Competetiveadvantage-types of Strategy
-
Upload
madhuri-shete -
Category
Documents
-
view
214 -
download
0
Transcript of Competetiveadvantage-types of Strategy
-
8/21/2019 Competetiveadvantage-types of Strategy
1/46
COMPETITIVE STRATEGY
CREATING COMPETITIVE
ADVANTAGE
-
8/21/2019 Competetiveadvantage-types of Strategy
2/46
What is Competitive advantage?
a basis for the firms long
term success?
a basis for value creation?
Do we really know where it resides?Can it be sustainable?
-
8/21/2019 Competetiveadvantage-types of Strategy
3/46
What is Competitive
advantage?When two or more firms compete
within the same market, one firms
possesses a competitive advantage over its
rivals when it earns a persistently higher
rate of profit (or has the potential to earn apersistently higher rate of profit)
R. M. Grant, 2000
-
8/21/2019 Competetiveadvantage-types of Strategy
4/46
The main types of Competitive
Advantage
Cost advantage
Differentiationadvantage
Competitiveadvantage
-
8/21/2019 Competetiveadvantage-types of Strategy
5/46
Competitive strategies
by Porter
Types of competitive advantageLow cost Differentiation
Cost leadership Differentiationndustry wide
Niche Focus withlow cost Focus withdifferentiation
Market
-
8/21/2019 Competetiveadvantage-types of Strategy
6/46
Five Generic Strategies
Competitive Advantage
CompetitiveSco
pe
Cost Uniqueness
Bro
ad
target
Narrow
target
CostLeadership
Differentiation
FocusedCost
Leadership
FocusedDifferentiation
IntegratedCost
Leadership/Differentiation
-
8/21/2019 Competetiveadvantage-types of Strategy
7/46
Cost Leadership Strategy
An integrated set of actions designed toproduce or deliver goods or services at the
lowest cost, relative to
competitors with features that are acceptable
to customers
relatively standardized products
features acceptable to many customers
lowest competitive price
-
8/21/2019 Competetiveadvantage-types of Strategy
8/46
Cost Leadership Strategy
Cost saving actions required by this strategy:
building efficient scale facilities
tightly controlling production costs and
overhead minimizing costs of sales, R&D and service
building efficient manufacturing facilities
monitoring costs of activities provided byoutsiders
simplifying production processes
-
8/21/2019 Competetiveadvantage-types of Strategy
9/46
How to Obtain a Cost Advantage
Cost DriversValue Chain
Determine andcontrol
Reconfigure, ifneeded
Alter production process
Change in automation
New distribution channel
Direct sales in placeof indirect sales
New advertising media
New raw material
Backward integration
Forward integration
Change locationrelative to suppliersor buyers
-
8/21/2019 Competetiveadvantage-types of Strategy
10/46
Product features
Performance
Mix & variety of
products Service levels
Small vs. large buyers
Process technology
Wage levels Product features
Hiring, training,
motivation
Factors That Drive Costs
Economies of scale
Asset utilization
Capacity utilization
pattern Seasonal, cyclical
Interrelationships Order processing
and distribution Value chain linkages
Advertising & sales
Logistics &
operations
-
8/21/2019 Competetiveadvantage-types of Strategy
11/46
Major Risks of Cost Leadership
Strategy
Dramatic technological change could take
away your cost advantage
Competitors may learn how to imitate value
chain
Focus on efficiency could cause cost leader
to overlook changes in customer
preferences
-
8/21/2019 Competetiveadvantage-types of Strategy
12/46
Differentiation Strategy
An integrated set of actions designed by afirm to produce or deliver goods or services
(at an acceptable cost) that customers
perceive as being different or unique inways that are important to them.
price for product can exceed what the firms
target customers are willing to pay
Non standardized products
customers value differentiated features more
than they value low cost
-
8/21/2019 Competetiveadvantage-types of Strategy
13/46
Differentiation Strategy
A product differentiation strategy must meet the
VRIOcriteria
Is it Valuable?
Is it Rare?Is it costly to Imitate?
Is the firm Organized to exploit it?
if it is to create competitive advantage.
-
8/21/2019 Competetiveadvantage-types of Strategy
14/46
Factors That Drive
Differentiation
Unique product features
Unique product performance
Exceptional services New technologies
Quality of inputs
Exceptional design skill
Prestige and exclusivity
-
8/21/2019 Competetiveadvantage-types of Strategy
15/46
Differentiation Strategy
Differentiation actions required by thisstrategy:
Analysis of the value chain identifies in what
parts of the chain and through which linkssuperior products can be created and
customer perception may be changed
Shaping perceptions through advertising
Focus on qualitycustomer loyalty.
Capability in R&D.
-
8/21/2019 Competetiveadvantage-types of Strategy
16/46
Differentiation Strategy and Price
Elasticity of Demand
Differentiation strategy, properly used,
can: reduce price elasticity of demand for
the particular product.
This leads to the ability to charge higher
prices than competitors, without reducing
sales volume.
Leads to above average profits comparedto sales.
-
8/21/2019 Competetiveadvantage-types of Strategy
17/46
Major Risks of Differentiation
Strategy Customers may decide that the price differential
between the differentiated product and the cost leaders
product is too large
The me-too danger. Product features and
characteristics can be easily copied. The companyneeds to be one step ahead of the curve and invest in
improving and perfecting the product, otherwise it will
quickly become obsolete.
The demandingconsumer danger.Products have
shorter life cycles and consumers gravitate towardswhats new. In order to remain competitive firms need to
keep up with the latest trends and technologies, or their
target audience will switch to competitive offerings.
-
8/21/2019 Competetiveadvantage-types of Strategy
18/46
Focused Business-Level
StrategiesA focus strategy must exploit a narrowtargets differences from the balance
of the industry by:
isolating a particular buyer group isolating a unique segment of a
product line
concentrating on a particulargeographic market.
-
8/21/2019 Competetiveadvantage-types of Strategy
19/46
Factors That May Drive Focused
Strategies Large firms may overlook small niches Firm may lack resources to compete
in the broader market
May be able to serve a narrow marketsegment more effectively than canlarger industry-wide competitors
Focus strategy may allow the firm todirect resources to certain value chainactivities to build competitiveadvantage.
-
8/21/2019 Competetiveadvantage-types of Strategy
20/46
Major Risks of Focused
Strategies Firm may be outfocused bycompetitors
Large competitor may set its
sights on your niche market
Preferences of niche market may
change to match those of broadmarket
-
8/21/2019 Competetiveadvantage-types of Strategy
21/46
Integrated or Hybrid Strategy
A firm that successfully uses an integratedcost leadership/differentiation strategy should
be in a better position to: adapt quickly to environmental changes
learn new skills and technologies morequickly
effectively leverage its core competencieswhile competing against its rivals byproviding differentiated products at low costs.
-
8/21/2019 Competetiveadvantage-types of Strategy
22/46
Benefits of Integrated Strategy
Successful firms using this strategyhave above-average returns
Firm offers two types of values to
customers some differentiated features (but less
than a true differentiated firm)
relatively low cost (but not as low asthe cost leaders price)
-
8/21/2019 Competetiveadvantage-types of Strategy
23/46
Major Risks of Integrated
StrategyAn integrated cost/differentiationbusiness level strategy often involves
compromises (neither the lowest cost
nor the most differentiated firm) The firm may become stuck in the
middle lacking the strong commitment
and expertise that accompanies firmsfollowing either a cost leadership or a
differentiated strategy
-
8/21/2019 Competetiveadvantage-types of Strategy
24/46
Sustainable competitive
advantage What is meant by sustainable
competitive advantage?
Durable
Valuable to the firm
Exploiting weaknesses and neutralizing threats
Unique
Difficult for competitors to imitate Not easily substitutable
-
8/21/2019 Competetiveadvantage-types of Strategy
25/46
Examples of SCA
For many years, Singapore Airlines wereriding on its SCA of having the best in-flightservice
As more airlines improved their service and
narrowed the gap, SIA sought othercompetitive advantages among which are The most modern fleet
Outstanding Service on the Ground
A super entertainment system in its cabins Comfort in its First Class cabins at an unparallel
level
-
8/21/2019 Competetiveadvantage-types of Strategy
26/46
Warren Buffet s InvestmentCriteriaWarren Buffetwas once asked
what is the most important
thing he looks for whenevaluating a company
to invest in. Without
hesitation, he replied,
"Sustainable competitiveadvantage."
http://1000advices.com/guru/fin_pers_5tips_buffett.htmlhttp://www.1000ventures.com/venture_financing/venture%20investing_main.htmlhttp://www.1000ventures.com/venture_financing/venture%20investing_main.htmlhttp://1000advices.com/guru/fin_pers_5tips_buffett.html -
8/21/2019 Competetiveadvantage-types of Strategy
27/46
STRATEGIES FOR
Market Leaders
ChallengersFollowers, and
Nichers
-
8/21/2019 Competetiveadvantage-types of Strategy
28/46
MARKET LEADER`S
STRATEGY: Defense StrategyA market leader should generally adopt a
defense strategy
5 commonly used defense strategies
Position Defense Flanking Defense
Contraction Defense
Pre-emptive Defense
Counter-Offensive Defense
-
8/21/2019 Competetiveadvantage-types of Strategy
29/46
Defense Strategy (contd)
Position Defense
Use ones existing good position as defence.
One of the most successful of the defensestrategies
e.g. High end car manufacturers likeMercedes, Lamborghini, Ferrari use aposition defense strategy given their
-
8/21/2019 Competetiveadvantage-types of Strategy
30/46
Defense Strategy (contd)
Flanking Defense:
Secondary markets (flanks) are the weakerareas and prone to being attacked
Pay attention to the flanks
-
8/21/2019 Competetiveadvantage-types of Strategy
31/46
Defense Strategy (contd)
Contraction Defense
Withdraw from the most vulnerable segments
and redirect resources to those that are moredefendable
By planned contraction or strategic
withdrawal
e.g. Indias TATA Group sold its soaps anddetergents business units to Unilever in 1993
-
8/21/2019 Competetiveadvantage-types of Strategy
32/46
Defense Strategy (contd)
Pre-emptive Defense
Detect potential attacks and attack the
enemies first Let it be known how it will retaliate
Product or brand proliferation is a form
of pre-emptive defense e.g. Seiko hasover 2,000 models
-
8/21/2019 Competetiveadvantage-types of Strategy
33/46
Defense Strategy (contd)
Counter-Offensive Defense
Responding to competitors head-on
attack by identifying the attackersweakness and then launch a counter
attack
e.g. Toyota launched the Lexus torespond to Mercedes attack
-
8/21/2019 Competetiveadvantage-types of Strategy
34/46
Market Challenger Strategies
The market challengers strategicobjective is to gain market share and
to become the leader eventually
How? By attacking the market leader
By attacking other firms of the same
size By attacking smaller firms
-
8/21/2019 Competetiveadvantage-types of Strategy
35/46
Market Challenger Strategies
(contd)
Types of Attack Strategies
Frontal attack
Flank attack Encirclement attack
Bypass attack
Guerrilla attack
-
8/21/2019 Competetiveadvantage-types of Strategy
36/46
Frontal Attack
Seldom work unless
The challenger has sufficient fire-power (a 3:1
advantage) and staying power, and
The challenger has clear distinctive advantage(s)
e.g. Japanese and Korean car
manufacturers launched frontal attacks in
various ASPAC countries through quality,price and low cost
-
8/21/2019 Competetiveadvantage-types of Strategy
37/46
Flank attack
Attack the enemy at its weak points
or blind spots i.e. its flanks
Ideal for challenger who does nothave sufficient resources
e.g. In the 1990s, Yaohan attacked
Mitsukoshi and Seibus flanks byopening numerous stores in
overseas markets
-
8/21/2019 Competetiveadvantage-types of Strategy
38/46
Encirclement attack
Attack the enemy at many fronts at
the same time
Ideal for challenger having superiorresources
e.g. Seiko attacked on fashion,
features, user preferences andanything that might interest the
consumer
-
8/21/2019 Competetiveadvantage-types of Strategy
39/46
Bypass attack
By diversifying into unrelated
products or markets neglected by
the leader Could overtake the leader by using
new technologies
e.g. Pepsi use a bypass attackstrategy against Coke in China by
locating its bottling plants in the
interior provinces
-
8/21/2019 Competetiveadvantage-types of Strategy
40/46
Guerrilla attack
By launching small, intermittent hit-and-
run attacks to harass and destabilize the
leader
Usually use to precede a stronger attack
e.g. airlines use short promotions to
attack the national carriers especially
when passenger loads in certain routes
are low
-
8/21/2019 Competetiveadvantage-types of Strategy
41/46
Market-Follower Strategies
Theodore Levitt in his article,Innovative Imitationargued that a
product imitation strategy might be just
as profitable as a product innovationstrategy
e.g. Product innovation--Sony
Product-imitation--Panasonic
-
8/21/2019 Competetiveadvantage-types of Strategy
42/46
Market-Follower Strategies (contd)
Each follower tries to bring distinctive
advantages to its target market--location,
services, financing
Four broad follower strategies:
Counterfeiter (which is illegal)
Cloner e.g. the IBM PC clones
Imitator e.g. car manufacturers imitate the style of oneanother
Adapter e.g. many Japanese firms are excellent
adapters initially before developing into challengers
and eventually leaders
-
8/21/2019 Competetiveadvantage-types of Strategy
43/46
Market-Nicher Strategies
Smaller firms can avoid larger firms by
targeting smaller markets or niches
that are of little or no interest to thelarger firms
e.g. Logitech--mouse
Microbrewers--special beers
-
8/21/2019 Competetiveadvantage-types of Strategy
44/46
Market-Nicher Strategies (contd)
Nichers must create niches, expand the
niches and protect them
e.g. Nike constantly created new niches--cycling,
walking, hiking, cheerleading, etc
What is the major risk faced by nichers?
Market niche may be attacked by larger firms once
they notice the niches are successful
-
8/21/2019 Competetiveadvantage-types of Strategy
45/46
Multiple Niching
A firm should `stick to its niching butnot necessarily to its niche. That is
why multiple niching is preferable to
single niching. By developing strengthin two or more niches the company
increases its chances for survival.
Philip Kotler
-
8/21/2019 Competetiveadvantage-types of Strategy
46/46
THANK YOU !!