Developing competitive marketing strategies
Amway is an interesting example of a 3. What new options should we consider? Direct selling, therefore, is a boundary
company that reviews its strategic capa-
Introduction bilities and uses this review to develop its
products and markets. More than 450
All organisations face an external business environment that constantly changes. products carry the Amway name in the
Sometimes these changes are slight eg minor amendments to regulations or a areas of nutrition, health, beauty and
new firm entering the market as a ‘small player’. At other times, however, home. Amway also has a range of
changes in the environment may have important consequences for an products that include other well known
organisation eg new technologies, changing consumer tastes or a merger branded goods. The company also offers
a variety of third party services.
between two large competitors.
Amway is different from the more tradi-
Changes in the business environment create both opportunities and threats to tional distribution channels in that the
an organisation’s strategic development, and the organisation cannot risk business has developed through direct
remaining static. It must monitor its environment continually in order to: selling. Amway has over three million
Independent Business Owners (IBOs)
• build the business worldwide. IBOs deal directly with
Clients, build up personal relationships
• develop strategic capabilities that move the organisation forward
and deliver direct to Clients’ homes.
• improve the ways in which it creates products and develops IBOs are highly motivated, selling to
people they know or meet. The personal
new and existing markets with a view to offering its
contact and care that they provide is an
customers better service.
important element in direct selling. IBOs
are self-employed and can introduce
others to the business, and so form their
own sales network.
This case study illustrates how Amway,
after analysing its business operations
and performance, moved its business
forward by choosing an appropriate
marketing strategy. It demonstrates
the connection between Amway’s
own strategies and the defining
matrix of strategies developed by
Ansoff in his article ‘Strategies for
Diversification’, published by the
Harvard Business Review in 1957.
Strategic analysis
The process of strategic analysis helps
an organisation to understand more
about its strategic position and to con-
struct answers to questions such as:
1. What is happening to our business
environment?
2. What do we need to know about our
markets and customers?
THE TIMES 100 Edition 7
The matrix identifies various strategies
4. How can we develop our compe-
tences to meet all of the changes in the
business environment?
By asking these questions of itself, a
business looks to match its own objec-
tives for growth and development with
the reality of the business environment.
Businesses need to be realistic. They
must base decisions not upon wishful
thinking or blind optimism but upon
close and careful analysis of products
and markets.
Amway was founded in the USA in
1959. Today it is a global business that,
along with its parent and sister compa-
nies, directly employs 10,000 people
worldwide. The business also operates
strategically at a Global, European and
National level. Amway (UK) began
operations in 1973 and has its own dis-
tribution and Product Selection Centres.
Amway makes good use of market
research. This has helped Amway to
anticipate developments within markets
and to introduce new ideas that exploit
opportunities and reduce any associated
problems to a minimum.
Competition analysis is a key factor
within market research. It helps Amway
to identify the nature and extent of com-
petition at a number of levels. For exam-
ple, it helps marketers within Amway to
find out how well products are meeting
consumer needs and what aspects of
competitors’ brands appeal to consumers.
Amway has helped millions of people
around the world to start their own
independent business, through which
they engage in person-to-person market-
ing. This type of direct selling involves
matching a consumer’s needs with the
goods and services on offer. The better
the match, the more lasting the relation-
ship between the seller and the buyer.
role; it is at the boundary of a supplying
organisation that is also in close and
direct contact with customers. Feedback
from IBOs about products and services,
as well as feedback from an IBOs own
Clients, is an important contributor to
marketing analysis.
Within Amway, regular internal meet-
ings provide an opportunity for the com-
pany to discuss and evaluate its perfor-
mance. Gap analysis helps this planning
process by comparing forecast perfor-
mance with achieved figures. The ‘gap’
is the difference between the two, as the
diagram below illustrates. Of course,
this ‘gap’ may be either positive or nega-
tive. Whilst it is vital to seek to establish
the reasons for ‘worse than expected per-
formance’, it is also instructive for a
company to analyse why its performance
has been better than expected, as there
could be lessons to learn from that too.
SALES
cast
Fore
GAP
Actual
TIME
Gap Analysis Diagram.
Ansoff’s
product/market matrix
Ansoff’s product/market matrix is an
accepted way of identifying and
categorising market and product devel-
opments and opportunities. Amway
makes good use of the technique.
Ansoff's Matrix
Existing Products
MARKETS:
Existing Markets MARKET PENETRATION
New Markets MARKET DEVELOPMENT
open to organisations, and splits them
into four categories. For example, when
selling existing products to existing
markets, organisations can look to
improve their penetration of that market,
and so gain a larger market share.
Where a company introduces new
products into its existing markets, this
may give it a competitive advantage over
its rivals through product improvement.
Market development involves taking
existing products into completely new
markets eg finding new markets over-
seas. Better customer targeting, further
research and market segmentation often
help firms to identify these new markets.
Diversification, on the other hand,
involves moving into new products and
new markets at the same time. This may
involve a complete shift away from core
activities into some other form of related
activity. It represents a step into less famil-
iar, perhaps even unfamiliar territory.
Market penetration
Going for market penetration has
involved Amway in making the most of
current products and competences by
‘stretching’ them to improve Amway’s
competitive position within existing
markets. One great benefit of direct
selling is that it is an immediate channel
to the marketplace that offers customers
a good service, while at the same time
providing business opportunities for
individuals.
PRODUCTS:
New Products
PRODUCT DEVELOPMENT
DIVERSIFICATION
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Special incentives enable IBOs and end
consumers to take advantage of partic-
ular offers at certain times of the year
and these incentives have also helped to
increase market penetration. There are
also special events such as Leadership
Training Seminars. These enable IBOs
to spend time with others involved in
the business and to learn about ‘best
practice’ from each other, whilst also
sharing ideas.
Product development
Product development is a particularly
appropriate strategy where an organisa-
tion is strong in research and develop-
ment. Product development is highly
important for products that have com-
paratively short life-cycles. Within
Amway there are approximately 500
active research and development pro-
jects in progress at any one time. With
around 575 staff involved in research
processes, and with strong links to
many universities, Amway formulates,
1 What is ‘gap analysis’? Use
an example to show how gap
analysis could help a business
to improve the way in which it
is managed.
Questions
THE TIMES 100 Edition 7
designs and develops new products to
meet customer needs and expectations
within the global marketplace.
For example, based on a Euromonitor
study of 1998 estimated global retail
sales data, "Artistry is among the
world’s top five largest selling prestige
brands of facial skin care and colour
cosmetics. Others in this distinguished
group include Clinique, Lancôme,
Estee Lauder and Sofina". Amway cur-
rently holds more than 380 patents
internationally and has approximately
430 patents pending. Within its product
development programme, Amway’s
technical teams use the company’s cus-
tomer base to monitor and test new
product ideas.
Market development
Market development involves taking
existing products into completely new
markets. One method used by Amway
involves expanding the ways in which
individuals can be involved with the
2 What is meant by ‘strategic
analysis’? What processes
might strategic analysis involve?
Amway business. Amway has developed
a structure known as the IMC model.
This increases the number of ways
through which people can become
involved in the Amway business. Each of
the letters IMC stands for a different type
of involvement.
1. I - Independent Business Owners
(IBOs)
2. M - Members
3. C - Clients (customers) of the IBOs.
Members are allowed to purchase
Amway products at a price equivalent to
that paid by IBOs, but do not participate
in the Amway Sales and Marketing Plan.
They are a new type of "customer", who
deal directly with Amway.
Diversification
Ansoff pointed out that a diversification
strategy stands apart from the other
three strategies. The first three strate-
gies are usually pursued with the same
3 In what way does Ansoff’s
diversification strategy differ
from the other three business
strategies?
technical, financial, and merchandising
resources used for the original product
line. Diversification, however, usually
requires a company to acquire new
skills, new techniques and new facilities.
This implies significant investment.
One way in which Amway have diver-
sified its activities is through creating
an on-line business opportunity called
"AMIVO" to support and enhance its
traditional business. This makes use of
the internet. The internet is a good
example of a structure that no one firm
has had to pay to construct, but which is
available to all firms now that it has
been constructed. The challenge to
each business is to identify how to use
the internet in ways that are advanta-
geous to it and also profitable.
Amway has succeeded in doing just
that. The European platform of AMIVO
was first launched within the UK to
provide a one-stop office for IBOs.
IBOs can use AMIVO for:
• a means for Amway to communicate
with IBOs quickly
4 Ansoff’s product/market matrix
is a useful strategic tool. Use
the matrix to explain the range
of strategies that could be used
by a consumer goods company.
• ordering products from their home
24 hours a day, 7 days a week
• a communication tool to promote
their business
• keeping track of their business status
• a reference resource
• a medium to recognise IBO business
achievement.
Conclusion
In today’s highly competitive environ-
ment, an organisation has to develop a
business strategy that provides a strategic
fit between its resources and the chang-
ing business environment. This case
study illustrates how Amway has contin-
ued to develop by using a range of strate-
gies based upon Ansoff’s product/market
matrix. These strategies have enabled
Amway to build its business by continu-
ing to broaden its customer base and
enhance the service it offers to
Independent Business Owners, Members
and Clients.
5 Large business organisations need
to keep their business strategies
under constant review. Discuss
how Amway could assess the
business strategies illustrated
within this case study in order to
develop its business further.
Glossary of Keywords
Ansoff: H. I. Ansoff was born in Vladivostock in December 1918
with an American father and a Russian mother. He went on to
become a leading US industrialist. He further developed his career
as a university professor and became famous for his work on
strategic analysis and planning.
The Times Newspaper Limited and ©MBA Publishing Ltd 2001. Whilst every effort has been made to ensure accuracy of information, neither the publisher nor the clients can be held responsible for errors of omission or commission.
Competencies: Areas of activity in which a firm is particularly strong
eg research and development and product innovation.
Competition analysis: Analysis of competitors and their products to
find out how well the products and activities of competitors meet
customer needs.
Direct selling: Selling products via a network of Independent
Business Owners on a person-to-person basis, as distinct from
selling through retail stores.
Life-cycle: The process through which products pass from launch to
growth, and then from maturity through to decline.
Patent: A legal device that establishes for the holder of the patent
the right to be the sole user or producer of a new process or
product.
Research and Development: Innovative processes involving
scientific enquiry and product developments, aimed at meeting
current and anticipated customer needs.
Strategic capabilities: The competencies within an organisation
that enable it to counter threats and make the most of its
opportunities.
Strategic fit: Matching the resources of a business to the changing
business environment.
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