Block 4

Why do strategies differ:

 A firms competitive strategy deals with the specifics of its efforts to
o Position itself in the marketplace
o Please customers
o Ward off competitive threats
o Achieve a particular kind of competitive advantage

Is the competetive
Key factors that
Is the firm's market advantage pursued
disinguish one
target broad or linked to low costs
strategy from
narrow? or product
another
differentiation?

The five generic competitive strategies:

 Broad, low-cost strategy
o Striving to achieve lower overall costs than rivals on products that attract a
broad spectrum of buyers
 Broad differentiation strategy
o Seeks to differentiate the company’s product offering form rivals with
attributes that will appeal to a broad spectrum of buyers
 Focused low-cost strategy
o Concentrating on a narrow price-sensitive buyer segment and on costs to offer
a lower-priced product
 Focused differentiation strategy
o Concentrating on a narrower buyer segment by meeting specific tastes and
requirements of niche members
 Best-cost strategy
o Giving customers more value for the money by offering
upscale product attributes at a lower cost than
rivals
Broad low-cost strategies:

Effective low-cost approaches pursue cost savings that re difficult to imitate while avoiding
reducing product quality to unacceptable levels

 Competitive advantage and risks:

o Advantages
 Greater total profits and increased market share gained from under-
pricing competitors
 Larger profit margins when selling products at prices comparable to
and competitive with rivals
o Risks
 Low pricing does not attract enough new buyers
 Rival’s retaliatory price-cutting sets off a price war

» A low-cost provider’s basis for competitive advantage

o Lower overall costs than competitors
» Successful low-cost leaders (who have the lowest industry costs)
o Are exceptionally good at finding ways to drive costs out of their businesses
and still provide a product or service that buyers find acceptable

A low-cost advantage over rivals can translate into better profitability than rivals attain

Major avenues for achieving a cost advantage:

» Low-cost advantage
o Cumulative costs across the overall value chain must be lower than
competitors’ cumulative costs
» How to gain a low-cost advantage
o Perform value-chain activities more cost-effectively than rivals
o Revamp the firm’s overall value chain to eliminate or bypass cost-producing
activities

Cost-effective management of value chain activities

» Cost driver
o A factor with a strong influence on a firm’s costs
 Asset based
 Activity based
» Securing a cost advantage
o Use lower-cost inputs and hold minimal assets
o Offer only “essential” product features or services
o Offer only limited product lines
o Use low-cost distribution channels
o Use the most economical delivery methods
Cost-cutting methods:

» Capturing all available economies of scale

» Taking full advantage of experience and learning-curve effects
» Operating facilities at full or near-full capacity
» Improving supply chain efficiency
» Substituting lower-cost inputs wherever there is little or no sacrifice in
product quality or performance
» Using the firms bargaining power with regard to suppliers or others in the
value cain system to gain concessions
» Using online systems and sophisticated software to achieve operating
efficiencies
» Improving process design and employing advanced production
technology
» Being alert to the cost advantages of outsourcing or vertical integration
» Motivating employees through incentives and company culture
 Block 5:
Strengthening a company’s competitive position
Strategic moves, timing, and scope of operations

Offensive and defensive

competetive acions

Making choices that

compliment a competetive Competetive dynaics and the
approach and maximise the timingof stategic moves
power of strategy:

Scopeoperations along the

industry's value chain

Considering strategy – enhancing measures

» Whether and when to go on the offensive strategically
» Whether and when to employ defensive strategies
» When to undertake strategic moves
o First mover, a fast follower, or a late mover
» Whether to merge with or acquire another firm
» Whether to integrate backward or forward into more stages of the industry’s activity
chain
» Which value chain activities, if any, should be outsourced
» Whether to enter strategic alliances or partnership arrangement

Lunching strategic offensives to improve a company’s market position

» Strategic offensive principles:
o Focusing relentlessly on building competitive advantage and then striving to
convert it into sustainable advantage
o Applying resources where rivals are least able to defend themselves
o Employing the element of surprise as opposed to doing what rivals expect and
are prepared for
o Displaying a capacity for swift, decisive, and overwhelming actions to
overpower rivals
Sometimes a company’s best strategic option is to seize the initiative, go on the attack, and
launch a strategic offensive to improve its market position

Choosing the basis for cooperative attack:

» Avoid directly challenging a targeted competitor where it is strongest
» Use the firm’s strongest strategic assets to attack a competitor’s weaknesses
» The offensive may not yield immediate results if market rivals are strong competitors
» Be prepared for the threatened competitor’s counter response
Principal offensive strategy options:
» Offering equally or better product at a lower price
o Lower prices can gain market share if competitors don’t respond and if
customers believe the product is just as good or better
» Leapfrogging competitors by being the first with next-generation products
o In technology industries, overtaking competitors is advantageous when a shift
to new technology occurs
» Continuous product innovation to attract customers from less innovative trials
o Introducing new and improved products can create intense competitive
pressure, especially if rivals have weak product development capabilities
» Disruptive product innovations to create new markets
o Riskier and more costly than continuous innovation, but can be a game
changer if successful
» Adopting and improving on good ideas from rivals or other companies
o Quickly adopting and building on good ideas for a competitive advantage
» Using hit-and-run or guerrilla marketing tactics to grab market share from
complacent rivals
o Using extremely low prices, intense promotional bursts, or targeting
customers of rivals who can’t meet demand
» Pre-emptive strikes to secure limited industry resources or seize rare opportunities
o Securing top distributors, prime locations, or exclusive partnerships with
reliable suppliers

Best targets for offensive attacks

» Market leaders in vulnerable competitive positions
o Offensive attacks are beneficial when market leaders have dissatisified
customers, inferior product lines, out