BUSINESS LEVEL

STRATEGY

DR. RAJINDER SHRIRAM AURORAPROFESSOR – CONTROL SYSTEMS

AND STRATEGY

Competitive Advantage

Differentiation

Cost Leadership

Quick Response

Differentiation

Firms attempt to create unique bundles of products and /

or services that will be highly

valued by customers

Firm Infrastructure

Human Resource ManagementTechnology Development

Procurement

Inb

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Extensive database on consumers suggests more effective advertising – Celebrity advertising used

Incentive and training programs encourage high qualityProduct and produce better service representatives

Cutting edge product features and patented production gives superior quality products and helps outperform competitors

Purchase of branded components raises finished product image supplemented by effective media space.

Margin

Margin

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Attributes that Differentiate

Products Physical characteristics of

product features: Philips TV After sales service: Whirlpool Desirable Image: Fashion

product Technological Innovation Reputation Manufacturing consistency Status Symbol

Implications of Differentiation

Strategy Competitive rivalry lessens

with successful differentiation

Brand loyal customers are less price sensitive

New entrants forced to overcome barriers of brand loyalty

Risks associated with Differentiated

Strategy Several competitors

pursuing the same strategy may be perceived equals

Specialists operating in niche markets more successful at differentiation

Attempts to stay a step ahead of the competition may result in “gold plating”

Cost Leadership Achieving low cost position in

relation to competitor's

Involves offering no-frills / standardized product aimed at large target market.

Is a relative term – involves cost relative to benefits and cost relative to competitor’s cost.

How Firms achieve Cost Leadership?Firm InfrastructureHuman Resource Management

Technology Development

Procurement

Inb

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• Flatter Organizations• Simplified Information System

• Process breakthrough lowers production costs• Product reformulation allows use of cheaper ingredients

• Healthy employee policies minimize turnover• Training employees reduces waste and scrap

• Global purchasing resulting in low cost components from offshore• Real Estate purchases in rural areas .

Margin

Margin

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How Cost Leadership addresses Competitive Forces? Prevents rivals from indulging into

price war Limited pressure from customers to

lower prices further Higher margins improve position to

withstand increase in cost by vendors

New entrants find it difficult to compete due to lack of experience

Facilitates competition with substitute products

Risk associated with Cost Leadership

Strategy Undesirable for second most

competitive firm Leads to desirable product

attributes getting eliminated Strategy can be duplicated

by competitors Limits firm’s abilities to

remain competitive

Quick Response Cost leadership and

differentiation lead to a situation “atarimae hinshitsu” – value taken for granted

Race for determining new competitive advantage started

Focus shifted to Response Time

Quick Response

Quick Response refers to the speed with which a new

product, product improvement or

a managerial decision can be made

Research shows that slow response to customer’s needs forces them to look for alternatives

Firm InfrastructureHuman Resource Management

Technology Development

Procurement

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• Faster adjustments to trends due to Top Mngt.• Timely data available due to MIS

• New products developed due to Product Development • New process invention reduces production time

• Well executed training programs resulting in productive workers

• Work with suppliers ensures each incorporates latest technological advances

Margin

Margin

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How Firms achieve Quick Response?

Competitive Advantage through

Quick Response Development of new products Products Customization Improving existing products Timely delivery of ordered

products Quick adjustment of marketing

efforts Answering customers queries

Quick response time vis-à-vis Five Forces Firms can avoid head-to-head

rivalry Firms can charge premium

price Encourage quick response

from suppliers Greater flexibility in dealing

with new entrants and substitute products

Quick Response – A strategy not always

beneficial Lack of systems that facilitate

competition on response time Speed not important to all

customers Can create stress Speed for the sake of speed

does not lead to competitive advantage – value addition prime

Higher Market Share

Greater Relative Sales

Lower Relative Prices

Lower Relative Costs

Higher Relative Sales Volume

Higher RelativeProduction Volume

More Rapid Gains In Experience

Faster Progress Down the Experience Curve

The Cycle of Experience Effects

Competitive Advantage across Market Life Cycle

Introduction:

First Mover Advantage

Strong Brand Recognition

Strong Differentiation Advantage

Growth:

Associated with glamour and success

Demand grows faster than supply

Reasons: Less price pressure, exciting technological development, increasing sales volume

Assumptions made during Growth Growth is easy to achieve

Less price pressure in growth markets

Development of critical expertise easier in growth markets

Maturity:

Lack of continuous growth

Key technology benefits disappear

Cumulative experience fails to provide benefits

Growing trend to compete on the basis of price

Why are price wars detrimental? Profits are price sensitive

Advantages are short lived

Future expectations increase

Customers shop for low prices rather than value and benefits

Practices followed to avoid Price Wars

Avoiding strategies that force competitors to respond with lower prices

Avoiding all possible misreading of competition

Avoiding overreacting to competitor’s price cuts

Using jawboning Repositioning your product from

a commodity to a differentiated position

Decline:

Adopt “milking” Strategies include:

* Divestment* Harvest* Niche* Leadership