4. The Strategic Management Process
Objectives:
• specific, measurable targets
• the things a firm needs to ‘do’ to achieve
its mission
• should influence other elements in the strategic
management process
5. The Strategic Management Process
Competitive Advantage
Definition: the ability to create more economic value
than competitors
• all other elements of the strategic management
process are aimed at achieving competitive advantage
Mission Objectives
External
Analysis
Internal
Analysis
Strategic
Choice
Strategy
Implementation
Competitive
Advantage
6. Competitive Advantage
Temporary & Sustainable
• competition limits the duration of competitive
advantage in most cases
• profits attract competition
• competitive advantage typically results in high profits
Therefore,
• most competitive advantage is temporary
• competitors imitate the advantage or offer
something better
7. Competitive Advantage
Temporary & Sustainable
Some competitive advantages are sustainable if:
• competitors are unable to imitate the source
of advantage
• no one conceives of a better offering
Of course,
• in time, even sustainable competitive advantage
may be lost
11. 1.Pricing objectives
Survival
Maximum current profit
Maximum market share
Maximum market skimming
Product-quality leadership
12. Setting Pricing Policy
1. Selecting the pricing
objective
2. Determining demand
3. Estimating costs
4. Analyzing competitors’
costs, prices, and offers
5. Selecting a pricing
method
6. Selecting final price
13. Types of Costs
Total Costs
Sum of the Fixed and Variable Costs for a Given
Level of Production
Total Costs
Sum of the Fixed and Variable Costs for a Given
Level of Production
Fixed Costs
(Overhead)
Costs that don’t
vary with sales or
production levels.
Fixed Costs
(Overhead)
Costs that don’t
vary with sales or
production levels.
Variable Costs
Costs that do vary
directly with the
level of production.
Variable Costs
Costs that do vary
directly with the
level of production.
14.
15. The Three C’s Model
for Price Setting
Costs Competitors’
prices and
prices of
substitutes
Customers’
assessment
of unique
product
features
Low Price
No possible
profit at
this price
High Price
No possible
demand at
this price
16. Some important pricing definitions
Utility: The attribute that makes it
capable of want satisfaction
Value: The worth in terms of other
products
Price: The monetary medium of
exchange.
18. Market-skimming pricing
Setting a high price for a new product to skim
maximum revenues layer by layer from the
segments willing to pay the high price: the
company makes fewer but more profitable
sales.
19. The conditions:
1. A sufficient number of buyers have a high current
demand;
2. The unit costs of producing a small volume are not so
high that they cancel the advantage of charging what
the traffic will bear;
3. The high initial price does not attract more
competitors to market;
4. The high price communicates the image of a superior
product.
21. The conditions:
1. The market is highly price sensitive,and a low
price stimulates market growth;
2. Production and distribution costs fall with
accumulated production experience;
3. A low price discourages actual and potential
competition.
23. Discussion
Please explain the reasons for price cuts.
Please explain the reasons for price increases.
Please describe the advantage and
disadvantage of price cuts and increases.
24. The reasons for price cuts
Excess capacity
Price competition
25. The reasons for price increases
Cost inflation
overdemand
27. Responding to competitors’ price
changes
Maintain price
Maintain price and add value
Reduce price
Increase price and improve quality
Launch a low-price fighter line
28.
29. Competitive Advantage &
The Strategic Management Process
Emergent vs. Intended Strategies
• the strategic management process leads managers
to intended strategies
However,
• conditions often change or new information
becomes available
• managers respond and adopt emergent strategies
Example: Honda Motorcycles
30. The Strategic Management Process
Summary
Firms could achieve competitive parity and survive
• they would face a flat demand curve
• their cost structure would be the industry average
• they would need to adapt their strategy over
time just to survive
• they would fail if they didn’t adapt their strategy
31. The Strategic Management Process
Summary
This course is not about mere survival, it is about
thriving—achieving competitive advantage
• the strategic management process helps managers
achieve competitive advantage
• competitive advantage depends on differences
• strategy is about discovering and exploiting
these differences
32. The Strategic Management Process
Applying Strategy to Your Career
• a solid understanding of strategy concepts will
help set you apart from other job candidates
• you can use the process to identify and
exploit difference between you and others
• you can use the process to determine if you
want to stay with a company
33. The Strategic Management Process
& Competitive Advantage
Strategy Matters!
• success and failure, between mediocrity and excellence
Strategy is often the difference between:
• a great manager and average managers
• stumbling through life and moving ahead with purpose
