Chapter 5 - Competitive strategies Flashcards
SWOT Analysis purpose
internal analysis = Strengths + weakness
external analysis = Opportunities + Threats
=> strategy
SWOT Analysis
-Identify company’s resource strength + competitive capabilities
-Identify company’s resource weakness + competitive deficiencies
- Identify company’s market opportunities
-Identify external threats to company’s future well-being
=> conclusions concerning the overall business situation
(attractiveness of the company + where are the (un)attractive parts))
==>Implications for improving company strategy
strategy inferences from SWOT Analysis
=> look for combinations that point towards different alternatives
- S+O Strategy
- S+T Strategy
- W+O Strategy
- W+T Strategy
S+O Strategy
How do I use these STRENGTHS to take advantage of these OPPORTUNITIES?
S+T Strategy
How do I use my STRENGTHS to reduce the likelihood + impact of these THREATS?
W+O Strategy
How do I overcome my WEAKNESSES that prevent me taking advantages of these OPPORTUNITIES?
W+T Strategy
How do I address the WEAKNESSES that will make these THREATS reality?
sustaining competitive advantage
isolation mechanism to prevent imitation
Types of isolation mechanism
- obscure superior performance
- deterrence (agressive signals to imitators)
- Preemption (exploit all available investment opportunities)
- casual ambiguity
- base competitive advantage on immobile/ costly to replicate resources
competitive strategies
- cost advantage
- differentiation advantage
- niche strategy
cost advantage strategy
same price but lower costs = higher profit
cost advantage strategy requirements
- cost control
- product/ service standardisation
- economies of scale/ Scope
- learning effects
- outsourcing/ vertical integration
- bargaining power
cost advantage strategy risks
- catch-up of competitors
- cost-price dynamics (hyper-competition)
- changes in costumer behaviour
cost leadership + experience curve
- empirical estimate: where do unit costs fall - volume of production increases
=> firms which manage to establish first in market -> realize cost advantages through higher market shares + accelerated learning
cost leadership + Economies of scale
=> positive relation between market share + cost level
- usually at capital intensive operations
- source: invisibility + spreading of fixed costs = decreasing costs per unit
cost leadership + Economies of scope
=> positive relation between product portfolio + cost level
(average cost of product lowered by joint production with other products)
! depend on increased variety not higher volume of production!
Economies of scope sources
- use of one/ more common resources in production of several outputs
-spreading fixed costs over more products - application of knowledge + core capabilities to production of several outputs
=> applying knowledge + core competencies to a broader scope of products without using up the relevant knowledge/ competence
Drivers of cost advantage
- economies of scale
- economies of learning
- production techniques
- product design
- input costs
- capacity utilization
- residual efficiency
using the value chain to analyze costs
- identify activities
- allocate total costs
- identify cost drivers
- identify linkages
- identify opportunities for cost reduction
Differentiation strategy
same cost but higher price bc of the differentiation
Differentiation strategy requirements
- brand name/ reputation / image
- superior product quality
- first mover advantage
- strong service + process skills
- design/ marketing skills
- ability to attract creative employees
Differentiation strategy risks
- overspending erodes profitability
- inadequate price premiums
- imitation by the competiors
Differentiation strategy - delivering value via broad differentation
- lower buyer’s overall cost of using the product
- incorporate tangible features -> increase costumer satisfaction (eg. design features)
- incorporate intangible features -> increase buyers satisfaction (eg. status)
- signal the value of the product (justify costumers minds)
=> using the value chain to analyze costs/ skills
Focus (Niche) Strategy
focusses on a narrow costumer segment
- satisfy needs of a specific costumer segment better than any other
- may be defined by geographic uniqueness, specialized requirements in product uniqueness or special products attributes
Focus (Niche) Strategy requirements
- protect niche through entry barriers like > patents/ technology > costumer loyalty > unique service > unique bundling
Focus (Niche) Strategy - two types
- focused low cost strategy: lower costs than rivals in serving a well defined buyer segment
- focused differentiation strategy: offer a product appealing to unique preferences of a well-defined buyer segement
Focus (Niche) Strategy risks
- niche becomes unattractive
- niche becomes attractive to competitors
- new-player re-segment the market
- the strategy is limited in duration
niche strategy types
- regional
- target groups
- product/service
- branding
- high speed
- innovation
- cooperation
- market splitting
cost leadership chose when
- products of rivals are identical
- difficult to achieve differentiation
- buyers use product in the same way
-switching cost low
Avoid: relying on easily replicable cost reduction approaches + becoming obsessed with cost cutting
product differentiation choose when
- few rivals would be able to follow
- possible to achieve differentiation
- buyers needs diverse
- technological change pace high, buyers interested
- Avoid: relying on easily replicable differentiation + investing in improvements with no costumer value
focused (niched) strategy choose when
big niche to which competitors show low interest due to its costly + specialized needs
best cost provider strategy choose when
- product differentiation a norm + large number of value conscious costumers
- competitive space for price/ performance optimal product (eg. high quality - medium price)
Avoid: Stucking in the middle
