The paper “ Strategy for Waterstones - Strategic Direction of Market Penetration” is a spectacular example of a case study on management. In order to make a choice of strategic position for Waterstones, it is important to start by using the Generic strategies framework to identify the current strategy used by Waterstones. According to Manktelow (2013), Porter’ s Generic strategies include; Cost Leadership strategy, Differentiation Strategy, Cost Focus strategy, and Differentiation Focus strategy. Figure 1 below shows Porter’ s generic strategies, model. A company is said to be using the Cost Leadership strategy if it attempts to be the lowest-cost producer in the industry.
Such a company is usually keen on ensuring cost reduction throughout its value chain but it doesn’ t imply that its product prices will below. In an industry with essentially undifferentiated products, a company with the lowest costs is able to make the highest profits. However, the company using the cost leadership strategy may decide to charge average prices hence plow back the extra profits into the business, (Lynch, 2003: 649). A company is said to be using differentiation strategy if the company provides better product performance and better service levels among other product differences in the market that enable the company to charge a premium price for its products.
However, although there are many benefits associated with a differentiation strategy, such companies have to incur extra costs to be able to implement high advertising budgets needed to promote the differentiated brands. The firm may not be sure if the use of premium pricing would help recover the extra costs of differentiation. Again, if a firm succeeds to implement a differentiation strategy, competitors may be attracted to enter the market segment and replicate the differentiated product (Lynch, 2003:). The third Generic strategy is the Focus strategy which is actually a moderator of the first two above (cost leadership strategy & differentiation strategy).
A company that uses a Focus strategy seeks to gain a competitive advantage only in its target market. Therefore, a company may either aim to gain a cost advantage in its target segment thus use the cost focus strategy; or may aim to gain differentiation advantage in its target segment thus use differentiation focus strategy, (Manktelow, 2013). There are some companies that may make use of more than one generic strategy.
In other words, such a company is stuck in the middle according to Porter (1980: 34-44). As such Porter (1980: 34-44) argues that such a company lacks a competitive advantage hence ends up with poor financial results. Figure 1: Porter’ s Generic strategies model. Source: http: //www. mindtools. com/pages/article/newSTR_82.htm Waterstones, therefore, uses differentiation strategy as the source of a competitive advantage which is characterized by premium pricing of the company products. Although the current strategy is working well for Waterstones in the bookselling industry, there is a need for Waterstones to change the strategy because of the changing nature of competition in the bookselling industry (Patel, 2013).
I suggest, therefore, that Waterstones adopts the market penetration strategy in Ansoff’ s matrix framework as the new source of competitive advantage. The new strategic positioning will help Waterstones to progress from its current positioning and rebrand as traditional, reputable and reliable Waterstones that focus on more personalized customer service and stronger relationships with consumers, (Wheat & Richardson, 2014).