Competitive

Strategy

Aneesh Sharma 12/BBS/0002

Sidak Sehgal 12/BBS/0063

What Is Competition?
Competition is when organizations battle for some
desired object or outcome. For business
organizations, thats typically customers, market
share, survey ranking, or needed resources

Competitive Strategy

A competitive strategy consists of moves to

Attract customers
Withstand competitive pressures
Strengthen an organizations market position

The objective of a competitive strategy is to generate a competitive advantage, increase

the loyalty of customers and beat competitors

A competitive strategy is narrower in scope than a business strategy

Competitive Analysis

Assess the firms capabilities and key success factors compared to those of its
competitors

Enables strategic planners to determine where the firm has distinctive competencies that
will give it an advantage

Most companies develop strategies around key strengths or core competencies

There are three approaches to defining an

organizations competitors
Industry perspective

This identifies competitors as organizations that

are making or selling the same or similar goods
or services

These industries can be described according to

the number of sellers and degree of
differentiation; both affect competitive intensity

The market perspective

Believes that competitors are organizations that
satisfy the same customer needs
The intensity of competition in the market
perspective depends on how well customer needs
are understood or defined and how well different
organizations are able to meet those needs

The strategic groups concept

Is based on the idea that there are groups of firms
competing in an industry with similar strategies,
resources, and customers
In a single industry there will be several strategic
groups depending on what is important to the
customer
The strategic factors used to group competitors
are not price and quality, but price and
distribution strategy

KNOWING YOUR COMPETITION

One common and useful technique is constructing a competitor array. The steps include:
Define your industry - scope and nature of the industry
Determine who your competitors are
Determine who your customers are and what benefits they expect
Determine what the key success factors are in your industry
Rank the key success factors by giving each one a weighting - The sum of all the weightings must add
up to one.
Rate each competitor on each of the key success factors
Multiply each cell in the matrix by the factor weighting.

Key Industry
Success
Factors

Competitor
#1 rating

Weighting

Competitor
#1 weighted

Competitor
#2 rating

Competitor
#2 weighted

1 - Extensive
distribution

.4

2.4

1.2

2 - Customer
focus

.3

1.2

1.5

3 - Economies
.2
of scale

.6

.6

4 - Product
innovation

.1

.7

.4

Totals

1.0

20

4.9

15

3.7

Competitor profiling
The strategic rationale of competitor profiling is powerfully simple. Superior
knowledge of rivals offers a legitimate source of competitive advantage.
First, profiling can reveal strategic weaknesses in rivals that the firm may exploit.
Second, the proactive stance of competitor profiling will allow the firm to anticipate
the strategic response of their rivals to the firms planned strategies, the strategies of
other competing firms, and changes in the environment.
Third, this proactive knowledge will give the firms strategic agility. Offensive strategy
can be implemented more quickly in order to exploit opportunities and capitalize on
strengths.
A common technique is to create detailed profiles on each of your major
competitors .These profiles give an in-depth description of the competitor's
background, finances, products, markets, facilities, personnel, and strategies. This
involves:

Background
location of offices, plants, and online presences, ownership, corporate governance,
and organizational structure
Financials
P-E ratios,and profitability, various financial ratios, liquidity, and cash flow ,profit
growth profile; method of growth (organic or acquisitive)
Products
products offered, depth and breadth of, and product portfolio balance, new
products developed, new product success rate, and R&D strengths, brands,
strength of brand portfolio, brand loyalty and brand awareness, patents and
licenses, quality control conformance
Marketing
segments served, market shares, customer base, growth rate, and customer loyalty
promotional mix, promotional budgets, advertising themes, ad agency used, sales
force success rate, online promotional strategy
distribution channels used (direct & indirect), exclusivity agreements, alliances, and
geographical coverage
pricing, discounts, and allowances
Facilities
plant capacity, capacity utilization rate, age of plant, plant efficiency, capital
investment
location, shipping logistics, and product mix by plant

Competitive Advantage

A firms ability to create value in a way that its rivals cannot

When a firm has the potential to earn a persistently higher

rate of profit than its rivals

Competitive advantage means a lack of equilibrium with rival

firms

Being distinctively better than rivals on 1-2 key success

factors usually translates into competitive advantage

Every organization has resources and capabilities,

however, not every organization effectively exploits those
resources or capabilities or obtains the resources or
capabilities it needs but doesnt have.
Some organizations are able to put it all together, some are
not.

The
The Emergence
Emergence of
of Competitive
Competitive
Advantage
Advantage
How does
competitive
advantage emerge?

External sources of
change e.g.:
Changing customer demand
Changing prices
Technological change

Resource
heterogeneity
among firms means
differential impact

Some firms faster

and more effective
in exploiting change

Internal
sources
of change

Some firms
have greater creative
and innovative
capability

Porters generic strategies

Cost leadership strategy

The goal of cost leadership strategy is to offer products or services at the lowest cost in
the industry.

The challenge of this strategy is to earn a suitable profit for the company, rather than
operating at loss and draining profitability from all market players.

Companies such as Walmart succeed with this strategy by featuring low prices on key
items on which customers are price-aware, while selling other merchandise at less
aggressive discounts. Products are to be created at the lowest cost in the industry

DIFFERENTIATION STRATERGY
A differentiation strategy is appropriate where the target customer segment is not pricesensitive, the market is competitive or saturated, customers have very specific needs which
are possibly under-served, and the firm has unique resources and capabilities which enable it
to satisfy these needs in ways that are difficult to copy.
These could include patents or other Intellectual Property (IP), unique technical expertise
(e.g. Apple's design skills or Pixar's animation prowess), talented personnel (e.g. a sports
team's star players or a brokerage firm's star traders), or innovative processes.
Successful differentiation is displayed when a company accomplishes either a premium price
for the product or service, increased revenue per unit, or the consumers' loyalty to purchase
the company's product or service (brand loyalty). Differentiation drives profitability.

FOCUS STRATERGY
This dimension is not a separate strategy for big companies due to small market conditions. Big
companies which chose applying differentiation strategies may also choose to apply in
conjunction with focus strategies (either cost or differentiation). On the other hand this is
definitely appropriate strategies for small companies especially for those wanting to avoid
competition with big ones.
In adopting a narrow focus, the company ideally focuses on a few target markets (also called a
segmentation strategy or niche strategy). These should be distinct groups with specialised needs.
The choice of offering low prices or differentiated products/services should depend on the needs
of the selected segment and the resources and capabilities of the firm.
The firm typically looks to gain a competitive advantage through product innovation and/or brand
marketing rather than efficiency. A focused strategy should target market segments that are less
vulnerable to substitutes or where a competition is weakest to earn above-average return on
investment
Examples : Air Asia India, CARE Ratings

Miles and Snows Adaptive Strategies

Miles and Snows approach is based on the strategies organizations use to adapt to
their uncertain competitive environments and identified four strategic postures :
Prospector
Defender
Analyzer
Reactor

Prospector Strategy

An organization that follows a prospector strategy is a highly innovative firm that is

constantly seeking out new markets and new opportunities and is oriented toward
growth and risk taking

Firms using a prospector strategy are seeking large gains and will take significant risks
to achieve them. Typically these firms will seek out new emerging markets and will
attempt to take advantage of unproven technologies

Prospectors are likely to have large profits if they are successful, but they are more
likely to fail than firms using more conservative strategies

A large proportion of their revenue comes from new products or new markets. They are
often highly leveraged, sometimes with a substantial equity position held by VC firms .
The risk of product failure or market rejection is high

Defender Strategy

Is used by organizations to protect current market share by emphasizing existing

products and producing a limited product line

As result of this narrow focus, these organizations seldom need to make major
adjustments in their technology, structure, or methods of operation. Defenders can be
successful especially when they exist in a declining industry or a stable environment

A defender succeeds by maintaining a competitive product line and making it hard

for others to compete by in their attempt to secure this stable market they either keep
prices low, keep advertising and other promotional costs low, engage in vertical
integration.

Analyzer Strategy
The analyzer strategy is a balanced strategy, it is neither as risky as the prospector
strategy nor as conservative as the defender strategy. They will usually allow other
firms to test the waters with a new technology or market before entering it
themselves
They want both to protect their base of operations and to create new market
opportunities
They try to maintain a balanced portfolio of products with some stable income
generators and some potential winners. They watch the developments in their
industry closely, but dont act until they are sure that the time is right
Proctor & Gamble (P&G) has established numerous name brand products. It is
important for P&G to continue to invest in its successful products, in order to
maintain financial performance. But P&G also needs to encourage the development
of new products and brand names. In this way, it can continue to expand its market
presence and have new products to replace those whose market falls off. Through
these efforts P&G can continue to grow

Reactor Strategy
Is characterized by the lack of a coherent strategic plan or apparent means of
competing
Reactors simply react to environmental changes and make adjustments only when
forced to do so by environmental pressures
Often, reactors are unable to respond quickly to perceived changes in the environment
because they lack or are unable to exploit the resources or capabilities necessary
International Harvester (IH) during the 1960s and 1970s followed this approach. At a
time when IH's market for trucks, construction equipment, and agricultural equipment
was booming, IH failed to invest in research and development, in improvements in
manufacturing, or in improvements in distribution. By the time a recession cut demand
for its products, it was too late for IH to respond, and the company lost millions of
dollars. Indeed, at one time IH had the largest annual loss of any company in the
history of the world

Thank You