week 7 competitive advantage

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Competitive advantage: 

Competitive advantage Dimensions of competitive strategy Analysing the choice of competitive strategy Customer segmentation and differentiation Competitor analysis

Slide2: 

STRATEGIC CHOICES: COSTS DIFFERENTIATION customer valued features TERRITORY market scope DIMENSIONS TO CHOICE OF COMPETITIVE STRATEGY LOW HIGH LOW HIGH NARROW BROAD

Strategic choices – cost drivers: 

Strategic choices – cost drivers Economies of scale and scope Economies of learning experience curve effects Process technology design Process technology utilisation capacity utilisation Product design Input factor costs location; supplier relations Policy choices order size; sourcing decisions; payment rates

Types of differentiation: 

Types of differentiation The product’s: functionality; build quality; reliability appearance image The firm’s: levels and nature of support e.g. expertise offered; personalisation reputation/brand image

Why segment a market?: 

Why segment a market? Compromise: customisation versus mass marketing Match products to needs of customers/users: serve them better and retain them improve profits by charging extra for premium product/service where market will bear it

What might make a market segment attractive?: 

What might make a market segment attractive? Broad and homogeneous potential economies of scale Easily accessible Affluent Not price sensitive Brand loyal Not served by competitors

Some ways of segmenting markets: 

Some ways of segmenting markets Consumer markets: geographical location by social class or lifestyle by age, gender, race etc. Business markets: by industry/size/location by technology/customer capability by purchasing approach by urgency or size of order

Choices of market scope and operating scale: 

Choices of market scope and operating scale How many markets to serve? How many products to offer? risk of dependency on one product/customer possibility of economies of scope risk of loss of management focus How much of each product to make? scale economies vs need for customisation

Generic strategies Porter’s original framework: 

Generic strategies Porter’s original framework Porter: viable strategies consist of: Differentiation – offering something unique, commanding a price premium Cost leadership – being the lowest-cost producer in the industry Focus – concentrating on a narrow customer segment If not clearly in one of these categories, a firm risks being stick in the middle

Slide10: 

STUCK IN THE MIDDLE  EASYJET RYANAIR BA ‘RENTAJET’?

Generic strategies in auto industry: 

Generic strategies in auto industry Toyota clear cost leader – but superior reliability  its prices not the lowest Ford challenging for lowest cost position Some clear focusers... Porsche Jaguar …and some not so clear Fiat and Peugeot-Citroen???

Problems with Porter’s generic strategy framework: 

Problems with Porter’s generic strategy framework Cost leadership rarely observed: many firms may vie for lowest costs industry boundaries fuzzy and permeable Not comparing like with like: cost leadership set at level of overall firm differentiation may vary between products Most successful strategies mix cost and differentiation advantage is ‘stuck in the middle’ an outdated concept?

Slide13: 

Commodity-system cycle based on work of Shiv Mathur Unbundling & fragmentation some merchandise and support features deleted Bundling & repackaging differences introduced into merchandise and support features

Slide14: 

Price Low High The strategy clock

The strategy clock – low price strategies: 

The strategy clock – low price strategies 1. No frills – probably segment specific 2. Low price – needs low costs to offset low margins, risk of price war 3. Hybrid – low cost base, reinvestment in low price, differentiation

The strategy clock – differentiation strategies: 

The strategy clock – differentiation strategies 4.(a) Differentiation without price premium adds value to user  increased market share 4.(b) Differentiation with price premium: added value must justify premium price 5. Focused differentiation – adds value to particular segment  price premium

The strategy clock strategies destined to fail: 

The strategy clock strategies destined to fail 6. Increased price/standard value – viable: in monopoly situation if customers lack information on where to find superior value 7. Increased price/low value – viable only in monopoly situation 8. Low value/standard price  decline in market share

Choice of competitive stance : 

Choice of competitive stance Important component of strategy, but Does not offer a sustainable advantage ... attractive industries attractive to everyone scale, scope, differentiation can be copied … unless there is something special about: value chain that delivers products/services to target market place the strategic resources deployed in it

Astute firms understand competitors’ strategies as intimately as their own: 

Astute firms understand competitors’ strategies as intimately as their own Products Market segments they target or avoid Resources and value chains Cultures, architectures and paradigms how will they react to a new product launch or a price change?

Competitor analysis: 

Competitor analysis Detailed analysis of competitors’ strategies and mindsets Comparison of results to see which strategies have succeeded: profitability market share etc. In practice, most attention focused on few close competitors

Competitors can be grouped: 

Competitors can be grouped Types of products they offer Customer groups they service Types of advantage they possess/seek: cost advantages superior technological know-how innovative capabilities Their financial positions: cash-rich or cash-poor profitable or unprofitable

Strategic groups analysis: 

Strategic groups analysis Clusters of competitors with similar strategies and paradigms Mobility barriers (e.g. reputation) inhibit movement between groups Firm’s own group contains key competitors Some rivalry between different groups for overlapping customers