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Amity Business School Strategic Management

MBA
Strategic Management Module IV
Industry Structures and
Competitive Strategies

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Industry Life Cycle Industry Life Cycle

• Industries, like societies, go through a life-cycle of • The industry life cycle is not the same as the product life
emergence, growth, maturity, decline and in some cycle, because within an industry there is a constant
instances re-birth. updating of products.
• The model of the industry life cycle represents an industry • For example TV manufacturers first produced
as if it were a biological organism going through various monochrome TVs, then colour TVs and subsequently
stages of life. home entrainment systems.
• The industry life cycle models industries following a similar • Within the colour TV segment, the screen technology
pattern of development as industry output changes, moving has evolved from cathode ray displays to flat screens
from many small and different firms to a few large and such as plasma, LCD and LED.
similar firms.
• Now 3D TVs and Smart, 4K Technology TV sets have
• This change in industrial structure is driven by the interplay appeared on the market.
between consumer demand and technology throughout the
industry life cycle 4

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Industry Life Cycle The Industry Life Cycle

Sales
Volume
Fragmentation Shakeout Maturity Uncertainty
Renewal

Stagnation

Decline

5 Time

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Industry Life Cycle Industry Life Cycle

• Industries evolve over time, both structurally and • Introduction/ Embryonic
in terms of overall size. In the introduction stage there are few
• The industry life cycle is measured in total industry competitors and there is no threat from
sales and the growth in total industry sales. substitutes because the industry is new.
• The industry structure and competitive forces that The power of buyers is low, because those
shape the environment in which businesses who require the product are prepared to pay
operate change throughout the life cycle. to get hold of supplies that are limited.
• Therefore a business's strategy must adapt Suppliers exert some power, because
accordingly. It is useful to consider the evolution of volumes purchased are still low and the
the industry life cycle in the context of Porter’s
Five Forces. industry is relatively unimportant for
suppliers.

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Industry Life Cycle

• Shakeout
• Growth  In the shakeout stage the number of competitors
 In the growth stage the number of competitors increases rapidly as other firms enter the growing
increases rapidly as other firms enter the growing industry. At this stage growth in supply outstrips
industry. However, because at this stage growth in growth of demand, rivalry among firms becomes
demand outstrips growth of capacity, rivalry among intense. The weak players are not able to sustain
firms is kept in check. competitive pressure and bow out of market.
 The power of buyers is still very low because demand  The power of buyers is still very low because demand
exceeds supply. Often industry growth is associated exceeds supply. Often industry growth is associated
with high profitability. with high profitability.
 While at this stage firms may be profitable, they could  While at this stage certain firms quit and leave the
still be cash absorbing and running risks as they market unattended which is acquired by strong
jockey for position and market share. players who acquire position and large market share.
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Industry Life Cycle Industry Life Cycle

• Maturity • Decline
As the industry enters maturity, the power of  The decline stage poses new challenges. Capacity
exceeds demand thereby increasing the power of
buyers is increasing because capacity matches or buyers.
exceeds demand.  The weakest competitors will withdraw from the industry,
In contrast, the power of suppliers has declined leading to a decline in the rivalry between firms.
because by now the volumes purchased by the  At this stage firms may also combine forces to ask for
industry are very important to suppliers. government intervention or subsidies to help to protect
the declining industry.
The threat from substitutes is now growing.  The threat of substitutes is high; indeed substitutes are
The industry will start to consolidate, possibly often the root cause of decline.
through mergers and acquisitions.  However, managed correctly, a slowly declining industry
can produce attractive returns for investors because
 Rivalry among competitors is fierce and falling there is no new investment as the industry is gradually
prices pose a serious threat to profitability. run down and milked for cash.
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How Typical is the Life Cycle Pattern

• Technology-intensive industries (e.g. pharmaceuticals,
semiconductors, computers) may retain features of emerging COMPETITIVE STRATEGIES
industries.
• Other industries (especially those providing basic necessities,
e.g. food processing, construction, apparel) reach maturity, but
not decline. The objective of competitive strategy is to
• Industries may experience life cycle regeneration.
knock the socks of rival companies by
Sales Sales
B&W
Color
Plasma doing a significant better job of providing
LCD/LED what buyers are looking for
1900 ‘50 ‘60 ‘90 2000 1930 50 60 90 2000
MOTORCYCLES TVs
• Life cycle model can help us to anticipate industry evolution—
but dangerous to assume any common, pre-determined pattern
of industry development.
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V-C Framework Strategy and Competitive Advantage

Value • Competitive advantage exists when a firm’s strategy

gives it an edge in
– Attracting customers and
Buyer’s Surplus – Defending against competitive forces
The Firm’s Key to Gaining a Competitive Advantage
Economic
Contribution • Convince customers firm’s product / service offers
Price superior value
– A good product at a low price
Firm’s Profit – A superior product worth paying more for
– A best-value product
Cost
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What Is
“Competitive Strategy”? Any competitive advantage
• Deals exclusively with a company’s currently held will eventually
business plans to compete successfully
– Specific efforts to please customers
be eroded by the actions of
– Offensive and defensive moves to counter maneuvers of
competent, resourceful
rivals
competitors!
– Responses to prevailing market conditions

– Initiatives to strengthen its market position

• Narrower in scope than business strategy

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Offensive Vs Defensive Moves

Moves calculated to yield a competitive advantage • Competitive strategies: strategic moves organization use
to defeat competitors
- Offensive competitive strategies: direct attacks to
capture market share (Nearly always result in
successful achievement of competitive advantage )
Size of - Defensive competitive strategies: attempts to
C. Ad. discourage offensive strategies (Can protect
competitive advantage, but RARELY are the basis for
Build Benefit achieving competitive advantage )
Up Period Erosion - Counter-parry: fending off a competitor’s attack in
one country by attacking in another country
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ATTACKING COMPETITOR STRENGTHS

Types of Strategic Offensive
Appeal
1. Match / exceed competitive strengths • Gain market share by out-matching strengths of
2. Capitalise on Weaknesses weaker rivals
• Whittle away at a rival’s competitive advantage
3. Simultaneous initiatives on many fronts
• Challenging strong competitors with a lower
4. End-run offensives. price is foolhardy unless aggressor has a
5. Guerrilla offensives. COST ADVANTAGE or advantage of
6. Preemptive strikes GREATER FINANCIAL STRENGTH!
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Attacking Competitor Strengths Attacking Competitor Weaknesses

Possible Offensive Options
Basic Approach
• Offer equally good product at a lower price
• Concentrate one’s competitive strengths &
• Develop low-cost edge, then use it to under-price rivals resources directly against rivals’ weaknesses
• Leapfrog into next-generation technologies
Weaknesses to Attack
• Add appealing new features
• Concentrate on geographic regions where rival has weak
• Run comparison ads market share
• Offer a wider product line • Go after buyer segments rival is neglecting
• Go after more performance-conscious customers of
• Develop better customer service capabilities rivals who lag behind challenger
• Attack rivals with weaker advertising & brand recognition
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COMPETITIVE STRATEGY PRINCIPLE LAUNCHING OFFENSIVES ON MANY FRONTS

Objective
Challenging rivals where they are most
• Launch several major initiatives to
vulnerable is more likely to succeed than – Throw rival off-balance,
challenging them where they are – Splinter its attention in many directions, and
– Force it to use substantial resources to defend its position
strongest, ESPECIALLY when challenger
possesses competitive advantage in Appeal
areas where rivals are weak! • A challenger with superior resources can overpower
a weaker rival by outspending it across-the-board
long enough to “buy its way into the market”

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END-RUN OFFENSIVES
END-RUN OFFENSIVES: APPROACHES
Objective • Move aggressively into new geographic markets
• DODGE head-to-head confrontations that where rivals have no market presence
escalate competitive intensity and RISK cut
throat competition -- Attempt to MANEUVER • Introduce products with different attributes &
AROUND competition features to better meet buyer needs
• Introduce next-generation technologies &
Appeal leapfrog rivals
• Gain first-mover advantage in a new arena
• Come up with more support services for
• Force competitors into playing catch up
customers
• Change rules of competition in aggressor’s favor
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GUERRILLA OFFENSES GUERRILLA OFFENSES: OPTIONS

• Focus on narrow target weakly defended by
Approach rivals
• Use principles of surprise & hit-and-run • Challenge rivals where they are overextended &
to attack in locations & at times where when they are encountering problems
conditions are most favorable to • Make random scattered raids on leaders with
tactics such as
initiator – Occasional low-balling on price
Appeal – Intense bursts of promotional activity
– Legal actions charging antitrust violations, patent
• Well-suited to small challengers with infringements, & unfair advertising
limited resources
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PREEMPTIVE STRIKES PREEMPTIVE STRIKES: OPTIONS

• Expand capacity ahead of demand in hopes of
discouraging rivals from following suit
Approach • Tie up best or cheapest sources of essential raw
materials
• Involves moving first to secure an
• Move to secure best geographic locations
advantageous position that rivals are • Obtain business of prestigious customers
foreclosed or discouraged from • Build an image in buyers’ minds that is unique & hard to
duplicating! copy
• Secure exclusive or dominant access to best distributors
• Acquire desirable, but struggling, competitor

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OFFENSIVE STRATEGY & COMPETITIVE

ADVANTAGE
Choosing whom to attack?
• Competitive advantage areas offering strongest basis for a
STRATEGIC OFFENSIVE
• Develop lower-cost product design
• Make changes in production operations that lower costs or enhance
•Market leaders differentiation
• Develop product features that deliver superior performance or lower
•Runner-up firms users’ costs
• Give more responsive customer service
•Struggling rivals on verge of going under • Escalate marketing effort
•Small local/regional firms with limited •
•
Pioneer new distribution channel
Sell direct to end-users
Chances for strategic success
are improved when offensive
capabilities is tied to what firm does best:
Key skill
Strong functional competence
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Offensive marketing Strategies Types of Offensive Strategies

Frontal Attack –
• Fundamental Principles (Offence)
There are four fundamental principles involved:
• This is a direct head-on assault. It usually involves
marshaling all your resources including a substantial
financial commitment.
1) Assess the strength of the target competitor. Choose only one
target at a time. • All parts of your company must be geared up for the
assault from marketing to production.
2) Find a weakness in the target’s position. Attack at this point. • It usually involves intensive advertising assaults and
often entails developing a new product that is able to
3) Launch the attack on as narrow a front as possible. As an attacker attack the target competitors’ line where it is strong.
has the advantage of being able to concentrate their forces at one • It often involves an attempt to “liberate” a sizable portion
place.
of the target’s customer base.
4) Launch the attack quickly. The element of surprise is worth more
than a thousand tanks.
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Envelopment Strategy (also called encirclement

strategy) – • Alternatively, the encirclement can be based on market niches
• This is a much broader but subtle offensive rather than products. The attacker expands the market niches that
surround and encroach on the target competitor’s market. This
strategy. encroachment liberates market share from the target. The
envelopment strategy is suitable when:
• It involves encircling the target competitor. – the market is loosely segmented
This can be done by . – some segments are relatively free of well endowed competitors
– the attacker has strong product development resources
• Introducing a range of products that are similar – the attacker has enough resources to operate in multiple segments
to the target product. Each product will liberate simultaneously
– the attacker has a decentralized organizational structure
some market share from the target competitor’s
product, leaving it weakened, demoralized, and
in a state of siege. If it is done stealthily, a full
scale confrontation can be avoided.

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Colgate Toothpaste Product Line
Pepsodent Toothpaste Product Line
Pepsodent Whitening 80 g
Colgate® Cibaca Toothpaste  Leapfrog strategy –
Colgate® Active Salt Toothpaste
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Pepsodent Lavang & Salt 100 g Colgate Cibaca® Vedshakti Toothpaste new technologies, or creating new business models.
Colgate® Herbal Toothpaste
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Colgate MaxFresh® Spicy Fresh
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Save Rs. 17
Toothpaste the game.
Colgate MaxFresh® Peppermint Ice
Pepsodent Germicheck 2in1 150 g Toothpaste • The introduction of compact disc technology bypassed
Pepsodent Germicheck 200g Colgate Sensitive Clove the established magnetic tape based defenders. The
Pepsodent Germicheck 150+150 g Save Rs. Colgate Sensitive® Original Toothpaste
17 Colgate® Sensitive Plus Toothpaste attackers won the war without a single costly battle.
Pepsodent Germicheck 100 g Colgate® Strong Teeth Toothpaste • This strategy is very effective when it can be realized.
Colgate Swarna Vedshakti Toothpaste
Pepsodent Expert Protection Gumcare 70 g
Colgate Total® Advanced Health
Pepsodent Expert Protection Gumcare 140 Toothpaste
g Colgate Total® Charcoal Deep Clean
Toothpaste
Colgate® Visible White Toothpaste 41 42

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DEFENSIVE STRATEGIES: APPROACHES

Defensive Strategies
Objectives Approach #1
• Lessen risk of being attacked • Block avenues challengers can take in
• Blunt impact of any attack that occurs mounting offensive attacks
• Influence challengers to aim attacks at other
rivals
• Strengthen firm’s present position Approach #2
• Help sustain any competitive advantage held • Make it clear any challenge will be met
with strong counterattack
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DEFENSIVE STRATEGIES: APPROACH #1 DEFENSIVE STRATEGIES: APPROACH #2

• Broaden product line to fill gaps rivals may go after • Publicly announce management’s strong commitment to
• Keep prices low on models that match rivals maintain present market share
• Sign exclusive agreements with distributors • Publicly announce plans to construct new production
• Offer free training to buyers’ personnel capacity to meet forecasted demand
• Give better credit terms to buyers • Give out advance information about new products,
technological breakthroughs, & other moves
• Reduce delivery times for spare parts
• Publicly commit firm to policy of matching prices & terms
• Increase warranty coverages offered by rivals
• Patent alternative technologies • Maintain war chest of cash reserves
• Sign exclusive contracts with best suppliers • Make occasional counter-responses to rivals’ moves
• Protect proprietary know-how

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• Although BigBasket does not require additional funds immediately, it

• Bengaluru: BigBasket, India’s
BigBasket eyes $500 largest grocery start-up, is in talks
wants fresh capital because the grocery business will likely be a
priority for both Walmart and Amazon and they are expected to
million war chest as with investors to build a large war
pump in hundreds of millions of dollars into the business, the people
chest to prepare for a long-drawn-
Walmart,Amazon loom out battle with deep-pocketed rivals
cited above said.
Last Published: Mon, May 07 2018. 11 57 PM IST
Amazon India and Walmart Inc., • BigBasket is also aggressively expanding and undertaking a number
which is nearing a deal to buy of new initiatives. Some of its initiatives include launching offline
online retailer Flipkart, three people stores and kiosks, as well as a subscription service. The company is
aware of the discussions said. also looking at acquisitions of two smaller rivals, Milkbasket and
DailyNinja, Mint reported last month.
• BigBasket, which raised $300
million from Alibaba Group Holding • BigBasket is also attempting to strengthen its capabilities in the so-
Ltd and others in February, is in called micro-delivery space—the delivery of a relatively small
talks to raise between $300 million number of daily essentials such as dairy products, fresh fruits and
and $500 million from Alibaba and vegetables, within a few hours of an order being placed.
new investors, the people cited
above said, adding that the talks
are at an initial stage.
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• BigBasket is also in the middle of re-organizing its supply chain to

make it more efficient and to help strengthen its capabilities for
Defensive Marketing Strategies
same-day deliveries. Fundamental principles (Defence)
• “It’s not like BigBasket is scared of the prospect of battling Amazon • There are five fundamental principles involved:
and Flipkart-Walmart. But they recognize that with Walmart’s entry,
this will be a long-drawn-out battle against even deeper-pocketed 1) Always counter an attack with equal or greater
rivals and that it needs to have a big enough war chest to have a force.
reasonable shot at maintaining its leadership position.” 2) Defend every important market.
• The firm, operated by Supermarket Grocery Supplies Pvt. Ltd, is
currently the market leader in the online grocery segment and on the
3) Be forever vigilant in scanning for potential
back of its recent fundraising, is going all out to ensure that it keeps
attackers & assess the strength of the
its lead. BigBasket had previously raised $150 million from investors competitor.
such as Sands Capital, International Finance Corp. and Dubai- 4) The best defense is to attack yourself. Attack
based private equity investor Abraaj Capital and is easily the most your weak spots and rebuild yourself anew.
well-funded grocery start-up in the country. The Bengaluru-based
start-up, which was valued at $950 million after its last fundraise, 5) Defensive strategies should be the exclusive
was founded in December 2011. domain of the market leader.
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Types of Defensive Strategies  Mobile defense –

• This involves constantly shifting resources and
 Position defense – developing new strategies and tactics.
• This involves the defense of a fortified position. • A mobile defense is intended to create a moving target
• This involves setting up fortifications such as barriers to that is hard to successfully attack, while simultaneously,
market entry around a product, brand, product line, market, equipping the defender with a flexible response
or market segment. mechanism should an attack occur.
• This could include increasing brand equity, customer
satisfaction, customer loyalty, or repeat purchase rate. It • In business this would entail introducing new products,
could also include exclusive distribution contracts, patent introducing replacement products, modifying existing
protection, market monopoly, or government protected products, changing market segments, changing target
monopoly status. It is best used in homogeneous markets markets, repositioning products, or changing promotional
where the defender has dominant market position and focus. This defense requires a very flexible organization
potential attackers have very limited resources.
with strong marketing, entrepreneurial, product
development, and marketing research skills.

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• Flank position - This involves the re-

deployment of your resources to deter a flanking Counter-parry
attack. You protect against potential loss of
market share in a segment, by strengthening
• Popular strategy for multinationals
your competitive position in this segment with
new products and other tactics. (see flanking • Respond to attack by attacking competitor
marketing warfare strategies) in another country
• Counter offensive - This involves countering an – Ex.: Kodak—When Fuji attacked Kodak in the
attack with an offense of your own. If you are U.S., Kodak retaliated by attacking Fuji in
attacked, retaliate with an attack on the Japan.
aggressor’s weakest point. – Goodyear also attacked Michelin in Europe as
response to attack in U.S.
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FIRST-MOVER ADVANTAGES FIRST-MOVER DISADVANTAGES

• WHEN to make a strategic move is often as Arise WHEN

crucial as WHAT move to make • Costs of pioneering are sizable & loyalty of
• First-mover advantages arise WHEN first time buyers is weak
– Pioneering helps build firm’s image & reputation • Rapid technological change allows
– Early commitments to raw material suppliers, new
technologies, & distribution channels can produce
followers to leapfrog pioneers
cost advantage • Skills & know-how of pioneers are easily
– Loyalty of first time buyers is high imitated by late movers
– Moving first can be a preemptive strike
• It is easy for latecomers to crack market
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Timing of Strategic Moves Blue Ocean Strategy

• W. Chan Kim and Renée Mauborgne, professors of
Advantages / disadvantages of First Mover strategy and management at INSEAD, and co-
directors of the INSEAD Blue Ocean Strategy
Institute in Fontainebleau, France are the authors of
+ if pioneering helps build brand image the worldwide bestselling strategy book “Blue Ocean
+ if early contracts with suppliers etc advantageous Strategy: How to Create Uncontested Market Space
+ first time customer loyalty and Make the Competition Irrelevant(2005)”
+ makes imitation harder • In it, Kim and Mauborgne describe a world where
most companies operate in overcrowded industries,
and head-to-head competition creates "a bloody red
- expense ocean of rivals fighting over a shrinking profit pool."
- rapid change may lead to obsoletion Far better, they say, is to create a clear blue ocean
- weak customer loyalty of uncontested market space through value
innovation.
- easily imitated
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Red Oceans represent all industries in existence Blue Oceans represent all industries
today. NOT
in existence today.
They have defined rules, competitors, and market
boundaries. This is undefined market space, otherwise known
as OPPORTUNITY.
Key terms might include competition, price wars,
market share, commoditization, benchmarking, Key terms might be value innovation, focus,
strategic positioning, value add. differentiation, creation of demand, new
marketplace

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Blue Oceans are a feature of business life, past and

present
30 years ago
100 years ago Plethora of multibillion-
Most blue oceans are created from red Automobiles dollar industries
Music recording Mutual funds
ocean companies expanding industry Aviation
Cell phones
Gas-fired electricity plants
boundaries. Petrochemicals Biotechnology
Health care Discount retail
Express package delivery
Management consulting Minivans
For example, floppy disc to compact disc to Snowboards
Coffee bars
pen drive) Home videos

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Red Ocean Versus Blue Ocean Startegy

Red Ocean Strategy Blue Ocean Strategy
The phrase “Blue oceans” is new, but the concept is
not. Think of what industries developed in the last
ten years.. Compete in existing market space. Create uncontested market space.

Some of them might be… Beat the competition. Make the competition irrelevant.
automotives, aviation, health care, plastics, DVDs,
computers, personal entertainment devices Exploit existing demand. Create and capture new demand.
(iPods, for example).
Make the value-cost trade-off. Break the value-cost trade-off.
All of these industries created
new market space. Align the whole system of a firm’s Align the whole system of a firm’s
activities with its strategic choice of activities in pursuit of differentiation
differentiation or low cost. and low cost.

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Three Tiers of Noncustomers Value Innovation is Cornerstone of BOS

There are three tiers of noncustomers
that can be transformed into • The creators of blue oceans didn’t use the
customers. They differ in their
competition as their benchmark. Instead they
relative distance from your market.
followed a different strategic logic that we all call
The first tier of customers minimally Second value innovation.
buy an industry’s offering out of First
Tier
Tier Third

necessity. Your
Tier
• Value innovation is the cornerstone of blue ocean
The second tier of noncustomers
Market strategy. We all call it value innovation because
refuse to use your industries instead of focusing on beating the competition,
offerings. you focus on making the competition irrelevant by
The third tier are noncustomers who creating a leap in value for buyers and your
have never thought of your market’s company.
offerings as an option. 66

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Value Innovation is Cornerstone of BOS Six Principles of BOS

• value innovation is created in the
Six principles drive the successful formulation and execution of blue ocean
region where a company’s actions
costs strategy and the risks that these principles attenuate.
favourably affect both its cost
structure and its value proposition
to buyers. formulation principles risk factor

• cost savings are made by eliminating 1 reconstruct market boundaries search risk
value and reducing the factors an 2 focus on the big picture, not the numbers planning risk
innovation
industry competes on. 3 reach beyond existing demand scale risk
• buyer value is lifted by raising and 4 get the strategic sequence right business model risk
creating elements the industry has
never offered.
evaluation principles risk factor
• over time, costs are reduced further 5 overcome key organizational hurdles organizational risk
buyer value
as scale economies kick in due to the
high sales volumes that superior 6 build execution into strategy management risk
value generates.

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