Creating

Competitive Advantage
Definition
Competitive Advantage
An advantage
over competitors
gained by offering
consumers greater
value than
competitors offer.

18- 1
 Definition

Competitive Analysis
 The process of identifying key
competitors; assessing their
objectives, strategies, strengths and
weaknesses, and reaction patterns;
and selecting which competitors to
attack or avoid.

18- 2
 Figure 18-1:
Steps in Analyzing
Competitors

18- 3
 Competitor Analysis
Steps in the Firms face a wide
Process: range of competition
Be careful to avoid
Identifying “competitor myopia”
Competitors Methods of
Assessing identifying
Competitors competitors:
Selecting  Industry point-of-view
Competitors to  Market point-of-view
 Competitor maps
Attack or Avoid
can help
18- 4
230-year-old
Encyclopedia
Britannica
viewed itself as
competing with
your publishers
of printed
encyclopedias.
Big mistake! Its
real competitors
were software
encyclopedias
and the Internet.
18- 5
 Competitor Analysis
Determining
Steps in the competitors’ objectives
Process: Identifying competitors’
strategies
Identifying  Strategic groups
Competitors Assessing competitors’
Assessing strengths and
Competitors weaknesses
 Benchmarking
Selecting Estimating competitors’
Competitors to reactions
Attack or Avoid
18- 6
 Competitor Analysis
Strong or weak
Steps in the competitors
Process:  Customer value analysis
Close or distant
Identifying competitors
Competitors  Most companies compete
against close competitors
Assessing
“Good” or “Bad”
Competitors competitors
Selecting  The existence of
Competitors to competitors offers several
strategic benefits
Attack or Avoid
18- 7
Competitive Strategies
Basic Winning Competitive
Strategies: Porter
 Overall cost leadership
 Lowest production and
distribution costs
 Differentiation
 Creating a highly
differentiated product line
and marketing program
 Focus
 Effort is focused on serving
a few market segments
18- 8
Competitive Strategies

Basic Competitive Strategies:

Value Disciplines
 Operational excellence
 Superior value via price and convenience
 Customer intimacy
 Superior value by means of building strong
relationships with buyers and satisfying
needs
 Product leadership
 Superior value via product innovation

18- 9
 Hypothetical
Market Structure

18- 10
 Competitive Strategy
Expanding the total
Competitive demand
Positions  Finding new users
 Discovering and
promoting new product
Market Leader uses
 Encouraging greater
Market product usage
Challenger Protecting market share
 Many considerations
Market  Continuous innovation
Follower Expanding market share
 Profitability rises with
Market Nicher market share

18- 11
 Competitive Strategy

WD-40 has a knack

for developing new
uses for its product.
What other brands
have adopted a
similar strategy?

WD40

18- 12
 Competitive Strategy
Option 1: challenge the
Competitive market leader
Positions  High-risk but high-gain
 Sustainable competitive
Market Leader advantage over the leader
is key to success
Market Option 2: challenge firms
Challenger of the same size, smaller
size or challenge
Market regional or local firms
Follower Full frontal vs. indirect
attacks
Market Nicher
18- 13
Pepsi is an
example of
market
challenger
that has
chosen to use
a full frontal
attack

18- 14
 Competitive Strategy
Competitive Follow the market
Positions leader
 Focus is on improving
profit instead of
Market Leader market share
Market  Many advantages:
Challenger  Learn from the
market leader’s
Market experience
Follower  Copy or improve on
the leader’s offerings
Market Nicher  Strong profitability

18- 15
 Competitive Strategy
Competitive Serving market
niches means
Positions targeting
subsegments
Market Leader Good strategy for
Market small firms with
limited resources
Challenger
Offers high margins
Market Specialization is key
Follower  By market, customer,
product, or marketing
Market Nicher mix lines
18- 16
Balancing Customer and
Competitor Orientations

Companies can become so

competitor centered that they
lose their customer focus.
Types of companies:
 Competitor-centered companies
 Customer-centered companies
 Market-centered companies

18- 17
 Competitive Rivalry
number of competitors
rate of industry growth
intermittent industry overcapacity
exit barriers
diversity of competitors
informational complexity and
asymmetry
brand equity
fixed cost allocation per value added
level of advertising expense
18- 18
 Supplier Power
supplier switching costs relative to
firm switching costs
degree of differentiation of inputs
presence of substitute inputs
supplier concentration to firm
concentration ratio
threat of forward integration by
suppliers relative to the threat of
backward integration by firms
cost of inputs relative to selling price
of the product

18- 19
 Buyer Power
buyer concentration to firm concentration
ratio
bargaining leverage
buyer volume
buyer switching costs relative to firm
switching costs
buyer information availability
ability to backward integrate
availability of existing substitute products
buyer price sensitivity
price of total purchase

18- 20