marketing competetive strategty
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MARKETING
Competitive Strategies
Uma Shankar Singh(Full Time Research Scholar )
Institute of business & Computer StudiesSiksha O Anusandhan University
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COMPETITIVE ADVANTAGE ANDHOW IT IS OBTAINED
Competitive AdvantageWhat sets an organization apart -- competitiveedge
Controlling or having something others do not haveDoing something better than other organizationsDoing something other organizations cannot do
Competitive strategies are designed to exploit anorganizations competitive advantageImplies there are other competitors also trying todevelop competitive advantage & attract customersCompetitive advantage can be eroded easily (&often quickly) by rivals actions
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Understanding theCompetitive Environment
What is competition?When organizations battle for some desired
object or outcomeCustomersMarket shareSurvey rankingsNeeded resources
Hypercompetition A situation of intense and continually increasing
levels of competition in todays business environment
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Understanding theCompetitive Environment
Who are our competitors? -- 3 Perspectives(1) Industry perspective
Identifies competitors as firms that are making thesame products or providing the same serviceDescribes industries according to number of sellers &
the similarities or differences in the products or
services
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Who are our Competitors?
(2) Marketing perspectiveCompetitors are firms that satisfy the same
customer needsIntensity of competition depends on
How well the customer need is understood ordefinedHow well different firms are able to meet that
need
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Who are our Competitors?
(3) Strategic Group PerspectiveCompetitors are firms that follow similar
strategiesStrategic group is a set of firms competing withinan industry that have similar strategies &resources An single industry could have a few or severalstrategic groups depending on what strategicfactors are important to different group ofcustomers
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Who are our Competitors?
Strategic Group Perspective (Contd)Constructing a strategic group map
Identify competitive characteristics thatdifferentiate firms in an industry from one anotherPlot firms on a two-variable (X-Y) map using pairs
of these differentiating characteristics Assign firms that fall in about the same strategyspace to same strategic groupsDraw circles around each group, making circles
proportional to size of groups respective share oftotal industry sales
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Who are our Competitors?
Strategic Group Perspective (Contd)Guidelines for constructing SGM
Variable selected as axes should not be highlycorrelated Variables chosen as axes should expose big differences in how rivals compete Variables do not have to be either quantitative orcontinuousDrawing sizes of circles proportional to combined
sales of firms in each strategic group allows map toreflect relative sizes of each strategic groupIf more than two good competitive variables can be
used, several maps can be drawn
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Strategic Group Map of Competitorsin Video Game Industry
Overall Cost to Players of Video Games
Low Medium High
Distribn
Channels
OnlineSites
Consoles
Arcades
HomePCs
SonySega Nintendo
etc.
Arcade operators,Coin-operatedmachines
MSN gaming ZoneAOLHEAT
Publishersof games oCD-ROMs
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Resources, Capabilities &Competitive Advantage (CA)
Every firm has resources & work processesSystems to do whatever its in business to do
But not every firm is able toEffectively exploit its resources & capabilitiesObtain resources & capabilities it needs
Some firms are able to pull it together &
develop distinctive capabilities, others dontCompetitive advantage implies gaining the edgeon others using resources & capabilities
As firms strive for sustainable CA, stage forcompetition is set - intense, moderate, low
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Competitive Advantage &Competitive Strategy
What is competitive strategy? Consists of business approaches to
Attract customers by fulfilling their expectations Withstand competitive pressures Strengthen market position
Exploits competitive advantage byfinding ways to use resources & capabilities to set
firm apart from competitors
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PORTERS GENERICCOMPETITIVE STRATEGIES
Competitive advantage come from one of twosources:
Having the lowest cost in the industry
Possessing a product or offering a service that is perceived as unique in the industry
Another important factor is the scope of theproduct-market (broad or narrow)Mix of these factors provide basis for
Cost leadership strategy (low-cost strategy)Differentiation strategy
Focus strategy
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PORTERS GENERICCOMPETITIVE STRATEGIES
MarketScope
Competitive AdvantageLow Cost Differentiation
Broad
Narrow
Cost Leadership Differentiation
Focus(Low Cost)
Focus(Differentiation)
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Cost Leadership Strategy
Objective : Gain sustainable competitive advantage over
competitors, using low-cost (not price) Produce for broad customer base
Basic Theme (Keys to Success): Low-cost relative to competitors
Low cost implies OVERALL LOW COST Not just low manufacturing or production costProduct quality cannot be ignored
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Characteristic of CostLeaders
Champion frugalityStrict attention to production controls
Rigorous use of budgetsLittle product differentiationLimited market segmentation
Emphasis on productivity improvementsDistinctive capabilities found inmanufacturing & materials management
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Successful Pursuit of CostLeadership Strategy
Every strategic decision is aimed at keepingcost as low as possible
Efficiency is sought in all areas of operation All functional strategies & capabilities aredirected at efficiency
Doesnt have deep & wide product linesMarket products aimed at average customerLittle or no product frills or differences
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When Cost LeadershipWorks Best
Price competition is vigorous Product is standardized or readily
available from many suppliers There are few ways to achievedifferentiation that have value
Most buyers use product in same ways Buyers incur low switching costs Buyers are large and have significant
bargaining power
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Competitive Strengths ofCost Leadership Strategy
RIVAL COMPETITORS - compete usinglow price
BUYERS - nullify power to drive down pricesSUPPLIERS -Flexibility to cope with inputcost increases
POTENTIAL ENTRANTS - More efficient(through EOS) & pricing powerSUBSTITUTE PRODUCTS - Potential use oflow price
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Drawbacks of CostLeadership Strategy
Being overly aggressive in cutting price Low cost methods are easily imitated by rivals
Becoming too fixated on reducing costsand ignoring Buyer interest in additional features (tastes)
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 Strategy
Objective Offering products/services perceived as unique
over the brands of rivals in an industry
Keys to Success Offer products/services that create value to
customers
Offer products/services not easily matched oreasily copied by rivals Not spending more to differentiate the firms
products or service than the price premium thatcan be charged
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Differentiation Themes
Unique taste -- Dr. Pepper Special features -- America Online Superior service -- FedEx, Ritz-Carlton Spare parts availability -- Caterpillar More for your money -- McDonalds, Wal -Mart Engineering design and performance -- Mercedes
Prestige -- Rolex Quality manufacture -- Honda , Toyota Technological leadership -- 3M Corporation, Intel Top-of-the-line image -- Ralph Lauren, Chanel
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Benefits of Differentiation
A product / service with unique andappealing attributes allows a firm to
Command a premium price and/or Increase unit sales and/or Build brand loyalty
= Competitive Advantage
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Characteristics ofSuccessful Differentors
Every strategic decision & action is directedat setting the firm apart from competitors
All functional strategies & capabilities areaimed at isolating & understanding specificmarket segments & developing productfeatures that are valued by customersHas broad and wide product lines -- manydifferent models, features, price ranges,etc.
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Characteristics ofSuccessful Differentors
Has many market segments & productfeatures
Controls costs but not as rigorous as thecost leader to preserve source ofdifferentiation
Strives to establish brand loyaltyCompetitive capabilities tends to be inmarketing and research & development
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ompetitive Strengths ofDifferentiation
RIVAL COMPETITORS - Brand loyalty & lowersensitivity to price
BUYERS - lack of alternatives & low sensitivityto price
SUPPLIERS - High margins provide ability topay increases in input costs
POTENTIAL ENTRANTS - Buyer loyalty &uniqueness of product/service
SUBSTITUTES - lack of comparable featuresand customer loyalty
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When Differentiation WorksBetter
There are many ways to differentiate aproduct that have value and pleasecustomers
Buyer needs and uses are diverse Few rivals are following a similar type of
differentiation approach Technological change is fast-paced
and competition is focused on evolvingproduct features
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Drawbacks ofDifferentiation 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
customers needs Charging a price premium that customers perceive is too
high Failing to signal value Not understanding what customers want or prefer and
differentiating on the wrong things Low-cost strategy can defeat a differentiation strategy
when customers are satisfied with a standard product anddo not see extra attributes as worth paying for!
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Focus Strategy
Firm pursues either a cost leadership ordifferentiation strategy but in a narrow
customer group of segmentConcentrates on serving specific marketniche
Geographical areaType of customer -- specific group of
customersSpecific & specialized product line
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Focus Strategy
ObjectiveServe the niche customers better than
competitors
Keys to SuccessChoose a market niche where buyers have
distinctive preferences, specialrequirements, or unique needs Develop unique capabilities to serve needs of
target buyer segment
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Focus Approaches
Approach 1: Cost Advantage Achieve lower cost than rivals in serving thespecific or narrow segment
Approach 2: Differentiation AdvantageOffer customers in niche market something
unique in that market
Product featuresProduct innovationsProduct qualityCustomer responsiveness
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Examples of Focus Strategy
Focus Low-cost Ikea : Young furniture buyers who want style at low cost
(price sensitive and low service customer groups)
Southwest Airlines : Short-haul, point-to-point servicebetween midsize cities & secondary airports in largecities (low pricing & low service)
Focus Differentiation
Rolex : Serve highest end of wristwatch market(premium pricing & image)Rolls-Royce : Serving luxurious end of automobilemarket (premium pricing & image)
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Advantages of the FocusStrategy
The focuser knows its market niche andknows it well
The focuser can stay close to customersand respond quickly to their changingneeds
Focuser can develop strong brand loyaltywhich can be difficult for othercompetitors to overcome
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Drawbacks of FocusStrategy
Operates in small scale making it difficult tolower costs significantly. Technological advanceshas minimized this drawback
Competitors find effective ways to match afocusers capabilities in serving niche market
Niche can become part of the overall market
Segment becomes so attractive it becomescrowded with rivals, causing segment profits tobe splintered
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Stuck in the Middle
Happens when a firm is not successful in pursuingeither a low-cost or differentiation strategyOccurs when a firms
Costs are too high to compete with the low-cost leaderProducts & services are not differentiatied enough tocompete with broad differentiator
Unprofitable strategic position/directionBecoming unstuck involves making consistentstrategic decisions about what CA to pursue &doing so by aligning resources & capabilities
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NEW PERSPECTIVES ONCOMPETITIVE STRATEGY
Integrated Low-Cost Differentiation StrategyDevelops CA by simultaneously achieving low-
cost and high levels of differentiationMake an upscale product at a lower costGive customers more value for the money
Technological advancements that make thishybrid competitive strategy possible are
Flexible manufacturing systemsJust-in-time inventory systems
Computer-integrated manufacturing systems
S C S O
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NEW PERSPECTIVES ONCOMPETITIVE STRATEGY
Advantages of hybrid strategy Competitive advantage from
Premium pricing and Cost efficiency
Success depends on having the capabilities to Provide attractive performance and features,
& Lower cost than rivals
Can often out-compete both a low-cost
provider and a differentiator
NEW PERSPECTIVES ON
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NEW PERSPECTIVES ONCOMPETITIVE STRATEGY
Examples of Integrated low-costdifferentiation strategy Toyota & Honda
Cost reduction through zero defects anddifferentiation through quality
Canon
Cost reduction through EOS and differentiationthrough design of copiers
Wal-Mart Cost reduction through automation and
differentiation through quality (more value)
NEW PERSPECTIVES ON
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NEW PERSPECTIVES ONCOMPETITIVE STRATEGY
Mintzberg s generic Competitive StrategiesDifferentiation by price
Differentiation by marketing imageDifferentiation by product designDifferentiation by quality
Differentiation by product supportUndifferentiated strategyMirrors the realities of todays dynamic
competitive environment
IMPLEMENTING
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IMPLEMENTINGCOMPETITIVE STRATEGY
Without implementation, a strategy isnothing more than a strategic idea or planRole of functional strategies
Using resources & capabilities to create &exploit CA takes place through the actualstrategies that are being used in the functional
areasHave a dual role in determining
What competitive strategy is most appropriate?How is the strategy implemented?
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C titi P t d
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Competitive Postures andActions
Offensive Moves: Undertaken tobuild new or stronger market positions and/orcreate competitive advantage
Defensive Moves: Undertaken to protect competitive advantage reduce risk of being attacked
discourage the offensive strategies of rivals Blunt the impact of any attack
Rarely a basis for creating competitiveadvantage
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Offensive Strategic Moves
Matching or exceeding rivals strength (Frontalassault)
Capitalizing on rivals weaknesses Simultaneous offense on many fronts End- run offensives (Komatsus move to LDCs) Guerrilla offenses
Preemptive Strikes (Microsofts bundling ofInternet Explorer with Windows 95 & 98)
Acquisition of competitors
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Defensive Strategic Moves Block avenues rivals can take to mount attack
sign exclusive contracts with best suppliers patent alternative technologies broaden product line to match rivals
Keep prices low on models that match rivals Challenge rivals products or practices in regulatory proceedings
(Netscape vs. Microsoft), etc.
Make clear willingness to fight challengers
Publicly make commitments to maintain market share Publicly commit firm to policy of matching prices of items
offered by rivals Maintain excess cash reserves; etc.
Lower inducement for attack (e.g., Southwest Airlines)
E l ti g & Ch gi g
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Evaluating & ChangingCompetitive Strategy
Responsibility of managing strategicallyinvolves
Implementing competitive strategyMonitoring, assessing, and evaluating strategy
for performance effectiveness & efficiencyCompetitive strategies are targeted at
increasing sales revenues, market share, orprofitabilityData on these areas help determine the
impact of competitive strategy
E l ti g & Ch gi g
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Evaluating & ChangingCompetitive Strategy
Changing Competitive StrategyOrganizations fundamental competitive
strategy is not changed frequently and
continuallyEach competitive strategy entails the developmentof specific resources & capabilities. To change this isdifficult
Major competitive strategic change should beapproached realistically & intelligently
Although changing a firms competitive strategyisnt very likely, modifying the competitive