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STRATEGY FORMULATION

1. LEVELS OF STRATEGY
2. CORPORATE STRATEGY
3. BUSINESS LEVEL STRATEGIES
4. COMPETITIVE STRATEGIES
5. ADAPTIVE STRATEGIES
6. COMPETITIVE MARKETING STRATEGIES
7. GENERIC STRATEGIES
8. STRATEGY CLOCK
LEVELS OF STRATEGY

 CORPORATE STRATEGY
 BUSINESS (SBU) STRATEGY
 FUNCTIONAL LEVEL STRATEGY
Corporate-Level Strategy
What is Corporate Level Strategy?

Definition: Action taken to gain a competitive


advantage through the selection and
management of a mix of businesses
competing in several industries or product
markets.
Key Questions of Corporate Strategy

1. What businesses should the corporation


be in?

2. How should the corporate office manage


the array of business units?

Corporate Strategy is what makes the corporate whole


add up to more than the sum of its business unit parts
CORPORATE LEVEL STRATEGIES
1. GROWTH STRATEGY
 Market Penetration
 Market Development
 Product Development
 Diversification

2. STABILITY
1. Holding
2. Building
3. Harvesting
4. Divestment

3. RETRENCHMENT
1. Turnaround
2. Selling Out
3. Investment Reduction

4. INTEGRATIVE
Advantages of Integrated
Strategy
A firm that successfully uses an integrated cost
leadership/differentiation strategy should be in a
better position to:
 adapt quickly to environmental changes

 learn new skills and technologies more quickly

 effectively leverage its core competencies while

competing against its rivals


Benefits of Integrated Strategy
 Successful firms using this strategy have above-
average returns
 Firm offers two types of values to customers
 some differentiated features (but less than a true

differentiated firm)
 relatively low cost (but not as low as the cost

leader’s price)
Business-Level Strategy

Business-level strategy: an integrated and


coordinated set of commitments and actions the firm
uses to gain a competitive advantage by exploiting
core competencies in specific product markets
The Central Role of Customers

In selecting a business-level strategy, the


firm determines
1. who it will serve
2. what needs those target customers have that
it will satisfy
3. how those needs will be satisfied
Managing Relationships With
Customers
 Customer relationships are strengthened by
offering them superior value
 help customers to develop a new competitive advantage
 enhance the value of existing competitive advantages
BUSINESS LEVEL STRATEGIES

 COMPETITIVE STRATEGIES
 ADAPTIVE STRATEGIES

 GENERIC STRATEGIES
COMPETITIVE STRATEGIES

1. DESIGINING COMPETITIVE STRATEGIES


 Market leader strategies
 Market challenger strategies
 Market follower strategy
 Market nicher strategy
2. COMPETITIVE MARKETING STRATEGIES
 Five offensive strategies
 Five defensive strategies
MARKET LEADER STRATEGIES
 Expanding the total market
 Use a fortification strategy

 Use a confrontation strategy

 Use a maintenance strategy


Defense Strategy
 A market leader should generally adopt a defense
strategy
 Six commonly used defense strategies
 Position Defense
 Mobile Defense
 Flanking Defense
 Contraction Defense
 Pre-emptive Defense
 Counter-Offensive Defense
Defense Strategy (cont’d)

Position Defense
 Least successful of the defense strategies

 “A company attempting a fortress defense

will find itself retreating from line after line


of fortification into shrinking product
markets.” Saunders (1987)
 e.g. Mercedes was using a position defense

strategy until Toyota launched a frontal


attack with its Lexus.
Defense Strategy (cont’d)

Mobile Defense
 By market broadening and diversification

 For marketing broadening, there is a need to

 Redefine the business (principle of objective), and


 Focus efforts on the competition (the principle of
mass)
 Ex –ITC Industries has diversified into food,
beverages, toilettries etc.
Defense Strategy (cont’d)

Flanking Defense:
 Secondary markets (flanks) are the weaker areas

and prone to being attacked


 Pay attention to the flanks

 e.g. HUL has launched Surf Excel for it’s high-end

 Rin –middle segment

 Wheel—lower segment.

 Eg—Procter & Gamble- Ariel & Tide


Defense Strategy (cont’d)

Contraction Defense
 Withdraw from the most vulnerable segments
and redirect resources to those that are more
defendable
 By planned contraction or strategic withdrawal
 e.g. India’s TATA Group sold its soaps and
detergents business units to Unilever in 1993
Defense Strategy (cont’d)

Pre-emptive Defense
 Detect potential attacks and attack the
enemies first
 Let it be known how it will retaliate
 Product or brand proliferation is a form of
pre-emptive defense e.g. Seiko has over
2,000 models
Defense Strategy (cont’d)

Counter-Offensive Defense
 Responding to competitors’ head-on attack
by identifying the attacker’s weakness and
then launch a counter attack
 e.g. Toyota launched the Lexus to respond
to Mercedes attack
MARKET CHALLENGER STRATEGY

 IT CAN ATTACK THE MARKET LEADER


 PRICE DISCOUNTS
 CHEAPER GOODS
 PRODUCT INNOVATION
 DISTRIBUTION INNOVATION
 PRESTIGE GOODS
Market Challenger Strategies
(cont’d)
Types of Attack Strategies
 Frontal attack
 Flank attack
 Encirclement attack
 Bypass attack
 Guerrilla attack
Frontal Attack
 Seldom work unless
 The challenger has sufficient fire-power (a 3:1
advantage) and staying power, and
 The challenger has clear distinctive
advantage(s)
 e.g. Japanese and Korean firms launched
frontal attacks in various ASPAC countries
through quality, price and low cost
Flank attack
 Attack the enemy at its weak points or
blind spots i.e. its flanks
 Ideal for challenger who does not have
sufficient resources
Encirclement attack
 Attack the enemy at many fronts at the
same time
 Ideal for challenger having superior
resources
 e.g. Seiko attacked on fashion, features,
user preferences and anything that might
interest the consumer
Bypass attack
 By diversifying into unrelated products
or markets neglected by the leader
 Could overtake the leader by using new
technologies
 e.g. Pepsi use a bypass attack strategy
against Coke in China by locating its
bottling plants in the interior provinces
Guerrilla attack
 By launching small, intermittent hit-and-
run attacks to harass and destabilize the
leader
 Usually use to precede a stronger attack
 e.g. airlines use short promotions to
attack the national carriers especially
when passenger loads in certain routes
are low
MARKET FOLLOWER STRATEGY

 COUNTERFEITER
 CLONER
 IMITATE
 ADAPTER
ADAPTIVE STRATEGIES
Are applicable to business units within the
organisation.
 PROSPECTOR

 DEFENDER

 ANALYZER
GENERIC STRATEGIES
 COST LEADERSHIP
 DIFFERENTIATION
 FOCUS
Five Generic Strategies
Competitive Advantage
Cost Uniqueness

Competitive Scope Cost Leadership Differentiation

Broad
target

Integrated Cost
Leadership/
Differentiation
Narrow
target

Focused Cost Focused


Leadership Differentiation
Cost Leadership Strategy

An integrated set of actions designed to produce or


deliver goods or services at the lowest cost, relative
to competitors with features that are acceptable to
customers
 relatively standardized products

 features acceptable to many customers

 lowest competitive price


Cost Leadership Strategy
Cost saving actions required by this strategy:
 building efficient scale facilities

 tightly controlling production costs and overhead

 minimizing costs of sales, R&D and service

 building efficient manufacturing facilities

 monitoring costs of activities provided by outsiders

 simplifying production processes


Differentiation Strategy

An integrated set of actions designed by a firm to


produce or deliver goods or services (at an
acceptable cost) that customers perceive as being
different in ways that are important to them
 price for product can exceed what the firm’s target
customers are willing to pay
 nonstandardized products
 customers value differentiated features more than they
value low cost
Differentiation Strategy
 Value provided by unique features and value
characteristics
 Command premium price
 High customer service
 Superior quality
 Prestige or exclusivity
 Rapid innovation
Differentiation Strategy

Differentiation actions required by this strategy:


 developing new systems and processes

 shaping perceptions through advertising

 quality focus

 capability in R&D

 maximize human resource contributions

through low turnover and high motivation


Focused Business-Level
Strategies
A focus strategy must exploit a narrow target’s
differences from the balance of the industry by:
 isolating a particular buyer group

 isolating a unique segment of a product line

 concentrating on a particular geographic market

 finding their “niche”