CREATING COMPETETIVE CREATING COMPETETIVE ADVANTAGEADVANTAGE

COMPETETIVE ADVANTAGE IS SAID TO EXIST WHEN A CO USES ITS COMPETETIVE ADVANTAGE IS SAID TO EXIST WHEN A CO USES ITS DISTINCTIVE SKILL/RESOURCES TO CAPITALISE ON THE DISTINCTIVE SKILL/RESOURCES TO CAPITALISE ON THE OPPORTUNITIES PRESENT IN THE MARKET.OPPORTUNITIES PRESENT IN THE MARKET.

PORTERS FIVE FORCE MODELPORTERS FIVE FORCE MODEL

FACTORS EFFECTING COMPANY ADVANTAGEFACTORS EFFECTING COMPANY ADVANTAGE

EXTENT/INTENSITY OF RIVALRYEXTENT/INTENSITY OF RIVALRYTHREAT OF SUBSTITUTESTHREAT OF SUBSTITUTESBUYER POWER – BARGAININGBUYER POWER – BARGAININGSUPPLIER POWERSUPPLIER POWERDIFFICULTIES FOR ENTRANTSDIFFICULTIES FOR ENTRANTS

RIVALRYRIVALRY1.1. NO. OF PLAYERSNO. OF PLAYERS

2.2. SLOW GROWTHSLOW GROWTH

3.3. COSTS LARGELY FIXEDCOSTS LARGELY FIXED

4.4. HEAVY INVENTORY-PERISHABLE GOODSHEAVY INVENTORY-PERISHABLE GOODS

5.5. LOW SWITCHING COSTSLOW SWITCHING COSTS

6.6. LOW DIFFERENTIATION OF PRODUCTSLOW DIFFERENTIATION OF PRODUCTS

7 HIGH STRATEGIC STAKES—when a co is losing mkt share 7 HIGH STRATEGIC STAKES—when a co is losing mkt share or anticipates hugh growthor anticipates hugh growth

8 HIGH EXIT BARRIERS8 HIGH EXIT BARRIERS

RIVALRY….contd/-RIVALRY….contd/-

9 SHAKE OUT IN INDUSTRY9 SHAKE OUT IN INDUSTRY

10 CULTURAL DIFFERENCES10 CULTURAL DIFFERENCES

THREAT OF SUBSTITUTESTHREAT OF SUBSTITUTESWHAT IS A SUBSTITUTE?WHAT IS A SUBSTITUTE?

Porter’s Model-A substitute is a product from another industryPorter’s Model-A substitute is a product from another industry Economics-When demand is affected by price change of a Economics-When demand is affected by price change of a

substitutesubstitute

The threat of substitutes generally comes from products outside The threat of substitutes generally comes from products outside the industry due to price advantagethe industry due to price advantage

There are, however, other threats of substitutes not related to There are, however, other threats of substitutes not related to price advantageprice advantage

BUYER BARGAINING POWERBUYER BARGAINING POWER Broadly speaking, when buyers are strong, the Industry tends to Broadly speaking, when buyers are strong, the Industry tends to

function as a monopsony.function as a monopsony.

Buyers are powerful:-Buyers are powerful:- --If they are concentrated--If they are concentrated -- Buy a significant proportion of the output-- Buy a significant proportion of the output -- Possess capacity for backward integration-- Possess capacity for backward integration

Buyers are weak:-Buyers are weak:- --Scattered and fragmented--Scattered and fragmented -- Switching costs are high-- Switching costs are high --Producers capable of forward integration--Producers capable of forward integration --Producers supply critical portion--Producers supply critical portion

SUPPLIER POWERSUPPLIER POWER

Just as buyers can be powerful under certain set of Just as buyers can be powerful under certain set of circumstances ,suppliers also can be strong under certain set of circumstances ,suppliers also can be strong under certain set of conditionsconditions

Suppliers are strong when:-Suppliers are strong when:- --They are in a position for forward integration--They are in a position for forward integration -- Suppliers concentrated-- Suppliers concentrated -- Switching costs are significant-- Switching costs are significant --Customer is powerful--Customer is powerful

Suppliers are weak when;-Suppliers are weak when;- --Many competitive suppliers e g cardboard boxes for packaging--Many competitive suppliers e g cardboard boxes for packaging --Trend towards commodity purchase eg grocery vs branded grocery--Trend towards commodity purchase eg grocery vs branded grocery --Backward integration by purchasers eg tobacco cultivation by cig cos--Backward integration by purchasers eg tobacco cultivation by cig cos

BARRIERS TO ENTRYBARRIERS TO ENTRY Barriers reduce the entry rate of new entrants and thus help the Barriers reduce the entry rate of new entrants and thus help the

existing players to maintain their competitivenessexisting players to maintain their competitiveness

Govt BarriersGovt Barriers

PatentsPatents

Asset specificityAsset specificity

Economies of scaleEconomies of scale

ANALYSING COMPETITIONANALYSING COMPETITION

STRATEGIESSTRATEGIES OBJECTIVESOBJECTIVES STRENGTHS / WEAKNESSSTRENGTHS / WEAKNESS REACTION PATTERNREACTION PATTERN

a) MILD REACTIONa) MILD REACTION

b) SELECTIVE REACTIONb) SELECTIVE REACTION

c) TIGER REACTIONc) TIGER REACTION

d) STOCHASTIC REACTIONd) STOCHASTIC REACTION

STRATEGIESSTRATEGIES In an industry cos which follow similar strategies constitute a strategic In an industry cos which follow similar strategies constitute a strategic

groupgroup

Prior to entering an industry the Co must study the strategies of Prior to entering an industry the Co must study the strategies of various players-e g Amul, Britannia, Baronvarious players-e g Amul, Britannia, Baron

By studying the various groups the co will be able to identify its major By studying the various groups the co will be able to identify its major competitorscompetitors

It will also be able to identify the level of entry barriersIt will also be able to identify the level of entry barriers

After studying the strategies of various players cos can decide what is After studying the strategies of various players cos can decide what is the best strategy for it.the best strategy for it.

OBJECTVESOBJECTVES After identifying its main competitors, the co must try to find out the After identifying its main competitors, the co must try to find out the

objectives of its competitors- objectives of its competitors-

Position in industry (BAL),Position in industry (BAL),

Market Share--CokeMarket Share--Coke

SizeSize

Technological leadershipTechnological leadership

Best service (Titan/ITC/Banks)Best service (Titan/ITC/Banks)

STRENGTHS AND WEAKNESSESSTRENGTHS AND WEAKNESSES When studying the strengths and weaknesses of the competitors, When studying the strengths and weaknesses of the competitors,

the co must concentrate on the following:the co must concentrate on the following:

Market Share-To what extent is the co in control and command in Market Share-To what extent is the co in control and command in the segment?the segment?

Mind Share-To what extent can the consumers recall a particular Mind Share-To what extent can the consumers recall a particular competitor in an industrycompetitor in an industry

Heart Share- To what extent do the consumers Heart Share- To what extent do the consumers name name the the competitor from whom they would like to buy the productscompetitor from whom they would like to buy the products

REACTION PATTERNREACTION PATTERN Laid Back Competitor—A competitor who does not react fast Laid Back Competitor—A competitor who does not react fast

enough to a move by the coenough to a move by the co

Selective Competitor --- A competitor who does not react to every Selective Competitor --- A competitor who does not react to every move but only to certain movesmove but only to certain moves

Tiger Competitor—A competitor who reacts immediately with speed Tiger Competitor—A competitor who reacts immediately with speed and strengthand strength

Stochastic competitor—A competitor who’s reaction cannot be Stochastic competitor—A competitor who’s reaction cannot be predicted.predicted.

COMPETETIVE COMPETETIVE INTELLIGENCE SYSTEMINTELLIGENCE SYSTEM

INTELLIGENCE DATAINTELLIGENCE DATA

- ANNUAL REPORTS ANNUAL REPORTS

- FIELD FIELD

- TRADE TRADE

- MEDIA MEDIA

- PUBLIC ADDRESSESPUBLIC ADDRESSES

SETTING UP A SYSTEMSETTING UP A SYSTEM

--IDENTIFY THE DATA REQUIRED--IDENTIFY THE DATA REQUIRED

--DATA COLLECTION--DATA COLLECTION

--DATA ANALYSIS--DATA ANALYSIS

--FORMULATING A RESPONSE--FORMULATING A RESPONSE

SELECTING COMPETETORS TO SELECTING COMPETETORS TO ATTACK/AVOIDATTACK/AVOID

Which competitor to attack, which to avoid—CUSTOMER Which competitor to attack, which to avoid—CUSTOMER VALUE ANALYSISVALUE ANALYSIS

CUSTOMER VALUE ANALYSIS-process of identifying Cos CUSTOMER VALUE ANALYSIS-process of identifying Cos strengths and weaknesses vis-à-vis the competitorstrengths and weaknesses vis-à-vis the competitor

--Identification of those attributes that customer value most--Identification of those attributes that customer value most

--Prioritize the attributes vis-a-vis competitors--Prioritize the attributes vis-a-vis competitors

--Assess attribute performance among competing brands--Assess attribute performance among competing brands

--Monitor competitors standing and customers changing --Monitor competitors standing and customers changing valuesvalues

PORTERS GENERIC COMPETITIVE PORTERS GENERIC COMPETITIVE STRATEGIESSTRATEGIES

COST LEADERSHIP STRATEGYCOST LEADERSHIP STRATEGY --The company consciously tries to be a low cost player--The company consciously tries to be a low cost player --Sells at an average price to make profit--Sells at an average price to make profit --Sells at low price to gain market share--Sells at low price to gain market share

What will happen in event of a price war?-case of musicWhat will happen in event of a price war?-case of music Cos acquire cost advantage by efficient processes, Cos acquire cost advantage by efficient processes,

exclusive access to large supply of raw material, optimal exclusive access to large supply of raw material, optimal outsourcing, etcoutsourcing, etc

Low cost cos usually have to invest heavily in assets. Relation Low cost cos usually have to invest heavily in assets. Relation to entry?to entry?

DIFFERATION STRATEGYDIFFERATION STRATEGY In such a situation the firm tries to differentiate its products In such a situation the firm tries to differentiate its products

and services by adding some unique features and attributes and services by adding some unique features and attributes that are valued by the customersthat are valued by the customers

Such products should be perceived better than the Such products should be perceived better than the customers.customers.

The value added by the firm enables it to charge it the extra The value added by the firm enables it to charge it the extra priceprice

The differentiation may help the co to charge extra in case The differentiation may help the co to charge extra in case some supplier raises its price.some supplier raises its price.

There is a risk to the co in case a competitor copies its There is a risk to the co in case a competitor copies its attributes or the customer tastes change. attributes or the customer tastes change.

FOCUS STRATEGYFOCUS STRATEGY A co following this strategy caters to a narrow segment in which it tries A co following this strategy caters to a narrow segment in which it tries

to gain advantage through cost or differentiation.to gain advantage through cost or differentiation.

Under such conditions, a firm tends to enjoy a very high degree of Under such conditions, a firm tends to enjoy a very high degree of customer loyalty and this discourages others from entering this customer loyalty and this discourages others from entering this segment.segment.

As the focus is on a narrow segment, the volumes are low and therefore As the focus is on a narrow segment, the volumes are low and therefore its bargaining power with its suppliers is low.its bargaining power with its suppliers is low.

If the company is following focused-differentiation strategy the it can If the company is following focused-differentiation strategy the it can pass on the increase in cost of supplies as close substitutes do not pass on the increase in cost of supplies as close substitutes do not exist.exist.

Some risk does exist as customer target segment may change and Some risk does exist as customer target segment may change and imitations may come in the marketimitations may come in the market

COMPETETIVE STRATEGY COMPETETIVE STRATEGY DESIGNDESIGNMARKET LEADERMARKET LEADER

NEW USERSNEW USERS

1)1) EXPAND THE MARKETEXPAND THE MARKET NEW USERSNEW USERS

MORE USAGE MORE USAGE

2) DEFEND THE MARKET – DEFINE 2) DEFEND THE MARKET – DEFINE CAREFULLY AREAS YOU WISH TO CAREFULLY AREAS YOU WISH TO DEFENDDEFEND

3) EXPAND MARKET SHARE3) EXPAND MARKET SHARE

MARKET CHALLENGER MARKET CHALLENGER STRATEGIESSTRATEGIES

1)1) ATTACK THE LEADERATTACK THE LEADER2)2) ATTACK FIRMS OF ITS OWN SIZE – ATTACK FIRMS OF ITS OWN SIZE –

ECONOMICALLY WEAKECONOMICALLY WEAK3)3) ATTACK SMALL / REGIONAL PLAYERSATTACK SMALL / REGIONAL PLAYERS

ATTACK STRATEGIESATTACK STRATEGIES

FRONTAL / FLANK / ENCIRCLEMENT / BYPASS / FRONTAL / FLANK / ENCIRCLEMENT / BYPASS / GUERILLA PRICE DISCOUNTS / CHEAPER GUERILLA PRICE DISCOUNTS / CHEAPER GOODS / PRESTIGE GOODS / PRODUCT GOODS / PRESTIGE GOODS / PRODUCT EXTN. DISTRIBUTION / COST REDUCTIONEXTN. DISTRIBUTION / COST REDUCTION

ATTACK STRATEGIESATTACK STRATEGIES FRONTAL ATTACKFRONTAL ATTACK In a frontal attack you hit out directly at your competitor-product, In a frontal attack you hit out directly at your competitor-product,

pricing, distribution, packaging. pricing, distribution, packaging.

FLANK ATTACKFLANK ATTACK The essence of flank attack is to attack the leader where he is weak.The essence of flank attack is to attack the leader where he is weak.

Flank attack have two major aspects to themFlank attack have two major aspects to them --Geographical--Geographical --Market dimension--Market dimension

Such a strategy is very helpful when the attacker has very limited Such a strategy is very helpful when the attacker has very limited resources.resources.

ENCIRCLEMENT ATTACKENCIRCLEMENT ATTACK

In an Encirclement Attack an attempt is made to capture a part of In an Encirclement Attack an attempt is made to capture a part of the competitors market by launching a surprise attack on several the competitors market by launching a surprise attack on several frontsfronts

The attack is usually dispersed.The attack is usually dispersed.

BY-PASS ATTACKBY-PASS ATTACK This means to by-pass the competitor and capture the market to This means to by-pass the competitor and capture the market to

widen your resource base Can be achieved in three wayswiden your resource base Can be achieved in three ways --diversifying into unrelated products--diversifying into unrelated products -- diversfying into new geographical areas-- diversfying into new geographical areas --quantum jump in technology--quantum jump in technology

MARKET FOLLOWER MARKET FOLLOWER STRATEGIESSTRATEGIES

MARKET LEADER INITIATES – OTHER MARKET LEADER INITIATES – OTHER FOLLOWFOLLOW

- PRODUCT DIFFERENTIATION LOWPRODUCT DIFFERENTIATION LOW

- CAPITAL INTENSIVE INDUSTRY – CAPITAL INTENSIVE INDUSTRY – STEEL / FERTILIZERSSTEEL / FERTILIZERS

- PRICE BASED COMPETITIONPRICE BASED COMPETITION

Market follower strategies can result inMarket follower strategies can result in --Counterfeiter--Counterfeiter

--Clover: copying the leaders design, packaging--Clover: copying the leaders design, packaging

--Imitator : copies certain aspects of the competitor product but --Imitator : copies certain aspects of the competitor product but retains different design and packagingretains different design and packaging

--Adaptors: such cos adapt their products to the market needs as --Adaptors: such cos adapt their products to the market needs as indicated by the leading products. Adapters have the potential to indicated by the leading products. Adapters have the potential to emerge as market challangers.emerge as market challangers.