Should Whirlpool continue to cover the entire white-goods market or should it focus on one market niche?

By | May 1, 2014

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1. Should Whirlpool continue to produce and market in Europe its three product lines (Bauknecht, Whirlpool and Ignis), which span the entire white-goods market, or should it focus on one market niche? Explain.

1.1 Literature review on the generic strategies

1.1.1 Porter’s Generic Competitive Strategies

According to Porter (1980), there are three potentially successful generic strategic approaches to outperforming other firms in an industry: Focus, Overall cost leadership and Differentiation. Cost leadership strategy involves the firm 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; A differentiation strategy is appropriate where the target customer segment is not price-sensitive, the market is competitive or saturated, customers have very specific needs which are possibly under-served, and the firm has unique resources and capabilities which enable it to satisfy these needs in ways that are difficult to copy; In adopting a narrow focus, the company ideally focuses on a few target markets (also called a segmentation strategy or niche strategy) (McDonald, Ward & Smith 2007). And according to the Porter (1980), a management must dedicate themselves to just one of these three types of strategy to risk dilution of their competitive advantages. This is the only way that firms can outperform rivals and deliver high or satisfactory returns to shareholders (Botten 2007, p. 264). According to John L. Fortenberry (2010, p. 246)’s analysis, entities rarely achieve success through the use of multiple strategies of three generic strategies since the pursuit of markets using multiple strategies places a significant burden on institutional resources increasing the likelihood of decline and failure. Therefore, it is highly recommended that given establishments selection only one of the Porter’s Generic Strategies to pursue, thus avoiding potential resource allocation dilemmas.

Figure 1 Porter’s three generic strategies model
Source: adapted from Porter 1980
1.1.2 The strategic clock

Figure 2 A strategic clock for positioning
Source: Johnson & Scholes 2002, p. 320

According to the strategic clock model for positioning, there are viable strategic options depending on how the company’s offering is perceived by the market in terms of its price relative to other offerings and its relative perceived usage value in the perspective of the customers. Based on the strategic clock model for positioning, the strategies that are doomed to ultimate failure are those where the offering ends up being perceived to have low relative use value but standard or higher relative price. And those operating in the low price arena will tend to experience price wars that will put pressure on margins and encourage cost reductions that will push them toward the non-frills segment. And the remorseless pressure of imitation and competition meanwhile will tend to pull the hybrids into the competitive orbit of the differentiators (Angwin, Cummings & Smith 2011, p. 143). An example of a successful development using the strategic clock is the positioning strategy of Japanese car producer in Europe. Between 1960 and 1970, the European market was first opened up, the Japanese cars were cheap and were sold with limited value which could be categorized as using the low cost leadership strategy; and between the 1970 and 1980 while the quality of the cars improved the price however were held at a relatively low level and by the mid 1990s, a differentiation strategy was apparent with the demonstration of a lot of offering such as air-conditioning long term warranties and so on while the price is still positioning in a lower level (Wittmann & Reuter 2008, p. 49).

1.2 Case analysis

Once of the most eminent example of the Japanese cars adopting the hybrid generic strategy is Honda. The core of Honda’s competitive strategy lies on the company’s ability to produce low cost cars yet with innovative technologies. In another word, the focus of Honda is in the generic strategies of differentiation and cost leadership strategies. With great emphasis on the differentiation strategy, has equipped Honda strong points in what the future has yet to unfold. The anticipation of the future will enable them to be very potentially potent to be emerging as the number one automotive choice in the world since their continuing efforts in innovating cars that is fuel efficient yet environment friendly. Therefore, Hill (1988) argued that sustainable competitive advantage rests on the successful combination of these two strategies rather than choosing only one of the three generic strategies according the porter’s model ( 2008).

And as for Whirpool, it should continue the manufacturing of three product lines, namely Bauknecht, Whirlpool and Ignis which cover the high end, middle end and lower end need of the market, this broad coverage of the market means that the company would need to adopt low cost strategy, differentiation strategy and hybrid strategy for different products lines depending on the positioning of the products lines. Based on our above literature review and case study, we can see that products could be positioned in not only the three generic strategies but also the hybrid competitive strategies. As a matter of fact, there are two additional reasons supporting this strategy: first of all, these three product lines provide different level of product usage to different customer groups which means that they are priced based on their value perceived by the customers so that customers would understand such differences; secondly, as a matter of fact, these brands are separately well established, and customers to a large extent are recognizing these three brands rather than the Whirlpool which makes the coverage of all the income levels of customers possible. And of course the poisoning strategies have closed relationship with the company’s business strategies, for example, Whirlpool acquired Polar SA, a Polish appliance producer to offer to company a low cost production platform that can serve the entire EU market.