Competitive Strategy

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Process of strategic management

PerformExternal

audit

DevelopVision &mission

PerformInternal

audit

EstablishLong termobjective

Generate,Evaluate &

Selectstrategies

ImplementStrategies

Strategies-Markt.,

Fin.,MIS, R&D

Measure &Evaluate

performance

What is a competitive strategy ?• A strategy can be defined as

the identification of the purpose of the organization & the plans and actions to achieve that purpose.

• Whereas a competitive strategy is all about achieving a competitive advantage. i.e. how a company serves customers differently from its competitors.

Types of Strategies

Integration / Dis – integrationo Forwardo Backwardo Horizontal

Intensiveo market penetrationo market developmento product development

Diversificationo Concentric (sugar ind)o Horizontal o Conglomerate

Defensiveo Retrenchmento Divestmento Liquidation

MICHAEL EUGENE PORTERprofessor – Harvard Business School • Strategy is all about creating a unique

position among your competitors & the industry in general.

• PORTER’S 5 FORCES analysis helps an organization to analyze the attractiveness of an industry.

Porter’s generic strategies

• Cost leadership• Differentiation• Focus

A Cost Leadership Strategy

• Open up a sustainable cost advantage over rivals, using lower-cost edge as a basis either to–Under-price rivals and reap market

share gains OR–Earn higher profit margin selling at going

price

Objective

The Competitive Strengths of Low-Cost Leadership

• Better positioned than RIVAL COMPETITORS to compete offensively on basis of price

• Low-cost provides some protection from bargaining leverage of powerful BUYERS

• Low-cost provides some protection from bargaining leverage of powerful SUPPLIERS

• Low-cost provider’s pricing power acts as a significant barrier for POTENTIAL ENTRANTS

• Low cost puts a company in position to use low price as a defense against SUBSTITUTES

Pitfalls of Low-Cost Strategies• Being overly aggressive in cutting price (revenue

erosion of lower price is not offset by gains in sales volume--profits go down,not up)

• 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

Differentiation Strategies

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

• Find ways to differentiate that CREATE VALUE for buyers and that 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

The Appeal of Differentiation Strategies

• A powerful competitive approach when uniqueness can be achieved in ways that– Buyers perceive as valuable– Rivals find hard to match or copy– Can be incorporated

at a cost well below the price premium that buyers will pay

Which hat is

unique?

The Benefits of Successful Differentiation

A product / service with unique and appealing attributes allows a firm to

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

= Competitive Advantage

Types of Differentiation

– Quality – Design is the same but better– Design - Technical differences– Service – additional customer services– Image – Brand name

The Competitive Strengths of a Differentiation Strategy

• Buyers develop loyalty to brand they like best--can beat RIVAL COMPETITORS in the marketplace

• Mitigates bargaining power of large BUYERS since other products are less attractive

• Buyer loyalty acts as a barrier to POTENTIAL ENTRANTS

• Differentiation puts a seller in better position to fend off threats of SUBSTITUTES not having comparable features

What Can Make aDifferentiation Strategy Fail

• 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 buyers’ needs

• Charging a price premium that buyers perceive is too high

• Failing to signal value• Not understanding what buyers want or prefer and

differentiating on the “wrong” things

Means for achieving strategies

• Joint ventures• Mergers & Acquisitions• Outsourcing

A point must be noted here that above listed terminologies are the means by which a firm could get into a strategic position & not a strategy in itself.

Thanks !