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Competitive Strategy Sidak Sehgal 12/BBS/0063Aneesh Sharma 12/BBS/0002

What Is Competition?

Competition is when organizations battle for some desired object or outcome. For business organizations, thats typically customers, market share, survey ranking, or needed resources . What competition might an organization face? We can answer this by looking at who competitors are.2Competitive StrategyA competitive strategy consists of moves to Attract customersWithstand competitive pressuresStrengthen an organizations market position

The objective of a competitive strategy is to generate a competitive advantage, increase the loyalty of customers and beat competitors

A competitive strategy is narrower in scope than a business strategy

Competitive AnalysisAssess the firms capabilities and key success factors compared to those of its competitors

Enables strategic planners to determine where the firm has distinctive competencies that will give it an advantage

Most companies develop strategies around key strengths or core competenciesThere are three approaches to defining an organizations competitors

Industry perspective

This identifies competitors as organizations that are making or selling the same or similar goods or services

These industries can be described according to the number of sellers and degree of differentiation; both affect competitive intensityThere are three approaches to defining an organizations competitors. (See Figure 5.3.) Lets look at each. There are three approaches to defining an organizations competitors. (See Figure 5.3.) Lets look at each.

The industry perspective identifies competitors as organizations that are making and selling the same or very similar goods or services. Examples are the video rental industry, the supermarket industry, the automobile industry, the credit card industry, or the spa industry. As Figure 5.3 shows, these industries can be described according to the number of sellers and the degree of differentiation, both of which affect the intensity of competition.5 The market perspective

Believes that competitors are organizations that satisfy the same customer needs

The intensity of competition in the market perspective depends on how well customer needs are understood or defined and how well different organizations are able to meet those needsThe market perspective says competitors are organizations that satisfy the same customer need. So, for example, if the customer need is entertainment, competitors might range from video game companies to theme parks to movie theaters to the local community symphony orchestra to online video downloading. The intensity of competition in the market perspective depends on how well customers needs are understood or defined and how well different organizations are able to meet those needs.6 The strategic groups concept

Is based on the idea that there are groups of firms competing in an industry with similar strategies, resources, and customers

In a single industry there will be several strategic groups depending on what is important to the customer

The strategic factors used to group competitors are not price and quality, but price and distribution strategyThe strategic groups concept introduced in Chapter 3, is based on the idea that there are groups of firms competing in an industry with similar strategies, resources, and customers. In a single industry, you might find few or several strategic groups, depending on what strategic factors are important to customers. However, the dimensions used to group competitors can be different for every industry and even for different industry segments. Table 5.2 lists some dimensions that might be used to distinguish strategic groups.7

KNOWING YOUR COMPETITION

One common and useful technique is constructing acompetitor array. The steps include:

Define your industry - scope and nature of the industry

Determine who your competitors are

Determine who your customers are and what benefits they expect

Determine what the key success factors are in your industry

Rank the key success factors by giving each one a weighting - The sum of all the weightings must add up to one.

Rate each competitor on each of the key success factors

Multiply each cell in the matrix by the factor weighting.Key IndustrySuccess FactorsWeightingCompetitor#1 ratingCompetitor#1 weightedCompetitor#2 ratingCompetitor#2 weighted1 - Extensive distribution.462.431.22 - Customer focus.341.251.53 - Economies of scale.23.63.64 - Product innovation.17.74.4Totals1.0204.9153.7Competitor profiling

The strategic rationale of competitor profiling is powerfully simple. Superior knowledge of rivals offers a legitimate source of competitive advantage.

First, profiling can reveal strategic weaknesses in rivals that the firm may exploit.

Second, the proactive stance of competitor profiling will allow the firm to anticipate the strategic response of their rivals to the firms planned strategies, the strategies of other competing firms, and changes in the environment.

Third, this proactive knowledge will give the firms strategic agility. Offensive strategy can be implemented more quickly in order to exploit opportunities and capitalize on strengths.

A common technique is to create detailed profiles on each of your major competitors .These profiles give an in-depth description of the competitor's background, finances, products, markets, facilities, personnel, and strategies. This involves:

Backgroundlocation of offices, plants, and online presences, ownership, corporate governance, and organizational structureFinancialsP-E ratios,and profitability, various financial ratios, liquidity, and cash flow ,profit growth profile; method of growth (organic or acquisitive)Productsproducts offered, depth and breadth of, and product portfolio balance, new products developed, new product success rate, and R&D strengths, brands, strength of brand portfolio, brand loyalty and brand awareness, patents and licenses, quality control conformanceMarketingsegments served, market shares, customer base, growth rate, and customer loyalty promotional mix, promotional budgets, advertising themes, ad agency used, sales force success rate, online promotional strategydistribution channels used (direct & indirect), exclusivity agreements, alliances, and geographical coveragepricing, discounts, and allowancesFacilitiesplant capacity, capacity utilization rate, age of plant, plant efficiency, capital investmentlocation, shipping logistics, and product mix by plantCompetitive AdvantageA firms ability to create value in a way that its rivals cannotWhen a firm has the potential to earn a persistently higher rate of profit than its rivalsCompetitive advantage means a lack of equilibrium with rival firmsBeing distinctively better than rivals on 1-2 key success factors usually translates into competitive advantage

Every organization has resources and capabilities, however, not every organization effectively exploits those resources or capabilities or obtains the resources or capabilities it needs but doesnt have.Some organizations are able to put it all together, some are not.

How does competitive advantage emerge?External sources ofchange e.g.:Changing customer demandChanging pricesTechnological changeInternal sources of changeResource heterogeneity among firms means differential impactSome firms faster and more effective in exploiting changeSome firmshave greater creativeand innovativecapabilityThe Emergence of Competitive Advantage152Porters generic strategies

Cost leadership strategy

The goal of cost leadership strategy is to offer products or services at the lowest cost in the industry.

The challenge of this strategy is to earn a suitable profit for the company, rather than operating at loss and draining profitability from all market players.

Companies such asWalmart succeed with this strategy by featuring low prices on key items on which customers are price-aware, while selling other merchandise at less aggressive discounts. Products are to be created at the lowest cost in the industry

DIFFERENTIATION STRATERGY

A differentiation strategy is appropriate where the target customer segment is not price-sensitive, the market is competitive or saturated, customers have very specific needs which are possibly under-served, and the firm has unique resources and capabilities which enable it to satisfy these needs in ways that are difficult to copy.

These could include patents or other Intellectual Property (IP), unique technical expertise (e.g. Apple's design skills or Pixar's animation prowess), talented personnel (e.g. a sports team's star players or a brokerage firm's star traders), or innovative processes.

Successful differentiation is displayed when a company accomplishes either a premium price for the product or service, increased revenue per unit, or the consumers' loyalty to purchase the company's product or service (brand loyalty). Differentiation drives profitability. FOCUS STRATERGY

This dimension is not a separate strategy for big companies due to small market conditions. Big companies which chose applying differentiation strategies may also choose to apply in conjunction with focus strategies (either cost or differentiation). On the other hand this is definitely appropriate strategies for small companies especially for those wanting to avoid competition with big ones.

In adopting a narrow focus, the company ideally focuses on a fewtarget markets(also called a segmentation strategy or niche strategy). These should be distinct groups with specialised needs. The choice of offering low prices or differentiated products/services should depend on the needs of the selected segment and the resources and capabilities of the firm.

The firm typically looks to gain a competitive advantage through product innovation and/or brand marketing rather than efficiency. A focused strategy should target market segments that are less vulnerable to substitutes or where a competition is weakest to earn above-average return on investment

Examples : Air Asia India, CARE RatingsMiles and Snows Adaptive Strategies

Miles and Snows approach is based on the strategies organizations use to adapt to their uncertain competitive environments and identified four strategic postures :

Prospector

Defender

Analyzer

Reactor

. They identified four strategic postures: prospector, defender, analyzer, and reactor.20 Prospector Strategy

An organization that follows aprospector strategyis a highly innovative firm that is constantly seeking out new markets and new opportunities and is oriented toward growth and risk taking

Firms using a prospector strategy are seeking large gains and will take significant risks to achieve them. Typically these firms will seek out new emerging markets and will attempt to take advantage of unproven technologies

Prospectors are likely to have large profits if they are successful, but they are more likely to fail than firms using more conservative strategies

A large proportion of their revenue comes from new products or new markets. They are often highlyleveraged, sometimes with a substantial equity position held by VC firms . The risk of product failure or market rejection is high

The prospectors competitive strategy is to continually innovate, develop, and test new products. Theyre constantly prospectingon the lookoutfor new directions to pursue. This continual search for innovation creates uncertainties for the prospectors competitors; they never know whats going to happen next or what to expect from the prospector21Defender Strategy

Is used by organizations to protect current market share by emphasizing existing products and producing a limited product line

As result of this narrow focus, these organizations seldom need to make major adjustments in their technology, structure, or methods of operation. Defenders can be successful especially when they exist in a declining industry or a stable environment

A defender succeeds by maintaining a competitive product line and making it hard for others to compete by in their attempt to secure this stable market they either keep prices low, keep advertising and other promotional costs low, engage invertical integration.

The defender strategy is used by organizations to protect current market share by emphasizing existing products and producing only a limited product line. Defenders have well-established businesses that theyre seeking to safeguard. Theyll do whatever it takes to aggressively prevent competitors from coming into their turf22 Analyzer Strategy

The analyzer strategy is a balanced strategy, it is neither as risky as the prospector strategy nor as conservative as the defender strategy. They will usually allow other firms to test the waters with a new technology or market before entering it themselves

They want both to protect their base of operations and to create new market opportunities

They try to maintain a balancedportfolio of products with some stable income generators and some potential winners. They watch the developments in their industry closely, but dont act until they are sure that the time is right

Proctor & Gamble (P&G) has established numerous name brand products. It is important for P&G to continue to invest in its successful products, in order to maintain financial performance. But P&G also needs to encourage the development of new products and brand names. In this way, it can continue to expand its market presence and have new products to replace those whose market falls off. Through these efforts P&G can continue to grow

Analyzer strategy, which is a strategy of analysis and imitation. Analyzers watch for and copy the successful ideas of prospectors. They compete by following the direction that prospectors pioneer. Organizations using this strategy also thoroughly analyze new business ideas before jumping in. Theyll systematically assess and evaluate whether this move is appropriate for them.23 Reactor Strategy

Is characterized by the lack of a coherent strategic plan or apparent means of competing

Reactors simply react to environmental changes and make adjustments only when forced to do so by environmental pressures

Often, reactors are unable to respond quickly to perceived changes in the environment because they lack or are unable to exploit the resources or capabilities necessary

International Harvester (IH) during the 1960s and 1970s followed this approach. At a time when IH's market for trucks, construction equipment, and agricultural equipment was booming, IH failed to invest in research and development, in improvements in manufacturing, or in improvements in distribution. By the time a recession cut demand for its products, it was too late for IH to respond, and the company lost millions of dollars. Indeed, at one time IH had the largest annual loss of any company in the history of the worldThe reactor strategy is characterized by the lack of a coherent strategic plan or apparent means of competing. Reactors simply react to environmental changes and make adjustments only when finally forced to do so by environmental pressures. Oftentimes, reactors are unable to respond quickly to perceived environmental changes because either they lack the needed resources or capabilities or theyre not able to exploit their current resources and capabilities.24

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