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;
Active Approach
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.
Passive Approach
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
Joint Venture
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
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
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.
Liquidation
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 & Advertisem*nt
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.
Less Risky
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.
Innovation
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.
As a seasoned marketing strategist with years of experience in devising and implementing defensive strategies for businesses across various industries, I can confidently attest to the critical importance of proactive measures in safeguarding market share and customer databases. My expertise is grounded in a deep understanding of market dynamics, competitor behavior, and the nuances of effective defensive strategy implementation.
In the realm of defensive strategies, businesses face an ever-present challenge in protecting their turf from competitors who seek to encroach upon their market share. Even minor fluctuations in market share can have profound implications for smaller enterprises. Thus, the adoption of a well-crafted defensive strategy becomes paramount.
Defensive Strategy Overview: A defensive strategy is a multifaceted marketing tool employed by management to shield businesses from potential competitors. The essence of this strategy lies in the battlefield of maintaining customer satisfaction, stabilizing profits, and capitalizing on inherent strengths and competitive advantages.
Approaches to Defensive Strategy:
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Active Approach:
- Focuses on thwarting competitors planning to seize market share.
- Utilizes increased marketing, promotional activities, price reductions, and discounts.
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Passive Approach:
- A more relaxed approach to prevent competitors from snatching customers and market share.
- Involves new product innovation, company expansion, and reconnecting with old customers.
Types of Defensive Strategies:
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Joint Venture:
- Formal cooperation between two businesses to achieve common goals.
- Example: Microsoft and General Electric's joint venture, "Caradigm," aimed at defeating a common competitor.
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Retrenchment:
- Aggressive strategy involving a reduction in business operations and expenses.
- Enables cutting prices and offering discounts.
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Divestiture:
- Re-examines business assets and sells those no longer serving a purpose.
- Example: Thomson Reuters selling its science and intellectual property division in 2016.
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Liquidation:
- Selling off a declining part of the business when there's no way to recover.
- A last resort in the defensive strategy, especially when cutting down prices.
Advantages of Defensive Strategies:
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Marketing & Advertisem*nt:
- Increases market reach through effective marketing and advertising.
- Targets both old and new customers.
-
Less Risky:
- Low-risk strategy utilizing competitive advantages to secure market share.
- Reduces threats while taking minimal risks.
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Promote Value of your Product:
- Focuses on highlighting the benefits of products and services.
- Long-term strategy that promotes niche focus.
Disadvantages of Defensive Strategies:
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Different Needs of Target Market:
- Companies may underestimate the specific needs of their target market.
- Offering products/services to the wrong demographic can lead to poor sales.
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Innovation:
- Defensive strategies may falter if the target market demands innovative products.
- Businesses need a long-term strategy combining defense with innovation.
In conclusion, a well-executed defensive strategy is imperative for businesses seeking to navigate the competitive landscape successfully. Whether through active or passive approaches, coupled with strategic choices such as joint ventures or retrenchment, businesses can fortify their position and sustainably protect their market share.
