Competitive Strategies

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Competitive Strategies
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Competitive Strategies

• Integration Strategies
• Intensive Strategies
• Defensive strategies
• Porters 3 Generic Strategies

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Business Strategies
Business Strategy Focuses on improving the
competitive position of a companys or business
units products or services within the specific
industry or market segment that the firm serves.
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Competitive Advantage

• Key concept of strategic management
• Sets an organization apart
• What competitive strategies are designed to
  exploit
• Implies other competitors
• Can be eroded easily and quickly by competitors

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Backward Integration Forward Integration
Horizontal Integration
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Integration Strategies
Forward Integration Backward Integration Horizon
tal Integration
Vertical Integration Strategies
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Integration Strategies

• Vertical Integration strategies
• Allow a firm to gain control over
• Distributors
• Suppliers
• competitors

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Integration Strategies

• Forward Integration
• Gaining ownership or increased control over
  distributors or retailers

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Integration Strategies

• Guidelines for Forward Integration
• Present distributors are expensive, unreliable,
  or incapable of meeting firms needs
• Availability of quality distributors is limited
• When firm competes in an industry that is
  expected to grow markedly
• Organization has both capital and human resources
  needed to manage new business of distribution
• Advantages of stable production are high
• Present distributors have high profit margins

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Integration Strategies

• Backward Integration
• Seeking ownership or increased control of a
  firms suppliers

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Integration Strategies

• Guidelines for Backward Integration
• When present suppliers are expensive, unreliable,
  or incapable of meeting needs
• Number of suppliers is small and number of
  competitors large
• High growth in industry sector
• Firm has both capital and human resources to
  manage new business
• Advantages of stable prices are important
• Present supplies have high profit margins

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Integration Strategies

• Horizontal Integration
• Seeking ownership or increased control over
  competitors

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Integration Strategies

• Guidelines for Horizontal Integration
• Firm can gain monopolistic characteristics
  without being challenged by federal government
• Competes in growing industry
• Increased economies of scale provide major
  competitive advantages
• Faltering due to lack of managerial expertise or
  need for particular resources

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Intensive Strategies
Market Penetration Market Development Product
Development
Intensive Strategies
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Intensive Strategies

• Intensive strategies
• Require intensive efforts to improve a firms
  competitive position with existing products

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Intensive Strategies

• Market Penetration
• Seeking increased market share for present
  products or services in present markets through
  greater marketing efforts

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Intensive Strategies

• Guidelines for Market Penetration
• Current markets not saturated
• Usage rate of present customers can be increased
  significantly
• Market shares of competitors declining while
  total industry sales increasing
• Increased economies of scale provide major
  competitive advantages

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Intensive Strategies

• Market Development
• Introducing present products or services into new
  geographic area

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Intensive Strategies

• Guidelines for Market Development
• New channels of distribution that are reliable,
  inexpensive, and good quality
• Firm is very successful at what it does
• Untapped or unsaturated markets
• Capital and human resources necessary to manage
  expanded operations
• Excess production capacity
• Basic industry rapidly becoming global

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Intensive Strategies

• Product Development
• Seeking increased sales by improving present
  products or services or developing new ones

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Intensive Strategies

• Guidelines for Product Development
• Products in maturity stage of life cycle
• Competes in industry characterized by rapid
  technological developments
• Major competitors offer better-quality products
  at comparable prices
• Compete in high-growth industry
• Strong research and development capabilities

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Diversification Strategies
Concentric Diversification Conglomerate
Diversification Horizontal Diversification
Diversification Strategies
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Diversification Strategies

• Diversification strategies
• Becoming less popular as organizations are
  finding it more difficult to manage diverse
  business activities

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Diversification Strategies

• Concentric Diversification
• Adding new, but related, products or services

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Diversification Strategies

• Guidelines for Concentric Diversification
• Competes in no- or slow-growth industry
• Adding new related products increases sales of
  current products
• New related products offered at competitive
  prices
• Current products are in decline stage of the
  product life cycle
• Strong management team

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Diversification Strategies

• Conglomerate Diversification
• Adding new, unrelated products or services

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Diversification Strategies

• Guidelines for Conglomerate Diversification
• Declining annual sales and profits
• Capital and managerial talent to compete
  successfully in a new industry
• Financial synergy between the acquired and
  acquiring firms
• Existing markets for present products are
  saturated

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Diversification Strategies

• Horizontal Diversification
• Adding new, unrelated products or services for
  present customers

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Diversification Strategies

• Guidelines for Horizontal Diversification
• Revenues from current products/services would
  increase significantly by adding the new
  unrelated products
• Highly competitive and/or no-growth industry
  w/low margins and returns
• Present distribution channels can be used to
  market new products to current customers
• New products have counter cyclical sales patterns
  compared to existing products

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Defensive Strategies
Retrenchment Divestiture Liquidation
Defensive Strategies
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Defensive Strategies

• Retrenchment
• Regrouping through cost and asset reduction to
  reverse declining sales and profit

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Defensive Strategies

• Guidelines for Retrenchment
• Firm has failed to meet its objectives and goals
  consistently over time but has distinctive
  competencies
• Firm is one of the weaker competitors
• Inefficiency, low profitability, poor employee
  morale, and pressure from stockholders to improve
  performance.
• When an organizations strategic managers have
  failed
• Very quick growth to large organization where a
  major internal reorganization is needed

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Defensive Strategies

• Divestiture
• Selling a division or part of an organization

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Defensive Strategies

• Guidelines for Divestiture
• When firm has pursued retrenchment but failed to
  attain needed improvements
• When a division needs more resources than the
  firm can provide
• When a division is responsible for the firms
  overall poor performance
• When a division is a misfit with the organization
• When a large amount of cash is needed and cannot
  be obtained from other sources.

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Defensive Strategies

• Liquidation
• Selling all of a companys assets, in parts, for
  their tangible worth

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Defensive Strategies

• Guidelines for Liquidation
• When both retrenchment and divestiture have been
  pursued unsuccessfully
• If the only alternative is bankruptcy,
  liquidation is an orderly alternative
• When stockholders can minimize their losses by
  selling the firms assets

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Porters Competitive Strategies

• Competitive Strategy
• Low cost?
• Differentiation?
• Compete head to head in large market?
• Focus on niche?

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Porters Generic Competitive Strategies
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Porters Competitive Strategies

• Cost Leadership
• Low-cost competitive strategy
• Aimed at broad mass market
• Aggressive construction of efficient-scale
  facilities
• Cost reductions
• Cost minimization

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Porters Competitive Strategies

• Differentiation
• Broad mass market
• Unique product or service
• Charge premiums
• Lower customer sensitivity to price

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Porters Competitive Strategies

• Differentiation focus
• Focus on particular group or geographic market
• Seek differentiation in targeted market segment
• Serve special needs of narrow target market

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Porters Competitive Strategies

• Stuck in the middle
• No competitive advantage
• Below-average performance

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Risks of Generic Competitive Strategies
Risks of Cost Leadership Cost leadership is not
sustained Competitors imitate. Technology
changes. Other bases for cost leadership
erode. Proximity in differentiation is lost. Cost
focusers achieve even lower cost in segments.
Risks of Differentiation Differentiation is not
sustained Competitors imitate. Bases for
differentiation become less important to
buyers. Cost proximity is lost. Differentiation
focusers achieve even greater differentiation in
segments.
Risks of Focus The focus strategy is
imitated The target segment becomes structurally
unattractive Structure erodes. Demand
disappears. Broadly targeted competitors
overwhelm the segment The segments
differences from other segments narrow. The
advantages of a broad line increase. New
focusers subsegment the industry.
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Integrated Low- Cost Differentiated Strategy

• Question the mutual exclusivity of Porters 3
  generic strategies
• Examples
• Dell
• McDonalds
• SouthWestern Airlines
• Why? Technology
• Able to manufacture, market products and services
  easily and cheaply