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8

Chapter Title

16/e PPT

Md. Tarikul Islam

Lecturer in Marketing

IIUC, DC

Cell: 01716 388990

E-mail: russelmkg@yahoo.com.

Tailoring Strategy

to Fit Specific

Industry and

Company Situations

Published by www.iiuc28a9.com

8-2

Matching Strategy toa Company’s Situation

Most important

drivers shaping a

firm’s strategic

options fall into

two categories

Firm’s competitive

capabilities,

market position,

best opportunities

Nature of industry

and competitive

conditions

8-3

New and unproven market

Proprietary technology

Lack of consensus regarding which ofseveral competing technologies will win out

Low entry barriers

Experience curve effects may permit

cost reductions as volume builds

Buyers are first-time users and marketing involves inducing

initial purchase and overcoming customer concerns

First-generation products are expected to be rapidly

improved so buyers delay purchase until technology

matures

Possible difficulties in securing raw materials

Firms struggle to fund R&D, operations and build resource

capabilities for rapid growth

Features of an Emerging Industry

8-4

Strategy Options for Competing in Emerging Industries

Win early race for industry leadership by employing a bold,

creative strategy

Push hard to perfect technology, improve product quality,

and develop attractive performance features

Consider merging with or acquiring another firm to

Gain added expertise

Pool resource strengths

When technological uncertainty clears and a dominant

technology emerges, try to capture any first-mover

advantages by moving quickly

Form strategic alliances with

Companies having related technological expertise or

Key suppliers

8-5

Strategy Options for Competing in Emerging Industries (continued)

Pursue new customers and user applications

Enter new geographical areas

Make it easy and cheap for first-time buyers to try

product

Focus advertising emphasis on

Increasing frequency of use

Creating brand loyalty

Use price cuts to attract price-sensitive buyers

8-6

Strategic Hurdles for Companiesin Emerging Industries

Raising capital to finance initial operations until

Sales and revenues take off

Profits appear

Cash flows turn positive

Developing a strategy to ride the wave of industry

growth

What market segments to pursue

What competitive advantages to go after

Managing the rapid expansion of facilities and sales to

position a company to contend for industry leadership

Defending against competitors trying to horn in on the

company’s success

8-7

What Is the Key to Success forCompeting in Rapidly Growing Markets?

A company needs a strategy predicated on

growing faster than the market average so it

Can boost its market share and

Improve its competitive standing vis-à-vis rivals

8-8

Strategy Options for Competing in Rapidly Growing Markets

Drive down costs per unit to enable price

reductions that attract droves of new customers

Pursue rapid product innovation to

Set a company’s product offering apart from rivals

Incorporate attributes to appeal to growing numbers of

customers

Gain access to additional distribution

channels and sales outlets

Expand a company’s geographic coverage

Expand product line to add models/styles to appeal

to a wider range of buyers

8-9

Slowing demand breeds stiffer competition

More sophisticated buyers demand bargains

Greater emphasis on cost and service

“Topping out” problem in adding

production capacity

Product innovation and new

end uses harder to come by

International competition increases

Industry profitability falls

Mergers and acquisitions reduce number of rivals

Industry Maturity: The Standout Features

8-10

Strategy Options for Competingin a Mature Industry

cut back marginal products and models

Emphasize innovation in the value chain

Strong focus on cost reduction

Increase sales to present customers

Purchase rivals at bargain prices

Expand internationally

Build new, more flexible competitive capabilities

8-11

Strategic Pitfalls in a Maturing Industry

Employing a ho-hum strategy with no distinctive

features thus leaving firm “stuck in the middle”

Being slow to mount a defense against stiffening

competitive pressures

Concentrating on short-term profits rather than

strengthening long-term competitiveness

Being slow to respond to price-cutting

Having too much excess capacity

Overspending on marketing

Failing to aggressively pursue cost reductions

8-12

Stagnant or Declining Industries:The Standout Features

Demand grows more slowly than economy as

whole (or even declines)

Advancing technology gives rise to better-

performing substitute products

Customer group shrinks

Changing lifestyles and buyer tastes

Rising costs of complementary products

Competitive battle ensues among industry

members for the available business

8-13

Pursue focus strategy aimed at

fastest growing market segments

Stress differentiation based on quality

improvement or product innovation

Work diligently to drive costs down Cut marginal activities from value chain

Use outsourcing

Redesign internal processes to exploit e-commerce

Consolidate under-utilized production facilities

Add more distribution channels

Close low-volume, high-cost distribution outlets

Prune marginal products

Strategy Options for Competingin a Stagnant or Declining Industry

8-14

End-Game Strategiesfor Declining Industries

An end-game strategy can take either of two paths

Slow-exit strategy involving

Gradual phasing down of operations

Getting the most cash flow from the business

Fast-exit strategy involving

Disengaging from an industry during early stages of decline

Quick recovery of as much of a company’s investment as possible

8-15

Features of High-Velocity Markets

Rapid-fire technological change

Short product life-cycles

Entry of important new rivals

Frequent launches of

new competitive moves

Rapidly evolving

customer expectations

8-16

Fig. 8.1: Meeting the Challenge of High-Velocity Change

8-17

Invest aggressively in R&D

Initiate fresh actions every few months

Develop quick response capabilities

Shift resources

Adapt competencies

Create new competitive capabilities

Speed new products to market

Use strategic partnerships to develop

specialized expertise and capabilities

Keep products/services fresh and exciting

Strategy Options for Competingin High-Velocity Markets

8-18

Cutting-edge expertise

Speed in responding to new developments

Collaboration with others

Agility

Innovativeness

Opportunism

Resource flexibility

First-to-market capabilities

Keys to Success in Competingin High Velocity Markets

8-19

Competitive Featuresof a Fragmented Industry

Absence of market leaders with large market shares or widespread

buyer recognition

Product/service is delivered to neighborhood

locations to be convenient to local residents

Buyer demand is so diverse that many firms

are required to satisfy buyer needs

Low entry barriers

Absence of scale economies

Market for industry’s product/service may be globalizing, thus

putting many companies across the world in same market arena

Exploding technologies force firms to specialize just to keep up in

their area of expertise

Industry is young and crowded with aspiring contenders, with no

firm having yet developed recognition to command a large market

share

8-20

Examples of Fragmented Industries

Book publishing

Landscaping and plant nurseries

Auto repair

Restaurant industry

Public accounting

Women’s dresses

Meat packing

Paperboard boxes

Hotels and motels

Furniture

8-21

Competing in a Fragmented Industry: The Strategy Options

Construct and operate “formula” facilities

Become a low-cost operator

Specialize by product type

Specialize by customer type

Focus on limited geographic area

8-22

Fig. 8.2: Three Strategy Horizons for Sustaining Rapid Growth

8-23

Risks of PursuingMultiple Strategy Horizons

Firm should not pursue all options

to avoid stretching itself too thin

Pursuit of medium- and long-jump

initiatives may cause firm to stray

too far from its core competencies

Competitive advantage may be difficult to achieve

in medium- and long-jump businesses that do not

mesh well with firm’s present resource strengths

Payoffs of long-jump initiatives may prove elusive

8-24

Strategies Based on a Company’s Market Position

Industry leaders

Runner-up firms

Weak or crisis-ridden firms

8-25

Industry Leaders:The Defining Characteristics

Strong to powerful market position

Well-known reputation

Proven strategy

Key strategic concern – How to sustain

dominant leadership position

8-26

Strategy Options: Industry Leaders

Stay-on-the-offensive strategy

Fortify-and-defend strategy

Muscle-flexing strategy

8-27

Stay-on-the-Offensive Strategies

Be a first-mover, leading industry change

Best defense is a good offense

Concentrate on achieving a competitive advantage

and then widening the advantage over time

Relentlessly pursue continuous improvement

and innovation, being first to market with

Technological improvements

New or better products

More attractive performance features

Customer service improvements

8-28

Stay-on-the-Offensive Strategies (continued)

Aggressively seek out ways to Cut operating costs

Establish competitive capabilities rivals cannot match

Make it easier for potential customers to switch their purchases from

other firms to the leader’s own products

Aggressively attack profit sanctuaries of important rivals

Launch fresh initiatives to expand overall industry

demand Spur creation of new families of products

Make product more suitable for consumers

in emerging-country markets

Discover new uses for product

Attract new users of product

Promote more frequent use

Grow faster than industry, taking market share from rivals

8-29

Fortify-and-Defend Strategy

Make it harder for new firms to enter and for

challengers to gain ground

Hold onto present market share

Strengthen current market position

Protect competitive advantage

Objectives

8-30

Fortify-and-Defend Strategy: Strategic Options

Increase advertising and R&D

Provide higher levels of customer service

Introduce more brands to match attributes of rivals

Add personalized services to boost buyer loyalty

Keep prices reasonable and quality attractive

Build new capacity ahead of market demand

Invest enough to remain cost competitive

Patent feasible alternative technologies

Sign exclusive contracts with best suppliers and

distributors

8-31

Play competitive hardball with smaller

rivals that threaten leader’s position

Signal smaller rivals that moves to cut

into leader’s business will be hard fought

Convince rivals they are better off playing

“follow-the-leader” or else attacking each

other rather the industry leader

Muscle-Flexing Strategy

Objectives

8-32

Be quick to meet price cuts of rivals

Counter with large-scale promotional campaigns if

rivals boost advertising

Offer better deals to rivals’ major customers

Dissuade distributors from carrying rivals’ products

Provide salespersons with documentation about

weaknesses of competing products

Make attractive offers to key executives of rivals

Use arm-twisting tactics to pressure present

customers not to use rivals’ products

Muscle-Flexing Strategy:Strategic Options

8-33

Running afoul of antitrust laws

Alienating customers with bullying tactics

Arousing adverse public opinion

Muscle-Flexing Strategy

Risks

8-34

Types of Runner-up Firms

Market challengers

Use offensive strategies to gain market share

Focusers

Concentrate on serving a

limited portion of market

Perennial runners-up

Lack competitive strength to do

more than continue in trailing position

I’m trying!

8-35

Obstacles Runner-UpFirms Must Overcome

When big size is a competitive asset, firms

with small market share face obstacles

in trying to strengthen their positions

Less access to economies of scale

Difficulty in gaining customer recognition

Inability to afford mass media advertising

Difficulty in funding capital requirements

8-36

Strategic Optionsfor Runner-Up Firms

When big size provides larger rivals with a cost

advantage, runner-up firms have two options

Build market share

Lower costs and prices to grow sales or

Out-differentiate rivals in ways to grow sales

Withdraw from market

8-37

Acquire smaller rivals to expand company’s market reach

and presence

Find innovative ways to drive down costs

to win customers from higher-priced rivals

Craft an attractive differentiation strategy

Pioneer a leapfrog technological breakthrough

Be first-to-market with new or better products and build

reputation for product leadership

Outmaneuver slow-to-change market leaders in adapting

to evolving market conditions and customer needs

Forge strategic alliances with key distributors, dealers, or

marketers of complementary products

Offensive Strategies for Runner-Up Firms: Building Market Share

8-38

Strategic Approaches for Runner-Up Firms

1. Vacant niche strategy

2. Specialist strategy

3. Superior product strategy

4. Distinctive image strategy

5. Content follower strategy

8-39

Focus strategy concentrated on end-use

applications market leaders have neglected

Characteristics of an ideal vacant niche

Sufficient size to be profitable

Growth potential

Well-suited to a firm’s capabilities

Hard for leaders to serve

Vacant Niche Strategyfor Runner-Up Firms

8-40

Strategy concentrated on

being a leader based on

Specific technology

Product uniqueness

Expertise in

Special-purpose products

Specialized know-how

Delivering distinctive customer services

Specialist Strategy for Runner-Up Firms

8-41

Differentiation-based focused strategy based on

Superior product quality or

Unique product attributes

Approaches

Fine craftsmanship

Prestige quality

Frequent product innovations

Close contact with customers to

gain input for better quality product

Superior Product Strategyfor Runner-Up Firms

8-42

Strategy concentrated on ways to

stand out from rivals

Approaches

Reputation for charging lowest price

Prestige quality at a good price

Superior customer service

Unique product attributes

New product introductions

Unusually creative advertising

Distinctive Image Strategyfor Runner-Up Firms

8-43

Strategy involves avoiding

Trend-setting moves and

Aggressive moves to steal

customers from leaders

Approaches

Do not provoke competitive retaliation

React and respond

Defense rather than offense

Keep same price as leaders

Attempt to maintain market position

Content Follower Strategyfor Runner-Up Firms

8-44

Weak Businesses: Strategic Options

Launch an offensive turnaround strategy

(if resources permit)

Employ a fortify-and-defend strategy

(to the extent resources permit)

Pursue a fast-exit strategy

Adopt a harvest strategy

(a slow-exit type of end-game strategy)

8-45

Achieving a Turnaround: The Strategic Options

Sell off assets to generate cash and/or reduce debt

Revise existing strategy

Launch efforts to boost revenues

Cut costs

Combination of efforts

8-46

What Is a Harvest Strategy?

Steers middle course between status quo and

exiting quickly

Involves gradually sacrificing market position

in return for bigger near-term cash flow/profit

Objectives

Short-term - Generate largest

feasible cash flow

Long-term - Exit market

8-47

Types of Harvest Options

Reduce operating expenses to rock-bottom

Hold reinvestment to minimum

Place little priority on new capital investments

Emphasize stringent internal cost controls

Trim advertising and promotion expenses

Do not replace employees who leave

Shave equipment maintenance

8-48

Industry’s long-term prospects are unattractive

Building up business would be too costly

Market share is increasingly costly to maintain

Reduced levels of competitive effort will not trigger

immediate fall-off in sales

Firm can re-deploy freed-up resources

in higher opportunity areas

Business is not a major component of

diversified firm’s portfolio of businesses

When Should a HarvestStrategy Be Considered?