449 ch 5,6,7
Strengthening a firm's market position via its scope of operations
defining the horizontal and vertical scope of a firm's operations: - horizontal scope: the range of product and service segments that a firm serves within its focal market - vertical scope: the extent to which a firm's internal activities encompass one, some, many, or all of the activities that make up an industry's entire value chain system, ranging from raw-material production to final sales and service activities
Broad differentiation
offering customers something that rivals cannot or do not. 1. incorporate product attributes and user features that lower the buyer's overall costs of using the firm's product (long-lasting lightbulbs, e-cars) 2. incorporate tangible features (styling) that increase customer satisfaction with the product 3. incorporate intangible features (buyer image) that enhance buyer satisfaction in noneconomic ways 4. signal the value of the firm's product offering to buyers (price, packaging, placement, ad)
multidomestic strategy
one in which a company varies its product offering and competitive approach from country to country in an effort to be responsive to differing buyer preferences and market conditions - think local act local approach is appropriate when the need for local responsiveness is high due to significant cross-country differences in demographic, cultural, and market conditions and when the potential for efficiency gains from standardization is limited. its possible when decision making is decentralized
Vertically integrated firm
one that participates in multiple segments or stages of an industry's overall value chain
scope of the firm
refers to the range of activities that the firm performs internally, the breadth of its product and service offerings, the extent of its geographic market presence, and its mix of businesses
Blue-ocean strategy - a special kind of offensive
seeks to gain a dramatic competitive advantage by abandoning efforts to beat our competitors in existing markets and, instead, inventing a new market segment that allows a company to create and capture new demand The business universe is divided into: - an existing market with boundaries and rules in which rival firms compete for advantage - a "blue ocean" market space, where the industry has not yet taken shape, with no rivals and wide-open long-term growth and profit potential for a firm that can create demand for new types of products.
Disadvantages of a multidomestic strategy
-Hinders resource and capability sharing or cross-market transfers -Higher production and distribution costs -Not conducive to a worldwide competitive advantage
Disadvantages of a transnational strategy
-Is more complex and harder to implement -Entails conflicting goals, which may be difficult to reconcile and require trade-offs -Involves more costly and time-consuming implementation
types of generic strategies
- Broad, low-cost: achieve broad lower overall costs than rivals on comparable products that attract broad spectrum of buyers - Broad differentiation: differentiate product offering from rivals with attributes appealing to the broad spectrum of buyers - focused low-cost: narrow/ niche buyer segment by offering lower prices that meet their specific tastes and requirements - focused differentiation strategy: offering superior products based on the needs and requirements of a narrow buyer segment and offering niche members customized attributes that meet their taste's better than rivals - best-cost (hybrid): upscale products with lower cost than rivals. more value for their money by underpricing rivals with similar upscale product attributes
Advantages of multidomestic strategy
- Can meet the specific needs of each market more precisely - Can respond more swiftly to localized changes in demand - Can target reactions to the moves of local rivals - Can respond more quickly to local opportunities and threats
Foreign subsidiary strategies disadvantages
- Costs of acquisition - Complexity of acquisition process - Integration of the firms' structures, cultures, operations and personnel
Types of vertical integration strategies
- Full integration: a firm participates in all stages of the vertical activity chain - Partial integration: a firm builds positions only in selected stages of the vertical chain - Tapered integration: a firm uses a mix of in-house and outsourced activity in any stage of the vertical chain
Foreign subsidiary strategies advantages
- High level of control - Quick large-scale market entry - Avoids entry barriers - Access to acquired firm's skills
Pursuing a greenfield strategy advantages
- High level of control over venture - "Learning by doing" in the local market - Direct transfer of the firm's technology, skills, business practices, and culture
Export Strategies Advantages
- Low capital requirements - Economies of scale in utilizing existing production capacity - No distribution risk - No direct investment risk
Purpose of defensive strategies
- Lower the firm's risk of being attacked - Weaken the impact of an attack that does occur - induce challengers to aim their efforts at other rivals
achieving a successful differentiation strategy requires
- a company having capabilities in customer service, marketing, brand management, technology that can create/support differentiation - making it difficult for rivals to duplicate
Choosing the basis for competitive attack
- avoid directly challenging a targeted competitor where it is strongest - use the firm's strongest strategic assets to attack a competitor's weaknesses - the offensive may not yield immediate results if market rivals are strong competitors - be prepared for the threatened competitor's counter-response
franchising strategies
- better suited to the international expansion efforts of service and retailing enterprises - many of the same advantages as licensing - franchisee bears most of the costs and risks of establishing foreign locations - big problem they face: maintaining quality control
cost cutting approaches that demonstrate an effective use of the cost drivers
- capturing all available economies of scale - taking full advantage of experience and leaning-curve effects - operating facilities at full capacity - improving supply chain efficiency - substituting lower-cost inputs wherever there is little or no sacrifice in product quality or performance - using the company's bargaining power in relation to suppliers or others in the value chain system to gain concessions - using online systems and sophisticated software to achieve operating efficiencies - improving process design and employing advanced production technology - being alert to the cost advantages of outsourcing or vertical integration - motivating employees through incentives and company culture
Successful differentiation allows a firm to do one or more of the following
- command a premium price for its product - increase unit sales - gain buyer loyalty to its brand
revamping the value chain system to increase differentiation
- coordinating with downstream channel allies to enhance customer value - coordinating with suppliers to better address customer needs.
Ways managers can enhance differentiation based on value drivers
- create product features and performance attributes that appeal to a wide range of buyers - improve customer service or add extra services - invest in production-related R&D activities - strive for innovation and technological advances - pursue continuous quality improvement - increase marketing and brand-building activities - seek out high-quality inputs - emphasize human resource management activities that improve skills, expertise, and knowledge of company personnel
Strategic objectives for horizontal mergers and acquisitions
- creating a more cost-efficient operation out of the combined companies - expanding the firm's geographic coverage - extending the firm's business into new product categories - gaining quick access to new technologies or other resources and capabilitie - leading the convergence of industries whose boundaries are being blurred by changing technologies and new market opportunities
A greenfield strategy is appealing when
- creating an internal startup is cheaper than making an acquisition - adding new production capacity will not adversely impact the supply-demand balance in the local market - a startup subsidiary has the ability to gain good distribution access - a startup subsidiary will have the size, cost structure, and resource strengths to compete head-to-head against local rivals
Best-cost (Hybrid) strategies
- differentiation: providing desired quality, features, performance, service attributes - low cost producer: charging a lower price than rivals with similar caliber product offerings. * different from low cost strategies because additional attractive attributes entail additional costs which a low-cost producer can avoid by offering a basic product with few frills. * target market: price-conscious buyers
Focused (market niche) strategy approaches
- focused low-cost strategy: aims at securing a competitive advantage by serving buyers in the target market niche at a lower cost than those of rivals - focused differentiation strategy: offering superior products or services tailored to the unique preferences and needs of a narrow, well-defined group of buyers. Success depends on the existence of a buyer segment that is looking for special product/service attributes, and a firm's ability to create an offering that stands apart from rivals in the same target market niche.
The best offensives incorporate several principles:
- focusing relentlessly on building competitive advantage and striving to convert it into sustainable advantage - applying resources where rivals are least able to defend themselves - employing the element of surprise as opposed to doing what rials expect and are prepared for - displaying a capacity for swift and decisive actions to overwhelm rivals
Advantages of a global strategy
- has lower costs due to scale and scope economies - can lead to greater efficiencies due to the ability to transfer best practices across markets - increases innovation from knowledge sharing and capability transfer - offers the benefit of a global brand and reputation
deliver superior value via a broad differentiation strategy
- incorporate product attributes and user features that lower the buyers overall costs of using the companys product - incorporate tangible features that increase customer satisfaction with the product such as product specifications, functions, and styling - incorporate intangible features that enhance buyer satisfaction in noneconomic ways - signal the value of the company's product offering to buyers (important for intangible offerings, first time customers, unsophisticated buyers)
Disadvantages of a vertical integration strategy
- increased business risk due to large capital investment - slow acceptance of technological advances or more efficient production methods - less flexibility in accommodating shifting buyer preferences that require non-internally produced parts - internal production levels may not reach volumes that create economies of scale - efficient production of internally-produced components and parts hampered by capacity matching problems - new or different resources and capabilities requirements
Blocking the avenues open to challengers
- introduce new features and models to broaden product lines to close off gaps and vacant niches - maintain economy-pricing to thwart lower price attacks - make early announcements about new products or price changes to induce buyers to postpone switching - offer support and special inducements to current customers to reduce the attractiveness of switching - challenge quality or safety of rival's products
key factors distinguishing one strategy from another
- is the firms market target broad or narrow - is the competitive advantage being pursued linked to low costs or product differentiation
Licensing strategies
- makes sense when a firm with valuable technical know-how an appealing brand, or a unique patented product has neither the internal organizational capability nor the resources to enter foreign markets. advantages: - avoids risk of committing resources to country markets that are unfamiliar, unstable, and risky - company can generate income from royalties while shifting costs and risks of entering foreign markets to the licensee Downsides: - the partner who bears the risk is also likely to be the biggest beneficiary from any upside gain. - risk of providing valuable technological know-how to foreign companies and thereby losing some degree of control
Choosing which rivals to attack: best targets for offensive tactics
- market leaders that are in vulnerable competitive positions - runner-up firms with weaknesses in areas where the challenger is strong - struggling enterprises on the verge of going under - small local and regional firms with limited capabilities
Advantages of a transnational strategy
- offers the benefits of both local responsiveness and global integration - enables the transfer and sharing of resources and capabilities across borders - provides the benefits of flexible coordination
The risks of strategic alliances with foreign partners
- outdated knowledge and expertise of local partners - cultural and language barriers - costs of establishing the working arrangement - conflicting objectives and strategies or deep differences of opinion about joint control - differences in corporate values and ethical standards - loss of legal protection of proprietary technology or competitive advantage - overdependence on foreign partners for essential expertise and competitive capabilities
Cost drivers: the keys to driving down company costs
- quality control processes - product features and performance - customer services - production R&D - technology and innovation - input quality - employee skill, training, experience - sales and marketing
Pitfalls to avoid in pursuing a differentiation strategy
- relying on product attributes easily copied by rivals (smartphone camera) - introducing product attributes that do not evoke an enthusiastic buyer response (google pixel fold) - eroding profitability by overspending on efforts to differentiate the firm's product offering - offering only trivial improvements in quality, service, or performance features versus the products of rivals (docmartens) - over-differentiating the product quality, features, or service levels exceeds the needs of most buyers - charging too high a premium price
When a focused low-cost or focused differentiation strategy is attractive
- the target market niche is big enough to be profitable and offers good growth potential - industry leaders chose not to compete in the niche; focusers avoid competing against strong competitors - it is costly or difficult for multi-segment competitors to meet the specialized needs of niche buyers - the industry has many different niches and segments - rivals have little or no entry interest in the target segment
think local act local drawbacks
- they hinder transfer of a company's capabilities, knowledge, and other resources across country boundaries, since the company's efforts are not integrated or coordinated across country boundaries. this can make the company less innovative - they raise production and distribution costs due to greater variety of designs and components, shorter production runs for each product version, and complications of added inventory handling and distribution logistics - they are not conducive to building a single worldwide competitive advantage.
Conditions that lead to first-mover advantages
- when pioneering helps build a firm's reputation and creates strong brand loyalty (amazon) - when a first mover's customers will thereafter face significant switching costs - when property rights protections thwart rapid imitation of the initial move - when an early lead enables swift movement down the learning curve ahead of rivals - when a first mover can set the industry's technical standards - when strong network effects compel increasingly more consumers to choose the first mover's product or service
The potential for late-mover advantages or first-mover disadvantages
- when pioneering is more costly than imitating and offers negligible experience or learning-curve benefits - when an innovator's products are somewhat primitive and do not live up to buyer expectations - when rapid market evolution allows fast followers to leapfrog a first mover's products with more attractive next-version products - when market uncertainties make it difficult to ascertain what will eventually succeed - when customer loyalty is low and a first mover's skills, know-how, and actions are easily copied or surpassed - when the first mover must make a risky investment in complementary assets or infrastructure
Weighing the pros and cons of a vertical integration
- will vertical integration enhance the performance of strategy-critical activities in ways that lower cost, build expertise, protect proprietary know-how, or increase differentiation? - what impact will vertical integration have on investment costs, flexibility, and response times? - what administrative costs are incurred by coordinating operations across more vertical chain activities? - how difficult will it be for the firm to acquire the set of skills and capabilities needed to operate in another stage of the vertical chain?
The advantages of a vertical integration strategy
-Add materially to a firm's technological capabilities -Strengthen the firm's competitive position -Boost the firm's profitability
Pursuing a greenfield strategy disadvantages
-Capital costs of initial development -Risks of loss due to political instability or lack of legal protection of ownership -Slowest form of entry due to extended time required to construct facility
Effective differentiation approaches
-Carefully study buyer needs and behaviors, values and willingness to pay for a unique product or service. -Incorporate features that both appeal to buyers and create a sustainably distinctive product offering. -Use higher prices to recoup differentiation costs.
Advantages of differentiation
-Command premium prices for the firm's products -Increased unit sales due to attractive differentiation -Brand loyalty that bonds buyers to the firm's products
to be a first mover or not
-Does market takeoff depend on complementary products or services that currently are not available? -Is new infrastructure required before buyer demand can surge? -Will buyers need to learn new skills or adopt new behaviors? -Will buyers encounter high switching costs in moving to the newly introduced product or service? -Are there influential competitors in a position to delay or derail the efforts of a first mover? When answers to any of these are yes, then a company must be careful not to pour too many resources into getting ahead, unless the market is a winner-take-all type of market. might be worth the risk.
Benefits of alliance and joint venture strategies
-Gaining partner's knowledge of local market conditions -Achieving economies of scale through joint operations -Gaining technical expertise and local market knowledge -Sharing distribution facilities and dealer networks, and mutually strengthening each partner's access to buyers. -Directing competitive energies more toward mutual rivals and less toward one another -Establishing working relationships with key officials in the host-country government
Primary modes of entry into foreign markets
-Maintain a home country production base and export goods to foreign markets. -License foreign firms to produce and distribute the firm's products abroad. -Employ a franchising strategy in foreign markets. -Establish a subsidiary in a foreign market via acquisition or internal development. -Rely on strategic alliances or joint ventures with foreign companies.
Export strategies disadvantages
-Maintaining relative cost advantage of home-based production -Transportation and shipping costs -Exchange rates risks -Tariffs\import duties -Loss of channel control
Signaling challengers that retaliation is likely
-Publicly announce management's commitment to maintain the firm's present market share. -Publicly commit to a policy of matching rivals' terms or prices. -Maintain a war chest of cash and marketable securities. -Make a strong counter-response to moves of weaker rivals to enhance its tough defender image
revamping of the value chain system to lower costs
-Selling direct to consumers and bypassing the activities and costs of distributors and dealers by using a direct sales force and a company website -Streamlining operations to eliminate low value-added or unnecessary work steps and activities -Reduce materials-handling and shipping costs by having suppliers locate their plants or warehouses close to the firm's own facilities
Why companies decide to enter foreign markets
-To gain access to new customers and meet current customer needs -To achieve lower costs through economies of scale, experience, and increased purchasing power -To further exploit core competencies -To gain access to resources and capabilities located in foreign markets -To gain access to lower-cost inputs of production
Forms of defensive strategies
-actions to block challengers -actions to signal the likelihood of strong retaliation
When a differentiation strategy works best
-buyer needs and uses of the product are diverse -there are many ways to differentiate the product or service that have value to buyers -few rival firms are following a similar differentiation approach -there is a rapid change in the products technology and features
Disadvantages of a global strategy
-cannot address local needs precisely -is less responsive to changes in local market conditions -involves higher transportation costs and tariffs -has higher coordination and integration costs
Tactics for competing and strengthening the company's competitive advantage
-offensive and defensive competitive actions - competitive dynamics and the timing of strategic moves - scope of operations along the industry's value chain
Trader Joe's focused best-cost strategy
-uses mainly private labels to keep costs down - attends to quality in sourcing so products are known to be high quality - offers lower SKUs than groceries, so costs are lower - market segment is value-focused customers
Three approaches for competing internationally
1. Global strategy: think global, act global. High benefits; low need for local responsiveness. 2. Transnational strategy: think global - act local. Mid-high benefits; mid-high need for local responsiveness. 3. Multidomestic strategy: think local - act local. Low benefits; high need for local responsiveness.
International strategy: the three main approaches
1. Multidomestic Strategy - think local act local 2. Global Strategy - think global act global 3. Transnational Strategy - think global act local
Translating a low-cost advantage over rivals into superior profit performance
1. use the lower-cost edge to underprice competitors and attract price-sensitive buyers in great enough numbers to increase profits 2. maintain present price, be content with present market share, and use the lower-cost edge to raise profits by earning a higher profit margin on each unit sold.
Principal offensive strategy options
1. Offer an equally good or better product at a lower price. 2. Leapfrog competitors by being first to market with next-generation products. 3. Pursue continuous product innovation to draw sales and market share away from less innovative rivals. 4. Pursue disruptive product innovations to create new markets. 5. Adopt and improve on the good ideas of other companies (rivals or otherwise). 6. Use hit-and-run or guerrilla marketing tactics to grab market share from complacent or distracted rivals. 7. Launch a preemptive strike to secure an industry's limited resources or capture a rare opportunity
when a low-cost strategy works best
1. Price competition among rival sellers is especially vigorous. 2. The products of rival sellers are essentially identical and are readily available from eager sellers. 3. There are few ways to achieve product differentiation that have value to buyers. 4. Buyers incur low costs in switching their purchases from one seller to another. 5. buyers are price-sensitive or have the power to bargain down prices
The risks of a focused low-cost or focused differentiation strategy
1. competitors will find ways to match the focused firm's capabilities in serving the target niche (Hilton, Marriott multibrands) 2. the specialized preferences and needs of niche members shift over time toward the product attributes desired by the majority of buyers (lululemon?) 3. as attractiveness of the segment increases, it draws in more competitors, intensifying rivalry and splintering segment profits.
Managing the value chain to create the differentiating attributes
1. create product features and performance attributes that appeal to a wide range of buyers 2. improve customer service or add extra services. 3. seek out high-quality inputs 4. invest in production-related R&D activities 5. strive for innovation and technological advances 6. pursue continuous quality improvement 7. increase marketing and brand-building activities
Why competing across national borders makes strategy making more complex
1. different countries with different home-country advantages in different industries. Ex: France and wine, germany and cars 2. location-based value chain advantages for certain countries. Ex: natural resource access 3. differences in government policies, tax rates, and economic conditions. Ex: tariffs and Yeti 4. currency exchange rate risks. Ex: the ruble 5. differences in buyer tastes and preferences for products and services.
2 major avenues for achieving a cost advantage
1. perform value chain activities more cost-effectively than rivals 2. revamp the firm's overall value chain to eliminate or bypass some cost-producing activities
Why do strategies differ
A firm's competitive strategy deals exclusively with the specifics of its efforts to position itself in the market-place, please customers, ward off competitive threats, and achieve a particular kind of competitive advantage.
strategic offensives
Called for when a company spots opportunities to gain profitable market share at its rivals' expense or when a company has no choice but to try to whittle away at a strong rival's competitive advantage
vertical integration strategy
Can expand the firm's range of activities backward into its sources of supply and/or forward toward end users of its products
Integrating backward to achieve greater competitiveness
Integrating backward by: - achieving same scale economies as outside suppliers: low cost based competitive advantage - matching or beating suppliers' production efficiency with no drop-off quality: differentiaton-based competitive advantage Reasons for integrating backwards: - reduction of supplier power - reduction in costs of major inputs - assurance of the supply and flow of critical inputs - protection of proprietary know-how
Integrating forward to enhance competitiveness
Reasons for Integrating Forward: - To lower overall costs by increasing channel activity efficiencies relative to competitors. - To increase bargaining power through control of channel activities. - To gain better access to end users. - To strengthen and reinforce brand awareness. - To increase product differentiation
broad differentiation strategy
The essence of this is to offer unique product attributes that a wide range of buyers find appealing and worth paying for
Timing a company's strategic moves
Timing's importance: - knowing when to make a strategic move is as crucial as knowing what move to make - moving first is no guarantee of success or competitive advantage - the risks of moving first to stake out a monopoly position versus being a fast follower or even a late mover must be carefully weighed
Acquisition
a combination in which one firm, the acquirer, purchases and absorbs the operations of another firm, the acquired
a uniqueness driver
a factor that can have a strong differentiating effect
low-cost leadership
achieved when a company becomes the industry's lowest-cost producer rather than just being one of several competitors with comparatively low costs. not always about having the absolute lowest cost, but about having meaningfully lower costs than rivals.
differentiation
enhances profitability whenever a company's product can command a sufficiently higher price or produce sufficiently greater unit sales to more than cover the added costs of achieving the differentiation
The risk of a best-cost strategy
getting squeezed between the strategies of firms using low-cost and high-end differentiation strategies
transnational strategy
incorporates elements of both a globalized and a localized approach to strategy making
global strategy
it takes a standardized, globally integrated approach to producing, packaging, selling, and delivering the company's products and services worldwide.
Why mergers and acquisitions sometimes fail to produce anticipated results
strategic issues: - cost savings may prove smaller than expected - gains in competitive capabilities take longer to realize or never materialize at all Organizational issues: - cultures, operating systems, and management styles fail to mesh due to resistance to change from organization members - key employees at the acquired firm are lost - managers overseeing integration make mistakes in melding the acquired firm into their own
Merger
the combining of two or more firms into a single corporate entity that often takes on a new name
pitfalls to avoid in pursuing a low-cost strategy
•Engaging in overly aggressive price cutting that does not result in unit sales gains sufficient to recoup forgone profits •Relying on a cost advantage that is not sustainable because rival firms can easily copy or overcome it •Becoming so fixated on cost reduction such that the firm's offerings lack the primary features that attract buyers •Having a rival discover a new lower-cost value chain approach or develop a cost-saving technological breakthrough
When a best-cost strategy works best
•Product differentiation is the market norm. •There are a large number of value-conscious buyers who prefer mid-range products. •There is competitive space near the middle of the market for a competitor with either a medium-quality product at a below-average price or a high-quality product at an average or slightly higher price. •Economic conditions have caused more buyers to become value-conscious.
