Competitive Strategy

Competitive Strategy ARVIND GUPTA

Introduction  Having a competitive advantage is necessary for a firm to compete in the market  But what is more important is whether the competitive advantage is sustainable  A firm must identify its position relative to the competition in the market  By knowing if it is a leader, challenger, follower or nicher, it can adopt appropriate strategies to compete

Sustainable Competitive Advantage  A good strategist seeks not only to “win the hill, but hold on to it.” Subash Jain  Sustaining competitive advantage requires erecting barriers against the competition  Aakers suggested looking at the following:

 How you compete  Basis of competition  Where you compete  Whom you are competing against

Examples of SCA  For many years, Singapore Airlines were riding

on its SCA of having the best in-flight service  As more airlines improved their service and narrowed the gap, SIA sought other competitive advantages among which are

 The most modern fleet  Outstanding Service on the Ground  A super entertainment system in its cabins  Comfort in its First Class cabins at an unparallel level

Sun Tze’s defensive strategy “Do not assume the enemy will not come but be prepared for his coming… Do not presume he will not attack, but instead make your own position unassailable.”

Sun Tze’s Offensive Strategies  Overt-offensive strategy

 To knock out a business rival so as to take over

his company  To knock out a competing product so as to take over its market share

 Covert-offensive strategy

 Keep as low a profile as possible while making offensive moves

Strategies for Market Leaders Market Leader’s objectives:  Expand the total market by

 Finding new users  Creating new uses, and  Encouraging more usage

 Protect its current market share by

 Adopting defense strategies (see following slides)

 Increase its market share

 Note the relationship between market share and profitability

Which strategy to use? Depends on your answer to the following:  Is it worth fighting?  Are you strong enough to fight?  How strong is your defense?  Do you have any choice but to fight?

Hypothetical Market Structure & Strategies Market leader

Market challenger

40% 40%

30% 30%

Expand Market Defend Market Share Expand Market Share

Attack leader Status quo

Market Market follower nicher

20% 20%

10% 10%

Imitate

Specialize

Defense Strategies (2)Flank Flank (2)

ATTACKER ATTACKER

(3) Preemptive Preemptive (3) defense defense (4) CounterCounter(4) offense offense

(1) Position DEFENDER DEFENDER (5) (5) Mobile Mobile

(6) (6) Contraction Contraction

Defense Strategy  A market leader should generally adopt a defense strategy  Six commonly used defense strategies

 Position Defense  Mobile Defense  Flanking Defense  Contraction Defense  Pre-emptive Defense  Counter-Offensive Defense

Defense Strategy (cont’d) Position Defense  Least successful of the defense strategies  “A company attempting a fortress defense will find itself retreating from line after line of fortification into shrinking product markets.” Saunders (1987)  e.g. Mercedes was using a position defense strategy until Toyota launched a frontal attack with its Lexus.

Defense Strategy (cont’d) Mobile Defense  By market broadening and diversification  For marketing broadening, there is a need to

 Redefine the business (principle of

objective), and  Focus efforts on the competition (the principle of mass)

Defense Strategy (cont’d) Flanking Defense:  Secondary markets (flanks) are the weaker areas and prone to being attacked  Pay attention to the flanks

Defense Strategy (cont’d) Contraction Defense

 Withdraw from the most vulnerable

segments and redirect resources to those that are more defendable  By planned contraction or strategic withdrawal  e.g. India’s TATA Group sold its soaps and detergents business units to Unilever in 1993

Defense Strategy (cont’d) Pre-emptive Defense

 Detect potential attacks and attack the enemies first  Let it be known how it will retaliate  Product or brand proliferation is a form of pre-emptive defense e.g. Seiko has over 2,000 models

Defense Strategy (cont’d) Counter-Offensive Defense

 Responding to competitors’ head-on

attack by identifying the attacker’s weakness and then launch a counter attack  e.g. Toyota launched the Lexus to respond to Mercedes attack

Market Challenger Strategies The market challengers’ strategic objective is to gain market share and to become the leader eventually How?  By attacking the market leader  By attacking other firms of the same size  By attacking smaller firms

Market Challenger Strategies (cont’d) Types of Attack Strategies

 Frontal attack  Flank attack  Encirclement attack  Bypass attack  Guerrilla attack

Attack Strategies (4) Bypass attack (2) Flank attack (1) Frontal attack Attacker

Defender (3) Encirclement attack

(5) Guerilla attack

Specific Attack Strategies  Price-discount  Cheaper goods  Prestige goods  Product proliferation  Product innovation  Improved services  Distribution innovation  Manufacturing cost reduction  Intensive advertising promotion

Frontal Attack  Seldom work unless

 The challenger has sufficient fire-power (a 3:1 advantage) and staying power, and  The challenger has clear distinctive advantage(s)

 e.g. Japanese and Korean firms

launched frontal attacks in various ASPAC countries through quality, price and low cost

Flank attack  Attack the enemy at its weak

points or blind spots i.e. its flanks  Ideal for challenger who does not have sufficient resources

Encirclement attack  Attack the enemy at many fronts

at the same time  Ideal for challenger having superior resources  e.g. Seiko attacked on fashion, features, user preferences and anything that might interest the consumer

Bypass attack  By diversifying into unrelated

products or markets neglected by the leader  Could overtake the leader by using new technologies  e.g. Pepsi use a bypass attack strategy against Coke in China by locating its bottling plants in the interior provinces

Guerrilla attack  By launching small, intermittent

hit-and-run attacks to harass and destabilize the leader  Usually use to precede a stronger attack  e.g. airlines use short promotions to attack the national carriers especially when passenger loads in certain routes are low

Which Attack Strategy should a Challenger Choose? Use a combination of several strategies to improve market share over time

Market-Follower Strategies  Theodore Levitt in his article,

“Innovative Imitation” argued that a product imitation strategy might be just as profitable as a product innovation strategy e.g. Product innovation--Sony Product-imitation--Panasonic

Market-Follower Strategies (cont’d)  Each follower tries to bring distinctive

advantages to its target market--location, services, financing  Four broad follower strategies:

 Counterfeiter (which is illegal)  Cloner e.g. the IBM PC clones  Imitator e.g. car manufacturers imitate the style of one another  Adapter e.g. many Japanese firms are excellent adapters initially before developing into challengers and eventually leaders

Market-Nicher Strategies  Smaller firms can avoid larger firms

by targeting smaller markets or niches that are of little or no interest to the larger firms e.g. Logitech--mice Microbrewers--special beers

Market Follower Strategies  Counterfeiter  Cloner  Imitator  Adapter

Nichemanship  End-user specialist  Vertical-level specialist  Customer-size specialist  Specific-customer specialist  Geographic specialist  Product or product-line specialist  Product-feature specialist  Job-shop specialist  Quality-price specialist  Service specialist  Channel specialist