Lesson 7: Developing Corporate Strategies Flashcards
What is the overview of the competitive strategies?
1) Generic strategies: Cost leadership Differentiation Focus The strategy clock
2) Interactive strategies:
Hypercompetitive strategy
Cooperation
Game theory
What are the grounds of competition?
Product features, functionality, quality, service, place, distribution, terms of delivery and payment, communication, time and price
Competitive strategies are based on:
Analysis of the environment
Analysis of the internal firm
What are Porters Generic strategies?
Competitive scope:
1) Broad target
2) Narrow target
Competitive advantage: lower cost of uniqueness
Cost leadership, focused cost leadership, differentiation, focused differentiation
What is cost leadership?
Strategy to become the lowest-cost organisation
4 cost drivers:
1) Input costs: Labour, raw materials
2) Economics of scale: reduces average costs, minimum efficient scale
3) Experience curve: A) Gains in productivity = learning B) More efficient designs or equipment Implications for business strategy: 1. Entry timing: early > late 2. Gain and hold market share = cumulative experience 3. Improvements continue over time
4) Product/ process design
What is differentiation?
Uniqueness = valued by customers –> price premium
3 primary differentiation drivers:
1) Product and service attributes = better, unique product: eg. Apple
2) Customer relations:
Customer services and responsiveness (eg. Zalando)
Customisation eg. SAP
Marketing, brand and reputation: eg. Coca Cola
3) Complements: eg. Apple universe
What is focus strategy?
Targets narrow segment and tailors to exclusion of others.
Eg. Ecover = differentiation focuser vs. Ryanair = cost focuser
What is a hybrid strategy?
Porter is not a fan = risk of being ‘stuck in the middle’ = no strategy at all
Sometimes it works: Southwest: customer service and low cost
Porter: when combining works:
1) Organisational separation: seperate SBU’s: risk: preven negative spill overs
2) Technological or managerial innovation
3) Competitive failures: less competitive pressure
What is Porters generic strategies?
The company must either be n. 1 in low cost and a standard service or be unique in its products or services
The company can either serve a niche or the whole market.
There can only be one cost leader in an industry but there can be many companies following a differentiation strategy
There can be room for many who follow a differentiated niche strategy.
In a geographical fragmented industry, there is room for more than one focused cost leader.
What is stuck in the middle?
If the company tries to combine these strategies it becomes stuck in the middle
Combinations of these strategies create a non-clear image of the company
The whole value chain must be organised to fulfil one of the generic strategies
The idea that is only efficient to follow one competitive strategy in a SBU seems to fit better in for instance the airline industry than within the financial sector.
What is the strategy clock?
Bowman:
1) Perceived product / service benefits from high to low
2) Price
What is the no frill strategy?
Focused cost leader
Low price combined with low perceived value of the product benefits, focusing on price sensitive market segments.
Commodity markets
Price sensitive customers: niche market
Buyers have switching costs and low power
Opportunity to avoid major competitors.
Eg. EasyJet, Aldi, Lidl
Wat is the low price strategy?
Cost leader:
A large portion of the market ask for a standard product for a relative low price
Lower price than competitors while offering similar product benefits
Created by economics of scale, experience, procurement and production layout
Cost minimization in all activities
Pitfalls are margin reductions and inability to reinvest
Eg. Netto, Fakta, Rema 1000.
What is a hybrid strategy?
Seeks to simultaneously achieve differentiation and law proce relative to competitors
Extra product qualities are converted from higher margins to higher market shares by only taking a moderate price
IN spite of differentiation prices are low in order to gain high market shares and volume
Going after big volume and low single unit margin, but big total profit
Sometimes cost saving, for instance outsourcing can be a way of differentiation the product (IKEA)
Eg. Fotex and Bilka
What is differentiation with the strategy clock?
A large part of the market are willing to pay a little extra for a differentiated product with some extra features or unique qualities
All types of value activities can be objectives for differentiation, as for instance product features, functionality, quality, service, product development
Eg. ISO, Irma, SAS
What is the focused differentiation strategy with the strategy clock?
A small part of the market are willing to pay a substantial amount of money extra to get some very unique product features, qualities and image
Eg: retail butchers and individual airplane services
High quality supermarkets: Magasin and special stores
What are the strategies destined for ultimate failure?
Product and services with a high price and of low perceived value for the customers.
Can be applied by companies wih a monopolistic position or firms redrawing from an industry.
What are “trading-up” processes?
Companies begin with a no-frill strategy and over time, they increase the quality of their products and perhaps their product assortment. IN the end they also offer products that follows a focused differentiated strategy.
Eg. Toyota: started with offering no-frill cars in the ’50s, cars that followed a hybrid strategy during the ’80s and created the Lexus brand in the 90s following a focues differentiated strategy.
What are the trading down processes?
Companies start by producing and selling products and services that are strongly focused differentiated and afterwwards capitalise on this (the brand), by offering a differentiated product that appeals to a broader part of the market.
Fashion industry and the consumer electronic industry.
What is attack and defence?
Elements in a cost leadership strategy?
Scale of economics, experience effects, procurements cost, optimising of production processes and design
Attack on a cost leader:
1) The focused cost leader tries to position his product closer to the cost leader and hold on to a lower price
2) Companies with a differentiation strategy attempt to increase the perceived value of the differentiated product compared with the standard product
How can you defend a cost leadership strategy
Defending a cost leadership strategy:
Increase the ground for cost minimization further in all value chain activities
Make sure the product/sercives of the firm that are following a differentiated strategy
What are the elements in a differentiation strategy and attack and defence?
Elements in a differentiation strategy:
Uniqueness within product features functionality, quality, service, delivery and payment terms, product development, communication
Make sure the uniqueness is complex and rooted across the value chain.
The unique feature must be valued by customers and possible to communicate
Attack a differentiation strategy:
Cost leaders will try to show that their products are just so good, but at a lower price. Companies with a focues differentiation strategy will seek to show that their products are of more value.
Defense of a differentiation strategy:
Increasing the basis for differentiation in all value chain activities further. Increase the similarity to companies which follow a focused differentiation strategy.
What is the focused strategy with attack and defence?
Elements of a focus strategy:
A narrow segment with special needs, eg. Scraped product with a very low price.
A need for extra uniqueness and a willingsness to pay an extra high price. The entire value chain must focus on the segment’s special needs.
Attack on a focus strategy:
Cost leader lowers its prices
The company pursuing a differentiation strategy differentiates its products/services even further
Defense of a focused strategy:
The company with a focused strategy must focus its products and services even further so that the differences in price remains justified.
What are lock-in strategies?
1) Size or market dominance
2) Self-reinforcing commitment
3) First-mover dominance
4) Insistence on preservation of position
How can you establish strategic lock-in?
Lock-in is when a company sets the standard within an industry.
Product standars are often set in the early days of an industry or in the beginning of the life cycle.
Often put in place by first mover advantages or a dominant player
It could also be established through a coalition or a group of firms.
Standards are often self-reinforcing and difficult to change
Often lock-in is achied through mobilising customers or suppliers or by selling the product very cheap.
What are the characteristics of succesful hypercompetitive strategies?
Cannabilse bases of success
Smaller moves may be more effective than bigger ones
Disruption of the status quo
Be unpredictable
Mislead the competition
What are normal competitive moves?
Imitating competitors
Building “strongholds” = market segments with a strong position
Creating big financial reserves
Building barriers
Following a generic competitive strategy
What are the moves in hyper competition
Recognise that every competitve advantage is only temporary but that many of these can create long term advantages
Create competitive breaks by developing and introducing new product variations before the success of existing products are left out
Make sure competitive moves are unpredictable and unreasonable
Be prepared for surprises = flexible and hold slack resources
Go directly after competitors weaknesses
Can you both cooperate and compete?
Often companies both compete and collaborate at the same time:
The computer industry in California
The shoe and leather industry in North Italy
Electronic industry in South Germany
Pharmaceutical and biotech companies in the Oresund region
Collaboration can take place between:
Two competing companies for instance in order to develop technology or share procurement
A firm and one of its suppliers for instance in order to improve the quality.
A company and one of its customers for instance in order to make distribution more efficient.
Competition as a game
Competition is not static, it is about moves and contra moves.
Competition is very often characterised with the limited knowledge of the consequences of our actions
The choice between competition or corporation can be illustrated by the prisonners dilemma
The behaviour and sensitivity of our competitors can be tested through a sequential game.
