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Chapter TitleChapter Title

16/e PPT16/e PPTMd. Tarikul Islam

Lecturer in MarketingIIUC, DC

Cell: 01716 388990E-mail: russelmkg@yahoo.com

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Supplementing the Chosen Competitive

Strategy

Published by Lecturesheet.iiuc28a9.com

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Fig. 6.1: A Company’s Menu of Strategy Options

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Alliances Can Enhance aFirm’s Competitiveness

Alliances and partnerships can help companies cope with two demanding competitive challenges

Racing against rivals to build a market presence in many different national markets

Racing against rivals to seize opportunities on the frontiers 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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Characteristics of a Strategic Alliance

Strategic alliance – A formal agreement between two or more separate companies where there is Strategically relevant collaboration of some sort Joint contribution of resources Shared risk Shared control Mutual dependence

Alliances often involve Joint marketing Joint sales or distribution Joint production Design collaboration Joint research Projects to jointly develop new technologies or products

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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 beachhead 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

Potential Benefits of Alliances toAchieve Global and Industry Leadership

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Why Alliances Fail

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 Changing conditions rendering purpose of alliance obsolete 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

Acquisition – One firm, the acquirer, purchases and absorbs operations of another, the acquired

Merger-acquisition strategy Much-used strategic option

Especially suited for situations wherealliances 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 Acquisition Strategies

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To create a more cost-efficient operation

To expand a firm’s geographic coverage

To extend a firm’s business into newproduct categories or international markets

To gain quick access to new technologiesor competitive capabilities

To invent a new industry and lead theconvergence of industries whose boundariesare blurred by changing technologies andnew market opportunities

Objectives of Mergers and Acquisitions

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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

Sharing of expertise

Achieving enhanced competitive capabilities

Pitfalls of Mergers and Acquisitions

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Vertical Integration Strategies

Extend a firm’s competitive scope withinsame industry

Backward into sources of supply

Forward toward end-users of final product

Can aim at either full or partial integration

InternallyPerformedActivities, Costs, &Margins

Activities, Costs, &

Margins ofSuppliers

Buyer/UserValue

Chains

Activities, Costs,& Margins of

Forward ChannelAllies &

Strategic Partners

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Strategic Advantagesof Backward Integration

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

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Strategic Advantagesof Forward Integration

To gain better access to end usersand better market visibility

To compensate for undependable distributionchannels which undermine steady operations

To offset the lack of a broad product line, a firm may sell directly to end users

To 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

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Strategic Disadvantagesof Vertical Integration

Boosts resource requirements

Locks firm deeper into same industry

Results in fixed sources of supply andless flexibility in accommodating buyerdemands for product variety

Poses all types of capacity-matching problems

May require radically different skills / capabilities

Reduces flexibility to make changes in component parts which may lengthen design time and ability to introduce new products

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Outsourcing Strategies

Outsourcing involves withdrawing fromcertain value chain activities and relyingon outsiders to supply needed products,support services, or functional activities

Concept

InternallyPerformedActivities

Suppliers

Support Services

Functional Activities

Distributors or Retailers

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Activity can be performed better ormore cheaply by outside specialists

Activity is not crucial to achieve asustainable competitive advantage

Risk exposure to changing technology and/orchanging buyer preferences is reduced

It improves firm’s ability to innovate Operations are streamlined to

Improve flexibility Cut time to get new products into the market

It increases firm’s ability to assemble diverse kinds of expertise speedily and efficiently

Firm can concentrate on “core” value chain activities that best suit its resource strengths

When Does OutsourcingMake Strategic Sense?

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Farming out too many or the wrong activities, thus

Hollowing out capabilities

Losing touch with activities and expertise that determine overall long-term success

Risk of an Outsourcing Strategy

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Offensive and Defensive Strategies

Used to build newor stronger market

position and/or create competitive advantage

Used to protect competitive advantage (rarely lead to creating

advantage)

Offensive Strategies Defensive Strategies

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Principles of Offensive Strategies

Focus relentlessly on Building competitive advantage and

Striving to convert it into decisive advantage

Employ the element of surprise asopposed to doing what rivals expect

Apply resources where rivals are least able to defend themselves

Be impatient with the status quo and display a strong bias for swift, decisive actions to boost a firm’s competitive position vis-à-vis rivals

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Types of Offensive Strategy Options

1. Offer an equally good or better product at a lower price

2. Leapfrog competitors by being First adopter of next-generation technologies or

First to market with next-generation products

3. Pursue continuous product innovationto draw sales and market share awayfrom less innovative rivals

4. Adopt and improve on thegood ideas of other companies

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Types of Offensive Strategy Options (con’t)

5. Deliberately attack market segments where a key rival makes big profits

6. Attack competitive weaknesses of rivals

7. Maneuver around competitors andconcentrate on capturing unoccupiedor less contested market territory

8. Use hit-and-run or guerrilla warfare tactics to grab sales and market share from complacent rivals

9. Launch a preemptive strike to secure an advantageous position that rivals are prevented from duplicating

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Using Offensive Strategy to Achieve Competitive Advantage

Strategic offensives offering strongest basis for competitive advantage entail

An important core competence

A unique competitive capability

A better-known brand name

A cost advantage in manufacturingor distribution

Technological superiority

A superior product

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Defensive Strategy

Lessen risk of being attacked

Blunt impact of any attack that occurs

Influence challengers to aim attacks at other rivals

Block avenues open to challengers

Signal challengers vigorousretaliation is likely

Objectives

Approaches

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Block 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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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 counter-responseto moves of weaker rivals

Signal Challengers Retaliation Is Likely

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Web Site Strategies

Strategic Challenge – What use of the Internet should a company make in staking out its position in the marketplace?

Five Web site approaches Use to disseminate only product information Use as minor distribution channel

to sell direct to customers Use as one of several important distribution

channels to access customers Use as primary distribution channel to access buyers Use as exclusive channel to transact sales with

customers

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Approach Sell directly to consumers and Use traditional wholesale/retail channels

Strategic appeal for wholesalers and retailers Economic means of expanding a company’s economic

reach Provide both existing and potential customers another

choice of how to Communicate with a company Shop for product information Make purchases Resolve customer service problems

Brick-and-Click Strategies:An Appealing Middle Ground Approach

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Involves strategic choices about how functional areas are managed to support competitive strategy and other strategic moves

Functional strategies include Research and development Production Human resources Sales and marketing Finance

Tailoring functional-area strategies tosupport key business-level strategies is critical!

Choosing AppropriateFunctional-Area Strategies

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When to make a strategic move is often as crucial as what move to make

First-mover advantages arise when

Pioneering helps build firm’s image and reputation

Early commitments to new technologies,new-style components, and distributionchannels can produce cost advantage

Loyalty of first time buyers is high

Moving first can be a preemptive strike

First-Mover Advantages

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First-Mover Disadvantages

Moving early can be a disadvantage (or fail to produce an advantage) when

When costs of pioneering are more than being an imitative follower and only negligible learning/experience curve benefits accrue to the leader

Innovator’s products are primitive, not living up to buyer expectations

Demand side of the market is skeptical about the benefits of new technology/product of a first-mover

Rapid technological change allows followers to leapfrog pioneers