Competitive Strategy
Defining competitive advantage
Macroenvironmental
trends
Industry key
success
factors
Competitive
environment
forces
Competitive
Advantage
Strategy
The Asset triangle
Distinctive
Assets
Assets
Resources
Complementary Assets
Capabilities
Make or buy assets
What is British Airways competitive advantage?
BA cuts flights as it struggles to rehire after axing 10,000 staff |
Financial Times
Three Major Routes to Competitive Advantage
Focus on a Particular Customer Group
Competitive
Advantage
Specialise in skills
competitors cannot
match
Become the
Lowest Cost
Producer
Is a Hybrid Strategy Possible?
NO
YES
• new manufacturing & processing
technologies allow for quality
and cost to be available
together
• volume can be a quality driver
• experienced customers can
lead suppliers into strategic
innovation
• organizational innovation
HYBRID
Hybrid strategies
•
•
•
The cost-quality trade-off is not very
pronounced (increasing cost efficiency
does not sacrifice much quality and
vice versa)
Customer preferences focus on
balancing cost and quality (e.g. cars)
The firm supports a simultaneous
emphasis on both cost and quality
• risk being “stuck in the middle”
• different strategies usually
require different and conflicting
competences
• most organisations are not flexible
or innovative
• capable competitors ultimately
force a choice
Dynamic nature of Generic
Strategies
PLC
Commoditization
Amount
No./ $
No. of Companies
Time
31 May, 2022
Profit
Commoditization…welcome to (strategic) hell
• The implication of the plc is that all products eventually become commodities
• Commoditization leads to a focus on Minimum Efficient Scale (MES)
• MES is closely associated with the Learning Curve
• It is all about cost reduction…which is hell
WHICH STRATEGY?
Amount
No./ $
Time
31 May, 2022
Creating and Sustaining
Competitive Advantage
What does Money communicate?
Cost and Differentiation Advantage
Value to
customer
(willingness
to pay)
Higher WTP
Same or
slightly
lower WTP
Customer surplus
Price
Higher customer
surplus and/or
higher profit
Profit
Cost of inputs
Lower
cost
Competitors
Cost advantage
Same or
slightly
higher
cost
Differentiation advantage
The Nature of Differentiation
TANGIBLE DIFFERENTATION
Observable product characteristics:
• Physical product characteristics: Ferrari
• Services or complementary goods: Apple
Genius Bar
• Technological innovation: Amazon Kindle
INTANGIBLE DIFFERENTATION
Unobservable and subjective
characteristics that appeal to customer’s
image, status, identity, and desire for
exclusivity
• Firm’s reputation: Apple
• The subjective image of the product or the
firm: John Lewis, M&S, Dior, Starbucks
TOTAL CUSTOMER RESPONSIVENESS
Differentiation not just about the product, it embraces the whole
relationship between the supplier and the customer.
iPhone 11 128GB: INR 54,9002022 Apple iPhone Price List in India
Apple iPhone 13
iPhone 13 Mini 128GB – Rs. 69,900
iPhone 13 Mini 256GB – Rs. 79,900
iPhone 13 Mini 512GB – Rs. 99,900
iPhone 13 128GB – Rs. 79,900
iPhone 13 256GB – Rs. 89,900
iPhone 13 512GB – Rs. 1,09,900
Apple iPhone 13 Pro
iPhone 13 Pro 128GB – Rs. 1,19,900
iPhone 13 Pro 256GB – Rs. 1,29,900
iPhone 13 Pro 512GB – Rs. 1,49,900
iPhone 13 Pro 1TB – Rs. 1,69,900
iPhone 13 Pro Max 128GB – Rs. 1,29,900
iPhone 13 Pro Max 256GB – Rs. 1,39,900
iPhone 13 Pro Max 512GB – Rs. 1,59,900
iPhone 13 Pro Max 1TB – Rs. 1,79,900
Apple iPhone 12
iPhone 12 Mini 64GB: INR 59,900
iPhone 12 Mini 128GB: INR 64,900
iPhone 12 Mini 256GB: INR 74,900
iPhone 12 64GB: INR 65,900
iPhone 12 128GB: INR 70,900
iPhone 12 256GB: INR 80,900
Apple iPhone SE
iPhone SE 64GB: INR 39,900
iPhone SE 128GB: INR 44,900
Apple iPhone 11
iPhone 11 64GB: INR 49,900
Which generic strategies does Apple use in its
different product lines? Why?
What about low price pens?
Summary
• The two general ways to achieve competitive advantage are low cost and
differentiation, but often different drivers need to be combined for a unique
strategic advantage
• Business-level strategy should be based on industry Key Success Factors and
the firm’s unique resources and capabilities
• A distinctive advantage requires a consistent strategy, however this changes
over time as the product goes through the Product Life Cycle
• The sustainability of a firm’s competitive advantage depends on competitors’
ability to imitate the firm’s strategic position
References
• Farjoun, M., 2002. Towards an Organic Perspective on Strategy. Strategic Management
Journal 23: 561-594.
• Gamble, J. E., Peteraf, M. A., & Thompson, A. A. 2019. Essentials of Strategic Management:
The Quest for Competitive Advantage (6th edition). McGraw Hill. Chapter 5.
• Pertusa-Ortega, E. M., Molina-Azorín, J. F., Claver-Cortés, E. 2009. Competitive Strategies
and Firm Performance: A Comparative Analysis of Pure, Hybrid and ‘Stuck-in-the-middle’
Strategies in Spanish Firms. British Journal of Management 20, 508-523.
• Porter, M. E. 1980. Competitive Strategy. Free Press.
• Porter, M. E. 1985. Competitive Advantage. Free Press.
• Porter, M. E. 1996. What is Strategy? Harvard Business Review 74(6): 61-78.
• Thornhill, S., White, R. E. 2007. Strategic Purity: A Multi-Industry Evaluation of Pure vs.
Hybrid Business Strategies. Strategic Management Journal 28: 553-561.