1

2

Differentiation

Low-cost

leadership

Focus

3

1. Cost

Leadership2. Differentiation

3 A. Cost Focus 3 B. Differentiation

FocusNarrow

Target

Broad

Target

DifferentiationLower Cost

Competitive

Advantage

Competitive Score

Generic Commodity Required Common Organizational

Strategy Skills and Resources Requirements

Overall cost Sustained capital investment Tight cost control

leadership access to capital Frequent, detailed control reports

Process engineering skills Structured organization and responsibilities

Intense supervision of labour Incentives based on

Products designed for ease meeting strict quantitative

Low-cost distribution system targets in manufacture

Differentiation Strong marketing abilities Strong coordination Product engineering among functions in R&D, Creative flare product development, and

marketing

4

Strong capability in basic Subjective measurement and

research incentives instead of

quantitative measures

Corporate reputation for Amenities to attract highly

quality or technological skilled labour, scientists, or

leadership creative people

Long tradition in the industry

or unique combination of skills

drawn from other businesses

Strong cooperation from

channels

Focus Combination of the above Combination of the above policies

policies directed at the directed at the regular strategic

particular strategic target target

5

Risks of Cost Leadership Risks of Differentiation Risk of Focus

Cost of leadership is not Differentiation is not The focus strategy is sustained initiated

sustained: Competitors imitate The target segment Competitors imitate: Bases for differentiation becomes structurally

unattractive Technology changes becomes less imported to Structure erodes Other bases for cost buyers Demand disappears

leadership erodeProximity in differentiation Cost proximity is lost Broadly targeted is lost competitors overwhelm

the segment: The segment’s differences

from other segments narrow The advantages of a broad

line increaseCost focusers achieve Differentiation focusers New Focusers sub-segmentseven lower cost in segments achieve even greater the industry

differentiation in segments

6

7

Keeping

ahead of the

field

Cost leadership

Raise barriers

Deter

competitors

Redefine scope

Divest

peripherals

Encourage

departures

Imitation at

lower cost Joint

ventures

Differentiati

on FocusDifferentiation

New

opportunities

Leade

r

Follower

Growth Maturity Decline

Strategic

position of

organizatio

n

8

Consortia

Concentrated Growth

Market Development

Product Development

Innovation

Horizontal Integration

Vertical Integration

Concentric Diversification

Conglomerate Diversification

Turnaround

Divestiture

Liquidation

Bankruptcy

Joint Ventures

Strategic Alliances

Involves focusing resources on the profitable growth of a single product, in a single market, with a single dominant technology

Rationale - Firm develops and exploits its expertise in a delimited competitive arena

Determinants of competitive market success

◦ Ability to assess market needs

◦ Knowledge of buyer behavior

◦ Customer price sensitivity

◦ Effectiveness of promotion

9

10

Firm’s industry is resistant to major technological advancements

Firm’s targeted markets are not product saturated

Firm’s inputs are stable in price and quantity and available in amounts and at times needed

Firm’s industry is stable

Firm’s competitive advantages are based on efficient production or distribution channels

Success of market generalists

Market development

◦ Consists of marketing present products, often with only cosmetic modifications, to customers in related market areas by

Adding channels of distribution or

Changing content of advertising or promotion

Product development

◦ Involves substantial modification of existing products or creation of new but related products

◦ Based on penetrating existing markets by

Incorporating product modifications into existing items or

Developing new products connected to existing products

11

Prof.Sushil\IITD\Session-VI 12

Concentration: Increasing use of present products in present markets

1. Increasing present customers’ rate of use:

a. Increasing size of purchase

b. Increasing rate of product obsolescence

c. Advertising other uses

d. Giving price incentives for increased use

2. Attracting competitors’ customers

a. Establishing sharper brand differentiation

b. Increasing promotional effort

c. Initiating price cuts

3. Attracting nonusers to buy the product

a. Inducing trial use through sampling, price incentives, and so on

b. Pricing up or down

c. Advertising new uses

13

Market Development: Selling present products in new markets

1. Opening additional geographic markets

a. Regional expansion

b. National expansion

c. International expansion

2. Attracting other market segments

a. Developing product versions to appeal to other segments

b. Entering other channels of distribution

c. Advertising in other media

14

Product Development: Developing new products for present markets

1. Developing new product features

a. Adapt (to other ideas, developments)

b. Modify (change color, motion, sound, odor, form, shape)

c. Magnify (stronger, loner, thicker, extra value)

d. Minify (smaller, shorter, higher

e. Substitute (other ingredients, process, power)

f. Rearrange (other patterns, layout, sequence, components)

g. Reverse (inside out)

h. Combine (blend, alloy, assortment, ensemble; combine units, purposes, appeals, ideas)

2. Developing quality variations

3. Developing additional models and sizes (product proliferation)

15

Involves creating a new product life cycle,

thereby making similar existing products

obsolete

Horizontal integration

◦ Based on growth via acquisition of one or more similar firms operating at the same stage of the production-marketing chain

◦ Involves eliminating competitors, providing acquiring firm with access to new markets

Vertical integration

◦ Involves acquiring firms

To supply acquiring firm with inputs - backward integrationor

Are customers for firm’s outputs - forward integration

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17

Acquisitions or mergers of suppliers or customer businesses are vertical integrations

Acquisitions or mergers of competing businesses are horizontal integrations

Textile producer

Shirt manufacturer

Clothing store

Textile producer

Shirt manufacturer

Clothing store

18

Increase growth rate of firm

Investment is better use of funds than using them for internal growth

Improve stability of earnings and sales

Balance or fill out product line

Diversify product line

Acquire a needed resource quickly

Achieve tax savings

Increase firm’s stock value

Increase efficiency and profitability

Concentric diversification

◦ Involves acquisition of businesses related to acquiring firm in terms of technology, markets, or products

Conglomerate diversification

◦ Involves acquisition of a business because it represents a promising investment opportunity

◦ Primary motivation is profit pattern of venture

Difference between the approaches

◦ Concentric diversification emphasizes commonalitywhereas conglomerate diversification emphasizes profits for each individual unit

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20

A grand strategy of cost reduction and asset

reduction by a company to survive and

recover from decline profit

Divestiture strategy

◦ Involves selling a firm or a major component of a firm

◦ Reasons for divestiture

Partial mismatches between acquired firm and parent firm

Corporate financial needs

Government antitrust action

Liquidation strategy

◦ Involves selling parts of a firm, usually for its tangible asset value and not as a going concern

21

Two approaches◦ Liquidation - Involves complete distribution of a

firm’s assets to creditors, most of whom receive asmall fraction of amount owed

◦ Reorganization - Involves creditors temporarilyfreezing their claims while a firm reorganizes andrebuilds its operations more profitably

Advantage of a reorganization bankruptcy◦ Proactive option offering maximum repayment of a

firm’s debt in the future if a recovery strategy issuccessful

22

Joint venture

◦ Involves establishing a third company (child), operated for the benefit of the co-owners (parents)

Strategic alliance

◦ Involves creating a partnership between two or more companies that contribute skills and expertise to a cooperative project

Exists for a defined period

Does not involve the exchange of equity

Consortia, Keiretsus, and Chaebols

◦ Defined as large interlocking relationships between businesses of an industry

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24

1. Improve Business Focus

2. Access to World-Class Capabilities

3. Accelerated Reengineering Benefits

4. Shared Risks

5. Free Resources for Other Purposes