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Quote-1
The essence of strategy lies in creating tomorrow’s
competitive advantages faster than competitors mimic
The ones you possess today.
Gary Hamel and C.K. Prahalad
Quote-2
Strategies for taking the hill won’t necessarily
hold it.
Amar Bhide
Lecture Objectives
 Review the concept of competitive advantage & explain its
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importance
Define competition & describe how a firm’s competitors can be
determined
Explain how resources & capabilities can lead to competitive
advantage
Explain the relationship between competitive advantage &
competitive strategies
Discuss Porter’s generic competitive strategies
Describe the new perspectives on competitive strategies
Describe how a firm’s competitive strategy is implemented
Discuss the various competitive postures and actions firms can
take to defend or attack rivals
COMPETITIVE ADVANTAGE
 When a firm sustains profit that exceeds the average of
industry. The firm is said to have competitive advantage over
its rivals.
 A Competitive advantage exists when a firm is able to deliver
the same benefits as competitors but at a lower cost (cost
Advantage) or deliver benefits that exceed those of
competitive products. (Differentiation Advantage).
 The goal of much Business Strategy is sustainable
Competitive advantage
COMPETITIVE ADVANTAGE (CA) AND HOW IT
IS OBTAINED
 What sets an organization apart -- competitive edge
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Controlling or having something others do not have
Doing something better than other organizations
Doing something other organizations cannot do
 Competitive strategies are designed to exploit an
organization’s competitive advantage
 There are other competitors also trying to develop
competitive advantage & attract customers thus
Competitive advantage can be eroded easily (& often
quickly) by rival’s actions
Understanding the Competitive Environment
 What is competition?
 When organizations battle for some desired object or
outcome
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Customers
Market share
Survey rankings
Needed resources
 Hyper competition
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A situation of intense and continually increasing levels of
competition in today’s business environment
Understanding the Competitive Environment
 Who are our competitors?
 3 Perspectives
(1) Industry perspective
(2) Marketing perspective
(3) Strategic Group perspective
Who are our competitors?
(1) Industry perspective
 Identifies competitors as firms that are making the same products or providing
the same service
 Describes industries according to number of sellers & the similarities or
differences in the products or services
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Example in water purifiers Eureka Forbes/ Kent/Unilever
(2) Marketing perspective
 Competitors are firms that satisfy the same customer needs
 Intensity of competition depends on
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How well the customer need is understood or defined
How well different firms are able to meet that need
Example Tatasky/Dish TV/Reliance Big TV/Telecom Companies
(3) Strategic Group Perspective
 Competitors are firms that follow similar strategies
 Strategic group is a set of firms competing within an industry that have
similar strategies & resources
 An single industry could have a few or several strategic groups
depending on what strategic factors are important to different group of
customers
 Example Tata Group/Mahindra Group/General Motors
Resources, Capabilities & Competitive
Advantage
 Resources are firms specific assets useful for creating a cost or
differentiation advantage that few competitors can acquire easily
(patents & trade marks, Proprietary know-how, Installed Customer base,
Reputation of the base, Brand Equity).
 Capability refers to firms ability to utilize its resources effectively.
(Ability to bring a product faster in the Market)
 Competitive Advantage implies gaining the edge on others – using
resources & capabilities
 But not every firm is able to
 Effectively exploit its resources & capabilities
 Obtain resources & capabilities it needs
 Some firms are able to “pull it together” & develop distinctive
capabilities, others don’t
 As firms strive for sustainable CA, stage for competition is set – low,
moderate, intense.
Competitive Advantage & Competitive Strategy
 Competitive Advantage concentrates on firm &
Competitive Strategy on Industry
 Firms exploits competitive advantage by
 Finding ways to use resources & capabilities to set firm apart from
competitors
• Firms competitive strategy-consists of business
approaches to
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–
–
Attract customers by fulfilling their expectations
Withstand competitive pressures
Strengthen market position
PORTER’S GENERIC COMPETITIVE STRATEGIES
 Competitive advantage come from one of two
sources:
 Having the lowest cost in the industry
 Possessing a product or offering a service that is
perceived as unique in the industry
 Another important factor is the scope of the
product-market (broad or narrow)
 Mix of these factors provide basis for
 Cost leadership strategy (low-cost strategy)
 Differentiation strategy
 Focus strategy
PORTER’S GENERIC COMPETITIVE STRATEGIES
Competitive Advantage
Low Cost
Broad
Cost Leadership
Differentiation
Differentiation
Market
Scope
Narrow
Focus
(Low Cost)
Focus
(Differentiation)
Focus
Middle of the
road
Cost
Differentiation
Cost leadership
How?
•New sources of supply
•Relocating to low cost
parts.
•Modification/simplificat
ion of design.
•Operating effectiveness
•Size and economies of
scale globalization.
•Strategic alliances
Benefits
•The ability to
outperform rivals
•Erect barriers to
entry
•Resist the five
forces
Possible problems
•Vulnerability to even lower cost operators
•Possible price wars
•Difficulty of sustaining it in the long term
Differentiation
How?
•High
performance in
one or more of a
spectrum of
activities
•The consistent
pursuit of those
factors which
customers
perceive to be
important
•The creation of
strong Brand
Equity
Benefits
Possible problems
•A distancing
from others in
the market
•The creation of a
major
competitive
advantage
•Flexibility
•The difficulty of
sustaining the bases for
differentiation
•Possibly higher costs
•The difficulty of
achieving true and
meaningful
differentiation
Focus
Possible problems
How?
•Concentration
upon Specific
product line for a
specific group of
customer
•The creation of a
strong and
specialist
reputation
Benefits
•A more detailed
understanding of a
particular segments
•The creation of
Barriers to entry
•A reputation for
specialization
•The ability to
concentrate efforts
•Limited
opportunities for
sector growth
•A reputation for
specialization which
ultimately inhabits
growth and
development into
other sectors
•The possibility of
outgrowing the
Market
•The decline of the
sector
Cost Leadership Strategy
• Objective:
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Gain sustainable competitive advantage over competitors, using
low-cost (not price).
Produce for broad customer base
Product quality prime parameter for success.
• Keys to Success:
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Low-cost relative to competitors
 Low cost implies overall low cost with focus on Quality
 low manufacturing or production cost.
 Marketing Cost
 Human Resources
Best Example in India
 Telecom Industry Players
 Chinese Toys
 Beverage: Tea (Agni)
 Pharma Companies as Mankind
Example-Reconfiguring Value Chain Systems to
Lower Costs -- Software Industry
A. Value Chain System of Software Developers Using Traditional WholesaleRetail Channels - Highest Cost
Software
development
activities
CD-ROM
production and
packaging
activities
Technical
support activities
Marketing and
promotion of
software
Warehousing and
shipping of
wholesalerretailer orders
Activities of
software retailers
Activities of
wholesale
distributors of
software
products
Example-Contd, Reconfiguring Value Chain
Systems to Lower Costs -- Software Industry
B. Value Chain System of Software Developers Using Direct Sales and
Physical Delivery of CDs
Software
development
activities
CD-ROM
production and
packaging
activities
Direct and online
marketing and
promotion
activities
Ware-housing
and shipping of
customer orders
Technical
support and
customer service
activities
C. Value Chain System of Software Developers Using Online Sales and
Internet Delivery - Lowest Cost
Software
development
activities
Online
marketing and
promotion
activities
Systems to
accept credit
card payment
and allow
immediate
download
Technical
support and
customer service
activities
Characteristic of Cost Leaders
Champion
frugality
• Strict attention to production controls
• Rigorous use of budgets
Little product
differentiation
• Limited market segmentation
Emphasis on
productivity
improvements
• Distinctive capabilities found in
manufacturing & materials
management
Successful Pursuit of Cost Leadership Strategy
Every strategic
decision is aimed
at keeping cost as
low as possible
• Efficiency is sought in all areas of operation
• All functional strategies & capabilities are
directed at efficiency
• Doesn’t have deep & wide product lines
Market products
aimed at
“average”
customer
• Little or no product frills or differences
When Cost Leadership Works Best
Price competition is vigorous.
Product is standardized or readily available from many suppliers.
There are few ways to achieve differentiation that have value.
Most buyers use product in same ways Buyers incur low switching
costs.
Buyers are large and have significant bargaining power.
The Competitive Strengths of Low-Cost
Leadership-Porters 5 Forces Impact
Low-cost provides
some protection from
bargaining leverage of
powerful BUYERS
Low cost puts a
company in position to
use low price as a
defense against
SUBSTITUTES
Better positioned than
RIVAL
COMPETITORS to
compete offensively on
basis of price
Low-cost provider’s
pricing power acts as a
significant barrier for
POTENTIAL
ENTRANTS
Low-cost provides
some protection from
bargaining leverage of
powerful SUPPLIERS
Drawbacks of Cost Leadership Strategy
Being overly aggressive in cutting price
Low cost methods are easily imitated by rivals
Becoming too fixated on reducing costs
and ignoring
• Buyer interest in additional features (tastes)
• Declining buyer sensitivity to price
• Changes in how the product is used
Technological breakthroughs open up cost reductions for rivals
Differentiation Strategy
• Objective
– Offering products/services perceived as unique over
the brands of rivals in an industry.
• Keys to Success
– Offer products/services that create value to customers
– Offer products/services not easily matched or easily
copied by rivals
– Not spending more to differentiate the firm’s products
or service than the price premium that can be
charged
Benefits of Differentiation
• A product / service with unique and appealing
attributes allows a firm to
– Command a premium price and/or
– Increase unit sales and/or
– Build brand loyalty
= Competitive Advantage
Differentiation Themes
• Unique taste -- Maggi
• Special features -- Iphone, Blackberry
• Superior service -- FedEx, DTDC
• Spare parts availability -- Caterpillar
• More for your money -- McDonald’s, Wal-Mart
• Engineering design and performance -- Mercedes
• Prestige -- Rolex
• Quality manufacture -- Honda , Toyota, Pharma Co’s
• Technological leadership -- Microsoft, Intel
• Top-of-the-line image -- Starbucks, Gap
Characteristics of Successful Differentiators
Every strategic decision & action is directed at setting the firm apart from
competitors
All functional strategies & capabilities are aimed at isolating & understanding
specific market segments & developing product features that are valued by
customers
Has broad and wide product lines -- many different models, features, price ranges,
etc.
Has many market segments & product features
Controls costs but not as rigorous as the cost leader to preserve source of
differentiation
Strives to establish brand loyalty
Competitive capabilities tends to be in marketing and research & development
The Competitive Strengths of a
Differentiation Strategy-Porters 5 Forces
Mitigates bargaining power
of large BUYERS since
other products are less
attractive
Differentiation puts a seller
in better position to fend
off threats of
SUBSTITUTES not having
comparable features
Buyers develop loyalty to
brand they like best--can
beat RIVAL
COMPETITORS in the
marketplace
Buyer loyalty acts as a
barrier to POTENTIAL
ENTRANTS
Differentiation puts a seller
in better position to
withstand efforts of
SUPPLIERS to raise prices
When Differentiation Works Better
There are many ways to differentiate a product that have
value and please customers
Buyer needs and uses are diverse
Few rivals are following a similar type of differentiation
approach
Technological change is fast-paced and competition is
focused on evolving product features
Drawbacks of Differentiation
Trying to differentiate on a feature buyers do not perceive as
lowering their cost or enhancing their well-being
Over-differentiating such that product features exceed customers’
needs
Charging a price premium that customers perceive is too high
Failing to signal value
Not understanding what customers want or prefer and
differentiating on the “wrong” things
Competitive Strategy Principle
A low-cost producer
strategy can defeat a
differentiation strategy
when buyers are
satisfied with a standard
product and do not see
extra attributes as worth
paying additional
money to obtain!
Focus Strategy
 Firm pursues either a cost leadership or differentiation
strategy but in a narrow customer group of segment
 Concentrates on serving specific market niche
 Geographical area
 Type of customer -- specific group of customers
 Specific & specialized product line
Focus Strategy
 Objective
 Serve the niche customers better than competitors
 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 Approaches
 Approach 1: Cost Advantage
 Achieve lower cost than rivals in serving the specific
or narrow segment
 Approach 2: Differentiation Advantage
 Offer customers in niche market something unique
in that market
 Product features
 Product innovations
 Product quality
 Customer responsiveness
Examples of Focus Strategy
• Focus Low-cost
– Ikea: Young furniture buyers who want style at low cost
(price sensitive and low service customer groups)
– Southwest Airlines: Short-haul, point-to-point
service between midsize cities & secondary airports in
large cities (low pricing & low service)
– KB Fair Price Shop
• Focus Differentiation
– Rolex: Serve highest end of wristwatch market
(premium pricing & image)
 Rolls-Royce: Serving luxurious end of automobile
market (premium pricing & image)
Advantages of the Focus Strategy
The focuser knows its market niche and knows it
well
The focuser can stay close to customers and
respond quickly to their changing needs
Focuser can develop strong brand loyalty which
can be difficult for other competitors to overcome
Drawbacks of Focus Strategy
Operates in small scale making it difficult to lower costs significantly.
Technological advances has minimized this drawback
Competitors find effective ways to match a focuser’s capabilities in
serving niche market
Niche can become part of the overall market
Segment becomes so attractive it becomes crowded with rivals,
causing segment profits to be splintered
Stuck in the Middle
Happens when a firm is not successful in pursuing either a low-cost or
differentiation strategy
Occurs when a firm’s
• Costs are too high to compete with the low-cost leader
• Products & services are not differentiated enough to compete with broad differentiator
Unprofitable strategic position/direction
Becoming “unstuck” involves making consistent strategic decisions
about what CA to pursue & doing so by aligning resources & capabilities
NEW PERSPECTIVES ON COMPETITIVE
STRATEGY
 Integrated Low-Cost Differentiation Strategy
Develops CA by simultaneously achieving low-cost and high levels of
differentiation
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Make an upscale product at a lower cost
Give customers more value for the money
Example Blackberry Z Series, MicroMax Mobiles
 Hybrid competitive strategy
Technological advancements that make this possible are
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Flexible manufacturing systems
Just-in-time inventory systems
Computer-integrated manufacturing systems
Example: Walmart, Pharma Company Mankind & Generic Drug
Manufacturers/CRAMS, Hybrid Cars
IMPLEMENTING COMPETITIVE STRATEGY
 Without implementation, a strategy is nothing more
than a strategic idea or plan.
 Competitive Strategy roles
 Using resources & capabilities to create & exploit CA
 Determining
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What competitive strategy is most appropriate?
How is the strategy implemented?
Role of Functional Strategies
 What is the Competitive Strategy is most Appropriate?
 Depends on
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Current firm resources & capabilities in place
First resources & capabilities acquired & developed
 Each of Porter’s competitive strategies requires certain
skills, resources, & organizational requirements
Role of Functional Strategies
 How is the strategy implemented?
Strategies must be aligned with functional expertise
 Strategy of low-cost
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Cost efficiencies -- manufacturing & materials mgt.
Capital investments in technology to reduce costs
Tight overhead cost control
 Strategy of differentiation
 Functional strategies must reflect choice
Competitive Postures and Actions
 Offensive Moves: undertaken to
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Build new or stronger market positions and/or
Create competitive advantage
 Defensive moves: undertaken to
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Protect competitive advantage
Reduce risk of being attacked
Discourage the offensive strategies of rivals
Blunt the impact of any attack
Rarely a basis for creating competitive advantage
Options for Mounting Strategic Offensives
1. Initiatives to match or exceed rivals’ strengths
2. Initiatives to capitalize on rivals’ weaknesses
3. Simultaneous initiatives on many fronts
4. End-run offensives
5. Guerrilla warfare tactics
6. Preemptive strikes
Initiatives to match or exceed rivals’ strengths
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Offer equally good product at a lower price
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Offer a better product at the same price
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Leapfrog into next-generation technologies
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Add appealing new features
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Run comparison ads
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Construct new plant capacity
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Offer a wider product line
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Develop better customer service capabilities
Initiatives to capitalize on rivals’ weaknesses
Basic Approach
Concentrate company strengths and resources directly against a
rival’s weaknesses
Weaknesses to Attack
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Geographic regions where rival is weak
Segments rival is neglecting
Go after those customers a rival is least equipped to serve
Rivals with weaker marketing skills
Introduce new models exploiting gaps in rivals’ product lines
Example: McDonalds quick meals against wait for food and fast
spreading itself across length and breath of India
Power Sector coming in of TATA/Reliance Vs BEST/MSEB
Launching Simultaneous Offensives
on Many Fronts
Objective
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Launch several major initiatives to
 Throw rivals off-balance
 Splinter their attention
 Force them to use substantial resources to defend their position
Appeal
 A challenger with superior resources can overpower weaker rivals
by out-competing them across-the-board long enough to
become a market leader.
 Example: International Consumer Electronics brands against
Indian Brands
 Chinese branded products against Indian Brands
End-Run Offensives
Objectives
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DODGE head-to-head confrontations that escalate
competitive intensity or risk cutthroat competition
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Attempt to MANEUVER around areas of strong
competition--concentrate on those areas of market where
competition is weakest
Example: Pharmaceutical Industry, Airtel in response to
Reliance Jio.
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Optional Approaches for End-Run
Offensives
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Build presence in geographic areas where rivals have little
presence or exposure
Introduce products with different attributes and features to
better meet buyer needs
Introduce next-generation technologies and leapfrog rivals
Add more support services for customers
Guerrilla Offenses
Approach
Use principles of surprise and hit-and-run to attack in
locations and at times where conditions are most favorable
to initiator
Appeal
Well-suited to small challengers with limited resources
Example: But budget films in Bollywood commonly use this
technique they would use all economical options for
promotion, Being Human Foundation
Options for Guerrilla Offenses
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Focus on narrow target weakly defended by rivals
Challenge rivals where they are overextended and when
they are encountering problems
Make random scattered raids on leaders
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Occasional low-balling on price
Intense bursts of promotional activity
Legal actions charging antitrust violations, patent infringements,
or unfair advertising
Preemptive Strikes
Approach
Involves moving first to secure an advantageous
position that rivals are foreclosed or discouraged
from duplicating!
Preemptive Strike Options
Expand capacity ahead of demand in hopes of discouraging
rivals from following suit
 Tie up best or cheapest sources of essential raw materials
 Move to secure best geographic locations
 Obtain business of prestigious customers
 Build an image in buyers’ minds that is unique & hard to
copy
 Secure exclusive or dominant access to best distributors
 Acquire desirable, but struggling, competitor
 Examples: Marico’s Parachute, HP-Compaq, Airtel overseas
expansion.
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Defensive Strategic Moves
• Block avenues rivals can take to mount attack
•
•
•
•
•
Sign exclusive contracts with best suppliers
Patent alternative technologies
Broaden product line to match rivals
Keep prices low on models that match rivals
Challenge rivals’ products or practices in regulatory proceedings
(Apple Vs Google), etc.
• Make clear willingness to fight challengers
•
•
•
Publicly make commitments to maintain market share
Publicly commit firm to policy of matching prices of items offered
by rivals
Maintain excess cash reserves; etc.
• Lower inducement for attack (e.g., Southwest Airlines,)
Evaluating & Changing Competitive Strategy
 Responsibility of managing strategically involves
 Implementing competitive strategy
 Monitoring, assessing, and evaluating strategy for
performance effectiveness & efficiency
 Competitive strategies are targeted at increasing sales
revenues, market share, or profitability
 Data on these areas help determine the impact of
competitive strategy
Evaluating & Changing Competitive Strategy
 Changing Competitive Strategy
 Organization’s fundamental competitive strategy is not
changed frequently and continually
 Each competitive strategy entails the development of
specific resources & capabilities. To change this is difficult
 Major competitive strategic change should be approached
realistically & intelligently
 Although changing a firm’s competitive strategy isn’t very
likely, modifying the competitive strategy is
Questions
 Q 7) Discuss Porters Generic Competitive Strategies
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Low Cost
Differentiation
Focus
Any one of above with the principles and
examples. You could use your own company
among examples to validate the principle?
Assignment
 Choose one company for each of Porters Generic
Competitive Strategies and discuss its strategy.
Thanks