documento 4.5 strategy and competitive advantage
TRANSCRIPT
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Strategy and Competitive Advantage
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What is Competitive Advantage?
• Being able to do something that the customer wants better than your competitors.
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Where does it come from?
• Develop a product or service that the customer wants to buy and then being able to defend against attempts by your competitors to copy or surpass it.
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How can we develop a competitive advantage?
• Develop one or more distinctive competencies in areas that the company’s customers perceive is important.
• What the customer considers important is called value.
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What is Value?
• Cost benefit analysis• Value is perceived • Everything is valuable to somebody
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STP
• Segmentation• Targeting • Positioning
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The Five GenericCompetitive Strategies
Mar
ket T
arge
t
Type of Advantage Sought
Overall Low-CostProviderStrategy
BroadDifferentiation
Strategy
FocusedLow-CostStrategy
FocusedDifferentiation
Strategy
Best-CostProviderStrategy
Lower Cost Differentiation
BroadRange of Buyers
Narrow Buyer
Segmentor Niche
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OK, so what does a low cost strategy look like?
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Low-Cost Leadership
• Make achievement of low-cost relative to rivals the theme of firm’s business strategy
• Find ways to drive costs out of business year-after-year
Low-cost leadership means lowOVERALL costs, not just lowmanufacturing or production costs!
Keys to Success
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Options: Achieving a Low-Cost Strategy
• Open up a sustainable cost advantage over 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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So, how do I get to low cost advantage?
• Do a better job of engineering and managing your company’s value chain
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Figure 4.2: Typical Company Value Chain
DistributionAnd
OutboundLogistics
Operations
PurchasedSupplies
andInboundLogistics
Sales and Marketing Service Profit
Margin
Product R&D, Technology, Systems Development
Human Resources Management
General Administration
Primary Activities and Costs
Support Activities and Costs
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Figure 4.3: The Value Chain System for an Entire Industry
SupplierValue
Chains
A Company’s Own
Value Chain
Forward ChannelValue Chains
Activities, Costs, &
Margins ofForwardChannelAllies &
StrategicPartners
InternallyPerformedActivities, Costs, &Margins
Activities, Costs, &
Margins ofSuppliers
Buyer or End User
ValueChains
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Approaches to Securinga Cost 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 buyer’s perspective
Approach 2Control costs!
By-pass costs!
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Approaches to Securinga Cost Advantage
Approach 1Revamp value chain to
bypass cost-producing activities that add little value
from the buyer’s perspective
Approach 2• Do a better job than
rivals of performing value chain activities efficiently and cost effectively
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Control costs!
By-pass costs!
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Approach 1: 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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Approach 2: Controlling the Cost Drivers
• 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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When Does a Low-CostStrategy Work Best?
• When the customer perceives the cost side of the value equation to be more important than any differentiation that can be presented.
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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 have
significant bargaining power• Industry newcomers use introductory low prices to
attract buyers and build customer base
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What do I need to be careful about?
• Being overly aggressive in cutting price• Low cost methods are easily imitated by
rivals• Becoming too fixated on reducing costs
and ignoring– Buyer 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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Differentiation Strategies
Being able to do something different that the customer
perceives important
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Keys to success
• Create value– The benefit side of the value equation
• Find ways to differentiate that create value for buyers and that are not easily matched or cheaply copied by rivals
• Not spending more to achieve differentiation than the price premium that can be charged
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Appeal of Differentiation Strategies
• A powerful competitive approach when uniqueness 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 incorporated
at a cost well below the price premium that buyers will pay
Which hat is unique?
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Types of Differentiation Themes
• Unique taste --? • Multiple features --? • Wide selection one-stop shopping --?• Superior service -- ?• Spare parts availability -- ?• More for your money -- ?• Prestige --? • Quality manufacture -- ?• Technological leadership -- ?• Top-of-the-line image -- ?
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Sustaining Differentiation: The Key to Competitive Advantage
• Most appealing approaches to differentiation– Those hardest for rivals to match or imitate– Those buyers will find most appealing
• Best choices for gaining a longer-lasting, more profitable competitive edge – New product innovation– Technical superiority– Product quality and reliability– Comprehensive customer service– Unique competitive capabilities
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Where to Find Differentiation Opportunities 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
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How to Achieve aDifferentiation-Based Advantage
Incorporate product features/attributes that lower buyer’s overall costs of using product
Approach 1
Incorporate features/attributes that raise the performance a buyer gets out of the product
Approach 2
Incorporate features/attributes that enhance buyer satisfaction in non-economic or intangible ways
Approach 3
Compete on the basis of superior capabilitiesApproach 4
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Signaling Value as Well as Delivering Value
• Buyers seldom pay for value that is not perceived
• Signals of 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
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When Does a DifferentiationStrategy Work Best?
• There are many ways to differentiate a product 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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Pitfalls of Differentiation Strategies
• 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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Competitive Strategy Principle
A low-cost producer strategy can defeat a differentiation strategy when buyers are satisfied with a standard product and do not see extra attributes as worth paying
additional money to obtain!
A low-cost provider strategy can defeat a differentiation strategy when buyers are satisfied with a standard product and do not
see extra differentiating attributes as worth
paying for!
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What is Best Cost Strategy
•First, it is not both low cost and differentiation!!
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Best Cost Provider Strategies• Combine a strategic emphasis on low-cost
with a strategic emphasis on differentiation– Make an upscale product at a lower cost– Give customers more value for the money
• Deliver superior value by meeting or exceeding buyer expectations on product attributes and beating their price expectations
• Be the low-cost provider of a product with good-to-excellent product attributes, then use cost advantage to underprice comparable brands
Objectives
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Risk of a Best-Cost Provider Strategy
• Risk – A best-cost provider may get squeezed between strategies of firms using low-cost and differentiation strategies
– Low-cost leaders may be able to siphon customers away with a lower price
– High-end differentiators may be able to steal customers away with better product attributes