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Five Generic Competitive Strategies Strategic Alliances and Partnerships Merger and Acquisition Strategies Vertical Integration Strategies Outsourcing Strategies Offensive and Defensive Strategies Strategies for Using the Internet Choosing Appropriate Functional-Area Strategies Importance of Linking Strategy to Company
Values and Ethical Standards First-Mover Advantages and Disadvantages
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Fig. 4.1: Menu of Strategy OptionsFig. 4.1: Menu of Strategy Optionsfor Winning in the Marketplacefor Winning in the Marketplace
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What Is What Is “Competitive Strategy”?“Competitive Strategy”?What Is What Is “Competitive Strategy”?“Competitive Strategy”?
Deals exclusively with a company’sbusiness plans to compete successfully Specific efforts to please customers Offensive and defensive moves
to counter maneuvers of rivals Responses to prevailing market conditions Initiatives to strengthen its market position
Narrower in scope than business strategy
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Strategy and Strategy and CompetitiveCompetitive Advantage AdvantageStrategy and Strategy and CompetitiveCompetitive Advantage Advantage
Competitive advantage exists when a firm’s strategy gives it an edge in Attracting customers and Defending against competitive forces
Convince customers firm’s product / service offers superior value A good product at a low price A superior product worth paying more for A best-value product
Key to Gaining a Competitive Advantage
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Fig. 4.2: The Five GenericFig. 4.2: The Five GenericCompetitive StrategiesCompetitive Strategies
Capture scale economies; avoid scale diseconomies Capture learning and experience curve effects Manage costs of key resource inputs Consider linkages with other activities in value
chain Find sharing opportunities with other business units Compare vertical integration vs. outsourcing Assess first-mover advantages vs. disadvantages Control percentage of capacity utilization Make prudent strategic choices related to
operations
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Approach 2: RevampingApproach 2: Revampingthe Value Chainthe Value Chain
Approach 2: RevampingApproach 2: Revampingthe Value Chainthe Value Chain
Make greater use of Internet technology applicationsUse direct-to-end-user sales/marketing methodsSimplify product designOffer basic, no-frills product/serviceShift to a simpler, less capital-intensive, or more
flexible technological processFind ways to bypass use of high-cost raw materialsRelocate facilities closer to suppliers or customersDrop “something for everyone” approach and focus
on a limited product/service
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Keys to Success in AchievingKeys to Success in AchievingLow-Cost LeadershipLow-Cost Leadership
Keys to Success in AchievingKeys to Success in AchievingLow-Cost LeadershipLow-Cost Leadership
Scrutinize each cost-creating activity, identifying cost drivers
Use knowledge about cost drivers to manage costs of each activity down year after year
Find ways to restructure value chain to eliminate nonessential work steps and low-value activities
Aggressively pursue investments in resources and capabilities that promise to drive costs out of the business
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Characteristics of aCharacteristics of aLow-Cost ProviderLow-Cost Provider
Characteristics of aCharacteristics of aLow-Cost ProviderLow-Cost Provider
Cost conscious corporate culture Employee participation in cost-control efforts Ongoing efforts to benchmark costs Intensive scrutiny of budget requests Programs promoting continuous cost
improvement
Successful low-cost producers championfrugality but wisely and aggressivelyinvest in cost-saving improvements !
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When Does a Low-CostWhen Does a Low-CostStrategy Work Best?Strategy Work Best?
When Does a Low-CostWhen Does a Low-CostStrategy Work Best?Strategy Work Best?
Price competition is vigorous Product is standardized or readily available
from many suppliers There are few ways to achieve
differentiation that have value to buyers Most buyers use product in same ways Buyers incur low switching costs Buyers are large and have
significant bargaining power Industry newcomers use introductory low prices to
attract buyers and build customer base
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Pitfalls of Low-Cost StrategiesPitfalls of Low-Cost StrategiesPitfalls of Low-Cost StrategiesPitfalls of Low-Cost Strategies
Being overly aggressive in cutting price Low cost methods are easily imitated by rivals Becoming too fixated on reducing costs
and ignoring Buyer interest in additional features Declining buyer sensitivity to price Changes in how the product is used
Technological breakthroughs open up cost reductions for rivals
Incorporate differentiating features that cause buyers to prefer firm’s product or service over brands of rivals
Find ways to differentiate that create value for buyers and are not easily matched or cheaply copied by rivals
Not spending more to achieve differentiation than the price premium that can be charged
Keys to Success
Objective
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Benefits of Successful DifferentiationBenefits of Successful Differentiation
A product / service with unique, appealing attributes allows a firm to
Command a premium price and/or
Increase unit sales and/or
Build brand loyalty
= Competitive Advantage
Whichhat is
unique?
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Types of Differentiation ThemesTypes of Differentiation ThemesTypes of Differentiation ThemesTypes of Differentiation Themes
Unique taste -- Dr. Pepper Multiple features -- Microsoft Windows and Office Wide selection and one-stop shopping -- Home
Depot and Amazon.com Superior service -- FedEx, Ritz-Carlton Spare parts availability -- Caterpillar More for your money -- McDonald’s, Wal-Mart Prestige -- Rolex Quality manufacture -- Honda, Toyota Technological leadership -- 3M Corporation Top-of-line image -- Ralph Lauren, Chanel, Cross
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Sustaining Differentiation: Keys to Sustaining Differentiation: Keys to Competitive AdvantageCompetitive Advantage
Sustaining Differentiation: Keys to Sustaining Differentiation: Keys to Competitive AdvantageCompetitive Advantage
Most appealing approaches to differentiationThose hardest for rivals to match or imitateThose buyers will find most appealing
Best choices to gain a longer-lasting, more profitable competitive edge New product innovationTechnical superiorityProduct quality and reliabilityComprehensive customer serviceUnique competitive capabilities
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Where to Find Differentiation Where to Find Differentiation Opportunities in the Value ChainOpportunities in the Value Chain
Where to Find Differentiation Where to Find Differentiation Opportunities in the Value ChainOpportunities in the Value Chain
Purchasing and procurement activities Product R&D and product design activities Production process / technology-related activities Manufacturing / production activities Distribution-related activities Marketing, sales, and customer service activities
InternallyPerformedActivities, Costs, &Margins
Activities, Costs, &
Margins ofSuppliers
Buyer/UserValue
Chains
Activities, Costs,& Margins of
Forward ChannelAllies &
Strategic Partners
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How to Achieve aHow to Achieve aDifferentiation-Based AdvantageDifferentiation-Based Advantage
How to Achieve aHow to Achieve aDifferentiation-Based AdvantageDifferentiation-Based Advantage
Incorporate product features/attributes that lower buyer’s overall costs of using product
Approach 1
Incorporate features/attributes that raise the performance a buyer gets out of the product
Approach 2
Incorporate features/attributes that enhance buyer satisfaction in non-economic or intangible ways
Approach 3
Compete on the basis of superior capabilities
Approach 4
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When Does a DifferentiationWhen Does a DifferentiationStrategy Work Best?Strategy Work Best?
When Does a DifferentiationWhen Does a DifferentiationStrategy Work Best?Strategy Work Best?
There are many ways to differentiate a product that have value and please customers
Buyer needs and uses are diverse
Few rivals are following a similar differentiation approach
Technological change andproduct innovation are fast-paced
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Pitfalls of Differentiation StrategiesPitfalls of Differentiation StrategiesPitfalls of Differentiation StrategiesPitfalls of Differentiation Strategies
Buyers see little value in unique attributesof product
Appealing product features are easilycopied by rivals
Differentiating on a feature buyers do not perceive as lowering their cost or enhancingtheir well-being
Over-differentiating such that product features exceed buyers’ needs
Charging a price premiumbuyers perceive is too high
Combine a strategic emphasis on low-cost with a strategic emphasis on differentiation Make an upscale product at a lower cost Give customers more value for the money
Deliver superior value by meeting or exceeding buyer expectations on product attributes and beating their price expectations
Be the low-cost provider of a product with good-to-excellent product attributes, then use cost advantage to underprice comparable brands
Objectives
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Competitive Strength of a Competitive Strength of a Best-Cost Provider Strategy Best-Cost Provider StrategyCompetitive Strength of a Competitive Strength of a
Achieve lower costs than rivals in serving the segment --
A low-cost strategy
Offer niche buyers something different from rivals --
A differentiation strategy
Approach 1
Approach 2 Which hat is
unique?
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What Makes a NicheWhat Makes a NicheAttractive for Focusing?Attractive for Focusing?
What Makes a NicheWhat Makes a NicheAttractive for Focusing?Attractive for Focusing?
Big enough to be profitable and offers good growth potential
Not crucial to success of industry leaders Costly or difficult for multi-segment competitors to
meet specialized needs of niche members Focuser has resources and capabilities to
effectively serve an attractive niche Few other rivals are specializing in same niche Focuser can defend against challengers via
superior ability to serve niche members
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Risks of a Focus StrategyRisks of a Focus StrategyRisks of a Focus StrategyRisks of a Focus Strategy
Competitors find effective ways to match a focuser’s capabilities in serving niche
Niche buyers’ preferences shift towards product attributes desired by majority of buyers - niche becomes part of overall market
Segment becomes so attractive it becomes crowded with rivals, causing segment profits to be splintered
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Strategic AlliancesStrategic Alliancesand Partnerships and Partnerships
Companies sometimes use strategic alliances or collaborative partnerships to
complement their own strategic initiatives and strengthen their competitiveness. Such
cooperative strategies go beyond normal company-to-company dealings but fall short
of merger or formal joint venture.
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Why Cooperative Strategies Are Integral Why Cooperative Strategies Are Integral to a Firm’s Competitivenessto a Firm’s Competitiveness
Why Cooperative Strategies Are Integral Why Cooperative Strategies Are Integral to a Firm’s Competitivenessto a Firm’s Competitiveness
Two demanding competitive challenges are faced by many companies
Global race to build a market presencein many different national markets
Race to seize opportunities on thefrontiers of advancing technology
Collaborative arrangements can help a company lower its costs and/or gain access to needed expertise and capabilities
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Competitive Value ofCompetitive Value ofStrategic Alliances to the PartnersStrategic Alliances to the Partners
Competitive Value ofCompetitive Value ofStrategic Alliances to the PartnersStrategic Alliances to the Partners
Capacity of partners to defuse organizational frictions
Ability to collaborate effectively over time and work through challenges Technological and competitive surprises New market developments Changes in their own priorities
and competitive circumstances Competitive advantage emerges when a
company acquires valuable capabilities via alliances it could not obtain on its own
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Why Are Strategic Alliances Formed? Why Are Strategic Alliances Formed? Why Are Strategic Alliances Formed? Why Are Strategic Alliances Formed?
To collaborate on technology development or new product development
To fill gaps in technical or manufacturing expertise
To acquire new competencies To improve supply chain efficiency To gain economies of scale in production
and/or marketing To acquire or improve market access via joint
marketing agreements
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Potential Benefits of Alliances to Achieve Potential Benefits of Alliances to Achieve Global and Industry LeadershipGlobal and Industry Leadership
Potential Benefits of Alliances to Achieve Potential Benefits of Alliances to Achieve Global and Industry LeadershipGlobal and Industry Leadership
Get into critical country markets quickly to accelerate process of building a global presence
Gain inside knowledge about unfamiliar markets and cultures
Access valuable skills and competencies concentrated in particular geographic locations
Establish a beachead to participate in target industry Master new technologies and build new expertise
faster than would be possible internally Open up expanded opportunities in target industry
by combining firm’s capabilities with resources of partners
Ability of an alliance to endure depends on How well partners work together Success of partners in responding
and adapting to changing conditions Willingness of partners to
renegotiate the bargain Reasons for alliance failure
Diverging objectives and priorities of partners Inability of partners to work well together Emergence of more attractive technological paths Marketplace rivalry between one or more allies
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Merger and Acquisition Strategies Merger and Acquisition Strategies Merger and Acquisition Strategies Merger and Acquisition Strategies
Merger - Combination and pooling of equals, with newly created firm often taking on a new name
Acquisition - One firm, the acquirer, purchases and absorbs operations of another, the acquired
Merger-acquisition Much-used strategic option Especially suited for situations where
alliances do not provide a firm with needed capabilities or cost-reducing opportunities
Ownership allows for tightly integrated operations, creating more control and autonomy than alliances
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Objectives of MergersObjectives of Mergersand Acquisitionsand Acquisitions
Objectives of MergersObjectives of Mergersand Acquisitionsand Acquisitions
To pave way for acquiring firm to gain more market share and create a more efficient operation
To expand a firm’s geographic coverageTo extend a firm’s business into new product
categories or international marketsTo gain quick access to new technologiesTo invent a new industry and lead the
convergence of industries whoseboundaries are blurred by changingtechnologies and new market opportunities
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Pitfalls of Mergers and AcquisitionsPitfalls of Mergers and AcquisitionsPitfalls of Mergers and AcquisitionsPitfalls of Mergers and Acquisitions
Combining operations may result in Resistance from rank-and-file employees
Hard-to-resolve conflicts in management styles and corporate cultures
Tough problems of integration
Greater-than-anticipated difficulties in Achieving expected cost-savings
Generates cost savings only if volume needed is big enough to capture efficiencies of suppliers
Potential to reduce costs exists when Suppliers have sizable profit margins Item supplied is a major cost component Resource requirements are easily met
Can produce a differentiation-based competitive advantage when it results in a better quality part
Reduces risk of depending on suppliers of crucial raw materials / parts / components
of Forward Integrationof Forward IntegrationTo gain better access to end users and better
market visibilityTo compensate for undependable distribution
channels which undermine steady operationsTo offset the lack of a broad product line, a firm may
sell directly to end usersTo bypass regular distribution channels in favor of
direct sales and Internet retailing which may Lower distribution costs Produce a relative cost advantage over rivals Enable lower selling prices to end users
Concentrate company strengths onexploiting rival’s weaknesses
Weaknesses to Attack
Customers rival is least equipped to serve Rivals providing sub-par customer service Rivals with weaker marketing skills Geographic regions where rival is weak Segments rival is neglecting
Objective
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Launching SimultaneousLaunching SimultaneousOffensives on Many FrontsOffensives on Many Fronts
Launching SimultaneousLaunching SimultaneousOffensives on Many FrontsOffensives on Many Fronts
Launch several major initiatives to Throw rivals off-balance Splinter their attention Force them to use substantial
resources to defend their position
A challenger with superior resources can overpower weaker rivals by out-competing them across-the-board long enough to become a market leader!
Maneuver around strong competitors Capture unoccupied or less contested
markets Change rules of competition in aggressor’s
favor
Objectives
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Approaches for End-Run OffensivesApproaches for End-Run OffensivesApproaches for End-Run OffensivesApproaches for End-Run Offensives
Introduce new products that redefine market and terms of competition
Build presence in geographic areas where rivals have little presence
Create new segments by introducing products with different features to better meet buyer needs
Introduce next-generation technologies to leapfrog rivals
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Guerrilla OffensesGuerrilla Offenses
Use principles of surprise and hit-and-run to attack in locations and at times where
conditions are most favorable to initiator
Appeal
Well-suited to small challengers with limited
resources and market visibility
Approach
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Options for Guerrilla OffensesOptions for Guerrilla OffensesOptions for Guerrilla OffensesOptions for Guerrilla Offenses
Make random, scattered raids on leaders’ customers Occasional low-balling on price Intense bursts of promotional activity Special campaigns to attract buyers from rivals
plagued with a strike or delivery problems
Challenge rivals encountering problems with quality or providing adequate technical support
Secure exclusive/dominant access to best distributors Secure best geographic locations Tie up best or most sources of essential raw materials Obtain business of prestigious customers Expand capacity ahead of demand in hopes
of discouraging rivals from following suit Build an image in buyers’ minds that is unique
or hard to copy
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Choosing Rivals to AttackChoosing Rivals to AttackChoosing Rivals to AttackChoosing Rivals to Attack
Four types of firms can be the target ofa fresh offensive Vulnerable market leaders Runner-up firms with weaknesses
where challenger is strong Struggling rivals on verge
of going under Small local or regional
firms with limited capabilities
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Offensive Strategy as a Basis to Offensive Strategy as a Basis to Achieve Competitive AdvantageAchieve Competitive Advantage
Offensive Strategy as a Basis to Offensive Strategy as a Basis to Achieve Competitive AdvantageAchieve Competitive Advantage
Strategic offensives offering strongest basis for competitive advantage usually entail An important core competence A unique competitive capability Much-improved performance features An innovative new product Technological superiority A cost advantage in manufacturing or
distribution Some type of differentiation advantage
Lessen risk of being attacked Blunt impact of any attack that occurs Influence challengers to aim
attacks at other rivals
Objectives
Approaches Block avenues open to challengers Signal challengers vigorous retaliation
is likely
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Block Avenues Open to ChallengersBlock Avenues Open to ChallengersBlock Avenues Open to ChallengersBlock Avenues Open to Challengers
Participate in alternative technologies Introduce new features, add new models, or broaden
product line to close gaps rivals may pursue Maintain economy-priced models Increase warranty coverage Offer free training and support services Reduce delivery times for spare parts Make early announcements about new
products or price changes Challenge quality or safety of rivals’ products
using legal tactics Sign exclusive agreements with distributors
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Signal Challengers Retaliation Is LikelySignal Challengers Retaliation Is LikelySignal Challengers Retaliation Is LikelySignal Challengers Retaliation Is Likely
Publicly announce management’s strong commitment to maintain present market share
Publicly commit firm to policy ofmatching rivals’ terms or prices
Maintain war chest of cash reserves Make occasional counterresponse
to moves of weaker rivals Give out advance information about new
products, technological breakthroughs, and other moves
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Strategies: Using the InternetStrategies: Using the Internetas a Distribution Channelas a Distribution Channel
Strategies: Using the InternetStrategies: Using the Internetas a Distribution Channelas a Distribution Channel
Challenge -- How firms should use Internet in staking their position in marketplace
Approaches to using the Internet Solely as a vehicle to disseminate product
information Minor distribution channel One of several important
distribution channels Primary distribution channel Exclusive distribution channel
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Using the Internet toUsing the Internet toDisseminate Product InformationDisseminate Product Information
Using the Internet toUsing the Internet toDisseminate Product InformationDisseminate Product Information
Approach -- Website used to provide product information of manufacturers or wholesalers Relies on click-throughs to websites of dealers for
sales transactions Informs end-users of location of retail stores
Issues -- Pursuing online sales may Signal weak strategic commitment to dealers Signal willingness to cannibalize dealers’ sales Prompt dealers to aggressively market rivals’ brands
Avoids channel conflict with dealers -- Important where strong support of dealer networks is essential
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Using the Internet as aUsing the Internet as aMinor Distribution Channel Minor Distribution Channel
Using the Internet as aUsing the Internet as aMinor Distribution Channel Minor Distribution Channel
Approach Sell directly to consumers and Use traditional wholesale/retail channels
Reasons to pursue a brick-and-click strategy Manufacturer’s profit margin from online sales is bigger
than that from sales through traditional channels Encouraging buyers to visit a firm’s website educates
them to the ease and convenience of purchasing online Selling directly to end users allows a manufacturer to
make greater use of build-to-order manufacturing and assembly
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Strategies for Online EnterprisesStrategies for Online EnterprisesStrategies for Online EnterprisesStrategies for Online Enterprises
Approach -- Use Internet as the exclusive channel of all buyer-seller contact
Success depends on a firm’s ability toincorporate following features Capability to deliver unique value to buyers Deliberate efforts to engineer a value
chain that enables differentiation, lower costs,or better value for the money
Innovative, fresh, and entertaining website Clear focus on a limited number of competencies and a
relatively specialized number of value chain activities Innovative marketing techniques Minimal reliance on ancillary revenues