3 Strategy Module 3 2012

8/13/2019 3 Strategy Module 3 2012

1/32

1

CustomersSuppliers - Competitors

1. Factors influencing different buyers.

Consumers

Availability Price Variety

Convenience Quality Warranty

Credit Reputation


2/32

2


1. Factors influencing different buyers.

Retailers and/or Whole-sellers

Competitive product Product turnover

Consumer recognition Profit potential

Product availability Promotional &

merchandising supply

Product line breadth Supply dependability


3/32

3


1. Factors influencing different buyers.Industrial and/or Institutional buyers

Cost Vs profitability Price Product

Performance

Financing Productinformation

Sourceavailability

Legal conformity Product line Technicalassistance


4/32


5/32

5

CustomersSuppliers- Competitors

Reference to Michael Porter on relative power of supplier.

1. The power of the supplier to raise profits, the fartheraway greater the power.

2. The power the supplier has to raise prices and lowerbuyer profits is reduced if the buying firm is a

monopolist or oligopolist.

3. The power is greatest when buyer is not an importantcustomer

4. The power is greatest when business is integrated.

5. The supplier threat can be offset by backwardintegration.


6/32

6


Four Factors need to examines regarding competition

1. Entry and Exitof major competition.

2. Substitutes and Complements forcurrent product of services and majorstrategic changes by currentcompetition.


7/32

7

Porters Model of Industry Attractiveness

2

Potential Entrants

Economies of Scale

Absolute Cost Advantage

Brand Identity

Access to List

Switching Cost

Government Policy

1

The Industry Competitions

Numbers of Group

Industry Growth

Access Intensity

Product Differentiation

Exit Barriers

3

Substitutes

Functional Similarity

Price/Performance Trend

Product Identity

4

Suppliers

Supplier Concentration

Number of Buyers

Switching Cost

Substitute Raw Materials

Threat of Forward Integration.

5

Buyers

Buyer Concentration

List of Suppliers

Switching Costs

Substitute Products

Threat of Backward

Integration

Bargain

Power of

Suppliers

Bargain

Power ofCustomers

Threat of Entrant

Threat of Substitute


8/32

8

Barriers to Entry

Economies of Scale

Product Differentiation

Brand Identity

Switching Cost Capital Requirements

Access to Distribution

Channels

Absolute Cost Advantages

Proprietary Learning Curve

Access to necessary inputs

Government Policy Expected Retaliation


9/32

9

Barriers to Exit

Managerial values prevent it

Other product services are related to exit candidates

Costs are sunk in assets

Direct exit costs are high

Indirect cost may reduce Exit behaviour


10/32

10

Determinants of Rivalry

Industry growth

Fixed (or storage) cost/value added

Intermittent Capacity

Product Differences

Brand Identity Switching costs

Concentration of Balances

Informational complexity

Diversity of competitors

Exit barriers


11/32

11

Determinants of Substitution Threat

Relative price/ Performance of substitute

Switching costs

Buyer propensity to substitute


12/32

12

Determinant of Supplier Power

Differentiation of Inputs Switching costs of suppliers and firms in the industry

Presence of substitute inputs

Supplier concentration

Importance of volume to supplier

Cost relative to total purchaces in the industry

Impact of inputs on cost or differentiation

Threats of forward integration relative to threat ofbackward integration by firms in the industry


13/32

13

Determinant of Buyer Power

Bargaining leverage

Buyer concentration vsfirm concentration

Buyer volume

Buyer switching costs

relative to firm switchingcosts

Buyer information

Ability to backward

integrate Substitute products

Pull through

Price sensitivity

Price/Total purchases

Product differences

Brand identity Impact on

quality/performance

Buyer profits

Decision makersincentive


14/32

14

Intensity of Competitive rivalry (rivalry)

Increases and profit falls as numbers of Competitorsincrease

Increases as industry slows

Increases, where costs are high

Increases as products become less differentiated

Increases as industry become more diverse in

personality, strategic approach


15/32

15

FIGURE2.2 The Five Forces of Competition

Model


16/32

16

Barriers to Entry

Economies of Scale

Marginal improvements in efficiency that a firm

experiences as it incrementally increases its size

Factors (advantages and disadvantages)related to large- and small-scale entry

Flexibility in pricing and market share

Costs related to scale economies

Competitor retaliation


17/32

17

Barriers to Entry (contd)

Product differentiation Unique products

Customer loyalty

Products at competitive

prices

Capital Requirements

Physical facilities

Inventories

Marketing activities

Availability of capital

Switching Costs One-time costs customers

incur when they buy from a

different supplier

New equipment Retraining employees

Psychic costs of ending a

relationship

Access to Distribution Channels

Stocking or shelf space Price breaks

Cooperative advertising

allowances


18/32


19/32

19

Bargaining Power of Suppliers

Supplier power increases when:

Suppliers are large and few in number.

Suitable substitute products are not available.

Individual buyers are not large customers of

suppliers and there are many of them.

Suppliers goods are critical to the buyers

marketplace success.

Suppliers products create high switching costs. Suppliers pose a threat to integrate forward into

buyers industry.


20/32

20

Bargaining Power of Buyers

Buyer power increases when:

Buyers are large and few in number.

Buyers purchase a large portion of an industrys

total output.

Buyers purchases are a significant portion of a

suppliers annual revenues.

Buyers switching costs are low.

Buyers can pose threat to integrate backward into

the sellers industry.


21/32

21

Threat of Substitute Products

The threat of substitute products increases

when:

Buyers face few switching costs.

The substitute products price is lower.

Substitute products quality and performance are

equal to or greater than the existing product.

Differentiated industry products that are

valued by customers reduce this threat.


22/32

22

Intensity of Rivalry Among Competitors

Industry rivalry increases when:

There are numerous or equally balanced

competitors.

Industry growth slows or declines.

There are high fixed costs or high storage costs.

There is a lack of differentiation opportunities or

low switching costs. When the strategic stakes are high.

When high exit barriers prevent competitors from


23/32

23

Low entry barriers

Interpreting Industry Analyses

UnattractiveIndustry

Suppliers and buyershave strong positions

Strong threats fromsubstitute products

Intense rivalry

among competitors Low p rof i t potent ia l

I t ti I d t A l


24/32

24

Interpreting Industry Analyses

(contd)

AttractiveIndustry

High entry barriers

Suppliers and buyershave weak positions

Few threats fromsubstitute products

Moderate rivalry

among competitors High pro f i t po tent ial


25/32

25

Strategies based on Competitive advantage:

1) Little Space Strategy:

1. Carve out on position hold it

2. Emhasise profits

3. Minimise investment

4. Caution on expansion

2) Specialized approach

Strategy:

1. Seek niche

2. Select Segments

3. Stay ahead of rivals4. Watch out for change

3) A pure Cost Game Strategy:

1. Use aggressive costing

2. Emphasise efficiency

3. Manage increase cash flow

4. Look for Diversification

4) Those with largecompetitions adv. Strategy

1. Pursue economics of scale2. Volume increase

3. Get the Customers of weakfirm4. Get new ways to complete

SMALL LARGE

M

ANY

F

EW

Differentw

aysacompetitiv

eAdvantageca

nbecreated

Size of the Competitive advantage which can be achieved.


26/32

26

Generic Strategy Alternations

Expand Retrench Stabilise Combination

Products Add Drop Maintain

Markets Diversify Drop Maintain

Process Forward Decrease Maintain

Discuss: Why companies follow different routes of Strategic Alternative

C id i S V i i


27/32

27

Considering Strategy Variations

Possible Strategy Variation

Expansion Stability Retrenchment Combination

1. Internal Penetrate existingMarkets, add newproduction, add

New Markets

ReorganizeProduction

Reduce Cost,assets, dropproduction,

Markets &Function

Subcontracting

2. External AcquisitionMergers

MaintainMarket Share

Divest,liquidation,

bankruptcy

Cross LicenseJV

3. Related Seek Synergyfrom NPD, NMkt,or Concentrate

ImproveProduction

Eliminate relateproductionMarket orFunction

C id i St t V i ti


28/32

28




4. Unrelated Conglomeratedirection inproduction

market orfunction

Eliminate relateproductionMarket or

Function

5. Horizontal AddCompetitiveProduct or

Markets

EliminateCompetitiveProduct or

Markets6. Vertical Add new

FunctionReduce Function

C id i St t V i ti


29/32

29




7. Active Innovative,Entrepreneuri-

-al moves8. Passive Initiator in

R&D, NewProduct

Internal E pansion thro gh markets & Prod cts


30/32

30

Internal Expansion through markets & Products

Products

Penetrate existing

Market(s) with

existing Product(s)

Add New Markets

Add New ProductsAdd New Products &

New Markets

Current New

akesCurrent

New


31/32

31

Three Joint Venture Strategies (Strategic Alliance)

1. Spider Web:A small firm establishes and servesJoint Ventures for its survival.

2. Go Together: Joint Ventures for a specific

project then quit.

3. Successive integration: From weakrelationship to final merger.


32/32

32

Competition A Marketing Warfare1. Defensive Warfare:

2. Offensive Warfare:

3. Flanking Warfare:

4. Guerrilla Warfare:

Documents

3 Strategy Module 3 2012