Competitive strategy is about being different.

It means deliberately choosing to perform activities differently or to perform different

activities than rivals to deliver a

unique mix of value.

Strategy and Competitive Advantage

Competitive advantage exists when a firms strategy gives it an edge in Attracting customers and Defending against competitive forces
Key to Gaining a Competitive Advantage

Convince customers firms product / service offers superior value

A good product at a low price

A superior product worth paying more for A best-value product

What Is Competitive Strategy?

Deals exclusively with a companys business plans to compete successfully
Specific efforts to please customers Offensive and defensive moves to counter maneuvers of rivals Responses to prevailing market conditions Initiatives to strengthen its market position

Narrower in scope than business strategy

The Five Generic Competitive Strategies

The Five Generic Competitive Strategies

The five distinctive competitive strategies are: 1. Low-cost provider strategy 2. Broad Differentiation strategy 3. Best-cost provider strategy 4. A focused (or market niche) strategy based on lower cost 5. A focused (or market niche) strategy based on differentiation

Low-Cost Provider Strategies

Keys to Success
Make achievement of meaningful lower costs than rivals the theme of firms strategy
Include features and services in product offering that buyers consider essential Find approaches to achieve a cost advantage in ways difficult for rivals to copy or match

Low-cost leadership means low overall costs, not just low manufacturing or production costs!

Low-cost provider strategies A company achieves low-cost leadership when it becomes the industry's lowest-cost provider. e.g. Nano It is lower-cost than rivals but not necessarily absolute lowest cost. E.g. Maruti 800 is low cost car but not lower than Nano The product should include features and services that buyers consider essential.

 A product offerings that is too frill-free sabotages that attractiveness of the company's product and can turn buyers off even if it is cheaper than competing products. The low-cost has to be achieved in a way that would be difficult for the competitors to copy for the low-cost advantage to yield valuable edge in the marketplace.

Options: Achieving a Low-Cost Advantage

Option 1: Use lower-cost edge to
Underprice competitors and attract price-sensitive buyers in enough numbers to increase total profits

Option 2: Maintain present price, be content with present market share, and use lower-cost edge to
Earn a higher profit margin on each unit sold, thereby increasing total profits

Approaches to Securing a Cost Advantage

Approach 1 Do a better job than rivals of performing value chain activities efficiently and cost effectively Approach 2 Revamp value chain to bypass costproducing activities that add little value from the buyers perspective
Control costs! By-pass costs!

 Scrutinize each cost-creating activity, identifying cost drivers Use knowledge about cost drivers to manage costs of each activity down year after year Find ways to restructure value chain to eliminate nonessential work steps and low-value activities Work diligently to create cost-conscious corporate cultures

Keys to Success in Achieving Low-Cost Leadership

Feature broad employee participation in continuous cost-improvement efforts and limited perks for executives

Strive to operate with exceptionally small corporate staffs

Aggressively pursue investments in resources and capabilities that promise to drive costs out of the business

Characteristics of a Low-Cost Provider Cost conscious corporate culture

Employee participation in cost-control efforts

Ongoing efforts to benchmark costs

Intensive scrutiny of budget requests

Programs promoting continuous cost improvement
Successful low-cost producers champion frugality but wisely and aggressively invest in cost-saving improvements !

 Price competition is vigorous Product is standardized or readily available from many suppliers There are few ways to achieve differentiation that have value to buyers Most buyers use product in same ways Buyers incur low switching costs Buyers are large and have significant bargaining power Industry newcomers use introductory low prices to attract buyers and build customer base

When Does a Low-Cost Strategy Work Best?

Differentiation Strategies
Objective
Incorporate differentiating features that cause buyers to prefer firms product or service over brands of rivals

Keys to Success
Find ways to differentiate that create value for buyers and are not easily matched or cheaply copied by rivals Not spending more to achieve differentiation than the price premium that can be charged

Differentiation strategies
Differentiation strategies are attractive when buyers' needs and preferences are too diverse to be fully satisfied by a standardized product or by sellers with identical capabilities. A company attempting to succeed through differentiation must study buyers' needs and behavior to learn what buyers consider important, what they think has value and what they are willing to pay for.

 Competitive advantage results once a sufficient number of buyers become strongly attached to the differentiated attribute. Differentiation enhances profitability whenever the extra price the product commands outweighs the added costs for achieving the differentiation . Differentiation strategy fails when buyers don't value the brand's uniqueness and/or when the differentiation is easily copied by its rivals.

Benefits of Successful Differentiation

A product / service with unique, appealing attributes allows a firm to
Command Increase Build

a premium price and/or

Which hat is unique?

unit sales and/or

brand loyalty

= Competitive Advantage

Advantages of successful differentiation for a firm 1. It can command a premium price for its product 2. Increase in unit sales due to additional buyers won over by differentiation. 3. Gain buyer loyalty to its brand when buyers are strongly attracted to the differentiating feature.

Where to Find Differentiation Opportunities in the Value Chain

Purchasing and procurement activities

Product R&D and product design activities

Production process / technology-related activities Manufacturing / production activities Distribution-related activities Marketing, sales, and customer service activities
Activities, Costs, & Margins of Suppliers Internally Performed Activities, Costs, & Margins Activities, Costs, & Margins of Forward Channel Allies & Strategic Partners Buyer/User Value Chains

How to Achieve a Differentiation-Based Advantage

Approach 1 Incorporate product features/attributes that lower buyers overall costs of using product Approach 2 Incorporate features/attributes that raise the performance a buyer gets out of the product Approach 3 Incorporate features/attributes that enhance buyer satisfaction in non-economic or intangible ways Approach 4 Compete on the basis of superior capabilities

Where along the value chain to create the differentiating attributes 1. Supply chain activities that affect the performance or quality of the company's end product. e.g. Starbucks has very strict specifications on the coffee beans it purchases. 2. Product R&D activities that aim at improved product designs and performance features wider variety added user safety enhanced environmental protection.

3. Production R&D and technology-related activities that

permit custom-order manufacture at an efficient cost make production safer for the environment improve product quality, reliability and appearance. 4. e.g. Toyota manufacturing different models of cars from the same assembly line. Manufacturing activities that reduce product defects prevent premature product failure extend product life allow better warranty coverage improve economy of use result in more end-user convenience or enhanced product appearance. e.g. Japanese manufacturing technology

5. Outbound logistics and distribution activities that allow for faster delivery more accurate order filling lower shipping costs fewer warehouse and on-the-shelf stoke outs. 6. Marketing, sales and customer service activities that result in superior technical assistance to buyers faster maintenance and repair services more and better product information provided to customers more and better training materials for end users better credit terms quicker order processing greater customer convenience.

Best-Cost Provider Strategies

Combine a strategic emphasis on low-cost with a strategic emphasis on differentiation

Make an upscale product at a lower cost

Give customers more value for the money

Objectives Deliver superior value by meeting or exceeding buyer expectations on product attributes and beating their price expectations Be the low-cost provider of a product with good-toexcellent product attributes, then use cost advantage to underprice comparable brands

Competitive Strength of a Best-Cost Provider Strategy

A best-cost providers competitive advantage comes from matching close rivals on key product attributes and beating them on price Success depends on having the skills and capabilities to provide attractive performance and features at a lower cost than rivals A best-cost producer can often out-compete both a low-cost provider and a differentiator when Standardized features/attributes wont meet diverse needs of buyers Many buyers are price and value sensitive

Best cost provider strategies

It aims at giving customers more value for the money. The objective is to deliver superior value to buyers by satisfying their expectations on key quality/feature/performance attributes and beating their expectations on price. It derives from the ability to incorporate attractive attributes at a low cost than rivals.

 To become a best-cost provider a company must have resources and capabilities to achieve good-toexcellent quality, appealing features, match product performance and provide good-to-excellent services - all a lower cost than rivals. The best-cost provider strikes out a middle path between pursuing lower cost advantage and a differentiating advantage and between appealing to the broad market or the niche market. Best-cost strategy is a hybrid, which does a balancing of strategic emphasis on low cost against a strategic emphasis on differentiation. The target market is the value conscious buyer.

 The competitive advantage of a best-cost provider is lower costs than rivals in incorporating good-to-excellent attributes. It is very effective in markets where buyer diversity makes differentiation the norm and where many buyers are also sensitive to price and value. The pricing strategy can be a medium-quality product at a lower price or a high quality product at an average price.

Risk of a Best-Cost Provider Strategy

A best-cost provider may get squeezed between strategies of firms using low-cost and differentiation strategies
Low-cost leaders may be able to siphon customers away with a lower price High-end differentiators may be able to steal customers away with better product attributes

Risk of a best-cost provider strategy The company using this will get squeezed between companies following low-cost strategy and differentiating strategies. Low cost companies get customers with low cost and differentiating companies will offer more additional features to attract the customers. A best-cost provider product must have "significantly" better attributes in order to justify the cost above what the low-cost leaders are charging and should be "significantly" lower-cost with upscale features so that it can outcompete higher end differentiators on the basis of an attractive lower price.

Focus / Niche Strategies

Involve concentrated attention on a narrow piece of the total market

Objective
Serve niche buyers better than rivals

Keys to Success
Choose a market niche where buyers have distinctive preferences, special requirements, or unique needs Develop unique capabilities to serve needs of target buyer segment

Focus / Niche Strategies and Competitive Advantage

Approach 1

Achieve lower costs than rivals in serving the segment --

A focused low-cost strategy

Approach 2

Offer niche buyers something different from rivals --

Which hat is unique?

A focused differentiation strategy

Focused (or market niche) strategies This strategy focuses on a small size of the total market. The target market, or niche, can be defined by geographic uniqueness, specialized requirements in using the product, or special product attributes that appeal only to relatively small number of buyers. e.g. eBay (online auctions), L&T Constructions (infrastructure projects), Ayush from HUL (ayurveda), Himalaya (herbal products)

What Makes a Niche Attractive for Focusing?

Big enough to be profitable and offers good growth potential Not crucial to success of industry leaders

Costly or difficult for multi-segment competitors to meet specialized needs of niche members Focuser has resources and capabilities to effectively serve an attractive niche Few other rivals are specializing in same niche

Risks of a Focus Strategy

Competitors find effective ways to match a focusers capabilities in serving niche Niche buyers preferences shift towards product attributes desired by majority of buyers niche becomes part of overall market Segment becomes so attractive it becomes crowded with rivals, causing segment profits to be splintered

Focused low-cost strategy A focused strategy based on low-cost aims at securing a competitive advantage by serving buyers in the target niche market at a lower cost and price than the rivals. It is attractive when the company can find the niche market and lower its cost significantly to serve that market. The strategy to provide lower cost than rivals in the niche market is controlling factors that drive the cost. e.g. Producers of private label generic items with less product development cost, marketing, distribution and advertisement can offers these products at lower price than branded products. Manufacturers of clone products like ink cartridges for HP printers without violating patents.

Focused differentiation strategy It focuses on offering feature differentiations which would be perceived by the niche customers as well suited to their own unique tastes and preferences. This strategy depends on the existence of an buyer segment that is looking for special product attributes and the ability of the company to provide those features.
e.g. Rolex (watches), Rolls Royce - focus of upscale customers looking for best products. Himalaya (herbal products), Cafe Coffee Day (business ambience)

Deciding Which Generic Competitive Strategy to Use

Each positions a company differently in its market Each establishes a central theme for how a company will endeavor to outcompete rivals Each creates some boundaries for maneuvering as market circumstances unfold Each points to different ways of experimenting with the basics of the strategy Each entails differences in product line, production emphasis, marketing emphasis, and means to sustain the strategy
The big risk Selecting a stuck in the middle strategy! This rarely produces a sustainable competitive advantage or a distinctive competitive position.

Strategic Alliance.
It is a formal relationship between two or more parties to pursue a set of agreed goals.

Remains as independent organizations.

Alliance is a cooperation or collaboration where the

benefits from the alliance will be greater than those

from individual efforts.

Alliance often involves technology transfer (access to

knowledge and expertise), economic specialization, shared expenses and shared risk.

 Strategic alliance are the collaborative partnerships where two or more companies join forces to achieve mutually beneficially strategic outcomes.

Core Concept Of Strategic Alliance.

What are the factors that makes a Strategic alliance succeed

The cost of developing a new product Clarity of purpose, roles and responsibilities Equal share of rewards and profit.

Stages in strategic alliance.

Strategy Development Partner Assessment . Contract Negotiation Alliance Operation Alliance Termination

1.Strategic development involves

Studying the alliances feasibility Objectives and rationale Focusing on the major issues and challenges. Development of resource strategies for production, technology, and people.

2.Partner Assessment involves

Analyzing a potential partners strengths and weaknesses. Creating strategies for accommodating all partners management styles. Preparing appropriate partner selection criteria. Understanding a partners motives for joining the alliance and addressing resource capability gaps that may exist for a partner

3.Contract Negotiation involves

Determining whether all parties have realistic objectives. Forming high caliber negotiating teams. Defining each partners contributions and rewards as well as protect any proprietary information Addressing termination clauses Penalties for poor performance.

4 Alliance Operation involves

Addressing senior managements commitment. Finding the calibre of resources devoted to the alliance. Linking of budgets and resources with strategic priorities. Measuring and rewarding alliance performance, and assessing the performance and results of the alliance.

5 Alliance Termination involves

Winding down the alliance, for instance when its objectives have been met or cannot be met, or when a partner adjusts priorities or reallocated resources elsewhere.

Benefits of Strategic Alliances : Access to their partner's distribution channels and international market presence Access to their partner's products, technology, and intellectual property Access to partner's capital New markets for their products and services or new products for their customers Increased brand awareness through partner's channels Reduced product development time and faster-tomarket products Reduced R&D costs and risks Establish technological standards for the industry and early products that meet the standards Management skills

Advantages of Alliances
Rapidly move to decisively seize opportunities before they disappear. Respond more quickly to change. Adapt with greater flexibility. Increase a companys market share. Gain access to a new market or beat others to that market. Quickly shore up internal weaknesses. Gain a new skill or area of competence.

An alliance can fail for many reasons

Failure to understand and adapt to a new style of management Failure to learn and understand cultural differences between the organizations Lack of commitment to succeed Strategic goal divergence Insufficient trust Operational and geographical overlap Unrealistic expectations

Preparing for the Alliance

Developing qualitative and quantitative partner criteria Developing a list of prospective partners Partner Selection

Strategic Alliances and Collaborative Partnerships

Companies sometimes use strategic alliances or collaborative partnerships to complement their own strategic initiatives and strengthen their competitiveness. Such cooperative strategies go beyond normal company-tocompany dealings but fall short of merger or full joint venture partnership.

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

Risks of Strategic Alliances

failure to understand and adapt to a new style of management failure to learn and understand cultural differences between the organizations lack of commitment to succeed strategic goal divergence insufficient trust operational and geographical overlap unrealistic expectations

Merger and Acquisition Strategies

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-acquisition
Much-used strategic option Especially suited for situations where alliances do not provide a firm with needed capabilities or cost-reducing opportunities Ownership allows for tightly integrated operations, creating more control and autonomy than alliances

Objectives of Mergers and Acquisitions

To pave way for acquiring firm to gain more market share and create a more efficient operation

To expand a firms geographic coverage

To extend a firms 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

Outsourcing Strategies
Concept Outsourcing involves withdrawing from certain value chain activities and relying on outsiders to supply needed products, support services, or functional activities
Suppliers Internally Performed Activities Functional Activities

Support Services

Distributors or Retailers

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

 Operations are streamlined to

Cut cycle time Speed decision-making Reduce coordination costs

Firm can concentrate on core value chain activities that best suit its resource strengths

 Improves firms ability to obtain high quality and/or cheaper components or services Improves firms ability to innovate by interacting with best-in-world suppliers Enhances firms flexibility should customer needs and market conditions suddenly shift Increases firms 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

Strategic Advantages of Outsourcing