STRATEGY AND STRATEGY ANDCOMPETITIVEADVANTAGE MODULE 5.
Transcript of STRATEGY AND STRATEGY ANDCOMPETITIVEADVANTAGE MODULE 5.
STRATEGY AND STRATEGY AND
COMPETITIVE COMPETITIVE
ADVANTAGEADVANTAGE
MODULE 5
MODULE OUTLINEMODULE OUTLINE Five Generic Competitive Strategies Five Generic Competitive Strategies
Low-Cost Leadership Strategy Low-Cost Leadership Strategy Broad Differentiation Strategies Broad Differentiation Strategies Best-Cost Provider StrategiesBest-Cost Provider StrategiesFocus Strategies Based on Low CostFocus Strategies Based on Low CostFocus Strategies Based on DifferentiationFocus Strategies Based on Differentiation
Offensive StrategiesOffensive Strategies Defensive StrategiesDefensive Strategies Vertical Integration StrategiesVertical Integration Strategies First-Mover Advantages & DisadvantagesFirst-Mover Advantages & Disadvantages
STRATEGY & STRATEGY & COMPETITIVE ADVANTAGECOMPETITIVE ADVANTAGE
COMPETITIVE ADVANTAGE exists when firm has an edge in
Defending against competitive forces & securing
customer
KEY TO SUCCESSConvince customers firm’s product/service offers SUPERIOR VALUE
Offer buyers a good product at a lower price Use differentiation to provide a better product buyers think is worth a premium price
COMPETITIVE STRATEGY COMPETITIVE STRATEGY PRINCCIPLEPRINCCIPLE
Successful companies invest Successful companies invest Aggressively in creating sustainable Aggressively in creating sustainable Competitive advantage, for it is their Competitive advantage, for it is their Single most dependable contributorSingle most dependable contributor
To above average ROI!To above average ROI!
WAYS TOWAYS TO WINWIN A COMPETITIVE ADVANTAGE A COMPETITIVE ADVANTAGE
Become the low-cost producerBecome the low-cost producer
Make the best-made productMake the best-made product
Provide customer more value for the Provide customer more value for the money money
Save customer moneySave customer money
Provide superior customer service Provide superior customer service
Enhance performance buyer getsEnhance performance buyer gets
Provide more convenient locationsProvide more convenient locations
Make a more reliable & durable productMake a more reliable & durable product
COMPETITIVE STRATEGY:COMPETITIVE STRATEGY:DEFINITIONDEFINITION
COMPETITIVE STRATEGY consists of moves to COMPETITIVE STRATEGY consists of moves to
Attract customersAttract customers
Withstand competitive pressuresWithstand competitive pressures
Strengthen firm’s market positionStrengthen firm’s market position
OBJECTIVESOBJECTIVES
Earn a COMPETITIVE ADVANTAGEEarn a COMPETITIVE ADVANTAGE
Cultivate clientele LOYAL CUSTOMERSCultivate clientele LOYAL CUSTOMERS
COMPETITIVE STRATEGY, narrower in scope than COMPETITIVE STRATEGY, narrower in scope than business strategy, focuses on management’s plan to business strategy, focuses on management’s plan to compete successfullycompete successfully
THE FIVE GENERIC COMPETITIVETHE FIVE GENERIC COMPETITIVESTRATEGIESSTRATEGIES
Type of Advantage Sought
Broad RangeOf Buyers
BuyerSegmentOr Niche
BroadDifferentiation
Strategy
Overall Low-CostLeadership
Strategy
FocusedLow-CostStrategy
FocusedDifferentiation
Strategy
Best-CostProviderStrategy
Lower Cost Differentiation
MARKET TYPE
THE FIVE GENERIC THE FIVE GENERIC COMPETITIVE STRATEGIESCOMPETITIVE STRATEGIES
Striving to be the overall low-cost provider in Striving to be the overall low-cost provider in industryindustry
Striving to build customer loyalty by Striving to build customer loyalty by differentiating one’s product offerings differentiating one’s product offerings from rival’s productsfrom rival’s products
Striving to give customers more value for theStriving to give customers more value for themoney by combining an emphasis on low cost money by combining an emphasis on low cost with an emphasis on upscale differentiationwith an emphasis on upscale differentiation
THE FIVE GENERIC THE FIVE GENERIC COMPETITIVE STRATEGIESCOMPETITIVE STRATEGIES
Concentrating on a narrow buyer Concentrating on a narrow buyer segment, out competing rivals on basis of segment, out competing rivals on basis of lower costlower cost
Offering niche members a products or Offering niche members a products or service customized to needsservice customized to needs
LOW-COST LEADERSHIPLOW-COST LEADERSHIP
Objective
Open up a sustainable cost advantage over rivals, using lower-cost edge as basis to
Under price rivals & reap market share gainsor Earn higher profit margin selling at going price
LOW-COSY LEADERSHIPLOW-COSY LEADERSHIP
Keys to Success
Make achievement of low-cost relative to rivals the THEME Of firm’s business strategy Find ways to drive cists out of business year after-year
Low –Cost leadership means low OVERALL COSTS, Not just low
manufacturing or production costs!
OPENING UP A COST OPENING UP A COST ADVANTAGE OVER RIVALSADVANTAGE OVER RIVALS
Do better job of booting efficiency &Do better job of booting efficiency &controlling costs along value chain by controlling costs along value chain by out-managing rivals regarding both out-managing rivals regarding both structural & exceptional cost drivers structural & exceptional cost drivers
Revamp firm’s value chain to bypass Revamp firm’s value chain to bypass some cost-producing activities altogethersome cost-producing activities altogether
A combination of approaches 1 & 2A combination of approaches 1 & 2
OPENING UP A COST OPENING UP A COST ADVANTAGE OVER RIVALSADVANTAGE OVER RIVALS
Successful low-cost producers Successful low-cost producers aggressively pursue cost savings aggressively pursue cost savings throughout the value chain.throughout the value chain.
NO AREA IS OVERLOOKED !NO AREA IS OVERLOOKED !
NO COST-SAVING OPPORTUNITY IS NO COST-SAVING OPPORTUNITY IS IGNORES!IGNORES!
CONTROLLING CONTROLLING STRUCTURALSTRUCTURAL
COST DRIVERSCOST DRIVERS
Capture scales economies & avoid scales Capture scales economies & avoid scales diseconomies.diseconomies.Capture learning & experience curve Capture learning & experience curve effects consider linkages with other effects consider linkages with other activities in chain activities in chain Find sharing opportunities with other Find sharing opportunities with other business units in enterprisebusiness units in enterpriseCompare benefits of vertical integration vs.Compare benefits of vertical integration vs.outsourcingoutsourcingTake advantage of vocational variablesTake advantage of vocational variables
CONTROLLING CONTROLLING EXECUTIONAL EXECUTIONAL COST DRIVERSCOST DRIVERS
Capitalize on timing considerations Capitalize on timing considerations associated with-mover advantages associated with-mover advantages & disadvantages& disadvantages
Try to increase capacity utilization Try to increase capacity utilization
Consider cost impact of strategic Consider cost impact of strategic choices & operating decisionschoices & operating decisions
REVAMPING THE VALUE REVAMPING THE VALUE CHAINCHAIN
Simplify product design Simplify product design
Offer basic, no-frills product/serviceOffer basic, no-frills product/service
Reengineer core business processesReengineer core business processes
Shift to a simpler, less capita-intensive,Shift to a simpler, less capita-intensive,
or more streamlines technological processor more streamlines technological process
Use direct-to-end user sales & marketing Use direct-to-end user sales & marketing approaches.approaches.
Relocate facilities closer to suppliers or Relocate facilities closer to suppliers or customerscustomers
Pursue more vertical integration relative to rivalsPursue more vertical integration relative to rivals
Focus on limited product/service to meetFocus on limited product/service to meet special special needs of target segmentneeds of target segment
CHARATERISTICS OF A CHARATERISTICS OF A LOW-COST PROVIDERLOW-COST PROVIDER
Cost conscious organizational culture Spartan facilitiesLimited sparks & frills for executivesIntolerance of wasteIntensive screening of budget requestsEmployee participation in cost control efforts
Low-Cost producers championFRUGALITY while aggressively
INVESTING in cost-saving improvements!
WHAT MANAGERS HAVE TO DO WHAT MANAGERS HAVE TO DO TO ACHIEVE LOW-COST TO ACHIEVE LOW-COST
LEADERSHIPLEADERSHIP
Scrutinize each-creating activity, identifying cost Scrutinize each-creating activity, identifying cost driversdrivers
Use knowledge about cost drivers to manage Use knowledge about cost drivers to manage
Costs of each activity down further ear after Costs of each activity down further ear after year year
Consider fundamentally reengineering how Consider fundamentally reengineering how activities are performed & coordinated activities are performed & coordinated
Be entrepreneurial creative in cutting some Be entrepreneurial creative in cutting some
Activities out of value chain systemActivities out of value chain system
COMPETITIVE STRENGTHS OF A COMPETITIVE STRENGTHS OF A LOW-COST PROVIDER STRATEGYLOW-COST PROVIDER STRATEGY
Providers defenses against competitive forcesProviders defenses against competitive forces
RIVAL COMPETITORSRIVAL COMPETITORS- Better positioned to compete - Better positioned to compete offensively on basis of priceoffensively on basis of price
BUYERSBUYERS-Better protected from negotiating power of -Better protected from negotiating power of large customerslarge customers
SUPPLIERSSUPPLIERS- More insulted than competitors from - More insulted than competitors from powerful suppliers powerful suppliers
POTENTIAL ENTRANTSPOTENTIAL ENTRANTS- Low-cost provider’s pricing - Low-cost provider’s pricing power is a significant entry barrierpower is a significant entry barrier
SUBSTITUTESSUBSTITUTES- Better positioned to use low price as a - Better positioned to use low price as a
Defense against substitutes Defense against substitutes
WHEN A LOW-COST WHEN A LOW-COST PROVIDERPROVIDER
STRATEGY WORKS BESTSTRATEGY WORKS BEST
Price competition among rivals is dominant Price competition among rivals is dominant competitive force competitive force Industry’s product is a commodity-typeIndustry’s product is a commodity-typeitem readily available item readily available Few ways to achieve product differentiation Few ways to achieve product differentiation that have value to buyersthat have value to buyersMost buyers have similar Most buyers have similar needs/requirementsneeds/requirementsBuyers incur low switching costs changing Buyers incur low switching costs changing sellers sellers Buyers are large & have signification Buyers are large & have signification bargaining powerbargaining power
DRAWBACKS TO A LOW-COSTDRAWBACKS TO A LOW-COSTPROVIDER STRATEGYPROVIDER STRATEGY
Technical breakthroughs up cost reductions Technical breakthroughs up cost reductions for rivals, negating a low-cost provider’s for rivals, negating a low-cost provider’s efficiency advantagesefficiency advantages
Rivals find it comparatively easy or Rivals find it comparatively easy or inexpensive to imitate leader’s low cost inexpensive to imitate leader’s low cost methodsmethods
Low- cost provider becomes so fixated on Low- cost provider becomes so fixated on cost reduction it fails to respond tocost reduction it fails to respond to
Increased buyer desires for added Increased buyer desires for added qualityquality
or service featuresor service features
New developments in related products New developments in related products
Declining buyer sensitivity to priceDeclining buyer sensitivity to price
DIFFERENTIATION DIFFERENTIATION STRATEGIESSTRATEGIES
ObjectiveIncorporate differentiating features to cause buyers to preferFirm’s product/service over rivals’ brand
Key to Success
Find ways to differentiate to CREATE VALUE for buyers that are NOT EASILY COPIED by rivals Not spending more to differentiate than price premium to be Charged.
DIFFERENTIATION DIFFERENTIATION STRATEGIESSTRATEGIES
Successful differentiation allows firm Successful differentiation allows firm toto
Command a premium priceCommand a premium price
and/or increase unit sales and/or increase unit sales and/or build brand loyalty and/or build brand loyalty
APPROACHES TO DIFFERENTIATIONAPPROACHES TO DIFFERENTIATIONDifferent taste – Dr. PepperDifferent taste – Dr. PepperSuperior service – Federal ExpressSuperior service – Federal ExpressSpare parts availability – caterpillar Spare parts availability – caterpillar More for your money-McDonald’s, Wal-MartMore for your money-McDonald’s, Wal-MartEngineering design & performance- Mercedes Engineering design & performance- Mercedes Prestige-RolexPrestige-RolexQuality-Honda automobilesQuality-Honda automobilesTop-of-the-line image- Ralph LaurenTop-of-the-line image- Ralph LaurenTechnological leadership-3M corporationTechnological leadership-3M corporationUnconditional satisfaction-L.L. BeanUnconditional satisfaction-L.L. Bean
Where to look for Where to look for Differentiation Differentiation OpportunitiesOpportunities
Purchasing & procurement activitiesPurchasing & procurement activities
Product-oriented R&D activitiesProduct-oriented R&D activities
Production process-oriented R&D Production process-oriented R&D activitiesactivities
Outbound logistics & distribution Outbound logistics & distribution activitiesactivities
Marketing, sales, & service activitiesMarketing, sales, & service activities
ACHIEVING A DIFFERENTIATION ACHIEVING A DIFFERENTIATION BASED COMPETITIVE ADVANTAGEBASED COMPETITIVE ADVANTAGE
Option 1
Incorporate product attributes & user features that lower buyer’s costs in using product
Option 2Incorporate features that raise performance buyer gets outOf product
Option 3Incorporate features that raise performance buyer satisfactionIn non-economic/intangible ways.
SIGNALS OF VALUESIGNALS OF VALUE
Buyers often judge value on basis of SIGNALSBuyers often judge value on basis of SIGNALSPrice where it connotes qualityPrice where it connotes qualityHow “ well known “ brand is said to be How “ well known “ brand is said to be whether seller has “prestige” customerswhether seller has “prestige” customers
SIGNALS OF VALUE may be as important asSIGNALS OF VALUE may be as important asACTUAL VALUE when ACTUAL VALUE when
Differences among competing brands are Differences among competing brands are subjective subjective Buyers are making first-time purchasesBuyers are making first-time purchasesRepurchase is infrequent Repurchase is infrequent Buyers are unsophisticatedBuyers are unsophisticated
COMPETITIVE STRENGTHS OF A COMPETITIVE STRENGTHS OF A DIFFERENTIATION STRATEGYDIFFERENTIATION STRATEGYProvides defenses against competitive Provides defenses against competitive forces RIVAL COMPETITORS- Buyersforces RIVAL COMPETITORS- Buyersdevelop loyalty to brand they like develop loyalty to brand they like bestbestBUYERS-Mitigates bargaining power of large BUYERS-Mitigates bargaining power of large buyers since other products are less buyers since other products are less attractive SUPPLIERS – Seller may be in attractive SUPPLIERS – Seller may be in better position to POTENTIAL ENTRANTS- better position to POTENTIAL ENTRANTS- Buyer loyalty acts as entry barrierBuyer loyalty acts as entry barrierSUBSTITUTES- Better positioned to fend off SUBSTITUTES- Better positioned to fend off threats of substitutes based on customers’ threats of substitutes based on customers’ attachment to differentiating attributesattachment to differentiating attributes
WHAT KIND OF WHAT KIND OF DIFFERENTIATION TO DIFFERENTIATION TO
PURSUEPURSUE
Most appealing types of differentiation strategies Those LEAST subject to imitation
Most likely to product an attractive, longer-lastingEdge when it’s based on :
Technical superiorityQualityGiving customers more support servicesGiving customers more value for moneyCore competencies
WHEN A DIFFERENTIATIONWHEN A DIFFERENTIATIONSTRATEGY WORKS BESTSSTRATEGY WORKS BESTS
There are many ways to differentiate There are many ways to differentiate
product/service & differences are perceived product/service & differences are perceived by buyer to have value by buyer to have value
Buyer needs & uses of item are diverseBuyer needs & uses of item are diverse
Not many rivals are following a similar Not many rivals are following a similar
type of differentiation approachtype of differentiation approach
Differentiation strategies are most powerful when buyer needs & preferences are too diverseTo be satisfied by a standardized product!
PITFALLS OF A PITFALLS OF A DIFFERENTIATION DIFFERENTIATION
STRATEGYSTRATEGYTrying to differentiate on a feature Trying to differentiate on a feature buyers do not perceive as lowering their buyers do not perceive as lowering their cost or enhancing their well-beingcost or enhancing their well-beingOver-differentiating such that product Over-differentiating such that product features exceed buyer’s needsfeatures exceed buyer’s needsCharging a price premium that buyers Charging a price premium that buyers perceive is too high perceive is too high Ignoring need to signal value, depending Ignoring need to signal value, depending onlyonlyon “ real” bases of differentiationon “ real” bases of differentiationNot identifying what buyers will consider Not identifying what buyers will consider as valueas value
COMPETITIVE STRATEGY COMPETITIVE STRATEGY PRINCIPLEPRINCIPLE
A low-cost producer strategy can defeat aDifferentiation strategy when buyers are Satisfied with a standard product and do
not See extra attribution as worth paying Additional money to obtain!
BEST-COST PRODUCER BEST-COST PRODUCER STRATEGYSTRATEGY
Combines a strategic emphasis on Combines a strategic emphasis on low-low-costcost with a strategic emphasis on with a strategic emphasis on
differentiation differentiation
Make an upscale product at a lower Make an upscale product at a lower costcost
Give customers more value for theGive customers more value for the moneymoney
Objectives
Create superior value by MEETING EXCEEDING buyer expectationOn product attributes & BEATING their price expectationsBe the low-cost producer of a product with GOOD-TO-EXCELLENTProduct attributes, then use cost advantage to UNDERPRICE Comparable brands
BEST-COST PRODUCER BEST-COST PRODUCER STRATEGYSTRATEGY
Keys to Success
Matching close rivals on key attributes & beating them on cost
Expertise in incorporating upscale product attributes at a lower Than rivals
Ability to contain costs by providing buyers a BETTER product
POWER OF BEST-COSTPOWER OF BEST-COSTPRODUCER STRATEGYPRODUCER STRATEGY
Competitive advantage comes from MATCHING Competitive advantage comes from MATCHING close rivals on key product attributes & close rivals on key product attributes & BEATING them on priceBEATING them on price
Most successful best-cost producers have skills Most successful best-cost producers have skills to SIMUL TANEOUSLY manage costs down & to SIMUL TANEOUSLY manage costs down & product caliber upwardproduct caliber upward
Best-cost producer can often out-compete both Best-cost producer can often out-compete both a low-cost provider & a differentiatora low-cost provider & a differentiator where where
Buyer diversity makes product Buyer diversity makes product differentiation the norm anddifferentiation the norm and
Many buyers are price & value Many buyers are price & value sensitivesensitive
COMPETITIVE STRATEGY COMPETITIVE STRATEGY PRINCIPLEPRINCIPLE
The most powerful competitive approach a company Can pursue is striving relentlessly to become a lower
and lower cost producer of a higher and higher caliber product, with the eventual intent of becoming the
Industry’s absolute lowest cost producer and, Simultaneously, the producer of the industry’s
Overall best product!
FOCUS/NICHE STRATEGIESFOCUS/NICHE STRATEGIES
ObjectivesDo a better job of serving buyers in target market niche than rivals
Keys to Success
Choose a market niche where buyers have distinctive preferences,Special requirements, or unique needsDevelop a unique ability to serve needs of target buyer segment
APPROACHES TO FOCUSINGAPPROACHES TO FOCUSING
Approach # 1
Achieve LOWER COSTS than rivals in serving the segment-A low-cost strategy
Approach # 2
Offer niche buyers SOMETHING DIFFERENT from rivals – A differentiation strategy
EXAMPLES: FOCUS EXAMPLES: FOCUS STRATEGIESSTRATEGIES
Rolls RoyceRolls Royce
Luxury automobilesLuxury automobiles
Apple ComputerApple Computer
Desktop publishingDesktop publishing
Fort Howard PaperFort Howard Paper
Paper products for industrial/commercial firmsPaper products for industrial/commercial firms
Commuter airlinesCommuter airlines
Link major airports with small population Link major airports with small population centerscenters
Motel 6Motel 6
Caters to price-conscious travelersCaters to price-conscious travelers
WHAT MAKE A SEGMENTWHAT MAKE A SEGMENTATTRACTIVE FOR FOCUSING?ATTRACTIVE FOR FOCUSING?
Big enough to be profitableBig enough to be profitable
Good growth potentialGood growth potential
Not crucial to success of major competitorsNot crucial to success of major competitors
Focusing firm has resources to effectively Focusing firm has resources to effectively serve serve
segmentsegment
Focusing can defend itself againstFocusing can defend itself against
Challengers via customer goodwill & its Challengers via customer goodwill & its superior ability to serve buyers in segmentsuperior ability to serve buyers in segment
POWER OF FOCUS STRATEGYPOWER OF FOCUS STRATEGY
Competitive power is greatest when Competitive power is greatest when industry has industry has fast-growing segmentsfast-growing segments
Big enough to be profitable BUTBig enough to be profitable BUTSmall enough to be of secondary Small enough to be of secondary interest to large rivalsinterest to large rivals
No other rivals are concentrating on No other rivals are concentrating on segmentsegmentBuyers in segment requireBuyers in segment require
Specialized expertise ORSpecialized expertise ORCustomized product attributesCustomized product attributes
COMPETITIVE STRENGTHSCOMPETITIVE STRENGTHSOF A FOCUS STRATEGYOF A FOCUS STRATEGY
Provides defenses against competitiveProvides defenses against competitiveforcesforcesRIVAL COMPETITORS- Rivals do not have RIVAL COMPETITORS- Rivals do not have ability to meet specialized needs of ability to meet specialized needs of target clientele target clientele POTENTIAL Entrants- Focuser’s core POTENTIAL Entrants- Focuser’s core competence can act as a barriercompetence can act as a barrierSUBSTITUTES-Focuser’s core SUBSTITUTES-Focuser’s core competencecompetenceprovides obstacle to sellers of substitutes provides obstacle to sellers of substitutes BUYERS-Focuser’s unique ability to meet BUYERS-Focuser’s unique ability to meet power of largest niche buyerspower of largest niche buyers
WHEN DOES A FOCUS STRATEGY WHEN DOES A FOCUS STRATEGY WORK BEST?WORK BEST?
It is costly or difficult for multi-segment It is costly or difficult for multi-segment rivals to serve specialized needs of rivals to serve specialized needs of target niche target niche
No other rivals are concentrating on No other rivals are concentrating on same segmentsame segment
Firm’s resources do not permit it to go Firm’s resources do not permit it to go after a wider portion of marketafter a wider portion of market
Industry has many different segments,Industry has many different segments,
creating more focusing opportunitiescreating more focusing opportunities
RISKS OF A FOCUS STRATEGYRISKS OF A FOCUS STRATEGY
Broad –line competitors may find Broad –line competitors may find effective ways to match focused firm in effective ways to match focused firm in serving target marketserving target market
Niche buyer’s preferences may move Niche buyer’s preferences may move
towards product attributes desired by towards product attributes desired by market as a wholemarket as a whole
Segment may become so appealing itSegment may become so appealing it
becomes crowded with aggressive rivals,becomes crowded with aggressive rivals,
causing segment profiles to be split causing segment profiles to be split many waysmany ways
OFFENSIVE & DEFENSIVE OFFENSIVE & DEFENSIVE STRATEGIESSTRATEGIES
Nearly always results in successful Nearly always results in successful achievement of competitive advantageachievement of competitive advantage
Can protect competitive advantage, Can protect competitive advantage, butbut
RARELY are the basis for achieving RARELY are the basis for achieving competitive advantagecompetitive advantage
The Building and Eroding of The Building and Eroding of Competitive AdvantageCompetitive Advantage
Size of competitive Advantage
Buildup Period Benefit Period Erosion Period
Strategic MoveProduceCompetitiveAdvantage
Size of CompetitiveAdvantageAchieved
Moves byRivalsReduceCompetitiveAdvantage
TIME
BUILDING & ERODING OFBUILDING & ERODING OF COMPETITIVE ADVANTAGECOMPETITIVE ADVANTAGE
Offensive strategic moves succeed in Offensive strategic moves succeed in producing a competitive advantage – producing a competitive advantage –
Ideally, buildup period is shortIdeally, buildup period is short
Length is governed by how long it takes rivals Length is governed by how long it takes rivals to respond effectively enough to close gapto respond effectively enough to close gap
Characterized by launch of counter offensives Characterized by launch of counter offensives of rivals to attack advantage & whittle it of rivals to attack advantage & whittle it awayaway
PRINCIPLEPRINCIPLE
Any competitive advantage Any competitive advantage
currently held Will eventually be currently held Will eventually be
eroded by the actions of eroded by the actions of
competent, resourcefulcompetent, resourceful
competitors! competitors!
OPTION FOR MOUNTING OPTION FOR MOUNTING STRATEGY OFFENSIVESTRATEGY OFFENSIVE
Initiatives to match or exceed rivals’Initiatives to match or exceed rivals’StrengthsStrengthsInitiatives to capitalize on rivals’ Initiatives to capitalize on rivals’ weaknessesweaknessesSimultaneous initiatives on many Simultaneous initiatives on many fronts End-run offensivesfronts End-run offensivesGuerrilla warfare tacticsGuerrilla warfare tacticsPreemptive strikesPreemptive strikes
Attacking competitorsAttacking competitorsstrengthsstrengths
Gain market share by out-matching Gain market share by out-matching strengths of weaker rivalsstrengths of weaker rivalsWhittle away at a rival’s competitive Whittle away at a rival’s competitive advantageadvantage
Challenging strong competitors with a Challenging strong competitors with a lower price is foolhardy unless lower price is foolhardy unless aggressor has a COST ADVANTAGE or aggressor has a COST ADVANTAGE or advantage of GREATERadvantage of GREATERFINANCIAL STRENGT!FINANCIAL STRENGT!
ATTACKING ATTACKING COMPETITORCOMPETITORSTRENGHSSTRENGHS
Under price rivals Under price rivals Boost advertisingBoost advertisingIntroduce new features to appeal Introduce new features to appeal
to to rivals’ customers.rivals’ customers.
Attack with equally good product & Attack with equally good product & lower price lower price
Develop low-cost edge, use it to Develop low-cost edge, use it to under price rivals.under price rivals.
ATTACKING COMPETOTOR ATTACKING COMPETOTOR WEAKNESSESWEAKNESSES
Concentrate one’s competitive strengths & Concentrate one’s competitive strengths & resources directly against rivals’ weaknessesresources directly against rivals’ weaknesses
Concentrate on geographic regions where Concentrate on geographic regions where has weak market share has weak market share Go after more performance-conscious customers Go after more performance-conscious customers of rivals who lag behind challengerof rivals who lag behind challengerAttack rivals with weaker advertising & brand Attack rivals with weaker advertising & brand recognition.recognition.
Competitive Strategy Competitive Strategy PrinciplePrinciple
Challenging rivals where they are most vulnerable is more likely to succeed than challenging themWhere they are strongest ESPECIALLY whenChallenger possesses competitive advantage in
Areas where rivals are weak!
LAUNCHING OFFENSIVELAUNCHING OFFENSIVEON MANY FRONTS ON MANY FRONTS
Launch several major initiatives to Launch several major initiatives to Throw rival off-balance,Throw rival off-balance,Splinter its attention in many Splinter its attention in many
directions, and force it to use directions, and force it to use substantial resources to defend its substantial resources to defend its position position
A challenger with superior resources can A challenger with superior resources can Overpower a weaker rival by outspending Overpower a weaker rival by outspending
it across-the-board long enough to “ buy it across-the-board long enough to “ buy its way into the market” .its way into the market” .
END-RUN OFFENSIVESEND-RUN OFFENSIVES
DODGE head-to-head confrontations DODGE head-to-head confrontations that escalate competitive intensity and that escalate competitive intensity and RISK cutthroat competition– Attempt toRISK cutthroat competition– Attempt toMANEUVER AROUND competition.MANEUVER AROUND competition.
Gain first-mover advantage in a new Gain first-mover advantage in a new arena Force competitors into playing arena Force competitors into playing catch up change rules of competition in catch up change rules of competition in aggressor’s favor. aggressor’s favor.
END-RUN OFFENSIVES:END-RUN OFFENSIVES:APPROACHESAPPROACHES
Move aggressively into new geographic Move aggressively into new geographic marketsmarkets
Where rivals have no market presence Where rivals have no market presence Introduce products with different attributes & Introduce products with different attributes & Features to better meet buyer needsFeatures to better meet buyer needsIntroduce next-generation technologies &Introduce next-generation technologies &leapfrog rivalsleapfrog rivalsCome up with more support services for Come up with more support services for
customerscustomers
GUERRILLA OFFENSESGUERRILLA OFFENSES
Use principles of surprise & hit-and-Use principles of surprise & hit-and-runrun
To attack in locations & at times To attack in locations & at times where conditions are most where conditions are most favorable to initiator favorable to initiator
Well-suited to small challengers with Well-suited to small challengers with limited resourceslimited resources
GUERRILLA OFFENES:GUERRILLA OFFENES:OPTIONSOPTIONS
Focus on narrow target weakly defended by Focus on narrow target weakly defended by rivals challenge rivals where they are rivals challenge rivals where they are overextended & when they are encountering overextended & when they are encountering problemsproblemsMake random scattered raids on leaders Make random scattered raids on leaders with tactics such as with tactics such as
Occasional low-balling on priceOccasional low-balling on priceIntense bursts of promotional activityIntense bursts of promotional activityLegal actions charging antitrust violations,Legal actions charging antitrust violations,patent infringements, & unfair advertisingpatent infringements, & unfair advertising
PREEMPTIVE STRIKESPREEMPTIVE STRIKES
Involves moving first to secure an Involves moving first to secure an advantageous position that rivals advantageous position that rivals are are
foreclosed or discouraged from foreclosed or discouraged from duplicating !duplicating !
PREEMPTIVE STRIKES: PREEMPTIVE STRIKES: OPTIONSOPTIONS
Expand capacity ahead of demand in hopes of Expand capacity ahead of demand in hopes of discouraging rivals from following suit discouraging rivals from following suit Tie up best or cheapest sources of essential raw Tie up best or cheapest sources of essential raw materials materials Move to secure best geographic locationsMove to secure best geographic locationsObtain business of prestigious customers Obtain business of prestigious customers Build an image in buyers’ minds that is unique & Build an image in buyers’ minds that is unique & hard to copy hard to copy Secure exclusive or dominant access to best Secure exclusive or dominant access to best distributorsdistributorsAcquire desirable, but struggling, competitorAcquire desirable, but struggling, competitor
CHOOSING WHOM TO CHOOSING WHOM TO ATTACKATTACK
Four types of firms at which to aim an Four types of firms at which to aim an offensive offensive
Market leadersMarket leaders
Runner-up firmsRunner-up firms
Struggling rivals on verge of going Struggling rivals on verge of going under under
Small local/regional firms not doing Small local/regional firms not doing the jobthe job
OFFENSIVE STRATEGY &OFFENSIVE STRATEGY &COMPETITIVE ADVANTAGECOMPETITIVE ADVANTAGE
Competitive advantage areas offering Competitive advantage areas offering strongest basis for a strongest basis for a STRATEGIC OFFENSIVE STRATEGIC OFFENSIVE
Develop lower-cost product operations Develop lower-cost product operations that lower costs or enhance that lower costs or enhance
differentiation differentiation Develop product features that deliver superiorDevelop product features that deliver superiorperformance or lower users’ costsperformance or lower users’ costsGive more responsive customer serviceGive more responsive customer serviceEscalate marketing effortEscalate marketing effortPioneer new distribution channelPioneer new distribution channelSell direct to end-usersSell direct to end-users
OFFENSIVE STRATEGY & OFFENSIVE STRATEGY & COMPETITIVE ADVANTAGECOMPETITIVE ADVANTAGE
Chances for strategic success are improved when offensive is tied to
what firm best:Key skill
Strong function competence
DEFENSIVE STRATEGYDEFENSIVE STRATEGY
Lesson risk of being attacked Lesson risk of being attacked
Blunt impact of any attack that Blunt impact of any attack that occursoccurs
Influence challengers to aim attacks Influence challengers to aim attacks at other rivalsat other rivals
Strengthen firm’s present position Strengthen firm’s present position
Help sustain any competitive Help sustain any competitive advantage heldadvantage held
DEFENSIVE STRATEGIES:DEFENSIVE STRATEGIES:APPROACHESAPPROACHES
Block avenues challengers can Block avenues challengers can take in take in
mounting offensive attacksmounting offensive attacks
Make it clear any challenge will be Make it clear any challenge will be met with strong counterattack.met with strong counterattack.
DEFENSIVE STRATEGIES:DEFENSIVE STRATEGIES:APPROACH#1APPROACH#1
Broaden product line to fill gaps rivals may go after Broaden product line to fill gaps rivals may go after Keep prices low on models that match rivals Keep prices low on models that match rivals Sign exclusive agreements distributorsSign exclusive agreements distributorsOffer free training buyers’ personnelOffer free training buyers’ personnelGive better credit terms to buyersGive better credit terms to buyersReduce delivery times for spare partsReduce delivery times for spare partsIncrease warranty overages Increase warranty overages Patent alternative technologiesPatent alternative technologiesSign exclusive contracts with best suppliersSign exclusive contracts with best suppliersProtect proprietary know-howProtect proprietary know-how
DEFENSIVE STRATEGIES :DEFENSIVE STRATEGIES :APPROACH #2APPROACH #2
Publicly announce management’s strongPublicly announce management’s strongCommitment to maintain present market shareCommitment to maintain present market sharePublicly announce plans to construct new Publicly announce plans to construct new production capacity to meet forecasted demand production capacity to meet forecasted demand Give out advance information about new products, Give out advance information about new products, technological breakthroughs, & other moves technological breakthroughs, & other moves Publicly commit firm to policy of matching & terms Publicly commit firm to policy of matching & terms offered by rivalsoffered by rivalsMaintain war chest of cash reserves Maintain war chest of cash reserves Make occasional counter-responses to rivals’ Make occasional counter-responses to rivals’ moves moves
VERTICAL INTEGRATIONVERTICAL INTEGRATIONSTRATEGIESSTRATEGIES
Vertical integration extends a firm’s competitiveVertical integration extends a firm’s competitive
Scope within same industry Scope within same industry
BACKWARD into sources of supply BACKWARD into sources of supply
FORWARD toward end-users of final FORWARD toward end-users of final productproduct
Moves to vertically integrate can aim Moves to vertically integrate can aim becoming becoming
FULLY INTEGRATEDFULLY INTEGRATED
PARTIALLY INTEGRATEDPARTIALLY INTEGRATED
COMPETITIVE STRATEGY COMPETITIVE STRATEGY PRINCIPLEPRINCIPLE
A vertical integration strategy has appeal ONLY if it Significantly strengthens a firm’s competitive
Position!
APPEAL OF APPEAL OF BACKWARD INTEGRATION BACKWARD INTEGRATION
Generates cost savings only if volume Generates cost savings only if volume Needed is big enough to capture efficiencies of Needed is big enough to capture efficiencies of
suppliers cost saving potential is strongest when suppliers cost saving potential is strongest when Suppliers have sizable profit marginsSuppliers have sizable profit marginsItem being supplied is a major costItem being supplied is a major cost
componentcomponentNecessary technical skills are easily mastered Necessary technical skills are easily mastered
A differentiation-based competitive advantage arises A differentiation-based competitive advantage arises when firm ends up with a better quality part spares when firm ends up with a better quality part spares firm uncertainty of depending on suppliers of firm uncertainty of depending on suppliers of crucial raw materialscrucial raw materials
APPEAL OF FORWARDAPPEAL OF FORWARDINTEGRATIONINTEGRATION
Advantageous for firm to set up its own wholesale retail distribution network if
Undependable distribution channelsUndermine into distribution & retailing may be cheaper than going through independent distributorsMay help achieve greater product differentiation, allowing escape from price-oriented competition for manufacturer, may provide better access to ultimate consumer.
STRATEGIC STRATEGIC DISADVANTAGES DISADVANTAGES
OF VERTICAL OF VERTICAL INTEGRATIONINTEGRATION
Boosts capital requirementsBoosts capital requirementsResults accommodating buyer demands Results accommodating buyer demands for product varietyfor product varietyExtends firm’s scope of activity, locking it Extends firm’s scope of activity, locking it deeper into industrydeeper into industryPoses problems of balancing capacity at Poses problems of balancing capacity at each stage of value chaineach stage of value chainRequires radically different skills & Requires radically different skills & capabilitiescapabilitiescan reduce firm’s manufacturing flexibility,can reduce firm’s manufacturing flexibility,Lengthening design time & ability to Lengthening design time & ability to introduce new products introduce new products
UNBUNDLING & UNBUNDLING & OUTSOURCINGOUTSOURCING
STRSTEGIESSTRSTEGIES
Concept
Involves withdrawing from certain stages in value chainSystem and relying on outside vendors to perform neededActivities and services
ADVANTAGES OF ADVANTAGES OF OUTSOURCING STRATEGIESOUTSOURCING STRATEGIES
Activity can be performed better or more Activity can be performed better or more cheaply by outside specialistscheaply by outside specialistsActivity is not crucial to achieving competitive Activity is not crucial to achieving competitive advantageadvantageReduces firm’s risk exposure to changing Reduces firm’s risk exposure to changing technology and/or changing buyer preference technology and/or changing buyer preference streamlines firm operations in ways to streamlines firm operations in ways to
cut cycle timecut cycle timeSpeed decision-makingSpeed decision-makingReduce coordination costsReduce coordination costs
Allows firm to concentrate on its core Allows firm to concentrate on its core businessbusiness
PROS & CONS OF PROS & CONS OF VERTICAL INTEGRATIONVERTICAL INTEGRATIONUse of a vertical integration strategy Use of a vertical integration strategy depends on if it can enhance performance of depends on if it can enhance performance of strategy critical activities to EITHERstrategy critical activities to EITHER
Lower costs ORLower costs ORIncrease differentiation impact onIncrease differentiation impact on
Investment costs Investment costs Flexibility & response times Flexibility & response times Administrative overhead of Administrative overhead of
coordinationcoordinationif a competitive advantage can be createdif a competitive advantage can be created
FIRST-MOVER ADVANTAGESFIRST-MOVER ADVANTAGES
WHEN to make a strategic move is often WHEN to make a strategic move is often as crucial as WHAT move to makeas crucial as WHAT move to makeFirst-mover advantages arise WHEN First-mover advantages arise WHEN Pioneering helps build firm’s image &Pioneering helps build firm’s image &reputationreputationEarly commitments to raw material Early commitments to raw material suppliers, new technologies, & suppliers, new technologies, & distribution channels can produce cost distribution channels can produce cost advantageadvantageLoyalty of first time buyers is highLoyalty of first time buyers is highMoving first can be a preemptive strikeMoving first can be a preemptive strike
FIRST-MOVER DISADVANTAGESFIRST-MOVER DISADVANTAGES
Arise WHENArise WHENCosts of pioneering are sizable & Costs of pioneering are sizable &
loyalty of first loyalty of first
time buyers is weaktime buyers is weak
Rapid technological change allows Rapid technological change allows followers to followers to Leapfrog pioneers Leapfrog pioneers
Skills & know-how of pioneers are Skills & know-how of pioneers are easilyeasily
imitated by latecomers to crack marketimitated by latecomers to crack market
FIRST- MOVER FIRST- MOVER DISADVANTAGESDISADVANTAGES
Arise WHEN Arise WHEN
Costs of pioneering are sizable & Costs of pioneering are sizable & loyalty of first time buyers is weakloyalty of first time buyers is weak
Rapid technological change allows Rapid technological change allows followers to leapfrog & know-how of followers to leapfrog & know-how of pioneers are easily imitated by late pioneers are easily imitated by late moversmovers
It is easy for latecomers to crack market It is easy for latecomers to crack market