marketing competetive strategty

8/12/2019 MARKETING Competetive Strategty

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MARKETING

Competitive Strategies

Uma Shankar Singh(Full Time Research Scholar )

Institute of business & Computer StudiesSiksha O Anusandhan University


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COMPETITIVE ADVANTAGE ANDHOW IT IS OBTAINED

Competitive AdvantageWhat sets an organization apart -- competitiveedge

Controlling or having something others do not haveDoing something better than other organizationsDoing something other organizations cannot do

Competitive strategies are designed to exploit anorganizations competitive advantageImplies there are other competitors also trying todevelop competitive advantage & attract customersCompetitive advantage can be eroded easily (&often quickly) by rivals actions


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Understanding theCompetitive Environment

What is competition?When organizations battle for some desired

object or outcomeCustomersMarket shareSurvey rankingsNeeded resources

Hypercompetition A situation of intense and continually increasing

levels of competition in todays business environment


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Understanding theCompetitive Environment

Who are our competitors? -- 3 Perspectives(1) Industry perspective

Identifies competitors as firms that are making thesame products or providing the same serviceDescribes industries according to number of sellers &

the similarities or differences in the products or

services


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Who are our Competitors?

(2) Marketing perspectiveCompetitors are firms that satisfy the same

customer needsIntensity of competition depends on

How well the customer need is understood ordefinedHow well different firms are able to meet that

need


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(3) Strategic Group PerspectiveCompetitors are firms that follow similar

strategiesStrategic group is a set of firms competing withinan industry that have similar strategies &resources An single industry could have a few or severalstrategic groups depending on what strategicfactors are important to different group ofcustomers


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Strategic Group Perspective (Contd)Constructing a strategic group map

Identify competitive characteristics thatdifferentiate firms in an industry from one anotherPlot firms on a two-variable (X-Y) map using pairs

of these differentiating characteristics Assign firms that fall in about the same strategyspace to same strategic groupsDraw circles around each group, making circles

proportional to size of groups respective share oftotal industry sales


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Strategic Group Perspective (Contd)Guidelines for constructing SGM

Variable selected as axes should not be highlycorrelated Variables chosen as axes should expose big differences in how rivals compete Variables do not have to be either quantitative orcontinuousDrawing sizes of circles proportional to combined

sales of firms in each strategic group allows map toreflect relative sizes of each strategic groupIf more than two good competitive variables can be

used, several maps can be drawn


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Strategic Group Map of Competitorsin Video Game Industry

Overall Cost to Players of Video Games

Low Medium High

Distribn

Channels

OnlineSites

Consoles

Arcades

HomePCs

SonySega Nintendo

etc.

Arcade operators,Coin-operatedmachines

MSN gaming ZoneAOLHEAT

Publishersof games oCD-ROMs


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Resources, Capabilities &Competitive Advantage (CA)

Every firm has resources & work processesSystems to do whatever its in business to do

But not every firm is able toEffectively exploit its resources & capabilitiesObtain resources & capabilities it needs

Some firms are able to pull it together &

develop distinctive capabilities, others dontCompetitive advantage implies gaining the edgeon others using resources & capabilities

As firms strive for sustainable CA, stage forcompetition is set - intense, moderate, low


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Competitive Advantage &Competitive Strategy

What is competitive strategy? Consists of business approaches to

Attract customers by fulfilling their expectations Withstand competitive pressures Strengthen market position

Exploits competitive advantage byfinding ways to use resources & capabilities to set

firm apart from competitors


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PORTERS GENERICCOMPETITIVE STRATEGIES

Competitive advantage come from one of twosources:

Having the lowest cost in the industry

Possessing a product or offering a service that is perceived as unique in the industry

Another important factor is the scope of theproduct-market (broad or narrow)Mix of these factors provide basis for

Cost leadership strategy (low-cost strategy)Differentiation strategy

Focus strategy


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PORTERS GENERICCOMPETITIVE STRATEGIES

MarketScope

Competitive AdvantageLow Cost Differentiation

Broad

Narrow

Cost Leadership Differentiation

Focus(Low Cost)

Focus(Differentiation)


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Cost Leadership Strategy

Objective : Gain sustainable competitive advantage over

competitors, using low-cost (not price) Produce for broad customer base

Basic Theme (Keys to Success): Low-cost relative to competitors

Low cost implies OVERALL LOW COST Not just low manufacturing or production costProduct quality cannot be ignored


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Characteristic of CostLeaders

Champion frugalityStrict attention to production controls

Rigorous use of budgetsLittle product differentiationLimited market segmentation

Emphasis on productivity improvementsDistinctive capabilities found inmanufacturing & materials management


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Successful Pursuit of CostLeadership Strategy

Every strategic decision is aimed at keepingcost as low as possible

Efficiency is sought in all areas of operation All functional strategies & capabilities aredirected at efficiency

Doesnt have deep & wide product linesMarket products aimed at average customerLittle or no product frills or differences


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When Cost LeadershipWorks Best

Price competition is vigorous Product is standardized or readily

available from many suppliers There are few ways to achievedifferentiation that have value

Most buyers use product in same ways Buyers incur low switching costs Buyers are large and have significant

bargaining power


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Competitive Strengths ofCost Leadership Strategy

RIVAL COMPETITORS - compete usinglow price

BUYERS - nullify power to drive down pricesSUPPLIERS -Flexibility to cope with inputcost increases

POTENTIAL ENTRANTS - More efficient(through EOS) & pricing powerSUBSTITUTE PRODUCTS - Potential use oflow price


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Drawbacks of CostLeadership Strategy

Being overly aggressive in cutting price Low cost methods are easily imitated by rivals

Becoming too fixated on reducing costsand ignoring Buyer interest in additional features (tastes)

Declining buyer sensitivity to price Changes in how the product is used

Technological breakthroughs open up cost

reductions for rivals


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Differentiation Strategy

Objective Offering products/services perceived as unique

over the brands of rivals in an industry

Keys to Success Offer products/services that create value to

customers

Offer products/services not easily matched oreasily copied by rivals Not spending more to differentiate the firms

products or service than the price premium thatcan be charged


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Differentiation Themes

Unique taste -- Dr. Pepper Special features -- America Online Superior service -- FedEx, Ritz-Carlton Spare parts availability -- Caterpillar More for your money -- McDonalds, Wal -Mart Engineering design and performance -- Mercedes

Prestige -- Rolex Quality manufacture -- Honda , Toyota Technological leadership -- 3M Corporation, Intel Top-of-the-line image -- Ralph Lauren, Chanel


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Benefits of Differentiation

A product / service with unique andappealing attributes allows a firm to

Command a premium price and/or Increase unit sales and/or Build brand loyalty

= Competitive Advantage


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Characteristics ofSuccessful Differentors

Every strategic decision & action is directedat setting the firm apart from competitors

All functional strategies & capabilities areaimed at isolating & understanding specificmarket segments & developing productfeatures that are valued by customersHas broad and wide product lines -- manydifferent models, features, price ranges,etc.


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Characteristics ofSuccessful Differentors

Has many market segments & productfeatures

Controls costs but not as rigorous as thecost leader to preserve source ofdifferentiation

Strives to establish brand loyaltyCompetitive capabilities tends to be inmarketing and research & development


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ompetitive Strengths ofDifferentiation

RIVAL COMPETITORS - Brand loyalty & lowersensitivity to price

BUYERS - lack of alternatives & low sensitivityto price

SUPPLIERS - High margins provide ability topay increases in input costs

POTENTIAL ENTRANTS - Buyer loyalty &uniqueness of product/service

SUBSTITUTES - lack of comparable featuresand customer loyalty


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When Differentiation WorksBetter

There are many ways to differentiate aproduct that have value and pleasecustomers

Buyer needs and uses are diverse Few rivals are following a similar type of

differentiation approach Technological change is fast-paced

and competition is focused on evolvingproduct features


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Drawbacks ofDifferentiation Trying to differentiate on a feature buyers do not perceive

as lowering their cost or enhancing their well-being Over-differentiating such that product features exceed

customers needs Charging a price premium that customers perceive is too

high Failing to signal value Not understanding what customers want or prefer and

differentiating on the wrong things Low-cost strategy can defeat a differentiation strategy

when customers are satisfied with a standard product anddo not see extra attributes as worth paying for!


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Focus Strategy

Firm pursues either a cost leadership ordifferentiation strategy but in a narrow

customer group of segmentConcentrates on serving specific marketniche

Geographical areaType of customer -- specific group of

customersSpecific & specialized product line


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Focus Strategy

ObjectiveServe the niche customers better than

competitors

Keys to SuccessChoose a market niche where buyers have

distinctive preferences, specialrequirements, or unique needs Develop unique capabilities to serve needs of

target buyer segment


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Focus Approaches

Approach 1: Cost Advantage Achieve lower cost than rivals in serving thespecific or narrow segment

Approach 2: Differentiation AdvantageOffer customers in niche market something

unique in that market

Product featuresProduct innovationsProduct qualityCustomer responsiveness


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Examples of Focus Strategy

Focus Low-cost Ikea : Young furniture buyers who want style at low cost

(price sensitive and low service customer groups)

Southwest Airlines : Short-haul, point-to-point servicebetween midsize cities & secondary airports in largecities (low pricing & low service)

Focus Differentiation

Rolex : Serve highest end of wristwatch market(premium pricing & image)Rolls-Royce : Serving luxurious end of automobilemarket (premium pricing & image)


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Advantages of the FocusStrategy

The focuser knows its market niche andknows it well

The focuser can stay close to customersand respond quickly to their changingneeds

Focuser can develop strong brand loyaltywhich can be difficult for othercompetitors to overcome


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Drawbacks of FocusStrategy

Operates in small scale making it difficult tolower costs significantly. Technological advanceshas minimized this drawback

Competitors find effective ways to match afocusers capabilities in serving niche market

Niche can become part of the overall market

Segment becomes so attractive it becomescrowded with rivals, causing segment profits tobe splintered


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Stuck in the Middle

Happens when a firm is not successful in pursuingeither a low-cost or differentiation strategyOccurs when a firms

Costs are too high to compete with the low-cost leaderProducts & services are not differentiatied enough tocompete with broad differentiator

Unprofitable strategic position/directionBecoming unstuck involves making consistentstrategic decisions about what CA to pursue &doing so by aligning resources & capabilities


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NEW PERSPECTIVES ONCOMPETITIVE STRATEGY

Integrated Low-Cost Differentiation StrategyDevelops CA by simultaneously achieving low-

cost and high levels of differentiationMake an upscale product at a lower costGive customers more value for the money

Technological advancements that make thishybrid competitive strategy possible are

Flexible manufacturing systemsJust-in-time inventory systems

Computer-integrated manufacturing systems

S C S O


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Advantages of hybrid strategy Competitive advantage from

Premium pricing and Cost efficiency

Success depends on having the capabilities to Provide attractive performance and features,

& Lower cost than rivals

Can often out-compete both a low-cost

provider and a differentiator

NEW PERSPECTIVES ON


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Examples of Integrated low-costdifferentiation strategy Toyota & Honda

Cost reduction through zero defects anddifferentiation through quality

Canon

Cost reduction through EOS and differentiationthrough design of copiers

Wal-Mart Cost reduction through automation and

differentiation through quality (more value)

NEW PERSPECTIVES ON


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Mintzberg s generic Competitive StrategiesDifferentiation by price

Differentiation by marketing imageDifferentiation by product designDifferentiation by quality

Differentiation by product supportUndifferentiated strategyMirrors the realities of todays dynamic

competitive environment

IMPLEMENTING


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IMPLEMENTINGCOMPETITIVE STRATEGY

Without implementation, a strategy isnothing more than a strategic idea or planRole of functional strategies

Using resources & capabilities to create &exploit CA takes place through the actualstrategies that are being used in the functional

areasHave a dual role in determining

What competitive strategy is most appropriate?How is the strategy implemented?


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C titi P t d


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Competitive Postures andActions

Offensive Moves: Undertaken tobuild new or stronger market positions and/orcreate competitive advantage

Defensive Moves: Undertaken to protect competitive advantage reduce risk of being attacked

discourage the offensive strategies of rivals Blunt the impact of any attack

Rarely a basis for creating competitiveadvantage


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Offensive Strategic Moves

Matching or exceeding rivals strength (Frontalassault)

Capitalizing on rivals weaknesses Simultaneous offense on many fronts End- run offensives (Komatsus move to LDCs) Guerrilla offenses

Preemptive Strikes (Microsofts bundling ofInternet Explorer with Windows 95 & 98)

Acquisition of competitors


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Defensive Strategic Moves Block avenues rivals can take to mount attack

sign exclusive contracts with best suppliers patent alternative technologies broaden product line to match rivals

Keep prices low on models that match rivals Challenge rivals products or practices in regulatory proceedings

(Netscape vs. Microsoft), etc.

Make clear willingness to fight challengers

Publicly make commitments to maintain market share Publicly commit firm to policy of matching prices of items

offered by rivals Maintain excess cash reserves; etc.

Lower inducement for attack (e.g., Southwest Airlines)

E l ti g & Ch gi g


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Evaluating & ChangingCompetitive Strategy

Responsibility of managing strategicallyinvolves

Implementing competitive strategyMonitoring, assessing, and evaluating strategy

for performance effectiveness & efficiencyCompetitive strategies are targeted at

increasing sales revenues, market share, orprofitabilityData on these areas help determine the

impact of competitive strategy

E l ti g & Ch gi g


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Evaluating & ChangingCompetitive Strategy

Changing Competitive StrategyOrganizations fundamental competitive

strategy is not changed frequently and

continuallyEach competitive strategy entails the developmentof specific resources & capabilities. To change this isdifficult

Major competitive strategic change should beapproached realistically & intelligently

Although changing a firms competitive strategyisnt very likely, modifying the competitive

marketing competetive strategty

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