Competitive strategy

Satya kurmi (competitive strategy) Page 1
4.67. E1: Competitive Strategy
MODULE 1
THE CORE CONCEPTS:
The structural Analysis of Industries –
The structure of an industry is determined by the key features, upon which the success and
failure of the companies engaged in competition, is based. So it is these features or structural
aspects that determine the profitability of any firm competing for the market space in a given
industry. Knowledge of one’s company’s position with respect to other players in the
industry comes from a thorough dissection of the key features that define and have the
potential to alter the very structure of the industry. The first step in the process of analyzing
the industry structure is defining the industry. Unless there is clarity on where the boundaries
lie, there cannot be any judgment or assessment on the key competitive forces that are
shaping the industry without any ambiguity.
5 Forces of Competition
 Competition drives the return down to that which would be earned by the
economist’s ―perfectly competitive‖ industry.
 All five competitive forces jointly determine the intensity of industry competition
and profitability.
 Different from short-run factors that can affect competition and profitability in a
transient way.
5 Forces and Strategy
 The goal is to find a position in the industry where the company can best defend
itself against these competitive forces or can influence them in its favor.
 Since the collective strength of the forces may well be apparent to all competitors,
the key for developing strategy is to analyze the sources of each.

Force 1. THREAT OF ENTRY
 Depends on extant barriers to entry, coupled with the expected reaction from
existing competitors.
 Barriers of Entry
Economies of Scale.
Product Differentiation.
Capital Requirements.
Switching Costs.
Access to Distribution Channels.
Cost Disadvantages Independent of Scale.
Government Policy
 THE ENTRY DETERRING PRICE: the prevailing structure of prices (and
related terms such as product quality and service) which just balances the
potential rewards from entry (forecast by the potential entrant) with the expected
costs of overcoming structural entry barriers and risking retaliation.
 EXIT BARRIERS AND ENTRY BARRIERS
low entry barriers = low returns.
high entry barriers = high returns.
low exit barriers = stable returns.
high exit barriers = risky returns.
Force 2. INTENSITY OF RIVALRY AMONG EXISTING COMPETITORS
 Firms are mutually dependent.
 Some forms of competition, notably price competition, are highly unstable and
quite likely to leave the entire industry worse off from the standpoint of
profitability.
 Intense rivalry is the result of interacting structural factors.
o Numerous or Equally Balanced Competitors.
o Slow Industry Growth.
o High Fixed or Storage Costs.
o Lack of Differentiation or Switching Costs.
o Capacity Augmented in Large Increments.
o Diverse Competitors.
o High Strategic Stakes.
o High Exit Barriers.
Force 3. PRESSURE FROM SUBSTITUTE PRODUCTS
 Industry’s overall elasticity of demand.
 Limits profits in normal times and also reduce the bonanza an industry can reap in
boom times.
 Position vis-à-vis substitute products may well be a matter of collective industry
actions.
 Substitute products that deserve the most attention are those that (1) are subject to
trends improving their price-performance tradeoff with the industry’s product, or (2)
are produced by industries earning high profits

Force 4. BARGAINING POWER OF BUYERS... is high if...
 The industry is concentrated or purchases large volumes relative to seller sales.
 The products it purchases from the industry represent a significant fraction of the
buyer’s costs or purchases.
 The products it purchases from the industry are standard or undifferentiated.
 It faces few switching costs.
 It earns low profits.
 Buyers pose a credible threat of backward integration.
 The industry’s product is unimportant to the quality of the buyers’ products or
services.
 The buyer has full information. Retailers can gain significant bargaining power over
manufacturers when they can influence consumers’ purchasing decisions,
Force 5. BARGAINING POWER OF SUPPLIERS ... is high if
 Industry is is dominated by a few companies and is more concentrated than the
industry it sells to.
 Suppliers are not obliged to contend with other substitute products for sale to the
industry.
 The industry is not an important customer of the supplier group.
 Suppliers’ product is an important input to the buyer’s business.
 Supplier group’s products are differentiated or it has built up switching costs.
 Supplier group poses a credible threat of forward integration.
 BTW... labor must be recognized as a supplier as well,
o The principles re the potential power of labor are similar to those of suppliers.
The key additions are labor's degree of organization, and whether the supply
of scarce varieties of labor can expand.
Industry Structure & Buyers Needs,
It has often been said that satisfying buyer needs is at the core of success in business
endeavor. How does this relate to the concept of industry structural analysis? Satisfying
buyer needs is indeed a prerequisite to the viability of on industry and the firms within it.
Buyer must be willing to pay a price for a product that exceeds its cost of production, or an
industry will not survive in the long run. Satisfying buyer needs may be a prerequisite for
industry profitability, but in itself is not sufficient. The crucial question in determining
profitability is whether firms can capture the value they create for buyer, or whether this
value is completed away to others. Industry structural determines who capture the value. The
threat of entry determines that new firms will enter an industry and compete away the value.
Either passing it on to buyers in the form of lower prices it by raising the costs of competing.
The power of buyers determines the extent to which they retain most of value created for
themselves, leaving firms in industry only modest returns. The power of suppliers
determines the extent to which value created for buyers will be appropriated by suppliers
rather than by firms in an industry finally, the intensity of rivalry acts similarly to the threat
of entry. It determines the extent to which firms already in an industry will compete away

the value they create for buyers among themselves. Passing it on to buyers in lower prices or
dissipating it in higher costs of competing.
Industry structure then determines who keeps what proportion of the value a product creates
for a lot of value, Structure becomes crucial. In some industries such as automobiles and
heavy trucks, firms create enormous value for their buyers but on average, capture very little
of it for themselves through profits.
Industry Structure & Supply / Demand Balance
Industry profitability is that profits are a function of the balance between supply and
demand. if demand is greater than supply, this leads to high profitability. Yet, the long-term
supply/demand balance is strongly influenced by industry structure, as are the consequences
of a supply/demand imbalance for profitability. Hence, even though short-term fluctuations
in supply and demand can affect short-term profitability, industry structure underlies long-
term profitability.
Supply and demand change constantly, adjusting to each other. Industry structure determines
how rapidly competitors add new supply. The height of entry barriers underpins the
likelihood that new entrants will enter an industry and bid down prices. The intensity of
rivalry plays a major role in determines whether existing firms will expand capacity
aggressively or choose to maintain profitability. Thus industry structure shapes the
supply/demand balance and the duration of imbalances.
The consequences of an imbalance between supply and demand for industry profitability
also differ widely depending on industry structure. In some industries, a small amount of
excess capacity triggers price wars and low profitability. These are industries where there
are structural pressures for intense rivalry or powerful buyers. In other industries, periods of
excess capacity have relatively little impact on profitability because of favorable structure.
In oil tools, ball valves and many other oil field equipment products, for example, there has
been intense price cutting during the recent sharp downturn.
Generic Competitive Strategies –
Competitive strategy is a firm’s relative position within its industry. Positioning determines
whether a firm’s profitability is above or below the industry average. A firm that can
position itself well may earn high rates of return even though industry structure is
unfavorable and the average profitability of the industry is therefore modest.
The fundamental basis of above-average performance in the long run is sustainable
competitive advantage (without a sustainable competitive advantage, above-average
performance is usually a sign of harvesting). Though a firm can have a myriad of strengths
and weaknesses vis-à-vis its competitors, there are two basic types of competitive advantage
a firm can possess: low cost or differentiation. The significance of any strength or weakness
a firm possesses is ultimately a function of its impact on relative cost or differentiation. Cost
advantage and differentiation in turn stem from industry structure. They result from a firm’s
ability to cope with the five forces better than its rivals.
The two basic type of competitive advantage combined with the scope of activities for which
a firm seeks to achieve them lead to three generic strategies for achieving above-average

performance in an industry: cost leadership, differentiation, and focus. The focus strategy
has two variants, cost focus and differentiation focus.
The cost leadership and differentiation strategies seek competitive advantage in broad range
of industry segments, while focus strategies aim at cost advantage (cost focus) or
differentiation (differentiation focus) in a narrow segment.
The five generic competitive strategies-
 A low cost provider strategy- striving to achieve lower overall costs than rivals and
appealing to a broad spectrum of customers, usually by under pricing rivals.
 A broad differentiation strategy- seeking to differentiate the company’s product
offering from rivals in ways that will appeal to a broad spectrum of buyers.
 A best cost provider strategy- giving customers more value for their money by
incorporating good-to-excellent product attributes at a lower cost than rivals: the
target is to have the lowest (best) costs and prices compared to rivals offering
products with comparable attributes.
 A focused (or market niche) strategy based on low costs- concentrating on a
narrow buyer segment and outcompeting rivals by having lower costs than rivals and
thus being able to serve niche members at a lower price.
 A focused (or market niche) strategy based on differentiation- concentrating on a
narrow buyer segment and outcompeting rivals by offering niche members
customized attributes that meet their tastes and requirements better than rivals
products.
Cost Leadership strategy

This strategy involves the firm winning market share by appealing to cost-conscious or
price-sensitive customers. This is achieved by having the lowest prices in the target market
segment, or at least the lowest price to value ratio (price compared to what customers
receive). To succeed at offering the lowest price while still achieving profitability and a high
return on investment, the firm must be able to operate at a lower cost than its rivals.
 Aiming to become Lowest Cost Producer
 The firm can compete on the price with every other industries and earn higher unit
profits.
 Cost reduction provides the focus of the organization’s strategy.
 Targets a broad market.
 Competitive advantage is achieved by driving down costs.
 A successful cost leadership strategy requires that the firm is the cost leader and is
unchallenged in this position.
 Especially beneficial : where customers are price sensitive
A cost leadership strategy may have the disadvantage of lower customer loyalty, as price-
sensitive customers will switch once a lower-priced substitute is available. A reputation as a
cost leader may also result in a reputation for low quality, which may make it difficult for a
firm to rebrand itself or its products if it chooses to shift to a differentiation strategy in
future.
Differentiation strategy
A differentiation strategy is appropriate where the target customer segment is not price-
sensitive, the market is competitive or saturated, customers have very specific needs which
are possibly under-served, and the firm has unique resources and capabilities which enable it
to satisfy these needs
A differentiation strategy calls for the development of a product or service that offers unique
attributes that are valued by customers.
 Customers perceive the product to be different and better than that of rivals.
 The value added by the uniqueness of the product may allow the firm to charge a
premium price for it.
 Differentiation can be based on product image or durability, after-sales, quality,
additional features.
 It requires flair, research capability and strong marketing.
Focus. Generic strategies
This dimension is not a separate strategy per se, but describes the scope over which the
company should compete based on cost leadership or differentiation. The firm can choose to
compete in the mass market (like Wal-Mart) with a broad scope, or in a defined, focused
market segment with a narrow scope. In either case, the basis of competition will still be
either cost leadership or differentiation.
The focus strategy concentrates on a narrow segment and within that segment attempts to
achieve either a cost advantage or differentiation.

 The premise is that the needs of the group can be better serviced by focusing entirely
on it.
 A firm using a focus strategy often enjoys a high degree of customer loyalty, and this
entrenched loyalty discourages other firms from competing directly.
 Because of their narrow market focus, firms pursuing a focus strategy have lower
volumes and therefore less bargaining power with their suppliers
 However, firms pursuing a differentiation-focused strategy may be able to pass
higher costs on to customers since close substitute products do not exist.
Organizations structure
An organizational structure consists of activities such as task allocation, coordination and
supervision, which are directed towards the achievement of organizational aims. It can also
be considered as the viewing glass or perspective through which individuals see their
organization and its environment.
An organization can be structured in many different ways, depending on their objectives.
The structure of an organization will determine the modes in which it operates and performs.
Organizational structure allows the expressed allocation of responsibilities for different
functions and processes to different entities such as the branch, department, workgroup and
individual.
Organizational structure affects organizational action in two big ways. First, it provides the
foundation on which standard operating procedures and routines rest. Second, it determines
which individuals get to participate in which decision-making processes, and thus to what
extent their views shape the organization’s actions
Strategic planning
Strategic planning is an organization's process of defining its strategy, or direction, and making
decisions on allocating its resources to pursue this strategy. In order to determine the direction of the
organization, it is necessary to understand its current position and the possible avenues through which it
can pursue a particular course of action. Generally, strategic planning deals with at least one of three key
questions:
"What do we do?"
"For whom do we do it?"
"How do we excel?"
In many organizations, this is viewed as a process for determining where an organization is going over
the next year or—more typically—3 to 5 years (long term), although some extend their vision to 20
years.

MODULE 2
THE PRINCIPLES OF COMPETITIVE ADVANTAGE:
five basic principles still apply:
The secret to using advantage understands this particularity: No one has an advantage at
everything.
For an advantage to be sustained, your competitors must not be able to duplicate it.
Competitive advantage and financial gain are not the same because some advantages are
more interesting than others.
A competitive advantage is interesting when one has insights into ways to increase its
value.
The connection between competitive advantage and wealth is dynamic. Wealth increases
when the demand for the resources underlying competitive advantage increases.
The Value Chain &Competitive advantage –
Its economics will determine whether a firm is high or low cost relative to competitors. How
each value activity is performed will also determine its contribution to buyer needs and
hence differentiation. Comparing the value chains of competitors exposes difference that
determines competitive advantage.
An analysis of the value chain rather than value added is the appropriate way to examine
competitive advantage. Value added is not a sound basis for cost analysis, however, because
it incorrectly distinguishes raw materials from the many other purchased inputs used in a
firm’s activities.
Identifying Value Activities –
There are two type of value activity-
 Primary Activities
The primary activities deal with the flow of the product or service through the
business, such as:
■inbound logistics, which include receiving, warehousing, and inventory control of input
materials
■Operations, which include machining, assembling, and all other activities that transform
inputs into the final product
■Outbound logistics, which include warehousing, order fulfillment, and other activities
required to get the finished product to the customer.

■Marketing and sales, which include channel selection, advertising, pricing, and other
activities associated with getting buyers to purchase the product
■ Service, which includes customer support, repair services, and other activities that
maintain and enhance the product’s value to the customer
 Support Activities
The support activities are the activities that support the primary value-chain activities,
such as:
■ Procurement, which includes purchasing raw materials, components, supplies, and
equipment
■ Technology development, which includes research and development, process automation,
and other technology development
■ Human resources management, which includes recruiting, hiring, training, development,
and compensating employees
■ Company infrastructure, which includes finance, legal, quality management,
information systems, organizational structure, control systems, company culture, and so on.
Defining Value chain –
A value chain is a chain of activities that a firm operating in a specific industry performs in
order to deliver a valuable product or service for the market.
Interlinked value-adding activities that convert inputs into outputs which, in turn, add to the
bottom line and help create competitive advantage. A value chain typically consists of (1)
inbound distribution or logistics, (2) manufacturing operations, (3) outbound distribution or
logistics, (4) marketing and selling, and (5) after-sales service. These activities are supported
by (6) purchasing or procurement, (7) research and development, (8) human resource
development, (9) and corporate infrastructure.

The buyer’s Value Chain
Buyers also have value chains, and a firm’s product represent a purchased input to the
buyer’s chain. Understanding the value chains of industrial, commercial, and institutional
buyers is intuitively easy because of their similarities to that of a firm. Understanding house-
holds’ value chains is less intuitive, but nevertheless important. House-holds engage in a
wide range of activities, and products purchased by households are used in conjunction with
this stream of activities. A car is used for the trip to work and for shopping and leisure, while
a food product is consumed as part of the process of preparing and eating meals. Though it is
quite difficult to construct a value chain that encompasses every-thing a household and its
occupants do, it is quite possible to construct a chain for those activities that are relevant to
how a particular product is used.
A firm’s differentiation stems from how its value chain relates to its buyer’s chain. This is a
function of the way a firm’s physical product is used in the particular buyer activity in which
it is consumed as well as all the other points of contact between a firm’s value chain and
buyer’s chain.
Competitive Scope & Value Chain
Competitive scope can have a powerful effect on competitive advantage, because it shapes
the configuration and economics of the value chain. there are four dimensions of scope that
affect the value chain.
 Segment scope:- the product varieties produced and buyers served.
 Vertical scope:- the extent to which activities are performed in-house instead of by
independent firms.
 Geographic scope:- the range of regions, countries, or groups of countries in which a
firm competes with a coordinated strategy.
 Industry scope:- the range of related industries in which the firm competes with a
coordinated strategy.
Broad scope can allow a firm to exploit the benefits of performing more activities
internally.
Narrow scope can allow the tailoring of the chain to serve a particular target segment,
geographic area or industry to achieve lower cost or to serve the target in unique way.
Segment scope,
Differences in the needs or value chains required to serve different product or buyer segment
can lead to a competitive advantage of focusing.
Vertical Scope,
Vertical integration defines the division of activities between a firm and its suppliers,
channels, and buyers. Vertical integration tends to be viewed in terms of physical products
and replacing whole supplier relationships rather than in terms of activities, but it can
encompass both.
Geographic Scope,
Geographic Scope may allow a firm to share or coordinate value activities used to serve
different geographic areas. Canon develops and manufactures copiers primarily in japan, for
example, but sells and services them separately in many countries. Canon gains a cost

advantage from sharing technology development and manufacturing instead of performing
these activities in each country.
Industry Scope,
Potential interrelationships among the value chains required to compete in related industries
are widespread. they can involve any value activity, including both primary and support.
Interrelationships among business units are similar in concept to geographic
interrelationships among value chains.
Interrelationships among business units can have a powerful influence on competitive
advantage, either by lowering cost or enhancing desired by buyers. Entry barriers bear on the
sustainability of various value chain configurations.
The Value Chain & Industry Structure
Although he did not develop the idea at the time, Porter also saw the concept of a value
chain as important in terms of how organizations are structured. Pointing out that structures
are formed around the grouping of certain activities (such as marketing or production) and
that the resultant departments then need co-ordination, Porter contends that in many
instances such structures fail to optimize the linkages between activities or collect the
necessary information that would enable them to do so. He suggests, therefore, that a firm's
co-ordination might be improved "by relating its organizational structure to the value chain,
and the linkages within it and with suppliers or channels."
MODULE 3
THE COST ADVANTAGE
The Value Chain & Cost Analysis
Organizations use the value chain approach to identify sources of profitability and to understand
the cost of their internal processes or activities.
The principal steps of cost analysis are :
1. Identify the firm's value-creating processes. To identify a firms value-creating
processes, the firm must de-emphasize its functional structure.
2. Determine the portion of the total cost of the product or services attributable to
each value-creating process. The next step of cost analysis is to trace or assign
cost* and assets to each value-creating process identified.
3. Identify the cost drivers for each process. The next step of cost analysis is to
identify the factor or cost determinants for each value-creating process.
4. Identify the links between processes. While individual value activities are
consider separate and discrete, they are not necessarily independent. Most
activities within a value chain are interdependent. Firms must not overlook value
chain linkages among interdependent activities that may impact their total cost.

5. Evaluate the opportunities for achieving relative cost advantage. : In many
organizations, cost reductions are made across the board (e.g., "eliminate 10 per
cent from every department"). Because these firms do not reduce their costs
strategically, this effort usually fails. More often than not, across-the-board cost
reduction misconstrues the underlying problem.
Cost Behavior
A firm’s cost position results from the cost behavior of its value activities. Cost behavior
depends on a number of structural factors that influence cost, which I term cost drivers.
Several cost drivers can combine to determine the cost of a given activity. The important
cost driver or drivers can differ among firm in the same industry if they employ different
value chains. A firm’s relative cost position in a value activity depends on its standing vis-à-
vis important cost drivers.
Cost Advantage
Under a cost-advantage strategy, a firm establishes a significantly lower cost structure than
competitors and uses that advantage to provide equivalent benefits to customers as
competitors, but at lower prices. Because the cost-advantage firm has a lower cost structure,
it can price lower, yet achieve margins that equal or exceed those of competitors. If
competitors wish to match the low price set by the cost-advantage leader, they must accept
lower margins on every sale due to their higher cost structures.
To become the low-cost producer in its industry, a firm must configure its value chain in
such a way that dramatically lower costs result. This is different than merely reducing costs
through tactical cost-reduction initiatives. In addition, a firm that uniquely configures its
value chain to become the lowest-cost producer in its industry renders itself relatively
immune to imitation by competitors. Thus, the cost-advantage producer carries out different
activities, or carries them out in different way, that cannot be readily imitated by
competitors. Therefore, even if a competitor were to pursue radical cost-reduction activities,
it could never replicate the low cost structure of the cost-advantage leader.
MODULE 4
DIFFERENTIATION
The Sources of Differentiation,
Three sources of differentiation
There are three sources of differentiation for any business: selling at the lowest cost, leading
the market in product innovation, or becoming an integrator and customizer. The third
strategy is the most widely applicable to most businesses.
The lowest cost/lowest price strategy is open to only one firm in an industry at any given
time. In my view, you must constantly pursue lower cost, just to stay in the game. But to be

the winner, you need a new business model - a different approach from that of your
competitors (e.g., Wal Mart's supply chain excellence). Mature firms are often stuck with
legacy costs that will make it impossible to achieve "lowest cost" position.
Product innovation leadership can be open to more than one firm in an industry. Success at
this strategy requires a world class development process and adequate investment. To
succeed as well as companies like Apple and 3M, innovation must be built into the DNA of
the organization - not just an add-on. This is a tough strategy, with a fairly long payback
period.
Integration and customization is about profitably delivering tailored offerings to individual
customers or customer segments. Growing out of intense understanding of a few key
customers, these offerings look beyond product in order to improve the customer's
experience with ordering, using and disposing of your product. This is a strategy I believe
most firms can employ. By learning what really makes a difference to a small segment, and
taking action to deliver in those areas, a diligent firm can fairly quickly differentiate itself
from the competition.
The Cost of Differentiation,
Buyer Value & Differentiation,
An organization differentiates itself successfully from its competitors if it can be unique at
something that is valuable to buyers. The starting point for understanding what is valuable to
the buyer is the buyer’s value chain. Generally speaking an organization can create value for
a buyer through two mechanisms: a) by lowering buyer cost; and b) by raising buyer
performance.
An organization lowers buyer cost or raises buyer performance through the impact of its
value chain on the buyer’s value chain. In addition to its products or services, an
organization typically impacts the buyer through such activities as the logistics system, order
entry system, sales force and application engineering group. Thus, the value an organization
creates for its buyer is determined by the whole array of links between the organization’s
value chain and its buyer’s value chain.
In pursuing a differentiation strategy, it is important to understand the buyer purchase
criteria which can be categorized into two types: use criteria and signaling criteria. Use
criteria are specific measures of what creates buyer value; signaling criteria are measures of
how buyers perceive the presence of value. While use criteria which typically grow out of
links between an organization’s value chain and its buyer’s value chain tend to be more
oriented to a supplier’s product, outbound logistics and service activities, signaling criteria
often stem from marketing activities.
Identification of buyer purchase criteria begins by identifying the decision makers for an
organization’s product and the other individuals that influence the decision maker. Use
criteria should be identified first as they measure the sources of buyer value and also

determine signaling criteria. In addition to internal knowledge about the buyer’s needs and
direct contacts with the buyer, in any serious effort to understand buyer purchase criteria, an
organization must identify the buyer’s value chain and perform a systematic analysis of all
existing and potential linkages between an organization’s value chain and its buyer’s chain.
Differentiation Strategy,
A differentiation strategy is appropriate where the target customer segment is not price-
sensitive, the market is competitive or saturated, customers have very specific needs which
are possibly under-served, and the firm has unique resources and capabilities which enable it
to satisfy these needs
A differentiation strategy calls for the development of a product or service that offers unique
attributes that are valued by customers.
 Customers perceive the product to be different and better than that of rivals.
 The value added by the uniqueness of the product may allow the firm to charge a
premium price for it.
 Differentiation can be based on product image or durability, after-sales, quality,
additional features.
 It requires flair, research capability and strong marketing.
Steps in Differentiation,
 Analyze your target market and identify your competition. Your target market is ―a
specific group of consumers at which a company aims its products and services‖
(Entrepreneur). A target market is distinguished by socioeconomic, demographic,
and common characteristics or needs that make them the best audience to focus on
selling to. To uncover your target market, answer the following simple questions:
What am I selling? Who will most likely buy or consume my product or service?
Before you can crush your competition, you need to know who they are. Find out
which businesses are going after your same target market. How do they differentiate
themselves from other companies in the industry? Where are they located? To find
this information, business directories can be used to search free company profiles.
Information included in the company profiles are company overview, contact
information, location, key facts, employees, and company payment rating.
 Learn from your competition and your customers. Don’t be afraid of your
competition, but rather use them as a learning tool and assess their business model.
Learn your competitors’ strengths and weaknesses – imitate their strengths, and use
their weaknesses to your advantage. Use companies that specialize in business
information, such as Cortera, to construct and analyze a competitive landscape of the
target market. The business information you learn from your rivals will help you
develop the competitive edge you need to surpass them in your industry. Intimate
customer knowledge is equally important as competitor knowledge. Gaining in-depth
insights about your customer portfolio will allow you to maximize revenue potential,
increase customer retention, and boost prospective customers. You can use a mix of

many tools and methods to measure consumer insight and both your position in the
market and the positions of your competitors. Along with traditional company
information resources, consider social media analysis tools that allow consumer
insight mining on a large scale.
 Create an ―Economic Moat‖. Take advantage of barriers to entry into the market,
using them to dissuade competitors from challenging your marketing share. In some
cases, an established company’s ability to manipulate hurdles to enter and compete in
its market becomes an effective tool against new competition, further entrenching the
business and preserving its profit potential for the foreseeable future.
 Stay on the cutting edge. Once you’ve gained a competitive advantage, your work is
far from complete. To be successful, you will need to continuously maintain your
competitive advantage. After all, your competitors are not going to sit back and allow
you to steal their market share. You can maintain your competitive advantage by
predicting future trends in your industry, constantly researching and monitoring your
competitors, and adapting to your customer’s wants and needs. Sometimes you may
need to take chances to keep ahead of the pack and differentiate your business, but
with big risk often comes big reward – Just remember to do your research before
diving head first into new ideas.
 Use Business Information Resources. The information revolution is here – take
advantage of it! It creates a competitive advantage by providing companies with new
ways to outperform their rivals. Knowledge is power, and business information
companies provide just that. Reliable business information companies include
Cortera, Hoovers, Manta, Portfolio.com, and Goliath.
Case Analysis

MODULE 5
TECHNOLOGY & COMPETITIVE ADVANTAGE
Technology & Competition,
In technology the competition is remorseless. In most businesses the competition might be
able to do something as well as you – and it will remove your excess profit. People will
build hotels for instance until everyone’s returns are inadequate but not until everyone’s
returns are sharply negative. Even in a glutted market a hotel tends to have a reason to exist
– it still provides useful service. And someday the glut will go away so the hotel will retain
some value.[4] In most businesses the game is incremental improvement. If you get slightly
better you can make some money for a while. If the competition gets slightly better you will
make sub-normal returns until you catch up.
In technology the threat is always that someone will do something massively better than you
and it will remove your very reason for existence. Andy Grove – one of the most successful
technologists of all time (Intel Corporation) – titled his book ―Only the paranoid survive‖.
He meant it.
If your technology is obsolete the end game is failure – often bankruptcy. Palm will fail
because Palm no longer has a reason to exist. If we wait 20 years Palm will be even more
obsolete – but the hotel glut will probably have abated.
Technology Strategy,
An Technology strategy (Information Technology strategy or IT strategy) is the overall plan
which consist of objective(s), principles and tactics relating to use of the technologies within
a particular organization. Such strategies primarily focus on the technologies themselves and
in some cases the people who directly manage those technologies. The strategy can be
implied from the organization's behaviors towards technology decisions, and may be written
down in a document.
Other generations of technology-related strategies primarily focus on: the efficiency of the
company's spending on technology; how people, for example the organization's customers
and employees, exploit technologies in ways that create value for the organization; on the
full integration of technology-related decisions with the company's strategies and operating
plans, such that no separate technology strategy exists other than the de facto strategic
principle that the organization does not need or have a discreet 'technology strategy'.
A technology strategy has traditionally been expressed in a document that explains how
technology should be utilized as part of an organization's overall corporate strategy and each
business strategy.
Formulating Technology Strategy
 Core technologies
To a strategist, "technology" is usually meant in the broadest possible terms—knowledge of
how to do things and how to accomplish human goals. The first issue that arises in
formulating a technology strategy therefore is narrowing the scope. Of all the technologies
that are relevant to an organization, which technologies should be the focus of strategy?
Classical organizational theory distinguishes between technologies deployed in the

"technical core"—the units where the product or service is produced—and technologies used
in support tasks. To increase efficiency, intervening technologies and elaborated structures
are designed to protect the technical core from too much uncertainty, to coordinate among
organization elements, and to mediate the fit between the organization and its environment
Table 19.1. Key questions in technology strategy.
Formulating technology strategy
What are the organization's core technologies?
How should the firm position itself relative to technology development?
Should the firm seek to establish a technology standard?
Why do technological discontinuities arise and how should the firm respond?
Organizing for technology strategy
What are the risks and rewards of strategic alliances as a means of developing
new technology?
How much should the firm invest in research and development relative to
competition?
How can human capital be managed to produce superior technology?
 Technological pioneering strategy:- one of the key roles for technology in
competitive strategy is its effect on the timing of a firm’s entry into product markets.
When a firm seeks to offer the latest technology in its new products or services, it is
said to be a technology leader, and technology leadership is one of the principle
means by which firm’s pursue market pioneering strategies. Pioneering based on
technology leadership carries a number of risks and benefits.
 Technology standards:- one of the benefits of a pioneering strategy may be the
opportunity to establish a technological standard. The focus of standardization may
be at the component level end-product level or system level. standers tend emerge
when there are substantial benefits from using devices with compatible technical
elements in a particular domain.

MODULE 6
COMPETITOR SELECTION
The Competitive Benefits Of Competitors,
Competition policy is about applying rules to make sure businesses and companies compete
fairly with each other. This encourages enterprise and efficiency, creates a wider choice for
consumers and helps reduce prices and improve quality.
Low prices for all: the simplest way for a company to gain a high market share is to offer a
better price. In a competitive market, prices are pushed down. Not only is this good for
consumers - when more people can afford to buy products, it encourages businesses to produce
and boosts the economy in general.
Better quality: Competition also encourages businesses to improve the quality of goods and
services they sell – to attract more customers and expand market share. Quality can mean various
things: products that last longer or work better, better after-sales or technical support or friendlier
and better service.
More choice: In a competitive market, businesses will try to make their products different from
the rest. This results in greater choice – so consumers can select the product that offers the right
balance between price and quality.
Innovation: To deliver this choice, and produce better products, businesses need to be
innovative – in their product concepts, design, production techniques, services etc.
What Makes a “Good ”Competitor,
 Low cost provider.
 New technologies.
 Know about your customers.
 Business idea.
 Implementation of better strategies.
 Know about your competitors.
 Know about market.
 Know about industry
Influencing the Pattern of Competitors,

MODULE 7
INDUSTRY SEGMENTATION & COMPETITIVE ADVANTAGE
Bases for Industry Segmentation & Competitive Advantage,
Four industry types
 Volume industries
An industry characterized by few opportunities to create competitive advantages.
each advantage is huge and results in a high pay-off.
 Stalemate industries
An industry that produces commodities and is characterized by few opportunities to
create competitive advantages, with each advantage being small.
 Fragmented industries
An industry characterized by many opportunities to create competitive advantages,
but each advantage is small.
 Specialized industries
An industry where there are many opportunities for firms to create competitive
advantages that are huge and give a high pay-off.

The Industry Segmentation Matrix,
Industry Segmentation &Competitive Strategy,
Industrial market segmentation is a scheme for categorizing industrial and business
customers to guide strategic and tactical decision-making, especially in sales and marketing.
While government agencies and industry associations use standardized segmentation
schemes for statistical surveys, most businesses create their own segmentation scheme to
meet their particular needs.
While similar to consumer market segmentation, segmenting industrial markets is different
and more challenging because of greater complexity in buying processes, buying criteria,
and the complexity of industrial products and services themselves. Further complications
include role of financing, contracting, and complementary products/services.
The goal for every industrial market segmentation scheme is to identify the most significant
differences among current and potential customers that will influence their purchase
decisions or buying behavior, while keeping the scheme as simple as possible.. This will
allow the industrial marketer to differentiate their prices, programs, or solutions for
maximum competitive advantage.

MODULE 8
SUBSTITUTION
Identifying Substitutes,
A product or service that satisfies the need of a consumer that another product or service
fulfills. A substitute can be perfect or imperfect depending on whether the substitute
completely or partially satisfies the consumer. A consumer might consider Pepsi to be a
perfect substitute for Coke, or Land O'Lakes butter to be a perfect substitute for Kerry gold
Irish Butter. However, if a consumer sees a difference in these brands, he may see Pepsi and
Land O'Lakes as imperfect substitutes, even if economists might consider them perfect
substitutes.
For a product to be a substitute of another good, it must share a particular relationship with
that good. When a good's price increases, the demand for its substitute will increase because
consumers will go looking for a cheaper alternative. Conversely, when a good's price
decreases, the demand for its substitute will decrease. For example, margarine is a substitute
for butter because a consumer can meet similar needs by using margarine. So, when the
price of butter rises, the demand for margarine will likely increase.
The economics of Substitution,
In the two goods - two prices analysis, the effect of a change in the price of one of the goods
is generally decomposed into the substitution effect and the income effect. The substitution
effect is the change in the quantity of that good consumed when the budget constraint
reflects the new relative prices, but keeps the agent on the original indifference curve. The
income effect is then the change in the quantity of that good consumed when the budget
constraint is shifted holding its slope constant to intersect with the new endowment point.
Changes in the Substitution threats
The threat of substitutes is a factor that is more than just a theoretical concept. It influences
all the aspects of the marketing mix (product, price, place and promotion) and directly limits
the profit potential of a market. Times of economic change are particularly important in
respect of this threat as it accelerates the possibility of customers of switching to substitutes.

On the upside it also creates opportunities whereby new customers can be lured into your
market segment.
Analyzing how Michael Porter explained the threat of substitutes in his Five Forces Model,
the primary factor is that substitutes place a upper limit on the price a market and thus
companies within the market can sustainable achieve.
It is a fact that there are different ways in which a customer can satisfy any particular need.
The choice that customers have to satisfy a particular need can be satisfied by a variety of
products or services that is available in the market. Customers will consciously or
unconsciously compare price and benefit based on their particular main buying motive and
make procurement decisions. The final decision is the manifestation of the tread of
substitutes.
One of the crucial issues that companies have to deal with continuously is the willingness of
customers to switch between different products. This inclination of customers is often
influenced by the ease of comparison between the different products or services. From a
marketing perspective the companies will try to maximize the differentiation of their product
by highlighting a factor or benefit that is believed to have the ability to attract the maximum
number of buyers.
Product differentiation is generally speaking the development or incorporation of attributes
such that customers in a product's market segment will perceive to be different and desirable
from other products. Advertising and promotion of a product is based on its differentiating
characteristics to enhance this perception and can include attributes such as benefits, price,
quality, style, design, support service, value etc. The aim is to make the comparison with
substitute product more difficult.
(The path of Substitution)
Substitution
In the two goods - two prices analysis, the effect of a change in the price of one of the goods
is generally decomposed into the substitution effect and the income effect. The substitution
effect is the change in the quantity of that good consumed when the budget constraint
reflects the new relative prices, but keeps the agent on the original indifference curve. The
income effect is then the change in the quantity of that good consumed when the budget
constraint is shifted holding its slope constant to intersect with the new endowment point.
Competitive Strategy
Competitive Strategy, a modern classic of business thinking, provides a strong conceptual
foundation for developing corporate strategy. It offers a rational and straightforward method
for companies to extricate themselves from strategic confusion—and three generic strategies
for dealing with competitive forces: differentiation, overall cost leadership, and focus, which
for many have become the rules of the game.

MODULE 9
DIVERSIFICATION STRATEGY
Case Analysis
MODULE 10
COMPLEMENTORY PRODUCTS & COMPETITIVE ADVANTAGE
(Control Over Complementary Products,)
Bundling,
A marketing strategy that joins products or services together in order to sell them as a single
combined unit Bundling allows the convenient purchase of several products and/or services
from one company. The products and services are usually related, but they can also consist
of dissimilar products which appeal to one group of customers.
Cross Subsidization,
A strategy where support for a product comes from the profits generated by another product
This is usually done to attract customers to a newly introduced product by giving them a
lower price. The low price is sustained by the earnings of another product sold by the same
company.
(Complement and Competitive Strategy.)
MODULE 11
INDUSRY SCENARIOS & COMPETITIVE STRATEGY NDER UNCERTAINTY
Constructing Industry Scenarios,
Industry Scenarios & Competitive Strategy.
MODULE 12
DEFENSIVE STRATEGY
The Process of Entry or Repositioning,
Repositioning involves changing the identity of a product relative to competing products.
Many famous companies have saved failing products by repositioning them in the market.
When a company initiates a repositioning strategy, it needs to change the expectations of
stakeholders, including employees, stockholders, and financial backers.

Defensive Tactics,
Raise structural barriers through:
 offering full line of products
 signing exclusive distribution agreements
 raising buyer switching costs by offering lower cost for training
 raising cost for competition to gain trial users by decreasing your cost
 increasing the scale of economies
 patents and licensing
 limiting access to facilities
 signing exclusive contracts with suppliers and buying key locations
 avoiding suppliers who deal with competition
 Encouraging the government to increase barriers.
 Increase expected retaliation by making a big deal of a small thing.
Lower the inducement for attack by keeping pricing low and constantly decreasing costs to
keep profit high.
(Evaluating Defensive Tactics,)
• Raise Structural Barriers: block avenues challengers can take in mounting an offensive
• Increase Expected Retaliation: signal challengers that there is threat of strong retaliation if
they attack
• Reduce Inducement for Attacks: e.g., lower profits to make things less attractive
(including use of accounting techniques to obscure true profitability). Keeping prices
very low gives a new entrant little profit incentive to enter.
The general experience is that any competitive advantage currently held will eventually be
eroded by the actions of competent, resourceful competitors. Therefore, to sustain its initial
advantage, a firm must use both defensive and offensive strategies, in elaborating on its basic
competitive strategy.
Defensive Strategy
A management approach designed to reduce the risk of loss. For example, even a relative
aggressive business might employ a defensive strategy when it comes to investing its extra
liquid funds in certificates of deposit or relatively stable bonds and stocks.
MODULE 13
ATTACKING AN INDUSTRY LEADER
Conditions for Attacking an Industry Leader,
A challenger must possess a clear and sustainable competitive advantage over the leader
through cost or differentiation. If it is low cost the firm can reduce price to gain position
against a leader or earn higher margins at industry average prices to allow reinvestment in
marketing or technology development. If it is differentiation, it will allow for premium
prices or minimize marketing cost. However these competitive strategies must be
sustainable so as to allow for adequate time to close the market share gap before the leader
can react.

A challenger must have some way of partly or wholly neutralizing the leader’s other
inherent advantages. If the challenger employs a differentiation strategy, it must also
partially offset the leader’s natural cost advantage due to economies of scale, first mover
advantages or other causes. The challenger must maintain cost proximity or the leader will
use its cost advantage to neutralize the challenger differentiation. Also if the challenger
bases its attack on a cost advantage, it must create value for the buyer. Otherwise, the leader
will be able to sustain a price premium over the challenger, yielding the leader the gross
margin needed to retaliate vigorously.
Venues for Attacking Leaders,
Types of Attack Strategies Frontal attack Flank attack Encirclement attack Bypass attack
Guerrilla attack-
 Frontal Attack Seldom work unless The challenger has sufficient fire-power (a 3:1
advantage) and staying power, and The challenger has clear distinctive advantage(s)
e.g. Japanese and Korean firms launched frontal attacks in various ASPAC countries
through quality, price and low cost
 Flank attack Attack the enemy at its weak points or blind spots i.e. its flanks Ideal for
challenger who does not have sufficient resources e.g. In the 1990s, Yaohan attacked
Mitsukoshi and Seibu’s flanks by opening numerous stores in overseas markets.
 Encirclement attack Attack the enemy at many fronts at the same time Ideal for
challenger having superior resources e.g. Seiko attacked on fashion, features, user
preferences and anything that might interest the consumer.
 Bypass attack By diversifying into unrelated products or markets neglected by the
leader Could overtake the leader by using new technologies e.g. Pepsi use a bypass
attack strategy against Coke in China by locating its bottling plants in the interior
provinces.
 Guerrilla attack By launching small, intermittent hit-and-run attacks to harass and
destabilize the leader Usually use to precede a stronger attack e.g. airlines use short
promotions to attack the national carriers especially when passenger loads in certain
routes are low.
Impediments to Leader Retaliation,
Signals of Leader Vulnerability,
Attacking Leaders & Industry Structure

Competitive strategy

More Related Content

What's hot

Viewers also liked

Similar to Competitive strategy

More from satya pal

Recently uploaded

Competitive strategy