CHAPTER –4: Competitive Strategies

2.1) Commitment and Competitive Strategy

2.2) Market Structure
2.3) Five Forces Reconsidered
2.4) Technology Competition
2.5) Innovation and imitation
2.6) Patent Races,
2.7) New Product Competition
2.8) Power Play
2.9) Corporate Strategy

• e-mail: kassegnberhanu@gmail.com
• kassegnbirhanu@dbu.edu.et
 …

• New competition from all directions-

• from global competitors /strong
megabrands eager to grow sales in
new markets/ new categories.
• from online competitors seeking cost-
efficient ways to expand distribution;
• from private-label brands: to provide
low-price alternatives;
• So, the need for creatively designed
and well executed marketing
programs.
 2.1) Commitment and Competitive Strategy

• Commitment: senior management and key

personnel execute the strategies of the
organization as effectively as possible to
reach its objectives.
• Many people have good ideas about how to
improve things, or what new things could be
done
• Where feasible, involve people in the
decision-making processes.
• Ask them for input and give them positive
feedback, even if idea is not currently
appropriate
 …

• How do organizations get commitment and keep it over

time?
1.Give the individual the tools and authority
needed to do their jobs effectively.
2. When they make a mistake, it becomes a
learning opportunity, not a penalty.
3. Establish a culture which reinforces
commitment, not one that tears it down.
• Commitment is one of the key factors in the
overall success of the company.
2 types of commitment
1. “Aggressive/ Tough/ Hard,” a large and rapid
increase in capacity aimed at increasing its market
share,
 PESTLE ANALYSIS
• Political factors: how and to what extent a
government intervenes in the economy.
Example: tax policy, labour law,
environmental law, trade restrictions, tariffs,
and political stability.
• -Economic aspects include economic
growth, interest rates, exchange rates and
the inflation rate.
• Social issues include the cultural aspects
and include health consciousness, population
growth rate, age distribution, career attitudes,
individual tastes and emphasis on safety.
 …
• Technological concerns include R&D
activity, automation, technology incentives
and the rate of technological change. They
can determine barriers to entry, minimum
efficient production level and influence
outsourcing decisions.
• Environmental factors include weather,
climate change, which may especially affect
industries such as tourism, farming, and
insurance.
• Legal issues include discrimination law,
consumer law, employment law, and health
and safety law.
The structural determinants of the 5
forces of competition
Suppliers’ power:
Power of
suppliers relative
Threat of Entry: to producers
Economies of Scale:
Cost advantages;
Capital Industry rivalry: Threat of
requirements; Concentration; substitutes :
Product Diversity of
competitors; Buyers’
Differentiations Product propensity to
Access to Differentiation: substitute;
distribution Excess Capacity and
Relative price
channels;
Government and
.
exit barriers; Cost
Conditions and performance
legal barriers of substitute
Buyers’ power:
Price sensitivity:
Cost of product relative
to total cost
Product differentiation;
competition b/n buyers:
size and concentration
of buyers; Buyers
information
 1. Threat of substitutes
• What is the price of a product?
• How much customers are willing to pay
depends (partly) on the availability of
substitute products: cigarettes, e-
commerce, beer, soft drinks, tour
operators…
• Buyer propensity to substitute (sensitive
to price). When you go to Dire Dawa, do
you take train/bus or the plane?
• Amtrak has seen profitability threatened
by the rise of air travel or car
 2. Threat of new entries
– If an industry earns a high return: it
becomes a magnet for others to come in
• The most attractive segment is one in
which entry barriers are high and exit
barriers are low.
• Few new firms can enter the industry, and
poorly performing firms can easily exit.
• If entry barriers are low and exit barriers
are high: firms enter during good times
but find it hard to leave during bad times.
 Main barriers
1. Capital requirements. High / low /
(franchises), Boeing – Airbus.
2. Economies of scale: cost/unit. very high
costs/ unit example for planes. R&D,
advertising. Ex. Wine dispenser.
3. Product differentiation (brand recognition
and customer loyalty: cigarettes, mayonnaise,
4. Access to distribution channels
(shelf space, reluctant retailers,
 …

• 5. Gov. & legal barriers: get a license by a

public authority. Corruption. Intellectual
property: Patents, copyrights. Safety
standards, Environmental standards.
China.
• 6. Retaliation: aggressive reaction from
established firms (price war, increase
advertising, sales promotions.
 3. Industry Rivalry
In some industries firms compete
aggressively
• Six Factors:
1. Concentration: number and size of firms.
Is it a market dominated by one firm,
monopoly? Two firms (paralelism pricing
decisions); few firms; Many firms
2. Diversity of competitors: how different
are they? Do they coexist in peace?
3. Product differentiation: is it a commodity
– easily substituted – or is the product
differentiated.
 …
• 4. Excess capacity. In a recession: demand is
low. Excess capacity, prices drop. Is it a
mature market / emergent economy.
• 5. Exit barriers: Capacity to leave the
industry. Is there substantial job protection?
High exit cost.
• 6. Cost conditions: how high are fixed costs
compared to variable costs. Ex. Airlines.
Huge fixed costs.
• A segment is unattractive if it already
contains numerous, strong, or aggressive
competitors
• E.g cellular phone market
 4. Power of Buyers
• Output markets
• How do we share the values to
distributers and consumers?
• It depends on the economic power (or
bargaining power) of each them.
• Relative bargaining power: Size of
buyers + Concentration of buyers
relative to suppliers:
• Buyers' information: if informed
about suppliers, costs and prices,
they are able to bargain
 5. Power of suppliers
• Input markets”. Raw materials
• A segment is unattractive if the company's
suppliers are able to raise prices or reduce quantity
supplied.
• Competitive advantage: identify key success factors
A firm must meet two criteria: -
1. Must supply what customers want (analysis of
demand)
2. Must survive competition (analysis of supply)
• Two questions we must answer to:
1. What do customers want? Who are they ?
2. How does the firm survive competition? How
intense is competition? How can we improve
competitive position?
 2.4. Technology Competition
• Technological innovation enhances our lives
and provides us with new tools to perform
everyday tasks
• computers, software, communications, and
biotechnology are the best way to reduce
costs, encourage innovation, and expand
choices for consumers
• Innovation is a central aspect of rivalries
among technology firms, and the markets
are dynamic: and consumers incline to buy
products that are smaller, faster, and
better
 ….

• Some of the most far-reaching changes in IT

managed service provider communication
have been brought about by websites, email,
social networking sites, and smartphones
• Why is technology important in business?
1. COMMUNICATION WITH CUSTOMERS
• In today’s busy business environment, it is
necessary for employees to interact with
clients quickly and clearly.
• When customers use technology to interact
with a business, the business benefits because
better communication creates a stronger
public image.
 2. EFFICIENCY OF OPERATIONS

• Technology also helps a business understand its

cash flow needs and preserve precious
resources such as time and physical space.
• With proper technology in place, executives can
save time and money by holding meetings over
the Internet
3. SECURITY
• Most businesses of the modern era are subject
to security threats and vandalism. It can be
used to protect financial data, confidential
executive decisions.
• By having computers with passwords, a
business can ensure none of its forthcoming
projects will be copied by the competition.
 4. RESEARCH CAPACITY

• The Internet allows a business to virtually travel into

new markets without the cost of an executive jet
5. Robotics and Artificial Intelligence
• Two important emerging technology fields are
robotics and artificial intelligence.
• Robotics is an engineering science that uses
electronic or mechanical technology to replace
human labor.
• Manufacturing and production firms currently use
robots, and the robotics technology industry seeks to
expand to other business industries.
• Artificial intelligence - creating intelligent machines
helps to make accurate predictions and identify
trends
 2.5. Innovation and Imitation
• Innovation is developing new things using
one's own ideas and creativity
• Innovation creates value for the product
• Creativity requires the courage to let go
of certainties and in a competitive arena
one needs to upgrade frequently to
survive.
• Innovation for most businesses is thought
to be an activity that is complex, costly
and with very little promise of a return
on investment
 Imitation and Types
• It is all about using the already developed
things in one's own way.
• Counterfeits duplicates the leader's product
and packages and sells it on the black market or
through disreputable dealers. Music firms,
Apple, films
• are copies that resemble an original brand
name but of low quality (illegal)
• knockoffs are legal products, closely copying
the original products in the absence of
copyrights, trademarks and patents but sold
with their own brand names at far lower prices..
 ….

• Cloner-The cloner emulates the leader's

products, name, and packaging, with
slight variations.
• Then, the company sells products making
slight discount from the leading
company’s price.
• Adaption: It takes the leader's products
and adapts or improves them.
• E.g. Many Japanese firms have done after
improving products developed elsewhere.
 2.6. Patent Races

• A patent race is a competition between

two or more inventors (usually firms) to
discover an invention first in order to
obtain patent protection for the
invention and exclude competitors.
• After the granting of a patent, third
parties are no longer allowed to offer,
sell, use or produce an invention, except
if the patent holder allows them the
licenses; hence protection is achieved
Conditions for exclusive patent protection
1. the invention must be new/ novel, and
2. commercially usable
Patent races can increase the probability
of innovation when inventors have
different ideas for how to solve problem
It– can be disadvantage of generating
wasteful duplication of efforts:
Many contenders invest resources to reach
the same target but eventually, only one of
them will be rewarded
 2.7. New Product Competition

• When a product is in a saturated

category, brands must find ways to
distinguish it from its competitors
• If brands can’t find a way to
differentiate products in their category,
sales will flounder
• The failure rate for new products
launched on an annual basis
is approximately 80%
• 63% of consumers are receptive to new
product launches, and enjoying it
 ….

A company can obtain new products in

two ways.
1. Acquisition- buying a whole company,
a patent or a license to produce someone
else’s products.
2. New product development, via
research and development department.
• It has to be good at managing them in
the phase of changing tastes,
technologies, and competition.
New product development Process
Idea generation
Idea screening
Concept development &
testing
Marketing strategy
Business analysis
Pdt development
Test marketing
Commercialization
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 2.8. Power play
• It is an attempt to gain an
advantage by showing that you are
more powerful than another person
or organization, for example in a
business relationship or negotiation.
• In the most extreme form, power plays
look like threats, use of power to shut
someone up, exclusion or expulsion.
 Types of power play
The monitor: They try to supervise you but they
aren't your boss. In healthy teams, peers support,
mentor and coach each other is usual.
• The power play comes in when someone acts
like the hall monitor, self appointing themselves
as the team monitor, correcting your work
The excluder: They might simply exclude you
from an email and can not attend your meeting
because "something more important came up",
or even invite others to a team get together.
• They are trying to let you know that you aren't
important and they are. It happens when they
are so immature
 …

The belittler. They purposefully try to

make you look small in front of others.
• It might look like scoffing/humiliate at
your ideas, calling you stupid.
The blocker. Have you ever worked with
someone who seems to intentionally block
everything you try to do? They might
ignore your emails, refuse to call you
back, delay a piece of work
 Analysing competitors
A. Strategies
• A group of firms following the same
strategy in a given target market is a
strategic group.
• "Red-ocean thinking"- seeking bloody,
head-to-head battles with competitors
based largely on incremental
improvements in cost, quality, or both.
• "Blue-ocean thinking" is creating
products and services for which there
are no direct competitors.
 …

• Companies offering the powerful

combination of low prices and high
quality are capturing the hearts and
wallets of consumers all over the world.
• Staying as the number-one firm calls for
action on three fronts.
1. Expanding total market demand.
2. Protecting its current market share
through good defensive.
3. The firm can try to increase its market
share
1. Expanding the Total Market
• Looking for new customers or
more usage from existing
customers.
• A company can search for new users
among three groups: those who
might use it but do not (market-
penetration strategy), those who
have never used it (new-market
segment strategy), or those who live
elsewhere (geographical-expansion
strategy).
 2. Defending Market Share

• Continuously and actively defend its

current business: Boeing against Airbus;
McDonald’s against Burger King; and
Google against Yahoo!
• The success of online social network sites
MySpace and Facebook
• The leader should lead the industry in
developing continuous innovation of
new products and customer services,
distribution effectiveness, and cost
cutting.
 Defensive strategy
• The aim is to reduce the probability of
attack, divert attacks to less-
threatening areas, and lessen their
intensity.
• Position Defence: it means
occupying the most desirable market
space in consumers' minds.
• E.g. Crest toothpaste for cavity/decay
prevention, and Pampers diapers for
dryness.
 …
• Pre-emptive Defense: A more aggressive
maneuverer/tactic is to attack before the
enemy starts its offense. A company can
launch a pre-emptive defence in several ways.
• It can wage guerrilla action across the market-
hitting one competitor here, another there-
and keep everyone off balance; or it can try to
achieve grand market envelopment.
• Bank of America's 17,000 ATMs and 5,700
retail branches nationwide provide steep
competition to local and regional banks.
 Contraction Defence
• Large companies sometimes must
recognize that they can no longer
defend all their territory.
• The best course of action then appears
to be planned contraction (also called
strategic withdrawal): giving up
weaker territories and reassigning
resources to stronger territories.
 Frontal Attack
• In a pure frontal attack, the attacker
matches its opponent's product,
advertising, price, and distribution.

• The principle of force says that the

side with the greater resources will
win.
 Flank Attack
• An enemy's weak spots are natural
targets. A flank attack can be directed
along two strategic dimensions-
geographic and segmental.
• In a geographic attack, the challenger
spots areas where the opponent is
underperforming.
• The other flanking strategy is to serve
uncovered market needs.
Competitor oriented Vs Customer oriented
Companies
1. Competitor-Centered Companies
• some pluses and minuses.
On the positive side,
• the company develops a fighter
orientation. It needs to be on constant
alert, to watch for weaknesses in its
competitors' and its own position.
 ….

On the negative side,

• the company is too reactive. Rather
than formulating and executing a
consistent, customer-oriented strategy,
it determines its moves based on
its competitors' moves.
• It does not move toward its own
goals.
• It does not know where it will end up,
because so much depends on what its
competitors do.
 2. Customer-Centered Companies
• A customer-centered company focuses
more on customer developments in
formulating its strategies.
• Clearly, the customer-centered
company is in a better position to
identify new opportunities and set
a course that promises to deliver
long-run profits.
 …

• By monitoring customer needs, it

can decide which customer groups
and emerging needs are the most
important to serve, given its
resources and objectives. Jeff
Bezos, founder of Amazon.com,
strongly favors a customer-centered
orientation:
• So the need to balance Customer
and Competitor Orientations
 2.9. Corporate strategy

• It is the destination towards a

direction which a business should
move
• Hierarchically the highest strategic
plan of the organization, which
defines the corporate overall long-term
goals and directions and how it will be
achieved within strategic management
activities.
 Classifications of corporate strategy
• Based on external and internal factors
• Growth strategies are strategies designed to grow a
business in a given way. E.g. entering new markets,
increasing/ diversifying existing ones, or using forward or
backward integration to take advantage of economies of
scale.
• Stability strategies are designed to consolidate an
organization's current position, with an eye towards creating a
strategic environment that will provide greater flexibility for
the future employment of growth or retrenchment
strategies.
More conservative strategies, focused on preserving profit,
reducing costs, and investigating future strategic possibilities.
• Retrenchment strategies are a response to unprofitable or
damaging elements of a business.
These might include the elimination or sale of unprofitable
assets or product lines.