Competitive Strategies

Competitive Strategies
• Integration Strategies
• Intensive Strategies
• Defensive strategies
• Porter’s 3 Generic Strategies
 Business Strategies

Business Strategy:
Focuses on improving the competitive
position of a company’s or business
unit’s products or services within the
specific industry or market segment
that the firm serves.
 Competitive Advantage

Key concept of strategic management

Sets an organization apart
What competitive strategies are designed
to exploit
Implies other competitors
Can be eroded easily and quickly by
competitors
Backward Raw
Materials
Integration

Primary
Manufacturing
Horizontal Integration

Product
Producer

Distributor

Forward Retailer
Integration
 Integration Strategies

Forward Integration
Vertical
Integration Backward Integration
Strategies
Horizontal Integration
 Integration Strategies

Vertical Integration strategies –

– Allow a firm to gain control over:

• Distributors
• Suppliers
• competitors
 Integration Strategies

Forward Integration –

– Gaining ownership or increased control

over distributors or retailers
 Integration Strategies
Guidelines for Forward Integration –

 Present distributors are expensive, unreliable, or

incapable of meeting firm’s needs
 Availability of quality distributors is limited
 When firm competes in an industry that is expected
to grow markedly
 Organization has both capital and human resources
needed to manage new business of distribution
 Advantages of stable production are high
 Present distributors have high profit margins
 Integration Strategies

Backward Integration –

– Seeking ownership or increased

control of a firm’s suppliers
 Integration Strategies
Guidelines for Backward Integration –

 When present suppliers are expensive, unreliable,

or incapable of meeting needs
 Number of suppliers is small and number of
competitors large
 High growth in industry sector
 Firm has both capital and human resources to
manage new business
 Advantages of stable prices are important
 Present supplies have high profit margins
 Integration Strategies

Horizontal Integration –

– Seeking ownership or increased

control over competitors
 Integration Strategies
Guidelines for Horizontal Integration –

 Firm can gain monopolistic characteristics without

being challenged by federal government
 Competes in growing industry
 Increased economies of scale provide major
competitive advantages
 Faltering due to lack of managerial expertise or
need for particular resources
 Intensive Strategies

Market Penetration
Intensive
Market Development
Strategies
Product Development
 Intensive Strategies

Intensive strategies –

– Require intensive efforts to improve a

firm’s competitive position with existing
products
 Intensive Strategies

Market Penetration –

– Seeking increased market share for

present products or services in present
markets through greater marketing
efforts
 Intensive Strategies
Guidelines for Market Penetration –

 Current markets not saturated

 Usage rate of present customers can be increased
significantly
 Market shares of competitors declining while total
industry sales increasing
 Increased economies of scale provide major
competitive advantages
 Intensive Strategies

Market Development –

– Introducing present products or

services into new geographic area
 Intensive Strategies
Guidelines for Market Development –

 New channels of distribution that are reliable,

inexpensive, and good quality
 Firm is very successful at what it does
 Untapped or unsaturated markets
 Capital and human resources necessary to manage
expanded operations
 Excess production capacity
 Basic industry rapidly becoming global
 Intensive Strategies

Product Development –

– Seeking increased sales by improving

present products or services or
developing new ones
 Intensive Strategies
Guidelines for Product Development –

 Products in maturity stage of life cycle

 Competes in industry characterized by rapid
technological developments
 Major competitors offer better-quality products at
comparable prices
 Compete in high-growth industry
 Strong research and development capabilities
 Diversification Strategies

Concentric
Diversification

Diversification Conglomerate
Strategies Diversification

Horizontal
Diversification
 Diversification Strategies

Diversification strategies –

– Becoming less popular as

organizations are finding it more
difficult to manage diverse business
activities
 Diversification Strategies

Concentric Diversification –

– Adding new, but related, products or

services
 Diversification Strategies
Guidelines for Concentric Diversification –

 Competes in no- or slow-growth industry

 Adding new & related products increases sales of
current products
 New & related products offered at competitive prices
 Current products are in decline stage of the product
life cycle
 Strong management team
 Diversification Strategies

Conglomerate Diversification –

– Adding new, unrelated products or

services
 Diversification Strategies
Guidelines for Conglomerate Diversification –

 Declining annual sales and profits

 Capital and managerial talent to compete
successfully in a new industry
 Financial synergy between the acquired and
acquiring firms
 Existing markets for present products are saturated
 Diversification Strategies

Horizontal Diversification –

– Adding new, unrelated products or

services for present customers
 Diversification Strategies
Guidelines for Horizontal Diversification –

 Revenues from current products/services would

increase significantly by adding the new unrelated
products
 Highly competitive and/or no-growth industry w/low
margins and returns
 Present distribution channels can be used to market
new products to current customers
 New products have counter cyclical sales patterns
compared to existing products
 Defensive Strategies

Retrenchment
Defensive
Divestiture
Strategies
Liquidation
 Defensive Strategies

Retrenchment –

– Regrouping through cost and asset

reduction to reverse declining sales
and profit
 Defensive Strategies
Guidelines for Retrenchment –

 Firm has failed to meet its objectives and goals

consistently over time but has distinctive
competencies
 Firm is one of the weaker competitors
 Inefficiency, low profitability, poor employee morale,
and pressure from stockholders to improve
performance.
 When an organization’s strategic managers have
failed
 Very quick growth to large organization where a
major internal reorganization is needed
 Defensive Strategies

Divestiture –

– Selling a division or part of an

organization
 Defensive Strategies
Guidelines for Divestiture –

 When firm has pursued retrenchment but failed to

attain needed improvements
 When a division needs more resources than the firm
can provide
 When a division is responsible for the firm’s overall
poor performance
 When a division is a misfit with the organization
 When a large amount of cash is needed and cannot
be obtained from other sources.
 Defensive Strategies

Liquidation–

– Selling all of a company’s assets, in

parts, for their tangible worth
 Defensive Strategies
Guidelines for Liquidation –

 When both retrenchment and divestiture have been

pursued unsuccessfully
 If the only alternative is bankruptcy, liquidation is an
orderly alternative
 When stockholders can minimize their losses by
selling the firm’s assets
 Porter’s Competitive Strategies

Competitive Strategy:
– Low cost?
– Differentiation?
– Compete head to head in large
market?
– Focus on niche?
Porter’s Generic Competitive Strategies
 Porter’s Competitive Strategies

Cost Leadership:
– Low-cost competitive strategy
– Aimed at broad mass market
– Aggressive construction of efficient-
scale facilities
– Cost reductions
– Cost minimization
 Porter’s Competitive Strategies

Differentiation:
– Broad mass market
– Unique product or service
– Charge premiums
– Lower customer sensitivity to price
 Porter’s Competitive Strategies

Differentiation focus:
– Focus on particular group or
geographic market
– Seek differentiation in targeted market
segment
– Serve special needs of narrow target
market
 Porter’s Competitive Strategies

Stuck in the middle:

– No competitive advantage
– Below-average performance
 Risks of Generic Competitive Strategies

Risks of Cost Leadership Risks of Differentiation Risks of Focus

Cost leadership is not Differentiation is not The focus strategy is
sustained: sustained: imitated:
• Competitors imitate. • Competitors imitate. The target segment becomes
• Technology changes. • Bases for differentiation structurally unattractive:
• Other bases for cost become less important to • Structure erodes.
leadership erode. buyers. • Demand disappears.
Proximity in differentiation is Cost proximity is lost. Broadly targeted competitors
lost. Differentiation focusers overwhelm the segment:
Cost focusers achieve even achieve even greater • The segment’s
lower cost in segments. differentiation in segments. differences from other
segments narrow.
• The advantages of a
broad line increase.
New focusers subsegment
the industry.
 Integrated Low- Cost
Differentiated Strategy
• Question the mutual exclusivity of Porter’s 3
generic strategies
• Examples:
– Dell
– McDonalds
– SouthWestern Airlines
• Why? Technology
• Able to manufacture, market products and
services easily and cheaply