Bowman's Strategy Clock analyzes the competitive position of a company in comparison to the offerings of competitors. It was developed by Cliff Bowman and David Faulkner as an elaboration of the three Porter generic strategies.
It is important to understand how companies compete in the market place. It is a diagrammatic representation which shows the relationship between customer value and prices.
Position 1: Low Price/Low Value
Firms do not usually choose to compete in this category. This is the "bargain basement" bin and not a lot of companies want to be in this position. Rather it's a position they find themselves forced to compete in because their product lacks differentiated value. The only way to "make it" here is through cost effectively selling volume, and by continually attracting new customers. You won't be winning any customer loyalty contests, but you may be able to sustain yourself as long as you stay one step ahead of the consumer (we're not going to mention any names here!) Products are inferior but the prices are attractive enough to convince consumers to try them once.
Position 2: Low Price:
Companies competing in this category are the low cost leaders. These are the companies that drive prices down to bare minimums, and they balance very low margins with very high volume. If low cost leaders have large enough volume or strong strategic reasons for their position, they can sustain this approach and become a powerful force in the market. If they don't, they can trigger price wars that only benefit consumers, as the prices are unsustainable over anything but the shortest of terms. Wal-Mart is a key example of a low price competitor that persuades suppliers to enter the low price arena with the promise of extremely high volumes.
Position 3: Hybrid (moderate price/moderate differentiation)
Hybrids are interesting companies. They offer products at a low cost, but offer products with a higher perceived value than those of other low cost competitors. Volume is an issue here but these companies build a reputation of offering fair prices for reasonable goods. Good examples of companies that pursue this strategy are discount department stores. The quality and value is good and the consumer is assured of reasonable prices. This combination builds customer loyalty.
Position 4: Differentiation
Companies that differentiate offer their customers high perceived-value. To be able to afford to do this they either increase their price and sustain themselves through higher margins, or they keep their prices low and seek greater market share.
Branding is important with differentiation strategies as it allows a company to become synonymous with quality as well as a price point. Nike is known for high quality and premium prices; Reebok is also a strong brand but it provides high value with a lower premium.
Position 5: Focused Differentiation
These are your designer products: High perceived value and high prices. Consumers will buy in this category based on perceived value alone. The product does not necessarily have to have any more real value, but the perception of value is enough to charge very large premiums. Think Gucci, Armani, Rolls Royce .clothes either cover you or they don't, and a car either gets you around the block or it doesn't. If you believe pulling up in your Rolls Royce Silver Shadow is worth 25 times more than in an economy Ford then you will pay the premium. Highly targeted markets and high margins are the ways these companies survive.
Position 6: Increased Price/Standard Product
Sometimes companies take a gamble and simply increase their prices without any increase to the value side of the equation. When the price increase is accepted, they enjoy higher profitability. When it isn't, their share of the market plummets, until they make an adjustment to their price or value. This strategy may work in the short term, but it is not a long-term proposition as an unjustified price premium will soon be discovered in a competitive market.
Position 7: High Price/Low Value
This is classic monopoly pricing, in a market where only one company offers the goods or service. As a monopolist, you don't have to be concerned about adding value because, if customers need what you offer, they will pay the price you set, period. Fortunately for consumers in a market economy, monopolies do not last very long, if they ever get started, and companies are forced to compete on a more level playing field.
Position 8: Low Value/Standard Price
Any company that pursues this type of strategy will lose market share. If you have a low value product, the only way you will sell it is on price. You can't sell day-old bread at fresh prices. Mark it down a few cents, and suddenly you have a viable product. That is the nature of consumer behavior, and you will not get around it, no matter how hard you try.
Positions 6, 7, and 8 are not viable competitive strategies in truly competitive marketplaces. Whenever price is greater than perceived value you have an uphill battle on your hands. There will always be competitors offering better quality products at lower prices so you have to have your value and price aligned correctly.