CHAPTER 5

advertisement

CHAPTER 5

STRATEGY AND

COMPETITIVE

ADVANTAGE

Screen graphics created by:

Jana F. Kuzmicki, PhD, Indiana University Southeast

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998

1

Chapter Outline

 Generic Competitive Strategies

 Low-Cost Leadership Strategy

 Broad Differentiation Strategies

 Best-Cost Provider Strategies

 Focused Low-Cost Strategies

 Focused Differentiation Strategies

 Vertical Integration Strategies

Cooperative Strategies

Offensive and Defensive Strategies

 First-Mover Advantages and Disadvantages

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998

2

Strategy and Competitive Advantage

 COMPETITIVE ADVANTAGE exists when a firm’s strategy gives it an edge in

 Defending against competitive forces and

 Securing customers

Key to Success

 Convince customers firm’s product / service offers

SUPERIOR VALUE

 Offer buyers a good product at a lower price

 Use differentiation to provide a better product buyers think is worth a premium price

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998

3

What Is Competitive Strategy?

 Consists of business approaches to

 Attract customers, fulfilling their expectations

 Withstand competitive pressures

 Strengthen market position

 Includes offensive and defensive moves to

 Counter actions of key rivals

 Shift resources to improve long-term market position

 Respond to prevailing market conditions

 Narrower in scope than business strategy

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998

4

Objectives of Competitive Strategy

 Build a COMPETITIVE ADVANTAGE

 Cultivate clientele of LOYAL CUSTOMERS

 Knock the socks off rivals , ethically and honorably

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998

5

The Five Generic

Competitive Strategies

Type of Advantage Sought

Lower Cost Differentiation

Broad Range of Buyers

Narrow

Buyer

Segment or Niche

Overall Low-Cost

Leadership

Strategy

Best-Cost

Provider

Strategy

Focused

Low-Cost

Strategy

Broad

Differentiation

Strategy

Focused

Differentiation

Strategy

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998

6

A Low-Cost Leadership Strategy

Objective

 Open up a sustainable cost advantage over rivals, using lower-cost edge as a basis either to

 Under-price rivals and reap market share gains OR

 Earn higher profit margin selling at going price

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998

7

Approach 1: Controlling the Cost

Drivers

 Capture scale economies; avoid scale diseconomies

 Capture learning and experience curve effects

 Manage costs of key resource inputs

 Consider linkages with other activities in value chain

 Find sharing opportunities with other business units

 Compare vertical integration vs. outsourcing

 Assess first-mover advantages vs. disadvantages

 Control percentage of capacity utilization

 Make prudent strategic choices related to operations

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998

8

Approach 2: Revamping the Value

Chain

Simplify product design

Offer basic, no-frills product/service

Shift to a simpler, less capital-intensive, or more streamlined technological process

Find ways to bypass use of high-cost raw materials

Use direct-to-end user sales/marketing approaches

Relocate facilities closer to suppliers or customers

 Reengineer core business processes---be creative in finding ways to eliminate value chain activities

 Use PC technology to delete works steps, modify processes, cut out cost-producing activities

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998

9

Differentiation Strategies

Objective

Incorporate differentiating features that cause buyers to prefer firm’s product or service over the brands of rivals

Keys to Success

 Find ways to differentiate that CREATE VALUE for buyers and that are NOT EASILY MATCHED or CHEAPLY COPIED by rivals

 Not spending more to achieve differentiation than the price premium that can be charged

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998

10

Sustaining Differentiation: The Key to

Competitive Advantage

 Most appealing approaches to differentiation:

 Those hardest for rivals to match or imitate

 Those buyers will find most appealing

 Best choices for gaining a longer-lasting, more profitable competitive edge:

 New product innovation

 Technical superiority

 Product quality and reliability

 Comprehensive customer service

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998

11

Where to Find Differentiation

Opportunities in the Value Chain

 Purchasing and procurement activities

 Product R&D activities

 Production R&D; technology-related activities

 Manufacturing activities

 Outbound logistics and distribution activities

 Marketing, sales, and customer service activities

Activities,

Costs, &

Margins of

Suppliers

Irwin/McGraw-Hill

Internally

Performed

Activities,

Costs, &

Margins

Activities, Costs,

& Margins of

Forward Channel

Allies &

Strategic Partners

Buyer/User

Value

Chains

© The McGraw-Hill Companies, Inc., 1998

12

Signaling Value as Well as Delivering

Value

 Buyers seldom pay for value that is not perceived

 Signals of value may be as important as actual value when

 Nature of differentiation is hard to quantify

 Buyers are making first-time purchases

 Repurchase is infrequent

 Buyers are unsophisticated

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998

13

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

Objectives

 Create superior value by MEETING OR

EXCEEDING buyer expectations on product attributes and BEATING their price expectations

 Be the low-cost producer of a product with GOOD-

TO-EXCELLENT product attributes, then use cost advantage to UNDERPRICE comparable brands

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998

14

What Makes a Niche

Attractive for Focusing?

 Big enough to be profitable

 Good growth potential

 Not crucial to success of major competitors

(making it unlikely they will compete hard in niche)

 Focuser has resources to effectively serve segment

 Focuser can defend against challengers via superior ability to serve buyers in segment and customer goodwill

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998

15

The Competitive Strength of

Focus / Niche Strategies

RIVAL COMPETITORS do not have matching capabilities to meet specialized needs of niche members

Focuser’s competencies/capabilities act as a barrier to POTENTIAL ENTRANTS

Focuser’s competencies/capabilities pose obstacle to sellers of SUBSTITUTES

Focuser’s unique ability to meet niche buyers’ needs can blunt bargaining leverage of powerful

BUYERS

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998

16

Vertical Integration Strategies

 Vertical integration extends a firm’s competitive scope within same industry

 Backward into sources of supply

 Forward toward end-users of final product

 Can aim at either full or partial integration

Activities,

Costs, &

Margins of

Suppliers

Irwin/McGraw-Hill

Internally

Performed

Activities,

Costs, &

Margins

Activities, Costs,

& Margins of

Forward Channel

Allies &

Strategic Partners

Buyer/User

Value

Chains

© The McGraw-Hill Companies, Inc., 1998

17

Unbundling and

Outsourcing Strategies

Concept

Involves not performing certain value chain activities internally and relying on outside vendors to perform needed activities and services

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998

18

Pros and Cons of Vertical Integration

 The appeal of a vertical integration strategy depends on

 Its ability to enhance performance of strategy-critical activities by

Lowering costs or

Increasing differentiation

 Its impact on

Resource requirements

Flexibility and response times

 Administrative overhead of coordination

 Its ability to create a competitive advantage

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998

19

Cooperative Strategies

Companies sometimes use strategic alliances or strategic partnerships or collaborative agreements to complement their own strategic initiatives and strengthen their competitiveness. Such cooperative strategies go beyond normal company-tocompany dealings but fall short of merger or formal joint venture

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998

20

The Building and Eroding of

Competitive Advantage

Buildup Period Benefit Period Erosion Period

Strategic

Moves

Produce

Competitiv e

Advantage

Irwin/McGraw-Hill

Size of

Competitive

Advantage

Achieved

Time

Moves by

Rivals

Reduce

Competitive

Advantage

© The McGraw-Hill Companies, Inc., 1998

21

Attacking Competitor Strengths

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 foolhardy unless the aggressor has a COST

ADVANTAGE or advantage of GREATER

FINANCIAL STRENGTH !

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998

22

Options for Attacking a Competitor’s Strengths

 Offer equally good product at a lower price

 Offer a better product at the same price

 Leapfrog into next-generation technologies

 Add appealing new features

 Run comparison ads

 Construct new plant capacity

 Offer a wider product line

 Develop better customer service capabilities

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998

23

Attacking Competitor Weaknesses

Basic Approach

Concentrate company strengths and resources directly against a rival’s weaknesses

Weaknesses to Attack

Geographic regions where rival is weak

Segments rival is neglecting

 Go after those customers a rival is least equipped to serve

Rivals with weaker marketing skills

Introduce new models exploiting gaps in rivals’ product lines

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998

24

Preemptive Strikes

Approach

Involves moving first to secure an advantageous position that rivals are foreclosed or discouraged from duplicating!

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998

25

Preemptive Strike 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

 Acquire desirable, but struggling, competitor

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998

26

Choosing Whom to Attack

 Four types of firms can be the target of an offensive:

 Market leaders

 Runner-up firms

 Struggling rivals on verge of going under

 Small local or regional firms not doing a good job for their customers

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998

27

Offensive Strategy and

Competitive Advantage

 STRATEGIC OFFENSIVE options offering strongest basis for COMPETITIVE ADVANTAGE

 Develop lower-cost product design

 Make changes in production operations that lower costs or enhance differentiation

 Develop product features that deliver superior performance or lower users’ costs

 Give more responsive customer service

 Escalate marketing effort

 Pioneer new distribution channel

 Sell direct to end-users

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998

28

Offensive Strategy Principle

The chances for a successful offensive initiative are improved when it is based on a company’s resource strengths and strongest competencies and capabilities.

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998

29

Defensive Strategy

Objectives

Fortify firm’s present position

 Help sustain any competitive advantage held

 Lessen risk of being attacked

 Blunt impact of any attack that occurs

 Influence challengers to aim attacks at other rivals

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998

30

Defensive Strategies: Approaches

Approach 1

Block avenues challengers can take in mounting offensive attacks

Approach 2

Make it clear any challenge will be met with strong counterattack

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998

31

Related documents
Download