1. Stanford GSB Sloan Program Stramgt 258 Strategy and Organization
8. The Spectrum of Competition and Niche Markets
Skil Corp

2. Industry Segments (Niches)
Preconditions:
Heterogeneity in market:
Customer preferences
Geographic markets
Not easy for firms to serve multiple niches:
Requires different capabilities or positional assets
Barriers due to reputation (legitimacy):
Some segments defined by what they are not (e.g. micro-breweries, green marketing approaches)
These constitute “mobility barriers.”
Niches not established by fiat or natural law
January 31, 2003
John Roberts

3. Niches as Outcome
Differentiation often reflects underlying differences in tastes among buyers.
It may also be the outcome of incumbents’ behavior.
E.g., Skil’s strategic shift made the power tool market into more of a set of niche markets relative to the previous situation, where there was more head-to-head competition.
January 31, 2003
John Roberts

4. Benefit of Niches
Want to be close to customers, but far from competitors
If not all firms can equally serve all consumers, niches make it possible to be close to some customers and sheltered from some competitors
January 31, 2003
John Roberts

5. Degree of Niche Overlap
Consumer preferences establish distinct categories:
Horizontal:
e.g. speed boats vs. sail boats
Vertical:
e.g. Rolex vs. Timex
Consumer’s “second choice” is a poor substitute
Requires firms to have distinct type of capability (e.g. operations) or positional (e.g. brand) advantage
January 31, 2003
John Roberts

6. Niches and Strategy Formation
Challenge:
Can we find/create a distinct and unfulfilled consumer preference?
Can we uniquely serve this demand given our capability and positional assets?
Will others let us have this niche?
Opportunity may also be constraint:
Spanning multiple niches can be difficult
Growth opportunities tied to the growth of the niche
January 31, 2003
John Roberts

7. Value Capture vs. Value Creation
The main premise of industry analysis is that the interests of an industry incumbent stand opposed to those of their customers and suppliers. E.g., the incumbent wants to get as high a price for what it sells and its customers want to lower the price.
However, incumbents and their exchange partners may often have common interests, which foster a less adversarial, partner-like mode of relationship.
January 31, 2003
John Roberts

8. Value Capture vs. Value Creation
In particular, in order for parties to an exchange to create more value, they often need to enter into a partnership with one another, which involves relationship-specific investments that reduce negotiating power on both sides.
Such partnerships generally require making credible commitments to withdraw from other exchanges and thus necessarily increase vulnerability and reduce power.
January 31, 2003
John Roberts

9. Strategy in a Strategic Context
Crafting a successful strategy requires that one understand and anticipate the strategies taken by competitors, buyers, and suppliers.
Skil’s new strategy worked because it reflected a deep understanding of both Black & Decker’s strategy and that of the hardware stores/home centers.
Put yourself in the other guy’s shoes.
January 31, 2003
John Roberts