Strategy Formulation:

Long Term Goals

CHAPTER 6
 INTRODUCTION

➢ Strategy is about positioning the organisation for long-term competitive advantage.

➢ The primary aim of strategy is to create value for customers and shareholders.
➢ Managers making decisions as which markets in which to participate
➢ Developing a strategy is hard work – it is a creative act.
➢ Create value for shareholders and stakeholders
➢ Economic value that translates into competitive advantage
- Based on the perceived value (V) organisations create for consumers and what
they are prepared to pay for product or service
- Total cost to the organization for the product or service (C) and creating that value
of the product
- The greater the economic value, the greater the chance of the competitive
advantage
 Strategic Profile
➢ Setting a strategic position which will not only meet a customer’s needs but
also create a large gap between the (perceived) value (V) of the of the
product and the cost (C) of making the product
➢ Does an organisation perform their activities differently or perform different
activities?
➢ Select a clear position as a differentiator or a low cost leader

Brand differentiator is a unique feature, aspect, and/or benefit of your product

or service that sets it apart from competing brand
- How organisation establishes competitive advantage.
Low cost leader involves the organisation winning market share by appealing
to cost-conscious or price-sensitive customers.
- This is achieved by having the lowest prices in the target market segment,
Figure 6.1 Strategic goals and associated strategies in context
 LONG-TERM GOALS
➢ An organisation’s business-level strategy determines its strategic position.
➢ To position itself differently from competitors, an organisation must decide
whether it intends to perform activities differently or to perform different
activities.
➢ Long-term goals are determined in line with the organisation’s vision.
➢ Policies: rules/guidelines that express the limits within each action resulting
from a short-term objective.
➢ Goals should be clear, realistic and decisive to ensure a concerted and
coordinated effort by all organisational units.
➢ Long-term and short-term goals need to comply with specific requirements to
make them clear to all in the organisation.

https://www.citizen.co.za/business/shoprite-enters-clothing-market-its-not-prices-you-would-expect/ [31 March

2023
 LONG-TERM GOALS ‒ CONSIDERATIONS
• Several considerations need to be made:
• Are all efforts directed at clearly understood, decisive and attainable overall
objectives?
• Specific objectives of subordinate units may change in the heat of campaigns or
competition.
• If the objectives are to be achieved, they should ensure the continued viability and
vitality of the entity.
• Objectives should be measurable and indicate a time frame.
• Objectives should also be consistent and congruent across organisational units.

The Shoprite Group's goal is to provide all communities in Africa with food and household
items in a first-world shopping environment, at the lowest prices.

Table 6.1 Difference between long term strategic goals and short term tactical goals
 COMPETITIVE ADVANTAGE
• Competitive advantage distinguishes an organisation from its competitors.
• It is achieved through distinctive competencies (special capabilities, technologies
or resources) that competitors will not be able to copy readily.
• Competitive advantage should fulfil certain criteria:
– Relate to an attribute that has value and relevance for customers
– Be perceived by the customer as a competitive advantage
– Be sustainable
Table 6.2: Examples of capabilities (page 168)

R35 per delivery to customers who order through the Sixty60

app.
 GENERIC COMPETITIVE STRATEGIES

➢ Generic strategies provide focus and direct organisational activities.

➢ These strategies combine the organisation’s “scope of operations” and
competitive advantage to derive three generic types of competitive
strategy.
➢ Generic strategies for achieving competitive advantage:

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– Cost leadership
– Differentiation
– Focus Porter’s generic strategies
– Best-cost
 COST LEADERSHIP
➢ Organisations that pursue cost leadership aim to sell a product or service that
appeals to a broad target market.
➢ Products or services are
– highly standardised
– not customised.
➢ Two ways to accomplish a cost advantage:
– Out-manage rivals with efficient value chain
activities.
– Revamp the organisation’s overall value chain to eliminate or bypass some
cost-producing activities.
➢ Organisations need to achieve a cost advantage. How do you accomplish this?
 COST LEADERSHIP

When is cost leadership the best strategy to follow?

➢ The organisation has the ability to reduce costs across supply chain.
➢ Price competition among competitors is vigorous.
➢ The targeted customer is price sensitive.
➢ Competitive products are similar & degree of product standardisation.
➢ Brand loyalty does not play a big role among customers.
➢ Buyers have high bargaining power because of higher concentration.
➢ New entrants to the industry use low introductory prices to attract buyers.
➢ Buyers incur low switching costs.
➢ Sometimes organisations stand the risk of being overly aggressive
in their price cutting and end up with lower profitability.
➢ Value-creating activities that form the basis of this strategy can
often be imitated too easily.
➢ A degree of differentiation is often still needed.
 Advantages of cost leadership

➢ Potential to increase market share and profitability

➢ Customer loyalty
➢ Keeps new entrants from entering the market
 DIFFERENTIATION
• Consists of creating differences in the organisation’s product or service
offering by creating something that is perceived as unique and valued by
customers.
• Differentiation can take on many forms:
– Prestige or brand image (Apple iPhones)
– Technology ((LG electronic equipment)
– Innovation (Apple watches)
– Features (Apple products)
– Customer service (Investec Personal Banking)
– Product reliability (Johnson & Johnson baby products)
– A unique taste (Nando’s chicken)
– Speed and rapid response (Outsurance)
 DIFFERENTIATION STRATEGY
Distinguishing features of the differentiation strategy
Strategic target A broad cross section of the market
Basis of competitive Ability to offer buyers something
advantage attractively different
Product line Many product variations: emphasis on
differentiating features
Production emphasis Differentiating features buyers are willing
to pay for; product superiority
Marketing emphasis Flaunting differentiation features; charging
a premium price to cover the extra cost of
differentiating features
Key to sustaining the Constant innovation to stay ahead of
strategy imitative competitors
When is differentiation the best strategy to follow?
➢ Buyers’ preferences are diverse and varied.
➢ Fewer competitors follow a similar differentiation approach with less head-to-head
rivalry.
➢ There are many ways to differentiate the product or service and many buyers
perceive differences as having value.
➢ Technology changes frequently and competition often centres on changing product
features.
➢ Higher industry entry barriers result in greater demand for products and less price
sensitivity.
➢ The differentiated product or service can be designed so that it has wide appeal to
many market sectors.
➢ Brand loyalty exists.
➢ Durable source of uniqueness cannot be quickly or cheaply imitated by
competitors.
Focus Generic Strategy
➢ This strategy focuses on narrow competitive scope within the industry
➢ Based on cost leadership and based on differentiation
➢ The target market niche is large enough to be profitable and offers good growth
potential.
➢ It provides a way for a smaller organisation to avoid direct competition.
➢ It is viable for larger organisations to meet the specialised needs of the niche segment.
➢ The industry has a variety of potentially profitable market segments.
➢ Customers are willing to pay a high premium for the perceived value that they attach
to a differentiated (customised) product or service.
➢ Customers are brand loyal and are unlikely to shift their loyalty to a competing brand
regardless of the price they have to pay for the particular product or service.

Table 6.5
 Distinguishing features of a best-cost strategy
Strategic target Value-conscious buyers
Basis of competitive Ability to give customers more value for money
advantage
Product line Items with appealing attributes; assorted upscale
features
Production emphasis Upscale features and appealing attributes at lower cost
than rivals
Marketing emphasis Flaunt delivery of best value
Either deliver comparable features at a lower price than
rivals or else match rivals on price and proven better
features
Keys to sustaining the Unique expertise in simultaneously managing costs
strategy down while incorporating upscale features and
attributes
➢ Organisations that successfully integrate cost leadership and differentiation strategies find
their competitive advantages are often more difficult for competitors to imitate.
When best-cost is the best strategy to follow
➢ Customer demand, expectations and needs provide sufficient impetus for
investment in enhanced efficiencies and cost savings as well as differentiation.
➢ Competition is fierce and barriers to entry low.
➢ Customers are simultaneously price and quality sensitive.
➢ Mass customisation becomes a possibility because of advanced technological,
distribution and marketing capabilities.

See strategy in action 6.2 – Coca Cola Differentiates with Costa Coffee
(Toyota)
 Potential pitfalls of a best-cost strategy

➢ Organisations that fail to create both competitive advantages simultaneously

may end up with neither and become stuck in the middle.
➢ Organisations may underestimate the challenges and expenses associated with
providing low prices and differentiating at the same time.
➢ Organisations may miscalculate the sources of revenue in the industry and fail
to achieve expected profitability.
 CRITICISM AGAINST THE GENERIC STRATEGY
FRAMEWORK

➢ An organisation needs to be able to employ a successful hybrid

strategy without being stuck in the middle.
➢ Low-cost strategy does not in itself sell products.
➢ Price can sometimes be used to differentiate.
➢ More and more consumers are interested in value vs price and so
there is a need for organisations to find a balance in order to appeal
to the target market.
 STRATEGIES SHOULD ENHANCE COMPETITIVE
ADVANTAGE

➢Long-term goals set the direction the organisation should

follow to reach its future vision.
➢Long-term goals serve as the foundation for competitive
strategies.
➢Competitive generic strategies should enhance an
organisation’s competitive advantage and, as such serve, as
a vehicle for achieving long-term goals.
Case Study and Cohesion Case Study
Read with understanding and discuss in a group to enhance your
understanding.

• Case study: E-Learning and Higher Education

• Cohesion case study: Shoprite Checkers