Competitive Strategy.

Outline

IntroductionSustainable competitive advantage

(SCA)Sources of SCAStrategies for

Market LeadersChallengersFollowers, andNichers

IntroductionHaving a competitive advantage is

necessary for a firm to compete in the market

But what is more important is whether the competitive advantage is sustainable

A firm must identify its position relative to the competition in the market

By knowing if it is a leader, challenger, follower or nicher, it can adopt appropriate strategies to compete

Sustainable Competitive Advantage

A good strategist seeks not only to “win the hill, but hold on to it.”Subash Jain

Sustaining competitive advantage requires erecting barriers against the competition

Aakers suggested looking at the following: How you compete Basis of competition Where you compete Whom you are competing against

Examples of SCA For many years, Singapore Airlines were

riding on its SCA of having the best in-flight service

As more airlines improved their service and narrowed the gap, SIA sought other competitive advantages among which are The most modern fleet Outstanding Service on the Ground A super entertainment system in its cabins Comfort in its First Class cabins at an unparallel

level Discuss whether the later initiatives had

been sustainable

Sun Tze’s defensive strategy

“Do not assume the enemy will not come but be prepared for his coming… Do not presume he will not attack, but instead make your own position

unassailable.”

Sun Tze’s Offensive Strategies

Overt-offensive strategyTo knock out a business rival so as to take

over his companyTo knock out a competing product so as

to take over its market shareCovert-offensive strategy

Keep as low a profile as possible while making offensive moves

Strategies for Market Leaders

Market Leader’s objectives: Expand the total market by

Finding new usersCreating new uses, andEncouraging more usage

Protect its current market share byAdopting defense strategies (see following

slides) Increase its market share

Note the relationship between market share and profitability

Which strategy to use?

Depends on your answer to the following:

Is it worth fighting?Are you strong enough to fight?How strong is your defense?Do you have any choice but to fight?

Defense Strategy

A market leader should generally adopt a defense strategy

Six commonly used defense strategies Position Defense Mobile Defense Flanking Defense Contraction Defense Pre-emptive Defense Counter-Offensive Defense

Defense Strategy (cont’d)Position DefenseLeast successful of the defense

strategies “A company attempting a fortress

defense will find itself retreating from line after line of fortification into shrinking product markets.” Saunders (1987)

e.g. Mercedes was using a position defense strategy until Toyota launched a frontal attack with its Lexus.

Defense Strategy (cont’d)

Mobile Defense By market broadening and diversification For marketing broadening, there is a need

toRedefine the business (principle of

objective), and Focus efforts on the competition (the

principle of mass) e.g. Legend Holdings, the top China PC

maker Legend has announced a joint venture with AOL to broaden its business to provide Internet services in the mainland

Defense Strategy (cont’d)

Flanking Defense: Secondary markets (flanks) are the

weaker areas and prone to being attacked

Pay attention to the flankse.g. San Miguel introduced a flanking

brand in the Philippines, Gold Eagle, as a defense against APB’s Beerhausen

Defense Strategy (cont’d)

Contraction DefenseWithdraw from the most vulnerable

segments and redirect resources to those that are more defendable

By planned contraction or strategic withdrawal

e.g. India’s TATA Group sold its soaps and detergents business units to Unilever in 1993

Defense Strategy (cont’d)Pre-emptive DefenseDetect potential attacks and attack

the enemies firstLet it be known how it will retaliateProduct or brand proliferation is a

form of pre-emptive defense e.g. Seiko has over 2,000 models

Defense Strategy (cont’d)

Counter-Offensive DefenseResponding to competitors’ head-on

attack by identifying the attacker’s weakness and then launch a counter attack

e.g. Toyota launched the Lexus to respond to Mercedes attack

Market Challenger Strategies

The market challengers’ strategic objective is to gain market share and to become the leader eventually

How?By attacking the market leaderBy attacking other firms of the same

sizeBy attacking smaller firms

Market Challenger Strategies (cont’d)

Types of Attack StrategiesFrontal attackFlank attackEncirclement attackBypass attackGuerrilla attack

Frontal Attack Seldom work unless

The challenger has sufficient fire-power (a 3:1 advantage) and staying power, and

The challenger has clear distinctive advantage(s)

e.g. Japanese and Korean firms launched frontal attacks in various ASPAC countries through quality, price and low cost

Flank attackAttack the enemy at its weak

points or blind spots i.e. its flanks Ideal for challenger who does not

have sufficient resourcese.g. In the 1990s, Yaohan attacked

Mitsukoshi and Seibu’s flanks by opening numerous stores in overseas markets

Encirclement attackAttack the enemy at many fronts

at the same time Ideal for challenger having superior

resourcese.g. Seiko attacked on fashion,

features, user preferences and anything that might interest the consumer

Bypass attackBy diversifying into unrelated

products or markets neglected by the leader

Could overtake the leader by using new technologies

e.g. Pepsi use a bypass attack strategy against Coke in China by locating its bottling plants in the interior provinces

Guerrilla attackBy launching small, intermittent

hit-and-run attacks to harass and destabilize the leader

Usually use to precede a stronger attack

e.g. airlines use short promotions to attack the national carriers especially when passenger loads in certain routes are low

Which Attack Strategy should a Challenger Choose?

Use a combination of several strategies to improve market share over time

Market-Follower Strategies

Theodore Levitt in his article, “Innovative Imitation” argued that a product imitation strategy might be just as profitable as a product innovation strategye.g. Product innovation--Sony

Product-imitation--Panasonic

Market-Follower Strategies (cont’d) Each follower tries to bring distinctive

advantages to its target market--location, services, financing

Four broad follower strategies: Counterfeiter (which is illegal) Cloner e.g. the IBM PC clones Imitator e.g. car manufacturers imitate the

style of one another Adapter e.g. many Japanese firms are

excellent adapters initially before developing into challengers and eventually leaders

Market-Nicher Strategies

Smaller firms can avoid larger firms by targeting smaller markets or niches that are of little or no interest to the larger firmse.g. Logitech--mice

Microbrewers--special beers

Market-Nicher Strategies (cont’d)

Nichers must create niches, expand the niches and protect theme.g. Nike constantly created new niches--

cycling, walking, hiking, cheerleading, etcWhat is the major risk faced by

nichers?Market niche may be attacked by larger

firms once they notice the niches are successful

Multiple Niching

“[A] firm should `stick to its niching’ but not necessarily to its niche. That is why multiple niching is preferable to single niching. By developing strength in two or more niches the company increases its chances for survival.”

Philip Kotler