This action might not be possible to undo. Are you sure you want to continue?
“It is at the level of the business that most competitive interaction occurs and where competitive advantage is won or lost”
Business level strategies
Business Strategies are course of actions adopted by each of its businesses separately to serve identified customer groups and provide value to the customer by satisfaction of their needs.
Michael E. Porter is credited with extensive pioneering work in the area of business strategies or what he calls competitive strategies. The dynamic factors that determine the choice of a competitive strategy, according to Porter are two namely, the industry structure and the positioning of the firm in the industry. The industry structure refers to the Porter’s 5 forces model
Positioning of the firm in the industry – It is to gain a sustainable competitive advantage and is based on two variables – the competitive advantage and the competitive scope. Competitive advantage can arise due to two factors – Overall cost advantage and differentiation Competitive scope can be in terms of two factors – broad target and narrow target
Porter’s Generic Strategies Overall Cost Leadership Differentiation Focus .
Porter’s Generic Business Strategy Broad Target Competitive Scope Narrow target Cost Leadership Focused cost leadership Low cost Differentiation Focused Differentiation Differentiated Competitive Advantage .
Cost Leadership When the competitive advantage of a firm lies in its lower cost of products or services compared to its competitors. manufactures CD recordable and competes on a low cost strategy Tata steel continuously benchmarks itself against global standards in cost competitiveness Reliance communication was the first company to offer ultra low cost mobile phones for Rs. it is termed as cost leadership strategy Amul operates in the branded ice-cream market on low cost platform Moser Baer India.500 .
there were 18 Wal-Mart stores mostly in small towns with sales of $44million Subsequently Wal-Mart built discount stores in all the 50 states of U.Discount product prices to expand volume and increase overall profits By 1969.S to become the only national discount chain In 1991 Wal-Mart started operation overseas One marketing principles guided Wal-Mart – CONSISTENT LOW PRICE .Wal-Mart – Everyday Low Price strategy Sam Walton set up the first Wal-Mart store in Arkansas in 1962 Business Model.
2.Cost Leadership 1. 4. Central to the objective of achieving cost leadership is the understanding of the value chain of the product or service Accurate demand forecasting and high capacity utilization High levels of standardization of products and mass production leads to lower costs Investment in cost-saving technologies Withholding differentiation till it becomes absolutely necessary . 3.
Best insurance against industry competition 2. Cost advantage is ephemeral as competitors can imitate it easily 2. Cost advantage can act as an entry barrier for new entrants Risks 1. Limits experimentation with product attributes 3. Technology shifts are a great threat to a cost leader .Benefits and risks associated with low cost strategy Benefits 1. Threat of substitute products can be offset 3.
which is demanded by the customer. then the strategy adopted is called differentiation Apple Mac book. who are willing to pay for it. I-phone – differentiation in form and function leaving all competitors behind. prompt delivery.Differentiation When the competitive advantage of the firm lies in special features incorporated into the product. tacking of consignment . Duracell battery – highly priced but promises extra long life. Federal Express – innovation in packing.
Differentiation Strategy Incorporate features to raise the performance of the product Incorporate features that offer additional utility Incorporate features that claim distinctiveness (status and prestige) .
Substitute products are a negligible threat 3.Benefits and risks associated with Differentiation strategy Benefits 1. Differentiation is an expensive proposition and acts as an entry barrier for new entrants Risks 1. Customer brand loyalty safe guards against competition 2. Price premiums too have a limit. Differentiation can also be copied 2. Customers shun products which are too expensive . Differentiation fails to work if the feature added is not valued by the customer 3.
Focus Strategies Focus strategies essentially rely on either differentiation or cost leadership but cater to a narrow segment of the total market. Focus strategies are niche strategies. plus size clothing Over Drive . Revolution.Car Magazine Aravind Eye Hospital – Focused cost leadership Palace on wheels – Focused differentiation .
May be difficulty to achieve economies of scale and difficult to move to other segments 3. The may disappear due to technology or market factors . The competitors who have broader target market do not possess competitive ability required for a niche market 2. Loyal Customers ward of threat of new entrants Risks 1.Benefits and risks associated with Focus strategy Benefits 1. Niches are often transient. Serving niche markets requires development of distinctive capabilities 2. Powerful barrier for substitute products 3.
Online travel booking industry provides a good example for the 3 strategies Lowestfare is pursuing a low cost strategy Travelocity is pursuing a differentiation strategy by offering the most comprehensive range of services to the traveler Last minute is pursuing a niche strategy by focusing on clients who need to travel at a short notice .
It is a specific operating plan detailing how a strategy is to be implemented in terms of when and where it is to be put in action. Timing tactics – A business strategy of low cost. Market location – This aspect deals with the issue of where to compete (the target market the organization aims at) .Tactics for Business Strategies 1. 2. differentiation or focus may be essentially a right move but only if it is made at the right time. A tactic is a sub-strategy.
Manikchand’s Oxyrich and Vijay Mallya’s King Fisher brand. ICICI. Example – Parle was the first mover in packaged mineral water industry in India and has dominated the industry leading to its brand Bisleri becoming generic to the product category. HDFC. The organizations which enter subsequently are called late movers. Pepsi’s Aquafina. The industry has subsequently attracted many brands like Coca Cola’s Kinley. Max New York are the late movers .(Late movers) UTI was the first mover for Mutual funds and Kotak Mahindra.Timing strategy First Movers and Late Movers – The first company to make or sell a new product or service is called a first mover or a pioneer.
Market location could be classified as the role that organizations play in the target market and the type of Business tactics they adopt to play such a role. . Such firms are likely to devise defense strategies to maintain its position and stay the leader. promotional practices etc. new product development.Market Location Tactics This aspect deals with the issue of where compete. Market Leaders – Firms that enjoy the largest market share and generally leads others in new technology introduction.
chemicals etc prefer to stay as followers. Nichers – Organizations that operate in a small segment. Opportunity to create meaningful differentiation is very little and price sensitivity is considerable. These organizations challenge the leader by going for a head on frontal attack or by attacking the weak areas of the leader. They usually copy the leader and present similar products. . Market followers – Many companies in product industries that are capital intensive and deal in products viewed as homogenous such as cement. steel. Market Challenger – Organizations that have second or lower rank in the industry.
They generally lead the industry in technology. product attributes.Strategies for Market Leaders Market Leaders are organizations that have a large market share in the relevant product market. price benchmarks etc. In order to take up a Market Leader position the following strategies have to be used: Expand the total market by Finding new users Creating new uses Encouraging more usage Protect its current market share by Adopting defense strategies .
Sun Tze’s defensive strategy “Do not assume the enemy will not come but be prepared for his coming… Do not presume he will not attack. but instead make your own position unassailable.” .
Defense Strategy Commonly used defense strategies Position Defense Mobile Defense Flanking Defense Contraction Defense Counter-Offensive Defense .
g.” Saunders (1987) This could include increasing brand equity.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. customer loyalty. Mercedes was using a position defense strategy until Toyota launched a frontal attack with its Lexus. HUL was doing position defense in Fairness cream (Fair and lovely) segment till Emami came up with Fair and handsome . customer satisfaction. patent protection. government protected monopoly status e. or repeat purchase rate. It could also include exclusive distribution contracts.
changing market segments. Example – Nike has sustained the leading share of athletic shoe market. changing target markets. In business this would entail introducing new products. It has developed a series of line extensions that offer features to satisfy consumer preferences. modifying existing products. repositioning products. .Defense Strategy (cont’d) Mobile Defense A mobile defense is intended to create a moving target that is hard to successfully attack. equipping the defender with a flexible response mechanism should an attack occur. while simultaneously. or changing promotional campaigns. This is a proactive strategy.
a lower quality product with lower price.Defense Strategy (cont’d) Flanking Defense: The market leader adopts this strategy to outsmart the challengers This involves the re-deployment of your resources to deter a flanking attack. Singapore airlines introducing a modern fleet . P&G’s Tide is an extremely successful laundry detergent. In order to appeal to consumers who prefer even lower cost. You strengthen your flank if you think it is vulnerable. P&G introduced Cheer.
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 .
The company then introduced Maruti swift that offers more value to customers .Defense Strategy (cont’d) Counter-Offensive Defense Responding to competitors’ head-on attack and then launch a counter attack. Example Maruti was facing attacks from other manufacturers and market share erosion in its hatchback segment.
Market Challenger Strategies The market challengers’ strategic objective is to gain market share and to become the leader eventually How? By attacking the market leader By attacking other firms of the same size By attacking smaller firms .
Market Challenger Strategies Types of Attack Strategies Frontal attack Flank attack Encirclement attack Bypass attack Guerrilla attack .
and The challenger has clear distinctive advantage(s) Korean car major Hyundai did a great job when it attacked Maruti’s reign. promotion and distribution Seldom work unless The challenger has sufficient staying power. pitching the Santro against Maruti’s ever popular Zen. They simply concentrated on Santro being just as economical but with better technology. They challenged Zen’s mileage and value for money factor with the narrowest frontal attack. Attack of Avis on Hertz Dell’s attack on leading PC manufacturers .Frontal Attack Matching the opponent in terms of product. price.
however. Canon focused on the small size copier market that could not afford Xerox's larger copiers. almost ten years later the Japanese based Canon Copier took over half of Xerox's market .e. .Flank attack Attack the enemy at its weak points or blind spots i. The main reason Canon took over such a large portion of Xerox's market was by use of the flanking strategy. its flanks (segmental flanking or geographic flanking) Ideal for challenger who does not have sufficient resources in the mid 1970's Xerox owned eighty-eight percent of the plain-paper copier market.
Encirclement attack Attack the enemy at many fronts at the same time Ideal for challenger having superior resources Advertisement Blitz.g. e. by using superior technology. Samsung beat Motorola and narrowed its gap with Nokia. unbeatable product related offers. low priced touch screen models and innovative advertising . presenting a unique service guarantee etc. customer oriented designs.
persuasively differentiated products that are far more advanced and more desirable than existing alternatives Example: Apple attracting laptop users .Bypass attack Could overtake the leader by using new technologies The challenger launches new generation.
Guerrilla attack By launching small. . Usually use to precede a stronger attack One example of guerilla warfare occurred when IBM won a lawsuit against Hitachi on the grounds that Hitachi stole IBM software. intermittent hit-and-run attacks to harass and destabilize the leader Comparative advertizing. Japanese computer manufacturers had to become defensive by investing large sums of money into scarce software research and development personnel who had to re-write old programs. Because IBM won this small battle. price cut. legal action.
Best strategy is to be one’s own competitor .Which Attack Strategy should a Challenger Choose? Use a combination of several strategies to improve market share over time.
g. “Innovative Imitation” argued that a product imitation strategy might be just as profitable as a product innovation strategy e.Market-Follower Strategies Theodore Levitt in his article. Product innovation--Sony Product-imitation--Panasonic .
Market-Follower Strategies (cont’d) Each follower tries to bring distinctive advantages to its target market--location.g.g. financing Three broad follower strategies: Counterfeiter (which is illegal) – making duplicates and sell at very low prices Imitator e. many Japanese firms are excellent adapters initially before developing into challengers and eventually leaders . car manufacturers imitate the style of one another Adapter e. services.
Market-Nicher Strategies Smaller firms can avoid larger firms by targeting smaller markets or niches that are of little or no interest to the larger firms e.g. Logitech-computer mouse .
hiking. Nike constantly created new niches-cycling.Market-Nicher Strategies Nichers must create niches. walking.g. etc Market niche may be attacked by larger firms once they notice the niches are successful What is the major risk faced by nichers? . cheerleading. expand the niches and protect them e.
Multiple Niching “[A] firm should `stick to its niching’ but not necessarily to its niche. That is why multiple niching is preferable to single niching. By developing strength in two or more niches the company increases its chances for survival.” Philip Kotler .
This action might not be possible to undo. Are you sure you want to continue?
We've moved you to where you read on your other device.
Get the full title to continue reading from where you left off, or restart the preview.