Sem ii-topic-8-comp adv

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  • 1. CREATING COMPETETIVE ADVANTAGE COMPETETIVE ADVANTAGE IS SAID TO EXIST WHEN A CO USES ITS DISTINCTIVE SKILL/RESOURCES TO CAPITALISE ON THE OPPORTUNITIES PRESENT IN THE MARKET. PORTERS FIVE FORCE MODEL FACTORS EFFECTING COMPANY ADVANTAGE EXTENT/INTENSITY OF RIVALRY THREAT OF SUBSTITUTES BUYER POWER – BARGAINING SUPPLIER POWER DIFFICULTIES FOR ENTRANTS
  • 2. RIVALRY 1. NO. OF PLAYERS 2. SLOW GROWTH 3. COSTS LARGELY FIXED 4. HEAVY INVENTORY-PERISHABLE GOODS 5. LOW SWITCHING COSTS 6. LOW DIFFERENTIATION OF PRODUCTS 7 HIGH STRATEGIC STAKES—when a co is losing mkt share or anticipates hugh growth 8 HIGH EXIT BARRIERS
  • 3. RIVALRY….contd/ 9 SHAKE OUT IN INDUSTRY  10 CULTURAL DIFFERENCES
  • 4. THREAT OF SUBSTITUTES WHAT IS A SUBSTITUTE?  Porter’s Model-A substitute is a product from another industry  Economics-When demand is affected by price change of a substitute  The threat of substitutes generally comes from products outside the industry due to price advantage  There are, however, other threats of substitutes not related to price advantage
  • 5. BUYER BARGAINING POWER  Broadly speaking, when buyers are strong, the Industry tends to function as a monopsony.     Buyers are powerful:--If they are concentrated -- Buy a significant proportion of the output -- Possess capacity for backward integration      Buyers are weak:--Scattered and fragmented -- Switching costs are high --Producers capable of forward integration --Producers supply critical portion
  • 6. SUPPLIER POWER  Just as buyers can be powerful under certain set of circumstances ,suppliers also can be strong under certain set of conditions  Suppliers are strong when: --They are in a position for forward integration  -- Suppliers concentrated  -- Switching costs are significant  --Customer is powerful     Suppliers are weak when;--Many competitive suppliers e g cardboard boxes for packaging --Trend towards commodity purchase eg grocery vs branded grocery --Backward integration by purchasers eg tobacco cultivation by cig cos
  • 7. BARRIERS TO ENTRY  Barriers reduce the entry rate of new entrants and thus help the existing players to maintain their competitiveness  Govt Barriers  Patents  Asset specificity  Economies of scale
  • 8. ANALYSING COMPETITION     STRATEGIES OBJECTIVES STRENGTHS / WEAKNESS REACTION PATTERN a) MILD REACTION b) SELECTIVE REACTION c) TIGER REACTION d) STOCHASTIC REACTION
  • 9. STRATEGIES  In an industry cos which follow similar strategies constitute a strategic group  Prior to entering an industry the Co must study the strategies of various players-e g Amul, Britannia, Baron  By studying the various groups the co will be able to identify its major competitors  It will also be able to identify the level of entry barriers  After studying the strategies of various players cos can decide what is the best strategy for it.
  • 10. OBJECTVES  After identifying its main competitors, the co must try to find out the objectives of its competitors Position in industry (BAL),  Market Share--Coke  Size  Technological leadership  Best service (Titan/ITC/Banks)
  • 11. STRENGTHS AND WEAKNESSES  When studying the strengths and weaknesses of the competitors, the co must concentrate on the following:  Market Share-To what extent is the co in control and command in the segment?  Mind Share-To what extent can the consumers recall a particular competitor in an industry  Heart Share- To what extent do the consumers name the competitor from whom they would like to buy the products
  • 12. REACTION PATTERN  Laid Back Competitor—A competitor who does not react fast enough to a move by the co  Selective Competitor --- A competitor who does not react to every move but only to certain moves  Tiger Competitor—A competitor who reacts immediately with speed and strength  Stochastic competitor—A competitor who’s reaction cannot be predicted.
  • 13. COMPETETIVE INTELLIGENCE SYSTEM INTELLIGENCE DATA - ANNUAL REPORTS - FIELD - TRADE - MEDIA - PUBLIC ADDRESSES
  • 14. SETTING UP A SYSTEM --IDENTIFY THE DATA REQUIRED --DATA COLLECTION --DATA ANALYSIS --FORMULATING A RESPONSE
  • 15. SELECTING COMPETETORS TO ATTACK/AVOID  Which competitor to attack, which to avoid—CUSTOMER VALUE ANALYSIS  CUSTOMER VALUE ANALYSIS-process of identifying Cos strengths and weaknesses vis-à-vis the competitor  --Identification of those attributes that customer value most  --Prioritize the attributes vis-a-vis competitors  --Assess attribute performance among competing brands  --Monitor competitors standing and customers changing values
  • 16. PORTERS GENERIC COMPETITIVE STRATEGIES  COST LEADERSHIP STRATEGY --The company consciously tries to be a low cost player --Sells at an average price to make profit --Sells at low price to gain market share What will happen in event of a price war?-case of music Cos acquire cost advantage by efficient processes, exclusive access to large supply of raw material, optimal outsourcing, etc Low cost cos usually have to invest heavily in assets. Relation to entry?
  • 17. DIFFERATION STRATEGY  In such a situation the firm tries to differentiate its products and services by adding some unique features and attributes that are valued by the customers  Such products should be perceived better than the customers.  The value added by the firm enables it to charge it the extra price  The differentiation may help the co to charge extra in case some supplier raises its price.  There is a risk to the co in case a competitor copies its attributes or the customer tastes change.
  • 18. FOCUS STRATEGY  A co following this strategy caters to a narrow segment in which it tries to gain advantage through cost or differentiation.  Under such conditions, a firm tends to enjoy a very high degree of customer loyalty and this discourages others from entering this segment.  As the focus is on a narrow segment, the volumes are low and therefore its bargaining power with its suppliers is low.  If the company is following focused-differentiation strategy the it can pass on the increase in cost of supplies as close substitutes do not exist.  Some risk does exist as customer target segment may change and imitations may come in the market
  • 19. COMPETETIVE STRATEGY DESIGN MARKET LEADER NEW USERS 1) EXPAND THE MARKET NEW USERS MORE USAGE 2) DEFEND THE MARKET – DEFINE CAREFULLY AREAS YOU WISH TO DEFEND 3) EXPAND MARKET SHARE
  • 20. MARKET CHALLENGER STRATEGIES 1) ATTACK THE LEADER 2) ATTACK FIRMS OF ITS OWN SIZE – ECONOMICALLY WEAK 3) ATTACK SMALL / REGIONAL PLAYERS ATTACK STRATEGIES FRONTAL / FLANK / ENCIRCLEMENT / BYPASS / GUERILLA PRICE DISCOUNTS / CHEAPER GOODS / PRESTIGE GOODS / PRODUCT EXTN. DISTRIBUTION / COST REDUCTION
  • 21. ATTACK STRATEGIES  FRONTAL ATTACK  In a frontal attack you hit out directly at your competitor-product, pricing, distribution, packaging.  FLANK ATTACK  The essence of flank attack is to attack the leader where he is weak.    Flank attack have two major aspects to them --Geographical --Market dimension  Such a strategy is very helpful when the attacker has very limited resources.
  • 22.  ENCIRCLEMENT ATTACK  In an Encirclement Attack an attempt is made to capture a part of the competitors market by launching a surprise attack on several fronts  The attack is usually dispersed.  BY-PASS ATTACK  This means to by-pass the competitor and capture the market to widen your resource base Can be achieved in three ways  --diversifying into unrelated products  -- diversfying into new geographical areas  --quantum jump in technology
  • 23. MARKET FOLLOWER STRATEGIES MARKET LEADER INITIATES – OTHER FOLLOW - PRODUCT DIFFERENTIATION LOW - CAPITAL INTENSIVE INDUSTRY – STEEL / FERTILIZERS - PRICE BASED COMPETITION
  • 24.  Market follower strategies can result in  --Counterfeiter  --Clover: copying the leaders design, packaging  --Imitator : copies certain aspects of the competitor product but retains different design and packaging  --Adaptors: such cos adapt their products to the market needs as indicated by the leading products. Adapters have the potential to emerge as market challangers.