Tailoring Strategy to Fit Specific
Industry and Company Situations
The Industry Environment
Different industry environments present different
opportunities and threats.
A company’s business model and strategies have
to change to meet the environment.
Companies must face the challenges of
developing and maintaining a competitive strategy
Fragmented Industries • Mature Industries
Embryonic Industries • Declining Industries
There is the need to continually formulate and implement
business-level strategies to sustain competitive advantage
over time in different industry environments.
Reasons for fragmented industries
Low barriers to entry due to lack of economies of scale
Low entry barriers permit constant entry by new companies
Specialized customer needs require small job lots of products - no
room for a mass-production
Diseconomies of scale
Chaining – networks of linked outlets to achieve cost leadership
Franchising – for rapid growth with proven business concepts,
reputation, management skills and economies of scale
Horizontal Merger – acquisition to obtain economies and growth
IT and Internet – to develop new business models
A fragmented industry is one composed of a large
number of small and medium-sized companies.
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
An embryonic industry is one that is just beginning
to develop when technological innovation creates new
market or product opportunities.
A growth industry is one in which first- time demand
is expanding rapidly as many new customers enter the
Embryonic and Growth
Strategy is determined by market demand
Innovators and early adopters have different needs from the early
and late majority
Company must be prepared to cross the chasm between the
early adopters and the later majority
Companies must understand the factors that affect a
market’s growth rate – in order to tailor the business
model to the changing industry environment.
and Customer Groups
Both innovators and early adopters enter the market while the
industry is in its embryonic state.
of Market Growth Rates
Different markets develop at different rates.
Growth rate measures the rate at which the
industry’s product spreads in the marketplace.
Growth rates for new kinds of products seem to
have accelerated over time:
Use of mass media • Low-cost mass production
Factors affecting market growth rates:
Relative advantage • Complexity
Compatibility • Observability
Availability of • Trialability
Business-level strategy is a major determinant of industry
profitability. The choice of business model and strategies can
accelerate or retard market growth.
Navigating Through the Life Cycle
Embryonic stages – share building strategies
Development of distinctive competencies and competitive advantage.
Requires capital to develop R&D and sales/service competencies.
Growth stages – maintain relative competitive position
Strengthen business model to prepare to survive industry shakeout.
Requires investment to keep up with rapid growth of the market.
Shakeout stage – increase share during fierce competition
Invest in share-increasing strategies at expense of weak competitors.
Weak companies should exit the industry during the harvest stage.
Maturity stage – hold-and-maintain to defend business model
Dominant companies want to reap the reward of prior investments.
A company’s investment depends on the level of competition and source of the
company’s competitive advantage.
1. Competitive advantage of company’s business model
2. Stage of the industry life cycle
The amount and type of resources and capital needed to pursue a
company’s business model depends on two crucial factors:
Evolution of mature industries
Industry becomes consolidated as a result of the fierce
competition during the shakeout stage.
Business level strategy is based on how established companies
collectively try to reduce strength of competition.
Interdependent companies try to protect industry profitability.
Deter entry into industry
Product proliferation Maintaining
Price cutting excess capacity
Manage industry rivalry
Price signaling Capacity control
Price leadership Non-price competition
A mature industry is dominated by a small number of large
companies whose actions are so highly interdependent that success
of one company’s strategy depends on the response of its rivals.
Product Proliferation in the
Where the product spaces have been filled, it is difficult for a new
company to gain a foothold in the market and differentiate itself.
Toyota’s Product Lineup
Toyota has used market development to become a broad differentiator and
has developed a vehicle for almost every main segment of the car market.
Basic principles that underlie game theory:
Look Forward and Reason Back – Decision Trees
Look forward, think ahead, and anticipate how rivals will respond to
whatever strategic moves they make
Reason backwards to determine which strategic moves to pursue today
based on how rivals will respond to future strategic moves
Know Thy Rival – how is the rival likely to act
Find the Dominant Strategy – Payoff Matrix
One that makes you better off if you play that strategy
No matter what strategy your opponent uses
Strategy Shapes the Payoff Structure of the Game
Companies in an industry can be viewed as players that are all
simultaneously making choices about which business models and
strategies to pursue in order to maximize their profitability.
These basic principles of game theory can be used in
determining which business model and strategies to pursue.
Reasons for and severity of the decline
Reasons - technological change, social trends, demographic
Intensity of competition is greater when:
The decline is rapid versus slow and gradual.
The industry has high fixed costs.
The exit barriers are high.
The product is perceived as a commodity.
• Not all industry segments typically decline at the same rate
Creating pockets of demand
Leadership – seeks to become dominant player in declining industry
Niche – focuses on pockets of demand that are declining more slowly
Harvest – optimizes cash flow
Divestment – sells business to others
A declining industry is one in which market demand has
leveled off or is falling and the size of total market starts to shrink.
Competition tends to intensify and industry profits tend to fall.
in a Declining Industry
Choice of strategy is
• Severity of the
• Company strength
relative to the
Matching Strategy to
a Company’s Situation
drivers shaping a
options fall into
Nature of industry
New and unproven market
Lack of consensus regarding which of several
competing technologies will win out
Low entry barriers
Experience curve effects may permit cost reductions as
Buyers are first-time users and marketing involves
inducing initial purchase and overcoming customer
First-generation products are expected to be rapidly
improved so buyers delay purchase until technology
Possible difficulties in securing raw materials
Firms struggle to fund R&D, operations and build
Features of an Emerging Industry
Strategy Options for Competing
in Emerging Industries
Pursue new customers and user applications
Enter new geographical areas
Make it easy and cheap for first-time buyers to
Focus advertising emphasis on
Increasing frequency of use
Creating brand loyalty
Use price cuts to attract price-sensitive buyers
End-Game Strategies for
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
Quick recovery of as much of a company’s
investment as possible
Features of High-Velocity Markets
Rapid-fire technological change
Short product life-cycles
Entry of important new rivals
Frequent launches of new competitive
Rapidly evolving customer expectations
Three Strategy Horizons for Sustaining
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
Competitive advantage may be difficult to
achieve in medium- and long-jump businesses
that do not mesh well with firm’s present