Businesses and companies can’t avoid competitors and competition. It can happen at any time. They would take away your market share and database of customers. Even a small change in market share could greatly impact small businesses. Therefore, businesses should follow the defensive strategy to defend their market share.
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What is Defensive Strategy?
A defensive strategy is a marketing tool that management uses to defend their business from potential competitors. In other words, it’s a battleground where you have to fight and protect your market share by keeping your customers happy and stabilizing your profit.
You have to be familiar with the market in order to defend your business. You should also know when to expand your business in the new market. In simple words, we can say that a defensive strategy is about capitalizing on your strengths and competitive advantages to push the competitors.
Approaches to Defensive Strategy
The management follows two approaches of defensive strategy and they’re as follows;
The purpose of the active approach is to block the competitors that are planning to steal your market share. Here in the active approach, you increase the marketing and promotional activities of your product, cut down the price, and provide discounts to reduce the sales of your competitors.
The goal of passive is to stop the competitor from taking away your customers and market share. But it’s a bit relaxed approach. In the passive approach, you take these steps and they’re as follows;
- New Product Innovation. Your focus is on the development and launching of the new product so that you could win back the customers.
- Company Expansion. Here your focus is on enlarging your business and company into the new markets. The market expansion would attract and bring new customers.
- Reconnect with Old Customers. You contact and retarget your old customers in order to increase your sale.
Types of Defensive Strategies with examples
A joint venture is when two businesses and companies formally decide to cooperate in order to achieve certain common goals. The objectives of a joint venture may vary from business to business and market to market.
The purpose of a joint venture in the defensive strategy is to defeat the common competitor that is targeting both similar/dissimilar companies at the same time.
For example, Microsoft and General Electric started a joint venture by the name of “Caradigm” in 2011. Both of these companies shared their resources to develop a better technology; GE health technology and Microsoft healthcare intelligence product.
Retrenchment is also an aggressive strategy where you take a bold decision of reducing businesses’ operations and expenses. The retrenchment strategy helps businesses and companies in the defensive strategy in terms of cutting down the price and offering discounts and incentives to the customers.
For instance, a particular location of the company is closed, and no possibility of its usage in the near future. The management finally decides to sell its assets that don’t have any more of its use.
Divestiture is a type of retrenchment strategy where you re-examine the asset of your business and company. If the assets aren’t serving anymore, then you sell them off. It helps businesses to reduce their expenses.
For example, Thomson Reuters, a Canadian multinational company, decided to sell its science and intellectual property division in 2016. The purpose of divestiture is because the company wanted to decrease its leverage on the balance sheet.
The US government decided to break up AT&T in 1982 on the claim that the company was monopolizing the telecom industry. The breakup created 7 different companies and one of them was AT&T.
If a part of a business is going to lose and declining and there’s no way to pull it back, then you finally decided to sell them off. It’s also a type of retrenchment strategy. Liquidation also helps a business in the defensive strategy, especially when they’re cutting down the prices.
For instance, a retail shop is running into losses. The retailer to sell off his entire business, but he couldn’t find any interested buyer. Finally, he decides to get as much value out of it as possible by selling all the equipment, inventory, fixture, and everything. The purpose is to permanently shut down the entire business.
Advantages of Defensive Strategies
Marketing & Advertisement
The marketing and advertising of products and services increase the market reach of your business. It allows you to target both your old and new customers. The defensive strategy provides you with the real benefits of promoting your business.
The good thing about defensive strategy is that it’s not risky. It’s even less risky than the offensive strategy. Here you utilize your competitive advantages to secure your market share. You reduce the threats at the cost of taking minimum risks.
Promote Value of your Product
The focus of the defensive strategy is to promote the benefits of your products and services. When you start comparing your product/service with the competitors’ by highlighting your key features, it devalues their service. It can turn into a long term business strategy for your business. It also helps you to be more niches focused.
Disadvantages of Defensive Strategies
Different Needs of Target Market
One of the biggest disadvantages of the defensive strategy is that the companies and businesses underestimate the needs and wants of the target market. They offer their product/service to all the market without focusing on any particular segment.
For instance, the children’s bicycles and children’s storybook would only interest the young children market. If you offer children’s products to the elderly and young demographic of the market, they won’t buy your product. That’s how businesses make mistakes while applying defensive strategy. You have to know your target market and target them accordingly.
The defensive strategy won’t work when the target market is looking for an innovative and creative product. That’s why smart businesses and companies always look for new ideas and technology by keeping their eyes and ears open. Therefore, businesses should develop a long term strategy by using the defensive strategy along with innovation.