Module 2: Strategy and

Competitive Analysis
Strategic Choices
Industry analysis

Competitive Positioning

Corporate Strategy
 Porter's Five Forces Competitive Advantages
Degree of competition – types of
competition like perfect or imperfect
Threat of New
Entrants • Introduced in a 1979 article
published in the Harvard Business
Review
• A powerful tool for understanding
the competitive landscape of an
Bargaining Rivalry Among Bargaining industry.
Power of Power of
Existing • Guides businesses in determining
Suppliers Buyers
Competitors the intensity of competition and
potential profitability within their
market, helping them better
Threat of
understand where power lies in
Substitute their sector.
Products &
Services
I. Rivalry Among Existing Competitors

• Discusses business competition. For ex. Pepsi and Coca-Cola for soft drinks, Apple
and Samsung for smartphones
• The average level of profitability is primarily influenced by the nature of rivalry
among existing firms in the industry.
• Rivalriesà
• lead to price wars
• Determines the average level of profitability
• Races for better advances in the products

Factors contribute to the intensity of competitive rivalry in an industry:

1. Industry growth rate
2. Concentration and balance of competitors
3. Degree of differentiation and switching costs (not only financial)
social media platform, banking, software like window
4. Scale/learning economies and the ratio of fixed to variable costs.
5. Excess capacity and exit barriers.
II. Threat of New Entrants
Industries where new firms can enter more easily almost always haveà
• lower profit margins, and
• the firms involved each have less market share
Several factors determine the height of barriers to entry in an industry:
• Economies of scale
• First mover advantage ???????? – in e-commerce, in soft drink in streaming
• Access to distribution channels
• Legal barriers

Example: The Smartphone Industry

Industry: Smartphone manufacturing and sales
Key Players: Apple, Samsung, Google (Pixel), Xiaomi, OnePlus, etc
High barriers to entry: Huge capital, complex tech, strong brands, distribution channels.
Potential entrants: Tech giants (Amazon, Facebook), Chinese manufacturers, innovative
startups.
Impact: Limited threat due to high barriers, but potential disruption from tech giants or
startups.
III. Threat of Substitute Products

Customers switch to different products/services that fulfill the same need.

This threat can be magnified in the following ways:
• relative price and performance of the competing products or services
• customers’ willingness to switch (But……….Loyalty, lack of awareness like insurance)
• Availability of close substitutes

High threat when substitutes are cheaper, better, or easier to access.

Example:
Streaming vs. Cable TV
Streaming services like Netflix, Spotify, and YouTube have become strong substitutes for
traditional cable TV
Cheaper: Streaming services often offer lower monthly costs compared to cable TV bundles.
Better: more flexibility in content choice
Easier to access: Streaming platforms are typically accessible through various devices (smart
TVs, smartphones, tablets)
IV. Bargaining Power of Buyers

Two factors determine the power of buyers:

1. Price sensitivity- Determines the extent to which buyers care to bargain on price
2. Relative bargaining power- Determines the extent to which the buyers will succeed
in forcing the price down.
2. Relative bargaining power
1. Price Sensitivity Determined by:
Depends on: • The number of buyers relative to the number of
• Product Differentiation suppliers,
• Switching costs • Volume of purchases by a single buyer,
• Importance of the • Number of alternative products available to the
product to their own buyer,
cost structure • Buyers’ costs of switching from one product to
• product quality another,
• And the threat of backward integration by the
buyers.
V. Bargaining Power of Suppliers

Refers to the pressure suppliers can exert on companies by increasing prices, lowering
quality, or reducing availability of their products.
Power lies with Suppliers when:
• there are only a few companies
• few substitutes available to their customers
Example: Oil and Gas Industry:
Few Companies: A handful of major oil and gas companies dominate global production
and distribution.
• When the suppliers’ product or service is critical to buyers’ business (companies).
Example: Airline pilots have a strong bargaining power in the airline industry.
• When they pose a credible threat of forward integration
Example: Automobile Industry:
Tier 1 Auto Parts Suppliers: Companies like Bosch, Continental, and Delphi possess the
financial resources, technological expertise, and distribution networks to potentially
become car manufacturers themselves.
Unique & Valuable Position:
Different Activities:
Few Needs, Many Customers: Jiffy Lube (auto lubricants)
Broad Needs, Few Customers: Bessemer Trust (high-wealth
clients)
Broad Needs, Narrow Market: Carmike Cinemas (small cities)

Trade-offs in Competing:

Strategy involves choices:

Neutrogena: Medicinal over mass-market, sacrificing volume.
Other example is Tesla
Maytag: Expanded, sacrificing returns due to lack of focus.
other example is Sony
Others: McDonald’s, IKEA

Creating Fit Among Activities:

Aligning activities for synergy:

Vanguard: Low-cost, direct distribution, low turnover.
Zara: tightly integrated supply chain
Continental Lite: Failed to fully replicate Southwest’s integrated
system.
 Porter’s Generic Competitive Strategy – Cost
Leadership and Differentiation
Firm’s Competitive Advantage

TOTAL MARKET Cost Differentiation

Which market of the
market is targeted
by the company??
NICHE MARKET

Differentiation
Cost Focus
Focus
Achieving Competitive Advantage

• What is the customer need that the company is focusing on?

• How does the company distinguish its customer value proposition from the alternative propositions
available to the customers from its competitors?
• Does the firm currently have the key capabilities and processes to deliver its value proposition

Sustainability
• Are there any barriers to imitation in this company’s strategy? If so, what are they? How long are they likely
to last?

• Are there any changes that potentially affect this company’s industry and its strategic position in that
industry? What are they? In what way are these changes likely to lead to changes in the competitive
dynamics in this industry?

• What actions, if any, can this company take to address these changes, and renew its competitive
advantage? How likely is it that the company will be able to renew itself successfully?
Boston Consulting Group (BCG) Matrix Introduced by the Boston
Consulting Group in 1970.

The BCG Growth-Share Matrix is a

High strategic management tool used
to evaluate a company's product
portfolio. It helps businesses
decide where to invest resources
Market Growth

and which products to divest.

Low Market Share & High Market Share & • Assumptions
High Market Growth High Market Growth • Higher market share leads to higher profitability
due to economies of scale.
• Market growth rate indicates industry
attractiveness and investment opportunities.
• No product market grow forever
• Assumes products/business units move through
life cycle stages
Low Market Share & High Market Share & • Strategic decisions based on quadrants: invest,
Low Market Growth Low Market Growth harvest, or divest.
Low
Low Relative Market Share High
1. Question Marks (or Problem Children)
High market growth, low market share
They require significant investment to increase market share and become stars.
Strategy: Invest in products with high potential and divest those with low
prospects.

Example: Electric Vehicles (EVs) from Traditional Automakers

High market growth: The EV market is experiencing rapid growth due to increasing
environmental concerns and technological advancements.
Low market share: While traditional automakers have established brands, their
initial market share in EVs is often relatively small compared to dedicated EV
manufacturers like Tesla.

For ex. Ford's Mustang Mach-E or General Motors' Hummer EV could be considered
question marks. These are products from established automakers entering a rapidly
growing EV market.
2. Stars
• High market growth, high market share
• Leaders in their industry and generate significant cash flow.
• Require significant investment to retain their market position, boost growth,
and maintain a competitive advantage.
• As the market matures and the products remain successful, stars will migrate
to become cash cows.

Example: The iPhone

High market growth: The smartphone market, especially for premium devices,
has experienced rapid growth.
High market share: Apple consistently holds a dominant market share in the
premium smartphone segment.
Apple continues to invest heavily in research and development to maintain its
leadership position and introduce innovative features.
3. Dogs
• Low market growth, low market share
• operate in mature, declining markets with low market share. generate little cash
and require resources to maintain their position.
• Firms typically phase out products in the dog’s quadrant unless the products are
complementary to existing products or are used for a competitive purpose.
• Strategy: Divest or harvest these products to allocate resources to more
promising areas.

Example: Traditional Film Cameras

• Low market growth: The digital camera and smartphone camera market has
experienced rapid growth, while film cameras have seen a significant decline.
• Low market share: The market share for film cameras is very small compared
to digital alternatives.
4. Cash Cows

•Low market growth, high market share

•Operate in mature, slow-growing markets but hold a dominant market share.
• Generate substantial cash flow with minimal investment.
•Cash flows generated by cash cows are high and are generally used to finance stars
and question marks.
•Strategy: "Milk" the cash cow to fund other business units, particularly question
marks and stars.

Example: Coca-Cola Classic

High market share: Coca-Cola Classic is a dominant brand in the soft drink industry.
Low market growth: The overall soft drink market is mature, with limited growth
potential.
Strategic Objectives for SBUs

1. ‘Build’ Strategy
Objective: Increase market share.
Appropriate For: Question marks aiming to become stars.
Notes: May forgo short-term earnings.
2. ‘Hold’ Strategy
Objective: Preserve market share.
Appropriate For: Strong cash cows.
Notes: Maintain a large positive cash flow.
3. ‘Harvest’ Strategy
Objective: Maximize short-term cash flow.
Appropriate For: Weak cash cows, question marks, and dogs.
Notes: Focus on cost retrenchment, even at the expense of long-term potential.
4. ‘Divest’ Strategy
Objective: Sell or liquidate business.
Appropriate For: Dogs and underperforming question marks.
Notes: Reallocate resources to more profitable areas.
 Strategic Position and Action Evaluation (SPACE) Analysis
Financial
Strength
6 Aggressive A strategic management tool
Conservative
that helps organizations assess
4 their strategic position based on
both internal and external
2 factors.
• Internal Dimensions
0
•Competitive Advantage
-6 -4 -2 0 2 4 6 •Financial Stability
Competitive Advantage
Industry Attractiveness • External Dimensions
-2
•Environmental Stability
•Industry Strength
-4

Defensive Competitive
-6
Environmental
Stability
 Competitive Posture
Aggressive Posture
•Characteristics: Limited financial strength,
•Characteristics: High financial and industry
medium competitive advantage, attractive
strength, competitive advantage, stable
industry, unstable environment.
environment.
•Strategy: Improve product differentiation,
•Strategy: Exploit opportunities to enhance
expand product line, enhance marketing and
market share.
financial resources.
•Analogous to: Michael Porter’s Cost
•Analogous to: Michael Porter’s Product
Leadership.
Differentiation.

Conservative Posture Defensive Posture

•Characteristics: Limited competitive •Characteristics: Weak in all four dimensions
advantage, not-so-attractive industry, strong (financial strength, competitive advantage,
financial position, stable environment. industry attractiveness, environmental
•Strategy: Cut non-performing products, stability).
control costs, improve productivity, introduce •Strategy: Discontinue nonviable products,
new products, expand profitably. control costs, monitor cash flow, reduce
•Analogous to: Michael Porter’s Focus. capacity, limit investments.
SPACE analysis considers four key dimensions:

Financial Strength (FS): This measures the firm's financial position, including
profitability, leverage, liquidity, and working capital.
Competitive Advantage (CA): This evaluates the firm's competitive position relative to
its competitors, including market share, product quality, technology, and brand image.
Environmental Stability (ES): This assesses the stability of the external environment,
including economic, social, political, and technological factors.
Industry Attractiveness (IA): This measures the attractiveness of the industry,
including growth rate, profit margins, and competitive intensity.

SPACE Analysis Quadrants

Aggressive Quadrant: High FS, high CA, high ES, high IA
Conservative Quadrant: High FS, high CA, low ES, low IA
Defensive Quadrant: Low FS, low CA, low ES, low IA
Competitive Quadrant: High FS, low CA, high ES, low IA
Constructing a SPACE Matrix
Steps:
1.Select Factors
1. Identify factors for Competitive Advantage (CA), Environmental Stability (ES), Financial
Strength (FS), and Industry Attractiveness(IA).
2.Assign Scores
1. CA and ES: Assign values from -6 (worst) to -1 (best).
2. FS and IA: Assign values from +1 (worst) to +6 (best).
3.Calculate Average Scores
1. Sum the values for each dimension and divide by the number of factors.
4.Plot Scores
1. Plot average scores on the corresponding axes of the matrix (ES, CA, IA, FS).
5.Combine Scores
1. Add scores for x-axis dimensions (CA and IA) to find the X coordinate.
2. Add scores for y-axis dimensions (ES and FS) to find the Y coordinate.
3. Plot the intersection of these points.
6.Draw Vector
1. Draw a vector from the origin through the intersection point.
2. Determine the strategy type: aggressive, defensive, conservative, or competitive.
 Blind Spot Analysis

• Blind Spot Analysis refers to the process of Key Steps

identifying and addressing areas where a Identifying Cognitive Biases:

company or leadership may be unaware of Common biases include overconfidence, anchoring, sunk cost
fallacy, confirmation bias, and groupthink.
potential risks, opportunities, or threats. Helps identify where these biases might influence strategic
• These "blind spots" are typically due to decisions.

cognitive biases, assumptions, or lack of Uncovering Assumptions:

information. Challenges existing assumptions about the market, competition, and
customer behavior.
• Failure to recognize these can lead to Ensures assumptions are still valid in the current environment.
strategic missteps, missed opportunities, or
Monitoring External Changes:
increased vulnerability. Stays vigilant about external trends such as technological
advancements, regulatory changes, and shifts in consumer
preferences.
Prevents blind spots from emerging due to unmonitored external
factors.
Evaluating Competitors:

Avoids underestimating competitors' capabilities or missing new entrants.

Regular competitor analysis prevents being blindsided in the competitive
landscape.

Scenario Planning:

Considers different potential futures and prepares for a range of

possibilities.
Reduces the risk of being caught off guard by unexpected developments.

Engaging Diverse Perspectives:

Involves diverse viewpoints from within and outside the organization.

Helps identify blind spots that might be missed by a homogeneous group.

Learning from Past Mistakes:

Analyzes past failures or near-misses to identify previous blind spots.

Provides valuable lessons to avoid similar issues in the future.
PESTEL Analysis:
• Political: Understand the impact of political factors and
stability on the industry.
• Economic: Evaluate economic trends and their effects on
the market.
• Social: Analyze social trends, demographics, and cultural
factors.
• Technological: Assess technological advancements and
innovations.
• Environmental: Consider environmental and sustainability
factors.
• Legal: Understand the legal and regulatory environment.
SWOT Analysis:

By comparing your SWOT profile to

competitors’, a firm can identify areas where it
has a competitive advantage or disadvantage.
Customer Analysis Techniques
I. Segmentation Analytics:
Bases for Segmenting Consumer Markets
1. Geographic Segmentation: Dividing the market into different geographical units such
as nations, states, regions, counties, cities, or neighborhoods. (Aloo Tikki, Ebi Fillet-O)
2. Demographic Segmentation: The market is divided into groups on the basis of age,
gender, income, occupation etc. (Nike- “Nike Women”)
3. Psychographic Segmentation: Buyers are divided into different groups on the basis of
lifestyle or personality and values. (“Think Creative”)
4. Behavioral Segmentation: buyers are divided into groups on the basis of their
knowledge of, attitude toward, use of, or response to a product.
5. Multi-Attribute Segmentation (Geoclustering): Yields more detailed descriptions of
consumers and neighborhoods than traditional demographics.
Answer such questions as: Which clusters (neighborhoods or zip codes) contain our
most valuable customers? How deeply have we already penetrated these segments?
Which markets provide the best opportunities for growth?
II. Customer Lifetime Value
Customer Lifetime Value (CLV) is a metric that predicts the total revenue a business can
reasonably expect from a single customer account.
Basic Formula:
CLV = Average Order Value * Purchase Frequency * Customer Lifespan
The value generated by all our customers is called Customer Equity.
III. RFM Analysis
RFM Analysis is a customer segmentation method based on:
•Recency: the number of days that have passed since the customer last purchased - How
recently did the customer purchase?
•Frequency: number of purchases in a specific period (for example, last 12 months) -
How often do they purchase?
•Monetary: the value of orders from a given customer in a specific period - How much
do they spend?
Helps to answer questions: Which are the best segments? Who do I need to contact?
Helps to improve CLV. Insights about customer loyalty
 Value chain analysis
• Successful businesses create value
with each transactionà
For customer –>> satisfaction
For firm and shareholder –>> profit
Value Chain helps to evaluate how
much value your company is
creating.
• Value chain refers to the various
business activities and processes
involved in creating a product or
performing a service.
• All of the activities that make up a
firm's value chain can be split into
two categories that contribute to its
margin: primary activities and
support activities.
Value chain analysis is a means of
evaluating each of the activities in a
company’s value chain to understand
where opportunities for improvement lie.
Benefits:
•Cost reduction, by making each activity in
the value chain more efficient and,
therefore, less expensive
•Product differentiation, by investing
more time and resources into activities like
research and development, design, or
marketing that can help your product
stand out
Leads to COMPETITIVE ADVANTAGE
Why Is Value Chain Analysis Important?

• To optimize budgets and establish competitive advantage

• Supply chain management
• Strategic decision-making
• Improving customer satisfaction
• Innovation and development
• Environmental and social impact