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Transcript of 4 Strategy Module 4 2012
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Building Competitive Advantage throughDistinction
Caselet-1: Nordstrom Inc Caselet-2: A Vision of Industry Dominance-
Nike
Caselet-3: Leveraging Technology-Reinventing Amazon.com Routes to Building Competitive Advantage
Low-Cost Leadership Strategies
Differentiation Strategies
Focus Strategies
Strategy and Competitive Advantage over the life cycle
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Caselet-1: Nordstrom Inc
Deep roots in Seattle, Washington, USA
Initial business was fashion shoes, 1901
Loyal customers awarded
Computerised real time inventory system
1968 women fashion apparels Company ensures distinct customer service by fully
embracing personalised sales
Care for employees and human values
Competition by Neiman Marcus, Saks 5th
avenue,Talbots
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Infrastructure
Strong legacy
of family
emphasis on
service
Human
Resource
Management
Promotion
from within
Development
of service
culture
Training on
service
expectations
Technology
Development
Perpetual
inventory
Developmentof new
ordering
systems
Customerloyalty
programs
Makinginternet as
user friendly
Procurement
Emphasis on
high fashion
labels
PRIMARY
ACTIVITIES
Smaller
stores, higher
store density,
narrower
product line
Higher prices,
emphasis on
classic design
Personalised
friendly,
customer first
policy
Nordstrom di f ferent iat ion from department store chains
SUPPO
RTACTIVITIES
InboundLogistics
Operations OutboundLogistics
Marketing/Sales
Service
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Caselet-2: A vision of Industry Dominance-Nike
Worlds largest shoe maker, Greek goddess of victory, 20% of
athletic market Distinguishes from competitors, Adidas, Reebok, Puma, K-Swiss
through aggressive celebrity marketingand by associating withcollege teams, Olympics and major professional sporting eventsglobally.
Powerful competitive advantage include R&D capabilities, extensiveworldwide production, sourcing networks, cross selling products andfunding of various community based programs.
Nike forms research communities comprising coaches ,athletes,trainers, equipment managers, orthopedists etc
Shox technology adopts having air cushion
Personalized shoe
The backbone is its huge global production and sourcing network
Complete control over supply chain
Focus on independent contractors
Sponsoring events make its aggressive presence
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Caselet-3: Leveraging Technology- Reinventing Amazon.com
Beginning in 1994, leading online retailer
Biggest seller of books, Cd, Video, Gifts and electronicproducts on the internet
Significant discount on net price
Competes with e-Bay, Yahoo and WebMD
Initial focus was on books, open for comments by buyers
Virtual customer, high degree of convenience and security
First time visitors have to punch their billing & credit card info,
email, address etc thus creating a first time visitors have to
punch their billing & credit card info, email, address etc thus
creating personal profile for subsequent usage Uses web based innovations, e-commerce emerging as a
technology and web based virtual platform
Rival threat by overstock.com
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Core Competencies and Strategy
Resources and superior capabilities that aresources of competitive advantage over a
firms rivals
Providing value to customers and gainingcompetitive advantage by exploiting core
competencies in individual product markets
Core
Competencies
Strategy
Business-level
Strategy
An integrated and coordinated set ofactions taken to exploit core competencies
and gain competitive advantage
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Customers: Their Relationship to Business-Level Strategies
Key Issues
in
Business-level
Strategy
Who will be
served?
What needs will
be satisfied?
How will those
needs be satisfied?
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Who:Determining the Customers to Serve
Market segmentationA process used to cluster people with similar needs
into individual and identifiable groups.
All Customers
IndustrialMarkets
ConsumerMarkets
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TABLE4.1 Basis for Customer SegmentationConsumer Markets
Demographic factors (age, income, sex, etc.) Socioeconomic factors (social class, stage in the family life cycle)
Geographic factors (cultural, regional, and national differences)
Psychological factors (lifestyle, personality traits)
Consumption patterns (heavy, moderate, and light users)
Perceptual factors (benefit segmentation, perceptual mapping)
Industrial Markets
End-use segments (identified by SIC code)
Product segments (based on technological differences or
production economics)
Geographic segments (defined by boundaries between countries orby regional differences within them)
Common buying factor segments (cut across product market and
geographic segments)
Customer size segmentsSource:Adapted from S. C. Jain, 2000, Marketing Planning and
Strategy, Cincinnati: South-Western College Publishing, 120.
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What:Determining Which CustomerNeeds to Satisfy
Customer needs are related to a products
benefits and features.
Customer needs are neither right nor wrong,
good nor bad.
Customer needs represent desires in terms of
features and performance capabilities.
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How:Determining Core CompetenciesNecessary to Satisfy Customer Needs
Firms use core competencies to implement value
creating strategies that satisfy customersneeds.
Only firms with capacity to continuously improve,innovate and upgrade their competencies can
expect to meet and/or exceed customer
expectations across time.
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The Purpose of a Business-Level Strategy
Business-Level StrategiesAre intended to create differences between the firms
position relative to those of its rivals.
To position itself, the firm must decide whether itintends to:
Perform activities differently or
Perform different activities as compared to its rivals.
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Types of Potential Competitive Advantage
Achieving lower overall coststhan rivalsPerforming activities differently (reducing process
costs)
Possessing the capability to differentiatethefirms product or service and command a
premium price
Performing different (more highly valued) activities.
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Competitive Scope
Broad ScopeThe firm competes in many
customer segments.
Narrow ScopeThe firm selects a segment or
group of segments in the
industry and tailors its strategy
to serving them at theexclusion of others.
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Types of Business-Level Strategies
Cost Uniqueness
DifferentiationCost Leadership
Focused
Differentiation
Focused Cost
Leadership
Integrated Cost
Leadership/
Differentiation
Broad
Target
Narrow
Target
Competitive Advantage
Competitive
Scope
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FIGURE4.2 Five Business-Level Strategies
Source:Adapted with the
permission of The Free Press, an
imprint of Simon & Schuster AdultPublishing Group, from Competitive
Advantage: Creating and Sustaining
Superior Performance, by Michael E.
Porter, 12. Copyright 1985, 1998
by Michael E. Porter.
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Cost Leadership Strategy
An integrated set of actions taken to producegoods 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
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Cost Leadership 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 serviceBuilding efficient manufacturing facilities
Monitoring costs of activities provided by outsiders
Simplifying production processes
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How to Obtain a Cost Advantage
Determine
and control
Cost Drivers
Reconfigure
Value Chain
if needed
Alter production process
Change in automation
New distribution channel New advertising media
Direct sales in place of
indirect sales
New raw material
Forward integration
Backward integration Change location relative
to suppliers or buyers
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Value-Creating Activities for Cost Leadership
Cost-effective MIS
Few management layers
Simplified planning
Consistent policies
Effecting training
Easy-to-use manufacturing
technologies
Investments in technologies
Finding low cost raw materials
Monitor suppliersperformances
Link suppliersproducts to
production processes
Economies of scale Efficient-scale facilities
Effective delivery schedules
Low-cost transportation
Highly trained sales force
Proper pricing
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Cost Leadership Strategy: Competitors
Due to cost leadersadvantageous position:
Rivals hesitate to compete
on basis of price.Lack of price competition
leads to greater profits.
Threat of
new
entrants
Bargaining
power of
suppliers
Rivalry
among
competing
firms
Bargaining
power of
buyers
Threat of
substitute
products
Rivalry withExisting Competitors
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Cost Leadership Strategy: Buyers
Can mitigate buyerspower by:
Driving prices far below
competitors, causing
them to exit, thus
shifting power with
buyers back to the firm.
Threat of
new
entrants
Bargaining
power of
suppliers
Rivalry
among
competing
firms
Bargaining
power of
buyers
Threat of
substitute
products
Bargaining Powerof Buyers
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Cost Leadership Strategy: Suppliers
Can mitigate supplierspower by:
Being able to absorb
cost increases due tolow cost position.
Being able to make very
large purchases,
reducing chance ofsupplier using power.
Threat of
new
entrants
Bargaining
power of
suppliers
Rivalry
among
competing
firms
Bargaining
power of
buyers
Threat of
substitute
products
Bargaining Powerof Suppliers
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Cost Leadership Strategy: New Entrants
Can frighten off newentrants due to:
Their need to enter on a
large scale in order to becost competitive.
The time it takes to move
down the learning curve.
Threat of
new
entrants
Bargaining
power of
suppliers
Rivalry
among
competing
firms
Bargaining
power of
buyers
Threat of
substitute
products
The Threat ofPotential Entrants
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Cost Leadership Strategy: Substitutes
Cost leader is wellpositioned to:
Make investments to be
first to create substitutes.Buy patents developed by
potential substitutes.
Lower prices in order to
maintain value position.
Threat of
new
entrants
Bargaining
power of
suppliers
Rivalry
among
competing
firms
Bargaining
power of
buyers
Threat of
substitute
products
ProductSubstitutes
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Cost Leadership Strategy (contd)
Competitive RisksProcesses used to produce and distribute good or
service may become obsolete due to competitors
innovations.
Focus on cost reductions may occur at expense ofcustomersperceptions of differentiation
Competitors, using their own core competencies, may
successfully imitate the cost leaders strategy.
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Differentiation Strategy
An integrated set of actions taken to producegoods or services (at an acceptable cost) that
customers perceive as being different in ways
that are important to them.
Focus is on nonstandardized products
Appropriate when customers value differentiated
features more than they value low cost.
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How to Obtain a Differentiation Advantage
ControlCost Drivers
if needed
Reconfigure
Value Chainto
maximize
Lower buyerscosts
Raise performance of product or service
Create sustainability through:
Customer perceptions of uniqueness
Customer reluctance to switch to non-
unique product or service
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Value-Creating Activities and Differentiation
Highly developed MIS
Emphasis on quality
Worker compensation for
creativity/productivity
Use of subjective performance
measures
Basic research capability
Technology
High quality raw materials
Delivery of products
High quality replacement parts
Superior handling of incoming
raw materials
Attractive products
Rapid response to customer
specifications
Order-processing procedures
Customer credit
Personal relationships
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Differentiation Strategy: Competitors
Defends againstcompetitors because brand
loyalty to differentiated
product offsets price
competition.
Threat of
new
entrants
Bargaining
power of
suppliers
Rivalry
among
competing
firms
Bargaining
power ofbuyers
Threat of
substitute
products
Rivalry withCompetitors
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Differentiation Strategy: Buyers
Can mitigate buyerspowerbecause well differentiated
products reduce customer
sensitivity to price increases.Threat ofnew
entrants
Bargaining
power of
suppliers
Rivalry
among
competing
firms
Bargaining
power ofbuyers
Threat of
substituteproducts
Bargaining Powerof Buyers
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Differentiation Strategy: Suppliers
Can mitigate supplierspower by:
Absorbing price increases
due to higher margins.
Passing along highersupplier prices because
buyers are loyal to
differentiated brand.
Threat of
new
entrants
Bargaining
power of
suppliers
Rivalry
among
competing
firms
Bargaining
power ofbuyers
Threat of
substituteproducts
Bargaining Powerof Suppliers
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Differentiation Strategy: New Entrants
Can defend against newentrants because:
New products must surpass
proven products.
New products must be at leastequal to performance of proven
products, but offered at lower
prices.
Threat of
new
entrants
Bargaining
power of
suppliers
Rivalry
among
competing
firms
Bargaining
power ofbuyers
Threat of
substituteproducts
The Threat ofPotential Entrants
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Differentiation Strategy: Substitutes
Well positioned relative tosubstitutes because:
Brand loyalty to a
differentiated product tends
to reduce customerstesting
of new products or switching
brands.
Threat of
new
entrants
Bargaining
power of
suppliers
Rivalry
among
competing
firms
Bargaining
power ofbuyers
Threat of
substituteproducts
ProductSubstitutes
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Competitive Risks of Differentiation
The price differential between the differentiators product
and the cost leaders product becomes too large.
Differentiation ceases to provide value for which
customers are willing to pay.
Experience narrows customersperceptions of the valueof differentiated features.
Counterfeit goods replicate differentiated features of the
firms products.
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Focus Strategies
An integrated set of actions taken to producegoods or services that serve the needs of a
particular competitive segment.
Particular buyer groupyouths or senior citizens
Different segment of a product lineprofessional
craftsmen versus do-it-yourselfers
Different geographic marketsEast coast versus
West coast
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Focus Strategies (contd)
Types of focused strategiesFocused cost leadership strategy
Focused differentiation strategy
To implement a focus strategy, firms must be
able to:Complete various primary and support activities in a
competitively superior manner, in order to develop
and sustain a competitive advantage and earn above-
average returns.
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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.
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Competitive Risks of Focus Strategies
A focusing firm may be outfocusedby its competitors.
A large competitor may set its sights on a firms niche
market.
Customer preferences in niche market may change to
more closely resemble those of the broader market.
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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.
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Integrated Cost Leadership/Differentiation Strategy (contd)
Commitment to strategic flexibility is necessary
for implementation of integrated cost
leadership/differentiation strategy.
Flexible manufacturing systems (FMS)
Information networks
Total quality management (TQM) systems
Strategy and Competitive Advantage over the life cycle
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Strategy and Competitive Advantage over the life cycle
Stage Introductory Growth Mature Decline
Nature of
Competitive Rivalry
Limited focus on
Comp; product is
centre of attention
Firms take out key
positions in market
Firms try to survive
shakeout, many exit or
fail
Remaining firms seek
to reduce intensity of
comp
Nature of Entry Pioneering forms
define industry
Large scale entry by
Firms seeking profits
Growth slows and
entry less attractive
Few, if any entrants
Product Technology Emerging, nodominant design
Competing designshope to set standard
Dominant design forindustry
No real productchange
Process Technology General purpose tools Growing investment in
specialised tools
Emphasis on
efficiency
Processes do not
change, may become
exit barrier
Marketing emphasis Focus on Innovators,
volatile prices
Building brand
awareness, prices
begin to decline
Promote to as many
segments, prices
stable
Marketing emphasis
changes to preserving
Investment intensity Very High Massive expenditure
reinforce position
De-emphasis on
adding new capacity
Begin gradual exit and
even divest activities
Profitability levels Unprofitable, high
cash required
Move to high profits Peak profits, cash high Profits decline, cash
flow too decline