7/29/2019 5 Module

1/61

Competitive strategy is about being

different. It means deliberately

choosing to perform activities

differently or to perform different

activities than rivals to deliver a

unique mix of value.

7/29/2019 5 Module

2/61

Strategy andCompetitive Advantage

Competitive advantageexists when a firms strategygives it an edge in

Attracting customers and

Defending against competitive forces

Convince customers firms product / service offers

superior value A good productat a low price

A superior productworth paying more for

A best-value product

Key to Gaining a Competitive Advantage

7/29/2019 5 Module

3/61

What Is

Competitive Strategy?

Deals exclusively with a companysbusinessplans to compete successfully

Specific efforts toplease customers

Offensive and defensive moves

to counter maneuvers of rivals

Responses to prevailing market conditions

Initiatives to strengthen its market position

Narrower in scope than business strategy

7/29/2019 5 Module

4/61

The Five GenericCompetitive Strategies

7/29/2019 5 Module

5/61

The Five Generic Competitive Strategies

The five distinctive competitive strategies are:

1. Low-cost provider strategy

2. Broad Differentiation strategy

3. Best-cost provider strategy

4. A focused (or market niche) strategy based on lowercost

5. A focused (or market niche) strategy based on

differentiation

7/29/2019 5 Module

6/61

Make achievement ofmeaningful lower costs

than rivals the themeof firms strategy

Includefeatures and services in product

offering that buyers consider essential

Find approaches to achieve a cost advantage

in ways difficultfor rivals to copy or match

Low-cost leadership means low

overall costs, not just low

manufacturing or production costs!

Keys to Success

Low-Cost Provider Strategies

7/29/2019 5 Module

7/61

Low-cost provider strategies

A company achieves low-cost leadership when it

becomes the industry's lowest-cost provider. e.g.Nano

It is lower-cost than rivals but not necessarily

absolute lowest cost. E.g. Maruti 800 is low cost car

but not lower than Nano

The product should include features and services

that buyers consider essential.

7/29/2019 5 Module

8/61

A product offerings that is too frill-free

sabotages that attractiveness of the

company's product and can turn buyers offeven if it is cheaper than competing products.

The low-cost has to be achieved in a way that

would be difficult for the competitors to copyfor the low-cost advantage to yield valuable

edge in the marketplace.

7/29/2019 5 Module

9/61

Option 1: Use lower-cost edge to

Underprice competitors and attract

price-sensitive buyers in enough

numbers to increase total profits

Option 2: Maintain present price, be content with

present market share, and use lower-cost edge to

Earn a higher profit margin on

each unit sold, thereby

increasing total profits

Options: Achieving a

Low-Cost Advantage

7/29/2019 5 Module

10/61

Do a better job than rivals of

performing value chain activitiesefficiently and cost effectively

Revamp value chain to bypass cost-

producing activities that add little

value from the buyers perspective

Approach 1

Approach 2

Controlcosts!

By-passcosts!

Approaches to Securing

a Cost Advantage

7/29/2019 5 Module

11/61

Keys to Success in Achieving

Low-Cost Leadership Scrutinize each cost-creating activity, identifying cost drivers

Use knowledge about cost drivers to managecosts of each activity down year after year

Find ways to restructure value chain to eliminate

nonessential work steps and low-value activities

Work diligently to create cost-conscious corporate cultures

Feature broad employee participation in continuous

cost-improvement efforts and limited perks for

executives Strive to operate with exceptionally small corporate

staffs

Aggressively pursue investments in resources and capabilities

that promise to drive costs out of the business

7/29/2019 5 Module

12/61

Characteristics of a

Low-Cost Provider

Cost conscious corporate culture

Employee participation in cost-control efforts

Ongoing efforts to benchmark costs

Intensive scrutiny of budget requests

Programs promoting continuous cost

improvementSuccessful low-cost producers champion

frugality but wisely and aggressivelyinvest in cost-saving improvements !

W w

7/29/2019 5 Module

13/61

When Does a Low-Cost

Strategy Work Best? Price competition is vigorous

Product is standardized or readily available

from many suppliers

There are few ways to achieve

differentiation that have value to buyers

Most buyers use product in same ways

Buyers incur low switching costs

Buyers are large and have

significant bargaining power

Industry newcomers use introductory low prices

to attract buyers and build customer base

7/29/2019 5 Module

14/61

Differentiation Strategies

Incorporate differentiating features that cause buyers

topreferfirmsproduct or service over brands of rivals

Find ways to differentiate that create value for buyers

and are not easily matchedor cheaply copiedby rivals

Not spending more to achieve differentiation

than theprice premium that can be charged

Objective

Keys to Success

7/29/2019 5 Module

15/61

Differentiation strategies

Differentiation strategies are attractive when buyers'

needs and preferences are too diverse to be fullysatisfied by a standardized product or by sellers with

identical capabilities.

A company attempting to succeed through

differentiation must study buyers' needs andbehavior to learn what buyers consider important,

what they think has value and what they are willing

to pay for.

7/29/2019 5 Module

16/61

Competitive advantage results once a

sufficient number of buyers become strongly

attached to the differentiated attribute. Differentiation enhances profitability

whenever the extra price the product

commands outweighs the added costs forachieving the differentiation .

Differentiation strategy fails when buyers

don't value the brand's uniqueness and/orwhen the differentiation is easily copied by its

rivals.

7/29/2019 5 Module

17/61

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

Whichhat is

unique?

7/29/2019 5 Module

18/61

Advantages of successful differentiation for a

firm

1. It can command a premium price for itsproduct

2. Increase in unit sales due to additional buyers

won over by differentiation.3. Gain buyer loyalty to its brand when buyers

are strongly attracted to the differentiating

feature.

7/29/2019 5 Module

19/61

Where to Find DifferentiationOpportunities in the Value Chain

Purchasing and procurement activities Product R&D and product design activities

Production process / technology-related activities

Manufacturing / production activities

Distribution-related activities

Marketing, sales, and customer service activities

Internally

Performed

Activities,

Costs, &

Margins

Activities,

Costs, &

Margins of

Suppliers

Buyer/User

Value

Chains

Activities, Costs,

& Margins of

Forward Channel

Allies &

Strategic

Partners

7/29/2019 5 Module

20/61

How to Achieve a

Differentiation-Based Advantage

Approach 1

Incorporate features/attributes that raise theperformance a buyer gets out of the product

Approach 2

Incorporate features/attributes that enhance buyersatisfaction in non-economic or intangible ways

Approach 3

Compete on the basis ofsuperior capabilities

Approach 4

Incorporate product features/attributes thatlower buyers overall costs of using product

7/29/2019 5 Module

21/61

Where along the value chain to create the

differentiating attributes

1. Supply chain activities that affect the performanceor quality of the company's end product. e.g.

Starbucks has very strict specifications on the coffee

beans it purchases.

2. Product R&D activities that aim at

improved product designs and performance

features

wider variety added user safety

enhanced environmental protection.

7/29/2019 5 Module

22/61

3. Production R&D and technology-related

activities that

permit custom-order manufacture at an efficient cost

make production safer for the environment

improve product quality, reliability and appearance.

4. e.g. Toyota manufacturing different models of cars from the

same assembly line. Manufacturing activities that reduce product defects

prevent premature product failure

extend product life

allow better warranty coverage

improve economy of use

result in more end-user convenience or enhanced

product appearance.

e.g. Japanese manufacturing technology

7/29/2019 5 Module

23/61

5. Outbound logistics and distribution activities that

allow for faster delivery

more accurate order filling

lower shipping costs fewer warehouse and on-the-shelf stoke outs.

6. Marketing, sales and customer service activities that result in

superior technical assistance to buyers

faster maintenance and repair services

more and better product information provided to

customers

more and better training materials for end users

better credit terms

quicker order processing

greater customer convenience.

7/29/2019 5 Module

24/61

Best-Cost Provider Strategies

Combine a strategic emphasis on low-costwith 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

7/29/2019 5 Module

25/61

A best-cost providers competitive advantage comesfrom matching close rivals on key product attributes

and beating them on price

Success depends on having the skills and capabilitiestoprovide attractive performance and features at a

lower cost than rivals

A best-cost producer can often out-compete both

a low-cost provider and a differentiator when Standardized features/attributes

wont meet diverse needs of buyers

Many buyers are price and value sensitive

Competitive Strength of a

Best-Cost Provider Strategy

7/29/2019 5 Module

26/61

Best cost provider strategies It aims at giving customers more value for the

money. The objective is to deliver superior value to buyers by

satisfying their expectations on key

quality/feature/performance attributes and beating

their expectations on price.

It derives from the ability to incorporate attractive

attributes at a low cost than rivals.

7/29/2019 5 Module

27/61

To become a best-cost provider a company must

have resources and capabilities to achieve good-to-

excellent quality, appealing features, match product

performance and provide good-to-excellent services

- all a lower cost than rivals.

The best-cost provider strikes out a middle path

between pursuing lower cost advantage and adifferentiating advantage and between appealing to

the broad market or the niche market.

Best-cost strategy is a hybrid, which does a balancing

of strategic emphasis on low cost against a strategic

emphasis on differentiation.

The target market is the value conscious buyer.

7/29/2019 5 Module

28/61

The competitive advantage of a best-cost

provider is lower costs than rivals in

incorporating good-to-excellent attributes.

It is very effective in markets where buyer

diversity makes differentiation the norm and

where many buyers are also sensitive to price

and value.

The pricing strategy can be a medium-quality

product at a lower price or a high quality

product at an average price.

7/29/2019 5 Module

29/61

A best-cost providermay get squeezedbetweenstrategies of firms using low-costand

differentiation strategies

Low-cost leaders may be able to siphon

customers away with a lower price

High-end differentiators may be able to

steal customers away with better product attributes

Risk of a Best-CostProvider Strategy

7/29/2019 5 Module

30/61

Risk of a best-cost provider strategy

The company using this will get squeezed between

companies following low-cost strategy and

differentiating strategies.

Low cost companies get customers with low cost and

differentiating companies will offer more additional

features to attract the customers. A best-cost provider product must have

"significantly" better attributes in order to justify the

cost above what the low-cost leaders are charging

and should be "significantly" lower-cost with upscale

features so that it can outcompete higher end

differentiators on the basis of an attractive lower

price.

7/29/2019 5 Module

31/61

Focus / Niche Strategies

Involve concentrated attention on a narrow piece ofthe total market

Serve niche buyers better than rivals

Choose a market niche where buyers have distinctivepreferences, special requirements, or unique needs

Develop unique capabilities to serve needs of target

buyer segment

Objective

Keys to Success

7/29/2019 5 Module

32/61

Focus / Niche Strategies

and Competitive Advantage

Achieve lower costs than

rivals in serving the segment --

A focused low-cost strategy

Offer niche buyers something

different from rivals --

A focused differentiation strategy

Approach 1

Approach 2 Whichhat is

unique?

7/29/2019 5 Module

33/61

Focused (or market niche) strategies

This strategy focuses on a small size of the total

market. The target market, or niche, can be defined by

geographic uniqueness, specialized requirements in

using the product, or special product attributes that

appeal only to relatively small number of buyers. e.g. eBay (online auctions), L&T Constructions

(infrastructure projects), Ayush from HUL (ayurveda),

Himalaya (herbal products)

7/29/2019 5 Module

34/61

What Makes a Niche

Attractive 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

competitors

to meet specialized needs of niche members

Focuser has resources and capabilities

to effectively serve an attractive niche

Few other rivals are specializing in same niche

7/29/2019 5 Module

35/61

Risks of a Focus Strategy

Competitors find effective ways to match

a focusers capabilities in serving niche

Niche buyers preferences shift towards product

attributes desired by majority of buyers niche

becomes part of overall market

Segment becomes so attractive it becomes

crowded with rivals, causing segment profits to

be splintered

7/29/2019 5 Module

36/61

Focused low-cost strategy

A focused strategy based on low-cost aims at securing a

competitive advantage by serving buyers in the target niche

market at a lower cost and price than the rivals.

It is attractive when the company can find the niche market

and lower its cost significantly to serve that market.

The strategy to provide lower cost than rivals in the niche

market is controlling factors that drive the cost.

e.g. Producers of private label generic items with less

product development cost, marketing, distribution and

advertisement can offers these products at lower price

than branded products. Manufacturers of clone products like ink cartridges for HP

printers without violating patents.

7/29/2019 5 Module

37/61

Focused differentiation strategy

It focuses on offering feature differentiations which

would be perceived by the niche customers as well

suited to their own unique tastes and preferences.

This strategy depends on the existence of an buyer

segment that is looking for special product attributes

and the ability of the company to provide thosefeatures.

e.g. Rolex (watches), Rolls Royce - focus of upscale

customers looking for best products.

Himalaya (herbal products), Cafe Coffee Day (businessambience)

7/29/2019 5 Module

38/61

Deciding Which GenericCompetitive 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 competitive

advantage or a distinctive competitive position.

7/29/2019 5 Module

39/61

Strategic Alliance. It is a formal relationship between two or more parties

to pursue a set of agreed goals.

Remains as independent organizations.

Alliance is a cooperation or collaboration where the

benefits from the alliance will be greater than those

from individual efforts.

Alliance often involves technology transfer (access to

knowledge and expertise), economic specialization,

shared expenses and shared risk.

7/29/2019 5 Module

40/61

Core Concept Of Strategic

Alliance. Strategic alliance are the collaborative

partnerships where two or more

companies join forces to achieve

mutually beneficially strategic outcomes.

7/29/2019 5 Module

41/61

What are the factors that makes a

Strategic alliance succeed

The cost of developing a new product

Clarity of purpose, roles and responsibilities

Equal share of rewards and profit.

7/29/2019 5 Module

42/61

Stages in strategic alliance.

Strategy Development

Partner Assessment .

Contract Negotiation

Alliance Operation

Alliance Termination

7/29/2019 5 Module

43/61

1.Strategic development involves

Studying the alliances feasibility

Objectives and rationale

Focusing on the major issues and challenges.

Development of resource strategies for

production, technology, and people.

7/29/2019 5 Module

44/61

2.Partner Assessment involves

Analyzing a potential partners strengths andweaknesses.

Creating strategies for accommodating all partnersmanagement styles.

Preparing appropriate partner selection criteria.

Understanding a partners motives for joining thealliance and addressing resource capability gaps that

may exist for a partner

7/29/2019 5 Module

45/61

3.Contract Negotiation involves

Determining whether all parties have realistic

objectives.

Forming high caliber negotiating teams.

Defining each partners contributions and

rewards as well as protect any proprietary

information

Addressing termination clauses

Penalties for poor performance.

7/29/2019 5 Module

46/61

4 Alliance Operation involves

Addressing senior managementscommitment.

Finding the calibre of resources devoted to the

alliance. Linking of budgets and resources with

strategic priorities.

Measuring and rewarding allianceperformance, and assessing the performanceand results of the alliance.

7/29/2019 5 Module

47/61

5 Alliance Termination involves

Winding down the alliance, for instance when

its objectives have been met or cannot be

met, or when a partner adjusts priorities or re-allocated resources elsewhere.

B fit f St t i Alli

7/29/2019 5 Module

48/61

Benefits of Strategic Alliances :- Access to their partner's distribution channels and

international market presence

Access to their partner's products, technology, andintellectual property

Access to partner's capital

New markets for their products and services or newproducts for their customers

Increased brand awareness through partner's channels

Reduced product development time and faster-to-market products

Reduced R&D costs and risks

Establish technological standards for the industry andearly products that meet the standards

Management skills

Advantages of Alliances

7/29/2019 5 Module

49/61

Advantages of Alliances

Rapidly move to decisively seize opportunities

before they disappear. Respond more quickly to change.

Adapt with greater flexibility.

Increase a companys market share.

Gain access to a new market or beat others to

that market.

Quickly shore up internal weaknesses.

Gain a new skill or area of competence.

7/29/2019 5 Module

50/61

An alliance can fail for many reasons

Failure to understand and adapt to a new style of

management

Failure to learn and understand cultural differences

between the organizations Lack of commitment to succeed

Strategic goal divergence

Insufficient trust Operational and geographical overlap

Unrealistic expectations

P i f th Alli

7/29/2019 5 Module

51/61

Preparing for the Alliance

Developing qualitative and quantitative

partner criteria

Developing a list of prospective partners

Partner Selection

Strategic Alliances and Collaborative

7/29/2019 5 Module

52/61

Strategic Alliances and Collaborative

Partnerships

Companies sometimes use strategic

alliances or collaborative

partnerships to complement their

own strategic initiatives andstrengthen their competitiveness.

Such cooperative strategies go

beyond normal company-to-

company dealings but fall short of

merger or full joint venture

partnership.

Why Are Strategic

7/29/2019 5 Module

53/61

Why Are Strategic

Alliances Formed?

To collaborate on technology development or new

product development

To fill gaps in technical or manufacturing expertise

To acquire new competencies

To improve supply chain efficiency

To gain economies of scale inproduction and/or marketing

To acquire or improve market access via joint

marketing agreements

7/29/2019 5 Module

54/61

Risks of Strategic Alliances

failure to understand and adapt to a new style of

management

failure to learn and understand cultural differences

between the organizations lack of commitment to succeed

strategic goal divergence

insufficient trust operational and geographical overlap

unrealistic expectations

M d A i iti St t i

7/29/2019 5 Module

55/61

Merger and Acquisition Strategies

Merger Combination and pooling of equals,with newly created firm often taking on a new

name

Acquisition One firm, the acquirer,purchases and absorbs operations of another,

the acquired

7/29/2019 5 Module

56/61

Merger-acquisition

Much-used strategic option

Especially suited for situations where

alliances do not provide a firm with needed

capabilities or cost-reducing opportunities

Ownership allows for tightly integratedoperations, creating more control and autonomy

than alliances

Objectives of Mergers

7/29/2019 5 Module

57/61

j g

and Acquisitions

To pave way for acquiring firm to gain more market

share and create a more efficient operation

To expand a firms geographic coverage

To extend a firms business into new product

categories or international markets

To gain quick access to new technologies

To invent a new industry and lead the convergence ofindustries whose boundaries are blurred by changing

technologies and new market opportunities

O t i St t i

7/29/2019 5 Module

58/61

Outsourcing Strategies

Outsourcing involves withdrawing from certainvalue

chain activities and relying on outsiders

to supply needed products, supportservices, or functional activities

Concept

Internally

Performed

Activities

Suppliers

Support

Services

Functional

Activities

Distributors

or Retailers

When Does Outsourcing

7/29/2019 5 Module

59/61

When Does Outsourcing

Make Strategic Sense?

Activity can be performed better or more

cheaply by outside specialists

Activity is not crucial to achieve a sustainable

competitive advantage Risk exposure to changing technology and/or

changing buyer preferences is reduced

7/29/2019 5 Module

60/61

Operations are streamlined to

Cut cycle time

Speed decision-making

Reduce coordination costs

Firm can concentrate on core value chain

activities that best suit its resource strengths

Strategic Advantages

7/29/2019 5 Module

61/61

g g

of Outsourcing Improves firms ability to obtain high quality and/or

cheaper components or services

Improves firms ability to innovate by interacting with

best-in-world suppliers

Enhances firms flexibility should customer needsand market conditions suddenly shift

Increases firms ability to assemble diverse kinds of

expertise speedily and efficiently

Allows firm to concentrate its resources on

performing those activities internally which it can

perform better than outsiders