Competitive Strategy

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

Sun Tzes 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 Tzes Offensive Strategies  Overt-offensive strategy Overt 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 Covert 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  Increase its market share

profitability

 Adopting defense strategies (see following slides)  Note the relationship between market share and

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?

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 Pre Counter-Offensive Defense Counter-

Defense Strategy (contd)

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 (contd)

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)

 e.g. Legend Holdings, the top China PC maker

Legend has announced a joint venture with AOL to broaden its business to provide Internet services in the mainland

Defense Strategy (contd)

Flanking Defense:  Secondary markets (flanks) are the weaker areas and prone to being attacked  Pay attention to the flanks  e.g. San Miguel introduced a flanking brand in the Philippines, Gold Eagle, as a defense against APB s Beerhausen

Defense Strategy (contd)

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 (contd)

PrePre-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 prepre-emptive defense e.g. Seiko has over 2,000 models

Defense Strategy (contd)

CounterCounter-Offensive Defense

 Responding to competitors

headhead-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 (contd)

Types of Attack Strategies

 Frontal attack  Flank attack  Encirclement attack  Bypass attack  Guerrilla attack

Frontal Attack
 Seldom work unless
 The challenger has sufficient fire-power (a 3:1 fireadvantage) 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  e.g. In the 1990s, Yaohan attacked Mitsukoshi and Seibu s flanks by opening numerous stores in overseas markets

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-andhit-andrun 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

MarketMarket-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 innovation--Sony Product-imitation--Panasonic Product-imitation--Panasonic

MarketMarket-Follower Strategies (contd)  Each follower tries to bring distinctive

advantages to its target market--location, 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

MarketMarket-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 Logitech--mice Microbrewers--special Microbrewers--special beers

MarketMarket-Nicher Strategies (contd)

 Nichers must create niches, expand the

niches and protect them

 e.g. Nike constantly created new niches-niches--

cycling, walking, hiking, cheerleading, etc

 What is the major risk faced by nichers? nichers?

 Market niche may be attacked by larger firms
once they notice the niches are successful

Multiple Niching
[A] firm should `stick to its niching but not necessarily to its niche. That is why multiple niching is preferable to single niching. niching. By developing strength in two or more niches the company increases its chances for survival. Philip Kotler

Example of Nicher: Nicher: Challenger Superstore

 Challenger Superstore is a discount retailer

of computers and accessories  It opened its first overseas store in Bangkok at a cost of 90 million baht (S$3.7 million)  In October 2000, it closed its Bangkok store after failing to pay rent amounting to about 6 million baht Discussion: Why do you think Challenger failed in Thailand?