Competitive Strategy Mod

Competitive StrategyCompetitive Strategy

IntroductionIntroductionHaving aHaving a competitive advantage competitive advantage is is

necessary for a firm to compete in the necessary for a firm to compete in the marketmarket

But what is more important is whether the But what is more important is whether the competitive advantage is sustainablecompetitive advantage is sustainable

A firm must identify its position relative to A firm must identify its position relative to the competition in the marketthe competition in the market

By knowing if it is a leader, challenger, follower or nicher, it can adopt appropriate strategies to compete

Sustainable Competitive Sustainable Competitive AdvantageAdvantage

A good strategist seeks not only to “win the A good strategist seeks not only to “win the hill, but hold on to it.”hill, but hold on to it.” Subash JainSubash Jain

Sustaining competitive advantage requires Sustaining competitive advantage requires erecting barriers against the competitionerecting barriers against the competition

Aakers suggested looking at the following:Aakers suggested looking at the following: How you competeHow you compete Basis of competitionBasis of competition Where you competeWhere you compete Whom you are competing againstWhom you are competing against

Examples of SCAExamples of SCA For many years, Singapore Airlines were For many years, Singapore Airlines were

riding on its SCA of having the best in-flight riding on its SCA of having the best in-flight service service

As more airlines improved their service and As more airlines improved their service and narrowed the gap, SIA sought other narrowed the gap, SIA sought other competitive advantages among which are competitive advantages among which are The most modern fleet The most modern fleet Outstanding Service on the Ground Outstanding Service on the Ground A super entertainment system in its cabinsA super entertainment system in its cabins Comfort in its First Class cabins at an unparallel Comfort in its First Class cabins at an unparallel

levellevel

Sun Tze’s defensive strategySun Tze’s defensive strategy

““Do not assume the enemy will not come Do not assume the enemy will not come but be prepared for his coming… but be prepared for his coming… Do not presume he will not attack, Do not presume he will not attack, but instead make your own position but instead make your own position

unassailable.”unassailable.”

Sun Tze’s Offensive StrategiesSun Tze’s Offensive Strategies

Overt-offensive strategyOvert-offensive strategyTo knock out a business rival so as to To knock out a business rival so as to

take over his companytake over his companyTo knock out a competing product so as To knock out a competing product so as

to take over its market shareto take over its market share

Covert-offensive strategyCovert-offensive strategyKeep as low a profile as possible while Keep as low a profile as possible while

making offensive movesmaking offensive moves

Strategies for Market LeadersStrategies for Market Leaders

Market Leader’s objectives:Market Leader’s objectives: Expand the total market byExpand the total market by

Finding new usersFinding new users Creating new uses, andCreating new uses, and Encouraging more usageEncouraging more usage

Protect its current market share byProtect its current market share by Adopting defense strategies (see following Adopting defense strategies (see following

slides)slides)

Increase its market shareIncrease its market share Note the relationship between market share Note the relationship between market share

and profitabilityand profitability

Which strategy to use?Which strategy to use?

Depends on your answer to the Depends on your answer to the following:following:

Is it worth fighting?Is it worth fighting?Are you strong enough to fight?Are you strong enough to fight?How strong is your defense?How strong is your defense?Do you have any choice but to fight?Do you have any choice but to fight?

Hypothetical Market Structure & Hypothetical Market Structure & StrategiesStrategies

40%40%

Marketleader

30%30%

Marketchallenger

20%20%

Marketfollower

Expand MarketDefend Market ShareExpand Market Share

Attack leaderStatus quo

Imitate

10%10%

Marketnicher

Specialize

Defense StrategiesDefense Strategies

(3) Preemptive defense

(4) Counter-offense

(3) Preemptive defense

(4) Counter-offense

ATTACKERATTACKER

DEFENDERDEFENDER

(1)Position

(5)Mobile

(5)Mobile

(2) Flank(2) Flank

(6) Contraction

(6) Contraction

Defense StrategyDefense Strategy

A market leader should generally adopt a A market leader should generally adopt a defense strategydefense strategy

Six commonly used defense strategiesSix commonly used defense strategies Position DefensePosition Defense Mobile DefenseMobile Defense Flanking DefenseFlanking Defense Contraction DefenseContraction Defense Pre-emptive DefensePre-emptive Defense Counter-Offensive DefenseCounter-Offensive Defense

Defense Strategy (cont’d)Defense Strategy (cont’d)

Position DefensePosition Defense Least successful of the defense strategies Least successful of the defense strategies ““A company attempting a fortress A company attempting a fortress

defense will find itself retreating from line defense will find itself retreating from line after line of fortification into shrinking after line of fortification into shrinking product markets.” Saunders (1987)product markets.” Saunders (1987)

e.g. Mercedes was using a position e.g. Mercedes was using a position defense strategy until Toyota launched a defense strategy until Toyota launched a frontal attack with its Lexus. frontal attack with its Lexus.


Mobile DefenseMobile Defense By market broadening and By market broadening and

diversificationdiversification For marketing broadening, there is a For marketing broadening, there is a

need toneed toRedefine the business (principle of Redefine the business (principle of

objective), andobjective), andFocus efforts on the competition (the Focus efforts on the competition (the

principle of mass)principle of mass)


Flanking Defense: Flanking Defense: Secondary markets (flanks) are the Secondary markets (flanks) are the

weaker areas and prone to being weaker areas and prone to being attackedattacked

Pay attention to the flanksPay attention to the flanks


Contraction DefenseContraction DefenseWithdraw from the most vulnerable Withdraw from the most vulnerable

segments and redirect resources to segments and redirect resources to those that are more defendablethose that are more defendable

By planned contraction or strategic withdrawal

e.g. e.g. India’s TATA Group sold its soaps and detergents business units to Unilever in 1993


Pre-emptive DefensePre-emptive DefenseDetect potential attacks and attack Detect potential attacks and attack

the enemies firstthe enemies first Let it be known how it will retaliateLet it be known how it will retaliate Product or brand proliferation is a Product or brand proliferation is a

form of pre-emptive defense e.g. form of pre-emptive defense e.g. Seiko has over 2,000 modelsSeiko has over 2,000 models


Counter-Offensive DefenseCounter-Offensive DefenseResponding to competitors’ head-on Responding to competitors’ head-on

attack by identifying the attacker’s attack by identifying the attacker’s weakness and then launch a counter weakness and then launch a counter attackattack

e.g. Toyota launched the Lexus to e.g. Toyota launched the Lexus to respond to Mercedes attackrespond to Mercedes attack

Market Challenger StrategiesMarket Challenger Strategies

The market challengers’ strategic The market challengers’ strategic objective is to gain market share and to objective is to gain market share and to become the leader eventuallybecome the leader eventually

How?How? By attacking the market leaderBy attacking the market leader By attacking other firms of the same By attacking other firms of the same

sizesize By attacking smaller firmsBy attacking smaller firms

Market Challenger Strategies Market Challenger Strategies (cont’d)(cont’d)

Types of Attack StrategiesTypes of Attack Strategies Frontal attackFrontal attack Flank attackFlank attack Encirclement attackEncirclement attackBypass attackBypass attackGuerrilla attackGuerrilla attack

Attack StrategiesAttack Strategies

AttackerDefender

(3) Encirclement attack

(4) Bypass attack

(2) Flank attack

(1) Frontal attack

(5) Guerilla attack

Specific Attack StrategiesSpecific Attack Strategies

Price-discountPrice-discountCheaper goodsCheaper goods Prestige goodsPrestige goods Product proliferationProduct proliferation Product innovationProduct innovation Improved servicesImproved servicesDistribution innovationDistribution innovationManufacturing cost reductionManufacturing cost reduction Intensive advertising promotionIntensive advertising promotion

Frontal Attack Frontal Attack

Seldom work Seldom work unlessunlessThe challenger has sufficient fire-power The challenger has sufficient fire-power

(a 3:1 advantage) and staying power, (a 3:1 advantage) and staying power, andand

The challenger has clear distinctive The challenger has clear distinctive advantage(s) advantage(s)

e.g. Japanese and Korean firms e.g. Japanese and Korean firms launched frontal attacks in various launched frontal attacks in various ASPAC countries through quality, ASPAC countries through quality, price and low cost price and low cost

Flank attackFlank attack

Attack the enemy at its weak Attack the enemy at its weak points or blind spots i.e. its flankspoints or blind spots i.e. its flanks

Ideal for challenger who does not Ideal for challenger who does not have sufficient resourceshave sufficient resources

Encirclement attackEncirclement attack

Attack the enemy at many fronts Attack the enemy at many fronts at the same timeat the same time

Ideal for challenger having superior Ideal for challenger having superior resourcesresources

e.g. Seiko attacked on fashion, e.g. Seiko attacked on fashion, features, user preferences and features, user preferences and anything that might interest the anything that might interest the consumerconsumer

Bypass attackBypass attack

By diversifying into unrelated By diversifying into unrelated products or markets neglected by products or markets neglected by the leaderthe leader

Could overtake the leader by using Could overtake the leader by using new technologiesnew technologies

e.g. Pepsi use a bypass attack e.g. Pepsi use a bypass attack strategy against Coke in China by strategy against Coke in China by locating its bottling plants in the locating its bottling plants in the interior provincesinterior provinces

Guerrilla attackGuerrilla attackBy launching small, intermittent By launching small, intermittent

hit-and-run attacks to harass and hit-and-run attacks to harass and destabilize the leaderdestabilize the leader

Usually use to precede a stronger Usually use to precede a stronger attackattack

e.g. airlines use short promotions e.g. airlines use short promotions to attack the national carriers to attack the national carriers especially when passenger loads in especially when passenger loads in certain routes are lowcertain routes are low

Which Attack Strategy should a Which Attack Strategy should a Challenger Choose?Challenger Choose?

Use a combination of several Use a combination of several strategies to improve market strategies to improve market share over timeshare over time

Market-Follower StrategiesMarket-Follower Strategies

Theodore Levitt in his article, Theodore Levitt in his article, “Innovative Imitation”“Innovative Imitation” argued that a argued that a product imitation strategy might be product imitation strategy might be just as profitable as a product just as profitable as a product innovation strategyinnovation strategy

e.g. e.g. Product innovation--SonyProduct innovation--Sony

Product-imitation--PanasonicProduct-imitation--Panasonic

Market-Follower Strategies (cont’d)Market-Follower Strategies (cont’d) Each follower tries to bring distinctive Each follower tries to bring distinctive

advantages to its target market--location, advantages to its target market--location, services, financingservices, financing

Four broad follower strategies:Four broad follower strategies: Counterfeiter (which is illegal)Counterfeiter (which is illegal) Cloner e.g. the IBM PC clonesCloner e.g. the IBM PC clones Imitator e.g. car manufacturers imitate the Imitator e.g. car manufacturers imitate the

style of one anotherstyle of one another Adapter e.g. many Japanese firms are Adapter e.g. many Japanese firms are

excellent adapters initially before developing excellent adapters initially before developing into challengers and eventually leadersinto challengers and eventually leaders

Market-Nicher StrategiesMarket-Nicher Strategies

Smaller firms can avoid larger firms Smaller firms can avoid larger firms by targeting smaller markets or by targeting smaller markets or niches that are of little or no interest niches that are of little or no interest to the larger firmsto the larger firms

e.g. Logitech--micee.g. Logitech--mice

Microbrewers--special beersMicrobrewers--special beers

Market Follower StrategiesMarket Follower Strategies

CounterfeiterCounterfeiterClonerCloner ImitatorImitatorAdapterAdapter

NichemanshipNichemanship End-user specialistEnd-user specialist Vertical-level specialistVertical-level specialist Customer-size specialistCustomer-size specialist Specific-customer specialistSpecific-customer specialist Geographic specialistGeographic specialist Product or product-line specialistProduct or product-line specialist Product-feature specialistProduct-feature specialist Job-shop specialistJob-shop specialist Quality-price specialistQuality-price specialist Service specialistService specialist Channel specialistChannel specialist

Competitive Strategy Mod

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