Positions and positioning: strategy simply stated

Positions and positioning: strategy simplystated

Donelda S. McKechnie, Jim Grant and Marios Katsioloudes

Introduction

It is important for managers to understand where their business fits in the market, vis-a-vis

the competition. Without this knowledge, it is difficult to identify a differential advantage that

will give the necessary competitive edge to attract the target customer. This is

straight-forward logic yet many managers may be unlikely to review the market

environment in which their business operates, which includes positioning the competitors’

business as well.

This paper focuses on the strategy tools of positions and positioning. The four positions are:

1. Leader.

2. Challenger.

3. Follower.

4. Niche.

Although, not all markets have businesses that fit neatly into one of the four categories, being

able to distinguish one’s own business position and certainly where it relates to the

competition is important management knowledge. This discussion reviews positioning using

a back to basics explanation and a simply constructed matrix. Whether a business is

company focused or competition focused is noted on the x-axis. The y-axis variables are

labeled pushes the boundaries and stays within boundaries. Airlines positioned in the

United Arab Emirates (UAE) aviation industry exemplify a market environment with

companies holding distinctive positions.

Reliance on SWOT

The manager who is concerned about where the business fits in the market may be using

SWOT as the primary assessment tool. Relying on SWOTas the focal analysis of strengths,

weaknesses, opportunities and threats may be a carry-over from the manager’s business

school days where it had assumed elixir status by virtue of its appearance in many course

materials. Undertaking a SWOTanalysis definitely has value. However, arguably, it can lead

to tunnel vision if reliance on other analytical tools is diminished.

To maximize the value of a SWOT analysis in any situation where it is used, the manager

must use critical judgment and take care not to succumb to biases that may introduce

favor into the results. SWOT, in itself, is a good starting point for gathering information and

providing a foundation for decision making. It is, in itself, not a stand-alone management

tool. When used independently, the SWOT framework collects information but a risk is that

the manager does not engage in furthering critical thinking that leads to action and

ultimately, results.

PAGE 224 j BUSINESS STRATEGY SERIES j VOL. 9 NO. 5 2008, pp. 224-230, Q Emerald Group Publishing Limited, ISSN 1751-5637 DOI 10.1108/17515630810906729

Donelda S. McKechnie is

an Assistant Professor of

Marketing based in

London, Canada. Jim Grant

is Professor of Marketing &

Management and Marios

Katsioloudes is Professor of

Management, both based

at the American University

of Sharjah, Sharjah, UAE.

Positioning with the matrix

Two sets of variables are suggested to categorize the position held by any business (see the

matrix in Figure 1). Although not definitive, the variables have opposite points that simplify

the matrix structure. First, does the business or competitor operate with a company-focused

philosophy or is it competition-focused? Second, does the business or competitor push the

competitive boundaries of business or stay within boundaries? The latter is a less risky type

of operation within the scope of the overall market environment but no less effective in

reaching goals and achieving success.

Arguably, each set of variables is more likely to be a continuum which is anchored at each

end by the variable extremes. Yet, when assessing businesses within the market

environment, the strategy taken by each should categorize into which of the four boxes in the

grid that it fits. Any business where the distinction is blurred would be at an immediate

disadvantage suggesting that management may be unsure of its own strategic course of

action.

Being company focused means that a business will put itself first, regardless of the

competition. Being competition focused is to ‘‘watch what the other guy is doing’’ which in

turn guides business actions and activities. Pushing the boundaries means furthering

business through a philosophy such as never being satisfied with the status quo or being

willing to take some degree of risk to accomplish any targets and objectives set. Staying

within boundaries can mean being less of a risk-taking venture or knowing where the

business fits in the market environment vis-a-vis the competition and focusing operations on

that segment or niche.

Leader, challenger, follower, niche

The labels given to each of the four positions – leader, challenger, follower, and niche –

describe each succinctly. The market leader leads. A business in the leader role will be

company-focused to defend its position and market share while pushing the boundaries to

expand the market. The challenger is competition-focused as in ‘‘watching what the leader

does’’ while maintaining a course of action that also pushes boundaries in the marketplace.

The follower follows. The follower will watch the leader and challenger and in some instances

attempt to imitate or copy their actions. Generally, however, the follower stays the safe

course within boundaries. The business in the niche position knows its own strengths and

weaknesses vis-a-vis the major competition and stays focused on its own business

endeavours. It can be leading edge within its own parameters yet does not push the

boundaries in the larger market environment. According to Kotler (2003) the percentage that

each position hypothetically assumes in the market structure is leader, 40 per cent;

challenger, 30 per cent; follower, 20 per cent and niche, 10 per cent.

The leader, with the hypothetical 40 per cent of the market, typically sets the pace. Strategies

focus on expanding the market and market share while defending its position and share of

the current market. To expand, the leader may seek new users, increase usage by the

current users or develop new uses for its product or service offerings. Position defense

includes developing competitive strategies that would counter the efforts of other

businesses intent on taking market share. These include tactics that would offset any or

Figure 1 Categorizing the four positions within the matrix

VOL. 9 NO. 5 2008 jBUSINESS STRATEGY SERIESj PAGE 225

all of the frontal, flank, encirclement, bypass and guerilla attack options that a competitor

may utilize. Ultimately the leader is company focused (defending) while pushing the

boundaries for greater market share (expanding).

The business in the challenge position must know the market environment and know the

competition including the position each holds. Management must be clearly focused on

strategic objectives as various attack options and possible targets are available. The

challenger may attempt to take market share from the market leader, any business that is

under-financed, any business that is not accomplishing its own objectives and its

percentage share is at risk, or any business that may be an acquisition target. In sum, the

challenger is focused on the competitor and pushes the boundaries.

The follower watches the competition while staying within boundaries. Management has four

options when setting strategic objectives. The business may be positioned as a

counterfeiter, a clone, an imitator or an adaptor. With a hypothetical 20 per cent market

share, the follower must choose its competitive strategies wisely. For example, if its financial

pockets are not deep enough to effectively imitate the market leader’s product or service

offering then it is at risk of being targeted by one of the other companies in the market

environment.

The last of the four positions is the niche. To achieve its hypothetical 10 per cent of market

share, the niche business relies on either high margin or high volume as its competitive

strategy. Being company focused, it knows it strengths andweaknesses. Its specialist position

means that it stays within boundaries within the larger market environment. For its own

specialized function, it may push the boundaries to further growth within its own niche market.

Competing for the customer

Knowing the competition is one thing. However, it is equally important that management

knows the customer. In the larger market environment, the companies at any of the positions

may be competing for the same customers. Thus, their ability to hold their market share may

be reliant on the strategies used to differentiate the product or service offerings in the minds

of the consumer. Where the offerings are similar, with few distinguishing characteristics, then

the business that understands the customer and the competition may have the advantage.

When the offerings can be differentiated across a number of factors, then the market

environment can sustain a greater number of competitors because the customers’

perceptions can be influenced through various marketing activities.

In practice

A classic example of four businesses in a market environment, one at each position, is the

United Arab Emirates (UAE) aviation industry (see the matrix in Figure 2). Four airlines which

operate flights out of the country are distinctly positioned as:

1. Leader – Emirates Airline.

2. Challenger – Etihad Airways.

3. Follower – Gulf Air.

4. Niche – Air Arabia.

Figure 2 Positions of the four airlines in the UAE aviation industry

PAGE 226 jBUSINESS STRATEGY SERIESj VOL. 9 NO. 5 2008

Aviation is big business for the country whose population was only 4,041,000 in the 2005

census (Grant et al., 2007). The investment figures for aircraft on order in 2006 exceeded

US$25.8 billion and monies allocated for airport development over the next twenty years is

expected to surpass US$19.35 billion (Al-Abed et al., 2006).

The country is a federation of seven (7) emirates or states. Abu Dhabi is the capital. Dubai is

undoubtedly the most prominent. Developments in Dubai such as the Palm Islands in the

Gulf and the ski hill in the Mall of the Emirates along with world class sporting events and the

annual shopping festival are attracting global attention. The remaining five emirates are

Sharjah, Ajman, Fujeirah, Umm Al Quwain, and Ras Al Khaimah. Only Umm Al Quwain and

Ajman do not have international airports.

Emirates Airline

Setting the pace as market leader in the UAE aviation sector is Emirates Airline. Established

in 1985 and fully owned by the Dubai government, the airline is expected to be the world’s

largest long-haul carrier by 2012 if present growth patterns continue (Gale, 2007c).

Maximizing Dubai’s geographic location as a transportation hub between Europe and Asia

has contributed to the airline’s current leader position. Plans to purchase 55 Airbus A380

aircraft will be a factor in the airline’s ability to maintain market share. Additionally, adding

new routes to the current 89 destinations in 59 countries will expand the market (Kerr, 2007).

Emirates Airline passengers pay a premium to fly with the airline even as competitive carriers

operating flights from Dubai offer seat sale fares on various routes. According to

management, seat capacity could increase substantially and the planes would continue to

be full. Current load factors are approximately 76 per cent with 60 per cent being the

breakeven point (Rahman, 2007). In the first six months of 2006, passenger numbers

increased 20 per cent to 8.39 million compared to 6.98 million in the same period the year

before and the airline had added 25 per cent more capacity through new routes and

additional flights (Sen, 2007). Currently, Emirates Airline accounts for 50 per cent of all flight

movements through Dubai airport. By 2010, the number will be 70 per cent (Kerr, 2007)

Using sponsorship as a marketing tool has been an important strategy for Emirates Airline to

reach various and diverse market segments. Premier league football fans recognize the

Emirates name behind the Arsenal team and stadium. Sydney Symphony Orchestra patrons

in Australia know of the airline’s support. Emirates Airline, marketed as ‘‘the official sponsor’’

is behind a variety of events that may be world class, national, regional or local. The logo ‘‘Fly

Emirates’’ is receiving global recognition.

Important components of Emirates Airline success include the ongoing emphasis on

increasing flight frequency to popular destinations as well as setting up new routes.

Additionally, the airline has held costs and expenses at levels similar to the low-cost, low-fare

European carriers like Ryannair and Easy Jet (The Economist, 2005). Evidence that Emirates

is pushing the boundaries within the market environment is the attention they are giving to

the successes of the niche low-cost carriers in the region. Senior management recognizes

the potential for a ‘‘budget brand’’ utilizing the large A380 planes and no-frills service

(Rahman, 2007).

Etihad Airways

Etihad Airways is based in the Abu Dhabi emirate and operates from that airport. It is

marketed as the national airline of the UAE. An aggressive growth strategy of one new

destination per month has been the impetus behind the carrier’s success since its inaugural

flight in November 2003. At its third anniversary, it announced service to its 36th destination

and said it was on target to operate flights into 70 worldwide destinations by the time the

carrier turned seven. Cargo business had doubled from 70,000 tons carried in 2005 to

almost 150,000 tons in 2006. The financial forecast is strong and the airline will meet its

objective of reaching break even by 2009 (Al-Abed et al., 2006)

As destinations in the Far East are considered, code-sharing agreements may be set up as a

way for Etihad to more effectively reach that market. However, at present Etihad has largely


maintained its aviation independence in a similar manner to Emirates Airline. In the

meantime, Etihad has pursued new air rights to India that will increase the number of flights

to current destinations in that country and offer service to more cities (Gale, 2007a).

Initially, Etihad appeared set to pursue international sponsorship contracts similar to the

marketing activities undertaken by Emirates Airline. However, with the failure of their bid to

sponsor Manchester United football team, the airline changed strategy to put money behind

events held locally in the emirate and the country.

Service to passengers is very much hospitality-oriented. Rather than copy the industry

standard of first, business and economy cabin classes, Etihad has diamond, pearl and coral

guest zones (www.etihadairways.com). The frequent-flyer program, called Etihad Guest

Programme, was launched in September 2006. Considered innovative and leading-edge as

compared to other loyalty plans, Etihad responded to public demand by removing black-out

restrictions and offering greater flexibility, including immediate use of reward miles, to

enrolled members. The introduction of the new frequent flyer plan was simultaneously rolled

out to all destinations. Success was benchmarked to be 100,000 passengers enrolled within

one year (Gulf Business, 2006)

Sitting in the market challenger position, Etihad has experienced phenomenal growth over a

short period of time. Tactics to take market share include offering a transfer service from

nearby Emirates locations when passengers are flying Etihad. Given that the Abu Dhabi

airport is a relatively short distance from some of the most highly populated areas of Dubai

combined with the traffic congestion in and around Dubai, it can be faster to travel with

Etihad. Additionally, the airport fees and taxes levied on passenger fares means that ticket

prices can be slightly cheaper from Abu Dhabi than from Dubai even to the same

destinations. Etihad appears to know the market environment, to know the competition and

to be clearly focused on the strategic objectives that set the path for future growth and

prosperity. Whether, in time, it may take the market leader position from Emirates Airline is

still a question.

Gulf Air

Gulf Air was established in 1950. Although the carrier is headquartered in Bahrain, by 2006

its presence in the UAEmarket accounted for 40 per cent of traffic through Abu Dhabi Airport

as well as operating a number of flights to and from Dubai (Al-Abed et al., 2006).

Despite the ongoing successful growth of its Abu Dhabi services, the carrier has struggled

financially on many of its routes. In 2002, a three year restructuring program was actioned

following almost a decade of losses. An important element of the turnaround strategy was

that ‘‘Arab hospitality’’ would be the basis for onboard service. This standard continues

today (www.gulfair.com). This followed Emirates Air practices which already offered

passengers this level of attention. By 2003, the return to profitability was challenged by rising

fuel prices and new competition, Etihad Airways, entering the UAE market. As Etihad

became more established by offering its own high level of customer service and aggressive

route expansion, Gulf Air was pushed from challenger to follower. Lower fares offered to

attract the sub-continent, India in particular, worker market changed the passenger

demographics. This contradiction of low fares with high service levels inevitably contributed

to further difficulties for Gulf Air. Despite being the recipient of numerous industry

recognitions and Skytrax awards in recent years, Gulf Air remains in the follower position.

Through 2007, the carrier has continued to stay within boundaries while being competition

focused. The number of flights to destinations in neighboring Gulf countries was increased

and competitive long distance routes were dropped (Ali, 2007b). Additionally, at a time when

Emirates and Etihad have been ordering new Boeing and Airbus aircraft, Gulf Air has opted

for an all Airbus fleet structure (Ali, 2007a). Smaller planes have been ordered for regional

flights with shorter flying times and the shift to one company will create maintenance

efficiencies.

The situation for Gulf Air now is that it appears to be tentatively holding its follower position.

Continuing restructuring has meant staying within boundaries and being competition


focused. It is unlikely that the airline will reassume the challenger position particularly in light

of Qatar Airways entering the market to be one of the big three with Emirates and Etihad.

However, there is potential for Gulf Air to move to a niche position in the market.

Air Arabia

Using the successful SouthWest Airline operations as the model, Air Arabia entered the UAE

market in 2003 with two Airbus A320 planes flying from Sharjah International Airport. The

question at the time was whether passengers would support a low-cost, low-fare carrier in

the region (McKechnie et al., 2007a, b). Within one year the airline had achieved its financial

targets and by 2005 was profitable. In early 2007, Air Arabia raised 2.56 billion dirhams

($700 million US) through its IPO on the Dubai Financial Market (Gale, 2007b). It was the first

government-owned carrier in the region to offer opportunities for public investment. Monies

have been earmarked to increase the fleet to 34 planes as more destinations are served. Two

additional hubs are targeted before early 2009. One will be in North Africa for the European

market and the other in Asia to reach the Far East countries (Gale, 2007e).

Air Arabia continues to be guided by its clearly defined mission:

. . . to revolutionise air travel in the region through an innovative business approach offering

superb value for money and a safe, reliable operation. To achieve this we will be known for our low

fares, grow our business profitably, build motivated multi-functional teams, demonstrate the

highest operational standards and manage our costs ruthlessly (Air Arabia, n.d.).

At the niche position in the market, the airline has stayed within boundaries by sticking to the

low-cost, low-fare model and being company rather than competition focused. The financial

strength that Air Arabia currently enjoys has initiated speculative questions about acquisition

possibilities. Response from the airline noted that if a full-service carrier was targeted for a

takeover, it would be one that could be converted to the low-cost model (Gale, 2007d)

Conclusion

In conclusion, this paper simply stated the positions and positioning strategy tool that is

available to managers seeking to understand where their business fits in the market,

vis-a-vis the competition. Each of the four positions – leader, challenger, follower and niche

– has characteristics that may be used to expand and/or defend market share. Growth and

profitability are ultimate objectives from any actions taken. Identifying issues such as

company-focused or competition-focused and stays within boundaries or pushes the

boundaries are matrix variables that guide assessment.

The UAE aviation market provides distinctive examples of a business in each of the four

positions, thus applying the theory to a real-world situation. Emirates Airline is the market

leader, Etihad Airways is challenging, Gulf Air is now in the follower position while Air Arabia

is firmly and successfully established in its niche market. As noted, Gulf Air was once the

challenger. Now Qatar Airways appears intent on taking the primary challenger position in

the region which will affect Etihad Airways’ position in the UAE market. Emirates Airline must

constantly expand the market while defending against other airlines that seek to take a

greater share. Air Arabia is a good example of a business which knows its niche and

maximizes its market position.

From this exemplification of the positions and positioning, the strategy simply stated is that

the market environment is dynamic and constant assessment is necessary. Managers

seeking to maximize differential advantage vis-a-vis the competition have a wealth of

strategy tools available. Each one provides information. Using more than one contributes to

a manager’s ability to understand the market environment.

References

Air Arabia (n.d.), available at: www.airarabia.com (accessed September 4, 2007).

Al-Abed, I., Vine, P. and Hellyer, P. (2006), United Arab Emirates Yearbook 2006, Ministry of Information

and Culture, Trident Press, London.


Ali, J. (2007a), ‘‘Gulf Air vital to Bahrain’s economy’’, GulfNews.com, available at: http://archive.

gulfnews.com/articles/07/04/08/10116685.html (accessed September 1, 2007).

Ali, J. (2007b), ‘‘Turbulent times for Bahrain’s Gulf Air’’, Gulf News.com, available at: http://archive.


(The) Economist (2005), ‘‘EasyOz, low-cost is coming to long-haul flights: next could be low-fares’’,

The Economist (US), October 29, pp. 70-1.

Gale, I. (2007a), ‘‘Etihad puts India centre stage for growth plans’’, Gulf News, April 10, p. 44.

Gale, I. (2007b), ‘‘Air Arabia plans second hub’’, GulfNews.com, available at: http://archive.gulfnews.

com/articles/07/05/03/10122582.html (accessed September 1, 2007).

Gale, I. (2007c), ‘‘Emirates poised to become largest long-haul carrier’’, GulfNews.com, May 28,

available at: http://archive.gulfnews.com/articles/07/05/28/10128161.html (accessed September 1,

2007).

Gale, I. (2007d), ‘‘Air Arabia eyes acquisitions’’, GulfNews.com, available at: http://archive.gulfnews.

com/articles/07/07/06/10137250.html (accessed September 1, 2007).

Gale, I. (2007e), ‘‘Air Arabia to expand Asia coverage with third hub’’, GulfNews.com, available at: http://

archive.gulfnews.com/articles/07/07/18/10139903.html (accessed September 1, 2007).

Grant, J., Golawala, F.S. and McKechnie, D.S. (2007), ‘‘The United Arab Emirates: the twenty-first

century beckons’’, Thunderbird International Business Review, Vol. 49 No. 4, July, pp. 507-33.

Gulf Business (2006), ‘‘In flying colours – Etihad Airways’’, Gulf Business, Vol. 11 No. 7, November,

pp. 24-6.

Kerr, S. (2007), ‘‘The secret of Gulf carriers’’, Financial Times, GulfNews.com, available at: http://archive.


Kotler, P. (2003), Marketing Management, 11th ed., Pearson Prentice-Hall, Upper Saddle River, NJ.

McKechnie, D.S., Grant, J. and Fahmi, M. (2007a), ‘‘Air Arabia: seeking success in an open skies

market’’, in Katsioloudes, M. and Hadjidakis, S. (Eds), International Business: A Global Perspective,

Elsevier/Butterworth-Heinemann, Oxford, pp. 587-94.

McKechnie, D.S., Grant, J. and Fahmi, M. (2007b), ‘‘Carving a niche for the no-frills carrier, Air Arabia, in

oil rich skies’’, Journal of Air Transportation;, Vol. 12 No. 1, Spring, pp. 53-66.

Rahman, S. (2007), ‘‘Emirates to use A380s on budget livery’’, GulfNews.com, available at: http://

archive.gulfnews.com/business/Aviation/10120974.html (accessed September 1, 2007).

Sen, S.K. (2007), ‘‘Reaching for the skies’’, Gulf Business, Vol. 11 No. 10, February, pp. 54-8.

Further reading

Emirates Airline (n.d.), available at: www.emirates.com (accessed September 4, 2007).

Etihad Airways (n.d.), available at: www.etihadairways.com (accessed September 4, 2007).

Gulf Air (n.d.), available at: www.gulfair.com (accessed September 4, 2007).

Corresponding author

Donelda S. McKechnie can be contacted at: [email protected]


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Positions and positioning: strategy simply stated