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- Subject Code : MGT309
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Relationships, Influence and Leadership
The D’ Aveni’s sphere of influence model is based on the concept of competition with a corporate strategy in which the cooperation between competitors ensure the profit and market growth of the competitive companies.
Personal care products-based industries have a range of rival and cut-throat competition to win the customer and develop a market or expand the existing market in presence of existing competitors and new entrants with different strategies and approach to attract the market. With the application of the D' Aveni’s sphere of influence model, this industry can flourish and lead in the market and have hardcore loyal customers with their individual core products inspite of having strong competitors in the market.
1. As per D’ Aveni (2004), the most thrilling feature of this sphere of influence model lies with its methodology of running the companies with dominance in the market with few selected core product even when the company can have extensions with other products ranges as they are having goodwill advantages and other core competencies to get into the market with a different product. The idea stands for a competition which will be based on a cooperative strategy and not nuclear age strategy of mutual destructions. The application of this idea of keeping harmony and cooperation with the competitors to ensure the market for the core product of the company is evident with the companies called Procter & Gamble and Johnson & Johnson. The companies had the potential to compete with each other in their core products but they make an understanding of avoiding competition with each other in certain products to devote their time and energy with the other products and their competitors. This ensured the market stability and dominance of both the companies with their respective core products (D' Aveni, Gunther and Cole, 2001).
The personal care products- based companies' industry cannot only flourish and create a better market for the targeted audience but can enhance their turnovers with the assistance of this sphere of influence model of Richard D’ Aveni. The different parts of this model have a crucial role when it comes to scrutinizing the market and the competitor concerning the core product of the company. The companies manufacturing and marketing personal care products usually deal with a range of product but have few core products which creates the market and the brand value of the company. This model suggests the methodology to protect the market of the core product along with critically analysing and considering the products of the competitors. The competition produced with the sphere of influence is healthy among the companies and their process of selecting core products, vital interests etc provide the advantages over the competitors as well as their competitors. In the market of personal care products, the companies who are looking forward to leading the market and develop brand values definitely require the sphere of influence models. This model emphasis corporate strategy vis a vis business strategy to tackle the major questions like the selection of competitors and the methodology to battle and coherently lead the market.
2. There are various spheres of influence which formulates the strategy and provides a methodology for the companies to develop the market for their products among the competitors with dominance as well as stability.
The companies of this industry can choose a core product, creating major revenue, which will create the majority of profit and market amid the harsh competitions and can have an image of dominating the competitors with this product. The example of such core products can be skincare products for all skin types. The other part of this model which has a complementary role to the core products is vital interest. The personal care product-based companies can have cosmetic products as the vital interest which will complement the skincare products for the targeted audiences and will enhance their loyalty towards the brand. The cosmetics products will act as strength for the skincare products of the company and will provide stability and dominance of the core product of the company in the market.
Buffer zone focuses on the product which strengthens the market for the company with the assurance of creating a path of non- entry of the rival companies of that particular industry. If the personal care product-based company is considered, the products like skin lightening product can be treated as a buffer zone in the region where fair skin complexion is regarded as a qualifying feature of women beauty. (Rodrigo-Caldeira, 2016). The company can create a market in these geographical regions with such products and expand the market for its core product. This model ensures that the buffer zone products work as a shield protecting the core product market and preventing the rival companies to affect or enter into the market in the same geographical region. The interesting feature about this part of the model is that high revenue is not the expectation out of the products launched via buffer zones of the company. This buffer zone aims to ensure the stability of the core product with the understanding of protecting the core products at the price of buffer zone products if required. Since the revenue is highly dependent on the core product of the company, losing market of buffer zone product is a win-win situation for the company. Thus, if the fairness products do not hold the audience in the geographical region, the core product, skincare products, will bring fortune and profit to the company. Though, the establishment of fairness cream will add cherry on the cake for the core products resulting in adding brand value and profits to the company.
The other level of this sphere of influence model talks about pivotal zones for the companies. This zone focuses on the product posing the potential of the future market for the company and ensures the long run of the company with those products. If the same is applied to the personal care products-based companies, a company can have products which may not dominate the competitors but ensure the consistent growth of the company even when strong competitors are flourished in the market. Personal acre product-based company like Gillet have established themselves with the latest technology-driven products which have endeavoured to run the company against the competitors in the long run with the products like razors (Marketing 91, 2020).
The forward position strategy is applied in the industries with the reasoning of having a product which can ruin the core product of the competitors and can save the company in the time of distress. One of the significant examples of this strategy is the Proctor and Gamble (P&G) and Johnson & Johnson (J&J) company (D’ Aveni 2004). The pamper brand with their product, nappies, has a great scale of the market and could have entered into baby shampoos and other similar products and it was an immediate threat for J & J company whose core products were baby care products. The J&J company, on the other hand, with Neutrogena has a large scale expanded market of shampoos and soaps for adult which is the core product of P&G company. The cooperation between these two companies is forward position strategy of this model in which both have products similar to the core products of other company but without waging war, they have been in the market with their respective core products. The basis of this part of the sphere of influence model is to have a product close to the core product of rival company but the companies choose the stability of market over the destruction of rivals.
Finally, the power vacuum is addressed in the model which talks about the potential product of the company which can overturn the competitor with favourable changes. In a personal care product company, if the company is having a product of Ayurvedic origin claiming to have no side effects then with favourable situations and product range, the product has the potential to take over the major audience of skincare products. The power vacuum focuses on those competition-related aspects which are not in immediate control of any major company but has the potential to develop the market shortly.
3. The sphere of influence is the most effective with its components when the companies are involved in various sectors and have multimarket competitors. The various factors such as different geographical location, the technology used in production lead to the different market positions of the competitors with their products which may overlap with each other (Gimeno 1999). The dealing in different markets leads to having a different sphere of influence for companies with different products. This brings advantages to the companies over their different competitors which are likely to deal in multi products as well.
Considering an example of personal care products- based companies competing with each other. If company A has a dominant position in the market of skin products of male adults and while the other company called B is dominating with the female skincare products. Company A can attack company B in female skin products and have the potential to take over the market. This can lead to revenue generation and risk for company A. In such a scenario, these companies allow each other to dominate the market with their respective core products to ensure mutual forbearance and lighten the competition between the two companies A and B. Hence, this model of the sphere of influence is suggesting a mechanism which will allow the dominance and market-leading capabilities of the competitive companies to be safe with their respective core products (Bernheim and Whinston, 1990).
If the model of the sphere of influence is not applied by these two companies, then they have no reason to cooperate in the cut-throat competition in the market. This can lead to cold war and price war where the companies will lure the targeted audience with different tactics. This whole process of waging war with the competitors and analysing the rivalry products, feature and process will consume lots of time, energy and technology of the companies which can be used effectively for the core product of the company. The contribution of this valuable time, manpower, technology and energy towards the core product of the company with the application of sphere of influence, the companies stabilise their market and dominancy with the respective products and get energy and time to focus on the potential products which will enhance and expand their markets instead of destroying their competitors market of core products. As dictated by Karnani and Wernerfelt (1985), the unique application of this model of the sphere of influence requires the companies to have threats from their competitions to take over the market of their key product which is generating the brand value, market and revenue for that company. This encourages and inspires the competitors to work with the model of the sphere of influence to have their position intact in the market for their core products.
This model inspires the companies to have mutual forbearance and less intensity of competition in the market even when the companies are in close contact with each other in the market owing to the factor of competition. The companies following the sphere of influence model resist themselves from indulging in the rivalry game of the competition and focus on their key markets which are expected to generate revenue for the company. The different companies dominate the different market with their products without wasting energy and time in destroying the market or develop dominance over the market of the competitors (Jayachandran, Gimeno and P. Varadarajan 1999). The objective behind this move is to refrain from provoking reactions in the market over the products of the competitors but to strengthen the position of oneself in the market with the expansion and dominance of core product in that market. It allows the stability of the company's position in the market with developing a tolerable attitude of not attacking the competitors in the market with the development of an understanding of such pact with each other.
Thus, the effectiveness of this sphere of influence in the market can be seen with the application of this model on the companies of skincare products-based industries. The different aspects and parts of this sphere lead to generating a better market for the company where the competitors are in a relationship of mutual forbearance and space for the other company to lead and dominate the market with their respective core products.
References for D’Aveni’s Sphere of Influence Model
Bernheim, D. and Whinston, M. (1990). Multimarket Contact and Collusive Behavior. RAND Journal of Economics, 21, 11. DOI: 10.2307/2555490
By D'aveni, R. Gunther, R. and Cole, J. (2001). Strategic Supremacy: How Industry Leaders Create Spheres of Influence from Their Product. New York: Free Press.
D’aveni, R. (2004). Corporate spheres of influence. MIT Sloan Management Review, 45, 38. Retrieved from: https://sloanreview.mit.edu/article/corporate-spheres-of-influence/
Gimeno, J. (1999). Reciprocal threats in multimarket rivalry: staking out ‘spheres of influence’ in the U.S airline industry. Strategic Management Journal, 20 (2), 102. DOI:10.1002/(SICI)1097-0266(199902)20:2<101: AID-SMJ12>3.0.CO;2-4
Jayachandran, S. Gimeno, J. and Varadarajan, P. (1999). The Theory of Multimarket Competition: A Synthesis and Implications for Marketing Strategy. Journal of Marketing, 63, 57. Retrieved from: https://faculty.insead.edu/javier-gimeno/documents/Articles/Theory-of-multimarket-competition-JOM-1999.pdf
Karnani, A., and Wernerfelt, B. (1985). Multiple Point Competition. Strategic Management Journal, 6(1), 87. DOI: https://doi.org/10.1002/smj.4250060107
Marketing91. (2020). Top personal care brands. Retrieved from: https://www.marketing91.com/top-personal-care-brands/
Retrieved from: https://sloanreview.mit.edu/article/corporate-spheres-of-influence/
Rodrigo-Caldeira, D. (2016). White Skin as a Social and Cultural Capital in Asia and Its Economic Markets. Retrieved from: https://ssrn.com/abstract=2973408
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