industry analysis: advantage forces influencing …schragec/glomarketing 15.pdf · seek out loose...

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Strategic Elements of Competitive Strategic Elements of Competitive

AdvantageAdvantage

Global MarketingGlobal Marketing

Chapter 15Chapter 15

Industry Analysis: Industry Analysis:

Forces Influencing CompetitionForces Influencing Competition

Global Marketing- Schrage 15 15-2

IndustryIndustryBarriers to Barriers to

EntryEntry

Power of Power of

BuyersBuyers

Power of Power of

SuppliersSuppliers

Substitute Substitute

ProductsProducts

Competitive Competitive

RivalryRivalry

Porter’s Force 1: Porter’s Force 1:

Threat of New EntrantsThreat of New Entrants

• New entrants mean

downward pressure on

prices and reduced

profitability

• Barriers to entry

determine the extent of

threat of new industry

entrants


Threat of New Entrants: Barriers to EntryThreat of New Entrants: Barriers to Entry

• Economies of scale

• Product differentiation

• Capital requirements

• Switching costs

• Distribution channels

• Government policy

• Cost advantages independent of scale economies

• Competitor responseGlobal Marketing- Schrage 15 15-4


Threat of Substitute ProductsThreat of Substitute Products

• Availability of substitute products places

limits on the prices market leaders can

charge

• High prices induce buyers to switch to the

substitute



Bargaining Power of BuyersBargaining Power of Buyers• Buyers = manufacturers and retailers, not consumers

• Buyers seek to pay the lowest possible price

• Buyers have leverage over suppliers when

– They purchase in large quantities (enhances supplier dependence on buyer)

– Suppliers’ products are commodities

– Product represents significant portion of buyer’s costs

– Buyer is willing and able to achieve backward integration


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Bargaining Power of SuppliersBargaining Power of Suppliers

• When suppliers have leverage, they can raise prices high enough to affect the profitability of their

customers

• Leverage accrues when

– Suppliers are large and few in number

– Supplier’s products are critical inputs, are highly differentiated, or carry switching costs

– Few substitutes exist

– Suppliers are willing and able to sell product themselves



Rivalry Among CompetitorsRivalry Among Competitors

• Refers to all actions taken by firms in the

industry to improve their positions and gain

advantage over one another

– Price competition

– Advertising battles

– Product positioning

– Differentiation


Competitive AdvantageCompetitive Advantage

• Achieved when there is a match between a

firm’s distinctive competencies and the factors

critical for success within its industry

• Two ways to achieve competitive advantage

– Low-cost strategy

– Product differentiation


Generic Strategies for Creating Generic Strategies for Creating


• Broad market strategies

– Cost leadership—low price

– Product differentiation—premium price

• Narrow market strategies

– Cost focus—low price

– Focused differentiation—premium price



Broad StrategiesBroad Strategies

Cost LeadershipCost Leadership

•• Based on a firm’s position as the Based on a firm’s position as the

industry’s lowindustry’s low--cost producercost producer

•• Must construct the most efficient Must construct the most efficient

facilitiesfacilities

•• Must obtain the largest market share Must obtain the largest market share

so that its per unit cost is the lowest so that its per unit cost is the lowest

in the industryin the industry

•• Works only if barriers exist that Works only if barriers exist that

prevent competitors from achieving prevent competitors from achieving

the same low coststhe same low costs

Product DifferentiationProduct Differentiation

•• Product that has an actual or Product that has an actual or

perceived uniqueness in a broad perceived uniqueness in a broad

market has a differentiation market has a differentiation

advantageadvantage

•• Extremely effective for defending Extremely effective for defending

market positionmarket position

•• Extremely effective for obtaining Extremely effective for obtaining

aboveabove--average financial returns; average financial returns;

unique products command a unique products command a

premium pricepremium price


Narrow StrategiesNarrow Strategies

Cost FocusCost Focus

•• Firm’s lower cost position enables it to Firm’s lower cost position enables it to

offer a narrow target market and lower offer a narrow target market and lower

prices than the competitionprices than the competition

•• Sustainability is the central issue for Sustainability is the central issue for

this strategythis strategy

•• Works if competitors define their Works if competitors define their

target market more broadlytarget market more broadly

•• Works if competitors cannot define Works if competitors cannot define

the segment even more narrowlythe segment even more narrowly

Focused DifferentiationFocused Differentiation

•• The product has actual uniqueness but The product has actual uniqueness but

it also has a very narrow target marketit also has a very narrow target market

•• Results from a better understanding of Results from a better understanding of

customers’ wants and desirescustomers’ wants and desires

•• Ex: HighEx: High--end audio equipmentend audio equipment

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Build layers of Build layers of

advantageadvantage

ColloboratingColloborating

Seek out loose Seek out loose

bricksbricks

Changes rules of Changes rules of

EngagementEngagement

Competitive Competitive Advantage via Advantage via

Strategic Strategic IntentIntent


Building Layers of AdvantageBuilding Layers of Advantage

• Build a wide portfolio of advantages

• Develop portfolios by establishing layers on top of one another

• Move along the value chain to strengthen

competitive advantage


Searching for Loose BricksSearching for Loose Bricks

• Search for opportunities in the defensive walls

of competitors whose attention is narrowly

focused

– Focused on a market segment

– Focused on a geographic area to the exclusion of

others


Changing the Rules of EngagementChanging the Rules of Engagement

• Refuse to play by the rules set by industry leaders

• Ex: Xerox and Canon

– Xerox employed a huge direct

sales force; Canon chose to use

product dealers

– Xerox built a wide range of

copiers; Canon standardized machines and components

– Xerox leased machines; Canon sold machines


CollaboratingCollaborating

• Use the know-how developed by other

companies

• Licensing agreements, joint ventures, or

partnerships


Strategic AlliancesStrategic Alliances• Cooperative agreements between potential or actual

competitors.

• Advantages:

– Facilitate entry into market.

– Share fixed costs.

– Bring together skills and assets that neither company has or

can develop.

– Establish industry technology standards.

• Disadvantage:

– Competitors get low cost route to technology and markets.

4


Partner SelectionPartner Selection

• Get as much information as possible on the

potential partner

• Collect data from informed third parties

– former partners

– investment bankers

– former employees

• Get to know the potential partner before

committing


4 Cs to partner selection4 Cs to partner selection

• Complementary skills

• Cooperative cultures

• Compatible goals

• Commensurate levels of risk

Global Competition and National Global Competition and National


• Global competition occurs when a firm takes a global

view of competition and sets about maximizing

profits worldwide

• The effect is beneficial to consumers because prices

generally fall as a result of global competition

• While creating value for consumers, it can destroy

the potential for jobs and profits


Related and

Supporting

Industries

Strategy,

Stucture,

Rivalry

National National Competitive AdvantageCompetitive Advantage


Activity Activity in any one of the four points of the diamond impacts all in any one of the four points of the diamond impacts all the others and vice versathe others and vice versa

Demand

ConditionsFactor

Conditions

Factor ConditionsFactor Conditions

ResourcesResources

PhysicalPhysical

KnowledgeKnowledge

CapitalCapitalInfrastructureInfrastructure

HumanHuman

Global Marketing- Schrage 1515-23

Demand ConditionsDemand Conditions


5

Related and Supporting IndustriesRelated and Supporting Industries

The advantage that a nation gains by being home

to internationally competitive industries in

fields that are related to, or in direct support of,

other industries


StrategyStrategy, Structure, and Rivalry, Structure, and Rivalry

• Domestic rivalry in a single national market is a powerful influence on competitive advantage

– complacency in the home firms

– noncompetitive in the world markets

• Differences in management styles, organizational skills, and strategic perspectives create advantages and disadvantages depending on what industry

• Capital markets and attitudes toward investments affect the national environments

• Chance events create major discontinuities

• Government influences determinants by its roles as a consumer, policymaker, and commerce regulator


Current Current IssuesIssues

• In today’s business environment, market stability is undermined by– Short product life cycles

– Short product design cycles

– New technologies

– Globalization

• Escalation and acceleration of competitive forces

• Difficult to achieve one sustainable advantage– Build a series of unsustainable but effective advantages

• Marketing focus needs to be on innovation– Learn to create new markets

• Must forget “that’s the way we always have done it”


Current Current IssuesIssues

• Hypercompetition is a term used to describe a

dynamic competitive world in which no action

or advantage can be sustained for long

• Competition unfolds in a series of dynamic

strategic interactions in four areas: cost

quality, timing and know-how, entry barriers,

and deep pockets


Innovative organizations Innovative organizations spend neither time nor spend neither time nor resources on defending resources on defending yesterday. Systematic yesterday. Systematic abandonment of yesterday abandonment of yesterday alone can transfer the alone can transfer the resources . . . for work on resources . . . for work on the new.the new.

——Peter Peter DruckerDrucker


industry analysis: advantage forces influencing …schragec/glomarketing 15.pdf · seek out loose...

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