Competitive Strategies

Competitive Strategies
Prof. Rushen Chahal
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Competitive Strategies
Integration Strategies Intensive Strategies Defensive strategies Porters 3 Generic Strategies
Business Strategies
Business Strategy:
Focuses on improving the competitive position of a companys or business units products or services within the specific industry or market segment that the firm serves.
Competitive Advantage
Key concept of strategic management Sets an organization apart What competitive strategies are designed to exploit Implies other competitors Can be eroded easily and quickly by competitors
Backward Integration
Raw Materials
Primary Manufacturing Product Producer Distributor
Horizontal Integration
Forward Integration
Retailer
Integration Strategies
Forward Integration Vertical Integration Strategies Backward Integration Horizontal Integration
Vertical Integration strategies Allow a firm to gain control over:
Distributors Suppliers competitors
Forward Integration Gaining ownership or increased control over distributors or retailers
Guidelines for Forward Integration

Present distributors are expensive, unreliable, or incapable of meeting firms needs Availability of quality distributors is limited When firm competes in an industry that is expected to grow markedly Organization has both capital and human resources needed to manage new business of distribution Advantages of stable production are high Present distributors have high profit margins
Backward Integration Seeking ownership or increased control of a firms suppliers
Guidelines for Backward Integration

When present suppliers are expensive, unreliable, or incapable of meeting needs Number of suppliers is small and number of competitors large High growth in industry sector Firm has both capital and human resources to manage new business Advantages of stable prices are important Present supplies have high profit margins
Horizontal Integration Seeking ownership or increased control over competitors
Guidelines for Horizontal Integration
Firm can gain monopolistic characteristics without being challenged by federal government Competes in growing industry Increased economies of scale provide major competitive advantages Faltering due to lack of managerial expertise or need for particular resources

Intensive Strategies
Market Penetration Intensive Strategies Market Development Product Development
Intensive strategies Require intensive efforts to improve a firms competitive position with existing products
Market Penetration Seeking increased market share for present products or services in present markets through greater marketing efforts
Guidelines for Market Penetration
Current markets not saturated Usage rate of present customers can be increased significantly Market shares of competitors declining while total industry sales increasing Increased economies of scale provide major competitive advantages

Market Development Introducing present products or services into new geographic area
Guidelines for Market Development

New channels of distribution that are reliable, inexpensive, and good quality Firm is very successful at what it does Untapped or unsaturated markets Capital and human resources necessary to manage expanded operations Excess production capacity Basic industry rapidly becoming global
Product Development Seeking increased sales by improving present products or services or developing new ones
Guidelines for Product Development

Products in maturity stage of life cycle Competes in industry characterized by rapid technological developments Major competitors offer better-quality products at comparable prices Compete in high-growth industry Strong research and development capabilities
Diversification Strategies
Concentric Diversification Diversification Strategies Conglomerate Diversification Horizontal Diversification
Diversification strategies Becoming less popular as organizations are finding it more difficult to manage diverse business activities
Concentric Diversification Adding new, but related, products or services
Guidelines for Concentric Diversification

Competes in no- or slow-growth industry Adding new & related products increases sales of current products New & related products offered at competitive prices Current products are in decline stage of the product life cycle Strong management team
Conglomerate Diversification Adding new, unrelated products or services
Guidelines for Conglomerate Diversification
Declining annual sales and profits Capital and managerial talent to compete successfully in a new industry Financial synergy between the acquired and acquiring firms Existing markets for present products are saturated

Horizontal Diversification Adding new, unrelated products or services for present customers
Guidelines for Horizontal Diversification
Revenues from current products/services would increase significantly by adding the new unrelated products Highly competitive and/or no-growth industry w/low margins and returns Present distribution channels can be used to market new products to current customers New products have counter cyclical sales patterns compared to existing products

Defensive Strategies
Retrenchment Defensive Strategies Divestiture Liquidation
Retrenchment Regrouping through cost and asset reduction to reverse declining sales and profit
Guidelines for Retrenchment

Firm has failed to meet its objectives and goals consistently over time but has distinctive competencies Firm is one of the weaker competitors Inefficiency, low profitability, poor employee morale, and pressure from stockholders to improve performance. When an organizations strategic managers have failed Very quick growth to large organization where a major internal reorganization is needed
Divestiture Selling a division or part of an organization
Guidelines for Divestiture

When firm has pursued retrenchment but failed to attain needed improvements When a division needs more resources than the firm can provide When a division is responsible for the firms overall poor performance When a division is a misfit with the organization When a large amount of cash is needed and cannot be obtained from other sources.
Liquidation Liquidation Selling all of a companys assets, in parts, for their tangible worth
Guidelines for Liquidation
When both retrenchment and divestiture have been pursued unsuccessfully If the only alternative is bankruptcy, liquidation is an orderly alternative When stockholders can minimize their losses by selling the firms assets

Porters Competitive Strategies

Competitive Strategy:
Low cost? Differentiation? Compete head to head in large market? Focus on niche?
Porters Generic Competitive Strategies

Cost Leadership:
Low-cost competitive strategy Aimed at broad mass market Aggressive construction of efficientscale facilities Cost reductions Cost minimization

Differentiation:
Broad mass market Unique product or service Charge premiums Lower customer sensitivity to price

Differentiation focus:
Focus on particular group or geographic market Seek differentiation in targeted market segment Serve special needs of narrow target market
Stuck in the middle:

No competitive advantage Below-average performance
Risks of Generic Competitive Strategies

Risks of Cost Leadership Cost leadership is not sustained: Competitors imitate. Technology changes. Other bases for cost leadership erode. Proximity in differentiation is lost. Cost focusers achieve even lower cost in segments. Risks of Differentiation Differentiation is not sustained: Competitors imitate. Bases for differentiation become less important to buyers. Cost proximity is lost. Differentiation focusers achieve even greater differentiation in segments. Risks of Focus The focus strategy is imitated: The target segment becomes structurally unattractive: Structure erodes. Demand disappears. Broadly targeted competitors overwhelm the segment: The segments differences from other segments narrow. The advantages of a broad line increase. New focusers subsegment the industry.
Integrated Low- Cost Differentiated Strategy

Question the mutual exclusivity of Porters 3 generic strategies Examples:
Dell McDonalds SouthWestern Airlines
Why? Technology Able to manufacture, market products and services easily and cheaply

Competitive Strategies

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Competitive Strategies

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Competitive Strategies

Prof. Rushen Chahal

Primary Manufacturing Product Producer Distributor

Forward Integration Vertical Integration Strategies Backward Integration Horizontal Integration

Market Penetration Intensive Strategies Market Development Product Development

Concentric Diversification Diversification Strategies Conglomerate Diversification Horizontal Diversification

Retrenchment Defensive Strategies Divestiture Liquidation

Porters Competitive Strategies

Porters Generic Competitive Strategies

Porters Competitive Strategies

Porters Competitive Strategies

Porters Competitive Strategies

Porters Competitive Strategies

Stuck in the middle:

Risks of Generic Competitive Strategies

Integrated Low- Cost Differentiated Strategy

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