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Competitive Strategies

Prof. Rushen Chahal

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Competitive Strategies
Integration Strategies Intensive Strategies Defensive strategies Porters 3 Generic Strategies

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Business Strategies
Business Strategy:
Focuses on improving the competitive position of a companys or business units products or services within the specific industry or market segment that the firm serves.

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Competitive Advantage
Key concept of strategic management Sets an organization apart What competitive strategies are designed to exploit Implies other competitors Can be eroded easily and quickly by competitors
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Backward Integration

Raw Materials

Primary Manufacturing Product Producer Distributor

Horizontal Integration

Forward Integration

Retailer

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Integration Strategies

Forward Integration Vertical Integration Strategies Backward Integration Horizontal Integration

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Integration Strategies
Vertical Integration strategies Allow a firm to gain control over:
Distributors Suppliers competitors

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Integration Strategies
Forward Integration Gaining ownership or increased control over distributors or retailers

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Integration Strategies
Guidelines for Forward Integration
     

Present distributors are expensive, unreliable, or incapable of meeting firms needs Availability of quality distributors is limited When firm competes in an industry that is expected to grow markedly Organization has both capital and human resources needed to manage new business of distribution Advantages of stable production are high Present distributors have high profit margins

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Integration Strategies
Backward Integration Seeking ownership or increased control of a firms suppliers

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Integration Strategies
Guidelines for Backward Integration
     

When present suppliers are expensive, unreliable, or incapable of meeting needs Number of suppliers is small and number of competitors large High growth in industry sector Firm has both capital and human resources to manage new business Advantages of stable prices are important Present supplies have high profit margins

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Integration Strategies
Horizontal Integration Seeking ownership or increased control over competitors

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Integration Strategies
Guidelines for Horizontal Integration
Firm can gain monopolistic characteristics without being challenged by federal government  Competes in growing industry  Increased economies of scale provide major competitive advantages  Faltering due to lack of managerial expertise or need for particular resources


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Intensive Strategies

Market Penetration Intensive Strategies Market Development Product Development

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Intensive Strategies
Intensive strategies Require intensive efforts to improve a firms competitive position with existing products

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Intensive Strategies
Market Penetration Seeking increased market share for present products or services in present markets through greater marketing efforts

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Intensive Strategies
Guidelines for Market Penetration
Current markets not saturated  Usage rate of present customers can be increased significantly  Market shares of competitors declining while total industry sales increasing  Increased economies of scale provide major competitive advantages


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Intensive Strategies
Market Development Introducing present products or services into new geographic area

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Intensive Strategies
Guidelines for Market Development
     

New channels of distribution that are reliable, inexpensive, and good quality Firm is very successful at what it does Untapped or unsaturated markets Capital and human resources necessary to manage expanded operations Excess production capacity Basic industry rapidly becoming global

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Intensive Strategies
Product Development Seeking increased sales by improving present products or services or developing new ones

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Intensive Strategies
Guidelines for Product Development
    

Products in maturity stage of life cycle Competes in industry characterized by rapid technological developments Major competitors offer better-quality products at comparable prices Compete in high-growth industry Strong research and development capabilities

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Diversification Strategies

Concentric Diversification Diversification Strategies Conglomerate Diversification Horizontal Diversification

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Diversification Strategies
Diversification strategies Becoming less popular as organizations are finding it more difficult to manage diverse business activities

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Diversification Strategies
Concentric Diversification Adding new, but related, products or services

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Diversification Strategies
Guidelines for Concentric Diversification
    

Competes in no- or slow-growth industry Adding new & related products increases sales of current products New & related products offered at competitive prices Current products are in decline stage of the product life cycle Strong management team

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Diversification Strategies
Conglomerate Diversification Adding new, unrelated products or services

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Diversification Strategies
Guidelines for Conglomerate Diversification
Declining annual sales and profits  Capital and managerial talent to compete successfully in a new industry  Financial synergy between the acquired and acquiring firms  Existing markets for present products are saturated


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Diversification Strategies
Horizontal Diversification Adding new, unrelated products or services for present customers

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Diversification Strategies
Guidelines for Horizontal Diversification
Revenues from current products/services would increase significantly by adding the new unrelated products  Highly competitive and/or no-growth industry w/low margins and returns  Present distribution channels can be used to market new products to current customers  New products have counter cyclical sales patterns compared to existing products


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Defensive Strategies

Retrenchment Defensive Strategies Divestiture Liquidation

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Defensive Strategies
Retrenchment Regrouping through cost and asset reduction to reverse declining sales and profit

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Defensive Strategies
Guidelines for Retrenchment


 

 

Firm has failed to meet its objectives and goals consistently over time but has distinctive competencies Firm is one of the weaker competitors Inefficiency, low profitability, poor employee morale, and pressure from stockholders to improve performance. When an organizations strategic managers have failed Very quick growth to large organization where a major internal reorganization is needed

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Defensive Strategies
Divestiture Selling a division or part of an organization

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Defensive Strategies
Guidelines for Divestiture
    

When firm has pursued retrenchment but failed to attain needed improvements When a division needs more resources than the firm can provide When a division is responsible for the firms overall poor performance When a division is a misfit with the organization When a large amount of cash is needed and cannot be obtained from other sources.

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Defensive Strategies
Liquidation Liquidation Selling all of a companys assets, in parts, for their tangible worth

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Defensive Strategies
Guidelines for Liquidation
When both retrenchment and divestiture have been pursued unsuccessfully  If the only alternative is bankruptcy, liquidation is an orderly alternative  When stockholders can minimize their losses by selling the firms assets


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Porters Competitive Strategies


Competitive Strategy:
Low cost? Differentiation? Compete head to head in large market? Focus on niche?

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Porters Generic Competitive Strategies

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Porters Competitive Strategies


Cost Leadership:
Low-cost competitive strategy Aimed at broad mass market Aggressive construction of efficientscale facilities Cost reductions Cost minimization
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Porters Competitive Strategies


Differentiation:
Broad mass market Unique product or service Charge premiums Lower customer sensitivity to price

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Porters Competitive Strategies


Differentiation focus:
Focus on particular group or geographic market Seek differentiation in targeted market segment Serve special needs of narrow target market

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Porters Competitive Strategies

Stuck in the middle:


No competitive advantage Below-average performance

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Risks of Generic Competitive Strategies


Risks of Cost Leadership Cost leadership is not sustained: Competitors imitate. Technology changes. Other bases for cost leadership erode. Proximity in differentiation is lost. Cost focusers achieve even lower cost in segments. Risks of Differentiation Differentiation is not sustained: Competitors imitate. Bases for differentiation become less important to buyers. Cost proximity is lost. Differentiation focusers achieve even greater differentiation in segments. Risks of Focus The focus strategy is imitated: The target segment becomes structurally unattractive: Structure erodes. Demand disappears. Broadly targeted competitors overwhelm the segment: The segments differences from other segments narrow. The advantages of a broad line increase. New focusers subsegment the industry.

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Integrated Low- Cost Differentiated Strategy


Question the mutual exclusivity of Porters 3 generic strategies Examples:
Dell McDonalds SouthWestern Airlines

Why? Technology Able to manufacture, market products and services easily and cheaply

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