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Controlling or having something others do not have Doing something better than other organizations
Competitive strategies are designed to exploit an organizations competitive advantage Implies there are other competitors also trying to develop competitive advantage & attract customers Competitive advantage can be eroded easily (& often quickly) by rivals actions
Hyper-competition A situation of intense and continually increasing levels of competition in todays business environment
Supply Side
same products or providing the same service Describes industries according to number of sellers & the similarities or differences in the products or services
The number of sellers & level of product-service differences will affect how intensely competitive the industry is
Demand Side
customer needs How similar are the benefits that customers derive from the products and services that other firms offer? Intensity of competition depends on
How well the customer need is understood or defined How well different firms are able to meet that need
Industry
Market
Same Product-Service
Customer Needs
industry that have similar strategies & resources A single industry could have a few or several strategic groups depending on what strategic factors are important to different group of customers
Although McDonald's and Subway are both in the fast food business, they dont really take into account what the other is doing before formulating their strategies... On the other hand, Burger King and McDonald's have a lot in common both have a similar strategy of serving low priced fast food to the average family
Price Quality Geographic scope Product line breadth-depth R&D expenditures Product characteristics
If you were a customer, would you choose your product over those offered by others?
What irritates your current customers?
Some firms are able to pull it together & develop distinctive capabilities, others dont Competitive advantage implies gaining the edge on others using resources & capabilities As firms strive for sustainable CA, stage for competition is set - intense, moderate or low
Anjali Mukerjees Health Total (AMHT)is an 8-year old, Rs. 3 crore company in the market for health/fitness programmes. The company offers two related product lines: 3 health programmes and 9 health foods in the form of snacks. The brand aims at delivering 2 major promises: health and beauty through health. It has thus positioned itself on a health and beauty through nutrition platform, distinguishing itself from other fitness programmes such as Talwalkars, VLCC, etc. It caters to Sec A1,A, and B customers through 4 centres in Mumbai and 2 in New Delhi. In addition to the new products it is planning for delivering beauty through the health route, the company sees opportunities in preventive health care and is aiming at growth through collaboration in this area, expanding its presence into at least the top 10 Indian cities. The market for health/fitness and beauty programmes straddles the health care and the beauty industries, and is highly fragmented in structure. The health-and-fitness market may be segmented as below in terms of consumer perceptions: Health programmes such as AMHT National level fitness programmes such as Rama Bans, VLCC, Talwalkars Smaller local players in different parts of the country, of which there are scores Though there is a fair amount of overlap between health programmes and beauty programmes, some programmes such as Shahnaz Hussains and Jamuna Pais have been able to acquire a distinct consumer perception as exclusively beauty oriented programmes. The health/fitness and beauty programmes attract a lot of indirect competition from yoga and meditation pragrammes like Siddh Samadhi Yoga & from Ayurvedic Centres, gyms, and the like. This unstructured and fragmented nature of the market makes it difficult to guess its size and growth
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Providing buyer value comparable to competitors by performing value chain activities more efficiently cost based advantage
and / or
Performing value chain activities in unique ways that create greater buyer value than competitors and hence command a premium price differentiation based advantage
lower cost Performing a different set of activities or activities that are perceived as unique in the industry, and charging a premium
Competitive Advantage
Low Cost
Differentiation
Targeting the whole market with the chosen strategy Targeting a specific segment of the market
Broad
Differentiation
Market Scope
Narrow
Focus (Differentiation)
Differentiation of products and selling them at a premium price
Differentiation: Deliver unique & superior value in terms of product quality, features, service
Strategy focus: organize value adding activities to be the lowest cost producer of a product in an industry Low cost implies OVERALL LOW COST
Also, product quality cannot be ignored
Champion frugality Strict attention to production controls Rigorous use of budgets Limited market segmentation Emphasis on productivity improvements Distinctive capabilities found in manufacturing & materials management
A cost leader does not try to be an industry innovator The overriding goal is- increased efficiency & lower costs relative to rivals
All functional strategies & capabilities are directed at
efficiency
Doesnt have deep & wide product lines Market products aimed at average customer Little product differentiation: Little or no product frills or differences
possible
many suppliers There are few ways to achieve differentiation that have value Most buyers use product in same ways Buyers incur low switching costs Buyers are large and have significant bargaining power
Higher profits resulting from charging prices below that of competitors, because unit costs are lower
Even at same price more efficient cost leader generates
greater profitability
Increase in market share and sales by reducing the price below that charged by competitors (assuming price elasticity of demand)
Analysis of the value chain identifies where cost savings can be made in the various parts and links With a cost leadership strategy, the value chain must be organized to:
Reduce per unit costs by copying, rather than original
design, using cheaper resources, producing basic products, reducing labor costs and increasing labor productivity Achieve economies of scale by high-volume sales Using high-volume purchasing to get discounts Locating where costs are low
Cost Leadership
Being overly aggressive in cutting price Low cost methods are easily imitated by rivals Becoming too fixated on reducing costs and ignoring
Differentiation strategy focuses on changing customer perception about a product, i.e., that the product is superior to other products Based on actual superiority (superior features) or perceived superiority
Offer products/services that create value to customers Offer products/services not easily matched or easily copied by rivals Not spending more to differentiate the firms products or service than the price premium that can be charged
Every strategic decision & action is directed at setting the firm apart from competitors All functional strategies & capabilities are aimed at isolating & understanding specific market segments & developing product features that are valued by customers
Has broad and wide product lines -- many different models, features, price ranges, etc.
Controls costs but not as rigorous as the cost leader to preserve source of differentiation Competitive capabilities tend to be in marketing and research & development
desirable product
When there are many ways to differentiate a product and appeal to customers Buyer needs and uses are diverse Few rivals are following a similar type of differentiation approach Technological change is fast-paced and competition is focused on evolving product features
Products will get a premium price Demand for products is less price elastic than that for competitors products
Builds Brand Loyalty
as you develop greater brand equity through increased product quality & awareness . You develop greater brand loyalty.
The greater the loyalty.. the less the price sensitivity
Analysis of value chain identifies the parts through which superior products can be created and customer perception may be changed
in design, technology, performance, etc. Offer superior after-sales service Have superior distribution channels Create a strong brand name Create distinctive or superior packaging
Differentiation
1. Developing innovative products/services to broad range of customers 2. Significant investments in R&D 3. Capability to generate a series of successful new products over time
Difficulty in maintaining long-term distinction in customers eyes Agile competitors can quickly imitate
Expense of maintaining premium pricing requires greater marketing costs
Trying to differentiate on a feature buyers do not perceive as valuable Not understanding what customers want or prefer and differentiating on the wrong things Low-cost strategy can defeat a differentiation strategy when customers are satisfied with a standard product and do not see extra attributes as worth paying for! Over-differentiating such that product features exceed customers needs Charging a price premium that customers perceive is too high
Targets a segment of the product market, rather than the whole market or many markets
Segment is determined by the bases for segmentation
Geographical area Type of customer -- specific group of customers Specific & specialized product line
or narrow segment
in that market
Product features Product innovations Product quality Customer responsiveness
Focus Low-cost
Ikea: Young furniture buyers who want style at low cost (price
sensitive and low service customer groups) Southwest Airlines: Short-haul, point-to-point service between midsize cities & secondary airports in large cities (low pricing & low service)
Focus Differentiation
Rolex: Serve highest end of wristwatch market (premium
pricing & image) Rolls-Royce: Serving luxurious end of automobile market (premium pricing & image)
Lower investment costs required compared to a strategy aimed at the entire market or many markets It allows for specialization and greater knowledge
It makes entry into a new market more simple
The focuser can stay close to customers and respond quickly to their changing needs Focuser can develop strong brand loyalty which can be difficult for other competitors to overcome
Operates in small scale making it difficult to lower costs significantly. Technological advances have minimized this drawback Competitors find effective ways to match a focusers capabilities in serving niche market Niche can become part of the overall market Segment becomes so attractive it becomes crowded with rivals, causing segment profits to be splintered
Cost Leadership
Product Differentiation Low (principally by price)
Differentiation
High (principally by uniqueness) High (many market segments) Research and development sales and marketing
Focus
Low to High (price or uniqueness) Low (one or a few segments)
Industry Force
Entry Barriers Buyer Power
Generic Strategies
Cost Leadership
Ability to cut price in retaliation deters potential entrants. Ability to offer lower price to powerful buyers.
Differentiation
Customer loyalty can discourage potential entrants. Large buyers have less power to negotiate because of few close alternatives.
Focus
Focusing develops core competencies that can act as an entry barrier. Large buyers have less power to negotiate because of few alternatives. Suppliers have power because of low volumes, but a differentiation-focused firm is better able to pass on supplier price increases. Specialized products & core competency protect against substitutes.
Supplier Power
Threat of Substitutes
Customer's become attached to differentiating attributes, reducing threat of substitutes. Brand loyalty to keep customers from rivals.
Rivalry
Risks of Differentiation
Differentiation is not sustained: * Competitors imitate. * Bases for differentiation become less important to buyers.
Risks of Focus
The focus strategy is imitated. The target segment becomes structurally unattractive: * Structure erodes. * Demand disappears. Broadly targeted competitors overwhelm the segment: * The segments differences from other segments narrow. * The advantages of a broad line increase. New focusers sub-segment the industry
Happens when a firm is not successful in pursuing either a low-cost or differentiation strategy Occurs when a firms
Costs are too high to compete with the low-cost leader
Unprofitable strategic position/direction Becoming unstuck involves making consistent strategic decisions about what CA to pursue & doing so by aligning resources & capabilities
A hybrid strategy may be successful, although Porter argues that either differentiation or cost leadership must be used (a mix of the two leads to being stuck in the middle)
Cost leadership alone does not lead to sales of products Differentiation strategies may be used to increase sales volume,
Generic strategy doesnt create competitive advantage, rather it is a model to help an organization in analysis
Depends on Current firm resources & capabilities in place Fir resources & capabilities acquired & developed Each of Porters competitive strategies requires certain
Abell says that the standard two dimensional way of looking at a business (products and markets) has serious flaws. He suggests a three dimensional model, with 3 axes
Emphasizes that products are merely a physical manifestation of the application of a particular technology to the satisfaction of a particular function for a particular customer group. The choice is one of technologies, functions and customers to serve, not of products to offer. Central in the model is the Customer, not the Company itself
PROSPECTOR
Operates in a broad product-market domain Wants to be the 'first-mover' in a market, even if not profitable Rapid responses to early signals of opportunity Competes by meeting new market opportunities may not maintain strength over time in these markets Locates & maintains secure position in stable markets Offers limited range of products & services than competitors Protects its domain offers lower prices, higher quality, better service Not at the forefront of tech or new product development Intermediate type fewer changes than Prospector, more than Defender Maintains stable product line, but is careful about offering selected new developments Rarely the first-mover mostly enters 2nd or 3rd, with a low cost or high quality / service offering No well defined competitive strategy No consistent product-market orientation Not aggressive Reacts only when forced by environmental pressures
DEFENDER
ANALYZER
REACTOR
Copies promising new activities Operates in 2 markets (one stable, one variable)
Emphasizes efficiency in stable markets Emphasizes innovation In variable markets
Counter-parry: fending off a competitors attack in one country by attacking in another country
1. 2.
3.
4. 5. 6.
Preemptive strikes
Appeal Gain market share by out-matching strengths of weaker rivals Whittle away at a rivals competitive advantage
Challenging strong competitors with a lower price is risky, unless aggressor has a COST ADVANTAGE or advantage of GREATER FINANCIAL STRENGTH!
Offer equally good product at a lower price Develop low-cost edge, then use it to under-price rivals
Leapfrog into next-generation technologies Add appealing new features Run comparison ads
Construct new plant capacity in rivals market strongholds Offer a wider product line
Develop better customer service capabilities
Concentrate ones competitive strengths & resources directly against rivals weaknesses Concentrate on geographic regions where rival has weak market share Go after buyer segments rival is neglecting Go after more performance-conscious customers of rivals
Weaknesses to Attack:
Challenging rivals where they are most vulnerable is more likely to succeed than challenging them where they are strongest, ESPECIALLY when challenger possesses competitive advantage in areas where rivals are weak!
Eg. new product introductions coupled with increases in advertising and reductions in price)
Appeal A challenger with superior resources can overpower a weaker rival by outspending it across-the-board long enough to buy its way into the market
4. End-run offensives
Manoeuver around rival firms rather than meeting them head on
Objective
Appeal Force competitors into playing catch up Change rules of competition in aggressors favor
Build presence aggressively in new geographic markets where rivals have little or no market presence
Come up with more support services for customers
5. Guerrilla Offenses
Approach
Use principles of surprise & hit-and-run to attack in locations & at times where conditions are most favorable to initiator
Selectively capture market share from rival leaders when the lack of resources or market visibility prevents a full scale
offense
Appeal
Focus on narrow target weakly defended by rivals Challenge rivals where they are overextended & when they are encountering problems Make random scattered raids on leaders with Eg.: Sponsoring the Indian cricket team tactics such as
failed for Nike, as Reebok managed to Occasional low-balling on price put branded stickers on their bats, at Intense bursts of promotional activity far less cost but for a much greater return Legal actions charging antitrust violations,
Approach
Involves moving first to secure an advantageous position that rivals are discouraged from duplicating!
Expand capacity ahead of demand in hopes of discouraging rivals from following suit Tie up best or cheapest sources of essential raw materials Move to secure best geographic locations
Develop product features that deliver superior performance or Give more responsive customer service Escalate marketing effort
Objectives:
Lessen risk of being attacked Blunt impact of any attack that occurs Influence challengers to aim attacks at other rivals Strengthen firms present position Help sustain any competitive advantage held
Approach #1 Block avenues challengers can take in mounting offensive attacks Approach #2 Make it clear any challenge will be met with strong counterattack
Broaden product line to fill gaps rivals may go after Keep prices low on models that match rivals
Publicly commit firm to policy of matching prices & terms offered by rivals
1) 2) 3)
Always counter an attack with equal or greater force Defend every important market Be forever vigilant in scanning for potential attackers. Assess the strength of the competitor. Consider the amount of support that the attacker might muster from allies
4)
The best defense is to attack yourself. Attack your weak spots and rebuild yourself anew
Defensive strategies: the domain of the market leader
5)
Popular strategy for multinationals Respond to attack by attacking competitor in another country
Ex.: KodakWhen Fuji attacked Kodak in the
U.S., Kodak retaliated by attacking Fuji in Japan. Goodyear also attacked Michelin in Europe as response to attack in U.S.
WHEN to make a strategic move is often as crucial as WHAT move to make First-mover advantages arise WHEN
Pioneering helps build firms image & reputation Early commitments to raw material suppliers, new
technologies, & distribution channels can produce cost advantage Loyalty of first time buyers is high Moving first can be a preemptive strike
Arise WHEN
Costs of pioneering are sizable & loyalty of first time buyers is weak Rapid technological change allows followers to leapfrog pioneers Skills & know-how of pioneers are easily imitated by late movers It is easy for latecomers to crack market