Strategy Topics
cost driver
a factor having a strong effect on the cost of a company's value chain activities and cost structure.
Vertical scope
is 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. •Backward into sources of supply (EX: apple making its own microchips) •Forward toward end-users of final product (Ex: apple creating stores to get close to the consumer)
Horizontal scope
is the range of product and service segments that a firm serves within its focal market. -acquisitions and mergers (still in the same market) Ex: mcdonalds buying wendys
international strategy
its strategy for competing in two or more countries simultaneously.
Broad differentiation strategies
•Attractive competitive approaches to use whenever buyers' needs and preferences are too diverse to be fully satisfied by a standardized product or service. •Involves offering differentiating features that clearly set the firm's products or services apart from rivals •Enhances profitability whenever the extra price the product commands outweighs the added costs of achieving the differentiation that is not easily copied or matched by rivals •To offer unique product or service attributes that a wide range of buyers find appealing and worth paying for.
Dimensions of a Firm's Scope
•Breadth of its product and service offerings •Range of activities it performs internally •Extent of its geographic market presence •Mix of businesses
Benefits of Successful Differentiation
•Command a premium price. •Increase its unit sales. •Gain buyer loyalty to its brand.
The Risks of a Focused Low-Cost or Focused Differentiation Strategy
•Competitors will find effective ways to match a focuser's capabilities in serving the target niche. •The preferences and needs of niche members to shift over time toward the product attributes desired by the majority of buyers. •The segment may become so attractive it is soon inundated with competitors, intensifying rivalry, and splintering segment profits.
Approaches to enhancing differentiation through changes in the value chain system
•Coordinating with downstream channel allies to enhance customer value •Coordinating with upstream suppliers to better address customer needs
Low cost provider strategies
•Has meaningfully lower costs than rivals—but not necessarily the absolutely lowest possible cost •Includes features and services that buyers consider essential •Is viewed by buyers as offering equivalent or higher value even if priced lower than competing products •basis for competitive advantage is lower overall costs than competitors. Success in achieving a low-cost edge over rivals comes from eliminating and/or curbing "nonessential" activities and/or outmanaging rivals in performing essential activities.
Blocking the Avenues Open to Challengers by:
•Introducing new features •Adding new models •Broadening product line to fill vacant niches •Maintaining economy-priced models •Making early announcements about upcoming new products or planned price changes •Granting volume discounts or better financing terms to dealers and distributors to discourage them from experimenting with other suppliers
Outsourcing an activity should be considered when:
•It can be performed better or more cheaply by outside specialists. •It is not crucial to achieving a sustainable competitive advantage and won't hollow out capabilities, core competencies, or technical know-how of the firm. •It improves organizational flexibility and speeds time to market. •It reduces a firm's risk exposure to changing technology and/or buyer preferences. •It allows a firm to concentrate on its core business, leverage its key resources and core competencies, and do even better what it already does best.
Perceived Value and the Importance of Signaling Value
-A differentiation strategy's price premium reflects the value actually delivered to the buyer and the value perceived by the buyer. -It is important to "signal" value when: •The nature of differentiation is subjective. •Buyers are making a first-time purchase. •Repurchase is infrequent. •Buyers are unsophisticated.
Blue Ocean Strategy
-A firm seeks a large and lasting competitive advantage by abandoning existing markets and inventing an exclusive new industry or market segment (open competitive space) that makes former competitors irrelevant. -offer growth in revenues and profits by discovering or inventing new industry segments that create altogether new demand.
Multidomestic Strategy—A Think Local,Act Local
-A firm varies its product offerings and basic competitive strategy from country to country It is useful when -Significant country-to-country differences exist in customer preferences, buying habits, distribution channels, or marketing methods -Host governments enact local content requirements or trade restrictions that preclude a uniform, coordinated worldwide market approach
A Focused Low-Cost Strategy
-A strategy that aims at securing a competitive advantage by serving buyers in the target market niche at a lower cost and a lower price than rival competitors. -A strategy that achieves its cost advantage in the same way as for low-cost leadership—by outmanaging rivals in keeping costs low and bypassing or reducing nonessential activities.
Global Strategy—A Think Global, Act Global
-Allows the firm's strategic moves to be integrated and coordinated worldwide. -Focuses on establishing an identifiable brand image and reputation that is uniform from country to country. -Allows the firm to focus its full resources on securing a sustainable low-cost or differentiation-based competitive advantage over both domestic rivals and global rivals.
Focused (or Market Niche) Strategies
-Focused strategies are developed especially for competing in a narrow piece of the total market as defined by geographic uniqueness or special product attributes. -Focused strategies are appealing to smaller and medium-sized firms that may lack the breadth and depth of resources to tackle going after a whole market customer base.
Cost-Efficient Management of Value Chain Activities
-Striving to capture all available economies of scale. -Taking full advantage of experience and learning curve effects. -Trying to operate facilities at full capacity. Substituting lower-cost inputs whenever there is little or no sacrifice in product quality or product performance. -Employing advanced production technology and process design to improve overall efficiency. -Using communication systems and information technology to achieve operating efficiencies. -Using the company's bargaining power vis-à-vis suppliers to gain concessions. -Being alert to the cost advantages of outsourcing and vertical integration. -Pursuing ways to boost labor productivity and lower overall compensation costs.
Transnational Strategy—A Think Global, Act Local
-Utilizes the same basic competitive theme (low-cost, differentiation, or focused) in each country but allows local managers the latitude to: 1.Incorporate whatever country-specific variations in product attributes are needed to best satisfy local buyers. 2.Make whatever adjustments in production, distribution, and marketing are needed to respond to local market conditions and compete successfully against local rivals.
Strategic Alliance
-a formal agreement between two or more companies to work cooperatively toward some common objective -Is a formal contractual agreement in which two or more firms collaborate to achieve mutually beneficial strategic outcomes based on: •Strategically relevant collaboration. •Joint contribution of. •Shared risk. •Shared control. •Mutual dependence. -Strategic alliance allows firms to complementarily bundle resources and competencies to increase their competitive effects and value.
Important Cost Drivers in a Firm's Value Chain
-economies of scale -learning and experience -capacity utilization -input costs -production technology and design -communications systems and information technology -bargaining power -outsourcing or vertical integration -labor productivity and compensation costs
Outsourcing
-involves contracting out certain value chain activities to outside specialists and strategic allies. -A firm should guard against outsourcing activities that hollow out the resources and capabilities that it needs to be a master of its own destiny
Low-cost marketing functions
-option 1 :Use a lower-cost edge to underprice competitors and attract price-sensitive buyers in great 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
scope of the firm
-refers to the range of activities the firm performs internally, the breadth of its product and service offerings, the extent of its geographic market presence, and its mix of businesses. -Describes the breadth and strength of its activities and the extent of its reach into geographic, product and service market segments.
Five Generic Competitive Strategies
1. A low-cost provider strategy - striving to achieve lower overall costs than rivals and appealing to a broad spectrum of customers, usually by underpricing rivals. 2. A broad differentiation strategy - seeking to differentiate the company's product or service from rivals' in ways that will appeal to a broad spectrum of buyers. 3. A focused low-cost strategy - concentrating on a narrow buyer segment (or market niche) and outcompeting rivals by having lower costs than rivals and thus being able to serve niche members at a lower price 4. A focused differentiation strategy - concentrating on a narrow buyer segment ( or market niche) outcompeting rivals by offering niche members customized attributes that meet their tastes and requirements better than rival's products 5. A best cost provider strategy - giving customers more value for the money by satisfying buyers' expectations on key quality/features/performance/service attributes while beating their price expectations. This option is a hybrid strategy that blends elements of low-cost provider and differentiation strategies; the aim is to have the lowest (best) costs and prices among sellers offering products with comparable differentiating attributes
Negative Impact of Governmental Policies
1. Environmental regulations 2. Customs requirements, tariffs, and quotas 3. Local content requirements 4. limits on repatriation of local funds 5. Local ownership or partner requirements 6. Subsidies for domestic companies 7. requiring prior approval of capital spending projects
Location based cost advantages
1. Wage rates 2. Worker productivity 3. Energy costs 4. Environmental regulations 5. Tax rates 6. Inflation rates 7. Industry subsidies
Demographic differences
1. consumer tastes and preferences 2. consumer purchasing power 3. consumer buying habits 4. Distribution channel emphasis 5. Demands for localized products 6. Strength of local competitive rivalry
When a Differentiation Strategy Works Best
1.Buyer needs and uses of the product are diverse. 2.There are many ways to differentiate the product or service that have value to buyers. 3.Few rival firms are following a similar differentiation approach. 4.Technological change is fast-paced and competition revolves around rapidly evolving product features.
Delivering Superior Value via a Differentiation Strategy
1.Include product attributes and user features that lower the buyer's costs ("time is money") 2.Incorporate tangible features that improve product performance 3.Incorporate intangible features that enhance buyer satisfaction in noneconomic ways
The Two Major Avenues for Achieving Low-Cost Leadership
1.Performing essential value chain activities more cost-effectively than rivals (efficiency) 2.Revamping the firm's overall value chain to eliminate or bypass some cost-producing activities altogether -re-engineer -outsource
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 several 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.The majority of industry sales are made to a few, large-volume buyers. 6.Industry newcomers use introductory low prices to attract buyers and build a customer base.
Pitfalls to Avoid in Pursuing a Differentiation Strategy
1.Pursuing a differentiation strategy keyed to product or service attributes that are easily and quickly copied 2.Offering product features or unique attributes in which buyers see little value or are easily copied by rivals 3.Overspending on efforts to differentiate that erode profitability 4.Not establishing meaningful gaps in quality or service or performance features over the products of rivals 5.Over-differentiating so that product quality or service levels exceed buyers' needs 6.Trying to charge too high a price premium
Factors That Shape Strategy Choices in International Markets
1.The degree to which there are important country differences in buyer tastes, market sizes, and growth potential 2.Whether opportunities exist to gain a location-specific advantage based on wage rates, worker productivity, inflation rates, energy costs, tax rates, and other factors that impact cost structure 3.The risks of adverse shifts in currency exchange rates 4.The extent to which governmental policies affect the business environment
Why Companies Expand intoInternational Markets
1.To gain access to new customers 2.To achieve lower costs and enhance the firm's competitiveness 3.To further exploit its core competencies 4.To gain access to resources and capabilities located in foreign markets 5.To spread its business risk across a wider market base
Best-Cost Provider Strategies
A hybrid of low-cost provider and differentiation strategies that: •Involves giving customers more value for money by satisfying buyer expectations on key quality/features/ performance/service attributes while exceeding customer expectations on price •Creates a powerful competitive approach with value-conscious buyers looking for a good-to-very-good product or service at an economical price •Creates a "best-cost" status as the low-cost provider of a product or service with upscale attributes
Focused Differentiation Strategy
Focused differentiation strategy is keyed to offering carefully designed products or services to appeal to the unique preferences and needs of a narrow, well-defined group of buyers (as opposed to a broad differentiation strategy aimed at many buyer groups and market segments).
Entry Strategy Alternatives
In order of least risky and less profitable to most risk and most profitable. -Exporting: make it at home, ship it oversees somewhere -licensing: make it and sell technology to someone else to produce -franchising: licensing but for service industries -contract manufacturing: hire someone else to do the manufacturing overseas -offshoring: hiring people overseas to do back office work -service sector outsourcing: oversees commercial servicing -turnkey operations: company builds something overseas, then hands key over to the locals to run it -management contracting: hilton and marriot around the world -international joint ventures: requires local partners for new business -Wholly owned subsidiaries: acquire current business and running business overseas
The Danger of an Unsound Best-Cost Provider Strategy
Losing at both ends of the market: •Dual vulnerability to both low-cost providers and high-end differentiators in not having •the requisite core competencies and efficiencies in managing value chain activities to offer significantly differentiating product attributes. •features at attractive lower prices without significantly increasing costs.
Successful Competitive Strategies Are Resource Based
Low-Cost Providers •Must have the resources and capabilities to keep their costs below those of their competitors. •Must have expertise to cost-effectively manage value chain activities better than rivals. Differentiators •Must have the resources and capabilities to incorporate unique attributes that a broad range of buyers will find appealing and are will paying for. •Narrow Segment Focusers •Must have the capability to do an outstanding job of satisfying the needs and expectations of niche buyers. •Best-Cost Providers •Must have the resources and capabilities to incorporate upscale product or service attributes at a lower cost than rivals.
Employing Best-Cost Strategies
Profitable best-cost strategies are contingent on the firm having the capability to deliver attractive or upscale attributes at a lower cost than rivals through: 1.A superior value chain configuration that eliminates or minimizes activities that do not add value. 2.Unmatched efficiency in managing essential value chain activities. 3.Core competencies that allow differentiating attributes to be incorporated at a low cost.
joint venture
a type of strategic alliance that involves the establishment of an independent corporate entity that is jointly owned and controlled by the two partners. -two companies form a new third independent company
uniqueness drivers
a value chain activity or factor that can have a strong effect on customer value and creating differentiation. -input quality -innovation and technological advances -product features, design and performance -production R&D -continuous quality improvement -employee skills, training experience -marketing and brand building -customer service
A company's competitive strategy
deals exclusively with the specifics of management's game plan for competing successfully. Biggest factors: - whether a company's market target is broad or narrow -whether the company is pursuing a competitive advantage linked to lower costs or differentiation
Defensive strategies defend against competitive challenges by:
•Lowering the risk of being attacked. •Weakening the impact of any attack that occurs. •Influencing challengers to aim their competitive efforts at other rivals.
Best Targets for Offensive Attacks
•Market leaders that are vulnerable. •Runner-up firms with weaknesses in areas where the challenger is strong. •Struggling enterprises that are on the verge of going under. •Small local and regional firms with limited capabilities.
Principal Offensive Strategy Options
•Offer an equally good or better product at lower price. •Leapfrog competitors by being the first to market with next generation technology or products. •Pursue continuous product innovation to draw sales and market share away from less innovative rivals. •Pursue disruptive product innovations to create new markets. •Adopt and improve on the good ideas of other firms (rivals or otherwise). •Use hit-and-run or guerilla warfare tactics to grab sales and market share from complacent or distracted rivals. •Launch a preemptive strike to capture a rare opportunity or secure an industry's limited resources. •Secure the best distributors in a particular geographic region or country. •Secure the most favorable retail locations. •Tie up the most reliable, high-quality suppliers via exclusive partnerships, long-term contracts, or even acquisition.
Late-mover advantages (or first-mover disadvantages) arise when:
•Pioneering builds its reputation and strong brand loyalty. •First mover's customers will face significant switching costs. •Property rights protections thwart rapid imitation of its initial move. •An early lead enables it to move down the learning curve ahead of its rivals. •A first mover can set the technical standard for the industry.
When a Best-Cost Provider Strategy Works Best
•Product differentiation is the norm. •Large numbers of value-conscious buyers can be induced to purchase economically-priced mid-range products and services, especially during recessionary times. •A provider can offer either a medium-quality product at a below-average price or a high-quality product at an average or slightly higher-than-average price.
Signaling challengers that retaliation is likely
•Publicly announce management's strong commitment to maintain the firm's present market share. •Publicly commit firm to policy of matching rivals' terms or prices. •Maintain a war chest of cash reserves. •Make occasional strong counter-response to moves of weaker rivals.
Activities That Enhance Differentiation
•Seeking out high-quality inputs •Striving for innovation and technological advances •Creating superior product features, design, and performance •Production-related research and development activities •Pursuing continuous quality improvement •Emphasizing human resource management activities •Emphasizing marketing and brand-building activities •Improving customer service or adding additional services
Reengineering the firm's value chain by:
•Selling directly to consumers and cutting out the activities and costs of distributors and dealers •Streamlining operations by eliminating low value-added or unnecessary work steps and activities •Collaborating with suppliers to improve supply chain efficiency by reducing materials handling, shipping and inventory costs
Aggressive offensives are called for when a firm:
•Spots opportunities to gain profitable market share at the expense of rivals. •Has no choice but to try to whittle away at a strong rival's competitive advantage. Can reap benefits of a competitive edge offers—a leading market share, excellent profit margins, and rapid growth **The best offensives use a firm's resource strengths to attack its rivals' weaknesses.
When a Focused Low-Cost or Focused Differentiation Strategy Is Viable
•The target market niche is big enough to be profitable and offers good growth potential. •Market leaders have chosen not to compete in the niche—focusers can avoid battling head-to-head against the biggest and strongest competitors. •It is costly or difficult for multi-segment competitors to meet the specialized needs of niche buyers and at the same time satisfy the expectations of mainstream customers. •The market has many different niches and segments, allowing a focuser to pick a niche suited to its strengths and capabilities. •Few rivals attempt to specialize in the same target segment.
Three sources of flexibility useful for this strategy:
■ Flexible manufacturing systems (FMS) (mass customization) ■ Information networks ■ Total quality management (TQM) systems AND .....creative design or marketing
