Business strategy chapter (8)


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Business strategy chapter (8)

  1. 1. Published by 8 Tailoring Strategy Chapter Title to Fit Specific Industry and Company Situations Md. Tarikul Islam Lecturer in Marketing16/e PPT IIUC, DC Cell: 01716 388990 E-mail: . .
  2. 2. Matching Strategy to a Company’s Situation Nature of industry and competitive Most important conditionsdrivers shaping a firm’s strategic options fall into Firm’s competitive two categories capabilities, market position, best opportunities 8-2
  3. 3. Features of an Emerging Industry New and unproven market Proprietary technology Lack of consensus regarding which of several competing technologies will win out Low entry barriers Experience curve effects may permit cost reductions as volume builds Buyers are first-time users and marketing involves inducing initial purchase and overcoming customer concerns First-generation products are expected to be rapidly improved so buyers delay purchase until technology matures Possible difficulties in securing raw materials Firms struggle to fund R&D, operations and build resource capabilities for rapid growth 8-3
  4. 4. Strategy Options for Competing in Emerging Industries Win early race for industry leadership by employing a bold, creative strategy Push hard to perfect technology, improve product quality, and develop attractive performance features Consider merging with or acquiring another firm to  Gain added expertise  Pool resource strengths When technological uncertainty clears and a dominant technology emerges, try to capture any first-mover advantages by moving quickly Form strategic alliances with  Companies having related technological expertise or  Key suppliers 8-4
  5. 5. Strategy Options for Competing in Emerging Industries (continued) Pursue new customers and user applications Enter new geographical areas Makeit easy and cheap for first-time buyers to try product Focus advertising emphasis on  Increasing frequency of use  Creating brand loyalty Use price cuts to attract price-sensitive buyers 8-5
  6. 6. Strategic Hurdles for Companies in Emerging Industries Raising capital to finance initial operations until  Sales and revenues take off  Profits appear  Cash flows turn positive Developing a strategy to ride the wave of industry growth  What market segments to pursue  What competitive advantages to go after Managing the rapid expansion of facilities and sales to position a company to contend for industry leadership Defending against competitors trying to horn in on the company’s success 8-6
  7. 7. What Is the Key to Success forCompeting in Rapidly Growing Markets? A company needs a strategy predicated on growing faster than the market average so it Can boost its market share and Improve its competitive standing vis-à-vis rivals 8-7
  8. 8. Strategy Options for Competing in Rapidly Growing Markets Drivedown costs per unit to enable price reductions that attract droves of new customers Pursue rapid product innovation to  Set a company’s product offering apart from rivals  Incorporate attributes to appeal to growing numbers of customers Gain access to additional distribution channels and sales outlets Expand a company’s geographic coverage Expand product line to add models/styles to appeal to a wider range of buyers 8-8
  9. 9. Industry Maturity: The Standout Features Slowing demand breeds stiffer competition More sophisticated buyers demand bargains Greater emphasis on cost and service “Topping out” problem in adding production capacity Product innovation and new end uses harder to come by International competition increases Industry profitability falls Mergers and acquisitions reduce number of rivals 8-9
  10. 10. Strategy Options for Competing in a Mature Industry cut back marginal products and models Emphasize innovation in the value chain Strong focus on cost reduction Increase sales to present customers Purchase rivals at bargain prices Expand internationally Build new, more flexible competitive capabilities 8-10
  11. 11. Strategic Pitfalls in a Maturing Industry Employing a ho-hum strategy with no distinctive features thus leaving firm “stuck in the middle” Being slow to mount a defense against stiffening competitive pressures Concentrating on short-term profits rather than strengthening long-term competitiveness Being slow to respond to price-cutting Having too much excess capacity Overspending on marketing Failing to aggressively pursue cost reductions 8-11
  12. 12. Stagnant or Declining Industries: The Standout Features Demand grows more slowly than economy as whole (or even declines) Advancing technology gives rise to better- performing substitute products Customer group shrinks Changing lifestyles and buyer tastes Rising costs of complementary products Competitivebattle ensues among industry members for the available business 8-12
  13. 13. Strategy Options for Competing in a Stagnant or Declining Industry Pursue focus strategy aimed at fastest growing market segments Stress differentiation based on quality improvement or product innovation Work diligently to drive costs down  Cut marginal activities from value chain  Use outsourcing  Redesign internal processes to exploit e-commerce  Consolidate under-utilized production facilities  Add more distribution channels  Close low-volume, high-cost distribution outlets  Prune marginal products 8-13
  14. 14. End-Game Strategies for Declining Industries An end-game strategy can take either of two paths  Slow-exit strategy involving  Gradual phasing down of operations  Getting the most cash flow from the business  Fast-exit strategy involving  Disengaging from an industry during early stages of decline  Quick recovery of as much of a company’s investment as possible 8-14
  15. 15. Features of High-Velocity Markets Rapid-fire technological change Short product life-cycles Entry of important new rivals Frequentlaunches of new competitive moves Rapidlyevolving customer expectations 8-15
  16. 16. Fig. 8.1: Meeting the Challenge of High-Velocity Change 8-16
  17. 17. Strategy Options for Competing in High-Velocity Markets Invest aggressively in R&D Initiate fresh actions every few months Develop quick response capabilities  Shift resources  Adapt competencies  Create new competitive capabilities  Speed new products to market Use strategic partnerships to develop specialized expertise and capabilities Keep products/services fresh and exciting 8-17
  18. 18. Keys to Success in Competing in High Velocity Markets Cutting-edge expertise Speed in responding to new developments Collaboration with others Agility Innovativeness Opportunism Resource flexibility First-to-market capabilities 8-18
  19. 19. Competitive Features of a Fragmented Industry Absence of market leaders with large market shares or widespread buyer recognition Product/service is delivered to neighborhood locations to be convenient to local residents Buyer demand is so diverse that many firms are required to satisfy buyer needs Low entry barriers Absence of scale economies Market for industry’s product/service may be globalizing, thus putting many companies across the world in same market arena Exploding technologies force firms to specialize just to keep up in their area of expertise Industry is young and crowded with aspiring contenders, with no firm having yet developed recognition to command a large market share 8-19
  20. 20. Examples of Fragmented Industries Book publishing Landscaping and plant nurseries Auto repair Restaurant industry Public accounting Women’s dresses Meat packing Paperboard boxes Hotels and motels Furniture 8-20
  21. 21. Competing in a Fragmented Industry: The Strategy Options Construct and operate “formula” facilities Become a low-cost operator Specialize by product type Specialize by customer type Focus on limited geographic area 8-21
  22. 22. Fig. 8.2: Three Strategy Horizons for Sustaining Rapid Growth 8-22
  23. 23. Risks of Pursuing Multiple Strategy Horizons Firm should not pursue all options to avoid stretching itself too thin Pursuit of medium- and long-jump initiatives may cause firm to stray too far from its core competencies Competitive advantage may be difficult to achieve in medium- and long-jump businesses that do not mesh well with firm’s present resource strengths Payoffs of long-jump initiatives may prove elusive 8-23
  24. 24. Strategies Based on a Company’s Market Position Industry leaders Runner-up firms Weak or crisis-ridden firms 8-24
  25. 25. Industry Leaders: The Defining Characteristics Strong to powerful market position Well-known reputation Proven strategy strategic concern – How to sustain Key dominant leadership position 8-25
  26. 26. Strategy Options: Industry Leaders Stay-on-the-offensive strategy Fortify-and-defend strategy Muscle-flexing strategy 8-26
  27. 27. Stay-on-the-Offensive Strategies Be a first-mover, leading industry change Best defense is a good offense Concentrate on achieving a competitive advantage and then widening the advantage over time Relentlessly pursue continuous improvement and innovation, being first to market with  Technological improvements  New or better products  More attractive performance features  Customer service improvements 8-27
  28. 28. Stay-on-the-Offensive Strategies (continued) Aggressively seek out ways to  Cut operating costs  Establish competitive capabilities rivals cannot match  Make it easier for potential customers to switch their purchases from other firms to the leader’s own products Aggressively attack profit sanctuaries of important rivals Launch fresh initiatives to expand overall industry demand  Spur creation of new families of products  Make product more suitable for consumers in emerging-country markets  Discover new uses for product  Attract new users of product  Promote more frequent use Grow faster than industry, taking market share from rivals 8-28
  29. 29. Fortify-and-Defend Strategy Objectives Make it harder for new firms to enter and for challengers to gain ground Hold onto present market share Strengthen current market position Protect competitive advantage 8-29
  30. 30. Fortify-and-Defend Strategy: Strategic Options Increase advertising and R&D Provide higher levels of customer service Introduce more brands to match attributes of rivals Add personalized services to boost buyer loyalty Keep prices reasonable and quality attractive Build new capacity ahead of market demand Invest enough to remain cost competitive Patent feasible alternative technologies Sign exclusive contracts with best suppliers and distributors 8-30
  31. 31. Muscle-Flexing Strategy Objectives Play competitive hardball with smaller rivals that threaten leader’s position Signal smaller rivals that moves to cut into leader’s business will be hard fought Convince rivals they are better off playing “follow-the-leader” or else attacking each other rather the industry leader 8-31
  32. 32. Muscle-Flexing Strategy: Strategic Options Be quick to meet price cuts of rivals Counter with large-scale promotional campaigns if rivals boost advertising Offer better deals to rivals’ major customers Dissuade distributors from carrying rivals’ products Provide salespersons with documentation about weaknesses of competing products Make attractive offers to key executives of rivals Use arm-twisting tactics to pressure present customers not to use rivals’ products 8-32
  33. 33. Muscle-Flexing Strategy Risks Running afoul of antitrust laws Alienating customers with bullying tactics Arousing adverse public opinion 8-33
  34. 34. Types of Runner-up Firms Market challengers  Use offensive strategies to gain market share Focusers I’m trying!  Concentrate on serving a limited portion of market Perennial runners-up  Lack competitive strength to do more than continue in trailing position 8-34
  35. 35. Obstacles Runner-Up Firms Must Overcome When big size is a competitive asset, firms with small market share face obstacles in trying to strengthen their positions  Less access to economies of scale  Difficulty in gaining customer recognition  Inability to afford mass media advertising  Difficulty in funding capital requirements 8-35
  36. 36. Strategic Options for Runner-Up Firms Whenbig size provides larger rivals with a cost advantage, runner-up firms have two options  Build market share  Lower costs and prices to grow sales or  Out-differentiate rivals in ways to grow sales  Withdraw from market 8-36
  37. 37. Offensive Strategies for Runner-Up Firms: Building Market Share Acquire smaller rivals to expand company’s market reach and presence Find innovative ways to drive down costs to win customers from higher-priced rivals Craft an attractive differentiation strategy Pioneer a leapfrog technological breakthrough Be first-to-market with new or better products and build reputation for product leadership Outmaneuver slow-to-change market leaders in adapting to evolving market conditions and customer needs Forge strategic alliances with key distributors, dealers, or marketers of complementary products 8-37
  38. 38. Strategic Approaches for Runner-Up Firms1. Vacant niche strategy2. Specialist strategy3. Superior product strategy4. Distinctive image strategy5. Content follower strategy 8-38
  39. 39. Vacant Niche Strategy for Runner-Up Firms Focus strategy concentrated on end-use applications market leaders have neglected Characteristics of an ideal vacant niche  Sufficient size to be profitable  Growth potential  Well-suited to a firm’s capabilities  Hard for leaders to serve 8-39
  40. 40. Specialist Strategy for Runner-Up Firms Strategy concentrated on being a leader based on  Specific technology  Product uniqueness  Expertise in  Special-purpose products  Specialized know-how  Delivering distinctive customer services 8-40
  41. 41. Superior Product Strategy for Runner-Up Firms Differentiation-based focused strategy based on  Superior product quality or  Unique product attributes Approaches  Fine craftsmanship  Prestige quality  Frequent product innovations  Close contact with customers to gain input for better quality product 8-41
  42. 42. Distinctive Image Strategy for Runner-Up Firms Strategy concentrated on ways to stand out from rivals Approaches  Reputation for charging lowest price  Prestige quality at a good price  Superior customer service  Unique product attributes  New product introductions  Unusually creative advertising 8-42
  43. 43. Content Follower Strategy for Runner-Up Firms Strategy involves avoiding  Trend-setting moves and  Aggressive moves to steal customers from leaders Approaches  Do not provoke competitive retaliation  React and respond  Defense rather than offense  Keep same price as leaders  Attempt to maintain market position 8-43
  44. 44. Weak Businesses: Strategic Options Launch an offensive turnaround strategy (if resources permit) Employ a fortify-and-defend strategy (to the extent resources permit) Pursue a fast-exit strategy Adopt a harvest strategy (a slow-exit type of end-game strategy) 8-44
  45. 45. Achieving a Turnaround: The Strategic Options Sell off assets to generate cash and/or reduce debt Revise existing strategy Launch efforts to boost revenues Cut costs Combination of efforts 8-45
  46. 46. What Is a Harvest Strategy? Steers middle course between status quo and exiting quickly Involves gradually sacrificing market position in return for bigger near-term cash flow/profit Objectives  Short-term - Generate largest feasible cash flow  Long-term - Exit market 8-46
  47. 47. Types of Harvest Options Reduce operating expenses to rock-bottom Hold reinvestment to minimum Place little priority on new capital investments Emphasize stringent internal cost controls Trim advertising and promotion expenses Do not replace employees who leave Shave equipment maintenance 8-47
  48. 48. When Should a Harvest Strategy Be Considered? Industry’s long-term prospects are unattractive Building up business would be too costly Market share is increasingly costly to maintain Reduced levels of competitive effort will not trigger immediate fall-off in sales Firm can re-deploy freed-up resources in higher opportunity areas Business is not a major component of diversified firm’s portfolio of businesses 8-48