Strategic Management :Module -3

Grand Strategies: Generic, Aggressive and Defense Strategies,

Competitive Strategies for domestic and Global Business, Modes of
Strategy Selection Expansion, Retrenchment, Stability, Conglomerate
Strategies and Variants, Mergers, Acquisition Diversification,
integration, Disinvestment Turnaround, and Related Contemporary,
Neo-generic Strategies,

The Grand Strategies

When the managers are able to complete their environmental analysis
and appraisal of their strengths, they are in a position to identify what
alternatives strategies are available for them in the light of their
organizational mission. The Grand Strategies are also called as Master
strategies or corporate strategies. According to Glueck there are
basically four grand strategies alternatives: 1. Stability 2.Growth
/expansion 3.Retrenchment 4.Combination

1.Stability
Stability strategy implies continuing the current activities satisfied with
the same market share, satisfied with the improvements of functional
performance and the management does not want to take any risks that
might be associated with expansion growth.

Stability strategy is adopted by company due to following reasons –

1. When the company plans to consolidate its position in the industry in
which company is operating.
2. When the economy is in recession then companies want to have more
cash in their balance sheet.
3. When company has too much debt in the balance sheet
4. When the company is operating in an industry which has reached
maturity phase.
5. When the gains from expansion plans are less than the costs involved
for such expansion

Examples SAIL, Steel Authority of India has adopted stability strategy

because of over capacity in steel sector. Instead it has concentrated on
increasing operational efficiency Other industries ‘heavy commercial
vehicle’, ‘coal industry’. Cigarette, liquor industries fall in this category
because of strict control by government.
Profit Strategy • Firms adopting this strategy decide to follow the same
technology, at least partially, while transiting into new technological
domains. Eg.Sylvania, RCA, and GE decided to stay in the vacuum tube
market until the “end of the game.”
2. Growth/expansion
Growth strategies are the most widely pursued corporate strategies to
grow to survive.

Growth strategies can be divided into three broad categories: 1.Intensive

strategies 2.Integration strategies 3.Diversification strategies

1. Intensive strategies: to attract customers by intensive advertising and

by realigning the product and the market options available to the
organization.

There are three important intensive strategies:

a) Market penetration-seeks to increase market share for existing
products in the existing markets through greater marketing efforts.
Gillette entered the Indian market in 1984 and launched its newest triple-
blade system, Mach3 in 2004, KFC has created awareness among people
store ambience, friendliness of the staff, and inclination towards the
brand and store location German car manufacturer, Audi, has proved to
be a major competitor within the prestige car category

b).Market development-seeks to increase market share by selling the

present products in the new market. Bharti Airtel, L.G electronics, Idea
cellular,
C. Product development-seeks to increase market share by developing
new or improved products for present markets. Kellogg’s improved its
rowth strategy by changing the packaging and product to be more

attractive to the Indian consumers.

B. Integration
Integration basically means combining activities relating to the present
activity of a firm. A company performs a number of activities to
transform an input to output. These activities include right from the
procurement of raw materials to the production of finished goods and
their marketing and distribution to the ultimate customers.

There are two types of integration:

Horizontal integration: When a company wishes to grow through

a horizontal integration, it looks out to acquire a similar companies in
the same industry in which it operates. the biggest examples of
horizontal integrationis of Facebook’s acquisition of Instagram in 2012
Both Facebook and Instagram work in the same sector of social media
and were in similar business such as photo-sharing services. Another
horizontal integration is example is of Tata Steel’s acquisition of Corus

in 2007,

Vertical Integration: The degree to which a firm owns its upstream

suppliers and its downstream buyers is referred to as vertical
integration. That's the process businesses use to turn raw material into a
product and get it to the consumer early.
There are two types of vertical integration. Forward and backward
integration. Forward integration is an operational strategy implemented
by a company that wants to increase control over its suppliers,
manufacturers or distributors, so it can increase its market power. For
a forward integration to be successful, a company needs to gain
ownership over other companies that were once customers. This differs
from backward integration in which a company tries to increase
ownership over companies that were once its suppliers. An example is
when a movie distributor, such as Netflix, also manufactures content.

Examples Alibaba, a Chinese-based company, has implemented

vertical integration, 20th Century Fox, Paramount Pictures,
and R. MGM, Warner BrothersKO studios were fully integrated, not
only producing and distributing films, but also operating their
own movie theaters McDonald's is one of the cheapest fast food joints
in the world ArcelorMittal, following the trend of vertical integration,
owns both coal and iron ore mines. Starting with trading in textiles and
yarn, Reliance corporation went into manufacturing (textiles), and then
integrated backward from textiles to polyester yarn and fibre. Since
yarn and fibre were manufactured from petrochemicals (purefied
terephthalic acid), he went into petrochemicals and plastics
(polyethylene, polypropylene, PVC, paraxylene, ethylene, etc). The need
to make petrochemicals took them further backwards to petroleum
refining and retailing, which then took him further to oil and gas
exploration. Henry Ford tried stockpiling parts and materials, but found
that the inventory costs were too high. Andrew Carnegie was the first
to encourage the idea of Vertical combination and gained control over
steel industry took over smaller railroad companies.

Advantages of vertical integration:

1. Reduce transportation costs if common ownership results in closer

geographic proximity.

2. Improve supply chain coordination.

3. Provide more opportunities to differentiate products by means of
increased control over inputs.

4. Capture upstream or downstream profit margins.

5. Increase entry barriers to potential competitors, for example, if the

firm can gain sole access to a scarce resource.

6. Gain access to downstream distribution channels that otherwise would

be inaccessible.

7. Facilitate investment in highly specialized assets in which upstream or

downstream players may be reluctant to invest.

8. Lead to expansion of core competencies.

Drawbacks of Vertical Integration

1. Quantity required from a supplier is much less than the minimum

efficient scale for producing the product.
2. The product is a widely available commodity and its production cost
decreases significantly as cumulative quantity increases.
3. The core competencies between the activities are very different.
4. The vertically adjacent activities are in very different types of
industries. For example, manufacturing is very different from retailing.
5. The addition of the new activity places the firm in competition with
another player with which it needs to cooperate. The firm then may be
viewed as a competitor rather than a partner
Alternatives to Vertical Integration
There are alternatives to vertical integration that may provide some of
the same benefits with fewer drawbacks. The following are a few of
these alternatives for relationships between vertically-related
organizations:
Long-term explicit contracts
franchise agreements
joint venturesco-location of facilities
implicit contracts (relying on firms' reputation)

C. Diversification strategies
It is the process of adding new business to existing business of the
company. In other words, diversification adds new products or markets
in the existing ones. The diversification strategy is concerned with
achieving a greater market from a greater range of products in order to
maximize profits.

Types of diversifications:

Concentric diversification- adding to new but related business is called

concentric diversification. It involves acquisition of businesses that are
related to the acquiring firm in terms of technology, markets or product.
Advantages of concentric integration
1.utilize existing competencies and abilities to launch new product or
service rather than having to start from scratch, pizza restaurant, doesn’t
require additional investment to serve pasta and calzones, since the basic
ingredients are same for both pizza and calzones and pasta dishes.
2. Enables Business Synergy
Smaller departments or division can achieve larger goals than would be
possible as separate entities. Companies achieve resource sharing,
operational combinations and knowledge transfers.

3. A concentric strategy creates a strategic fit as a result of developing

complementary products or services. Pizza restaurant, the owner by
buying other local pizza restaurants increased product distribution and
expanding into new market areas, could employ a differentiation
strategy in which some of the restaurants offer entertainment such as
video games and live music..
4. Increases Market Share and cross-selling: Companies now sell
other menu items can increase the frequency of your existing
customers via a phenomenon known as cross-selling.
Helps in increasing the market share of any firm or business
"Maggi" is a favorite because of the addition of various flavors due to
technology related concentric diversification.
5. Achieve Economies of Scale
As the company is spreading those costs for more customers businesses
only incur additional variable costs and avoid the costs associated with
purchasing and implementing new technology.
6. New Products or Services
Enables companies to use their existing resources to develop new
products and services for the related industry, Eg: media buying
7. Expansion
Companies like Mooc, Khan academy, you tube etc expand their
operations to new geographies
8. Resource Sharing:
Companies achieve economies of scale and reduce costs.Eg: a metals
distributor who needs a larger warehouse may contract with a
manufacturing company that has a processing facility with extra space
and just-in-time principles

.9. Strategic Partnerships

By combining skills and resources, companies can form a wholly
separate but related business known as a joint venture. Eg: a billing
software company with strong ties to the energy industry may
strategically partner with a much larger customer relationship
management, or CRM, software company.

10. Acquisitions ; Companies also concentrically diversify through

mergers and acquisitions by purchasing companies – either the
company’s assets or stock. Coke purchased several beverage
manufacturers like Vitamin Water, Honest Tea, Fuze Beverage and Core
Power etc. Burger King and Pizza Hut -- purchased large quantities of
soft drinks because their patrons often drank Pepsi and other soft drinks
with their meals.

Conglomerate diversification-

Conglomerate diversification- Conglomerate diversification occurs

when a firm diversifies into areas that are unrelated to its current line of
business.
There are two main types of conglomerate mergers – the pure
conglomerate merger and the mixed conglomerate merger. The pure
conglomerate merger is one where the merging companies are doing
businesses that are totally unrelated to each other.
The mixed conglomerate mergers are ones where the companies that
are merging with each other are doing so with the main purpose of
gaining access to a wider market and client base or for expanding the
range of products and services that are being provided by them
There are also some other subdivisions of conglomerate mergers like the
financial conglomerates, the concentric companies, and the
managerial conglomerates.
Advantages of Conglomerate diversification:
1. To bring synergy: For better A combined entity always performs
better than each individual entity. It brings synergies by increasing the
sales and revenue of the combined entity.
2. Utilization of excess cash:

. When a business has excess cash but does not have enough
opportunity to expand in its sector, then the business invests such
excess cash into another company of different sector to utilize the
idle funds.

3. Improves customer base: With this type of merger, the company can
cross-sell its products to the customers of the other company to increase
the sales and profits.
4. Utilization of Human resource: The business has the option to utilize
the managers from different sectors into its business, whenever the need
arises.
5. Economies of scale: Various costs of business like Research and
development costs, cost of advertising, etc. are spread out to numerous
business units. It helps in reducing the production cost per unit and helps
in achieving economies of scale.
6. Due to diversification, conglomerates can reduce their investment
risk
7. These structures can create a capital market within the group to allow
growth of the conglomerate.
8. A conglomerate can grow by acquiring companies, whose shares are
more discounted, thereby showing growth in earnings
Disadvantages Conglomerate merge:
1. GOVERNANCE ISSUE: When two companies will different
background, accounting methods and governance are big issues can
create problem for the management.

2. Shift in focus: When two unrelated companies merge they need lot
understanding of the new business sector, operations, shifting their focus
from core business activity to other business areas which can lead to
poor performance in all the sectors.
3.Probably the biggest disadvantage of a conglomerate diversification
strategy is the increase in administrative problems associated with
operating unrelated businesses. Managers from different divisions may
have different backgrounds and may not work together effectively.
4. Conglomerates have become slow-moving as they are overloaded
with debts, and unrelated businesses keep demanding lots of equity to
grow. Management costs increases due to size of the group
5. Conglomerates have to face many accounting-related problems, for
example, consolidation and group disclosures, etc.
Taxation of group structure reduces the taxation benefits
6.There is no development of the innovation due to inertia
Focus is lost, and it is difficult to manage unrelated and well-diversified
business effectively

7. In the past, their sheer size was an advantage, since that gave
investors comfort that their loans or equity investments were safe. But
now the Reserve Bank of India is forcing banks to resolve bad debts by
appealing to the National Company Law Tribunal, which administers the
Insolvency and Bankruptcy Code.

8 .Banks will lose money while resolving debts, but so will investors,
and this means conglomerates have to downsize and focus in order to
restore their old standing with lenders and investors..
9.Competition between strategic business units for resources may entail
shifting resources away from one division to another. Such a move may
create rivalry and administrative problems between the units.
10.Without some form of strategic fit, the combined performance of the
individual units will probably not exceed the performance of the units
operating independently. Indian conglomerates: 
India Today Group.Living MediaAAaj TakAajtak TezBPunya Prasun
Bajpai
Mahindra Aerospace, Mahindra & Mahindra, Mahindra Financial
Services Limited, Mahindra ElectricMahindra Group, Mahindra Renault,
Mahindra Tractors, Mahindra Two Wheelers, Mahindra Steel, Kirloskar
Group. Aditya Birla. ...Bharati Airtel. ...ICICI Bank.
......Godrej. The Godrej Group is

The Retrenchment Strategies

The Retrenchment Strategy is adopted when an organization aims at reducing its one or more
business operations with the view to cut expenses and reach to a more stable financial position.
Typically the strategy involves withdrawing from certain markets or the discontinuation of
selling certain products or service in order to make a beneficial turnaround. There are three types
Turnaround Strategies, Divestment Strategies and
of retrenchment strategies –
Liquidation strategies.

\ 1. Turnaround strategies

Turnaround strategies • Turn around strategies as the name suggests, reversing a

negative trend. Corporate turnaround or turnaround management is the process of transforming a
loss-making company into a profit-making. Corporate turnaround is structured, well-planned and
methodological approach achieved by following a step-by-step approach that takes time,
investment and the participation of people.

There are certain conditions or indicators for which point out that a turnaround is needed for the
firm
to survive.
Internal causes:

Persistent negative cash flow

Over manpower and low morale
Uncompetitive products or services
Mismanagement
High employee attrition rate
Deterioration in physical facilities
 Ignorance of new trends –
Poor strategic choices
High operating costs
High fixed costs
Insufficient resources
Unsuccessful R&D projects
Excessive debt burden

External causes

 Sudden and unexpected increase in the prices of supply.

New aggressive competitors –
 Changes in the market demand
 current condition of the market or economy.
 Declining market share
 Overly optimistic sales projections
 Suppliers starting to push for faster payments

 3 basic components or requirements for a corporate turnaround:
1. The basic strength: reliable employees with enough goodwill and understanding.

2. Short-term financing: to have enough cash flow to bring back the business on its feet
again.

3. Resources and skills: Must have access to both intangible and tangible resources as well as
skills. The principal aim is to save the company quickly from any immediate danger of
liquidation, and to focus on activities and tasks to restore stability.

Effecive Corporate Turnaround Strategies

In order to achieve this the firm needs-

1. Management change –recognizing that change and then initiating a corporate
turnaround program. Often a company will bring in an external turnaround specialist or a new
Chief Executive Officer (CEO) specifically to make the challenging and controversial decisions
required to restructure the business. The advantages of bringing in an external specialist are that:
1. They have experience and proven turnaround techniques. 2. They are not part of the
organization’s hierarchy nor emotionally associated with the company’s previous business
decisions and hence they will act more freely. At this stage even CEO, CFO and board members
or any senior managers who might obstruct the turnaround effort may be removed.

2. Business review – the company must quickly identify the underlying problems. This
includes a thorough assessment of:
Strategy – does the organization have a clear and deliverable strategy in the right markets?

Operations –Are the products or services being provided in the most effective possible manner
and at the lowest possible cost? Is there waste in the organisation’s processes?

Finances –Does it have sufficient lines of credit or access to funding? Does the business have
effective budgetary control? Is the business managing its working capital? •
Infrastructure/people – does the organization have the right organizational structure in
response to changing market conditions? Is the organization over staffed? Does it have the right
people with the right skills?

Commitment and capacity to change: Is the organization capable of dealing with the
significant (and often painful) adjustments that may be needed? An early diagnosis of the root
causes of the problem critical to recovery.
3. Business restructuring plan –will include
• restructure outstanding debt obligations
• reduce operating
• improve management of working capital
• enhance product pricing and customer mix
• streamline product lines
• accelerate growth of high potential products.

The plan must then be communicated to all key stakeholders in the business, including the banks,
key suppliers and creditors to gain credibility and restore confidence.

4. Implementation –may include:

• making redundancies
• eliminating departments
• drastically reducing all non-essential costs. Positive cash flow is critical and must be
established as quickly as possible.
Often, unprofitable business units or operations are sold as a means to raise cash.

5. Stabilization –the main focus is on financial efficiency and effectiveness of the

remaining business operations. This is often the hardest stage in improving return on investment

6. Bring in change – the final stage with the company gradually returning to financial health.
Management behavior, reward and compensation systems focus on profitability, return on
investment and value creation. To achieve long-term sustainability and growth, the organization
may develop new markets, new products or strategic alliances • improve customer service or
enhance product quality • Finally, the organization will need to rebuild morale and positive
corporate culture for continuous improvement, lean thinking and long-term profitability.

2. Divestment strategy
 A divestment strategy involves the sale or liquidation of a portion of business, or a major
division. Profit centre or SBU. Divestment is usually a part of rehabilitation or restructuring plan
and is adopted when a turnaround has been attempted but has proved to be unsuccessful.

Reasons for Divestment

1. Divest to Obtain Funds
In times of financial difficulties, instead of putting money in a poorly performing subsidiary or
unit, businesses choose to sell assets or close subsidiary operations to save money and prevent
insolvency or liquidation of the mother company.

2. Focusing on Primary Business

In the early 1980s, the acquisition or takeover of smaller companies by conglomerates became
the business trend.. Today one of the common reasons corporations spin off, sell or close non-
related units is to utilize all their resources for building up the main business and maximize
profitability.

3. Prevention of Monopoly

There are times when companies are compelled to divest because of legal issues. Governments
allow divestment in order to maintain fair trade and prevent monopolistic practices
4. Availability of Other Investment Opportunities

companies to divert their resources from a not-so-profitable business unit to one that promises a
higher rate of return on the same amount of investment.

5. Inability to Achieve Synergy or Strategic Fit

Divestment is a good option for a company to consider when a business line or SBU no longer
helps to achieve Synergy or Strategic This is common when a conglomerate decides to
restructure or change its focus, especially after management changes.

6. Social or Political Reasons

When there is public demand for businesses to cease their operations or sell off investments in
areas where there are socio-political tensions then a conglomerate may be forced to get rid of
certain business units.

 Lastly a firm may divest in order to attract the provisions of the MRTP Act or owing to oversize
and the resultant inability to manage a large business.

Eg: TATA group identified their non – core businesses for divestment. TOMCO was divested
and sold to Hindustan Levers Similarly, the pharmaceuticals companies of the Tatas- Merind and
Tata pharma were divested to Wockhardt. The cosmetics company Lakme was divested and sold
to Hndustan Levers’
 3.Liquidation strategy
The Liquidation Strategy is the most unpleasant strategy adopted by the organization
that includes selling off its assets and the final closure or winding up of the business
operations.

It involves serious consequences -a sense of failure, loss of future opportunities, spoiled

market image, loss of employment for employees, non-availability of buyers and also
may not get adequate compensation for most of its assets etc.

Reasons to follow this strategy:

1.Failure of corporate strategy

 2.Continuous losses
 3.Obsolete technology
 4.Outdated products/processes
 5.Business becoming unprofitable
 6.Poor management
 7.Lack of integration between the divisions
Generally, small sized firms, proprietorship firms and the partnership firms follow the
liquidation strategy more often than a company.

There are three different types of Liquidation.\

A Creditors' Voluntary Liquidation ("CVL")

A Creditors' Voluntary Liquidation ("CVL") is an insolvent Liquidation,

meaning a company is unable to pay its debts i.e. is considered
insolvent.
Members’ Voluntary Liquidation ("MVL")
A Members' Voluntary Liquidation ("MVL") is a solvent Liquidation,
meaning a company is able to pay its debts in full, together with interest.
This procedure is usually used when the shareholders of a company wish
to retire, realise their investment or where the company is surplus to
requirements.
 Compulsory Liquidation
Finally, a court can make a winding-up order on the petition of an
unpaid creditor or the company itself, its director or shareholders. This is
known as compulsory Liquidation. As this is a court process, you will
not be able to use Liquidations Online to commence a compulsory
Liquidation. However, if you have received a threat of a petition or a
petition itself, we may be able to help you if contact is made at an early
stag

Michael Porter’s Five forces model

Five forces model was created by Michael. Porter in 1979 to understand how five
key competitive forces are affecting an industry

In the Five force model Porter classifies five main competitive forces that affect
any market and all industries. It is these forces that determine how much
competition will exist in a market and consequently the profitability and
attractiveness of this market for a company.
These forces, termed as the micro environment by Porter, influence how a
company serves its target market and whether it is able to turn a profit. Any change
in one of the forces might mean that a company has to re-evaluate its environment
and realign its business practices and strategies.
The five forces identified by Porter are divided into:

 Horizontal forces: Threat of substitutes, threat of new entrants, competitive

rivalry
 Vertical forces: Bargaining power of buyers and bargaining power of customers
1. Threat of new Entrants
If an industry is profitable, or attractive in a long term strategic manner, then it will
be attractive to new companies. Unless there are barriers to entry in place, new
firms may easily enter the market and change the dynamics of the industry. It is
essential for existing organizations to create high barriers to enter to deter new
entrants. Threat of new entrants is high when:
1. Low amount of capital is required to enter a market;
2. Existing firms do not possess patents, trademarks or do not have established
brand reputation;
3. There is no government regulation;
4. Customer switching costs are low (it doesn’t cost a lot of money for a firm to
switch to other industries);
5. There is low customer loyalty;
6. Products are nearly identical;
7. Economies of scale can be easily achieved.

2. Competitive Rivalry
In competitive industry, firms have to compete aggressively for a market share,
which results in low profits. Rivalry among competitors is intense when:

1. There are many competitors;

2. Exit barriers are high;
3. Industry of growth is slow or negative;
4. Products are not differentiated and can be easily substituted;
5. Competitors are of equal size;
6. Low customer loyalty. .
7. Low switching costs
8. Slow market growth
Creatively using channels of distribution With high-end jewelry stores reluctant to
carry its watches, Timex moved into drugstores and other non-traditional outlets
and cornered the low to mid-price watch market.

Exploiting relationships with suppliers - for example, from the 1950's to the 1970's
Sears, Roebuck and Co. set high quality standards and required suppliers

3. Threat Of Substitutes
In Porter's model, substitute products refer to products in other industries. To the
economist, a threat of substitutes exists when a product's demand is affected by the
price change of a substitute product. A product's price elasticity is affected by
substitute products - as more substitutes become available, the demand becomes
more elastic since customers have more alternatives. The price of aluminum
beverage cans is constrained by the price of glass bottles, steel cans, and plastic
containers. Today, new tires are not so expensive that car owners give much
consideration to retreading old tires. The threat of substitutes is high when:
Consumer switching costs are low
Substitute product is cheaper than industry product
Substitute product quality is equal or superior to industry product quality
Substitute performance is equal or superior to industry product performance
The threat of substitutes is low when:
Consumer switching costs are high
Substitute product is more expensive than industry product
Substitute product quality is inferior to industry product quality
Substitute performance is inferior to industry product performance
No substitute product is available
As of November 2015, Alexa research shows that Google is the most trafficked
website in the world, but it's constantly chased by companies such as Facebook,
Baidu, Yahoo and Amazon. (YouTube, which is the third-most trafficked site, is a
subsidiary of Google.)

Amazon and Face book offer more than just search engines, which makes them
compelling substitutes. Amazon is an enormous online marketplace, and Face book
allows users to connect directly with news, companies, products, trends and other
people, all from one location. Given how dynamic the industry is, there is good
reason to believe that another website or mobile software will explode onto the
scene to offer premium ad space.

4. Bargaining Power of Buyers

The idea is that the bargaining power of buyers in an industry affects the
competitive environment for the seller and influences the seller’s ability to
achieve profitability. Strong buyers can pressure sellers to lower prices,
improve product quality, and offer more and better services. All of these
things represent costs to the seller. A strong buyer can make an industry
more competitive and decrease profit potential for the seller. On the other
hand, a weak buyer, one who is at the mercy of the seller in terms of quality
and price, makes an industry less competitive and increases profit potential
for the seller. The concept of buyer power Porter created has had a lasting
effect in market theory.

Buyer Power is High/Strong if:

• Buyers are more concentrated than sellers
• Buyer switching costs are low
• Threat of backward integration is high
• Buyer is price sensitive
• Buyer is well-educated regarding the product
• Undifferentiated product
• Buyer purchases product in high volume
• Substitutes are available
• Buyer purchases comprise large portion of seller sales
Buyer Power is Low/Weak if:
• Buyers are less concentrated than sellers
• Buyer switching costs are high
• Threat of backward integration is low
• Buyer is not price sensitive
• Buyer is uneducated regarding the product
• Highly differentiated product
• Buyer purchases product in low volume
• Substitutes are unavailable
• Buyer purchases comprise small portion of seller sales

5. Bargaining Power of Suppliers

Suppliers provide the raw material needed to provide a good or service. This
means that there is usually a need to maintain strong steady relationships with
suppliers. Depending on the industry dynamics, suppliers may be in the position to
dictate terms, set prices and determine availability timelines. Powerful suppliers
may be able to increase costs without affecting their own sales volume or reduce
quantities that they sell.

When is Bargaining Power of Suppliers High/Strong?

 Switching costs of buyers are high
 Threat of forward integration is high
 Small number of suppliers relative to buyers
 Low dependence of a supplier’s sale on a particular buyer
 Switching costs of suppliers are low
 Substitutes are unavailable
 Buyer relies heavily on sales from suppliers

When is suppliers power Low/Weak?

 Switching costs of buyers are low
 Threat of forward integration is low
 Large number of suppliers relative to buyers
 High dependence of a supplier’s sale on a particular buyer
 Switching costs of suppliers are high
 Substitutes are available
  Buyer does not rely heavily on sales from suppliers

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Defensive and offensive strategies.

Competitive strategies can be divided into the offensive and the defensive.
Companies pursuing offensive strategies directly target competitors from which
they want to capture market share. In contrast, defensive strategies are used to
discourage or turn back an offensive strategy on the part of the competitor.

Defensive marketing strategies refer to the actions of a market leader to protect

its market share, profitability, product positioning, and mind share against an
emerging competitor. If not customers will leave the established business in favor
of the competitor—who can even displace the market leader and rise to the top

 Google is the market leader in “cloud” technology services. To stay ahead of new
competitors, the company actually is producing new products that force their old
ones outdated making the new competitors, competing primarily against the old
Google products.
 Tesco lowered the price on many items, while simultaneously improving the
personalization of coupons and promotions And kept hold of its customer base in
many cities.
 Tylenol the market leader for non-aspirin pain relievers actually awoke a “sleepy”
market for aspirin alternatives to defend against Datril
 Facebook, the market leader for social media, updated their options for friends’
lists as a direct response to the “circles” offered on Google+. This allowed users to
establish different levels of involvement in their social media contacts.

Defensive strategies areas:

 Pricing. The market leader may have to reduce its own prices (and profits) in order
to prevent customers from going after the competitors lower-priced products or
similarly priced product with better.

Product improvement. A defending company can choose to improve their

product either along their competitor’s strength, or along their own strength. A
 company’s choice of strategy will depend upon market demand (i.e., do more
customers buy their dish soap for its mildness, or for its effectiveness?).

Advertising. Defensive companies will respond to new competitors in their ad

campaigns but the content of these campaigns is important to reposition the
product, stressing the features that the competitor is weak on (or doesn’t have).
Defend profits without defending market share. In some cases, a
company with multiple products may choose to protect profits by divesting itself of
a losing product. It then takes the money it had previously invested in this product
and moves it to other products that are like to offer greater returns.
 In business, strategy can be looked at as war planning, interpreting the business
landscape, mapping the moves, determining where to attack and where to defend,
timing when and where to enter the field of battle and when to withdraw, and
preparing how to isolate, encircle, or outflank the competition.
Defensive Strategies

The adage, “the best offense is a good defense” is often used in many endeavors.
Unfortunately, in strategic planning many solely concentrate on using offensive
competitive moves. They fail to utilize the strategic benefits of defensive strategies
in achieving the goal. In the writings of Machiavelli and Sun Tzu, defense is
critical in warfare. As in the present war against terrorism, pre-emptive strikes, a
defensive strategy, is at the heart of U.S. policy, i.e., “harm them before they harm
us”.

Defensive moves are part of competitive strategies. As in war, as in sport, as in the

game of chess, business defensive strategies are critical. Along with offensive
strategies, defensive strategies allow the organization to move in various directions
(forward, backward, and sideways).

Eight critically important defensive strategies include:

Signaling—warning the enemy not to enter the market with the objective to
obtain victory without a fight. This can be simple by issuing new alerts of changing
prices, which potential competitors feel that they would have difficulty to meet the
challenge at a profit.
Entry (fixed and mobile) barriers- creating obstacles to make it difficult
to overcome, which discourages potential competitors from entering the market
segment. McDonald’s frequently introduce a range of new meals to protect its
position.

Global service—developing efficiencies that customers only buy for a

separate, distinct provider. An example of is the Big 4 Accounting firms (Deloitte,
KPMG, PricewaterhouseCoopers, and Ernst & Young). Global companies have
limited requirements that only one of the international accounting firms offer.

Pre-emptive strike—taking aggressive action before competitors realize what

had happened. To protect its position in the diet food arena, Thompson Medical,
manufacturer of Slim-Fast introduced Ultra Slim Fast that was directed at a
wealthier market demographic that surprised competitors, which were selling near
cost.

Blocking—making moves to hinder competitors from entering. Look at the

razor war between Gillette and Bic. Gillette perceived that Bic was encroaching on
its market dominance in the mid 1970s. So Gillette introduced its Good News
disposal razor one year prior to Bic’s entrance to maintain its position.

Counter-attack—defending from an attack by following up with attacks. An

example is when, high-end automaker, Mercedes was attacked by BMW with the
introduction of the higher priced BMW Series 5, 7, and 8 models. To counter-
attack, Mercedes introduced the Series 190, later known as the C.

Holding the ground—allowing competitors to enter, then actively

competing with them in order to maintain market position. Xerox entered into the
equipment leasing business to fend off competition in the copy machine market.
Ironically Kodak also used the hold the ground strategy, but recently was forced to
file for bankruptcy protection.

Withdrawal—sacrificing market position to increase the distance from a

competitor. This is not surrendering. To protect intellectual property rights in
the970s, Coca-Cola and IBM withdrew from India. 1There are two approaches to
defensive strategy in strategic management. The first approach is aimed at
blocking competitors who are attempting to take over part of your business's
market share. Cutting the price of your products, adding incentives or discounts to
encourage customers to buy from you or increasing your advertising and marketing
campaigns are the best common ways of going about this. The second approach is
more passive. Here, you announce new product innovations, plan a company
expansion by opening a new chain or reconnect with old customers to encourage
them to buy from you. This is still a method to prevent the competition from taking
away your customers and earning, but it is done in a more relaxed and less-
aggressive manner, whereas the first approach is active and direct. Advantages of
Defensive Strategy benefits. First, you are increasing your marketing and
advertising, which can be an effective way of getting both old and new customers
through the door.

Second, defensive strategies are typically less risk-laden as there is option to take
passive measures to ensure your share of the market and you don't have to
necessarily feel threatened at every turn.

The third benefit of defensive strategy is that you are working to enhance the value
of your products or services.

Disadvantages to Defensive Strategy

The biggest disadvantage to defensive strategy comes when a business does not
understand its target market. All products and services should be aimed at
particular demographics of the broader marketplace. If you sell children's bicycles,
for instance, aim your marketing at the demographic most likely to buy from you:
Two: Not proactive to innovation and product development to sell cutting-edge
products and to reach new customers. Thus any defensive strategy should be
balanced with a long-term strategy for growing business.
=======================================================

Offensive Marketing
Offensive strategy: The primary focus of this strategy is to be a first mover and a
proactive market leader and to protect itself by standing one step ahead of the
competitors and allowing them to follow.

Objectives of offensive strategies:

To maximize the sales

To destabilize the current market leader
To acquire market share

Various offensive strategies:

Frontal attack: Head on collision:

In the frontal attack, firms concentrate on competitor’s strengths rather than
weaknesses. A frontal attack is attacking a competitor ahead on by producing
similar products with similar quality and price; it is highly risky unless the attacker
has a clear advantage.
For example, RCA, Xerox and Univac tried to attack IBM’s mainframe business
but failed due to lack of competitive advantage. The Cola wars between Pepsi and
 Coke starting from the early 1900s is an example of frontal attack strategies.
McDonald’s Mccafes which are coffee joints are seen as a direct frontal attack on
Starbucks.
Flank attack:
Flank attack is less risky when compared to that of frontal attack in which firms
attacking at the competitor’s weak point or blind spot. In this strategy.
Features of flank attack:
 It does not confront competitors in open
 Gains market presence stealthily before competitor realizes (surprise element)
 Follow through once the leading position is established
 Flank attack does not require new product, but different enough to capture latent
needs of the market

Flank attack is generally employed by quick, innovative business against

established players.
Examples:
Auto-industry in 1970, when Japanese car-makers exploited the weakness of US
car-makers in small, fuel-efficient car segment
In 1980s, Canon took over Xerox’s copier market by focusing on small size copier
market that could not afford Xerox’s large copiers.
Hence, this concludes the definition of Flank Attack along with its overview.
Encirclement attack:
It is the combination of both frontal and flank attacks, intended to attack the
competitor on all the major fronts i.e. strengths and weaknesses. It is assumed that
only those firms that are 10 times stronger or powerful than the opponent firm can
launch the
encirclement
attack.
There are two strategies that can be used under the encirclement attack. Product
and Market Encirclement. In product encirclement, the challenger firm may
introduce different types of products with varied features and quality and may
price these differently on the basis of their utility.

In the case of market encirclement, the firm may introduce the product for such a
market segment, which left untapped by the competitor and thus enjoys the huge
market share.

The e-commerce industry is the best example wherein the companies are ready to
do anything for the huge turnovers and are even selling their products at negative
margins.

The fashion Industry is the another example, where companies frequently launch
the different variants of products priced differently, in order to have a huge sales
and supersede the competitors

Bypass attack Bypass Strategy or Leap Frog strategy is

defined as way by engaging in one enormous, determined, ruthless, brilliant leap of
mastermind that results in extraordinary growth, profit, and market position. It is
the most indirect form of marketing strategy by performing a thorough research
and bringing out next generation products to attract the more customers occupy
new geographical markets and competitor’s market share. For example, the
beginning of the iPod leapfrogged the compact disc market completely and mobile
phones are overtaking landlines in Africa and India.
Guerrilla attack:
The guerrilla attack is expensive, but it is less than the frontal, flank and
encirclement attacks. In guerrilla warfare, the challenger firm applies strategies
with an intention to demoralize and harass the competitor by the following
strategies. He disrupts consumers in their daily routines by presenting them with
unconventional methods of brand interaction.
Giving free samples to the customers
Allowing the customers to pay in any form i.e. cash, credit or debit cards
Attracting new customers by giving advertisements in social networks
By using powerful advertisement strategies.

The term is derived from guerrilla warfare, the militant strategy where smaller,
mobile, and sometimes civilian forces perform irregular attacks in hostile areas.
Attacks include ambushes, raids, and other surprise charges.

Small businesses can devote a fixed budget to a stunt and reap endless rewards.

Guerrilla strategy applies three methods. Surprise Effect: Surprise

the audience by drawing attention via unconventional methods
Diffusion Effect: Spreading the message to a wider audience
Low-Cost Effect: Minimizing marketing costs by influencing a large population

Benefits of guerrilla marketing strategies

Low budget: Guerrilla marketing is less expensive than other forms of marketing
due to the potential for nation to worldwide attention by word of mouth.
Memorability: guerrilla marketing campaign creates great awareness memorable
experience for the audience, Element of surprise: often evokes surprise in
consumers. It is offering them an experience in exchange for their consideration.
Using your team’s potential: Guerrilla marketing professionals from a wide
variety of backgrounds brainstorm effective ideas in the campaign.

Risks of guerrilla marketing campaign

Legal issues or misunderstandings: The lack of context is often what makes

guerrilla marketing campaigns so much fun, entices the public. But if the campaign
is misunderstood or translated incorrectly without context, will do more harm to
your brand than good.

Guerrilla marketing examples

Nike—In order to raise awareness for a new reflective jacket that made runners
visible at night, Nike executed an event called “Catch the Flash.”Nike challenged
runners to compete to see who could find and photograph the most of these flash
runners. The winner of this competition received a €10,000 platinum card.Catch
the Flash competition didn’t just end after the 90-minute race. It continued to be
published and discussed by news organizations and bloggers worldwide. Coca-
Cola—One of its most notable campaigns is the happiness machine. A mechanic
“installed” a Coca-Cola machine in a busy common area of a college campus.
When students and faculty approached the machine for a soda, they received a
multitude of surprises.The first customer received so many sodas that she
physically could not carry them all and began passing them out to other students.
Some students received full liters of Coke instead of the standard bottle. At one
point, a hand reaches out and starts dispensing bouquets of flowers. One student is
surprised by a sandwich so large it takes multiple hands to pull it out of the
machine.

Generic strategies: Or Business Level

Strategies;
In 1980 Michael Porter developed three generic strategies that a
company could use to gain competitive advantage. These three are: cost
leadership, differentiation and focus.
The cost leadership strategy
The cost leadership strategy advocates gaining competitive advantage
due to the lowest cost of production of a product or service. Lowest cost
need not mean lowest price. Cost Leadership is NOT necessarily Price
Leadership, though the two often go together. A cost leader will be more
profitable than a competitor at the same price point. Cost leaders usually
win, as their profitability gives them more room to innovate, maneuver,
and survive than their lower-margin competitors. It’s important to
remember that they are trying to reduce costs — not just prices. Also, that
the company with the lowest prices isn’t necessarily the one with the
lowest costs.
 Examples: the TPS system developed by the Toyota Motor Company.
The TPS system aims to cut costs throughout the company, but Toyota
cars are still priced at almost the same levels as American or other
Japanese cars. The most famous cost leader in India is Big Bazaar,
followed by Vishal Mega Mart. Wal-Mart, is known for its success of
utilizing cost leadership theory to keep prices low. Wal-Mart lowers its
operating costs by trying to limit excesses at every turn.

Sources of overall cost leadership strategy are:

1. Economies of scale: when the costs of performing an activity
decrease as the scale of the activity increases.
2. Economies of Learning: are cost savings that derive from “learning
by doing
3. If a business has a proprietary technology or process protected by trade
secret or patents. Eg: Henry Ford’s Assembly line.
4. Capacity Utilization: is the extent to which an enterprise uses its
installed productive capacity.
5. Degree of Integration: control of ‘inputs’ to a company’s processes or
the channels of product distribution.
6. Timing: in relation to a company’s choices in relation to its business
cycle
7. Policy Choices’ can affect decisions on the product, quality, service,
features, credit facilities, etc
8. Government regulations can affect a company’s ability to produce
economically.
9. Product configuration (is the design or formulation effective?).
· 10. Exploiting linkages with suppliers and /or customers, in the firm’s
value chain.

.The 'differentiation' strategy

 Differentiation strategy, as the name suggests, is the strategy that aims
to distinguish a product or service, from other similar products,
offered by the competitors in the market. in terms of product design,
features, brand image, quality, or customer service. In this way, the firm
succeeds in creating a unique image in the market and gets the premium
price for its uniqueness.

How
Product Differentiation Works or methods of
Differentiation
1. Product: Product differentiation uses the difference in the product's
packaging promotion and even in its name and drives consumer choice.
This may involve a huge cost in research and development, production
and marketing yet the return on investment is more.
2. Pricing differentiation: Market forces, i.e. supply and demand fluctuate
and decide the price of the product to gain differentiation through
pricing either a firm can charge the lowest price for its product or gain
superiority by charging maximum prices.
3. Organizational Differentiation can also be based on organization,
wherein a firm earns success through the brand name, location
advantage, goodwill and customer loyalty etc. But the strategy is subject
to certain risks like imitation by competitors, change in trend, change in
customer tastes etc.

4. Product differentiation: But product differentiation is short-lived. It

is remarkably easy to duplicate almost any product innovation. At
worst, when a patent does not exist, anyone with enough capital to
buy a machine may be a competitor in a matter of days or weeks.-
Service Differentiation BMW makes great use of this concept by
positioning their cars as “The ultimate driving machine.” Cervelo’s
aerodynamic bikes dominates among much bigger players such as
Trek,. Their slogan, “Speed. Engineered.

5. Differentiation of service includes not only delivery and customer

service, but all other supporting elements of a business such as
training, installation, and ease of ordering. Many internet businesses
follow this. Delivery is a major tactic to differentiate your services
of Pizza Hut or Dominos because of their claim of “30 minutes
delivery or free” Firms like IBM and Accenture have made
consultation offers in the form of data management, information
systems and service advisory. Distribution Differentiation is an
effective means through wholesalers, retailers, distributors,
independent sales reps, inside sales, direct sales and online selling..
Amazon wins every time as distribution can provides coverage or
availability, immediate access to expertise, and greater ease of
ordering, and higher levels of customer or technical service. Even in
a non-exclusive relationship, a committed distributor can create
advantage through joint promotions, bundling, warranty and service
support, and technical service.

6. Image/Reputation Differentiation
Image is controlled and managed by symbols used in communications,
advertising, and all types of media An image or reputation can be a
daunting hurdle for potential new entrants. DuPont, for example,
generally has a strong image as a technical powerhouse in almost all
markets in which they participate.

7. Design differentiation: Attractive, unique product design Apple is

constantly pursuing this strategy which reflects in the entire assortment,
from iPods to MacBooks. Italian companies frequently pursue this
strategy, in cars (Ferrari), clothes (Gucci), or bicycles (Pinarello,
Cogliano).

8. Customization differentiaion: : Marketers can differentiate products

by Mass of individually designed products, services, programs and
communications in quality Durability Reliability Reparability Style

Differentiation advantages:
Advantages of Differentiation Strategy :
1) Reduces Competitive Rivalry: It reduces customer’s sensitivity to
price increases. Customer brand loyalty too acts as a safeguard against
competitors.
2) Bargaining Power of Suppliers: A firm implementing the
differentiation strategy charges a premium price for its products. So the
suppliers must provide it with high quality parts.
3) Entry Barriers: Customer loyalty and the need to overcome the
uniqueness of a differentiated product are substantial entry barriers faced
by potential entrants.
4) Negligible Threat of Product Substitutes: Firms selling the
differentiated goods or services are positioned effectively against
product substitutes.
5.It increases margins, which avoids the need for a low-cost position
The firm that has differentiated itself to achieve customer loyalty should
be better positioned vis-a-vis substitutes than its competitor
Virgin Airlines Spearheaded by Richard Branson, is a full service airline
with on-plane WIFI, touch screen seatback entertainment, and full
service meals available with roomy cabins.
Everything that Wal-Mart does is specifically selected to keep prices
low. Their famous “roll-back” pricing strategy is designed to constantly
monitor
Apple has grown into a major electronics company. Offering innovative
products

Limitations to Differentiation Strategy :

1) Difficulty in Sustaining Differentiation : In a growing market,
products tend to become commodities. This is the case with the markets
with most industries in India. The basis for differentiation is long-term
perceived uniqueness. It is difficult to sustain. There is an imminent
threat from competitors who can imitate the differentiation strategy.
2) Over Differentiation: Differentiation fails to work if its basis is
something that is not valued by the customer. This often happens in a
case where unnecessary features are added for differentiation. Such
things also occur when over- differentiation is done, carrying little
tangible benefit for the customer.
3) Limit to Price Premiums: Price premiums too have a limit. Charging
too high a price for differentiated features may cause the customers to
forego the additional advantage from a product/service on the basis of
their own cost-benefit analysis.
4) Failure to Communicate Benefits: The firm may fail to
communicate the benefits arising from differentiation adequately. It may
happen that the firm may rely too much on the fact that the intrinsic
product attributes are readily apparent to a customer. This may cause the
differentiation strategy to fail.
5. Imitation of Differentiation : A firm’s means of differentiation no
longer provide value for which customers are willing to pay. The
differentiation strategy becomes less valuable if imitation by rivals
causes customers to perceive that competitors offer the same goods or
service, sometimes at a lower price.

Focus Strategy .
By Focus strategy companies use their core competencies to serve the
needs of a particular customer group in an industry. They focus on
specific, smaller segments (or niches) of customers rather than across the
entire market.
Why Focused Strategies?
Because opportunities exist when large companies may overlook small
niches
May be able to serve a narrow market segment more effectively than
industry wide competitors
Focus can allow you to direct resources to certain value chain activities
to build competitive advantage
Minimise R&D costs by copying innovators
the narrow segment's needs are so special that industry-wide competitors
choose not to meet them
certain narrow segments are being poorly served by industry-wide
competitors
the company has a unique ability to identify the needs or preferences of
narrow segments that its core competencies will enable it to meet better
than its competitors.
Focus strategies can be based either on cost leadership or
differentiation.
Focused Cost Leadership Strategy
A focused cost leadership strategy requires competing based on price to
target a narrow market. • A firm that follows this strategy does not
necessarily charge the lowest prices in the industry. Instead, it charges
low prices relative to other firms that compete within the target market.
Examples of Focused cost leadership Redbox uses vending machines
placed outside grocery stores and other retail outlets to rent DVDs of
movies for $1.
Focused Differentiation Strategy
Companies following focused differentiation strategies produce
customised products for small market segments. They can be successful
when either the quantities involved are too small for industry-wide
competitors to handle economically, or when the extent of customisation
(or differentiation) requested is beyond the capabilities of the industry-
wide differentiator. For example, Manufacturers such as Ferrari, Aston
Martin, and Lamborghini compete in the tiny super car category with
prices starting at $150,000 and running as high as $600,000. These cars
are more than just transportation.

Achieving Focus : The firm’s a focus strategy can adopt the following
practices:
1) Identification Gaps : A firm can choose specific niches by
identifying gaps not covered by cost leaders and differentiators.
2) Superior Skills: A firm can create superior skills for catering to such
niche markets.
3) Superior Efficiency: A firm can create superior efficiency for
serving such niche markets.
4) Achieving Lower Cost: A firm can achieve lower cost or
differentiation as compared to the competitors while serving such niche
markets.
5) Use of Innovative Ways: A firm can develop innovative ways to
manage the value chain which are different from the ways prevailing in
an industry.

Benefits of Focus Strategies

1) Protection from Competition: Because other firms which have a
broader target, do not possess the competitive ability to cater to the niche
markets.
2) Capacity to Absorb Price Increments: Focused firms buy in small
quantities, so powerful suppliers may not evince much interest. But price
increments up to a certain limit can be absorbed and passed on to the
loyal customers.
3) Less Possibility of Shifting Loyalty: As Powerful buyers might not
find other sellers willing to cater to the niche markets as the focused
firms do
4) Substitute Barrier : The specialization that focused firms is able to
achieve in serving a niche market acts as a powerful barrier to substitute
products/services that might be available in the market.
5) Effective Entry Barrier: Due to the focused specialization, the
competence of the focused firms acts as an effective entry barrier to
potential entrants into the niche markets.

Limitations of Focus Strategies

1) Difficulty in Achieving competence: First of all, serving niche
markets requires the development of distinctive competencies to serve
those markets. The development of such distinctive competencies may
be a long-drawn and difficult process.
2) Difficult to Move onto Other Segments: Being focused means
commitment to a narrow market segment. Once committed, it may be
difficult for the focused firm to move onto other segments of the market.
3) Cost Configuration: A major risk for the focused firm lies in the cost
configuration. Typically, the costs for the focused firm are higher as the
markets are limited and the volume of production and sales small.
4) Transient Nature of Niches: They may disappear owing to
technology or market factors. For instance, a new technology may make
the process of making the niche products easier. In the same way, there
might be a shift in the consumer’s needs and preferences causing them
to move to other products. Sometimes the rising costs of niche products
may cause the customers to move to the lower-priced products of cost
leaders.
5) Rival’s Move: Rivals in the market may sometimes out-focus the
focused firms by devising ways to serve the niche markets in a better
manner.