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Chapter 4

Crafting aCrafting aStrategyStrategy

““The essence of strategy lies in The essence of strategy lies in creating tomorrow’s competitive creating tomorrow’s competitive

advantages faster than competitors advantages faster than competitors mimic the ones you possess today.”mimic the ones you possess today.”

Gary Hamel and C.K. Prahalad

““Strategies for taking the hill Strategies for taking the hill won’t necessarily hold it.”won’t necessarily hold it.”

Amar Bhide

34 - 3

Chapter OutlineChapter OutlineChapter OutlineChapter Outline

Five Generic Competitive Strategies Strategic Alliances and Partnerships Merger and Acquisition Strategies Vertical Integration Strategies Outsourcing Strategies Offensive and Defensive Strategies Strategies for Using the Internet Choosing Appropriate Functional-Area Strategies Importance of Linking Strategy to Company

Values and Ethical Standards First-Mover Advantages and Disadvantages

44 - 4

Fig. 4.1: Menu of Strategy OptionsFig. 4.1: Menu of Strategy Optionsfor Winning in the Marketplacefor Winning in the Marketplace

54 - 5

What Is What Is “Competitive Strategy”?“Competitive Strategy”?What Is What Is “Competitive Strategy”?“Competitive Strategy”?

Deals exclusively with a company’sbusiness 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

64 - 6

Strategy and Strategy and CompetitiveCompetitive Advantage AdvantageStrategy and Strategy and CompetitiveCompetitive Advantage Advantage

Competitive advantage exists when a firm’s strategy gives it an edge in Attracting customers and Defending against competitive forces

Convince customers firm’s product / service offers superior value A good product at a low price A superior product worth paying more for A best-value product

Key to Gaining a Competitive Advantage

74 - 7

Fig. 4.2: The Five GenericFig. 4.2: The Five GenericCompetitive StrategiesCompetitive Strategies

84 - 8

94 - 9

Low-Cost Provider StrategiesLow-Cost Provider Strategies

Make achievement of meaningful lower costs than rivals the theme of firm’s 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

Low-cost leadership means lowoverall costs, not just low

manufacturing or production costs!

Keys to Success

104 - 10

Options: Achieving aOptions: Achieving aLow-Cost AdvantageLow-Cost AdvantageOptions: Achieving aOptions: Achieving aLow-Cost AdvantageLow-Cost Advantage

Option 1: Use lower-cost edge to Underprice competitors and attract

price-sensitive buyers in enoughnumbers to increase total profits

Option 2: Maintain present price, be content with present market share, and use lower-cost edge to

Earn a higher profit margin oneach unit sold, therebyincreasing total profits

114 - 11

Approaches to Securing Approaches to Securing a Cost Advantagea Cost Advantage

Do a better job than rivals of performing value chain activities efficiently and cost effectively

Approach 1

Revamp value chain to bypass cost-producing activities that add little

value from the buyer’s perspective

Approach 2Control costs!

By-pass costs!

124 - 12

Approach 1: ControllingApproach 1: Controllingthe Cost Driversthe Cost Drivers

Approach 1: ControllingApproach 1: Controllingthe Cost Driversthe Cost Drivers

Capture scale economies; avoid scale diseconomies Capture learning and experience curve effects Manage costs of key resource inputs Consider linkages with other activities in value

chain Find sharing opportunities with other business units Compare vertical integration vs. outsourcing Assess first-mover advantages vs. disadvantages Control percentage of capacity utilization Make prudent strategic choices related to

operations

134 - 13

Approach 2: RevampingApproach 2: Revampingthe Value Chainthe Value Chain

Approach 2: RevampingApproach 2: Revampingthe Value Chainthe Value Chain

Make greater use of Internet technology applicationsUse direct-to-end-user sales/marketing methodsSimplify product designOffer basic, no-frills product/serviceShift to a simpler, less capital-intensive, or more

flexible technological processFind ways to bypass use of high-cost raw materialsRelocate facilities closer to suppliers or customersDrop “something for everyone” approach and focus

on a limited product/service

144 - 14

Keys to Success in AchievingKeys to Success in AchievingLow-Cost LeadershipLow-Cost Leadership

Keys to Success in AchievingKeys to Success in AchievingLow-Cost LeadershipLow-Cost Leadership

Scrutinize each cost-creating activity, identifying cost drivers

Use knowledge about cost drivers to manage costs of each activity down year after year

Find ways to restructure value chain to eliminate nonessential work steps and low-value activities

Aggressively pursue investments in resources and capabilities that promise to drive costs out of the business

154 - 15

Characteristics of aCharacteristics of aLow-Cost ProviderLow-Cost Provider

Characteristics of aCharacteristics of aLow-Cost ProviderLow-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

Successful low-cost producers championfrugality but wisely and aggressivelyinvest in cost-saving improvements !

164 - 16

When Does a Low-CostWhen Does a Low-CostStrategy Work Best?Strategy Work Best?

When Does a Low-CostWhen Does a Low-CostStrategy Work Best?Strategy Work Best?

Price competition is vigorous Product is standardized or readily available

from many suppliers There are few ways to achieve

differentiation that have value to buyers Most buyers use product in same ways Buyers incur low switching costs Buyers are large and have

significant bargaining power Industry newcomers use introductory low prices to

attract buyers and build customer base

174 - 17

Pitfalls of Low-Cost StrategiesPitfalls of Low-Cost StrategiesPitfalls of Low-Cost StrategiesPitfalls of Low-Cost Strategies

Being overly aggressive in cutting price Low cost methods are easily imitated by rivals Becoming too fixated on reducing costs

and ignoring Buyer interest in additional features Declining buyer sensitivity to price Changes in how the product is used

Technological breakthroughs open up cost reductions for rivals

184 - 18

Differentiation StrategiesDifferentiation Strategies

Incorporate differentiating features that cause buyers to prefer firm’s product or service over brands of rivals

Find ways to differentiate that create value for buyers and are not easily matched or cheaply copied by rivals

Not spending more to achieve differentiation than the price premium that can be charged

Keys to Success

Objective

194 - 19

Benefits of Successful DifferentiationBenefits 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

Build brand loyalty

= Competitive Advantage

Whichhat is

unique?

204 - 20

Types of Differentiation ThemesTypes of Differentiation ThemesTypes of Differentiation ThemesTypes of Differentiation Themes

Unique taste -- Dr. Pepper Multiple features -- Microsoft Windows and Office Wide selection and one-stop shopping -- Home

Depot and Amazon.com Superior service -- FedEx, Ritz-Carlton Spare parts availability -- Caterpillar More for your money -- McDonald’s, Wal-Mart Prestige -- Rolex Quality manufacture -- Honda, Toyota Technological leadership -- 3M Corporation Top-of-line image -- Ralph Lauren, Chanel, Cross

214 - 21

Sustaining Differentiation: Keys to Sustaining Differentiation: Keys to Competitive AdvantageCompetitive Advantage

Sustaining Differentiation: Keys to Sustaining Differentiation: Keys to Competitive AdvantageCompetitive Advantage

Most appealing approaches to differentiationThose hardest for rivals to match or imitateThose buyers will find most appealing

Best choices to gain a longer-lasting, more profitable competitive edge New product innovationTechnical superiorityProduct quality and reliabilityComprehensive customer serviceUnique competitive capabilities

224 - 22

Where to Find Differentiation Where to Find Differentiation Opportunities in the Value ChainOpportunities in the Value Chain

Where to Find Differentiation Where to Find Differentiation Opportunities in the Value ChainOpportunities in the Value Chain

Purchasing and procurement activities Product R&D and product design activities Production process / technology-related activities Manufacturing / production activities Distribution-related activities Marketing, sales, and customer service activities

InternallyPerformedActivities, Costs, &Margins

Activities, Costs, &

Margins ofSuppliers

Buyer/UserValue

Chains

Activities, Costs,& Margins of

Forward ChannelAllies &

Strategic Partners

234 - 23

How to Achieve aHow to Achieve aDifferentiation-Based AdvantageDifferentiation-Based Advantage

How to Achieve aHow to Achieve aDifferentiation-Based AdvantageDifferentiation-Based Advantage

Incorporate product features/attributes that lower buyer’s overall costs of using product

Approach 1

Incorporate features/attributes that raise the performance a buyer gets out of the product

Approach 2

Incorporate features/attributes that enhance buyer satisfaction in non-economic or intangible ways

Approach 3

Compete on the basis of superior capabilities

Approach 4

244 - 24

When Does a DifferentiationWhen Does a DifferentiationStrategy Work Best?Strategy Work Best?

When Does a DifferentiationWhen Does a DifferentiationStrategy Work Best?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 andproduct innovation are fast-paced

254 - 25

Pitfalls of Differentiation StrategiesPitfalls of Differentiation StrategiesPitfalls of Differentiation StrategiesPitfalls of Differentiation Strategies

Buyers see little value in unique attributesof product

Appealing product features are easilycopied by rivals

Differentiating on a feature buyers do not perceive as lowering their cost or enhancingtheir well-being

Over-differentiating such that product features exceed buyers’ needs

Charging a price premiumbuyers perceive is too high

264 - 26

Best-Cost Provider StrategiesBest-Cost Provider StrategiesBest-Cost Provider StrategiesBest-Cost Provider Strategies

Combine a strategic emphasis on low-cost with a strategic emphasis on differentiation Make an upscale product at a lower cost Give customers more value for the money

Deliver superior value by meeting or exceeding buyer expectations on product attributes and beating their price expectations

Be the low-cost provider of a product with good-to-excellent product attributes, then use cost advantage to underprice comparable brands

Objectives

274 - 27

Competitive Strength of a Competitive Strength of a Best-Cost Provider Strategy Best-Cost Provider StrategyCompetitive Strength of a Competitive Strength of a

Best-Cost Provider Strategy Best-Cost Provider Strategy A best-cost provider’s competitive advantage

comes from matching close rivals on key product attributes and beating them on price

Success depends on having the skills and capabilities to provide attractive performance and features at a lower cost than rivals

A best-cost producer can often out-compete both a low-cost provider and a differentiator when Standardized features/attributes won’t meet the

diverse needs of buyers Many buyers are price and value sensitive

284 - 28

Risk of a Best-CostRisk of a Best-CostProvider StrategyProvider Strategy

Risk of a Best-CostRisk of a Best-CostProvider StrategyProvider Strategy

A best-cost provider may get squeezed between strategies of firms using low-cost and differentiation strategies

Low-cost leaders may be able to siphon customers away with a lower price

High-end differentiators may be able to steal customers away with better product attributes

294 - 29

Focus / Niche StrategiesFocus / Niche StrategiesFocus / Niche StrategiesFocus / Niche Strategies

Involve concentrated attention on a narrow piece of the total market

Serve niche buyers better than rivals

Choose a market niche where buyers have distinctive preferences, special requirements, or unique needs

Develop unique capabilities to serve needs of target buyer segment

Objective

Keys to Success

304 - 30

Approaches to DefiningApproaches to Defininga Market Nichea Market Niche

Approaches to DefiningApproaches to Defininga Market Nichea Market Niche

Geographic uniqueness

Specialized requirements inusing product/service

Special product attributes appealing only to niche buyers

314 - 31

Examples of Focus StrategiesExamples of Focus StrategiesExamples of Focus StrategiesExamples of Focus Strategies

eBay Online auctions

Porsche Sports cars

Jiffy Lube International Maintenance for motor vehicles

Pottery Barn Kids Children’s furniture and accessories

Bandag Specialist in truck tire recapping

324 - 32

Focus / Niche StrategiesFocus / Niche Strategiesand Competitive Advantageand Competitive Advantage

Focus / Niche StrategiesFocus / Niche Strategiesand Competitive Advantageand Competitive Advantage

Achieve lower costs than rivals in serving the segment --

A low-cost strategy

Offer niche buyers something different from rivals --

A differentiation strategy

Approach 1

Approach 2 Which hat is

unique?

334 - 33

What Makes a NicheWhat Makes a NicheAttractive for Focusing?Attractive for Focusing?

What Makes a NicheWhat Makes a NicheAttractive for Focusing?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

344 - 34

Risks of a Focus StrategyRisks of a Focus StrategyRisks of a Focus StrategyRisks of a Focus Strategy

Competitors find effective ways to match a focuser’s 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

354 - 35

Strategic AlliancesStrategic Alliancesand Partnerships and Partnerships

Companies sometimes use strategic alliances or collaborative partnerships to

complement their own strategic initiatives and strengthen their competitiveness. Such

cooperative strategies go beyond normal company-to-company dealings but fall short

of merger or formal joint venture.

364 - 36

Why Cooperative Strategies Are Integral Why Cooperative Strategies Are Integral to a Firm’s Competitivenessto a Firm’s Competitiveness

Why Cooperative Strategies Are Integral Why Cooperative Strategies Are Integral to a Firm’s Competitivenessto a Firm’s Competitiveness

Two demanding competitive challenges are faced by many companies

Global race to build a market presencein many different national markets

Race to seize opportunities on thefrontiers of advancing technology

Collaborative arrangements can help a company lower its costs and/or gain access to needed expertise and capabilities

374 - 37

Competitive Value ofCompetitive Value ofStrategic Alliances to the PartnersStrategic Alliances to the Partners

Competitive Value ofCompetitive Value ofStrategic Alliances to the PartnersStrategic Alliances to the Partners

Capacity of partners to defuse organizational frictions

Ability to collaborate effectively over time and work through challenges Technological and competitive surprises New market developments Changes in their own priorities

and competitive circumstances Competitive advantage emerges when a

company acquires valuable capabilities via alliances it could not obtain on its own

384 - 38

Why Are Strategic Alliances Formed? Why Are Strategic Alliances Formed? Why Are Strategic Alliances Formed? Why Are Strategic Alliances Formed?

To collaborate on technology development or new product development

To fill gaps in technical or manufacturing expertise

To acquire new competencies To improve supply chain efficiency To gain economies of scale in production

and/or marketing To acquire or improve market access via joint

marketing agreements

394 - 39

Potential Benefits of Alliances to Achieve Potential Benefits of Alliances to Achieve Global and Industry LeadershipGlobal and Industry Leadership

Potential Benefits of Alliances to Achieve Potential Benefits of Alliances to Achieve Global and Industry LeadershipGlobal and Industry Leadership

Get into critical country markets quickly to accelerate process of building a global presence

Gain inside knowledge about unfamiliar markets and cultures

Access valuable skills and competencies concentrated in particular geographic locations

Establish a beachead to participate in target industry Master new technologies and build new expertise

faster than would be possible internally Open up expanded opportunities in target industry

by combining firm’s capabilities with resources of partners

404 - 40

Why Alliances FailWhy Alliances FailWhy Alliances FailWhy Alliances Fail

Ability of an alliance to endure depends on How well partners work together Success of partners in responding

and adapting to changing conditions Willingness of partners to

renegotiate the bargain Reasons for alliance failure

Diverging objectives and priorities of partners Inability of partners to work well together Emergence of more attractive technological paths Marketplace rivalry between one or more allies

414 - 41

Merger and Acquisition Strategies Merger and Acquisition Strategies Merger and Acquisition Strategies Merger and Acquisition Strategies

Merger - Combination and pooling of equals, with newly created firm often taking on a new name

Acquisition - One firm, the acquirer, purchases and absorbs operations of another, the acquired

Merger-acquisition Much-used strategic option Especially suited for situations where

alliances do not provide a firm with needed capabilities or cost-reducing opportunities

Ownership allows for tightly integrated operations, creating more control and autonomy than alliances

424 - 42

Objectives of MergersObjectives of Mergersand Acquisitionsand Acquisitions

Objectives of MergersObjectives of Mergersand Acquisitionsand Acquisitions

To pave way for acquiring firm to gain more market share and create a more efficient operation

To expand a firm’s geographic coverageTo extend a firm’s business into new product

categories or international marketsTo gain quick access to new technologiesTo invent a new industry and lead the

convergence of industries whoseboundaries are blurred by changingtechnologies and new market opportunities

434 - 43

Pitfalls of Mergers and AcquisitionsPitfalls of Mergers and AcquisitionsPitfalls of Mergers and AcquisitionsPitfalls of Mergers and Acquisitions

Combining operations may result in Resistance from rank-and-file employees

Hard-to-resolve conflicts in management styles and corporate cultures

Tough problems of integration

Greater-than-anticipated difficulties in Achieving expected cost-savings

Sharing of expertise

Achieving enhanced competitive capabilities

444 - 44

Vertical Integration StrategiesVertical Integration StrategiesVertical Integration StrategiesVertical Integration Strategies

Extend a firm’s competitive scope withinsame industry Backward into sources of supply Forward toward end-users of final product

Can aim at either full or partial integration

InternallyPerformedActivities, Costs, &Margins

Activities, Costs, &

Margins ofSuppliers

Buyer/UserValue

Chains

Activities, Costs,& Margins of

Forward ChannelAllies &

Strategic Partners

454 - 45

Strategic AdvantagesStrategic Advantagesof Backward Integrationof Backward Integration

Strategic AdvantagesStrategic Advantagesof Backward Integrationof Backward Integration

Generates cost savings only if volume needed is big enough to capture efficiencies of suppliers

Potential to reduce costs exists when Suppliers have sizable profit margins Item supplied is a major cost component Resource requirements are easily met

Can produce a differentiation-based competitive advantage when it results in a better quality part

Reduces risk of depending on suppliers of crucial raw materials / parts / components

464 - 46

Strategic AdvantagesStrategic Advantagesof Forward Integrationof Forward IntegrationStrategic AdvantagesStrategic Advantages

of Forward Integrationof Forward IntegrationTo gain better access to end users and better

market visibilityTo compensate for undependable distribution

channels which undermine steady operationsTo offset the lack of a broad product line, a firm may

sell directly to end usersTo bypass regular distribution channels in favor of

direct sales and Internet retailing which may Lower distribution costs Produce a relative cost advantage over rivals Enable lower selling prices to end users

474 - 47

Strategic DisadvantagesStrategic Disadvantagesof Vertical Integrationof Vertical Integration

Strategic DisadvantagesStrategic Disadvantagesof Vertical Integrationof Vertical Integration

Boosts resource requirements Locks firm deeper into same industry Results in fixed sources of supply

and less flexibility in accommodatingbuyer demands for product variety

Poses all types of capacity-matching problems May require radically different skills / capabilities Reduces flexibility to make changes in

component parts which may lengthen design time and ability to introduce new products

484 - 48

Pros and Cons ofPros and Cons ofIntegration vs. De-IntegrationIntegration vs. De-Integration

Pros and Cons ofPros and Cons ofIntegration vs. De-IntegrationIntegration vs. De-Integration

Whether vertical integration is a viablestrategic option depends on its Ability to lower cost, build expertise,

increase differentiation, or enhanceperformance of strategy-critical activities

Impact on investment cost, flexibility, and administrative overhead

Contribution to enhancing a firm’s competitiveness

Many companies are finding thatde-integrating value chain activities is a

more flexible, economic strategic option!

494 - 49

Outsourcing StrategiesOutsourcing StrategiesOutsourcing StrategiesOutsourcing Strategies

Involve withdrawing from certain valuechain activities and relying on outsiders

to supply needed products, supportservices, or functional activities

Concept

InternallyPerformedActivities

Suppliers

Support Services

Functional Activities

Distributors or Retailers

504 - 50

Activity can be performed better or more cheaply by outside specialists

Activity is not crucial to achieve a sustainable competitive advantage

Risk exposure to changing technology and/or changing buyer preferences is reduced

Operations are streamlined to Cut cycle time Speed decision-making Reduce coordination costs

Firm can concentrate on “core” value chain activities that best suit its resource strengths

When Does OutsourcingWhen Does OutsourcingMake Strategic Sense?Make Strategic Sense?

When Does OutsourcingWhen Does OutsourcingMake Strategic Sense?Make Strategic Sense?

514 - 51

Strategic Advantages Strategic Advantages of Outsourcingof Outsourcing

Strategic Advantages Strategic Advantages of Outsourcingof Outsourcing

Improves firm’s ability to obtain high quality and/or cheaper components or services

Improves firm’s ability to innovate by interacting with “best-in-world” suppliers

Enhances firm’s flexibility should customer needs and market conditions suddenly shift

Increases firm’s ability to assemble diverse kinds of expertise speedily and efficiently

Allows firm to concentrate its resources on performing those activities internally which it can perform better than outsiders

524 - 52

Pitfalls of OutsourcingPitfalls of OutsourcingPitfalls of OutsourcingPitfalls of Outsourcing

Farming out too many or the wrong activities, thus Hollowing out capabilities Losing touch with activities and expertise

that determine overall long-term success

534 - 53

Offensive and Defensive StrategiesOffensive and Defensive StrategiesOffensive and Defensive StrategiesOffensive and Defensive Strategies

Used to build new or stronger market

position and/or create competitive advantage

Used to protect competitive advantage

(rarely used to create advantage)

Offensive Strategies Defensive Strategies

544 - 54

Types of Offensive StrategiesTypes of Offensive StrategiesTypes of Offensive StrategiesTypes of Offensive Strategies

1. Initiatives to match or exceed competitor strengths

2. Initiatives to capitalize on competitor weaknesses

3. Simultaneous initiatives on many fronts

4. End-run offensives

5. Guerrilla offensives

6. Preemptive strikes

554 - 55

Objectives

Attacking Competitor StrengthsAttacking Competitor StrengthsAttacking Competitor StrengthsAttacking Competitor Strengths

Whittle away at a rival’scompetitive advantage

Gain market share byout-matching strengths ofweaker rivals

Challenging strong competitors with a lower price is foolhardy unless the aggressor has a cost advantage or

advantage of greater financial strength!

564 - 56

Options for AttackingOptions for Attackinga Competitor’s Strengthsa Competitor’s Strengths

Options for AttackingOptions for Attackinga Competitor’s Strengthsa Competitor’s Strengths

Offer equally good product at a lower price Develop low-cost edge, then use it to under-

price rivals Leapfrog into next-generation technologies Add appealing new features Run comparison ads Construct new plant capacity in rival’s market

strongholds Offer a wider product line Develop better customer service capabilities

574 - 57

Attacking Competitor WeaknessesAttacking Competitor Weaknesses

Concentrate company strengths onexploiting rival’s weaknesses

Weaknesses to Attack

Customers rival is least equipped to serve Rivals providing sub-par customer service Rivals with weaker marketing skills Geographic regions where rival is weak Segments rival is neglecting

Objective

584 - 58

Launching SimultaneousLaunching SimultaneousOffensives on Many FrontsOffensives on Many Fronts

Launching SimultaneousLaunching SimultaneousOffensives on Many FrontsOffensives on Many Fronts

Launch several major initiatives to Throw rivals off-balance Splinter their attention Force them to use substantial

resources to defend their position

A challenger with superior resources can overpower weaker rivals by out-competing them across-the-board long enough to become a market leader!

Objective

594 - 59

End-Run OffensivesEnd-Run OffensivesEnd-Run OffensivesEnd-Run Offensives

Maneuver around strong competitors Capture unoccupied or less contested

markets Change rules of competition in aggressor’s

favor

Objectives

604 - 60

Approaches for End-Run OffensivesApproaches for End-Run OffensivesApproaches for End-Run OffensivesApproaches for End-Run Offensives

Introduce new products that redefine market and terms of competition

Build presence in geographic areas where rivals have little presence

Create new segments by introducing products with different features to better meet buyer needs

Introduce next-generation technologies to leapfrog rivals

614 - 61

Guerrilla OffensesGuerrilla Offenses

Use principles of surprise and hit-and-run to attack in locations and at times where

conditions are most favorable to initiator

Appeal

Well-suited to small challengers with limited

resources and market visibility

Approach

624 - 62

Options for Guerrilla OffensesOptions for Guerrilla OffensesOptions for Guerrilla OffensesOptions for Guerrilla Offenses

Make random, scattered raids on leaders’ customers Occasional low-balling on price Intense bursts of promotional activity Special campaigns to attract buyers from rivals

plagued with a strike or delivery problems

Challenge rivals encountering problems with quality or providing adequate technical support

File legal actions charging antitrust violations, patent infringements, or unfair advertising

634 - 63

Preemptive StrikesPreemptive Strikes

Involves moving first to secure an

advantageous position that rivals

are foreclosed or discouraged

from duplicating!

Approach

644 - 64

Preemptive Strike OptionsPreemptive Strike Options Preemptive Strike OptionsPreemptive Strike Options

Secure exclusive/dominant access to best distributors Secure best geographic locations Tie up best or most sources of essential raw materials Obtain business of prestigious customers Expand capacity ahead of demand in hopes

of discouraging rivals from following suit Build an image in buyers’ minds that is unique

or hard to copy

654 - 65

Choosing Rivals to AttackChoosing Rivals to AttackChoosing Rivals to AttackChoosing Rivals to Attack

Four types of firms can be the target ofa fresh offensive Vulnerable market leaders Runner-up firms with weaknesses

where challenger is strong Struggling rivals on verge

of going under Small local or regional

firms with limited capabilities

664 - 66

Offensive Strategy as a Basis to Offensive Strategy as a Basis to Achieve Competitive AdvantageAchieve Competitive Advantage

Offensive Strategy as a Basis to Offensive Strategy as a Basis to Achieve Competitive AdvantageAchieve Competitive Advantage

Strategic offensives offering strongest basis for competitive advantage usually entail An important core competence A unique competitive capability Much-improved performance features An innovative new product Technological superiority A cost advantage in manufacturing or

distribution Some type of differentiation advantage

674 - 67

Defensive StrategyDefensive StrategyDefensive StrategyDefensive Strategy

Lessen risk of being attacked Blunt impact of any attack that occurs Influence challengers to aim

attacks at other rivals

Objectives

Approaches Block avenues open to challengers Signal challengers vigorous retaliation

is likely

684 - 68

Block Avenues Open to ChallengersBlock Avenues Open to ChallengersBlock Avenues Open to ChallengersBlock Avenues Open to Challengers

Participate in alternative technologies Introduce new features, add new models, or broaden

product line to close gaps rivals may pursue Maintain economy-priced models Increase warranty coverage Offer free training and support services Reduce delivery times for spare parts Make early announcements about new

products or price changes Challenge quality or safety of rivals’ products

using legal tactics Sign exclusive agreements with distributors

694 - 69

Signal Challengers Retaliation Is LikelySignal Challengers Retaliation Is LikelySignal Challengers Retaliation Is LikelySignal Challengers Retaliation Is Likely

Publicly announce management’s strong commitment to maintain present market share

Publicly commit firm to policy ofmatching rivals’ terms or prices

Maintain war chest of cash reserves Make occasional counterresponse

to moves of weaker rivals Give out advance information about new

products, technological breakthroughs, and other moves

704 - 70

Strategies: Using the InternetStrategies: Using the Internetas a Distribution Channelas a Distribution Channel

Strategies: Using the InternetStrategies: Using the Internetas a Distribution Channelas a Distribution Channel

Challenge -- How firms should use Internet in staking their position in marketplace

Approaches to using the Internet Solely as a vehicle to disseminate product

information Minor distribution channel One of several important

distribution channels Primary distribution channel Exclusive distribution channel

714 - 71

Using the Internet toUsing the Internet toDisseminate Product InformationDisseminate Product Information

Using the Internet toUsing the Internet toDisseminate Product InformationDisseminate Product Information

Approach -- Website used to provide product information of manufacturers or wholesalers Relies on click-throughs to websites of dealers for

sales transactions Informs end-users of location of retail stores

Issues -- Pursuing online sales may Signal weak strategic commitment to dealers Signal willingness to cannibalize dealers’ sales Prompt dealers to aggressively market rivals’ brands

Avoids channel conflict with dealers -- Important where strong support of dealer networks is essential

724 - 72

Using the Internet as aUsing the Internet as aMinor Distribution Channel Minor Distribution Channel

Using the Internet as aUsing the Internet as aMinor Distribution Channel Minor Distribution Channel

Approach -- Use online sales to

Achieve incremental sales

Gain online sales experience

Conduct marketing research

Learn more about buyer tastes and preferences

Test reactions to new products

Create added market buzz about products

Unlikely to provoke much outcry from dealers

734 - 73

Brick-and-Click Strategies: AnBrick-and-Click Strategies: AnAppealing Middle Ground StrategyAppealing Middle Ground Strategy

Brick-and-Click Strategies: AnBrick-and-Click Strategies: AnAppealing Middle Ground StrategyAppealing Middle Ground Strategy

Approach Sell directly to consumers and Use traditional wholesale/retail channels

Reasons to pursue a brick-and-click strategy Manufacturer’s profit margin from online sales is bigger

than that from sales through traditional channels Encouraging buyers to visit a firm’s website educates

them to the ease and convenience of purchasing online Selling directly to end users allows a manufacturer to

make greater use of build-to-order manufacturing and assembly

744 - 74

Strategies for Online EnterprisesStrategies for Online EnterprisesStrategies for Online EnterprisesStrategies for Online Enterprises

Approach -- Use Internet as the exclusive channel of all buyer-seller contact

Success depends on a firm’s ability toincorporate following features Capability to deliver unique value to buyers Deliberate efforts to engineer a value

chain that enables differentiation, lower costs,or better value for the money

Innovative, fresh, and entertaining website Clear focus on a limited number of competencies and a

relatively specialized number of value chain activities Innovative marketing techniques Minimal reliance on ancillary revenues

754 - 75

Choosing AppropriateChoosing AppropriateFunctional-Area StrategiesFunctional-Area Strategies

Choosing AppropriateChoosing AppropriateFunctional-Area StrategiesFunctional-Area Strategies

Involves strategic choices about how functional areas are managed to support competitive strategy and additional strategic moves

Functional strategies include Research and development Production Human resources Sales and marketing Finance

Tailoring functional-area strategies to support key business-level strategies is critical !

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Linking Strategy to Company Values Linking Strategy to Company Values and Ethics Standardsand Ethics Standards

Linking Strategy to Company Values Linking Strategy to Company Values and Ethics Standardsand Ethics Standards

Tightly linking a firm’s strategy to high ethical standards begins with Managers with strong character and A set of corporate values and ethical

standards that genuinely govern a firm’s strategy and business conduct

Responsibility of top management See that values statements and ethics codes

are observed in devising strategies and Become a way of life for all employees

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First-Mover AdvantagesFirst-Mover AdvantagesFirst-Mover AdvantagesFirst-Mover Advantages

When to make a strategic move is often as crucial as what move to make

First-mover advantages arise when Pioneering helps build firm’s image and

reputation Early commitments to new technologies,

new-style components, and distribution channels can produce cost advantage

Loyalty of first time buyers is high Moving first can be a preemptive strike

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Moving early can be a disadvantage (or fail to produce an advantage) when

Costs of pioneering are sizable and loyalty of first time buyers is weak

Innovator’s products are primitive, not living up to buyer expectations

Rapid technological changeallows followers to leapfrog pioneers

First-Mover DisadvantagesFirst-Mover DisadvantagesFirst-Mover DisadvantagesFirst-Mover Disadvantages

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Timing and Competitive AdvantageTiming and Competitive AdvantageTiming and Competitive AdvantageTiming and Competitive Advantage

Being a first-mover holds potential for competitive advantage in some cases but not in others

Principle 1

Being a fast follower can sometimes yieldas good a result as being a first mover

Principle 2

Being a late-mover may or may not be fatal -- it varies with the situation

Principle 3