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Chapter 3Chapter 3
Competitive Strategy Competitive Strategy and Advantage in and Advantage in the Marketplacethe Marketplace
McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
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Competitive StrategyCompetitive Strategy
Deals exclusively with a company’sbusiness plans for securing a competitive advantage in the marketplace
Specific efforts to give customers superior value
– A good product at a lower price– A superior product worth paying more for– An attractive mix of price, features,
quality, service, and other appealing attributes
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Competitive Strategies and Industry Competitive Strategies and Industry PositioningPositioning
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Competitive Advantages of a Low Competitive Advantages of a Low Cost StrategyCost Strategy
Advantage Option 1: Use lower-cost edge to under-price competitors and increase market share
Advantage Option 2: Maintain present price, be content with present market share, and use lower-cost edge to earn a higher profit margin on each unit sold
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Approaches to Achieving Low CostsApproaches to Achieving Low Costs
1. Do a better job than rivals of controlling the costs of performing critical activities
2. Eliminate cost-producing activities that add little value from the buyer’s perspective
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When a Low Cost Strategy Works When a Low Cost Strategy Works BestBest
Price competition is vigorous Product is standardized There are few ways to achieve
differentiation 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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Hazards of a Low-Cost StrategyHazards of a Low-Cost Strategy
Cutting price by an amount greater than size of cost advantage
Low cost methods are easily imitated Becoming too fixated on reducing costs
and ignoringBuyer interest in additional featuresDeclining buyer sensitivity to price
Technological breakthroughs open up cost reductions for rivals
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Differentiation StrategiesDifferentiation Strategies
Incorporate differentiating features that cause buyers to prefer firm’s product or service over brands of rivals
Not spending more to achieve differentiation than the price premium that customers are willing to pay for all the differentiating extras
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Types of Differentiation ThemesTypes of Differentiation Themes
Unique taste – Dr. Pepper Multiple features – Microsoft Windows and
Office Wide selection – Amazon.com Superior service – Ritz-Carlton Spare parts availability – Caterpillar Engineering design and performance – BMW Prestige – Rolex Product reliability – Johnson & Johnson Quality manufacture – Toyota Top-of-line image – Ralph Lauren, Starbucks,
Chanel
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Benefits of Successful Benefits of Successful DifferentiationDifferentiation
Successfully executed differentiation strategiesallow a company to:
Command a premium price, and/or
Increase unit sales, and/or
Gain buyer loyalty to its brand
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Creating Value for Customers Creating Value for Customers through Differentiationthrough Differentiation
Incorporate product features/attributes that lower buyer’s overall costs of using product
Incorporate features/attributes that raise the performance a buyer gets out of the product
Incorporate features/attributes that enhance buyer satisfaction in non-economic or intangible ways
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Where to Find Opportunities to Where to Find Opportunities to DifferentiateDifferentiate
Supply chain activities Product R&D and product
design activities Production R&D and
technology-related activities Manufacturing activities Distribution-related activities Marketing, sales, and customer service
activities
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Market Conditions Favoring a Market Conditions Favoring a Differentiation StrategyDifferentiation Strategy
There are many ways to differentiate aproduct that have value and please customers
Buyer needs and uses are diverse
Few rivals are following a similardifferentiation approach
Technological change andproduct innovation are fast-paced
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Perceived Value and SignalingPerceived Value and Signaling
The price premium commanded by a differentiation strategy reflects actual value delivered and value perceived by the buyer.
Buyers seldom pay for value that is not perceived
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Perceived Value and SignalingPerceived Value and Signaling
Important to signal value when:Nature of differentiation is
subjective
When buyers are making first-time purchases
When repurchase is infrequent
When buyers are unsophisticated
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Hazards of a Differentiation StrategyHazards of a Differentiation Strategy
Buyers see little value in a product’s unique attributes
Appealing product features are easily copied by rivals
Overspending on efforts to differentiate
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Hazards of a Differentiation StrategyHazards of a Differentiation Strategy
Over differentiating such that productfeatures exceed buyers’ needs
Charging a price premiumbuyers perceive is too high
Failing to open up meaningful gaps in product or service attributes
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When is a Niche an Attractive MarketWhen is a Niche an Attractive Market
It is costly or difficult for multi-segment competitors to meet the specialized needs of niche buyers
The industry has many different niches and segments
Few other rivals are specializing in same niche
Big enough to be profitable and offers good growth potential Not crucial to success of industry leaders
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Hazards of a Focused StrategyHazards of a Focused Strategy
Competitors find effective ways to matcha focuser’s capabilities in serving niche
Niche buyers’ preferences shift towards product attributes desired by majority of buyers
Segment becomes so attractive it becomes crowded with rivals, causing segment profits to be splintered
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Resource- and Competence-Resource- and Competence-Based Approaches to Based Approaches to Competitive AdvantageCompetitive Advantage
Competitive strategy elements used to supplement strategies keyed to unique industry positioning.
Utilizes a company’s resources and competitive capabilities to achieve a cost-based advantage or differentiation.
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Resources, Capabilities, and Resources, Capabilities, and Competencies as the Basis for Competencies as the Basis for Competitive AdvantageCompetitive Advantage
A competence represents real proficiency in performing an internal activity
A core competence is a well-performedinternal activity central to a company’s competitivenessand profitability
A distinctive competence is a competitively valuable activity a company performs better than its rivals
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Determining the Competitive Determining the Competitive Value of a Resource StrengthValue of a Resource Strength
Is the resource strength really competitively valuable?
Is the resource strength rare and something rivals lack?
Is the resource hard to copy?
Can the resource strength be trumped by the substitute resource strengths and competitive capabilities of rivals?
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Strategies for Addressing Resource Strategies for Addressing Resource Deficiencies Deficiencies
Companies lacking stand-alone resource strengths may develop a distinctive competence through bundled resource strengths.
Companies may be able to develop substitute resources to offset resource weaknesses or deficiencies in performing competitively critical activities.
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Supplementing Resources and Supplementing Resources and Competencies through Strategic Competencies through Strategic AlliancesAlliances
Strategic alliances involve formal agreements between two or more companies engage in strategically-relevant collaboration.
Allows partners to add to their collections of resources and competencies.
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Factors Making Collaborative Factors Making Collaborative Partnerships “Strategic”Partnerships “Strategic”
It is critical to a company’s achievement of an important objective
It helps build, sustain, or enhance a core competence or competitive advantage
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Factors Making Collaborative Factors Making Collaborative Partnerships “Strategic”Partnerships “Strategic”
It helps block a competitive threat
It helps open up importantmarket opportunities
It mitigates a significant riskto a company’s business
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How Collaborative Partnerships How Collaborative Partnerships Build Resource Strengths and Core Build Resource Strengths and Core CompetenciesCompetencies
Expedite the development of new technologies or products
Overcome deficits in technical or manufacturing expertise
To create new skill sets and capabilities by bringing together personnel of each partner
To improve supply chain efficiency
To gain economies of scale inproduction and/or marketing
To acquire or improve market accessvia joint marketing agreements
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Why Strategic Alliances and Why Strategic Alliances and Collaborative Partnerships FailCollaborative Partnerships Fail
Diverging objectives and priorities of partners
Inability of partners to work well together
Changing conditions rendering purpose of alliance obsolete
Emergence of more attractive technological paths
Marketplace rivalry between one or more allies