STRUCTURAL ANALYSIS AND COMPETITIVE STRATEGY:
An effective competitive strategy takes offensive or defensive action in order to create a defendable position against the five competitive forces. Broadly, this involves a number of possible approaches.
- Positioning the firm so that its capabilities provide the best defense against the existing array of competitive forces.
- Influencing the balance offered through strategic, thereby improving the firm’s relative position; or
- Anticipating shifts in the factors underlying the forces and responding to them, thereby exploiting change by choosing a strategy appropriate to the new competitive balance before rivals recognize it
The Structural Analysis of Industry:
The intensity of competition in an industry is neither a matter of confidence nor bad luck. Rather, competition in an industry is rooted in its underlying economic structure and goes beyond the behavior of current competitors. The state of competition in an industry depends on five basic competitive forces, which are show in Figure:
Fig: Driving Forces Industry Competition
Generic Competitive Strategies:
Three Generic Strategies:
In coping with five competitive forces, there are there potentially successful generic strategic approaches to outperforming other firms in an industry.
- Overall cost leadership
OVERALL COST LEADERSHIP
The first strategy an increasingly common one in the 1970s because of popularization of the experience curve concept, is to achieve overall cost leadership in an industry through a set of functional policies aimed at this basic objective. Cost leadership requires aggressive construction of efficient -scale facilities, vigorous pursuit of cost reductions from experience, tight cost and overhead control, avoidance of marginal customer accounts, and cost minimization in areas like R&D, service, sales force, advertising, and so on.
The second generic strategy is one of differentiating the product or service offering of the firm. Creating something that is perceived industry wide as being unique. Approaches to differentiating can take many forms: design or brand image (Fieldcrest in top of the line towels and linens: Mercedes in automobiles) technology) Hysteria in lift trucks Macintosh in stereo companions Coleman in camping equipment) features (Jennie air in electric ranges); customer service Crown cork and seal in metal cans) dealer network (Caterpillar Tractor in construction equipment,) or other dimensions.
Maintenance & Repair
Table: Differentiation variables
The final generic strategy is focusing on a particular buyer group, segment of product line, or geographic market; as with differentiation focus may take many forms, Although the cost and differentiation strategies are aimed at achieving their objectives industry wide, the entire focus strategy is built around serving a particular target very well and each functional policy is developed with this in mind.
By the Customer Low Cost Position
Fig: Three Strategic Strategies
A FRAMEWORK OF COMPETITOR ANALYSIS:
Competitive strategy involves positioning abusiveness to maximize the value of the capabilities that distinguish it from its competitors. It follows that accentual aspect of strategy formulation is perceptive competitor analysis. The objective of competitor analysis is to develop a profile of the n attune and success of the likely strategy changes each competitor might make, each competitors probable response to the range of feasible strategic moves other firms could initiate, and each competitors probable reaction to the array of industry changes and broader environmental shafts that might occur.
Fig: Components of a Competitor Analysis
Areas Competitor Strengths and Weakness
- Standing of products, from the user’s point of view, in each market segment
- Breadth and depth of the production
- Channel coverage and quality
- Strength of channel relationships
- Ability to service the channel
Marketing and Selling
- Skills in each aspect of the marketing mix
- Skills in market research and new product development
- Training and skills if the sales force
- Manufacturing cost position-economies of scale, learning curve of equipment etc.
- Technological sophistication of facilities and equipment
- Flexibility of facilities and equipment
- Proprietary know-how and unique patent or cost advantages
- Skills in capacity addition, quality control, tooling, etc.
- Location, including labor and transportation cost
- Labor force climate, unionization situation.
- Access to and cost of raw materials
- Degree of vertical integration
Research and Engineering
- Patents and copyrights
- In house capability in the research and development process (product research, process, research, development, imitation, etc)
- R&D staff skills in terms of creatively, simplicity, quality reliability etc.
- Access to loused sources of research and engineering.
- Overall relative costs
- Shared costs or activities with other business units
- Where the competitors is generating the scale or other factors that are key to its cost position.
- Cash flow
- Short and long term borrowing capacity (relative debt equity aeration)
- New equity capacity over the foreseeable future
- Financial management ability, including negotiation raising capital, credit in venturous and accounts receivable
- Unity of values and clarity of purpose in the organization
- Organizational fatigue based on recent requirements placed on it
- Consistency of organizational arrangements with strategy
General Managerial Ability
- Leadership qualities of CEO; ability of CEO to motivate
- Ability to coordinate particular functions or groups of functions (e g manufacturing with resource coordination)
- Age training and functional orientation of management Depth of management
- Flexibility and adaptability of management
- Ability of corporation to support planned changes in all business units in terms of financial and other resources
- Ability of corporation to supplement or reinforce business unit strengths
- Special treatment by or access to government bodies
- Personnel turnover
To diagnose competitive advantage it is necessary to define a firm’s value chain for competition in a particular industry. Starting with the generic chain, individual value activities are identified in the particular firm. Each generic category can be divided into discrete activities, as illustrate for one generic category in the following figure
Fig: The generic Value chain.
STRUCTURAL ANALYSIS WITHIN INDUSTRIES
Dimensions of Competitive Strategy
Companies’ strategies for competing in an industry can differ in as wide variety of ways. However the following strategic dimension usually capture the possible differences among a company s strategic options in a given industry:
- Specialization: the degree to which to which it focuses its efforts in terms of the width of its line the target customer segments an the geographic markets served;
- Brand identification: the degree to which it seeks brand identification rather than competitors based mainly price or other variables. Brand identification can be as sieved inverting sales force or variety of other means.
- Push versus pull: the degree to which it seeks to develop brand identification with the ultimate consumer directly versus the support of distribution channels in selling its product.
- Channel selection: the choice of distribution channel ranging from company owned channels to specialty outlets to broad line outlets.
- Product quality: its level of product quality in terms of raw materials specifications, adherence to tolerances, features, and so on;
- Technological leadership: the degree to which it seeks important to note that a firm could be a technological leader but deliberately not produce the highest quality product in the market quality and technological leadership do not necessarily go together;
- Vertical integration: the extent of value added as reflected in th level of forward and backward interruption adopted in clouding whether th firm has captive distribution exclusive or owned retail outlets an in house service network and so on;
- Cost position: the extent to which it seeks the low cost position in manufacturing and distribution through investment in cost minimizing facilities and equipment;
- Service: the degree to which it provides ancillary services with its predict line such as engineering assistance and in house service network credit and so forth. This aspect of strategy could be viewed as part of vertical integration but of vertical integration be is usefully separated for analytical purposes;
- Price policy: its relative price position in the market. Price position will usually be related to the relationship between a unit and its parent such other variables as cost position and product quality but price is a distinct strategic variable that must be treated separately;
- Leverage: the amount of financial leverage and operating leverage it bears;
- Relationship with parent company: requirements on the behavior of the unit based on the relationship between a unit and its parent company. The firm could be a highly diversified conglomerate, one of a vertical chain of businesses part of a cluster of related businesses in general sector a subsidiary o foreign company an dos no. The gnarr of the relationship with the parent will influence the objectives with which the firm is managed the resources available to it and perhaps determine some operations or functions that it shares with other units;
- Relationship to home an host government: in international industries the relationship the firm has developed or is subject to with its home government as well as host governments in foreign countries where it is operating.
Marketers use numerous tools to elicit desired responses from their target markets. These tools constitute a marketing mix. Marketing Mix is the set of marketing tools that the firm uses to pursue its marketing objectives in the target market.
McCarthy classified these tools into four broad groups that he called the four Ps of marketing: product, price, place, and promotion.
Robert Lauterborn suggested that the sellers four Ps correspond to the customers four Cs.
Four Ps Four Cs
Product Customer solution
Price Customer cost
Place Convenience for customer
Promotion Communication with customer
Winning companies will be those who can meet customer needs economically and conveniently and with effective communication will get advantage against competitor.
Marketer Responses and Adjustments
Marketers also are rethinking their philosophies, concepts, and tools. Here are the major marketing themes as the millennium approaches:
- Relationship marketing: from focusing on transactions to building long-term, profitable customer relationships. Companies focus on their most profitable customers, products, and channels.
- Customer lifetime value: From making a profit on each sale to making profits by managing customer lifetime value some companies offer to deliver a constantly needed product on a regular basis at lower price per unit because they will enjoy the customer’s business for a longer period.
- Customer share: from a focus on gaining market share to a focus on building customer share. Companies build customer share by offering a larger variety of goods to their existing customers. They train their employees in cross selling and up selling.
- Target marketing: from selling to everyone to trying to be the best firm serving well defined target markets. Target marketing is being facilitated by the proliferation of special-interest magazines, TV channels, and Internet newsgroups.
- Individualization: From selling the same offer in he same way to everyone in the target market to individualizing and customizing messages and offerings. Customers will be able to design their own product features on the company’s Web page.
- Customer database: from collecting sales data to building a rich data warehouse of information about individual customers’ purchases, preferences, demographics, and profitability. Companies can “Data mine” their proprietary
databases to detect different customer need clusters and make differentiated offerings to each cluster.
- Integrated marketing communications: from heavy reliance on one communication tool such as advertising or sales force to blending several tools to deliver a consistent brand image to customers at every brand contact.
- Channels as Partners: From thinking of intermediaries as customers to treating them as partners in delivering value to final customers.
- Every employee a marketer: From thinking that marketing is done only by marketing, sales, and customer support personnel to recognizing that every employee must be customer-focused.
- Model-based decision-making: from making decisions on intuition or slim data to basing decisions on models and facts on how the marketplace works.
These major themes will be examined throughout this book to help marketers and companies sail safely through the rough but promising waters ahead. Successful companies will be those who can keep their marketing changing as fast as their market place and market space.