STRATEGIC FORMULATION : STRATEGIC FORMULATION OUTLINE : OUTLINE Strategic formulation at Business Level
Strategic Formulation at Corporate Level
Strategic Alliance and joint ventures
Mergers and Acquisition
International Business Strategies Strategic formulation at Business Level Strategy : Strategic formulation at Business Level Strategy Definition:
Business level strategy is an integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in specific product markets. The Purpose of a Business-LevelStrategy : The Purpose of a Business-LevelStrategy To create differences between the firm’s position relative to those of its rivals.
To position itself, the firm must decide whether it intends to:
Perform activities differently or
Perform different activities as compared to its rivals. Cont. . . . . : Cont. . . . . Five Force Analysis
Value Chain Analysis Consumer : Consumer The customer are the foundation of successful business-level strategies and should never be taken for granted.
Meet the need of new customer
Example: Dell And HP
Effectively managing relationship with Customers
Deliver Superior value Consumer and Business level Strategy : Consumer and Business level Strategy When an organization select business-level strategy the firm determines:
Who will be served.
What need the target customers have that it will satisfy.
How those need will be satisfied. Satisfy Current consumer Cont. . . . . : Cont. . . . . Reach, Richness, and Affiliation
Reach dimension of relationship with customers.
Example: Amazon.com V/s Barnes
Barnes & Noble , Carries 200,000-plus titles in793 stores that average 25,000 sq. feet.
Amazon.com offers more than 4.5million titles and is located on tens of millions of computer screens. Slide 9: 2. Richness
Depth and detail of the two-way flow of information between the firm and the consumer.
Viewing the world through the customer’s eyes and constantly seeking ways to create more value. Who? ? ? : Who? ? ? Determine the customers to Serve
Basis for customer segmentation What? ? ? : What? ? ? Determining Which Customer need to satisfy.
Identify the targeted customers’ need that its goods or services can satisfy.
How? ? ?
Determining core competencies necessary to satisfy customer needs. Types of Business Level Strategy : Types of Business Level Strategy Cost Leadership : Cost Leadership An integrated set of actions taken to produce goods or services with features that are acceptable to customers at the lowest cost, relative to that of competitors with features that are acceptable to customers.
Relatively standardized products
Features acceptable to many customers
Lowest competitive price Cost saving actions required by this strategy: : Cost saving actions required by this strategy: Building efficient scale facilities
Tightly controlling production costs and overhead
Minimizing costs of sales, R&D and service
Building efficient manufacturing facilities
Monitoring costs of activities provided by outsiders
Simplifying production processes How to Obtain a Cost Advantage : How to Obtain a Cost Advantage Alter production process
Change in automation
New distribution channel
New advertising media
New raw material
Change location relative to suppliers or buyers Example: : Example: Wal-Mart
Wal-Mart's founder, Sam Walton, developed the every day low prices (EDLP) strategy.
Close relationships with its suppliers and vendors
Own distribution network for supplying its retail outlets with consumer goods. Differentiation Strategy : Differentiation Strategy Rivalry with Competitors
Defends against competitors because brand loyalty to differentiated product offsets price competition.
Bargaining Power of Buyers
Can mitigate buyers’ power because well differentiated products reduce customer sensitivity to price increases. Slide 18: Can mitigate suppliers’ power by:
Absorbing price increases due to higher margins.
Passing along higher supplier prices because buyers are loyal to differentiated brand.
Can defend against new entrants because:
New products must surpass proven products.
New products must be at least equal to performance of proven products, but offered at lower prices. Example: : Example: Mercedes cars Examples of Value-Creating Activities Associated with the Differentiation Strategy : Examples of Value-Creating Activities Associated with the Differentiation Strategy Approaches to differentiation : Approaches to differentiation A different taste
Spare parts availability
A full range of services Situation Suitable for differentiation Strategy : Situation Suitable for differentiation Strategy When many ways to differentiate the product or services.
When the customer tastes, preferences, needs and uses of the item are diverse.
Where a few competitor follow the differentiation strategy. Advantages of Differentiation : Advantages of Differentiation Premium Price.
Capturing Additional Customer.
Enhance the Profitability when the cost of differentiation is less than the extra price of the product. Disadvantage of differentiation Strategy : Disadvantage of differentiation Strategy It is unsuccessful when the customer do not value the additional features.
It result in a loss when the cost of differentiation is more than the extra price.
Over differentiation may exceed the need of the customer. Focus Strategies : Focus Strategies An integrated set of actions taken to produce goods or services that serve the needs of a particular competitive segment.
Particular buyer group youths or senior citizens
Types of focused strategies
Focused cost leadership strategy
Focused differentiation strategy Slide 26: To implement a focus strategy, firms must be able to:
Complete various primary and support activities in a competitively superior manner. Factors That Drive Focused Strategies : Factors That Drive Focused Strategies Large firms may overlook small niches.
A firm may lack the resources needed to compete in the broader market.
A firm is able to serve a narrow market segment more effectively than can its larger industry-wide competitors.
Focusing allows the firm to direct its resources to certain value chain activities to build competitive advantage. Slide 28: Competitive Risks of Focus Strategies
A focusing firm may be “out focused” by its competitors.
A large competitor may set its sights on a firm’s niche market.
Customer preferences in niche market may change to more closely resemble those of the broader market. Integrated Cost Leadership/ Differentiation Strategy : Integrated Cost Leadership/ Differentiation Strategy A firm that successfully uses an integrated cost leadership/differentiation strategy should be in a better position to:
Adapt quickly to environmental changes.
Learn new skills and technologies more quickly.
Effectively leverage its core competencies while competing against its rivals. Slide 30: Commitment to strategic flexibility is necessary for implementation of integrated cost leadership/differentiation strategy.
Flexible manufacturing systems (FMS)
Total quality management (TQM) systems Risks of the Integrated CostLeadership/ Differentiation Strategy : Risks of the Integrated CostLeadership/ Differentiation Strategy Often involves compromises
Becoming neither the lowest cost nor the most differentiated firm.
Becoming “stuck in the middle”
Lacking the strong commitment and expertise that accompanies firms following either a cost leadership or a differentiated strategy. Deciding Which Generic Competitive Strategy to Use : Deciding Which Generic Competitive Strategy to Use Each positions a company differently in its market and competitive environment.
Each establishes a central theme for how a company will endeavor to outcompete rivals.
Each creates some boundaries for direction as market circumstances unfold. Fig. 6.1: A Company’s Menu of Strategy Options : Fig. 6.1: A Company’s Menu of Strategy Options Corporate-level Strategy : Corporate-level Strategy Slide 37: A corporate-level strategy specifies actions a firm takes to gain a competitive advantage by selecting and managing a group no different businesses competing in different product markets.
It is concerned with two key issues:
In what product markets and businesses the firm should compete.
How corporate headquarters should manage those business. Diversification : Diversification Why Do Firms Diversify? : Why Do Firms Diversify? The theories that attempt to explain why corporations diversify fall into five groups:
Economies of scale and scope (synergy).
Improve Financial Performance.
Growth. Economies of scale and scope : Economies of scale and scope The merger of two companies producing similar products should allow a firm to pool production and attain lower operating costs.
The economy may come from reduced overhead or the ability to spread a larger amount of production over lower (consolidated) fixed costs. Slide 41: There may also be differential management capabilities: an efficiently managed firm may acquire a less efficient firm with the intent of bringing better management to the business. Efficiencies can also be gained through pooled financial resources or simply through pooled risk. Market Power : Market Power Mergers and acquisitions can increase a firm's market share when both firms are in the same business. Profit Stability : Profit Stability Acquisition of new business can reduce variations in corporate profits by expanding the corporation's lines of business.
This typically occurs when the core business depends on sales that are seasonal or cyclical. Improve Financial Performance. : Improve Financial Performance. Large firms generate cash that can be invested in other ventures. The firm acts as a banker of an internal capital market. Growth. : Growth. Diversification is simply a way to grow. Indeed, some authorities cite growth as the principle reason for diversification. Slide 46: There are basic two type of diversification.
When a firm share different things like product, technologies or distribution channels.
When a firm enter in totally new field or industry Levels of Diversification : Levels of Diversification Diversified firms vary according to their level of diversification and the connections between and among their businesses.
Low level Diversification
Moderate to high levels of diversification
Very high Levels of diversification Low level Diversification : Low level Diversification Single Business diversification
95% or more of revenue comes from a single business.
Between 70% and 95% of
revenue comes from a single business.
i.e. Pen Manufacturing Pen Manufacturing
Company Moderate to high levels of diversification : Moderate to high levels of diversification Related Constrained strategy
Less than 70% of revenue comes from the dominant business and all businesses share product, technological and distribution linkages. Very high Levels of diversification : Very high Levels of diversification Related linked(Mixed related and unrelated):
Less than 70% of revenue comes from the dominant business.
There are only limited links between businesses. Very high Levels of diversification : Very high Levels of diversification Unrelated:
Less than 70% of revenue comes from the dominant business, and there are no common links between businesses. Related Diversification Can be used When : Related Diversification Can be used When Strategic Fits in R&D and Technology Activities
Strategic Fits in Supply Chain Activities.
Manufacturing Related Strategic Fits.
Distribution Related Strategic Fits.
Strategic Fits in Sales and Marketing Activities.
Strategic Fits in Managerial and Administrative Support Activities. Merit of Unrelated Diversification : Merit of Unrelated Diversification Business risk is scattered.
Financial Resource can be utilized in a better way.
Shareholders’ wealth can be enhanced.
Stable profitability. Drawbacks of Unrelated Diversification : Drawbacks of Unrelated Diversification Difficult to manage the business for top level management.
No potential for competitive advantage. Slide 55: The following are the two ways diversification strategies can create value
Sharing Activity between business.
Transferring core competency into business. Strategy for entering New Business : Strategy for entering New Business Acquisition of an Existing Business
Joint Venture and Strategic partnership Acquisition of an Existing Business : Acquisition of an Existing Business Most popular mean of diversification.
Finding right kind of company is a challenge.
The biggest dilemma for a firm faces is whether to pay a premium price for a successful company or to buy a struggling company at bargaining price. Internal Startup : Internal Startup Building new business subsidiary from scratch.
There are many barriers like;
Invest in new production capacity,
Develop sources of supply,
Hire and train employees,
Build channels of distribution,
Grow a customer base etc. Slide 59: When to have internal Startup
The parent company have most or all of the skills
There is ample time to launch the business.
The cost are lower than those of acquiring another firm.
The startup industry not have powerful rivals. Joint Venture and Strategic partnership : Joint Venture and Strategic partnership Joint venture entail forming a new corporate entity owned by the partners.
Strategic partnerships is a formal relationship between two or more companies in pursuit of common goal in their business even while remaining as independent organizations. Slide 61: Strategic partnership or joint venture can be useful in the situations like:
To pursue an opportunity that is too complex, uneconomical or risky for single organization.
When opportunities require a broader range of competencies and know how.
To enter in to the foreign market. Horizontal Diversification : Horizontal Diversification Acquiring or developing new products or offering new services that could appeal to the company´s current customer groups.
In this case the company relies on sales and technological relations to the existing product lines.
For example a dairy, producing cheese adds a new type of cheese to its products. Vertical Diversification : Vertical Diversification Occurs when the company goes back to previous stages of its production cycle or moves forward to subsequent stages of the same cycle.
Production of raw materials or distribution of the final product. Slide 64: For example, if you have a company that does reconstruction of houses and offices and you start selling paints and other construction materials for use in this business.
This kind of diversification may also guarantee a regular supply of materials with better quality and lower prices. Concentric Diversification : Concentric Diversification Enlarging the production portfolio by adding new products with the aim of fully utilizing the potential of the existing technologies and marketing system.
Marketing & technology related -rain coat manufacturer -rubber based items -gloves, shoes. Conglomerate diversification : Conglomerate diversification Unrelated to customer groups, function, technology
ITC -Cigarette & Hotel How to Evaluate a Diversified Company’s Strategy : How to Evaluate a Diversified Company’s Strategy Step 1: Assess long-term attractiveness of each industry
Step 2: Assess competitive strength of firm’s business units
Step 3: Check competitive advantage potential of cross-business strategic fits among business units
Step 4: Check whether firm’s resources fit requirements of present businesses
Step 5: Rank performance prospects of businesses and determine priority for resource allocation
Step 6: Craft new strategic moves to improve overall company performance Step 1: Evaluate Industry Attractiveness : Step 1: Evaluate Industry Attractiveness Attractiveness of each
industry in portfolio Each industry’s attractivenessrelative to the others Attractiveness of all
industries as a group Industry Attractiveness Factors : Industry Attractiveness Factors Market size and projected growth
Intensity of competition
Emerging opportunities and threats
Seasonal and cyclical factors
Social, political, and environmental factors
Industry profitability Procedure: Calculating Attractiveness Scores for Each Industry : Step 1: Select industry attractiveness factors
Step 2: Assign weights to each factor (sum of weights = 1.0)
Step 3: Rate each industry on each factor, using a scale of 1 to 10
Step 4: Calculate weighted ratings; sum to get an overall industry attractiveness rating for each industry Procedure: Calculating Attractiveness Scores for Each Industry Step 2: Evaluate Each BusinessUnit’s Competitive Strength : Step 2: Evaluate Each BusinessUnit’s Competitive Strength Objectives
Determine how well each business is positioned in its industry relative to rivals.
Evaluate whether it is or can be competitively strong enough to contend for market leadership. Factors to Use in Evaluating Competitive Strength : Factors to Use in Evaluating Competitive Strength Relative market share
Costs relative to competitors
Ability to exercise bargaining leverage with key suppliers or customers
Brand image and reputation
Competitively valuable capabilities
Profitability relative to competitors Step 3: Check Competitive Advantage Potential of Cross-Business Strategic Fits : Step 3: Check Competitive Advantage Potential of Cross-Business Strategic Fits Objective
Determine competitive advantage potential of value chain relationships and strategic fits among businesses.
Whether one or more businesses have valuable strategic fits with other businesses in portfolio Evaluate Portfolio for Competitively Valuable Cross-Business Strategic Fits : Evaluate Portfolio for Competitively Valuable Cross-Business Strategic Fits Identify businesses which have valuechain match-ups offering opportunities to
Transfer skills / technology / intellectual capital from one business to another
Create valuable new competitive capabilities Step 4: Check Resource Fit : Step 4: Check Resource Fit Objective
Determine how well firm’s resources match business unit requirements
Good resource fit exists when
A business adds to a firm’s resource strengths,either financially or strategically
Firm has resources to adequately support requirements of its businesses as a group Step 5: Rank Business Units Based onPerformance and Priority for Resource Allocation : Step 5: Rank Business Units Based onPerformance and Priority for Resource Allocation Factors to consider in judging business-unit performance
Return on capital employed in business
Industry attractiveness and business strength ratings Step 6: Craft New StrategicMoves - Strategic Options : Step 6: Craft New StrategicMoves - Strategic Options Stick closely with existing business lineup and pursue opportunities it presents
Broaden company’s business scope by making new acquisitions in new industries
Divest certain businesses and retrench to a narrower base of business operations
Restructure company’s business lineup, putting a whole new face on business makeup
Pursue multinational diversification, striving to globalize operations of several business units Strategy Options for a Company Already Diversified : Strategy Options for a Company Already Diversified Strategies to Broaden a Diversified Company’s Business Base : Strategies to Broaden a Diversified Company’s Business Base Conditions making this approach attractive
Slow grow in current businesses
Vulnerability to seasonal or recessionary influences or to threats from emerging new technologies
Potential to transfer resources and capabilities to other related businesses
Complement and strengthen market position of one or more current businesses Divestiture Strategies Aimed at Retrenching to a Narrower Diversification Base : Divestiture Strategies Aimed at Retrenching to a Narrower Diversification Base Strategic options
Spin it off
Liquidate it (Close it down because no buyers can be found). Options forAccomplishing Divestiture : Options forAccomplishing Divestiture Sell it
Involves finding a company which views the business as a good deal and good fit
Spin it off as independent company
Involves deciding whether or not to retain partial ownership
Involves closing down operations and selling remaining assets
A last resort because no buyer can be found Retrenchment Strategies : Retrenchment Strategies Objective
Reduce scope of diversification to smaller number of “core “ businesses
Strategic options involve divesting businesses
Having little strategic fit with core businesses
Too small to contribute to earnings Conditions That MakeRetrenchment Attractive : Conditions That MakeRetrenchment Attractive Diversification efforts have become too broad, resulting in difficulties in profitably managing all the businesses
Worsening market conditions in a once-attractive industry
Lack of strategic or resource fit of a business
A business is weakly positioned in its industry Strategies to Restructure a Company’s Business Lineup : Strategies to Restructure a Company’s Business Lineup Objective
Make radical changes in mix of businesses in portfolio via both
in order to put on whole new face on the company’s business makeup Conditions That Make Portfolio Restructuring Attractive : Conditions That Make Portfolio Restructuring Attractive Too many businesses in unattractive industries
Too many competitively weak businesses
Ongoing declines in market shares of one or more major business units
New technologies threaten survival of one or more core businesses
“Unique opportunity” emerges and existing businesses must be sold to finance new acquisition Multinational Diversification Strategies : Multinational Diversification Strategies Distinguishing characteristic
Diversity of businesses and diversity of national markets
Presents a big strategy-making challenge
Strategies must be conceived and executed for each business, with as many multinational variations as appropriate. Appeal of MultinationalDiversification Strategies : Appeal of MultinationalDiversification Strategies Offer two avenues for long-term growth in revenues and profits
Enter additional businesses
Extend operations of existing businesses into additional country markets Opportunities to Build Competitive Advantage via Multinational Diversification : Opportunities to Build Competitive Advantage via Multinational Diversification Full capture of economies of scale and experience curve effects
Capitalize on cross-business economies of scope
Transfer competitively valuable resources from one business to another and from one country to another
Leverage use of a competitively powerful brand name Strategic Alliances : Strategic Alliances Strategic Alliances : Strategic Alliances A Strategic Alliance is a relationship between two or more parties to pursue a set of agreed upon goals or to meet a critical business need while remaining independent organizations.
Partners may provide the strategic alliance with resources such as products, distribution channels, manufacturing capability, project funding, capital equipment, knowledge, expertise, or intellectual property. Alliances Can Enhance a Firm’s Competitiveness : Alliances Can Enhance a Firm’s Competitiveness Alliances and partnerships can help companies cope with two demanding competitive challenges.
Racing against rivals to build a market presence in many different national markets
Racing against rivals to seize opportunities on the frontiers of advancing technology Capturing the Full Potential of a Strategic Alliance : Capturing the Full Potential of a Strategic Alliance Capacity of partners to defuse organizational frictions
Ability to collaborate effectively over time and work through challenges
Technological and competitive surprises
New market developments
Changes in their own priorities and competitive circumstances Slide 94: Collaborative partnerships nearly always require an evolving relationship whose competitive value depends on
Adaptation to changing industry conditions
Competitive advantage emerges when a company acquires valuable capabilities via alliances it could not obtain on its own Why Are Strategic Alliances Formed? : Why Are Strategic Alliances Formed? To collaborate on technology development or new product development
To fill gaps in technical or manufacturing expertise
To acquire new competencies
To improve supply chain efficiency
To gain economies of scale in production and/or marketing
To acquire or improve market access via joint marketing agreements Potential Benefits of Alliances to Achieve Global and Industry Leadership : Potential Benefits of Alliances to Achieve Global and Industry Leadership Get into critical country markets quickly to accelerate process of building a global presence.
Gain inside knowledge about unfamiliar markets and cultures.
Access valuable skills and competencies concentrated in particular geographic locations.
Master new technologies and build new expertise faster than would be possible internally. Why Alliances Fail ? ? ? : Why Alliances Fail ? ? ? Reasons for alliance failure
Inability of partners to work well together
Changing conditions rendering purpose of alliance obsolete
Emergence of more attractive technological paths
Marketplace rivalry between one or more allies Slide 98: Merger – Combination and pooling of equals, with newly created firm often taking on a new name
Acquisition – One firm, the acquirer, purchases and absorbs operations of another, the acquired Merger and Acquisition Strategies : Merger and Acquisition Strategies Slide 100: Merger: is a pooling of equals, with the newly created company often taking on a new name.
Acquisition: is a combination in which one company, the acquirer, purchases and absorbs the operations of another, the acquired. Slide 101: Merger-acquisition
Much-used strategic option
The difference between merger and acquisition relates more to the details of ownership, management control and financial arrangements than strategy and competitive advantage. Objectives of Mergers and Acquisitions : Objectives of Mergers and Acquisitions To gain more market share and create a more efficient operation
To expand a firm’s geographic coverage
To extend a firm’s business into new product categories or international markets
To gain quick access to new technologies
To invent a new industry and lead the convergence of industries whose boundaries are blurred by changing technologies and new market opportunities Pitfalls of Mergers and Acquisitions : Pitfalls of Mergers and Acquisitions Combining operations may result in
Resistance from rank-and-file employees
Hard-to-resolve conflicts in management styles and corporate cultures
Tough problems of integration
Greater-than-anticipated difficulties in
Achieving expected cost-savings
Sharing of expertise
Achieving enhanced competitive capabilities Vertical Integration Strategies : Vertical Integration Strategies Slide 105: Extend a firm’s competitive scope withinsame industry
Backward into sources of supply
Forward toward end-users of final product
Can aim at either full or partial integration Strategic Advantages of Backward Integration : Strategic Advantages of Backward Integration Generates cost savings only if volume needed is big enough to capture efficiencies of suppliers.
Potential to reduce costs exists when
Suppliers have sizable profit margins.
Item supplied is a major cost component.
Resource requirements are easily met. Slide 108: Can produce a differentiation-based competitive advantage when it results in a better quality part.
Reduces risk of depending on suppliers of crucial raw materials/parts/components. Strategic Advantages of Forward Integration : Strategic Advantages of Forward Integration To gain better access to end users and better market visibility
To compensate for undependable distribution channels which undermine steady operations
To offset the lack of a broad product line, a firm may sell directly to end users Slide 110: To bypass regular distribution channels in favor of direct sales and Internet retailing which may
Lower distribution costs
Produce a relative cost advantage over rivals
Enable lower selling prices to end users Strategic Disadvantages of Vertical Integration : Strategic Disadvantages of Vertical Integration Boosts resource requirements.
Locks firm deeper into same industry.
Poses all types of capacity-matching problems.
May require totally different skills/ capabilities
Reduces flexibility to make changes in component parts which may lengthen design time and ability to introduce new products Outsourcing Strategies : Outsourcing Strategies Slide 113: Outsourcing involves withdrawing from certain value chain activities and relying on outsiders to supply needed products, support services, or functional activities When Does Outsourcing Make Strategic Sense? : When Does Outsourcing Make Strategic Sense? Activity can be performed better or more cheaply by outside specialists
Activity is not crucial to achieve a sustainable competitive advantage
Risk exposure to changing technology and/or changing buyer preferences is reduced Slide 116: Operations are streamlined to
Cut cycle time
Reduce coordination costs
Firm can concentrate on “core” value chain activities that best suit its resource strengths Strategic Advantages of Outsourcing : Strategic Advantages of Outsourcing Improves firm’s ability to obtain high quality and/or cheaper components or services.
Improves firm’s ability to innovate by interacting with “best-in-world” suppliers.
Increases firm’s ability to assemble diverse kinds of expertise speedily and efficiently.
Allows firm to concentrate its resources on performing those activities internally which it can perform better than outsiders. Pitfalls of Outsourcing : Pitfalls of Outsourcing Farming out too many or the wrong activities, thus.
Hollowing out capabilities.
Losing touch with activities and expertise that determine overall long-term success. Offensive and Defensive Strategies : Offensive and Defensive Strategies Slide 120: Used to build new or stronger market position and/or create competitive advantage Used to protect competitive advantage (rarely used to create advantage) Offensive Strategies Defensive Strategies Types of Offensive Strategies : Types of Offensive Strategies 1. Initiatives to match or exceed competitor strengths
2. Initiatives to capitalize on competitor weaknesses
3. Simultaneous initiatives on many fronts
4. End-run offensives
5. Guerrilla offensives
6. Preemptive strikes 1. Attacking Competitor Strengths : 1. Attacking Competitor Strengths Objectives
Whittle away at a rival’s competitive advantage
Gain market share by out-matching strengths of weaker rivals Options for Attacking a Competitor’s Strengths : Offer equally good product at a lower price
Develop low-cost edge, then use it to under-price rivals
Add appealing new features
Run comparison ads
Construct new plant capacity in rival’s market strongholds
Offer a wider product line
Develop better customer service capabilities Options for Attacking a Competitor’s Strengths 2. Attacking Competitor Weaknesses : 2. Attacking Competitor Weaknesses Objective:
Utilize company strengths to exploit a rival’s weaknesses Weaknesses to Attack
Customers that a rival is least equipped to serve
Rivals providing sub-par customer service
Rivals with weaker marketing skills
Geographic regions where rival is weak
Market segments a rival is neglecting 3. Launching Simultaneous Offensives on Many Fronts : 3. Launching Simultaneous Offensives on Many Fronts Objective
Launch several major initiatives to
Throw rivals off-balance
fall apart their attention
Force them to use substantial resources to defend their position 4. End-Run Offensives : 4. End-Run Offensives Objectives
Tactic around strong competitors
Capture unoccupied or less contested markets
Change rules of competition in aggressor’s favor Approaches for End-Run Offensives : Approaches for End-Run Offensives Introduce new products that redefine market and terms of competition
Build presence in geographic areas where rivals have little presence
Create new segments by introducing products with different features to better meet buyer needs
Introduce next-generation technologies to leapfrog rivals 5. Guerrilla Offenses : Approach
Use principles of surprise and hit-and-run toattack in locations and at times where conditionsare most favorable to initiator Appeal
Well-suited to small challengers with limited resources and market visibility 5. Guerrilla Offenses Options for Guerrilla Offenses : Options for Guerrilla Offenses Make random, scattered raids on leaders’ customers
Occasional low-balling on price
Intense bursts of promotional activity
Special campaigns to attract buyers fromrivals plagued with a strike or delivery problems Slide 130: Challenge rivals encountering problems with quality or providing adequate technical support
File legal actions charging antitrust violations, patent infringements, or unfair advertising 6. Preemptive Strikes : 6. Preemptive Strikes Approach
Involves moving first to secure an advantageous position that rivals are foreclosed or discouraged from duplicating! Preemptive Strike Options : Preemptive Strike Options Secure exclusive/dominant access to best distributors
Secure best geographic locations
Tie up best or most sources of essential raw materials
Obtain business of prestigious customers
Build an image in buyers’ minds thatis unique or hard to copy Using Offensive Strategy to Achieve Competitive Advantage : Using Offensive Strategy to Achieve Competitive Advantage Strategic offensives offering strongest basis for competitive advantage entail
An important core competence
A unique competitive capability
Much-improved performance features
An innovative new product
A cost advantage in manufacturing or distribution
Some type of differentiation advantage Defensive Strategy : Defensive Strategy Defensive Strategy : Defensive Strategy Objectives
Lessen risk of being attacked
Blunt impact of any attack that occurs
Influence challengers to aim attacks at other rivals Approaches
Block avenues open to challengers
Signal challengers vigorous retaliation is likely 1. Block Avenues Open to Challengers : 1. Block Avenues Open to Challengers Participate in alternative technologies
Introduce new features, add new models, or broaden product line to close gaps rivals may pursue
Maintain economy-priced models
Increase warranty coverage
Offer free training and support services Slide 137: Reduce delivery times for spare parts
Make early announcements about new products or price changes
Sign exclusive agreements with distributors 2.Signal Challengers Retaliation Is Likely : 2.Signal Challengers Retaliation Is Likely Publicly announce management’s strong commitment to maintain present market share
Publicly commit firm to policy of matching rivals’ terms or prices
Maintain war chest of cash reserves
Make occasional counter responseto moves of weaker rivals Strategies for Using the Internet : Strategies for Using the Internet Strategic Challenge – What use of the Internet should a company make in staking out its position in the marketplace? Five Approaches : Five Approaches Use company web site solely to disseminate product information
Use company web site as a minor distributionchannel for accessing customers and generating sales
Use company web site as one of several importantdistribution channels for accessing customers
Use company web site as primary distributionchannel for accessing buyers and making sales
Use company web site as the exclusive channelfor accessing buyers and conducting sales transactions Using the Internet to Disseminate Product Information : Using the Internet to Disseminate Product Information Approach:
Website used to provide product information of manufacturers or wholesalers.
Relies on click- through to websites of dealers for sales transactions
Informs end-users of location of retail stores Using the Internet as a Minor Distribution Channel :
Using the Internet as a Minor Distribution Channel Approach – Use online sales to
Achieve incremental sales
Gain online sales experience
Learn more about buyer tastes and preferences
Test reactions to new products
Create added market buzz about products
Brick-and-Click Strategies: An Appealing Middle Ground Approach : Brick-and-Click Strategies: An Appealing Middle Ground Approach Approach
Sell directly to consumers and
Use traditional wholesale/retail channels Reasons to pursue a brick-and-click strategy : Reasons to pursue a brick-and-click strategy Manufacturer’s profit margin from online sales is bigger than that from sales through traditional channels.
Encouraging buyers to visit a firm’s website educates them to the ease and convenience of purchasing online.
Selling directly to end users allows a manufacturer to make greater use of build-to-order manufacturing and assembly Strategies for Online Enterprises : Strategies for Online Enterprises Approach – Use Internet as the exclusivechannel for all buyer-seller contact and transactions Success depends on following features : Success depends on following features Deliberate efforts to engineer a value chain that enables differentiation, lower costs, or better value for the money
Innovative, fresh, and entertaining website
Clear focus on a limited number of competencies and a relatively specialized number of value chain activities
Innovative marketing techniques
Minimal reliance on ancillary revenues Choosing Appropriate Functional-Area Strategies : Choosing Appropriate Functional-Area Strategies Involves strategic choices about how functional areas are managed to support competitive strategy and other strategic moves
Functional strategies include
Research and development
Sales and marketing
Finance First-Mover Advantages : First-Mover Advantages When to make a strategic move is often as crucial as what move to make
First-mover advantages arise when
Pioneering helps build firm’s image and reputation
Early commitments to new technologies,new-style components, and distributionchannels can produce cost advantage
Loyalty of first time buyers is high
Moving first can be a preemptive strike First-Mover Disadvantages : First-Mover Disadvantages Moving early can be a disadvantage when
Costs of pioneering are sizable and loyalty of first time buyers is weak
Innovator’s products are primitive, not living up to buyer expectations
Rapid technological change allows followers to leapfrog pioneers INTENSIFICATION : INTENSIFICATION Slide 151: Intensification involves expansion within the existing line of business.
Intensive expansion strategy involves safeguarding the present position and expanding in the current product-market space to achieve growth targets. Slide 152: A firm selecting an intensification strategy:
To concentrates on its primary line of business
To meet its growth objectives by increasing its size of operations in its primary business.
Intensive expansion of a firm can be accomplished in three ways:
Product development Slide 153: Intensification strategy is followed when adequate growth opportunities exist in the firm’s current products-market space.