is of equal importance or weight in strategy determination. This assumption is clearly debatable. It might be argued, for example, that the setting of objectives is the starting point of strategy (as most leading textbooks on strategy do), and hence should receive greater weight than focus, targets or positioning. Others might argue that the positioning options open to a company (through its derived cost structure and its technical ability) dictate, in turn, the objectives open to it. In the preliminary interviews we found instances of both. approaches. Our approach was, therefore, not to assume a hierarchy of strategy formulation but to examine simultaneously and equally weighted all five main factors that emerged from the literature and the preliminary interviews. Had the factors been weighted it is possible that a different structure could have emerged. In the absence, however, of any theoretical or empirical grounds to justify a weighting scheme we are confident that .the method adopted has resulted in statistically sound and operationally useful clusters. Further research might usefully be addressed at deriving, theoretically and empirically, weights for strategy variables. (c) Third, all five variables are assumed to be useful in creating and differentiating between generic strategies. This assumption is, in fact, a subset of assumption (b) above where some might argue that one or more variables should have a weight of zero. It is clear from the values of Cramer’s V in Table 1 that objectives and positioning variables were more powerful in forming the strategy clusters than were focus and targeting.
79
Equally, however, the two latter variables did contribute significantly to cluster definition and without their contribution the high predictive ability of the model (reported as the second test for cluster clarity below) would have been significantly reduced. We conclude that all five are useful as determinants and descriptors of generic marketing strategy. (d) Fourth, the analysis assumes that five strategy variables are sufficient in distinguishing generic marketing strategies: Many other variables could have been included in the analysis (e.g. competitive advantage pursued, advertising and promotions strategy, distribution strategy etc). The inclusion of further strategy variables would have had the effect of producing fragmentation of the strategic groups and, indeed, resulted in groups that would have their strategies highly specifically defined. Problems again, however, would have resided in which variables to include and what weight to give them (clearly with a more extended set of strategy variables the weighting issue becomes increasingly critical). Our limitation of the analysis to the five key variables reported above does, we believe, focus on the essence of generic differences between strategies. Within each generic strategy we would expect differences in implementation (viz. competitive advantage pursued, advertising, promotion etc.) to exist. While we are, therefore, confident that the five strategy variables used are both necessary and sufficient there is clearly scope for further research to extend, reduce, supplant or weight the marketing strategy components. A notorious problem in cluster analysis (see Saunders, 1980) is deciding on how many clusters are needed to adequately describe both the diversity and the similarity in a population. Textbook application of the method of looking for “elbows” in the scree diagram failed to identify a single best solu-
tion. Judgement was, therefore, employed in selecting an appropriate solution. In this case the 4, 5 and 6 cluster solutions were each examined both for their clarity of cluster descriptions and their practical applicability. The 6 cluster solution resulted in the further splitting of a small cluster into two very similar smaller clusters. For practical purposes these two smaller clusters were adopting virtually indistinguishable strategies. The 4 cluster solution, however, resulted in the merging of two quite distinct clusters and the loss of cluster clarity. The 5 cluster solution, therefore, appeared the most useful classification. The clarity of the clusters was tested in two ways. First using chi-square and Cramer’s V. Table 1 shows that the five clusters were very distinct across the original five strategy variables. The Cramer’s I/ statistics in particular show a very strong association between strategy clusters and the original strategy variables. A second test for cluster clarity was made using discriminant analysis. A discriminant model was built from a random half of the sample and then used to predict cluster membership for the remaining half. The discriminant model successfully predicted 86% of cases used to build it and 83% of non-included.cases adding confidence to the quality of the solution adopted. The five strategies are described below: GMSl -Aggressive growth objectives through high value positioning
GMSl involves aggressive or market domination goals (82%) often through market share gain (54%) or total market expansion (39%). The modal targeting approach is to aim at the whole market (48%) although targeting selected segments (27%) and individual customers (24%) is also practised. Typically positioning involves the marketing of high quality products (69%) at similar
prices (62%). Clearly this is a differentiation strategy (Porter, 1985) pursuing Kotler’s (1991) “high value” price/quality strategy. GMS2--Steady sales growth through selective targeting and premium positioning
Under GMS2, a high proportion of companies seek steady sales growth (68%) either through market share gain (47%) or market expansion (40%). Selected segments (59%) are targeted through higher quality products (79%) at higher prices (88%) than competitors (“premium” price/quality positioning). This strategy resembles the focused differentiation strategy of Porter (1985). GMS3-Steady sales growth through selective targeting and average positioning
Steady sales growth (68%) goals are pursued through a focus on market share (61%) by concentrating on selected segments of the market (61%) or individual customers (34%). The positioning adopted is average quality (98%) at average prices (89%) (“average” price/ quality positioning). Of the strategies identified (but not recommended) by Porter (1985) this most closely resembles “stuck in the middle” as no advantage either through quality differentiation or low costs is created. GMS4-Steady sales growth through selective targeting with high quality products
GMS4 has a clear objective of steady growth (92%) with a focus on total market expansion (48%) or winning market share (41%) by targeting selected segments (67%) or individuals (32%). In these respects it is similar to GMS2 and GMS3. In the positioning adopted, however (higher quality (loo%), same prices (loo%)), it is more closely related to GMSl (“high value” positioning). This positioning was the clearest of any of the strategies examined. The high quality
G.J. Hooley et al. / Generic markehqy
stance to selected. targets again resembles the focused differentiation strategy of Porter (19851, but not charging the premium price that would normally be associated with the strategy as a value signal. GMSS-Defensive duction ment
objectives through cost reand productivity improve-
The final strategy identified was primarily defensive in nature (89%), achieved through a focus on cost reduction and productivity improvement (71%). Most often this strategy was geared to very selective targeting of individual customers (51%) with similar (53%) or higher (44%) quality at similar (79%) prices (“average” to “high-value” positioning). This strategy is similar to that of focused cost leadership (Porter, 1985). It should be noted that, with the notable exception of GMSl, the strategies identified typically involved a high degree of focus (on selected market segments or on individual customers). Few respondents were adopting a market wide strategy. This was to be expected as the sample comprised single business companies who, by definition, tended to be small or medium sized operations. For these companies, focusing may be essential if competing against larger companies. The market wide strategies are most likely to be pursued by large companies.
Generic marketing strategies and market type
In order to further understand the application of these generic marketing strategies respondents were asked to indicate the nature of the market in which the business operates. Thus measurements of market growth rate, diversity of customer wants and needs, the degree to which customer require-
srrategres
XI
ments were changing, the speed of technological change were taken. Respondents were asked to indicate which of three statements was closest to describing their market. For example for technological change the three change is responses were “technological rapid”, “technological change is slow” and “there is no change in technology”. Each possible response was treated as a dummy variable and used in a stepwise discriminant analysis using Wilks method and default entry and exit criteria (Norusis, 1988). Ten variables entered the model, which is given in Table 2. As Table 2a shows, two functions account for 87% of variance and consequently these will be used to identify market factors which are most useful in discriminating between strategies. The pooled within group correlations given in Table 2b indicate that function 1 is primarily concerned with intense competition while function 2 is mainly described by fluid competitive structure, new and growing markets, mature and stable markets and rapid change in customer requirements. Since these variables are most useful in discriminating between strategies, the percentage of companies reporting operating in these environments are given in Table 3. A basic proposition of the product life cycle model is that different strategies will be more appropriate at different stages of market maturity (Doyle, 1976; Kotler, 1991). In this case strong differences were found in the deployment of the five strategies over the different stages. As expected the most aggressive growth oriented strategy, GMSl, was most adopted in new and growing markets. Also heavily employed in these growing markets was GMS4, the steady growth, highly focused strategy with high quality positioning. The common denominator of these two strategies is the positioning adopted-high quality at average prices. This high-value positioning may be used as a powerful incentive to expand the whole market.
82
G.J. Hooley et al. / Generic marketing strategies
Table 2 Discriminant
analysis:
Generic
marketing
strategy
and market
type ten variables
entered
the model
a. Standardised canonical discriminant funcrion coefficients Market a. b. c. d. e. f. g. h. i. j.
type
Function
Intense competition New and growing Weak competition No competition Consumer markets Mature and stable Fluid competitive structure Industrial markets Rapid change in customer requirements No technological change
Percent
of variance
Market
tvpe
Function
I
0.53 * 0.39
22%
11%
2%
l,ariables and canonical discriminant
Function
- 0.22
- 0.07
j
-0.17
GMSl GMS2 GMS3 GMS4 GMSS
*
0.69 * 0.18 -0.50
*
0.15
1
2
strategy
and market
Function
- 0.38 0.09 0.28 -0.19 - 0.05
The other two steady growth strategies, GMS2 and GMS3, were both often found in mature and stable markets. These strategies Table 3 Marketing
Function
3
4
- 0.34 0.09 0.52 * - 0.07
0.10 -0.31 0.18 0.09 0.24 0.59 *
at group means
Function
0.23 0.11 0.15 0.22 - 1.01
Function
3
0.05 0.22 -0.12 - 0.28 - 0.02
4
- 0.08 0.05 - 0.05 0.12 0.00
differ in the positioning adopted (the former being premium, the latter average) but they share a common clear focus on gains through
type GMSl
GMS2
GMS3
GMS4
GMSS
60% 28%
40% 46%
37% 49%
56% 33%
30% 43%
35%
25%
23%
29%
18%
39%
30%
23%
35%
31%
Market growth New and growing Mature and stable Comperitive structure
Fluid Speed of change in customer needs
Rapid
4
functions
-0.18 - 0.20 0.05 0.34 * 0.54 * 0.05 0.14 0.28 * 0.14 -0.31
0.01
discriminant functions eramated
Function
Function
*
-0.33
0.09
c. Canonical
2
0.36
d e f
0.04
Function
65%
- 0.29
-0.12
3
0.01 0.43 0.49 -0.10 0.23 0.50 - 0.35 0.27 0.33 0.64
-0.71
0.25
Function -0.12 -0.14 0.03 0.40 0.91 0.01 0.07 0.73 0.17 - 0.33
-0.14 0.23
2
0.62 - 0.42 0.21 0.09 0.06 0.31 - 0.28 0.10 - 0.40 0.14
C
g h i
Function
1.69 0.62 1.26 0.44 0.24 0.38 0.22 - 0.02 -0.13 -0.15
b. Pooled within group correlations between discriminating
a b
1
G.J. Hooley et al. / Generic marketing strategies
market share improvements (especially GMS3) as would be expected in maturity, and a targeting on selected market segments. PLC theory suggests that more mature markets are likely to be more segmented, hence the need for clearer targeting at this stage of the life cycle (Doyle, 1976). Other distinctions between market environment and strategy are revealed by this analysis. GMSl clearly tends to be associated with markets in which competitive structure is fluid (35%) and speed of change in customer needs is rapid (39%). GMS4 also (although to a slightly lesser extent) has a similar profile. However, GMSS is much less likely to be found in industries with fluid competitive structures. This suggests that a defensive cost reduction posture is more likely to exist in more stable competitive environments.
Generic marketing attitudes
strategy
and
corporate
Discriminant analysis was again used to determine those corporate attitudes which best distinguished between marketing strategies. Respondents indicated their corporate attitudes towards strategic priorities over the last/next five years, new product development, risk taking, competition, the role of marketing over the last five years, and the role of marketing in strategic marketing planning. They were asked to indicate which of a number of statements (normally three) best represented their company’s attitude towards these issues. For example regarding competition, respondents could choose between “ignore it”, “take on any” and “avoid it”. Fourteen variables entered the model. These are displayed in Table 4. Two functions accounted for 89% of variance (see Table 4a) and will be used to identify significant variables. Function 1 is largely de-
83
scribed by the variables “take on any competition” and “marketing has no role in strategic planning”. Function 2 is associated with “lead the market with new product development”, “avoid competition”, “ignore competition”, “take moderate risks”, “imitate in new product development” and “major role for marketing in strategic planning”. Thus attitudes towards new product development, marketing’s role in strategic planning and competitive stance are the major discriminators between generic marketing strategies. The percentage responses are shown in Table 5. This table clearly reveals the variation in attitudes which underpin the five generic marketing strategies. It was clear that the companies adopting the most aggressive marketing strategy (GMSl) also adopted the most pro-active approach to new product development, rarely being prepared to follow competitors, more often developing new products to lead their markets. In contrast, the companies operating the “stuck-in-the-middle” strategy (GMS3) and the defensive cost-cutting strategy (GMSS) were most likely to adopt a competitor imitation posture. In parallel with these findings GMSl was associated with the highest percentage of companies reporting that marketing played a major role in strategic planning while companies in the GMS3 and GMSS clusters reported the lowest percentages. Analysis of attitudes towards competition revealed that predictably the most aggressive marketers with the widest market targeting (GMSl) were most prepared to take on any competition (73%). Companies adopting the most clearly targeted strategies (GMS3, GMS4 and GMSS) were more likely to avoid competition if possible. This suggests that for many of the companies aiming at tightly focused segments of the market, a major reason for this may be to avoid competition, in addition to utilising the company’s strengths to the best effect.
84
Generic mance
G.J. Hooley et al. / Generic marketing strategies
marketing
strategies
and
perfor-
respondents also reported performance improvement over the last financial year and relative to major competitors. In both cases the criteria used were profit, ROI, sales and market share. Although not ideal, self-reported measures were used because of the impossibility of obtaining hard data across these measures and for such a large number
A number of self-reported performance measures were used in this study covering both financial and marketing based criteria. Absolute performance was measured by average ROI and profit margin percentages; Table 4 Discriminant
analysis:
Generic
marketing
strategy
and corporate
attitudes
a. Standard canonical discriminant function coefficients Corporate
attitude
Function
a. NPD to lead the market b. Take on any competition c. Avoid competition d. Ignore competition e. Last five year’s priorities good short run profits f. No change in the role of marketing over the last five years g. Marketing has no role in strategic planning h. Take moderate risks i. Imitate in NPD j. High risk, high return k. Major role for marketing in planning I. Last five years priorities long run market position m.Next five years priorities short term profits n. Marketing less important than five years ago Percentage
attitude
between discriminating Function
a b :
f” g h i j k
1 m n c. Canonical
2
Function 0.20 -0.11 0.29 0.08 1.14 0.25 0.00 - 0.44 -0.21 - 0.80 - 0.02 1.54 - 0.22 1.23
62%
27%
7%
3
Function 0.91 - 0.46 - 0.58 -0.18 0.71 0.57 0.14 0.04 0.80 - 0.03 0.05 0.39 - 0.25 0.16 4%
cariables and canonical discriminant functions Function
2
Function
0.26 0.33 * 0.06 0.01
-0.53 * - 0.22 -0.29 0.51 **
0.28 - 0.32 0.06 0.32
- 0.11 0.24 -0.34 * 0.06 - 0.02 0.09 0.22 - 0.03 - 0.26 - 0.03
0.27 0.25 0.16 0.38 * 0.42 * -0.32 -0.35 * - 0.25 - 0.06 0.18
-0.41 0.25 - 0.04 0.09 - 0.35 -0.37 - 0.09 0.50 -0.28 0.23
3
Function
4
0.33 0.04 - 0.06 0.20
*
* * * *
0.24 * 0.40 0.05 - 0.07 0.27 0.06 0.06 -0.19 -0.11 0.16
discriminant functions ecaluated at group means Function
GMSl GMS2 GMS3 GMS4 GMS5
1
Function - 0.37 0.13 0.57 - 0.20 0.69 0.20 0.04 0.46 0.13 0.16 - 0.29 0.41 - 0.34 0.25
of variance
b. Pooled within group correlations Corporate
1
0.21 1.66 1.38 1.02 0.89 -0.13 - 0.23 0.22 0.09 0.18 0.06 0.64 - 0.38 0.02
- 0.23 0.17 0.22 0.23 - 1.28
1
Function - 0.49 -0.19 0.47 0.10 0.01
2
Function -0.20 0.11 -0.13 0.34 -0.01
3
Function -0.12 0.17 0.01 -0.21 - 0.01
4
4
85
G.J. Hooley et al. / Generic marketing strategies
Table 5 Marketing
strategy
and corporate
attitudes GMS2
GMQ
GMS4
GMSS
Approach to new product del,elopment 16% lmttate competitors 69% Lead the market
20% 67%
34% 44%
18% 59%
24% 39%
Role of marketing in strategic planning 4% None 50% Major
6% 44%
9% 34%
6% 37%
21% 25%
14% 73% 14%
12% 65% 23%
6% 60% 35%
9% 56% 35%
10% 53% 37%
53%
59%
71%
68%
59%
GMSl
Approach to competition Ignores it
Takes on any Avoid it Approach to taking risks Moderate risks
of companies. We recognise that such unsubstantiated measures should be used with caution. Self-reported measures have, however, been effectively used in a number of recent Table 6 Discriminant
analysis:
Generic
marketing
strategy
studies (e.g. Anderson and Zeithaml, 1984; Douglas and Rhee, 1989; Hambrick, 1983). Discriminant analysis was once again used to determine the performance measures that
and performance
a. Standardised canonical discriminant function coefficients Performance
measure
Function
a. Better
sales than major competitors b. Better sales than last year c. Better market share than last year d. Better profit than competitors e. Better profit than last year f. Better market share than competitors Percent
of variance
1
*
Function
0.76 0.06 0.37 0.01 0.22 - 0.06
- 0.53 0.73 0.00 - 0.62 - 0.08 0.61
75%
17%
2
Function
-
3
Function
0.49 -0.16 0.33 - 0.26 0.71 - 1.05
- 0.34 0.65 0.25 0.79 - 0.44 - 0.49
6%
2%
b. Pooled within group correlations between discriminating cariables and canonical discriminant functions Performance
measure
Function
1
Function
: fi
0.88 * 0.46 0.43 0.71 *
-0.19 0.66 * -0.56 0.26 *
;
0.71 * 0.37
0.11 0.13
2
Function
3
Function
- 0.27 0.13 - 0.27 0.07
-0.18 0.49 0.51 0.27
- 0.62 0.59 *
- 0.07 0.25
c. Canonical discriminant functions evaluated at group means Function GMSl GMS2 GMS3 GMS4 GMSS
0.47 0.16 -0.13 -0.18 -0.52
1
Function 0.09 -0.18 0.09 0.22 -0.13
2
Function -0.11 0.07 0.01 0.11 -0.12
3
Function - 0.02 0.00 0.07 - 0.08 - 0.04
4
4
4
G.J. Hooley et al. / Generic marketing strategies
86
were most useful in distinguishing between strategies. Table 6a shows that six variables entered the model and that the first two functions accounted for 92% of variance. Table 6b indicates that three marketing measures adequately describe function l-better sales than competitors, better market share than last year and better market share than competitors. Function 2 is described by better sales than last year and better profit than competitors. Thus marketing variables (4) are more effective in discriminating between the performance of the five generic marketing strategies than financial criteria (1). In particular, absolute financial performance indicators were poor discriminators. The percentage of companies in each strategic type indicating better performance under each of the five performance criteria is given in Table 7. Across all five criteria the aggressive strategy (GMSl) performed best with the highest percentage of companies reporting better performance. These results must be tempered, however, with the knowledge that GMSl is very often .applied in growth markets where sales growth opportunities are presumably higher. The worst performing strategy on all but one criteria was GMSS, the defensive strategy. While it is unfair to expect an increase in sales or share under this strategy as these goals were not pursued, it might have been expected that the cost reduction and productivity focus chosen would have had a more positive impact on profit. The worst financial
performance compared to competitors was reported under GMS4. This also is to be expected since GMS4 involves offering high quality products at average prices. However, we might have expected better marketing performance to have resulted. Overall, the most aggressive strategy (GMSl) seems most successful followed by the less aggressive, more focused growthorientated strategy GMS2, which was second on four out of the five performance criteria. The least successful strategy overall was the defensive GMSS.
Summary and conclusions
Five clear generic marketing strategies have been identified that differ across five key strategic dimensions of objectives, focus, targeting, quality and price positioning. A summary of the nature of these typologies and their correlates is given in Table 8. This typology extends the work by Porter (1980, 1985) and Miles and Snow (1978) by focusing on a wide range of marketing variables and by being more representative in that the data were gathered from a large cross-industry sample of (albeit single) business units. This has produced a richer tapestry of marketing strategies employed by businesses than hitherto and has provided some evidence of their relative performance profiles. Interestingly these strategies resemble (but do not equate to) the Porter (1980) strategies of market
Table 7 Performance by generic marketing strategy GMSl
GMS2
GMS3
GMS4
GMSS
62% 44%
65% 38%
65% 36%
47% 20%
39% 39% 31%
29% 25% 24%
19% 22% 22%
26% 14% 15%
Performance improcement ocer last financial year
Better sales Better market share
75% 57%
Performance relatice to major competitors
Better profit Better sales Better market share
40% 51% 47%
G.J. Hooley et al. / Generic marketing
wide differentiation, focused differentiation (through different positioning& stuck-inthe-middle and focused cost leadership. No market-wide cost leadership strategy emerged from the analysis, perhaps as a result of sampling smaller, single business companies. Furthermore the distinction between industry-wide and focused differentiation was not totally clear with both approaches being used in almost identical numbers in GMSl. Two of the strategies also possessed some characteristics of Miles and Snow’s (1978) prospector and defender categories. Based upon their work prospectors are pro-active, creating change and uncertainty to which competitors must respond; they are pioneers offering a frequently changing product line
Table 8 Key dimensions
of the five generic
marketing
87
strategies
and seeking new market opportunities. The aggressive growth strategy (GMSl) which is associated with expanding markets, a pro-active stance in new product development and placing a high degree of emphasis on marketing would appear to resemble this type. Furthermore, their defenders tended to emphasize efficient products and strong financial controls and conduct very little new product-development, characteristics which clearly resemble GM%. However, the characteristics of their analyses and reactor categories find no close parallels within our strategies GMS2, GMS3 or GMS4. This suggests that, from a marketing perspective, strategic nuances should take account of positioning strategy, competitive advantage and
strategies
GMSl
GMS2
GMS3
GMS4
GMS.5
Name
Aggressors
Premium pos. segmenters
Stuck-inthe-middlers
High value segmenters
Defenders
Strategic objective
Aggressive sales growth/domination
Steady sales growth
Steady sales growth
Steady sales growth
Defend/ prevent/decline
Strategic focus
Win share/ expand market
Win share expand market
Win share
Win share/ expand market
Cost reduction/ productivity improvement
Market targeting
Whole market
Selected segments
Selected segments
Selected segments
Individual customers
Competitive positioning
Higher quality/ same price
Higher quality/ higher price
Same quality/ same price
Higher quality/ same price
Same or higher quality/same price
Market
New. growing; fluid competition: rapid change in customer needs
Mature stable
Mature stable
New, growing
Mature stable
Pro-active NPD; marketing important; take on any competition;
Pro-active NPD; marketing important; take on any competition
Imitate/lead in NPD; take on/ avoid competition
Pro-active
Follower in NPD; marketing of limited importance; take on/avoid competition
Best across financial and marketing based criteria
Good across most criteria
Mediocre
type
Corporate attitudes
Performance
and
and
take on/ avoid competition
Mediocre, esp. on profit criterion
NPD;
and
Worst performance overall
88
G.J. Hooley et al. / Generic marketing strategies
type of market served-all factors which successfully distinguished the marketing approaches taken in our sample of firms but were not measured in the Miles and Snow (1978) study. This study is the first to investigate the association between marketing strategy and underlying corporate attitudes. Attitudes towards new product development, marketing’s role in strategic planning, competition and risk taking were useful in discriminating between generic marketing strategies. There clearly exist wide variations in the attitudes of managers towards marketing’s role in corporate affairs. It is worthy of note that the clusters which exhibited the most positive attitudes towards marketing (GMSl and GMS2) also recorded the best performance. The findings also provide additional evidence regarding the inadequacy of traditional theories of the market structure-conduct-performance link which argue that conduct (strategy) options are often dictated by industry structure. While Table 3 showed clear association between conduct and industry structure it should be noted that each of the strategies was found in a wide variety of industrial environments. The generic marketing strategies were distinguished along five performance criteria and further analysis clearly identified the differences in performance. These results supplement the growing list of studies (e.g. Douglas and Rhee, 1980; McKee et al., 1989) which suggest that strategy is a key moderating variable affecting performance and should be central to any specification of causal linkages. Beyond these substantive contributions, the research had methodological implications also. First the ability of “performance relative to competitors” to discriminate between strategies despite its, perhaps, crude usage in our study, and the cross-industry failure of absolute measures suggests that future studies should include the former type of criteria. The tendency has been for abso-
lute measyres to predominate (not without success, viz. Douglas and Rhee, 1989), but these findings suggest that tighter relational criteria may produce greater discriminatory power. Second, the findings suggest that the Miles and Snow typology may be too broad to distinguish between all of the major strategic types which can occur in cross-industry studies. Researchers should be aware that their categories may not capture important differences in marketing behaviour identified by this research. Finally, the limitations of this study should be stated. By analysing single business firms, our findings cannot be generalized across the whole of UK industry. Nevertheless, a wider range of industries and environments than in most previous studies were captured by our research method. Second, the cross-sectional nature of our data makes the determination of causation hazardous. This limitation is mitigated to some extent by the fact that Miles and Snow (1978) found their strategy types to be relatively enduring orientations. This suggests that strategy is not a function of performance variations. Nevertheless, there is clear case for longitudinal studies to confirm the strategy-performance link.
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