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8/6/2019 Different Categories of Strategies
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By
Dr. Ketki Bhatti
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Organisation competes on the basis of cost.
E.g. Production andOperations: Primary
Functions. HR, Procurement and Administration:
Secondary Functions.
E.g. Reliance.
Economies of scale. Cost of key resources.
Outsourcing.
First mover advantage.
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Above average returns (E.g.Maruti cars).
High sales volume-Production facility nearby.
Large volumes make it difficult for the entryof substitute products-More preferable.
No. of buyers is large-Maruti is able to
negotiate lower sales margin with itsdistributors.
Barriers to entry- Small car market.
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Overdependence on products and services
which give economies of scale makes the org.
vulnerable unless it is being to build aportfolio of a number of products/services.
Change in consumer preferences.
Leads to aggressive price cutting bycompetitors-E.g.Bajaj.
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More features
Improved services
Low maintenance Greater convenience
Better product performance
Ease of use Superior quality
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Better R & D-Maruti Suzuki
Better Production andOperations activities
Improved Logistics Unique technology and Patents
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Higher price can be charged because of customerperceives that higher value is delivered to him.E.g.Mercedes car is one of the most expensive
cars. Lower threat from the substitutes. E.g.Toyota car
is not threatened by other cars such as Ford,Chevrolet, Maruti etc in India.
Higher profits can be achieved by followingdifferentiation strategy.
Brand name and a loyal customer base is createdwhich helps org.in the long term.
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Org. may spend resources to createdifferentiation but customer may not be
willing to pay for it. Differentiation features may be copied by
competitors quickly and offered at lowerprices to customers.
Excessive concentration on differentiationfeatures may actually increase costs. Differentiation does not guarantee a
competitive advantage.
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E.g. TATA-DOCOMO: Billing per second as
against billing per minute.
Move by clever advertising strategy-Perceived.
Both Cost Leadership and DifferentiationStrategy are addressed to the entire market.
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Virgin Mobile-Young professionals.
MTNL offers low prices in Mumbai for
internet users. Focus can be achieved by:
Servicing isolated geographic areas
Satisfying customer needs by special
financing
Tailoring product/service to unique customer
expectations.
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Higher profits are possible by serving
customers ignored by others.
Org. can gain experience which may be usefullater on to enter the overall market.
E.g.Nirma detergent started serving very fewlocalities in Gujarat at low prices.
Threat from competitors is low because theorg.has understood the niche market better.
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Many competitors who are serving the
market as a whole may decide to serve the
well-defined narrow market of focus players. Consumer preference may shift to the
products/services being marketed in thebroader market.
Narrow (niche) markets may disappearbecause of technological advances.
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As per David and Pearce-Not much grouping:
1. Intensive Strategies2. Integration Strategies3. Diversification Strategies4. Methods to Achieve Strategies
(David)/Grand Strategies (Pearce)
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Intensive Strategies:
Market penetration (Concentrated Growth)
Market development Product development
Integration Strategies:
Vertical integration (Backward, Forward)
Horizontal integration.
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Diversification Strategies:
Concentrative diversification
Horizontal diversification Conglomerate diversification
Methods to Achieve Strategies (David)/Graded Strategies (Pearce):
Mergers and Acquisitions
JointVentures and Strategic Alliances
Consortia.
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Consolidation Strategies:
Turnaround
Retrenchment Strategies: Divesture
Bankruptcy
Liquidation
Innovation as a strategy
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Same single product and same market,
follows same processes/ technology and
enjoys profitable growth. In creasing rate of usage of present customer.
Attempting to get customers of competitors.
Marketing to customers who are presently
not using the product and services.
E.g. Steel companies (TATA Steel), Talwalkars
gymnasium, Toyota, IBM etc.
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Least expensive option.
Energies and resources of entire organisation
are concentrated towards one strategicdirection.
Organisation can concentrate on serving themarket it does not cater to.
Important skills/ competencies develop
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All seniors have direct and in depth
knowledge of product, processes and
markets. Experience accumulated over a number of
years is likely to lead to higher productivity,quality and lower costs.
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The market may become saturated, and/orunattractive because of Competition.
Product may face obsolence due toemergence of technology (Comp v/s
Typewriter).
Substitute products may come in the market(E.g. Digital CameraV/s Conventional
Camera).
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Org. may fail to detect new trends (Scooters
are not preferred in rural markets as much as
motorbikes). The most attractive feature of this grand
strategy is that only a limited amount ofadditional resources than present may be
required.
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Extension into market segments not
currently exploited- E.g. Talwalkar Gym is
extending its services to Senior Citizensegment which is a new market.
Developing new uses for presentproduct/service to attract new market-Plastic
for Engineering Industry.
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Geographic extension: Gujarat Ambuja
Cement which at one time was primarily
serving MP and Gujarat decided to exploit thelucrative market in Mumbai.
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Major modifications or additions to the
products.
Developing new product features- For. E.g.Toothpaste COLGATE with salt.
Developing quality variations-Godrej No.1Soap.
Developing additional and sizes e.g. Suzukiscars.
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Integration Strategies:
Capture or control over suppliers, distributors
and or Competitors. Org. mainly remains in the same primary
industry.
Vertical integration- Bachward and Forward.
Horizontal Integration
Concentric Integration.
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Backward Integration-
To ensure a continuous and guaranteedsupply of inputs which meets the specified
quality standards.
Reliance: Textile-Chemical-Petroleum.
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Forward Integration-
Taking control of forwarding, distribution,
servicing etc. Raw Materials and Components-
Manufacturing Co. Automobile-Distributor.
Bombay Dyeing Co.-Owned retail shops to
market its textile products.
Backward and Forward Integration-
E.g.Suzlon Energy.
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Orgs. use vertical integration as grand
strategy for various reasons:
Backward integration strategy are many andsmall at competitive prices (thus improves
profitability).
Quality of inputs and on time delivery is
assured thus protecting the main operation.
In-house activities may also provide
competitive advantag.
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For Manager the span of responsibilities andnecessary competence to handle those
increases his responsibility.
Unless the outputs of various stages of theproduction market system are matched, there
is possibility of heavy inventories and
attendant problems, which may affect cashflow.
Org. is still in the same business.Hence,
vulnerable to economic cycles of the business
and at hi her investments.
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The controlling org. an the new org operate
at similar stage on the industry-
E.g. Price Water House-An accounting andconsulting major acquired Cooper and
Lybrand- also an accounting and consultingfirm and formed PWC(Price Water House-
Cooper).
The logic of such strategy is to eliminate/
reduce competition.
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