Posted in Marketing and Strategy Terms, Total Reads: 6297
Definition: Contraction Defense
In strategy, defensive strategies play a very important role especially for market leaders. The underlying theme for any defensive strategy is to maintain leadership in terms of market share. A number of strategies such as Position defense, Mobile defense, flanking defense etc are available.
One of them is the Contraction defense strategy. This technique is often used by the market leader and is often times seen as the last resort strategy as it involves giving up some portion of the business to maintain leadership.
In this the market leader withdraws from one segment of the market where it is not strong or profitable enough in order that the resources used in that segment may be withdrawn and be put to better use in a segment where chances of success are higher owing to greater strength of the leader. This could happen when there is extreme competition and leading to continuous bleeding or when there is not enough expertise in the leader to handle this business. This is also known as strategic withdrawal and frees up resources that the company can then put to use in areas where it has the critical mass and capability to succeed.
An illustration of when a market leader may put Contraction Defense to use is provided below:
TATA Motors has both Passenger and Commercial Vehicles in India. While it is the undisputed leader in commercial vehicles, its passenger vehicles division in India is running at quite a loss. At the same time the commercial vehicle space is heating up with foreign players such as MAN and Benz launching their trucks and also domestic players like Mahindra making a foray into the segment. So as a contraction defense strategy, TATA Motors may choose to withdraw from the passenger vehicles market and concentrate all its resources in the commercial vehicles segment to maintain its leadership position.