MBS608 From Strategy

to Operations
Week 2b
Presented by Mr Venkat SN
 Learning objectives
THIS CHAPTER WILL HELP YOU
UNDERSTAND:
1. Whether and when to pursue offensive or defensive
strategic moves to improve a firm’s market position
2. When being a first mover or a fast follower or a late
mover is most advantageous
3. The strategic benefits and risks of expanding a firm’s
horizontal scope through mergers and acquisitions
4. The advantages and disadvantages of extending the
company’s scope of operations via vertical integration
5. The conditions that favor outsourcing certain value
chain activities to outside parties
6. When and how strategic alliances can substitute for
horizontal mergers and acquisitions or vertical
integration and how they can facilitate outsourcing

© McGraw-Hill
Education.
Maximizing the power of a strategy

Making choices that complement

a competitive approach and
maximize the power of strategy

Offensive and Competitive Scope of

defensive dynamics and the operations along
competitive timing of strategic the industry’s
actions moves value chain

Jump to Appendix 1 long image description

 Considering strategy-enhancing
measures
 Whether and when to go on the offensive strategically
 Whether and when to employ defensive strategies
 When to undertake strategic moves—first mover,
a fast follower, or a late mover
 Whether to merge with or acquire another firm
 Whether to integrate backward or forward into more
stages of the industry’s activity chain
 Which value chain activities, if any, should be
outsourced
 Whether to enter into strategic alliances or partnership
arrangements
 Source: Strategic Marketing Management; Richard Wilson , and Colin Gilligan; Routledge
Influence of Market Position on
Strategy
Expand the Market
Leaders Protect current share
Expand current share

Discount or cut prices

Offer Cheap Goods
Innovate – Products, Distribution
Challengers Improve services
Advertise Heavily
Proliferate the range
Reduce costs

Segment carefully
Nichers Use R&D Cleverly
Challenge conventional wisdom

Adopt non aggressive stance

Followers
Watch Leaders and Challengers
and React to their moves
 Source: Strategic Marketing Management; Richard Wilson , and Colin Gilligan; Routledge
Strategies for Market Leaders
Market leadership

Expand the Guard the Expand the

overall market existing market current market
share share

• Heavy
• Strong market advertising
• Targeting the positioning
• Improved
• Development of
groups that meaningful distribution
are currently competitive • Price
non-users advantages
incentives
• Continuous
• Identifying product and New product
new uses for process developments
the product / innovation
• Mergers
• Generally
service proactive stance • Takeovers
• Increasing • Heavy advertising • Geographic
usage rates • Strong customer
expansion
and distributor
relations • Distributor
expansion
Starbucks’ growth

Revenue growth from 2003 to 2017; US$ Bn

Offensive Strategies – When?
Favourable conditions

Marketing Strategy 3e, A Decision Focused Approach;

External Factors Favourable Prod / Mkt Conditions
Industry / Market Intro or early growth stage of life cycle;

Walker et al.; Australian Edition; McGraw Hill

many potential customer segments as
yet unidentified and / or undeveloped
Technology Emerging Tech, many applications
undeveloped
Competition Few established competitors, emerging
industry structure; single competitor
hold commanding share of major
market segments
Relative Strengths SBU / Parent has strong R&D. Product
engg, mkt research, and marketing
capabilities. P&G and Olay?
Adapted from “Market Based Management” – Roger Best
Offensive / Growth Oriented
Policies and Programmes

Marketing Strategy 3e, A Decision Focused Approach;

Policies and Programmes Compared with average
competitor

Walker et al.; Australian Edition; McGraw Hill

Product policies
Product –line breadth Greater
Technical sophistication Greater
Product Quality May/may not be correlated*
Service Quality May/may not be correlated*
Distribution policies
Forward vertical integration Lesser
Trade promotion expenses Greater as a% of sales

* PDAs and Mobile phones of questionable quality were launched by mkt

leaders and sold to customers in the growth phase .
Offensive / Growth Oriented
Policies and Programmes

Marketing Strategy 3e, A Decision Focused Approach;

Policies and Programmes Compared with average
competitor

Walker et al.; Australian Edition; McGraw Hill

Price policies
Relative Price levels Greater
Promotion policies
Sales force expenses as % May/may not be correlated*
sales relative to competitors
Sales promotion expenses Greater as a% of sales
Advertising expenses Greater as a% of sales

* It could be greater or lesser depending upon labour market situation and

supply of relevant talent.
Note of Caution

 While Offensive Marketing Strategies may be

Effective in sales growth or increase in market
share, they may not be Efficient in terms of
profitability as percentage of sales or on ROI
measure
 Think of internet and e-commerce companies
pursuing growth oriented strategies
Offensive Strategies

 Invest to Grow: Invest Marketing and sales

resources to grow the market or market share /
product position.
 Improve Position: Invest to improve and / or
strengthen competitive position in an attractive
segment of the market. Toyota invested early in
hybrid vehicles market to strengthen its
competitive position in this segment
 New Market Entry: Invest to enter new attractive
markets or develop new product-markets.

Adapted from “Market Based Management” – Roger Best

 Launched
in 2007

Adapted from “Market Based Management” – Roger Best

Launching strategic offensives to
improve a company’s market position

 Strategic offensive principles

1. Focusing relentlessly on building competitive
advantage and then striving to convert it into
sustainable advantage
2. Applying resources where rivals are least able to
defend themselves
3. Employing the element of surprise as opposed to
doing what rivals expect and are prepared for
4. Displaying a capacity for swift, decisive, and
overwhelming actions to overpower rivals
Choosing the basis for competitive
attack

 Avoid directly challenging a targeted

competitor where it is strongest.
 Use the firm’s strongest strategic
assets to attack a competitor’s
weaknesses.
 The offensive may not yield immediate
results
if market rivals are strong competitors.
 Be prepared for the threatened
competitor’s counter-response.
Principal offensive strategy options
1. Offering an equally good or better product at a lower price

2. Leapfrogging competitors by being first to market with

next-generation products

3. Pursuing continuous product innovation to draw sales and

market share away from less innovative rivals

4. Pursuing disruptive product innovations to create new

markets

5. Adopting and improving on the good ideas of other

companies (rivals or otherwise)

6. Using hit-and-run or guerrilla marketing tactics to grab

market share from complacent or distracted rivals

7. Launching a preemptive strike to secure an industry’s

limited resources or capture a rare opportunity
© McGraw-Hill
Education.
Choosing which rivals to attack

Best Targets for

Offensive Attacks

Market leaders Runner-up firms Small local

Struggling
that are in with weaknesses and regional
enterprises on
vulnerable in areas where firms with
the verge of
competitive the challenger limited
going under
positions is strong capabilities

Jump to Appendix 2 long image description

© McGraw-Hill
Education.
 Blue-Ocean strategy, a special
kind of offensive strategy
The business universe is divided into:
An existing market with boundaries
and rules in which rival firms
compete for advantage
A “blue ocean” market space, where
the industry has not yet taken
shape, with no rivals and wide-open
long-term growth and profit
potential for a firm that can create
demand for new types of products
 CORE CONCEPT (1 of 8)

A blue-ocean strategy offers growth in

revenues and profits by discovering or
inventing new industry segments that create
altogether new demand.

© McGraw-Hill
Education.
 Bonobos’s Blue-Ocean Strategy in
the U.S. Men’s Fashion Retail
Industry

 Given the rapidity with which most first-mover advantages

based on Internet technologies can be overcome by
competitors, what has Bonobos done to retain its
competitive advantage?
 Is Bonobos’s unique focused-differentiation entry into
brick-and-mortar retailing a sufficiently strong strategic
move?
 What would you predict is the likelihood of long-term
success for Bonobos in the retail clothing sector?

© McGraw-Hill
Education.
 Defensive strategies—protecting market
position and competitive advantage

Purposes of
Defensive Strategies

Weaken the Influence

Lower the firm’s
impact challengers to aim
risk of being
of an attack their efforts
attacked
that does occur at other rivals

Jump to Appendix 3 long image description

© McGraw-Hill
Education.
 FORMS OF DEFENSIVE STRATEGIES
Defensive strategies can
take either of two forms
Actions to block challengers
Actions to signal the
likelihood of strong
retaliation

© McGraw-Hill
Education.
STRATEGIC MANAGEMENT PRINCIPLE (3 of 8)

Good defensive strategies can help protect a

competitive advantage but rarely are the
basis for creating one.

© McGraw-Hill
Education.
Defensive Strategies – When?
Favourable Prodt / Mkt conditions
External Differentiated Defender
Factors
Industry / Mature or decline stage of life
Market cycle; all major segments
targeted by offerings; sales
from repeat purchase/
replacement
Technology Tech fully developed, stable;
few major modifications or
improvements likely
Competition Well established competitors,
stable industry structure;
M&A possible; relative shares
of competitors stable.
Relative SBU / Parent has no
Strengths outstanding R&D, Product
engg; costs are higher than
some competitors; Very
strong in process engg, QC,
marketing, sales, service,
distribution.
Marketing Strategy 3e, A Decision Focused Approach;
Low-cost Defender
Mature or decline stage of life
Walker et al.; Australian Edition; McGraw Hill
cycle; all major segments
targeted by offerings; sales
from repeat purchase/
replacement
Tech fully developed, stable;
few major modifications or
improvements likely
Well established competitors,
stable industry structure;
M&A possible; relative shares
of competitors stable.
SBU / Parent has superior
supply, process engg,
production, => low-cost;
R&D, Product engg,
marketing, sales, service,
may not be as strong as
competitors
Adapted from “Market Based Management” – Roger Best
Defensive Policies and Programmes
Comparisons

Marketing Strategy 3e, A Decision Focused Approach;

Policies and Differentiated Low-cost defender
Programmes defender

Walker et al.; Australian Edition; McGraw Hill

Product policies Compare with average competitor
Product–line breadth Greater Lesser
Technical Greater Lesser
sophistication
Product Quality Greater Lesser
Service Quality Greater Lesser
Distribution Compare with average competitor
policies
Forward vertical Greater May/may not be
integration correlated
Trade promotion Lesser as a % of Lesser
expenses sales
Defensive Policies and Programmes
Comparisons

Marketing Strategy 3e, A Decision Focused Approach;

Policies and Differentiated Low-cost defender
Programmes defender

Walker et al.; Australian Edition; McGraw Hill

Price policies Compare with average competitor
Relative Price levels Greater Lesser
Promotion policies Compare with average competitor
Sales force expenses Greater as a% of Lesser as a% of
as % sales relative sales sales
to competitors
Sales promotion May/may not be Lesser as a% of
expenses correlated* sales
Advertising expenses May/may not be Lesser as a% of
correlated* sales

* It could be greater or lesser depending upon market situation and needs.

Blocking the avenues open to
challengers
 Introduce new features and models to broaden
product lines to close off gaps and vacant niches.
 Maintain economy-pricing to thwart lower price
attacks.
 Discourage buyers from trying competitors’ brands.
 Make early announcements about new products or
price changes to induce buyers to postpone switching.
 Offer support and special inducements to current
customers to reduce the attractiveness of switching.
 Challenge quality and safety of competitor’s products.
 Grant discounts or better terms to intermediaries who
handle the firm’s product line exclusively.
 Signaling challengers that
retaliation is likely

 Signaling is an effective defensive strategy when the

firm follows through by:
 Publicly announcing its commitment to maintaining the
firm’s present market share
 Publicly committing to a policy of matching competitors’
terms or prices
 Maintaining a war chest of cash and marketable securities
 Making a strong counter-response to the moves of weaker
rivals to enhance its tough defender image
 To be an effective defensive strategy, signaling needs to be
accompanied by a credible commitment to follow through.

“Effectiveness of a threat is in the fear of it being carried

out” – Cardull Hull – Secy of State to Franklin D Roosevelt
 CORE CONCEPT (2 of 8)

Because of first-mover advantages and

disadvantages, competitive advantage can
spring from when a move is made as well as
from what move is made.

© McGraw-Hill
Education.
 Timing a firm’s offensive and
defensive strategic moves

 Timing’s importance:
 Knowing when to make a strategic move is as crucial
as knowing what move to make.
 Moving first is no guarantee of success or
competitive advantage.
 The risks of moving first to stake out a monopoly
position versus being a fast follower or even a late
mover must be carefully weighed.
Conditions that lead to first-mover
advantages
1. When pioneering helps build a firm’s
reputation and creates strong brand loyalty
2. When a first mover’s customers will
thereafter face significant switching costs
3. When property rights protections thwart rapid
imitation of the initial move
4. When an early lead enables movement down
the learning curve ahead of rivals
5. When a first mover can set the technical
standard for the industry
 Uber’s First-Mover Advantage in Mobile
Ride-Hailing Services

 Which first-mover advantages contributed to Uber’s

domination of the on-demand transportation markets in its
chosen cities?
 What first-mover advantages will Uber not have in entering
overseas markets?
 How could Uber extend its success into smaller and less
urban markets as user growth in the larger urban markets
peaks?

© McGraw-Hill
Education.
The potential for late-mover advantages
or first-mover disadvantages

 When pioneering is more costly than imitating and

offers negligible experience or learning-curve benefits
 When the products of an innovator are somewhat
primitive and do not live up to buyer expectations*
 When rapid market evolution allows fast followers to
leapfrog a first mover’s products with more attractive
next-version products
 When market uncertainties make it difficult to
ascertain what will eventually succeed
 When customer loyalty is low and first mover’s skills,
know-how, and actions are easily copied or surpassed

* MP3 players vs iPod+iTunes

 TO BE A FIRST MOVER OR NOT
 Does market takeoff depend on
complementary products or services that
currently are not available?
 Is new infrastructure required before buyer
demand can surge?
 Will buyers need to learn new skills or adopt
new behaviors?
 Will buyers encounter high switching costs in
moving to the newly introduced product or
service?
 Are there influential competitors in a position
to delay or derail the efforts of a first mover?

© McGraw-Hill
Education.
Marketing Strategy: Walker et. Al 2nd ed McGraw Hill Co.
Defensive Strategies
 Protect Position: Invest to protect an attractive market
position in which the business dominates with respect to
competition. Red Bull (energy drink) and Gatorade (sports
drink) have market shares of 80%. Attractive and growing
markets. New competitors enter and attack the products.
 Optimize Position: Many businesses implement a defensive
strategy in the mature stage of the product life cycle. When
growth potential is limited, competitive position is set, business
need to optimize the marketing mix to produce maximum
profits. This is the time in PLC when volumes are nearly at full
potential and margins are still somewhat attractive.
Incrementally reduce investment in marketing resources
because the product-market is mature. Make a conscious effort
to reduce the customer base in order to reach a more profitable
business.
 E.g. Banks charge a fee for small non-profitable accounts. If
these customers leave, banks can grow profit with a smaller
more focussed customer base.
 If managed well, in later stages of PLC, this strategy allows
product to produce maximum profits.

Adapted from “Market Based Management” – Roger Best

Defensive Strategies
 Monetize: Use in less attractive markets in which a
business has some level of competitive position. This
strategy manages prices and marketing resources in a way
that maximizes cash flow without exiting the market.
 Business in the cash flow mode often place limits on
payment terms, do not pay for shipping, and offer few
customer services. Price is competitive, but the businesses
minimize investment in their products and strive for max
cash flow from their market position.
 Harvest Strategy: Manage market position for max cash
flow with limited marketing resources. Usually the business
slowly exits a product-market. Prices are increased as
volumes decline. In the short run the strategy produces a
higher gross profit. Reducing marketing expenses lowers
the cost of marketing. Business exits the market when no
prospect for a short run profit remains.
 Divest Strategy: Exit a market by selling, closing down
business, eliminating the product. Cut loss.

Adapted from “Market Based Management” – Roger Best

Harvest Price Strategy

Adapted from “Market Based Management” – Roger Best

GM Defensive Strategies

Adapted from “Market Based Management” – Roger Best

GM Defensive Strategies

Adapted from “Market Based Management” – Roger Best

GM Defensive Strategies

Adapted from “Market Based Management” – Roger Best

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