Competitive Strategy

1. 5 Session Competitive Strategy

2. Strategy andCompetitive Advantage • Competitive advantage exists when a firm’s strategy gives it an edge in • Attracting customers and • Defending against competitive forces • Convince customers firm’s product / service offers superior value • A good product at a low price • A superior product worth paying more for • A best-value product Key to Gaining a Competitive Advantage

3. What Is“Competitive Strategy”? • Deals exclusively with a company’sbusiness plans to compete successfully • Specific efforts to please customers • Offensive and defensive movesto counter maneuvers of rivals • Responses to prevailing market conditions • Initiatives to strengthen its market position • Narrower in scope than business strategy

4. The Five GenericCompetitive Strategies

5. Low-Cost Provider Strategies Keys to Success • Make achievement of meaningful lower coststhan rivals the theme of firm’s strategy • Include features and services in productoffering that buyers consider essential • Find approaches to achieve a cost advantagein ways difficultfor rivals to copy or match Low-cost leadership means low overall costs, not just low manufacturing or production costs!

6. Differentiation Strategies Objective • Incorporate differentiating features that cause buyers to prefer firm’s product or service over brands of rivals • Find ways to differentiate that create value for buyers and are not easily matched or cheaply copied by rivals • Not spending more to achieve differentiationthan the price premium that can be charged Keys to Success

7. Whichhat is unique? Benefits of Successful Differentiation • A product / service with unique, appealing attributes allows a firm to • Command a premium priceand/or • Increase unit salesand/or • Build brand loyalty = Competitive Advantage

8. Best-Cost Provider Strategies • Combine a strategic emphasis on low-cost with a strategic emphasis on differentiation • Make an upscale product at a lower cost • Give customers more value for the money • Deliver superior value by meeting or exceeding buyer expectations on product attributes and beating their price expectations • Be the low-cost provider of a product with good-to-excellent product attributes, then use cost advantage to underprice comparable brands Objectives

9. Competitive Strength of a Best-Cost Provider Strategy • A best-cost provider’s competitive advantage comes from matchingclose rivals on key product attributes and beating them on price • Success depends on having the skills and capabilities to provide attractive performanceandfeatures at a lower cost than rivals • A best-cost producer can often out-compete botha low-cost provider and a differentiator when • Standardized features/attributeswon’t meet diverse needs of buyers • Many buyers are price and value sensitive

10. Focus / Niche Strategies • Involve concentrated attention on a narrow piece of the total market Serve niche buyers better than rivals • Choose a market niche where buyers have distinctive preferences, special requirements, or unique needs • Develop unique capabilities to serve needs of target buyer segment Objective Keys to Success

11. What Makes a NicheAttractive for Focusing? • Big enough to be profitable and offers good growth potential • Not crucial to success of industry leaders • Costly or difficult for multi-segment competitorsto meet specialized needs of niche members • Focuser has resources and capabilitiesto effectively serve an attractive niche • Few other rivals are specializing in same niche • Focuser can defend against challengers via superior ability to serve niche members

12. Deciding Which Generic Competitive Strategy to Use • Each positions a company differently in its market • Each establishes a central theme for how a company will endeavor to outcompete rivals • Each creates some boundaries for maneuvering as market circumstances unfold • Each points to different ways of experimenting with the basics of the strategy • Each entails differences in product line, production emphasis, marketing emphasis, and means to sustain the strategy The big risk – Selecting a “stuck in the middle” strategy! This rarely produces a sustainable competitiveadvantage or a distinctive competitive position.

13. Strategic Group Mapping • One technique to revealdifferent competitive positionsof industry rivals isstrategic group mapping • A strategic group is acluster of firms in an industrywith similar competitiveapproaches and market positions

14. Strategic Group Mapping • Firms in same strategic group have two or more competitive characteristics in common • Have comparable product line breadth • Sell in same price/quality range • Emphasize same distribution channels • Use same product attributes to appealto similar types of buyers • Use identical technological approaches • Offer buyers similar services • Cover same geographic areas

15. Procedure for Constructing a Strategic Group Map STEP 1: Identify competitive characteristics that differentiate firms in an industry from one another STEP 2: Plot firms on a two-variable map using pairs of these differentiating characteristics STEP 3: Assign firms that fall in about the same strategy space to same strategic group STEP 4: Draw circles around each group, making circles proportional to size of group’s respective share of total industry sales

16. Example: Strategic Group Mapof Selected Retail Chains

17. Guidelines: Strategic Group Maps • Variables selected as axes should not be highly correlated • Variables chosen as axes should expose big differences in how rivals compete • Variables do not have to be either quantitative or continuous • Drawing sizes of circles proportional to combined sales of firms in each strategic group allows map to reflect relative sizes of each strategic group • If more than two good competitive variables can be used, several maps can be drawn

18. Interpreting StrategicGroup Maps • Driving forces and competitive pressures oftenfavor some strategic groups and hurt others • Profit potential of different strategic groups varies due to strengths and weaknesses in each group’s market position • The closer that strategic groups are on the map, the stronger that competitive rivalry among the members of these groups tends to be

19. Used to build new or stronger market position and/or create competitive advantage Used to protect competitive advantage (rarely used to create advantage) Offensive and Defensive Strategies Offensive Strategies Defensive Strategies

20. Types of Offensive Strategies 1. Initiatives to match or exceed competitor strengths 2. Initiatives to capitalize on competitor weaknesses 3. Simultaneous initiatives on many fronts 4. End-run offensives 5. Guerrilla offensives 6. Preemptive strikes

21. Attacking Competitor Strengths Objectives • Whittle away at a rival’scompetitive advantage • Gain market share by out-matchingstrengths of weaker rivals Challenging strong competitors with a lower price is foolhardy unless the aggressor has a cost advantageor advantage of greater financial strength!

22. Options for Attackinga Competitor’s Strengths • 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

23. Attacking Competitor Weaknesses Objective Utilize company strengths to exploit a rival’s weaknesses Weaknesses to Attack • Customers that a rival is least equipped to serve • Rivals providing sub-par customer service • Rivals with weaker marketing skills • Geographic regions where rival is weak • Market segments a rival is neglecting

24. Launching SimultaneousOffensives on Many Fronts Objective • Launch several major initiatives to • Throw rivals off-balance • Splinter their attention • Force them to use substantialresources to defend their position A challenger with superior resources can overpower weaker rivals by out-competing them across-the-board long enough to become a market leader!

25. End-Run Offensives Objectives • Maneuver around strong competitors • Capture unoccupied or less contested markets • Change rules of competition in aggressor’s favor

26. Approaches forEnd-Run Offensives • Introduce new products that redefine market and terms of competition • Build presence in geographic areaswhere rivals have little presence • Create new segments by introducing productswith different features to better meet buyer needs • Introduce next-generationtechnologies to leapfrog rivals

27. Guerrilla Offenses Approach Use principles of surprise andhit-and-runtoattack in locations and at times where conditionsare most favorable to initiator Appeal Well-suited to small challengerswith limited resources andmarket visibility

28. Options for Guerrilla Offenses • Make random, scattered raids on leaders’ customers • Occasional low-balling on price • Intense bursts of promotional activity • Special campaigns to attract buyers fromrivals plagued with a strike or delivery problems • Challenge rivals encountering problems with quality or providing adequate technical support • File legal actions charging antitrust violations,patent infringements, or unfair advertising

29. Preemptive Strikes Approach Involves movingfirstto secure anadvantageous position that rivals are foreclosedor discouraged from duplicating!

30. Preemptive Strike Options • Secure exclusive/dominant access to best distributors • Secure best geographic locations • Tie up best or most sources of essential raw materials • Obtain business of prestigious customers • Expand capacity ahead of demand in hopes of discouraging rivals from following suit • Build an image in buyers’ minds thatis unique or hard to copy

31. Choosing Rivals to Attack • Four types of firms can be the target of a fresh offensive • Vulnerable market leaders • Runner-up firms with weaknesseswhere challenger is strong • Struggling rivals on verge of going under • Small local or regional firms with limited capabilities

32. Using Offensive Strategy to Achieve Competitive Advantage • Strategic offensives offering strongest basis for competitive advantage entail • An important core competence • A unique competitive capability • Much-improved performance features • An innovative new product • Technological superiority • A cost advantage in manufacturing or distribution • Some type of differentiation advantage

33. Defensive Strategy Objectives • Lessen risk of being attacked • Blunt impact of any attack that occurs • Influence challengers to aim attacks at other rivals Approaches • Block avenues open to challengers • Signal challengers vigorousretaliation is likely

34. Block Avenues Open to Challengers • Participate in alternative technologies • Introduce new features, add new models, or broaden product line to close gaps rivals may pursue • Maintain economy-priced models • Increase warranty coverage • Offer free training and support services • Reduce delivery times for spare parts • Make early announcements about newproducts or price changes • Challenge quality or safety of rivals’ productsusing legal tactics • Sign exclusive agreements with distributors

35. Signal Challengers Retaliation Is Likely • Publicly announce management’s strong commitment to maintain present market share • Publicly commit firm to policy ofmatching rivals’ terms or prices • Maintain war chest of cash reserves • Make occasional counterresponseto moves of weaker rivals

36. Assignment • Read Thompson Textbook • Apply what your learned today on BSG • Positioning • Strategic group mapping • Competitive strategy • Prepare Board Presentation (random selection)