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Presentation on

Competitive strategy
Competitive strategy: the core
concept
Competition is at the core of the success or failure of any
business.

Competition determines the appropriateness of a firms


activities that can contribute to its performance, such as
innovation, a cohesive culture, or good implementation.

Competitive strategy is the search for a favorable


competitive position in an industry, it aims to establish a
profitable and sustainable position against the forces that
determine industry competition.
Competitive strategy is
about being different. It
means deliberately choosing
to perform activities
differently or to perform
different activities than rivals
to deliver a unique mix of
value.
Michael E. Porter
What Is
Competitive Strategy?
Deals exclusively with a companys business plans
to compete successfully
Specific efforts to please customers
Offensive and defensive moves to counter maneuvers of
rivals
Responses to prevailing market conditions
Initiatives to strengthen its market position
Narrower in scope than business strategy
Two central question underlies the choice
of competitive strategy:
To identify the attractiveness of industries for long term profitability
and factors that determine it. ( five force analysis)
To identify the determinants of relative competitive position within
an industry. (competitive advantage)
Competitive advantage
When firms sustain profits that exceed the
average for its industry, the firm is said to
possess a competitive advantage over
its rivals.
The goal of much of business strategy is
to achieve a sustainable competitive
advantage.
Michael Porter identified two basic types of
competitive advantage:
Cost advantage
Differentiation advantage
The two basic type of competitive advantage
combined with the scope of activities for which a
firm seeks to achieve them lead to three generic
competitive strategies:
Cost leadership
Differentiation
Focus
Generic competitive strategies
Competitive advantage

Lower cost Differentiation

Cost leadership Differentiation


Broad target

Competitive
scope

Cost focus Differentiation


Narrow target

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Each of these generic strategies involve a
fundamentally different route to competitive
advantage, combining a choice about the type of
competitive advantage sought with the scope of
the strategic target in which the competitive
advantage is to be achieved.
The cost leadership and differentiation strategies seek
competitive advantage in broader range of industry
segments.
Focus strategies aims at cost advantage (cost focus)
or differentiation( differentiation focus) in a narrow
segment.
1. Cost leadership
In this the firm sets out to become the low
cost producer in its industry.
Here the firm has a broad scope and
serves many industry segments, and even
operate in related industry.
Low-cost leadership means low overall
costs, not just low manufacturing or
production costs!
Low-Cost Provider Strategies

Make achievement of meaningful lower


costs than rivals as the theme of firms
strategy.
Include features and services in product
offering that buyers consider essential.
Find approaches to achieve a cost
advantage in ways difficult for rivals to copy
or match.
Characteristics of a
Low-Cost Provider
Cost conscious corporate culture
Employee participation in cost-control
efforts
Ongoing efforts to benchmark costs
Intensive scrutiny of budget requests
Programs promoting continuous cost
improvement
A Low-Cost Leadership
Strategy
Objective
Open up a sustainable cost advantage
over rivals, using lower-cost edge as a
basis either to

Be at equivalent or lower price than rivals


and reap market share gains
OR
Earn higher profit margin selling at going
price
Approaches to Securing
a Cost Advantage
Do a better job than rivals of
Approach 1

performing value chain activities


efficiently and cost effectively

Control
costs!
Approach 2 Revamp
value chain to By-pass
bypass some cost-producing activities costs!
When Does a Low-Cost
Strategy Work Best?

Price competition is vigorous


Product is standardized or readily available
from many suppliers
Most buyers use product in same ways
Buyers are large and have significant bargaining
power
Industry newcomers use introductory low prices
to attract buyers and build customer base
A cost leader , however can not ignore
the bases of differentiation.
A cost leader must achieve parity or proximity in
the bases of differentiation relative to its
competitors to be an above average performer,
even though it relies on cost leadership for its
competitive advantage.

Parity in the bases of Diff. allows a cost leader to translate its


cost advantage directly into higher profits than competitors.

Proximity in differentiation means that the price discount


necessary to achieve an acceptable market share does not
offset a cost leaders cost advantage and hence the cost leader
earns above average returns.
2. Differentiation
In a differentiation strategy, a firm seeks to be unique in
its industry along some dimensions that are widely
valued by buyers.
Differentiation can be based on the product itself, the
delivery system by which it is sold, the marketing
approach, and a broad range of other factors.
Eg:
Caterpillar Tractors differentiation is based on product
durability, service, spare parts, availability and excellent dealer
network.
Este Lauder in cosmetics differentiation tends to be based
more on product image, and positioning of counters in the store.
Differentiation Strategies
Objective
Incorporate differentiating features that cause
buyers to prefer firms product or service over
brands of rivals
Keys to Success
Find ways to differentiate that create value for
buyers and are not easily matched or copied by
rivals
Not spending more to achieve differentiation
than the price premium that can be charged
Benefits of Successful
Differentiation
A product / service with unique,
appealing attributes allows a firm to
Command a premium price and/or
Increase unit sales and/or
Which
Build brand loyalty hat is
unique?

= Competitive Advantage
Types of Differentiation Themes
Multiple features -- Microsoft Windows and Office
Superior service -- FedEx,
Quick delivery Dominos Pizza
Spare parts availability -- Caterpillar
More for your money -- McDonalds, Wal-Mart
Unique taste Minute Maid pulpy orange, KFC
Prestige -- Rolex
Quality manufacture -- Honda, Toyota
Technological leadership Apple
Top-of-line image -- Ralph Lauren, Chanel,
Sustaining Differentiation: Keys to
Competitive Advantage
Most appealing approaches to differentiation
Those hardest for rivals to match or imitate
Those buyers will find most appealing
Best choices to gain a longer-lasting, more
profitable competitive edge
New product innovation
Technical superiority
Product quality and reliability
Comprehensive customer service
Unique competitive capabilities
When Does a Differentiation
Strategy 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
Pitfalls of
Differentiation Strategies
Buyers see little value in unique attributes of product
Appealing product features are easily copied by rivals
Differentiating 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 buyers perceive is too high
Not striving to open up meaningful gaps in quality, service,
or performance features vis--vis rivals products
Focus / Niche Strategies
Involve concentrated attention on a narrow piece
of the total market
Objective
Serve niche buyers better than rivals

Choose a market Keys to Success


niche where buyers have
distinctive preferences, special requirements, or
unique needs
Develop unique capabilities to serve needs of
target buyer segment
Approaches to Defining
a Market Niche

Geographic uniqueness
Specialized requirements in using product/service
Special product attributes appealing only to niche
buyers
Examples of Focus Strategies
eBay
Online auctions
Porsche
Sports cars
Kidstuf
Childrens furniture and accessories
Admark Herbals Limited
Specialist in Ayurvedic medicines
Focus / Niche Strategies
and Competitive Advantage
Approach 1
Achieve lower costs than
rivals in serving the segment --
A focused low-cost strategy
Approach 2
Which hat
Offer niche buyers something is unique?

different from rivals --


A focused differentiation strategy
What Makes a Niche
Attractive for Focusing?
Big enough to be profitable and offers good growth
potential
Not crucial to success of industry leaders
Costly or difficult for multi-segment competitors
to meet specialized needs of niche members
Focuser has resources and capabilities
to effectively serve an attractive niche
Few other rivals are specializing in same niche
Focuser can defend against challengers via superior
ability to serve niche members
Risks of a Focus Strategy

Competitors find effective ways to match


a focusers capabilities in serving niche
Niche buyers preferences shift towards product
attributes desired by majority of buyers niche
becomes part of overall market
Segment becomes so attractive it becomes
crowded with rivals, causing segment profits to
be splintered
Deciding Which Generic
Competitive Strategy to Use
Each positions a company differently in its market and
competitive environment
Each establishes a central theme for how a company will
endeavor to outcompete rivals
Each creates some boundaries for maneuvering as
market circumstances unfold
Each points to different ways of experimenting with the
basics of the strategy
Each entails differences in product line, production
emphasis, marketing emphasis, and means to
sustainthe strategy
Thank you