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Chapter TitleChapter Title
16/e PPT16/e PPTMd. Tarikul Islam
Lecturer in MarketingIIUC, DC
Cell: 01716 388990E-mail: [email protected]
.
Supplementing the Chosen Competitive
Strategy
Published by Lecturesheet.iiuc28a9.com
6-2
Fig. 6.1: A Company’s Menu of Strategy Options
6-3
Alliances Can Enhance aFirm’s Competitiveness
Alliances and partnerships can help companies cope with two demanding competitive challenges
Racing against rivals to build a market presence in many different national markets
Racing against rivals to seize opportunities on the frontiers of advancing technology
Collaborative arrangements can help a company lower its costs and/or gain access to needed expertise and capabilities
6-4
Characteristics of a Strategic Alliance
Strategic alliance – A formal agreement between two or more separate companies where there is Strategically relevant collaboration of some sort Joint contribution of resources Shared risk Shared control Mutual dependence
Alliances often involve Joint marketing Joint sales or distribution Joint production Design collaboration Joint research Projects to jointly develop new technologies or products
6-5
Get into critical country markets quickly to accelerate process of building a global presence
Gain inside knowledge about unfamiliar markets and cultures
Access valuable skills and competencies concentrated in particular geographic locations
Establish a beachhead to participate in target industry
Master new technologies and build new expertise faster than would be possible internally
Open up expanded opportunities in target industry by combining firm’s capabilities with resources of partners
Potential Benefits of Alliances toAchieve Global and Industry Leadership
6-6
Why Alliances Fail
Ability of an alliance to endure depends on How well partners work together Success of partners in responding
and adapting to changing conditions Willingness of partners to
renegotiate the bargain
Reasons for alliance failure Diverging objectives and priorities of partners Inability of partners to work well together Changing conditions rendering purpose of alliance obsolete Emergence of more attractive technological paths Marketplace rivalry between one or more allies
6-7
Merger – Combination and pooling of equals, with newly created firm often taking on a new name
Acquisition – One firm, the acquirer, purchases and absorbs operations of another, the acquired
Merger-acquisition strategy Much-used strategic option
Especially suited for situations wherealliances do not provide a firm with neededcapabilities or cost-reducing opportunities
Ownership allows for tightly integrated operations, creating more control and autonomy than alliances
Merger and Acquisition Strategies
6-8
To create a more cost-efficient operation
To expand a firm’s geographic coverage
To extend a firm’s business into newproduct categories or international markets
To gain quick access to new technologiesor competitive capabilities
To invent a new industry and lead theconvergence of industries whose boundariesare blurred by changing technologies andnew market opportunities
Objectives of Mergers and Acquisitions
6-9
Combining operations may result in
Resistance from rank-and-file employees
Hard-to-resolve conflicts in management styles and corporate cultures
Tough problems of integration
Greater-than-anticipated difficulties in
Achieving expected cost-savings
Sharing of expertise
Achieving enhanced competitive capabilities
Pitfalls of Mergers and Acquisitions
6-10
Vertical Integration Strategies
Extend a firm’s competitive scope withinsame industry
Backward into sources of supply
Forward toward end-users of final product
Can aim at either full or partial integration
InternallyPerformedActivities, Costs, &Margins
Activities, Costs, &
Margins ofSuppliers
Buyer/UserValue
Chains
Activities, Costs,& Margins of
Forward ChannelAllies &
Strategic Partners
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Strategic Advantagesof Backward Integration
Generates cost savings only if volume needed is big enough to capture efficiencies of suppliers
Potential to reduce costs exists when Suppliers have sizable profit margins
Item supplied is a major cost component
Resource requirements are easily met
Can produce a differentiation-based competitive advantage when it results in a better quality part
Reduces risk of depending on suppliers of crucial raw materials / parts / components
6-12
Strategic Advantagesof Forward Integration
To gain better access to end usersand better market visibility
To compensate for undependable distributionchannels which undermine steady operations
To offset the lack of a broad product line, a firm may sell directly to end users
To bypass regular distribution channels in favor of direct sales and Internet retailing which may Lower distribution costs Produce a relative cost advantage over rivals Enable lower selling prices to end users
6-13
Strategic Disadvantagesof Vertical Integration
Boosts resource requirements
Locks firm deeper into same industry
Results in fixed sources of supply andless flexibility in accommodating buyerdemands for product variety
Poses all types of capacity-matching problems
May require radically different skills / capabilities
Reduces flexibility to make changes in component parts which may lengthen design time and ability to introduce new products
6-14
Outsourcing Strategies
Outsourcing involves withdrawing fromcertain value chain activities and relyingon outsiders to supply needed products,support services, or functional activities
Concept
InternallyPerformedActivities
Suppliers
Support Services
Functional Activities
Distributors or Retailers
6-15
Activity can be performed better ormore cheaply by outside specialists
Activity is not crucial to achieve asustainable competitive advantage
Risk exposure to changing technology and/orchanging buyer preferences is reduced
It improves firm’s ability to innovate Operations are streamlined to
Improve flexibility Cut time to get new products into the market
It increases firm’s ability to assemble diverse kinds of expertise speedily and efficiently
Firm can concentrate on “core” value chain activities that best suit its resource strengths
When Does OutsourcingMake Strategic Sense?
6-16
Farming out too many or the wrong activities, thus
Hollowing out capabilities
Losing touch with activities and expertise that determine overall long-term success
Risk of an Outsourcing Strategy
6-17
Offensive and Defensive Strategies
Used to build newor stronger market
position and/or create competitive advantage
Used to protect competitive advantage (rarely lead to creating
advantage)
Offensive Strategies Defensive Strategies
6-18
Principles of Offensive Strategies
Focus relentlessly on Building competitive advantage and
Striving to convert it into decisive advantage
Employ the element of surprise asopposed to doing what rivals expect
Apply resources where rivals are least able to defend themselves
Be impatient with the status quo and display a strong bias for swift, decisive actions to boost a firm’s competitive position vis-à-vis rivals
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Types of Offensive Strategy Options
1. Offer an equally good or better product at a lower price
2. Leapfrog competitors by being First adopter of next-generation technologies or
First to market with next-generation products
3. Pursue continuous product innovationto draw sales and market share awayfrom less innovative rivals
4. Adopt and improve on thegood ideas of other companies
6-20
Types of Offensive Strategy Options (con’t)
5. Deliberately attack market segments where a key rival makes big profits
6. Attack competitive weaknesses of rivals
7. Maneuver around competitors andconcentrate on capturing unoccupiedor less contested market territory
8. Use hit-and-run or guerrilla warfare tactics to grab sales and market share from complacent rivals
9. Launch a preemptive strike to secure an advantageous position that rivals are prevented from duplicating
6-21
Using Offensive Strategy to Achieve Competitive Advantage
Strategic offensives offering strongest basis for competitive advantage entail
An important core competence
A unique competitive capability
A better-known brand name
A cost advantage in manufacturingor distribution
Technological superiority
A superior product
6-22
Defensive Strategy
Lessen risk of being attacked
Blunt impact of any attack that occurs
Influence challengers to aim attacks at other rivals
Block avenues open to challengers
Signal challengers vigorousretaliation is likely
Objectives
Approaches
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Block Avenues Open to Challengers
Participate in alternative technologies Introduce new features, add new models, or broaden
product line to close gaps rivals may pursue Maintain economy-priced models Increase warranty coverage Offer free training and support services Reduce delivery times for spare parts Make early announcements about new
products or price changes Challenge quality or safety of rivals’ products
using legal tactics Sign exclusive agreements with distributors
6-24
Publicly announce management’s strong commitment to maintain present market share
Publicly commit firm to policy ofmatching rivals’ terms or prices
Maintain war chest of cash reserves
Make occasional counter-responseto moves of weaker rivals
Signal Challengers Retaliation Is Likely
6-25
Web Site Strategies
Strategic Challenge – What use of the Internet should a company make in staking out its position in the marketplace?
Five Web site approaches Use to disseminate only product information Use as minor distribution channel
to sell direct to customers Use as one of several important distribution
channels to access customers Use as primary distribution channel to access buyers Use as exclusive channel to transact sales with
customers
6-26
Approach Sell directly to consumers and Use traditional wholesale/retail channels
Strategic appeal for wholesalers and retailers Economic means of expanding a company’s economic
reach Provide both existing and potential customers another
choice of how to Communicate with a company Shop for product information Make purchases Resolve customer service problems
Brick-and-Click Strategies:An Appealing Middle Ground Approach
6-27
Involves strategic choices about how functional areas are managed to support competitive strategy and other strategic moves
Functional strategies include Research and development Production Human resources Sales and marketing Finance
Tailoring functional-area strategies tosupport key business-level strategies is critical!
Choosing AppropriateFunctional-Area Strategies
6-28
When to make a strategic move is often as crucial as what move to make
First-mover advantages arise when
Pioneering helps build firm’s image and reputation
Early commitments to new technologies,new-style components, and distributionchannels can produce cost advantage
Loyalty of first time buyers is high
Moving first can be a preemptive strike
First-Mover Advantages
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First-Mover Disadvantages
Moving early can be a disadvantage (or fail to produce an advantage) when
When costs of pioneering are more than being an imitative follower and only negligible learning/experience curve benefits accrue to the leader
Innovator’s products are primitive, not living up to buyer expectations
Demand side of the market is skeptical about the benefits of new technology/product of a first-mover
Rapid technological change allows followers to leapfrog pioneers