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 What sets an organization apart -- competitive edge  Controlling or having something others
 What sets an organization apart -- competitive edge  Controlling or having something others

What sets an organization apart -- competitive edge

Controlling or having something others do not have

Doing something better than other organizations

Doing something other organizations cannot do

Competitive strategies are designed to exploit an

organization’s competitive advantage

Implies there are other competitors also trying to

develop competitive advantage & attract customers

Competitive advantage can be eroded easily (& often quickly) by rival’s actions

 When organizations battle for some desired object or outcome ▪ Customers ▪ Market share
 When organizations battle for some desired object or outcome ▪ Customers ▪ Market share

When organizations battle for some desired object or outcome

Customers

Market share

Survey rankings

Needed resources

Hyper-competition

A situation of intense and continually increasing levels of competition in today’s business environment

(1) Industry perspective Supply Side  Identifies competitors as firms that are making the same
(1) Industry perspective Supply Side  Identifies competitors as firms that are making the same

(1) Industry perspective

Supply Side
Supply
Side

Identifies competitors as firms that are making the same products or providing the same service Describes industries according to number of sellers & the similarities or differences in the products or

services

The number of sellers & level of product-service differences will affect how intensely competitive the industry is

(2) Marketing perspective Demand Side  Competitors are firms that satisfy the same customer needs
(2) Marketing perspective Demand Side  Competitors are firms that satisfy the same customer needs

(2) Marketing perspective

Demand Side
Demand
Side

Competitors are firms that satisfy the same customer needs

How similar are the benefits that customers derive from the products and services that other

firms offer?

Intensity of competition depends on

How well the customer need is understood or defined

How well different firms are able to meet that need

Industry Same Product-Service Market Customer Needs
Industry Same Product-Service Market Customer Needs

Industry

Same

Product-Service

Market
Market

Customer

Needs

(3) Strategic Group Perspective  Competitors are firms that follow similar strategies  Strategic group
(3) Strategic Group Perspective  Competitors are firms that follow similar strategies  Strategic group

(3) Strategic Group Perspective

Competitors are firms that follow similar strategies

Strategic group is a set of firms competing within an industry that have similar strategies & resources

A single industry could have a few or several strategic groups depending on what strategic factors are

important to different group of customers

 Strategic Group Perspective (cont’d)  Firms in same strategic group have two or more
 Strategic Group Perspective (cont’d)  Firms in same strategic group have two or more

Strategic Group Perspective (cont’d)

Firms in same strategic group have two or more competitive characteristics in common

Sell in same price/quality range

Cover same geographic areas

Be vertically integrated to the same degree

Have comparable product line breadth

Emphasize same types of distribution channels

Offer buyers similar services

Use identical technological approaches

• Group of firms pursuing same or similar strategy with similar resources – Although McDonald's
• Group of firms pursuing same or similar strategy with similar resources – Although McDonald's

Group of firms pursuing same or similar

strategy with similar resources

Although McDonald's and Subway are both in the fast food business, they don’t really

take into account what the other is doing

before formulating their strategies

On the other hand, Burger King and

McDonald's have a lot in common both

have a similar strategy of serving low priced

fast food to the average family

 Possible strategic dimensions for identifying strategic groups  Price  Quality  Geographic scope
 Possible strategic dimensions for identifying strategic groups  Price  Quality  Geographic scope
 Possible strategic dimensions for identifying strategic groups  Price  Quality  Geographic scope

Possible strategic dimensions for identifying strategic groups

Price

Quality

Geographic scope

Product line breadth-depth

R&D expenditures

Product characteristics

The purposeful and coordinated monitoring of your competitor(s) QUESTIONS Where do they add customer value?
The purposeful and coordinated monitoring of your competitor(s) QUESTIONS Where do they add customer value?

The purposeful and coordinated monitoring of your competitor(s)

QUESTIONS

Where do they add customer value?

Do they offer higher quality, lower price, better service, or excellent credit terms?

Which customers are your competitors most interested in?

Do they seek your best customers, the ones you don’t want, or do they go for everyone?

What is their cost base and liquidity?

How much cash and working capital do they have?

Are their suppliers better than yours?

Are they less exposed with their suppliers than your firm?

What do they intend to do in the future?

Do they have a your market segments targeted? Are they committed to growth?

How will their activity affect your strategies?

Should you adjust your plans and operations?

Do either of you have a competitive advantage in the marketplace?

How much better than your competitor do you have to be to attract customers?

Will new competitors emerge over the next few years?

Who is a potential new entrant?

If you were a customer, would you choose your product over those offered by others?

What irritates your current customers?

 Every firm has resources & work processes  Systems to do whatever it’s in
 Every firm has resources & work processes  Systems to do whatever it’s in
 Every firm has resources & work processes  Systems to do whatever it’s in

Every firm has resources & work processes

Systems to do whatever it’s in business to do

But not every firm is able to

Effectively exploit its resources & capabilities

Obtain resources & capabilities it needs

Some firms are able to “pull it together” & develop

distinctive capabilities, others don’t

Competitive advantage implies gaining the edge on

others using resources & capabilities

As firms strive for sustainable CA, stage for competition

is set - intense, moderate or low

 What is competitive strategy? • Consists of business approaches to – Attract customers by
 What is competitive strategy? • Consists of business approaches to – Attract customers by
 What is competitive strategy? • Consists of business approaches to – Attract customers by

What is competitive strategy?

Consists of business approaches to

Attract customers by fulfilling their expectations Withstand competitive pressures

Strengthen market position

Exploits competitive advantage by

finding ways to use resources & capabilities to set firm

apart from competitors

 Anjali Mukerjee’s Health Total (AMHT)is an 8-year old, Rs. 3 crore company in the

Anjali Mukerjee’s Health Total (AMHT)is an 8-year old, Rs. 3 crore company in the market for

an 8-year old, Rs. 3 crore company in the market for health/fitness programmes.The company offers two

health/fitness programmes.The company offers two related product lines: 3 health programmes

and 9 health foods in the form of snacks.

The brand aims at delivering 2 major promises: health and beauty through health. It has thus

positioned itself on a ‘health and beauty through nutrition’ platform, distinguishing itself from

other fitness programmes such as Talwalkars, VLCC, etc. It caters to Sec A1,A, and B customers through 4 centres in Mumbai and 2 in New Delhi.

In addition to the new products it is planning for delivering beauty through the health route, the company sees opportunities in preventive health care and is aiming at growth through collaboration in this area, expanding its presence into at least the top 10 Indian cities.

The market for health/fitness and beauty programmes straddles the health care and the beauty industries, and is highly fragmented in structure. The health-and-fitness market may be segmented

as below in terms of consumer perceptions:

Health programmes such as AMHT

National level fitness programmes such as Rama Bans, VLCC, Talwalkar’s

Smaller local players in different parts of the country, of which there are scores

Though there is a fair amount of overlap between ‘health programmes’ and ’beauty programmes’,

some programmes such as Shahnaz Hussain’s and Jamuna Pai’s have been able to acquire a distinct

consumer perception as ‘exclusively beauty oriented programmes’.The health/fitness and beauty programmes attract a lot of indirect competition from yoga and meditation pragrammes like Siddh

SamadhiYoga & from Ayurvedic Centres, gyms, and the like. This unstructured and fragmented nature of the market makes it difficult to guess its size and growth

Support

Activities

Value Chain Analysis

Identifying Resources and Capabilities That Can Add Value

Support Activities Value Chain Analysis Identifying Resources and Capabilities That Can Add Value Primary Activities
Support Activities Value Chain Analysis Identifying Resources and Capabilities That Can Add Value Primary Activities
Support Activities Value Chain Analysis Identifying Resources and Capabilities That Can Add Value Primary Activities
Support Activities Value Chain Analysis Identifying Resources and Capabilities That Can Add Value Primary Activities
Support Activities Value Chain Analysis Identifying Resources and Capabilities That Can Add Value Primary Activities
Support Activities Value Chain Analysis Identifying Resources and Capabilities That Can Add Value Primary Activities

Primary Activities

Support Activities Value Chain Analysis Identifying Resources and Capabilities That Can Add Value Primary Activities

Support

Activities

Value Chain Analysis

Identifying Resources and Capabilities That Can Add Value

Value Chain Analysis Identifying Resources and Capabilities That Can Add Value Inbound Logistics Primary Activities
Value Chain Analysis Identifying Resources and Capabilities That Can Add Value Inbound Logistics Primary Activities
Inbound Logistics
Inbound
Logistics
Inbound Logistics
Inbound Logistics
Value Chain Analysis Identifying Resources and Capabilities That Can Add Value Inbound Logistics Primary Activities

Primary Activities

Value Chain Analysis Identifying Resources and Capabilities That Can Add Value Inbound Logistics Primary Activities

Support

Activities

Value Chain Analysis

Identifying Resources and Capabilities That Can Add Value

Chain Analysis Identifying Resources and Capabilities That Can Add Value Inbound Logistics Operations Primary Activities
Chain Analysis Identifying Resources and Capabilities That Can Add Value Inbound Logistics Operations Primary Activities
Inbound Logistics Operations
Inbound
Logistics
Operations
Chain Analysis Identifying Resources and Capabilities That Can Add Value Inbound Logistics Operations Primary Activities

Primary Activities

Chain Analysis Identifying Resources and Capabilities That Can Add Value Inbound Logistics Operations Primary Activities

Support

Activities

Value Chain Analysis

Identifying Resources and Capabilities That Can Add Value

Identifying Resources and Capabilities That Can Add Value Inbound Logistics Operations Outbound Logistics Primary
Identifying Resources and Capabilities That Can Add Value Inbound Logistics Operations Outbound Logistics Primary
Inbound Logistics Operations Outbound Logistics
Inbound
Logistics
Operations
Outbound
Logistics
Resources and Capabilities That Can Add Value Inbound Logistics Operations Outbound Logistics Primary Activities

Primary Activities

Resources and Capabilities That Can Add Value Inbound Logistics Operations Outbound Logistics Primary Activities

Support

Activities

Value Chain Analysis

Identifying Resources and Capabilities That Can Add Value

Identifying Resources and Capabilities That Can Add Value Inbound Logistics Operations Outbound Logistics
Identifying Resources and Capabilities That Can Add Value Inbound Logistics Operations Outbound Logistics
Inbound Logistics Operations
Inbound
Logistics
Operations
Outbound Logistics Marketing & Sales
Outbound
Logistics
Marketing
& Sales
That Can Add Value Inbound Logistics Operations Outbound Logistics Marketing & Sales Primary Activities

Primary Activities

That Can Add Value Inbound Logistics Operations Outbound Logistics Marketing & Sales Primary Activities

Support

Activities

Value Chain Analysis

Identifying Resources and Capabilities That Can Add Value

Identifying Resources and Capabilities That Can Add Value Inbound Logistics Operations Outbound Logistics
Identifying Resources and Capabilities That Can Add Value Inbound Logistics Operations Outbound Logistics
Inbound Logistics Operations
Inbound
Logistics
Operations
Outbound Logistics Marketing & Sales
Outbound
Logistics
Marketing
& Sales
Service
Service
That Can Add Value Inbound Logistics Operations Outbound Logistics Marketing & Sales Service Primary Activities

Primary Activities

That Can Add Value Inbound Logistics Operations Outbound Logistics Marketing & Sales Service Primary Activities

Support

Activities

Value Chain Analysis

Identifying Resources and Capabilities That Can Add Value

Identifying Resources and Capabilities That Can Add Value Procurement Inbound Logistics Operations Outbound
Procurement
Procurement
Inbound Logistics Operations
Inbound
Logistics
Operations
Outbound Logistics Marketing & Sales
Outbound
Logistics
Marketing
& Sales
Service
Service
Value Procurement Inbound Logistics Operations Outbound Logistics Marketing & Sales Service Primary Activities

Primary Activities

Value Procurement Inbound Logistics Operations Outbound Logistics Marketing & Sales Service Primary Activities

Support

Value Chain Analysis

Identifying Resources and Capabilities That Can Add Value

Activities Technological Development Procurement Inbound Logistics Operations Outbound Logistics Marketing &
Activities
Technological Development
Procurement
Inbound
Logistics
Operations
Outbound
Logistics
Marketing
& Sales
Service
Procurement Inbound Logistics Operations Outbound Logistics Marketing & Sales Service Primary Activities

Primary Activities

Procurement Inbound Logistics Operations Outbound Logistics Marketing & Sales Service Primary Activities

Value Chain Analysis

Identifying Resources and Capabilities That Can Add Value

Human Resource Management Support
Human Resource Management
Support

Activities

Technological Development
Technological Development
Procurement
Procurement

Logistics

Inbound

Operations
Operations
Outbound Logistics
Outbound
Logistics
Marketing & Sales
Marketing
& Sales
Service
Service
Procurement Logistics Inbound Operations Outbound Logistics Marketing & Sales Service Primary Activities

Primary Activities

Procurement Logistics Inbound Operations Outbound Logistics Marketing & Sales Service Primary Activities

Support

Activities

Value Chain Analysis

Identifying Resources and Capabilities That Can Add Value

Firm Infrastructure
Firm Infrastructure
Human Resource Management Technological Development
Human Resource Management
Technological Development
Procurement
Procurement

Logistics

Inbound

Operations
Operations
Outbound Logistics
Outbound
Logistics
Marketing & Sales
Marketing
& Sales
Service
Service
Procurement Logistics Inbound Operations Outbound Logistics Marketing & Sales Service Primary Activities

Primary Activities

Procurement Logistics Inbound Operations Outbound Logistics Marketing & Sales Service Primary Activities

Support

Activities

Value Chain Analysis

Identifying Resources and Capabilities That Can Add Value

Firm Infrastructure Human Resource Management Technological Development
Firm Infrastructure
Human Resource Management
Technological Development
Procurement
Procurement
Inbound Logistics Operations
Inbound
Logistics
Operations
Outbound Logistics Marketing & Sales
Outbound
Logistics
Marketing
& Sales
Service
Service
Procurement Inbound Logistics Operations Outbound Logistics Marketing & Sales Service Primary Activities

Primary Activities

Procurement Inbound Logistics Operations Outbound Logistics Marketing & Sales Service Primary Activities
• Competitive advantage will arise through: – Providing buyer value comparable to competitors by performing
• Competitive advantage will arise through: – Providing buyer value comparable to competitors by performing
• Competitive advantage will arise through: – Providing buyer value comparable to competitors by performing

Competitive advantage will arise through:

Providing buyer value comparable to competitors

by performing value chain activities more

efficiently cost based advantage

and / or

Performing value chain activities in unique ways

that create greater buyer value than competitors

and hence command a premium price

differentiation based advantage

 Competitive advantage arises from one of two sources:  Performing the same activities as
 Competitive advantage arises from one of two sources:  Performing the same activities as
 Competitive advantage arises from one of two sources:  Performing the same activities as

Competitive advantage arises from one of two

sources:

Performing the same activities as competitors, but at a lower cost

Performing a different set of activities or activities that

are perceived as unique in the industry, and charging a

premium

Another important factor is the scope of the

product-market (broad or narrow)

 Mix of these factors provide basis for  Cost leadership strategy (low- cost strategy)
 Mix of these factors provide basis for  Cost leadership strategy (low- cost strategy)
 Mix of these factors provide basis for  Cost leadership strategy (low- cost strategy)

Mix of these factors provide basis for

Cost leadership strategy (low- cost strategy)

Differentiation strategy

Focus strategy

provide basis for  Cost leadership strategy (low- cost strategy)  Differentiation strategy  Focus strategy
provide basis for  Cost leadership strategy (low- cost strategy)  Differentiation strategy  Focus strategy
Market Scope Broad Narrow Competitive Advantage L o w C o s t Differentiation Cost
Market Scope Broad Narrow Competitive Advantage L o w C o s t Differentiation Cost
Market Scope Broad Narrow Competitive Advantage L o w C o s t Differentiation Cost

Market

Scope

Broad

Narrow

Competitive Advantage

Low Cost

Differentiation

Cost Leadership

Differentiation

Focus

Focus

(Low Cost)

(Differentiation)

Producing products at a

lower price than

competitors

Differentiation of

products and selling

them at a premium

price

Targeting the whole market

with the chosen

strategy

Targeting a specific

segment of

the market

Cost: Design, produce & market more efficiently than competitors Differentiation: Deliver unique & superior
Cost: Design, produce & market more efficiently than competitors Differentiation: Deliver unique & superior
Cost: Design, produce & market more efficiently than competitors
Cost:
Design, produce &
market more
efficiently than
competitors
Differentiation: Deliver unique & superior value in terms of product quality, features, service
Differentiation:
Deliver unique &
superior value in terms
of product quality,
features, service

Determine your Competitive Scope:

Number & Nature of segments you will compete in

Determine your Competitive Scope: Number & Nature of segments you will compete in
Determine your Competitive Scope: Number & Nature of segments you will compete in
Determine your Competitive Scope: Number & Nature of segments you will compete in
Strategy focus: organize value adding activities to be the lowest cost producer of a product
Strategy focus: organize value adding activities to be the lowest cost producer of a product

Strategy focus: organize value adding

activities to be the lowest cost producer of a

product in an industry

Low cost implies OVERALL LOW COST

Also, product quality cannot be ignored

 Champion frugality  Strict attention to production controls  Rigorous use of budgets 
 Champion frugality  Strict attention to production controls  Rigorous use of budgets 

Champion frugality

Strict attention to production controls

Rigorous use of budgets

Limited market segmentation

Emphasis on productivity improvements

Distinctive capabilities found in manufacturing & materials management

 A cost leader does not try to be an industry innovator  The overriding
 A cost leader does not try to be an industry innovator  The overriding
 A cost leader does not try to be an industry innovator  The overriding
 A cost leader does not try to be an industry innovator  The overriding

A cost leader does not try to be an industry innovator

The overriding goal is- increased efficiency & lower costs

relative to rivals

All functional strategies & capabilities are directed at

efficiency

strategies & capabilities are directed at efficiency  Will seek to minimize costs in marketing, R&D

Will seek to minimize costs in marketing, R&D &

production

Every strategic decision is aimed at keeping cost as low as

possible

Doesn’t have deep & wide product lines

Market products aimed at “average” customer

Little product differentiation: Little or no product frills

or differences

– Price competition is vigorous – Product is standardized or readily available from many suppliers
– Price competition is vigorous – Product is standardized or readily available from many suppliers
– Price competition is vigorous – Product is standardized or readily available from many suppliers

Price competition is vigorous Product is standardized or readily available from many suppliers

There are few ways to achieve differentiation that

have value

Most buyers use product in same ways

Buyers incur low switching costs

Buyers are large and have significant bargaining

power

 Higher profits resulting from charging prices below that of competitors, because unit costs are
 Higher profits resulting from charging prices below that of competitors, because unit costs are
 Higher profits resulting from charging prices below that of competitors, because unit costs are

Higher profits resulting from charging prices below that of competitors, because unit costs are lower

Even at same price more efficient cost leader generates

greater profitability

Increase in market share and sales by reducing the

price below that charged by competitors (assuming price elasticity of demand)

Is a barrier to entry for competitors trying to enter

the industry

 Analysis of the value chain identifies where cost savings can be made in the
 Analysis of the value chain identifies where cost savings can be made in the
 Analysis of the value chain identifies where cost savings can be made in the

Analysis of the value chain identifies where cost savings can be made in the various parts and links

With a cost leadership strategy, the value chain

must be organized to:

Reduce per unit costs by copying, rather than original design, using cheaper resources, producing basic products, reducing labor costs and increasing labor productivity

Achieve economies of scale by high-volume sales

Using high-volume purchasing to get discounts

Locating where costs are low

Cost Leadership

Cost Leadership 1. Economies of scale through utilization of excess capacity 2. Automation / utilization of
Cost Leadership 1. Economies of scale through utilization of excess capacity 2. Automation / utilization of

1.

Economies of scale through utilization of excess

capacity

2.

Automation / utilization of robotics in

manufacturing processes

3.

Development of efficient distribution networks

4.

Implementation of TQM (Total Quality

Management) initiatives

• Being overly aggressive in cutting price • Low cost methods are easily imitated by
• Being overly aggressive in cutting price • Low cost methods are easily imitated by
• Being overly aggressive in cutting price • Low cost methods are easily imitated by

Being overly aggressive in cutting price

Low cost methods are easily imitated by rivals

Becoming too fixated on reducing costs and ignoring

Buyer interest in additional features (tastes)

Declining buyer sensitivity to price Changes in how the product is used

Technological breakthroughs open up cost

reductions for rivals

Differentiation strategy focuses on changing customer perception about a product, i.e., that the product is
Differentiation strategy focuses on changing customer perception about a product, i.e., that the product is

Differentiation strategy focuses on changing

customer perception about a product, i.e., that the product is superior to other products

Based on actual superiority (superior

features) or perceived superiority

 Offer products/services that create value to customers  Offer products/services not easily matched or
 Offer products/services that create value to customers  Offer products/services not easily matched or

Offer products/services that create value to

customers

Offer products/services not easily matched or easily copied by rivals

Not spending more to differentiate the firm’s

products or service than the price premium

that can be charged

• Unique taste -- KFC • Special features – Nissan Micra • Superior service --

Unique taste -- KFC

Special features Nissan Micra

Superior service -- FedEx, Aquaguard

Spare parts availability -- Maruti

More for your money -- McDonald’s, Wal-Mart

Quality manufacture -- Honda , Toyota

Technological leadership -- 3M Corporation,

Intel, Apple

Toyota • Technological leadership -- 3M Corporation, Intel, Apple • Top-of-the-line image -- Ralph Lauren, Chanel
Toyota • Technological leadership -- 3M Corporation, Intel, Apple • Top-of-the-line image -- Ralph Lauren, Chanel

Top-of-the-line image -- Ralph Lauren, Chanel

 Every strategic decision & action is directed at setting the firm apart from competitors
 Every strategic decision & action is directed at setting the firm apart from competitors

Every strategic decision & action is directed at

setting the firm apart from competitors

All functional strategies & capabilities are aimed at isolating & understanding specific market segments & developing product

features that are valued by customers

Has broad and wide product lines -- many

different models, features, price ranges, etc.

 Has many market segments & product features  Controls costs but not as rigorous
 Has many market segments & product features  Controls costs but not as rigorous
 Has many market segments & product features  Controls costs but not as rigorous

Has many market segments & product features

Controls costs but not as rigorous as the cost

leader to preserve source of differentiation

Competitive capabilities tend to be in marketing and research & development

 Will have significant expenditures in R&D & production ….  Because you want to
 Will have significant expenditures in R&D & production ….  Because you want to

Will have significant expenditures in R&D &

production….

Because you want to make high quality/highly desirable product

Will have significant expenditures in

marketing

Because you need to create maximum awareness

& brand equity

• When there are many ways to differentiate a product and appeal to customers •
• When there are many ways to differentiate a product and appeal to customers •
• When there are many ways to differentiate a product and appeal to customers •

When there are many ways to differentiate a

product and appeal to customers

Buyer needs and uses are diverse

Few rivals are following a similar type of

differentiation approach

Technological change is fast-paced and competition is focused on evolving

product features

 Products will get a premium price  Demand for products is less price elastic
 Products will get a premium price  Demand for products is less price elastic
 Products will get a premium price  Demand for products is less price elastic

Products will get a premium price

Demand for products is less price elastic than that for competitor’s products

Builds Brand Loyalty

It is an additional barrier to entry for competitors to enter the industry

… as you develop greater brand equity — through increased product quality & awareness ….
… as you develop greater brand equity — through increased product quality & awareness ….

… as you develop greater

brand equity through

increased product quality

& awareness ….

You develop greater brand

loyalty….

The greater the loyalty

the

less the price sensitivity

quality & awareness …. You develop greater brand loyalty …. The greater the loyalty the less
 Analysis of value chain identifies the parts through which superior products can be created
 Analysis of value chain identifies the parts through which superior products can be created
 Analysis of value chain identifies the parts through which superior products can be created

Analysis of value chain identifies the parts through which superior products can be created and

customer perception may be changed

With differentiation strategy, the value chain must

be organized to:

Create products that are superior to competitors’ products

in design, technology, performance, etc.

Offer superior after-sales service

Have superior distribution channels

Create a strong brand name

Create distinctive or superior packaging

Differentiation

Differentiation 1. Developing innovative products/services to broad range of customers 2. Significant
Differentiation 1. Developing innovative products/services to broad range of customers 2. Significant

1.

Developing innovative products/services to

broad range of customers

2.

Significant investments in R&D

3.

Capability to generate a series of successful

new products over time

 Difficulty in maintaining long-term distinction in customers’ eyes  Agile competitors can quickly imitate
 Difficulty in maintaining long-term distinction in customers’ eyes  Agile competitors can quickly imitate
 Difficulty in maintaining long-term distinction in customers’ eyes  Agile competitors can quickly imitate
 Difficulty in maintaining long-term distinction in customers’ eyes  Agile competitors can quickly imitate

Difficulty in maintaining long-term

distinction in customers’ eyes

Agile competitors can quickly imitate

Expense of maintaining premium

pricingrequires greater marketing

costs

Agile competitors can quickly imitate  Expense of maintaining premium pricing – requires greater marketing costs
• Trying to differentiate on a feature buyers do not perceive as valuable • Not
• Trying to differentiate on a feature buyers do not perceive as valuable • Not
• Trying to differentiate on a feature buyers do not perceive as valuable • Not

Trying to differentiate on a feature buyers do not

perceive as valuable

Not understanding what customers want or prefer

and differentiating on the “wrong” things

Low-cost strategy can defeat a differentiation

strategy when customers are satisfied with a

standard product and do not see extra attributes as

worth paying for!

Over-differentiating such that product features exceed

customers’ needs

Charging a price premium that customers perceive is too

high

Targets a segment of the product market, rather than the whole market or many markets
Targets a segment of the product market, rather than the whole market or many markets

Targets a segment of the product market, rather

than the whole market or many markets

Segment is determined by the bases for segmentation

Geographical area

Type of customer -- specific group of customers

Specific & specialized product line

Within the segment, either cost leadership or

differentiation strategy is used

 Approach 1: Cost Advantage  Achieve lower cost than rivals in serving the specific
 Approach 1: Cost Advantage  Achieve lower cost than rivals in serving the specific

Approach 1: Cost Advantage

Achieve lower cost than rivals in serving the specific or narrow segment

Approach 2: Differentiation Advantage

Offer customers in niche market something unique in that market

Product features

Product innovations

Product quality

Customer responsiveness

• Focus Low-cost – Ikea :Young furniture buyers who want style at low cost (price
• Focus Low-cost – Ikea :Young furniture buyers who want style at low cost (price

Focus Low-cost

Ikea:Young furniture buyers who want style at low cost (price

sensitive and low service customer groups)

Southwest Airlines: Short-haul, point-to-point service

between midsize cities & secondary airports in large cities

(low pricing & low service)

Focus Differentiation

Rolex: Serve highest end of wristwatch market (premium pricing & image)

Rolls-Royce: Serving luxurious end of automobile market

(premium pricing & image)

 Lower investment costs required compared to a strategy aimed at the entire market or
 Lower investment costs required compared to a strategy aimed at the entire market or

Lower investment costs required compared to a

strategy aimed at the entire market or many

markets

It makes entry into a new market more simple

It allows for specialization and greater

knowledge

The focuser knows its market niche and knows it well

The focuser can stay close to customers and

respond quickly to their changing needs

Focuser can develop strong brand loyalty which

can be difficult for other competitors to

overcome

• Operates in small scale making it difficult to lower costs significantly. Technological advances have
• Operates in small scale making it difficult to lower costs significantly. Technological advances have

Operates in small scale making it difficult to lower

costs significantly. Technological advances have

minimized this drawback

Competitors find effective ways to match a

focuser’s capabilities in serving niche market

Niche can become part of the overall market

Segment becomes so attractive it becomes

crowded with rivals, causing segment profits to be

splintered

Cost Leadership Low (principally by price) Differentiation High (principally by uniqueness) Focus Product Low to
Cost Leadership Low (principally by price) Differentiation High (principally by uniqueness) Focus Product Low to
Cost
Cost
Leadership
Leadership

Low

(principally

by price)

Differentiation
Differentiation

High

(principally

by uniqueness)

Focus
Focus
Product
Product

Low to High (price or uniqueness)

Differentiation
Differentiation

Low

(mass market)

High (many market segments)

Low (one or a few segments)

Market
Market
Segmentation
Segmentation

Manufacturing and materials management

Research and

development

sales and

marketing

Any kind of

distinctive

competence

Key Core Competence
Key Core
Competence

Generic

Strategies

and

Industry

Forces

Industry

 

Generic Strategies

 

Force

Cost

Differentiation

Focus

Leadership

Entry

Barriers

Ability to cut price in retaliation deters

Customer loyalty can discourage potential

Focusing develops core competencies that can

potential entrants.

entrants.

act as an entry barrier.

Buyer

Power

Ability to offer lower

price to powerful

buyers.

Large buyers have less power to

negotiate because of

Large buyers have less power to negotiate

because of few

few close alternatives.

alternatives.

Supplier

Better insulated from

Better able to pass on supplier price

Suppliers have power because of low volumes, but a differentiation-focused firm is better able to pass on supplier price increases.

Power

powerful suppliers.

increases to

customers.

Threat of

Can use low price to

Customer's become attached to

Substitutes

defend against

substitutes.

differentiating

attributes, reducing threat of substitutes.

Specialized products & core competency

protect against

substitutes.

Rivalry

Better able to compete on price.

Brand loyalty to keep customers from rivals.

Rivals cannot easily

meet differentiation-

focused customer

needs

Risks of Differentiation Risks of Focus Risks of Cost Leadership Cost leadership is not sustained:
Risks of Differentiation Risks of Focus Risks of Cost Leadership Cost leadership is not sustained:
Risks of Differentiation Risks of Focus
Risks of Differentiation
Risks of Focus
Risks of Cost Leadership
Risks of Cost
Leadership
of Differentiation Risks of Focus Risks of Cost Leadership Cost leadership is not sustained: * Competitors

Cost leadership is not sustained:

* Competitors imitate. * Technology changes. * Other bases for cost leadership erode.
* Competitors imitate.
* Technology changes.
* Other bases for cost
leadership erode.
Cost focusers achieve even lower cost in segments.
Cost focusers achieve
even lower cost in
segments.
erode. Cost focusers achieve even lower cost in segments. Differentiation is not sustained: * Competitors imitate.

Differentiation is not sustained:

* Competitors imitate. * Bases for differentiation become less important to buyers.
* Competitors imitate.
* Bases for differentiation
become less important to
buyers.
Differentiation focusers
Differentiation focusers
achieve even greater differentiation in segments
achieve even greater
differentiation in
segments
The focus strategy is imitated. The target segment becomes structurally unattractive: * Structure erodes. *
The focus strategy is imitated.
The target segment becomes
structurally unattractive:
* Structure erodes.
* Demand disappears.
Broadly targeted competitors overwhelm the segment: * The segment’s differences from other segments narrow. *
Broadly targeted competitors
overwhelm the segment:
* The segment’s differences
from other segments narrow.
* The advantages of a broad
line increase.
New focusers
sub-segment the industry

The big risk

Selecting a “stuck in the middle” strategy!

big risk Selecting a “ stuck in the middle ” strategy! This rarely produces a sustainable
big risk Selecting a “ stuck in the middle ” strategy! This rarely produces a sustainable
big risk Selecting a “ stuck in the middle ” strategy! This rarely produces a sustainable

This rarely produces a sustainable competitive

advantage or a distinctive competitive position

 Happen’s when a firm is not successful in pursuing either a low-cost or differentiation
 Happen’s when a firm is not successful in pursuing either a low-cost or differentiation

Happen’s when a firm is not successful in pursuing

either a low-cost or differentiation strategy

Occurs when a firm’s

Costs are too high to compete with the low-cost leader

Products & services are not differentiatied enough to

compete with broad differentiator

Unprofitable strategic position/direction

Becoming “unstuck” involves making consistent

strategic decisions about what CA to pursue & doing

so by aligning resources & capabilities

 A hybrid strategy may be successful, although Porter argues that either differentiation or cost
 A hybrid strategy may be successful, although Porter argues that either differentiation or cost
 A hybrid strategy may be successful, although Porter argues that either differentiation or cost

A hybrid strategy may be successful, although Porter

argues that either differentiation or cost leadership

must be used (a mix of the two leads to being “stuck in

the middle”)

Cost leadership alone does not lead to sales of products

Differentiation strategies may be used to increase sales volume,

rather than charging a premium price

Price may be used to differentiate

Generic strategy doesn’t create competitive advantage,

rather it is a model to help an organization in analysis

 Integrated Low-Cost, Differentiation Strategy  Develops CA by simultaneously achieving low-cost and high levels
 Integrated Low-Cost, Differentiation Strategy  Develops CA by simultaneously achieving low-cost and high levels
 Integrated Low-Cost, Differentiation Strategy  Develops CA by simultaneously achieving low-cost and high levels

Integrated Low-Cost, Differentiation Strategy

Develops CA by simultaneously achieving low-cost and

high levels of differentiation

Make an upscale product at a lower cost

Give customers more value for the money

Technological advancements that make this hybrid

competitive strategy possible are

Flexible manufacturing systems

Just-in-time inventory systems

Computer-integrated manufacturing systems

• Examples of Integrated low-cost differentiation strategy • Toyota & Honda – Cost reduction through
• Examples of Integrated low-cost differentiation strategy • Toyota & Honda – Cost reduction through
• Examples of Integrated low-cost differentiation strategy • Toyota & Honda – Cost reduction through

Examples of Integrated low-cost

differentiation strategy

Toyota & Honda

Cost reduction through zero defects and differentiation through quality

Wal-Mart

Cost reduction through automation and differentiation

through quality (more value)

 Depends on ▪ Current firm resources & capabilities in place ▪ Fir resources &
 Depends on ▪ Current firm resources & capabilities in place ▪ Fir resources &
 Depends on ▪ Current firm resources & capabilities in place ▪ Fir resources &

Depends on

Current firm resources & capabilities in place

Fir resources & capabilities acquired & developed

Each of Porter’s competitive strategies requires certain

skills, resources, & organizational abilities

 Abell says that the standard two dimensional way of looking at a business (products
 Abell says that the standard two dimensional way of looking at a business (products

Abell says that the

standard two

dimensional way of

looking at a

business (products and markets) has

serious flaws. He

suggests a three

dimensional model,

with 3 axes

way of looking at a business (products and markets) has serious flaws. He suggests a three
 Emphasizes that products are merely a physical manifestation of the application of a particular
 Emphasizes that products are merely a physical manifestation of the application of a particular
 Emphasizes that products are merely a physical manifestation of the application of a particular

Emphasizes that products are merely a physical manifestation of the application of a particular

technology to the satisfaction of a particular

function for a particular customer group. The choice

is one of technologies, functions and customers to

serve, not of products to offer.

Central in the model is the Customer, not the

Company itself

• Prospector • Analyzer • Defender • Reactor
• Prospector • Analyzer • Defender • Reactor

Prospector

Analyzer

Defender

Reactor

PROSPECTOR • Operates in a broad product-market domain • Wants to be the 'first-mover' in
PROSPECTOR • Operates in a broad product-market domain • Wants to be the 'first-mover' in
PROSPECTOR • Operates in a broad product-market domain • Wants to be the 'first-mover' in

PROSPECTOR

Operates in a broad product-market domain Wants to be the 'first-mover' in a market, even if not profitable

Rapid responses to early signals of opportunity

Competes by meeting new market opportunities may not maintain strength over

time in these markets

DEFENDER

ANALYZER

Locates & maintains secure position in stable markets Offers limited range of products & services than competitors

Protects its domain offers lower prices, higher quality, better service

Not at the forefront of tech or new product development

Intermediate type fewer changes than Prospector, more than Defender Maintains stable product line, but is careful about offering selected new developments Rarely the first-mover mostly enters 2 nd or 3rd, with a low cost or high quality / service offering

REACTOR

No well defined competitive strategy

No consistent product-market orientation

Not aggressive Reacts only when forced by environmental pressures

 Miles and Snow typology  Prospector ▪ Seeks innovation ▪ Survey dynamic environment and
 Miles and Snow typology  Prospector ▪ Seeks innovation ▪ Survey dynamic environment and
 Miles and Snow typology  Prospector ▪ Seeks innovation ▪ Survey dynamic environment and

Miles and Snow typology

Prospector

Seeks innovation

Survey dynamic environment and develops new products

Competitors are uncertain about prospector’s future decisions and

actions

seek first mover advantages by introducing new products and

services

OFFERS A BROAD PRODUCT LINE

Learning orientation; flexible, fluid, decentralized structure

Strong capability in research

Values creativity, risk-taking, and innovation

 Miles and Snow typology  Defender ▪ Searches for market stability ▪ Limited product
 Miles and Snow typology  Defender ▪ Searches for market stability ▪ Limited product
 Miles and Snow typology  Defender ▪ Searches for market stability ▪ Limited product

Miles and Snow typology

Defender

Searches for market stability

Limited product line

Seeks to defend position

Prevents others from entering its turf

Can create and maintain niches

Not likely to innovate

Efficiency orientation; centralized authority and tight cost

control

Emphasis on production efficiency, low overhead

Close supervision; little employee empowerment

 Miles and Snow typology  Analyzer ▪ represent a middle ground between prospectors and
 Miles and Snow typology  Analyzer ▪ represent a middle ground between prospectors and
 Miles and Snow typology  Analyzer ▪ represent a middle ground between prospectors and

Miles and Snow typology

Analyzer

represent a middle ground between prospectors and defenders and

emphasize flexibility and second mover advantages

Strategy of analysis and imitation

Copies promising new activities

Operates in 2 markets (one stable, one variable)

Emphasizes efficiency in stable markets

Emphasizes innovation In variable markets

 Miles and Snow typology  Reactor ▪ Lacks a strategic plan ▪ Reacts to
 Miles and Snow typology  Reactor ▪ Lacks a strategic plan ▪ Reacts to
 Miles and Snow typology  Reactor ▪ Lacks a strategic plan ▪ Reacts to

Miles and Snow typology

Reactor

Lacks a strategic plan

Reacts to environmental changes

Makes adjustments when forced to

Unable to respond quickly to changes

Responses to the environment are often ineffective

Tends to make piecemeal strategic changes

 Offensive Moves: Direct attacks undertaken to ▪ build new or stronger market positions and/or
 Offensive Moves: Direct attacks undertaken to ▪ build new or stronger market positions and/or

Offensive Moves: Direct attacks undertaken to

build new or stronger market positions and/or

create competitive advantage

Defensive Moves: Undertaken to

protect competitive advantage

reduce risk of being attacked

discourage the offensive strategies of rivals

blunt the impact of any attack

Rarely a basis for creating competitive advantage

Counter-parry: fending off a competitor’s attack in one

country by attacking in another country

1. Match / exceed competitive strengths 2. Capitalize on rivals’ weaknesses 3. Simultaneous
1. Match / exceed competitive strengths 2. Capitalize on rivals’ weaknesses 3. Simultaneous
1. Match / exceed competitive strengths 2. Capitalize on rivals’ weaknesses 3. Simultaneous
1. Match / exceed competitive strengths 2. Capitalize on rivals’ weaknesses 3. Simultaneous

1.

Match / exceed competitive strengths

2.

Capitalize on rivals’ weaknesses

3.

Simultaneous initiatives on many fronts

4.

End-run offensives

5.

Guerilla offensives

1. Attacking Competitor Strengths

1. Attacking Competitor Strengths Appeal  Gain market share by out-matching strengths of weaker rivals 
1. Attacking Competitor Strengths Appeal  Gain market share by out-matching strengths of weaker rivals 

Appeal

Gain market share by out-matching strengths of

weaker rivals

Whittle away at a rival’s competitive advantage

Challenging strong competitors with a lower

price is risky, unless aggressor has a COST ADVANTAGE or advantage of GREATER

FINANCIAL STRENGTH!

Attacking Competitor Strengths (contd.)

Attacking Competitor Strengths (contd.) Possible Offensive Options  Offer equally good product at a lower price
Attacking Competitor Strengths (contd.) Possible Offensive Options  Offer equally good product at a lower price

Possible Offensive Options

Offer equally good product at a lower price

Develop low-cost edge, then use it to under-price rivals

Leapfrog into next-generation technologies

Add appealing new features

Run comparison ads

Construct new plant capacity in rival’s market strongholds

Offer a wider product line

Develop better customer service capabilities

2.

Attacking Competitor Weaknesses

2. Attacking Competitor Weaknesses Basic Approach  Concentrate one’s competitive strengths & resources directly
2. Attacking Competitor Weaknesses Basic Approach  Concentrate one’s competitive strengths & resources directly

Basic Approach

Concentrate one’s competitive strengths & resources

directly against rivals’ weaknesses

Weaknesses to Attack:

Concentrate on geographic regions where rival has

weak market share

Go after buyer segments rival is neglecting

Go after more performance-conscious customers of

rivals

Attack rivals with weaker advertising & brand

recognition

Challenging rivals where they are most vulnerable is more likely to succeed than challenging them
Challenging rivals where they are most vulnerable is more likely to succeed than challenging them

Challenging rivals where they are most vulnerable is more likely to succeed than

challenging them where they are strongest,

ESPECIALLY when challenger possesses

competitive advantage in areas where rivals

are weak!

3. Launching offensives on many fronts

3. Launching offensives on many fronts Objective  Launch several major initiatives to  Throw rival
3. Launching offensives on many fronts Objective  Launch several major initiatives to  Throw rival

Objective

Launch several major initiatives to

Throw rival off-balance,

Splinter its attention in many directions, and

Force it to use substantial resources to defend its position

Eg. new product introductions coupled with increases in

advertising and reductions in price)

Appeal

A challenger with superior resources can overpower a

weaker rival by outspending it across-the-board long

enough to “buy its way into the market”

4. End-run offensives

4. End-run offensives Manoeuver around rival firms rather than meeting them head on Objective  DODGE
4. End-run offensives Manoeuver around rival firms rather than meeting them head on Objective  DODGE

Manoeuver around rival firms rather than meeting

them head on

Objective

DODGE head-to-head confrontations that

escalate competitive intensity

Appeal

Force competitors into playing catch up

Change rules of competition in aggressor’s favor

End-run offensives (contd.)

End-run offensives (contd.) Approaches:  Introduce products that re-define market in terms of competition 
End-run offensives (contd.) Approaches:  Introduce products that re-define market in terms of competition 

Approaches:

Introduce products that re-define market in terms of

competition

Introduce next-generation technologies & leapfrog rivals

Introduce products with different attributes & features to

better meet buyer needs

Build presence aggressively in new geographic markets

where rivals have little or no market presence

Come up with more support services for customers

5. Guerrilla Offenses

5. Guerrilla Offenses Approach  Use principles of surprise & hit-and-run to attack in locations &
5. Guerrilla Offenses Approach  Use principles of surprise & hit-and-run to attack in locations &

Approach

Use principles of surprise & hit-and-run to attack in locations & at times where conditions are most favorable to initiator

Selectively capture market share from rival leaders when the

lack of resources or market visibility prevents a full scale

offense

Appeal

Well-suited to small challengers with limited resources

Guerrilla Offenses (contd.)

Guerrilla Offenses (contd.) Options:  Focus on narrow target weakly defended by rivals  Challenge rivals
Guerrilla Offenses (contd.) Options:  Focus on narrow target weakly defended by rivals  Challenge rivals

Options:

Focus on narrow target weakly defended by rivals

Challenge rivals where they are overextended & when they are encountering problems

Make random scattered raids on leaders with

tactics such as

Eg.: Sponsoring the Indian cricket team

failed for Nike, as Reebok managed to

Occasional low-balling on price

Intense bursts of promotional activity

Legal actions charging antitrust violations,

put branded stickers on their bats, at far less cost but for a much greater

return

patent infringements, & unfair advertising

Approach  Involves moving first to secure an advantageous position that rivals are discouraged from
Approach  Involves moving first to secure an advantageous position that rivals are discouraged from

Approach

Involves moving first to secure an advantageous position that rivals are discouraged from

duplicating!

Preemptive strikes (contd.)

Preemptive strikes (contd.) Options:  Expand capacity ahead of demand in hopes of discouraging rivals from
Preemptive strikes (contd.) Options:  Expand capacity ahead of demand in hopes of discouraging rivals from

Options:

Expand capacity ahead of demand in hopes of discouraging rivals from following suit

Tie up best or cheapest sources of essential raw materials

Move to secure best geographic locations

Obtain business of prestigious customers

Build an image in buyers’ minds that is unique & hard to copy

Secure exclusive or dominant access to best distributors

Secure pricing advantages with long-term supply contracts

Acquire desirable, but struggling, competitor

 Competitive advantage areas offering strongest basis for a strategic offensive:  Develop lower-cost product
 Competitive advantage areas offering strongest basis for a strategic offensive:  Develop lower-cost product

Competitive advantage areas offering strongest basis for

a strategic offensive:

Develop lower-cost product design

Make changes in production operations that lower costs or

enhance differentiation

Develop product features that deliver superior performance or

lowers users’ costs

Give more responsive customer service

Escalate marketing effort

Pioneer new distribution channel

Sell direct to end-users

Objectives:  Lessen risk of being attacked  Blunt impact of any attack that occurs
Objectives:  Lessen risk of being attacked  Blunt impact of any attack that occurs
Objectives:  Lessen risk of being attacked  Blunt impact of any attack that occurs
Objectives:  Lessen risk of being attacked  Blunt impact of any attack that occurs

Objectives:

Lessen risk of being attacked

Blunt impact of any attack that occurs

Influence challengers to aim attacks at other rivals

Strengthen firm’s present position

Help sustain any competitive advantage held

Approach #1  Block avenues challengers can take in mounting offensive attacks Approach #2 
Approach #1  Block avenues challengers can take in mounting offensive attacks Approach #2 

Approach #1

Block avenues challengers can take in

mounting offensive attacks

Approach #2

Make it clear any challenge will be met with

strong counterattack

DEFENSIVE STRATEGIES: APPROACH #1

DEFENSIVE STRATEGIES: APPROACH #1  Broaden product line to fill gaps rivals may go after 
DEFENSIVE STRATEGIES: APPROACH #1  Broaden product line to fill gaps rivals may go after 

Broaden product line to fill gaps rivals may go after

Keep prices low on models that match rivals

Sign exclusive agreements with distributors

Offer free training to buyers’ personnel

Give better credit terms to buyers

Reduce delivery times for spare parts

Increase warranty coverages

Patent alternative technologies

Sign exclusive contracts with best suppliers

Protect proprietary know-how

DEFENSIVE STRATEGIES: APPROACH #2

DEFENSIVE STRATEGIES: APPROACH #2  Publicly announce management’s strong commitment to maintain present market
DEFENSIVE STRATEGIES: APPROACH #2  Publicly announce management’s strong commitment to maintain present market

Publicly announce management’s strong commitment to maintain present market share

Publicly announce plans to construct new production capacity to

meet forecasted demand

Give out advance information about new products, technological

breakthroughs, & other moves

Publicly commit firm to policy of matching prices & terms offered

by rivals

Maintain war chest of cash reserves

Make occasional counter-responses to rivals’ moves

1) Always counter an attack with equal or greater force 2) Defend every important market
1) Always counter an attack with equal or greater force 2) Defend every important market

1)

Always counter an attack with equal or greater force

2)

Defend every important market

3)

Be forever vigilant in scanning for potential attackers.

Assess the strength of the competitor. Consider the

amount of support that the attacker might muster from

allies

4)

The best defense is to attack yourself. Attack your weak

spots and rebuild yourself anew

5)

Defensive strategies: the domain of the market leader

 Popular strategy for multinationals  Respond to attack by attacking competitor in another country
 Popular strategy for multinationals  Respond to attack by attacking competitor in another country
 Popular strategy for multinationals  Respond to attack by attacking competitor in another country
 Popular strategy for multinationals  Respond to attack by attacking competitor in another country

Popular strategy for multinationals Respond to attack by attacking competitor in another country

Ex.: KodakWhen Fuji attacked Kodak in the U.S., Kodak retaliated by attacking Fuji in Japan.

Goodyear also attacked Michelin in Europe as response to attack in U.S.

 WHEN to make a strategic move is often as crucial as WHAT move to
 WHEN to make a strategic move is often as crucial as WHAT move to

WHEN to make a strategic move is often as crucial as WHAT move to make

First-mover advantages arise WHEN

Pioneering helps build firm’s image & reputation

Early commitments to raw material suppliers, new

technologies, & distribution channels can produce cost

advantage

Loyalty of first time buyers is high

Moving first can be a preemptive strike

Arise WHEN  Costs of pioneering are sizable & loyalty of first time buyers is
Arise WHEN  Costs of pioneering are sizable & loyalty of first time buyers is

Arise WHEN

Costs of pioneering are sizable & loyalty of first time

buyers is weak

Rapid technological change allows followers to

leapfrog pioneers

Skills & know-how of pioneers are easily imitated by

late movers

It is easy for latecomers to crack market