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12001 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Copyright

STRATEGY AND

COMPETITIVE

ADVANTAGE

CHAPTER 5

Screen graphics created by:

Jana F. Kuzmicki, PhD, Mississippi University for Women

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The essence of strategy lies in

creating tomorrows competitiveadvantages faster than compet i tors

mimic the ones you possess today.

Strategies for taking the hill

wont necessarily hold it.


Gary Hamel and C.K. Prahalad

Amar Bhide

Quote

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Chapter Outl ine

Five Generic Competitive Strategies

Low-Cost Leadership Strategy

Broad Differentiation Strategies

Best-Cost Provider Strategies

Focused Low-Cost Strategies

Focused Differentiation Strategies

Vertical Integration Strategies

Merger and Acquisition Strategies Cooperative Strategies

Offensive and Defensive Strategies

First-Mover Advantages and Disadvantages

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Strategy andCompet i t ive Advantage

Compet i tive advantageexists when a firmsstrategy gives it an edge in

Defending against competitive forces and

Securing customers

Convince customers firms product / service offers

super ior valueOffer buyers a good product at a lower pr ice

Use differentiation to provide a better p rodu ct

buyers think is worth a premium price

Key to Gaining a Competitive Advantage

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What is Competitive Strategy?

Consists of a companys market

initiatives and business approaches to

A ttract and pleasecustomers

Withstandcompetitive pressures

Strengthenmarket position Includes offensive and defensive moves to

Counter act ions of key rivals

Shif t resources to improve long-term marketposition

Respondto prevailing market conditions

Narrower in scope than business strategy

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Object ives of Compet i tive Strategy

Build a compet i tive advantage

Cultivate clientele of loyal customers

Knock the socks o f f r ivals, ethically andhonorably

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Figu re 5.1: The Five GenericCompeti t ive Strateg ies

MarketTarget

Type of Advantage Sought

Overall Low-Cost

ProviderStrategy

Broad

DifferentiationStrategy

Focused

Low-Cost

Strategy

Focused

Differentiation

Strategy

Best-Cost

Provider

Strategy

Lower Cost Differentiation

Broad

Range ofBuyers

Narrow

Buyer

Segment

or Niche

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Tab le 5-1: Dist inc tive

Featu res o f the FiveGeneric Competi t ive

StrategiesWhich hatis unique?

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Low-Cost Leadership

Make achievement of low -co st relat ive to

r ivalsthe themeof firms business strategy

Find ways to dr ive costs ou tof business year-

after-year

Low-cost leadership means lowOVERALL costs, not just low

manufacturing or production costs!

Low-cost leadership means lowoveral lcosts, not just low

manufacturing or production costs!

Keys to Success

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Opt ions: Ach iev ing a Low -Cost Strategy

Open up a sustainable cos t advantageover rivals, using lower-cost edge to either

Under-price rivals and

reap market share gains

or

Earn higher profit margin

selling at going price

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Figu re 5.2: Recon f igu ring Value ChainSystems to Lower Cos ts -- Software Indus try

A. Value Chain System of Software Developers UsingTraditional Wholesale-Retail Channels - Highest Cos t

Software

developmentactivities

CD-ROM

production

andpackaging

activities

Marketing

and

promotion of

software

Warehousing

and shipping

of

wholesaler-

retailer

orders

Technical

support

activities

Activities of

software

retailers

Activities of

wholesale

distributors

of software

products

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Figu re 5.2: Recon f igu ring Value ChainSystems to Lower Cos ts -- Software Indus try

B. Value Chain System of Software Developers

Using Direct Sales and Physical Delivery of CDs

Software

development

activities

CD-ROM

production

and

packagingactivities

Direct and

online

marketing

and

promotionactivities

Ware-

housing and

shipping of

customerorders

Technical

support and

customer

serviceactivities

C. Value Chain System of Software Developers

Using Online Sales and Internet Delivery - Lowest Cost

Software

development

activities

Online

marketing

and

promotion

activities

Systems toaccept credit

cardpayment and

allowimmediatedownload

Technical

support and

customer

service

activities

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App roaches to Secur inga Cos t Advantage

Do a better job than rivals of

performing value chain activities

efficiently and cost effectively

Approach 1

Revamp value chain to bypass cost-

producing activities that add little

value from the buyers perspective

Approach 2Control

costs!

By-passcosts!

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App roach 1: Contro l l ing the Cost Dr ivers

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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App roach 2: Revamping the Value Chain

Abandon traditional business methods and shift to e-

business technologies and use of Internet

Use direct-to-end-user sales/marketing methods

Simplify product design

Offer basic, no-frills product/service Shift to a simpler, less capital-intensive, or more

flexible technological process

Find ways to bypass use of high-cost raw materials

Relocate facilities closer to suppliers or customers

Drop something for everyone approach and focus on

a limited product/service

Reengineer core business processes

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Keys to Success in Achiev ingLow -Cost Leadership

Scrutinize each cost-creating activity, identifyingcost drivers

Use knowledge about cost drivers to manage

costs of each activity down year after year Find ways to reengineer how activities are

performed and coordinatedeliminate the costs

of unnecessary work steps

Be creative in cutting low value-added activities

out of value chain systemre-invent the

industry value chain

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Character ist ics of aLow -Cost Prov ider

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

Low-cost producers championFRUGALITY while aggressively

INVESTINGin cost-saving improvements!

Successful low-cost producerschampion

frugal i tybut wisely and aggressively

invest in cos t-saving improvements!

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When Does a Low-CostStrategy 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 havesignificant bargaining power

Industry newcomers use introductory low prices to

attract buyers and build customer base

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Pitfal ls o f Low -Cos t Strateg ies

Being overly aggressive in cutting price Low cost methods are easily imitated by rivals

Becoming too fixated on reducing costs

and ignoringBuyer interest in additional features

Declining buyer sensitivity to price

Changes in how the product is used

Technological breakthroughs open up cost

reductions for rivals

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Different iat ion Strateg ies

Incorporate differentiating features that cause

buyers to prefer firms product or service over

brands of rivals

Find ways to differentiate that create valuefor

buyers and that are no t easi ly matched orcheaply cop iedby rivals

Not spending more to achieve differentiation than

the price premium that can be charged

Keys to Success

Objective

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Appeal of Dif ferent iat ion Strateg ies

A powerful competitive approach whenuniqueness can be achieved in ways that

Buyers perceive as valuable and are

willing to pay for

Rivals find hard to match or copy

Can be incorporatedat a cost wel l below

thepr ice prem ium

that buyers w i l l pay

Which hat

is unique?

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Benef its o f Success ful Dif ferent iation

A product / service with unique and

appealing attributes allows a firm to

Command a premium priceand/or Increase unit salesand/or

Build brand loyalty

= Competitive Advantage

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Types o f Dif ferent iation 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-- McDonalds, Wal-Mart

Prestige-- Rolex Quality manufacture-- Honda, Toyota

Technological leadership-- 3M Corporation, Intel

Top-of-the-line image-- Ralph Lauren, Chanel

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Sus taining Dif ferent iat ion : The Key toCompet it ive Advantage

Most appealing approaches to differentiation Those hardest for r ivals to match or im itate

Those buyers w i ll f ind most appeal ing

Best choices for gaining a longer-last ing, more

prof i table competitiveedge

New product innovation

Technical superiority

Product quality and reliability

Comprehensive customer service

Unique competitive capabilities

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Where to Find Dif ferent iat ionOpportuni t ies 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

Internally

Performed

Activities,

Costs, &

Margins

Activities,

Costs, &

Margins of

Suppliers

Buyer/User

Value

Chains

Activities, Costs,

& Margins of

Forward Channel

Allies &

Strategic Partners

H t A h i

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How to Ach ieve aDif ferent iat ion -Based Advantage

Incorporate product features/attributes that lowerbuyers overall costsof using product

Approach 1

Incorporate features/attributes that raise theperformance a buyer getsout of the

product

Approach 2

Incorporate features/attributes that enhance buyersat isfact ionin non-economic or intangible ways

Approach 3

Compete on the basis of superior c apabi l i t ies

Approach 4

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Signal ing Value as Well asDelivering Value

Buyers seldom pay for value that is notperceived

Signals o f value may be as important

as actual value when

Nature of differentiation is hard to

quantify

Buyers are making first-time

purchases

Repurchase is infrequent

Buyers are unsophisticated

f f

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When Does a Dif ferent iat ionStrategy Work Best?

There are many ways to differentiate aproduct that have value and please

customers

Buyer needs and uses are diverse

Few rivals are following a similar

differentiation approach

Technological change and product

innovation are fast-paced

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Pitfal ls o f Dif ferent iat ion Strateg ies

Trying to differentiate on a feature buyers do

not perceive as lowering their cost or enhancing

their well-being

Over-differentiating such that product

features exceed buyers needs

Charging a price premium that

buyers perceive is too high

Failing to signal value

Not understanding what buyers want or prefer

and differentiating on the wrong things

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Compet i tive Strategy Princip le

A low-costproducer strategy can

defeata differentiation strategy

when buyers are satisfied with a

standard product and do not see

extra attributes as worth payingadditional money to obtain!

A low-cost provider strategy can

defeata differentiation strategy

when buyers are satisfied witha standard product and do not

see extra differentiating

attributes as worth

paying for!

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Best Cost Provider Strategies

Combine a strategic emphasis on low-costwith a

strategic emphasis on dif ferent iat ion

Make an upscale product at a lower cost

Give customers more value for the money

Deliver superior value by meet ing o r exceeding

buyer expectations on product attributes and

beat ingtheir price expectations Be the low-cost provider of a product with good-to-

excel lentproduct attributes, then use cost

advantage to underpr icecomparable brands

Objectives

H B t C t St t

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How a Best-Cos t StrategyDif fers from a Low -Cost Strategy

Aim of a low-cost strategy--Ach ieve lower costs

than any other competi tor in the indust ry

Intent of a best-cost strategy--Make a mo re

upscale productat lower costs than the makers

of other brands w i thcomparable features andattr ibutes

A best-cost provider cannot be the industrys

absolute low-cost leader because of the added

costs of incorporating the additional upscalefeatures and attributes

that the low-cost leaders

product doesnt have

C ti ti St th f

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Compet i tive Streng th o f aBest-Cos t Provider Strategy

A best-cost providerscompet it ive advantagecomes from matchingclose rivals on key product

attributes andbeat ingthem on price

Success depends on having the skills and

capabilities to provide at tract ive performanceand features at a lower co st than rivals

A best-cost producer can often out-competeboth

a low-cost provider and a differentiator when Standardized features/attributes wont meet the

diverse needs of buyers

Many buyers are price and value sensitive

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Risk o f a Best-Cos t Provider Strategy

RiskA best-cost p rovidermay getsqueezedbetween strategies of firms using

low-costand dif ferent iat ionstrategies

Low-cost leaders may be able to siphoncustomers away with a lower pr ice

High-end differentiators may be able to stealcustomers away with bet ter produc t

attr ibutes

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Focus/Niche Strateg ies

Involve concentratedattention on a narrow

piece of the total market

Serve niche buyers better than rivals

Choose a market niche where buyers have

distinctive preferences, special requirements, or

unique needs

Develop unique capabilities to serve needs of

target buyer segment

Objective

Keys to Success

Foc s / Niche Strateg ies

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Focus /Niche Strateg iesand Compet it ive Advantage

Achieve lower coststhan

rivals in serving the segment --

A low-cost strategy

Offer niche buyers someth ing

dif ferentfrom rivals --

A differentiation strategy

Approach 1

Approach 2 Which hatis unique?

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Examples of Focus Strategies

eBay

Online auctions

Porsche

Sports cars

Horizon and Comair (commuter airlines)

Link major airports with small cities

Jiffy Lube International

Maintenance for motor vehicles

Bandag

Specialist in truck tire recapping

What Makes a Niche

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What Makes a NicheA tt ract ive for Focus ing?

Big enough to be profitable and offers goodgrowth 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 o f a Focus Strategy

Competitors find effective ways to match afocusers capabilities in serving niche

Niche buyers preferences shift towards

product attributes desired by majority ofbuyers - 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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Cooperat ive Strateg ies

Companies sometimes use strategical l iancesor co l labo rat ive partnerships to

complement their own strategic initiatives

and strengthen their competitiveness. Such

cooperative strategies go beyond normalcompany-to-company dealings but fall short

of merger or formal joint venture.

Why Cooperat ive Strategies A re In teg ral

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Why Cooperat ive Strategies A re In teg ralto a Firms Competitiveness

Collaborative arrangements can help a company lower its

costs or gain access to needed expertise and capabilities Firms often lack the resources and competitive skills to be

successful in very demanding competitive races

Allies can be useful in helping a company establish a

stronger presence in global markets and helping it winthe race for global market leadership

Allies with competitively useful technological know-howor expertise can greatly aid a company racing againstrivals for leadership in the industries of the future now

being created by todays technological and informationage revolution

Collaborative arrangements with foreign partners can bevery helpful in pursuing opportunities in unfamiliar nationalmarkets

Competi t ive Value of

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Competi t ive Value ofStrategic A l l iances 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, providing an edge over rivals

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Why are Strategic A l l iances 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

Potent ial Benef i ts o f Al l iances to Ach ieve

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Potent ial Benef i ts o f Al l iances to Ach ieveGlobal and Indus try 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 concentratedin particular geographic locations

Establish a beachead for participating in target industry

Master new technologies and build new expertisefaster than would be possible internally

Open up expanded opportunities in target industry by

combining firms capabilities with resources of partners

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Why A l l iances Fai l

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 include

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- Combination and pooling of equals, with

newly created firm often taking on a new name

Acquis i t ion- 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 neededcapabilities or cost-reducing opportunities

Ownership allows for tightly integrated operations,

creating more control and autonomy than alliances

Merger and Acquis i t ion Strategies

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Benefi ts of Mergers and Acquis i t ions

Combining operations may result in

More or better competitive capabilities

More attractive line-up of products / services

Wider geographic coverage

Greater financial resources to investin R&D, add capacity, or expand

Cost-saving opportunities

Filling in of resource or technological gaps

Stronger technological skills

Greater ability to launch next-wave products /

services

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Pit fal ls of Mergers and Acquis i t ions

Combining operations may result in

Resistance from rank-and-file employees

Hard-to-resolve conflicts in management styles and

corporate cultures

Tough problems in combining andintegrating the operations of the

once-different companies

Greater-than-anticipated difficulties in

Achieving expected cost-savings

Sharing of expertise

Achieving enhanced competitive capabilities

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Vert ical Integration Strategies

Vertical integration extends a firms

competitive scope within same indu st ry

Backwardinto sources of supply

Forwardtoward end-users of final

product

Can aim at either fu l lor part ialintegration

Internally

Performed

Activities,

Costs, &

Margins

Activities,

Costs, &

Margins of

Suppliers

Buyer/User

Value

Chains

Activities, Costs,

& Margins of

Forward Channel

Allies &

Strategic Partners

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A vertical integration strategy

has appeal onlyif it

significantly strengthens a

firms competitive position!

Strategic Advantages o f

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Strategic Advantages o fBackward Integrat ion

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

Strategic Advantages o f

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Strategic Advantages o fForw ard Integrat ion

Advantageous for a firm to establish its own

distribution network if

Undependable distribution channels undermine

steady production operations

Lacking a broad enough product line to justifyintegrating forward into stand-alone distributorships

or retail outlets, a firm may sell directly to end users

Direct sales and Internet retailing may

Lower distribution costs

Produce a relative cost advantage over rivals

Enable lower selling prices to end users

Strategic Disadvantages o f

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Strategic Disadvantages o fVert ical In tegration

Boosts resource requirements

Locks firm deeper into same industry

Results in fixed sources of supply

and less flexibility in accommodating

buyer demands for product variety

Poses problems of balancing capacity at each

stage of value chain

May require radically different skills / capabilities

Reduces manufacturing flexibility, lengthening

design time and ability to introduce new products

Pros and Cons of

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Pros and Cons ofIn tegration vs. De-In tegration

Whether vert ical integrat ionis a viable or attractive

strategy depends on How much it can lower cost, build expertise, increase

differentiation, or otherwise enhance performance ofstrategy-critical activities

Itsimpact on investment cost, flexibility,and administrative overhead

The contribution it makes to strengtheninga company market position or helping itcreate competi t ive advantage

Many companies are finding thatde-integrating ,unbundl ing, and out-sourc ing value chain activities are abetter strategic option when it comes to lowering cost,improving their competitiveness, or gaining added operatingflexibility

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Unbundl ing and Outsou rc ing Strategies

De-Integrationor unbundl inginvolves narrowingthe scope of the firms operations, focus ingon

performing certain core value chain activities and

rely ing on outs idersto perform the remainingvalue chain activities

Concept

Internally

Performed

ActivitiesSuppliers

Support

Services

Functional

Activities

Distributors

or Retailers

When Does Outsourc ing

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e oes Ou sou c gMake Strateg ic Sense?

Activity can be performed better or more cheaply by outside

specialists Activity is not crucial to achieve a sustainable competitive

advantage

Risk exposure to changing technology and/or changing

buyer preferences is reduced Operations are streamlined to

Cut cycle time

Speed decision-making

Reduce coordination costs

Firm can concentrate on doing those core value

chain activities that best suit its resource strengths

and capabilities

St t i Ad t f O t i

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Strategic Advantages of Outsourc ing

Improves firms ability to obtain high quality and/or

cheaper components or services

Improves firms ability to innovate by interacting

with best-in-world suppliers

Enhances firms flexibility should customer needsand market conditions suddenly shift

Increases firms ability to assemble diverse kinds of

expertise speedily and efficientlyAllows firm to concentrate its resources on

performing those activities internally which it can

perform better than outsiders

Pit f l l f O t i

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Pit fal ls o f Outsou rc ing

Farming out too manyor the wrong

activi t ies, thus

Hollowing ou tits capabilities

Los ing touchwith activities andexpertise that determine its overall long-

term success

Off i d D f i St t i

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OffensiveandDefens ive Strateg ies

Used to bui ldnew o r st ronger

market posi t ionand/or create

compet i tive advantage

Offensive Strategies

Used to pro tect compet it iveadvantage (rarely are they the

basis for creating advantage)

Defensive Strategies

Figu re 5.3: The Bui ld ing and Erod ing

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Figu re 5.3: The Bui ld ing and Erod ingof Compet it ive Advantage

SizeofC

ompetitiveA

dvantage

Benefit Period Erosion PeriodBuildup Period

Strategicmoves

produce

competitive

advantage

Moves byrivals

erode

competitive

advantage

Size of

competitive

advantageachieved

Time

C ti ti St t P i i l

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Any competitive advantage

currently held will even tual ly be

erodedby the actions of

competent, resourceful

competitors !

O ti f M t i St t i Of f i

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Options for Moun t ing Strategic Offens ives

1. Initiatives to match or exceed competitor

strengths

2. Initiatives to capitalize on competitor

weaknesses3. Simultaneous initiatives on many fronts

4. End-run offensives

5. Guerrilla warfare tactics

6. Preemptive strikes

Att k i C ti t St th

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Objectives

Attack ing Competi tor Streng ths

Whittle away at a rivals

competitive advantage

Gain market share by out-matchingstrengths of weaker rivals

Challenging strong competitors with a

lower price is foolhardy unless theaggressor has a cost advantageor

advantage of greater f inanc ial streng th!

Opt ions for At tack ing

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p ga Competitors Strengths

Offer equally good produ ct at alower pr ice

Develop low-cost edge, then use it to under-pricerivals

Leapfroginto next-generation technologies

Add appealing new features

Run compar ison ads

Construct new p lant capaci ty ahead of the rival

or in the rivals market strongholds

Offer a w ider produc t l ine

Develop bettercustomer serv ice capabilities

Attack ing Competi tor Weaknesses

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Attack ing Competi tor Weaknesses

Concentrate company strengths and resourcesdirectly against a rivals weaknesses

Weaknesses to Attack Go after Thosecustomersa rival has that it is

least equipped to serve

Rivals providing sub -par customer service Rivals with weaker market ing s ki l ls

Geog raphic regions where rival is weak

Segmentsrival is neglect ing

Objective

Launch ing Simul taneous Offensives

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gon Many Fronts

Launch several major ini t iat ivesto

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.

Objective

Appeal

End Run Offens ives

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End-Run Offens ives

Dodgehead-to-head confrontat ion sthat

escalate competitive intensity or risk cutthroat

competition

Attempt to maneuver around st rongcompet i torsconcentrate on areas of market

where competition is weakest

Objectives

Opt ional App roaches for

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p ppEnd-Run Offens ives

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

Guerri l la Offenses

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Guerri l la Offenses

Use principles of surpr iseandhit-and-runtoattack in locations and at times where

conditions are most favorable to initiator

Appeal

Well-suited to small challengerswith limited resources and

market visibility

Approach

Options for Guerr i l la Offenses

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Options for Guerr i l la Offenses

Make random, scattered raids on leaders

customers Occasional low-balling on price

Intense bursts of promotional activity

Special campaigns to attract buyersfrom rivals plagued with a strike or havingproblems meeting delivery schedules

Challenge rivals encountering problems with

quality, meeting delivery times, or providingadequate technical support

File legal actions charging antitrust violations,patent infringements, or unfair advertising

Preemptive Str ikes

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Preemptive Str ikes

Involves moving f i rs tto secure an advantageous

position that rivals

are foreclosed or discouragedfrom duplicating!

Approach

Preempt ive Str ike Opt ions

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Preempt ive Str ike Opt ions

Acquire firm which has exclusive control of a valuable

technology

Secure exclusive/dominant access to best distributors

Tie up best or most sources of essential raw materials

Secure best geographic locations

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

Choos ing Who to A t tack

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Choos ing Who to A t tack

Four types of firms can be the target of anfresh offensive

Market leaders

Runner-up firms

Struggling rivals on vergeof going under

Small local or regionalfirms not doing a good jobfor their customers

Offensive Strategy and

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Compet it ive Advantage

Strategic offensiveoffering strongest basis for

compet it ive advantage usually entail Developing lower-cost product design

Making changes in production operations that

lower costs or enhance differentiation

Developing product features that deliver superior

performance or lower users costs

Giving more responsive customer service

Escalating marketing effort Pioneering a new distribution

channel

Selling direct to end-users

Offensive Strategy Princ iple

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Offensive Strategy Princ iple

The chances for a successful

offensive initiative are improvedwhen it is based on a companys

resource strengths and strongest

competencies and capabilities!

Defens ive Strategy

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Defens ive Strategy

Fortify firms present position

Help sustain any competitive

advantage held

Lessen risk of being attacked

Blunt impact of any attack that occurs Influence challengers to aim attacks at

other rivals

Objectives

Defens ive Strategies: A pp roaches

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Defens ive Strategies: App roaches

Block avenues open

to challengers

Approach 1

Approach 2

Signal challengers thatvigorous retaliation

is likely

B lock Avenues Open to Chal lengers

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B lock Avenues Open to Chal lengers

Participate in alternative technologies

Introduce new features, add new models, or broadenproduct 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

Signal Challengers Retal iat ion Is L ikely

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Signal Challengers Retal iat ion Is L ikely

Publicly announce managements strong

commitment to maintain present market share

Publicly announce plans to put adequate capacity

in place to meet forecasted demand

Give out advance information about new products,technological breakthroughs, and other moves

Publicly commit firm to policy of matching prices

and terms offered by rivals

Maintain war chest of cash reserves

Make occasional counter-response to moves of

weaker rivals

First-Mover Advantages

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First Mover Advantages

Whento make a strategic move is often as

crucial as whatmove to make

First-mover advantagesarise when

Pioneering helps build firms image and

reputation

Early commitments to new technologies,

new-style components, and distribution

channels can produce cost advantage Loyalty of first time buyers is high

Moving first can be a preemptive strike

First-Mover Disadvan tages

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First Mover Disadvan tages

Mov ing ear lycan be a disadvantage(or fail

to produce an advantage) when

Costs of pioneering are sizable and loyalty of

first time buyers is weak

Innovators products are

primitive, not living up to

buyer expectations

Rapid technological change

allows followers to leapfrog pioneers

Tim ing and Competi t ive Advantage

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Tim ing and Competi t ive Advantage

Being a first-mover holds potential for competitive

advantage in some cases but not in others

Principle 1

Being a fast follower can sometimes yield

as good a result as being a first mover

Principle 2

Being a late-mover may or may not be fatal --

it varies with the situation

Principle 3

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Documents

Chap 005rer