Topic3 Genrc Other Strtgs

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Topic3 Genrc Other Strtgs

  1. 1. The Five Generic Competitive Strategies
  2. 2. “ Competitive strategy is about being different. It means deliberately choosing to perform activities differently or to perform different activities than rivals to deliver a unique mix of value.” Michael E. Porter
  3. 3. Strategy and Competitive Advantage <ul><li>Competitive advantage exists when a firm’s strategy gives it an edge in </li></ul><ul><ul><li>Attracting customers and </li></ul></ul><ul><ul><li>Defending against competitive forces </li></ul></ul><ul><li>Convince customers firm’s product / service offers superior value </li></ul><ul><ul><li>A good product at a low price </li></ul></ul><ul><ul><li>A superior product worth paying more for </li></ul></ul><ul><ul><li>A best-value product </li></ul></ul>Key to Gaining a Competitive Advantage
  4. 4. What Is “Competitive Strategy”? <ul><li>Deals exclusively with a company’s business plans to compete successfully </li></ul><ul><ul><li>Specific efforts to please customers </li></ul></ul><ul><ul><li>Offensive and defensive moves to counter maneuvers of rivals </li></ul></ul><ul><ul><li>Responses to prevailing market conditions </li></ul></ul><ul><ul><li>Initiatives to strengthen its market position </li></ul></ul><ul><li>Narrower in scope than business strategy </li></ul>
  5. 5. 5 Generic Competitive Strategies
  6. 6. Low-cost leadership means Low overall costs, not just low manufacturing or production costs!
  7. 7. <ul><li>‘ Lower costs than rivals’ the theme of firm’s strategy </li></ul><ul><li>Only those features and services in product offering that buyers consider essential </li></ul><ul><li>Such approaches to achieve a cost advantage that would be difficult for rivals to copy or match </li></ul>Low-Cost - Keys to Success
  8. 8. Nucor Corporation’s Low-Cost Provider Strategy Eliminate some production processes from value chain used by traditional integrated steel mills; cut investment in facilities and equipment Strive hard for continuous improvement in the efficiency of its plants and frequently invest in state-of-the art equipment to reduce unit costs Carefully select plant sites to minimize inbound and outbound shipping costs and to take advantage of low rates for electricity Hire a nonunion workforce that uses team-based incentive compensation systems Heavily emphasize consistent product quality and maintain rigorous quality systems Minimize general and administrative expenses by maintaining a lean staff at corporate headquarters and allowing only 4 levels of management
  9. 9. <ul><li>Do a better job than rivals of performing value chain activities efficiently and cost effectively </li></ul><ul><li>Revamp value chain to bypass cost-producing activities that add little value from the buyer’s perspective </li></ul>Approaches to Securing a Cost Advantage Approach 1 Approach 2 Control costs! By-pass costs!
  10. 10. Approach 1: Controlling the Cost Drivers <ul><li>Capture scale economies; avoid scale diseconomies </li></ul><ul><li>Capture learning and experience curve effects </li></ul><ul><li>Manage costs of key resource inputs </li></ul><ul><li>Consider linkages with other activities in value chain </li></ul><ul><li>Find sharing opportunities with other business units </li></ul><ul><li>Compare vertical integration vs. outsourcing </li></ul><ul><li>Assess first-mover advantages vs. disadvantages </li></ul><ul><li>Control percentage of capacity utilization </li></ul><ul><li>Make prudent strategic choices related to operations </li></ul>
  11. 11. Approach 2: Revamping the Value Chain <ul><li>Make greater use of Internet technology applications </li></ul><ul><li>Use direct-to-end-user sales/marketing methods </li></ul><ul><li>Simplify product design </li></ul><ul><li>Offer basic, no-frills product/service </li></ul><ul><li>Shift to a simpler, less capital-intensive, or more flexible technological process </li></ul><ul><li>Find ways to bypass use of high-cost raw materials </li></ul><ul><li>Relocate facilities closer to suppliers or customers </li></ul><ul><li>Drop “something for everyone” approach and focus on a limited product/service </li></ul>
  12. 12. Keys to Success in Achieving Low-Cost Leadership <ul><li>Scrutinize each cost-creating activity, identifying cost drivers </li></ul><ul><li>Use knowledge about cost drivers to manage costs of each activity down year after year </li></ul><ul><li>Find ways to restructure value chain to eliminate nonessential work steps and low-value activities </li></ul><ul><li>Work diligently to create cost-conscious corporate cultures </li></ul><ul><ul><li>Feature broad employee participation in continuous cost-improvement efforts and limited perks for executives </li></ul></ul><ul><ul><li>Strive to operate with exceptionally small corporate staffs </li></ul></ul><ul><li>Aggressively pursue investments in resources and capabilities that promise to drive costs out of the business </li></ul>
  13. 13. When Does a Low-Cost Strategy Work Best? <ul><li>Price competition is vigorous </li></ul><ul><li>Limited Scope to achieve differentiation </li></ul><ul><li>Low switching costs </li></ul><ul><li>Buyers have significant bargaining power </li></ul><ul><li>For newcomers to use introductory low prices & build customer base </li></ul>
  14. 14. Pitfalls of Low-Cost Strategies <ul><li>Being overly aggressive in cutting price </li></ul><ul><li>Low cost methods are easily imitated by rivals </li></ul><ul><li>Becoming too fixated on reducing costs and ignoring </li></ul><ul><ul><li>Buyer interest in additional features </li></ul></ul><ul><ul><li>Declining buyer sensitivity to price </li></ul></ul><ul><ul><li>Changes in how the product is used </li></ul></ul><ul><li>Technological breakthroughs open up cost reductions for rivals </li></ul>
  15. 15. Differentiation Strategies <ul><li>Incorporate differentiating features that cause buyers to prefer firm’s product or service over brands of rivals </li></ul>Objective
  16. 16. Benefits of Successful Differentiation <ul><li>A product / service with unique, appealing attributes allows a firm to </li></ul><ul><ul><li>Command a premium price and/or </li></ul></ul><ul><ul><li>Increase unit sales and/or </li></ul></ul><ul><ul><li>Build brand loyalty </li></ul></ul><ul><li>= Competitive Advantage </li></ul>
  17. 17. Types of Differentiation Themes <ul><li>Multiple features -- MS Windows and Office </li></ul><ul><li>Wide selection and one-stop shopping -- Home Depot and Amazon.com </li></ul><ul><li>Spare parts availability -- Caterpillar </li></ul><ul><li>More for your money -- McDonald’s, Wal-Mart </li></ul><ul><li>Prestige -- Rolex </li></ul><ul><li>Quality manufacture -- Honda, Toyota </li></ul><ul><li>Technological leadership -- 3M Corporation </li></ul>
  18. 18. Sustaining Differentiation: Keys to Competitive Advantage <ul><li>Most appealing approaches to differentiation </li></ul><ul><ul><li>Those hardest for rivals to match or imitate </li></ul></ul><ul><ul><li>Those buyers will find most appealing </li></ul></ul><ul><li>Best choices to gain a longer-lasting, more profitable competitive edge </li></ul><ul><ul><li>New product innovation </li></ul></ul><ul><ul><li>Technical superiority </li></ul></ul><ul><ul><li>Product quality and reliability </li></ul></ul><ul><ul><li>Comprehensive customer service </li></ul></ul><ul><ul><li>Unique competitive capabilities </li></ul></ul>
  19. 19. Where to Find Differentiation Opportunities in the Value Chain <ul><li>Purchasing and procurement activities </li></ul><ul><li>Product R&D and product design activities </li></ul><ul><li>Production process / technology-related activities </li></ul><ul><li>Manufacturing / production activities </li></ul><ul><li>Distribution-related activities </li></ul><ul><li>Marketing, sales, and customer service activities </li></ul>Internally Performed Activities, Costs, & Margins Activities, Costs, & Margins of Suppliers Buyer/User Value Chains Activities, Costs, & Margins of Forward Channel Allies & Strategic Partners
  20. 20. How to Achieve a Differentiation-Based Advantage Approach 1 Incorporate features/attributes that raise the performance a buyer gets out of the product Approach 2 Incorporate features/attributes that enhance buyer satisfaction in non-economic or intangible ways Approach 3 Compete on the basis of superior capabilities Approach 4 Incorporate product features/attributes that lower buyer’s overall costs of using product
  21. 21. Importance of Perceived Value <ul><li>Buyers seldom pay for value that is not perceived </li></ul><ul><li>Price premium of a differentiation strategy reflects </li></ul><ul><ul><li>Value actually delivered to buyer & </li></ul></ul><ul><ul><li>Value perceived by the buyer </li></ul></ul>
  22. 22. When Does a Differentiation Strategy Work Best? <ul><li>There are many ways to differentiate a product that have value and please customers </li></ul><ul><li>Buyer needs and uses are diverse </li></ul><ul><li>Few rivals are following a similar differentiation approach </li></ul><ul><li>Technological change and product innovation are fast-paced </li></ul>
  23. 23. When Does a Differentiation Strategy Work Best? <ul><li>There are many ways to differentiate a product that have value and please customers </li></ul><ul><li>Buyer needs and uses are diverse </li></ul><ul><li>Few rivals are following a similar differentiation approach </li></ul><ul><li>Technological change and product innovation are fast-paced </li></ul>
  24. 24. Pitfalls of Differentiation Strategies <ul><li>Buyers see little value in unique attributes of product </li></ul><ul><li>Appealing product features are easily copied by rivals </li></ul><ul><li>Differentiating on a feature buyers do not perceive as lowering their cost or enhancing their well-being </li></ul><ul><li>Over-differentiating such that product features exceed buyers’ needs </li></ul><ul><li>Charging a price premium buyers perceive is too high </li></ul><ul><li>Not striving to open up meaningful gaps in quality, service, or performance features vis-à-vis rivals’ products </li></ul>
  25. 25. Best-Cost Provider Strategies <ul><li>Combine a strategic emphasis on low-cost with a strategic emphasis on differentiation </li></ul><ul><ul><li>Make an upscale product at a lower cost </li></ul></ul><ul><ul><li>Give customers more value for the money </li></ul></ul><ul><li>Deliver superior value by meeting or exceeding buyer expectations on product attributes and beating their price expectations </li></ul><ul><li>Be the low-cost provider of a product with good-to-excellent product attributes, then use cost advantage to underprice comparable brands </li></ul>Objectives
  26. 26. <ul><li>A best-cost provider’s competitive advantage comes from matching close rivals on key product attributes and beating them on price </li></ul><ul><li>Success depends on having the skills and capabilities to provide attractive performance and features at a lower cost than rivals </li></ul><ul><li>A best-cost producer can often out-compete both a low-cost provider and a differentiator when </li></ul><ul><ul><li>Standardized features/attributes won’t meet diverse needs of buyers </li></ul></ul><ul><ul><li>Many buyers are price and value sensitive </li></ul></ul>Competitive Strength of a Best-Cost Provider Strategy
  27. 27. <ul><li>A best-cost provider may get squeezed between strategies of firms using low-cost and differentiation strategies </li></ul><ul><ul><li>Low-cost leaders may be able to siphon customers away with a lower price </li></ul></ul><ul><ul><li>High-end differentiators may be able to steal customers away with better product attributes </li></ul></ul>Risk of a Best-Cost Provider Strategy
  28. 28. Focus / Niche Strategies <ul><li>Involve concentrated attention on a narrow piece of the total market </li></ul><ul><li>Serve niche buyers better than rivals </li></ul><ul><li>Choose a market niche where buyers have distinctive preferences, special requirements, or unique needs </li></ul><ul><li>Develop unique capabilities to serve needs of target buyer segment </li></ul>Objective Keys to Success
  29. 29. <ul><li>Geographic uniqueness </li></ul><ul><li>Specialized requirements in using product/service </li></ul><ul><li>Special product attributes appealing only to niche buyers </li></ul>Approaches to Defining a Market Niche
  30. 30. Examples of Focus Strategies <ul><li>eBay </li></ul><ul><ul><li>Online auctions </li></ul></ul><ul><li>Porsche </li></ul><ul><ul><li>Sports cars </li></ul></ul><ul><li>Jiffy Lube International </li></ul><ul><ul><li>Maintenance for motor vehicles </li></ul></ul><ul><li>Pottery Barn Kids </li></ul><ul><ul><li>Children’s furniture and accessories </li></ul></ul><ul><li>Bandag </li></ul><ul><ul><li>Specialist in truck tire recapping </li></ul></ul>
  31. 31. Focus / Niche Strategies and Competitive Advantage <ul><li>Achieve lower costs than rivals in serving the segment -- </li></ul><ul><li>A focused low-cost strategy </li></ul><ul><li>Offer niche buyers something different from rivals -- </li></ul><ul><li>A focused differentiation strategy </li></ul>Approach 1 Approach 2 Which hat is unique?
  32. 32. What Makes a Niche Attractive for Focusing? <ul><li>Big enough to be profitable and offers good growth potential </li></ul><ul><li>Not crucial to success of industry leaders </li></ul><ul><li>Costly or difficult for multi-segment competitors to meet specialized needs of niche members </li></ul><ul><li>Focuser has resources and capabilities to effectively serve an attractive niche </li></ul><ul><li>Few other rivals are specializing in same niche </li></ul><ul><li>Focuser can defend against challengers via superior ability to serve niche members </li></ul>
  33. 33. Risks of a Focus Strategy <ul><li>Competitors find effective ways to match a focuser’s capabilities in serving niche </li></ul><ul><li>Niche buyers’ preferences shift towards product attributes desired by majority of buyers – niche becomes part of overall market </li></ul><ul><li>Segment becomes so attractive it becomes crowded with rivals, causing segment profits to be splintered </li></ul>
  34. 34. Deciding Which Generic Competitive Strategy to Use <ul><li>Each positions a company differently in its market and competitive environment </li></ul><ul><li>Each establishes a central theme for how a company will endeavor to outcompete rivals </li></ul><ul><li>Each creates some boundaries for maneuvering as market circumstances unfold </li></ul><ul><li>Each points to different ways of experimenting with the basics of the strategy </li></ul><ul><li>Each entails differences in product line, production emphasis, marketing emphasis, and means to sustainthe strategy </li></ul>
  35. 35. Deciding Which Generic Competitive Strategy to Use <ul><li>Each positions a company differently in its market </li></ul><ul><li>Each establishes a central theme for how a company will endeavor to outcompete rivals </li></ul><ul><li>Each creates some boundaries for maneuvering as market circumstances unfold </li></ul><ul><li>Each points to different ways of experimenting with the basics of the strategy </li></ul><ul><li>Each entails differences in product line, production emphasis, marketing emphasis, and means to sustain the strategy </li></ul>The big risk – Selecting a “stuck in the middle” strategy! This rarely produces a sustainable competitive advantage or a distinctive competitive position.
  36. 36. Beyond Competitive Strategy Other Important Strategy Choices
  37. 37. “ Successful business strategy is about actively shaping the game you play, not just playing the game you find.” The Koran
  38. 38. Fig. 6.1: A Company’s Menu of Strategy Options
  39. 39. Strategic Alliances and Collaborative Partnerships <ul><li>Companies sometimes use strategic alliances or collaborative partnerships to complement their own strategic initiatives and strengthen their competitiveness. </li></ul>
  40. 40. Alliances Can Enhance a Firm’s Competitiveness <ul><li>Alliances and partnerships can help companies cope with two demanding competitive challenges </li></ul><ul><ul><li>Racing against rivals to build a market presence in many different national markets </li></ul></ul><ul><ul><li>Racing against rivals to seize opportunities on the frontiers of advancing technology </li></ul></ul><ul><li>Collaborative arrangements can help a company lower its costs and/or gain access to needed expertise and capabilities </li></ul>
  41. 41. Capturing the Full Potential of a Strategic Alliance <ul><li>Capacity of partners to defuse organizational frictions </li></ul><ul><li>Ability to collaborate effectively over time and work through challenges </li></ul><ul><ul><li>Technological and competitive surprises </li></ul></ul><ul><ul><li>New market developments </li></ul></ul><ul><ul><li>Changes in their own priorities and competitive circumstances </li></ul></ul><ul><li>Collaborative partnerships nearly always entail an evolving relationship whose competitive value depends on </li></ul><ul><ul><li>Mutual learning </li></ul></ul><ul><ul><li>Cooperation </li></ul></ul><ul><ul><li>Adaptation to changing industry conditions </li></ul></ul><ul><li>Competitive advantage emerges when a company acquires valuable capabilities via alliances it could not obtain on its own </li></ul>
  42. 42. Why Are Strategic Alliances Formed? <ul><li>To collaborate on technology development or new product development </li></ul><ul><li>To fill gaps in technical or manufacturing expertise </li></ul><ul><li>To acquire new competencies </li></ul><ul><li>To improve supply chain efficiency </li></ul><ul><li>To gain economies of scale in production and/or marketing </li></ul><ul><li>To acquire or improve market access via joint marketing agreements </li></ul>
  43. 43. Potential Benefits of Alliances to Achieve Global and Industry Leadership <ul><li>Get into critical country markets quickly to accelerate process of building a global presence </li></ul><ul><li>Gain inside knowledge about unfamiliar markets and cultures </li></ul><ul><li>Access valuable skills and competencies concentrated in particular geographic locations </li></ul><ul><li>Establish a beachhead to participate in target industry </li></ul><ul><li>Master new technologies and build new expertise faster than would be possible internally </li></ul><ul><li>Open up expanded opportunities in target industry by combining firm’s capabilities with resources of partners </li></ul>
  44. 44. Why Alliances Fail <ul><li>Ability of an alliance to endure depends on </li></ul><ul><ul><li>How well partners work together </li></ul></ul><ul><ul><li>Success of partners in adapting to changing conditions </li></ul></ul><ul><ul><li>Willingness of partners to renegotiate the bargain </li></ul></ul><ul><li>Reasons for alliance failure </li></ul><ul><ul><li>Diverging objectives and priorities </li></ul></ul><ul><ul><li>Changing conditions rendering purpose of alliance obsolete </li></ul></ul><ul><ul><li>Emergence of more attractive technological paths </li></ul></ul><ul><ul><li>Marketplace rivalry between one or more allies </li></ul></ul>
  45. 45. Merger and Acquisition Strategies <ul><li>Merger – Combination and pooling of equals, with newly created firm often taking on a new name </li></ul><ul><li>Acquisition – One firm, the acquirer, purchases and absorbs operations of another, the acquired </li></ul>
  46. 46. Objectives of Mergers and Acquisitions <ul><li>To pave way for acquiring firm to gain more market share and create a more efficient operation </li></ul><ul><li>To expand a firm’s geographic coverage </li></ul><ul><li>To extend a firm’s business into new product categories or international markets </li></ul><ul><li>To gain quick access to new technologies </li></ul><ul><li>To invent a new industry by convergence of industries whose boundaries are blurred </li></ul>
  47. 47. Pitfalls of Mergers and Acquisitions <ul><li>Combining operations may result in </li></ul><ul><ul><li>Resistance from rank-and-file employees </li></ul></ul><ul><ul><li>Hard-to-resolve conflicts in management styles and corporate cultures </li></ul></ul><ul><ul><li>Tough problems of integration </li></ul></ul><ul><ul><li>Greater-than-anticipated difficulties in </li></ul></ul><ul><ul><ul><li>Achieving expected cost-savings </li></ul></ul></ul><ul><ul><ul><li>Sharing of expertise </li></ul></ul></ul><ul><ul><ul><li>Achieving enhanced competitive capabilities </li></ul></ul></ul>
  48. 48. Vertical Integration Strategies <ul><li>Extend a firm’s competitive scope within same industry </li></ul><ul><ul><li>Backward into sources of supply </li></ul></ul><ul><ul><li>Forward toward end-users of final product </li></ul></ul><ul><li>Can aim at either full or partial integration </li></ul>Internally Performed Activities, Costs, & Margins Activities, Costs, & Margins of Suppliers Buyer/User Value Chains Activities, Costs, & Margins of Forward Channel Allies & Strategic Partners
  49. 49. Strategic Advantages of Backward Integration <ul><li>Generates cost savings only if volume needed is big enough to capture efficiencies of suppliers </li></ul><ul><li>Potential to reduce costs exists when </li></ul><ul><ul><li>Suppliers have sizable profit margins </li></ul></ul><ul><ul><li>Item supplied is a major cost component </li></ul></ul><ul><ul><li>Resource requirements are easily met </li></ul></ul><ul><li>Can produce a differentiation-based competitive advantage when it results in a better quality part </li></ul><ul><li>Reduces risk of depending on suppliers of crucial raw materials / parts / components </li></ul>
  50. 50. Strategic Advantages of Forward Integration <ul><li>To gain better access to end users and better market visibility </li></ul><ul><li>To compensate for undependable distribution channels which undermine steady operations </li></ul><ul><li>To offset the lack of a broad product line, a firm may sell directly to end users </li></ul><ul><li>To bypass regular distribution channels in favor of direct sales and Internet retailing which may </li></ul><ul><ul><li>Lower distribution costs </li></ul></ul><ul><ul><li>Produce a relative cost advantage over rivals </li></ul></ul><ul><ul><li>Enable lower selling prices to end users </li></ul></ul>
  51. 51. Strategic Disadvantages of Vertical Integration <ul><li>Boosts resource requirements </li></ul><ul><li>Locks firm deeper into same industry </li></ul><ul><li>Results in fixed sources of supply and less flexibility in accommodating buyer demands for product variety </li></ul><ul><li>Poses all types of capacity-matching problems </li></ul><ul><li>May require radically different skills / capabilities </li></ul><ul><li>Reduces flexibility to make changes in component parts which may lengthen design time and ability to introduce new products </li></ul>
  52. 52. <ul><li>Whether vertical integration is a viable strategic option depends on its </li></ul><ul><ul><li>Ability to lower cost, build expertise, increase differentiation, or enhance performance of strategy-critical activities </li></ul></ul><ul><ul><li>Impact on investment cost, flexibility, and administrative overhead </li></ul></ul><ul><ul><li>Contribution to enhancing a firm’s competitiveness </li></ul></ul>Pros and Cons of Integration vs. De-Integration Many companies are finding that de-integrating value chain activities is a more flexible, economic strategic option!
  53. 53. Outsourcing Strategies <ul><li>Outsourcing involves withdrawing from certain value chain activities and relying on outsiders to supply needed products, support services, or functional activities </li></ul>Concept Internally Performed Activities Suppliers Support Services Functional Activities Distributors or Retailers
  54. 54. When Does Outsourcing Make Strategic Sense? <ul><li>Activity can be performed better or more cheaply by outside specialists </li></ul><ul><li>Activity is not crucial to achieve a sustainable competitive advantage </li></ul><ul><li>Risk exposure to changing technology and/or changing buyer preferences is reduced </li></ul><ul><li>Operations are streamlined to </li></ul><ul><ul><li>Cut cycle time </li></ul></ul><ul><ul><li>Speed decision-making </li></ul></ul><ul><ul><li>Reduce coordination costs </li></ul></ul><ul><li>Firm can concentrate on “core” value chain activities that best suit its resource strengths </li></ul>
  55. 55. Strategic Advantages of Outsourcing <ul><li>Improves firm’s ability to obtain high quality and/or cheaper components or services </li></ul><ul><li>Improves firm’s ability to innovate by interacting with “best-in-world” suppliers </li></ul><ul><li>Enhances firm’s flexibility should customer needs and market conditions suddenly shift </li></ul><ul><li>Increases firm’s ability to assemble diverse kinds of expertise speedily and efficiently </li></ul><ul><li>Allows firm to concentrate its resources on performing those activities internally which it can perform better than outsiders </li></ul>
  56. 56. Pitfalls of Outsourcing <ul><li>Farming out too many or the wrong activities, thus </li></ul><ul><ul><li>Hollowing out capabilities </li></ul></ul><ul><ul><li>Losing touch with activities and expertise that determine overall long-term success </li></ul></ul>
  57. 57. Offensive and Defensive Strategies <ul><li>Used to build new or stronger market position and/or create competitive advantage </li></ul><ul><li>Used to protect competitive advantage (rarely used to create advantage) </li></ul>Offensive Strategies Defensive Strategies
  58. 58. Types of Offensive Strategies <ul><li>1. Initiatives to match or exceed competitor strengths </li></ul><ul><li>2. Initiatives to capitalize on competitor weaknesses </li></ul><ul><li>3. Simultaneous initiatives on many fronts </li></ul><ul><li>4. End-run offensives </li></ul><ul><li>5. Guerrilla offensives </li></ul><ul><li>6. Preemptive strikes </li></ul>
  59. 59. Attacking Competitor Strengths Objectives Challenging strong competitors with a lower price is foolhardy unless the aggressor has a cost advantage or advantage of greater financial strength! <ul><li>Whittle away at a rival’s competitive advantage </li></ul><ul><li>Gain market share by out-matching strengths of weaker rivals </li></ul>
  60. 60. <ul><li>Offer equally good product at a lower price </li></ul><ul><li>Develop low-cost edge, then use it to under-price rivals </li></ul><ul><li>Leapfrog into next-generation technologies </li></ul><ul><li>Add appealing new features </li></ul><ul><li>Run comparison ads </li></ul><ul><li>Construct new plant capacity in rival’s market strongholds </li></ul><ul><li>Offer a wider product line </li></ul><ul><li>Develop better customer service capabilities </li></ul>Options for Attacking a Competitor’s Strengths
  61. 61. Attacking Competitor Weaknesses <ul><li>Utilize company strengths to exploit a </li></ul><ul><li>rival’s weaknesses </li></ul>Weaknesses to Attack <ul><li>Customers that a rival is least equipped to serve </li></ul><ul><li>Rivals providing sub-par customer service </li></ul><ul><li>Rivals with weaker marketing skills </li></ul><ul><li>G eographic regions where rival is weak </li></ul><ul><li>Market segments a rival is neglecting </li></ul>Objective
  62. 62. Launching Simultaneous Offensives on Many Fronts A challenger with superior resources can overpower weaker rivals by out-competing them across-the-board long enough to become a market leader! Objective <ul><li>Launch several major initiatives to </li></ul><ul><ul><li>Throw rivals off-balance </li></ul></ul><ul><ul><li>Splinter their attention </li></ul></ul><ul><ul><li>Force them to use substantial resources to defend their position </li></ul></ul>
  63. 63. End-Run Offensives <ul><li>Maneuver around strong competitors </li></ul><ul><li>Capture unoccupied or less contested markets </li></ul><ul><li>Change rules of competition in aggressor’s favor </li></ul>Objectives
  64. 64. Approaches for End-Run Offensives <ul><li>Introduce new products that redefine market and terms of competition </li></ul><ul><li>Build presence in geographic areas where rivals have little presence </li></ul><ul><li>Create new segments by introducing products with different features to better meet buyer needs </li></ul><ul><li>Introduce next-generation technologies to leapfrog rivals </li></ul>
  65. 65. <ul><li>Use principles of surprise and hit-and-run to attack in locations and at times where conditions are most favorable to initiator </li></ul>Guerrilla Offenses Well-suited to small challengers with limited resources and market visibility Approach Appeal
  66. 66. Options for Guerrilla Offenses <ul><li>Make random, scattered raids on leaders’ customers </li></ul><ul><ul><li>Occasional low-balling on price </li></ul></ul><ul><ul><li>Intense bursts of promotional activity </li></ul></ul><ul><ul><li>Special campaigns to attract buyers from rivals plagued with a strike or delivery problems </li></ul></ul><ul><li>Challenge rivals encountering problems with quality or providing adequate technical support </li></ul><ul><li>File legal actions charging antitrust violations, patent infringements, or unfair advertising </li></ul>
  67. 67. Preemptive Strikes <ul><li>Involves moving first to secure an advantageous position that rivals are foreclosed or discouraged from duplicating! </li></ul>Approach
  68. 68. Preemptive Strike Options <ul><li>Secure exclusive/dominant access to best distributors </li></ul><ul><li>Secure best geographic locations </li></ul><ul><li>Tie up best or most sources of essential raw materials </li></ul><ul><li>Obtain business of prestigious customers </li></ul><ul><li>Expand capacity ahead of demand in hopes of discouraging rivals from following suit </li></ul><ul><li>Build an image in buyers’ minds that is unique or hard to copy </li></ul>
  69. 69. Choosing Rivals to Attack <ul><li>Four types of firms can be the target of a fresh offensive </li></ul><ul><ul><li>Vulnerable market leaders </li></ul></ul><ul><ul><li>Runner-up firms with weaknesses where challenger is strong </li></ul></ul><ul><ul><li>Struggling rivals on verge of going under </li></ul></ul><ul><ul><li>Small local or regional firms with limited capabilities </li></ul></ul>
  70. 70. Using Offensive Strategy to Achieve Competitive Advantage <ul><li>Strategic offensives offering strongest basis for competitive advantage entail </li></ul><ul><ul><li>An important core competence </li></ul></ul><ul><ul><li>A unique competitive capability </li></ul></ul><ul><ul><li>Much-improved performance features </li></ul></ul><ul><ul><li>An innovative new product </li></ul></ul><ul><ul><li>Technological superiority </li></ul></ul><ul><ul><li>A cost advantage in manufacturing or distribution </li></ul></ul><ul><ul><li>Some type of differentiation advantage </li></ul></ul>
  71. 71. Defensive Strategy Objectives <ul><li>Lessen risk of being attacked </li></ul><ul><li>Blunt impact of any attack that occurs </li></ul><ul><li>Influence challengers to aim attacks at other rivals </li></ul>Approaches <ul><li>Block avenues open to challengers </li></ul><ul><li>Signal challengers vigorous retaliation is likely </li></ul>
  72. 72. Block Avenues Open to Challengers <ul><li>Participate in alternative technologies </li></ul><ul><li>Introduce new features, add new models, or broaden product line to close gaps rivals may pursue </li></ul><ul><li>Maintain economy-priced models </li></ul><ul><li>Increase warranty coverage </li></ul><ul><li>Offer free training and support services </li></ul><ul><li>Reduce delivery times for spare parts </li></ul><ul><li>Make early announcements about new products or price changes </li></ul><ul><li>Challenge quality or safety of rivals’ products using legal tactics </li></ul><ul><li>Sign exclusive agreements with distributors </li></ul>
  73. 73. Signal Challengers Retaliation Is Likely <ul><li>Publicly announce management’s strong commitment to maintain present market share </li></ul><ul><li>Publicly commit firm to policy of matching rivals’ terms or prices </li></ul><ul><li>Maintain war chest of cash reserves </li></ul><ul><li>Make occasional counterresponse to moves of weaker rivals </li></ul>
  74. 74. Strategies for Using the Internet <ul><li>Strategic Challenge – What use of the Internet should a company make in staking out its position in the marketplace? </li></ul><ul><li>Five Approaches </li></ul><ul><ul><li>Use company web site solely to disseminate product information </li></ul></ul><ul><ul><li>Use company web site as a minor distribution channel for accessing customers and generating sales </li></ul></ul><ul><ul><li>Use company web site as one of several important distribution channels for accessing customers </li></ul></ul><ul><ul><li>Use company web site as primary distribution channel for accessing buyers and making sales </li></ul></ul><ul><ul><li>Use company web site as the exclusive channel for accessing buyers and conducting sales transactions </li></ul></ul>
  75. 75. Using the Internet to Disseminate Product Information <ul><li>Approach – Website used to provide product information of manufacturers or wholesalers </li></ul><ul><ul><li>Relies on click-throughs to websites of dealers for sales transactions </li></ul></ul><ul><ul><li>Informs end-users of location of retail stores </li></ul></ul><ul><li>Issues – Pursuing online sales may </li></ul><ul><ul><li>Signal weak strategic commitment to dealers </li></ul></ul><ul><ul><li>Signal willingness to cannibalize dealers’ sales </li></ul></ul><ul><ul><li>Prompt dealers to aggressively market rivals’ brands </li></ul></ul><ul><li>Avoids channel conflict with dealers – Important where strong support of dealer networks is essential </li></ul>
  76. 76. Using the Internet as a Minor Distribution Channel <ul><li>Approach – Use online sales to </li></ul><ul><ul><li>Achieve incremental sales </li></ul></ul><ul><ul><li>Gain online sales experience </li></ul></ul><ul><ul><li>Conduct marketing research </li></ul></ul><ul><ul><ul><li>Learn more about buyer tastes and preferences </li></ul></ul></ul><ul><ul><ul><li>Test reactions to new products </li></ul></ul></ul><ul><ul><ul><li>Create added market buzz about products </li></ul></ul></ul><ul><li>Unlikely to provoke much outcry from dealers </li></ul>
  77. 77. Brick-and-Click Strategies: An Appealing Middle Ground Approach <ul><li>Approach </li></ul><ul><ul><li>Sell directly to consumers and </li></ul></ul><ul><ul><li>Use traditional wholesale/retail channels </li></ul></ul><ul><li>Reasons to pursue a brick-and-click strategy </li></ul><ul><ul><li>Manufacturer’s profit margin from online sales is bigger than that from sales through traditional channels </li></ul></ul><ul><ul><li>Encouraging buyers to visit a firm’s website educates them to the ease and convenience of purchasing online </li></ul></ul><ul><ul><li>Selling directly to end users allows a manufacturer to make greater use of build-to-order manufacturing and assembly </li></ul></ul>
  78. 78. Strategies for Online Enterprises <ul><li>Approach – Use Internet as the exclusive channel for all buyer-seller contact and transactions </li></ul><ul><li>Success depends on a firm’s ability to incorporate following features </li></ul><ul><ul><li>Capability to deliver unique value to buyers </li></ul></ul><ul><ul><li>Deliberate efforts to engineer a value chain that enables differentiation, lower costs, or better value for the money </li></ul></ul><ul><ul><li>Innovative, fresh, and entertaining website </li></ul></ul><ul><ul><li>Clear focus on a limited number of competencies and a relatively specialized number of value chain activities </li></ul></ul><ul><ul><li>Innovative marketing techniques </li></ul></ul><ul><ul><li>Minimal reliance on ancillary revenues </li></ul></ul>
  79. 79. Choosing Appropriate Functional-Area Strategies <ul><li>Involves strategic choices about how functional areas are managed to support competitive strategy and other strategic moves </li></ul><ul><li>Functional strategies include </li></ul><ul><ul><li>Research and development </li></ul></ul><ul><ul><li>Production </li></ul></ul><ul><ul><li>Human resources </li></ul></ul><ul><ul><li>Sales and marketing </li></ul></ul><ul><ul><li>Finance </li></ul></ul>
  80. 80. First-Mover Advantages <ul><li>When to make a strategic move is often as crucial as what move to make </li></ul><ul><li>First-mover advantages arise when </li></ul><ul><ul><li>Pioneering helps build firm’s image and reputation </li></ul></ul><ul><ul><li>Early commitments to new technologies, new-style components, and distribution channels can produce cost advantage </li></ul></ul><ul><ul><li>Loyalty of first time buyers is high </li></ul></ul><ul><ul><li>Moving first can be a preemptive strike </li></ul></ul>
  81. 81. First-Mover Disadvantages <ul><li>Moving early can be a disadvantage (or fail to produce an advantage) when </li></ul><ul><ul><li>Costs of pioneering are sizable and loyalty of first time buyers is weak </li></ul></ul><ul><ul><li>Innovator’s products are primitive, not living up to buyer expectations </li></ul></ul><ul><ul><li>Rapid technological change allows followers to leapfrog pioneers </li></ul></ul>
  82. 82. Timing and Competitive Advantage Principle 1 Being a fast follower can sometimes yield as good a result as being a first mover Principle 2 Being a late-mover may or may not be fatal -- it varies with the situation Principle 3 Being a fast follower can sometimes yield as good a result as being a first mover

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