Competitive Strategy and

Generic Strategies

Carsten Joost, Mitec,

cjoost@mitec.dk
11 July 2004
 Competitive Strategy
Poor firms ignore
their competitors;
average firms
copy their
competitors;
winning firms lead
their competitors.
(Kotler, 2002)
 Competitive Forces
Five Forces Determining Segment
Structural Attractiveness
Threat of:
1. intense segment
rivalry
2. new entrants
3. substitute
products
ƒ buyers’ growing
bargaining power
ƒ suppliers’ growing
bargaining
power
Barriers and Profitability
 Identifying Competitors
Industry Concept of Competition
Industry
– Number of Sellers and
Degree of Differentiation
Pure monopoly
Oligopoly
– Pure oligopoly
– Differentiated oligopoly
Monopolistic competition
Pure competition
– Entry, Mobility, Exit Barriers
Entry barriers
Mobility barriers
Exit barriers
– Cost Structure
– Degree of Vertical Integration
Vertical integration
– Degree of Globalization
Market Concept of Competition
 Analyzing Competitors

Objectives
A Competitor’s Expansion Plans
 Analyzing Competitors
Strengths and Weaknesses
– Dominant
– Strong
– Favorable
– Tenable
– Weak
– Nonviable
Customer’s Ratings of Competitors on Key Success Factors
Customer Product Product Technical Selling
Awareness Quality Availability Assistance Staff

Competitor A E E P P G

Competitor B G G E G E

Competitor C F P G F F

Note: E = excellent, G = good, F = fair, P = poor.

Designing The Competitive Intelligence System
Four Main Steps
– Setting Up the System
– Collecting the Data
– Evaluating and Analyzing the Data
– Disseminating Information and Responding

Selecting Competitors
– Customer Value Analysis (CVA)
Customer Value = Customer Benefits – Customer
Costs
Customer Benefits = product benefits, service
benefits, personnel benefits, image benefits
Customer Costs = purchase price, acquisition
costs, usage costs, maintenance costs, ownership
costs, disposal costs
 Designing Competitive Strategies

Hypothetical Market Structure

Market-Leader Strategies
– Expanding the Total Market
New Users
– Market-penetration strategy
– New-market segment strategy
– Geographical-expansion strategy
New Uses
More Usage
– Defending Market Share
 Designing Competitive Strategies

Hypothetical Market Structure

– Defense Strategies
Position Defense
Flank Defense
Preemptive Defense
Counteroffensive Defense
Mobile Defense
– Market broadening
– Principle of the objective
– Principle of mass
– Market diversification
Contraction Defense
– Planned contraction
(Strategic withdrawal)
 Designing Competitive Strategies
Procter & Gamble
– Customer knowledge
– Long-term outlook
– Product innovation
– Quality strategy
– Line-extension strategy
– Brand-extension strategy
– Multibrand strategy
– Heavy advertising and media pioneer
– Aggressive sales force
– Effective sales promotion
– Competitive toughness
– Manufacturing efficiency and cost cutting
– Brand-management system
 Designing Competitive Strategies

Market Structure

Market-Challenger Strategies
– Defining the Strategic Objective and
Opponent(s)
It can attack the market leader
It can attack firms of its own size that are
not doing the job and are underfinanced
It can attack small local and regional firms
Choosing a General Attack Strategy
 Generic Strategies
Types of competition:
Overall cost leadership (Low cost, broad cost, overall cost
leadership)-lower than average cost, but commanding about average
prices, will earn above average profits (must not be a low cost
producers, but the lowest cost producer in the industry)

Differentiation (broad differentiation): As uniqueness in some

dimension important to buyers across the industry (allow a firm to
charge an above average price its product, produce at average or
near-average costs to earn average profit)

Cost focus or Differentiation focus: On the choice of a particular

target market segments with unusual or distinctive needs, and on
the optimisation of the firm’s activities to serve those needs
 Generic Strategies

Average Price

Average Cost

Differentiation Low Cost

 Competitive Strategy
Low Cost Uniques

Broad
Low-Cost Leadership Differentiation

Rynair Starbusk Coffe Co.

Competitive Scope
Focus low-cost Focus Differentiation
leadership
Narrow
Enterprise Rent a Car Investments

Competitive Advantages
 Generic Strategies
Give an
operations Redefine the Ex.
t i ons
advantages a industry’s
oper Sup
n of expectorations
o
i bu ti
Link strategy tr
con Be clearly the
with a s ing best
Internally
cre Supportive
operations I n in the industry

Adapt best Be as good Externally

practices as competitors natural

Correct the Stock holding

the organisation Internally
worst natural
problems back
Stage 1 Stage 2 Stage 3 Stage 4
The ability The ability The ability
to to be to drive
implement appropriate strategy
 In manufacturing: What are the
critical factors for success?
1. The experience curve is crucial. Concentrate on high standardization and large
product volumes.
2. Make each unit identical to all others, so that customers can reliably use them as
components.
3. Produce in precisely designed and measured modules to ensure maximum repetition
and minimum start-up errors.
4. Build a large plant with open space structures so that new modules can be created
to
increase production (do not expand existing lines).
5. For expansion, duplicate existing lines exactly (the “MacIntel” approach).
6. Hire new people two months ahead of production to obtain thorough training and
indoctrination.
7. 100% test all products (no defects can be shipped out).
8. Keep modules small and personal to obtain identity and to maximize information
exchange.
9. Provide awards for superior performance on timing and quality.
10. Automate to the maximum extent possible and measure everything to ensure
consistency.
11. Have a sufficient planning horizon to anticipate when new plants will have to be
available without the need to disrupt ongoing production operations.
 In Engineering:
1. Maintain small sized ad hoc groups to maximize the identity,
communications effectiveness, accountability, and motivation of design
groups.
2. Attract the very best people in the world (establish a value system,
organization, culture, style, and atmosphere which attracts them).
3. Offer special stock options to obtain critical people and reward internal
entrepreneurs with equity participation.
4. Obtain a direct interface between designers and customer needs.
5. Maintain maximum flexibility and fast movement capabilities in
design units ($250,000 in capital spent with no signatures).
6. Mix spectacular new engineering graduates on teams for new product
design with experienced manufacturing people (mix vertically and
horizontally).
7. Keep engineering physically close to manufacturing to be aware of and
sensitive to the quality and reliability needs of production.
8. Allow great flexibility in lateral movement (or conversely rotate
assignments) so that engineers become intimately aware of marketing
and production needs.
 Marketing: Critical Factors for Success
1. Recognize customer wants absolute reliability in delivery and quality.
2. Realize that your product is a minuscule percentage of the cost of the
customer's product, but crucial to its performance, hence absolute
attention to customer needs is essential.
3. Make sure design and production understand precise quality and
reliability needs.
4. Avoid quotations or proposals when reliability specs cannot be
assured.
5. Go beyond the customer to the customers’ customer for market
information; this is the ultimate user.
6. Become selected customers’ electronics research unit (increase
switching costs).
7. Get highly qualified marketing engineers into customers' design groups
8. Focus on selected industry groups and large customers to obtain high
volume and to create entry barriers.
9. Develop inventory policies to ensure absolute customer delivery
satisfaction.
10. Develop personnel incentives to achieve the above.
General Management: Critical Factors for
Success

1. Develop an overarching goal or philosophy, which can attract the

kinds of people desired.
2. Develop a style of openness and trust, which allows
delegation and freedom, yet
concentration and control.
3. Develop a style of constructive confrontation where open
factual discussion is essential.
4. Develop small units to obtain maximum personal identity.
5. Measure “absolutely everything” to obtain maximum
consistency in product.
6. Install incentives at all levels for creativity, consistency,
and identity with the company.
7. Develop a collegial relationship (no privileges, no walls, 20%
solution, all share).
8. Develop a matrix adhocracy with MBO measures to support
all goals and to obtain consistency.