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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 Market Market Market


leader challenger follower nicher

40%
40% 30%
30% 20%
20% 10%
10%

Expand Market Attack leader Imitate Specialize


Defend Market Share Status quo
Expand Market Share
Defense Strategies
(2)Flank
(2) Flank

(3) Preemptive
(3) Preemptive
defense
defense (1) (6)
ATTACKER (6)
ATTACKER Position Contraction
Contraction
(4) Counter-
(4) Counter-
offense
offense
DEFENDER
DEFENDER

(5)
(5)
Mobile
Mobile
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

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