MARKETING STRATEGY CLASS : TUESDAY/THURSDAY 2:00 PM- 3:20 PM

INSTRUCTOR: AMIR JAVADINIA

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LECTURE 8

Competitive Advantage

COMPETITIVE ADVANTAGE

• Competitive advantage is anything that gives you a temporary head start over the competition.

• It is what you have better than your competitors

• A competitive advantage can ultimately decide whether a customer chooses you or your competitor.

• It can also help you get faster the market or get larger market share.

• But the competitive advantage is not permanent. It is a temporary thing that you can quickly lose

either by your own mistake, by the competition’s efforts or simply by the market situation.

COMPETITIVE ADVANTAGE

Examples:

• Better product or better service

• Better customer support or customer services

• Faster response to the customer requests

• Faster go to market approach

• Cheaper product (usually cheaper at comparable competitive offer quality)

• Better distribution channels (how you offer or deliver to the customer)

• Better promotion and marketing

COMPETITIVE ADVANTAGE

More Examples

• Better people, human resources – more helpful, motivated workers, smarter, and more educated,

• Better information flow, better communication

• More flexible business processes

• Better market information (about competition, trends) and the ability to adapt quickly

• More efficient business processes (leads to cheaper and faster processes)

• Better leadership, better strategic management

1- Provides value (Relative to competitors)

2- Unique to the Firm

3- Cannot be imitated or substituted by

competitors

SUSTAINABLE COMPETITIVE ADVANTAGE

SUSTAINABLE COMPETITIVE ADVANTAGE

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ROUTES TO COMPETITIVE ADVANTAGE

1- Achieving Cost Leadership

2- Achieving Differentiation

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ACHIEVING COST LEADERSHIP

1 Economies of Scale

2 Experience and Learning

3 Capacity Utilization

4 Linkages

5 Interrelationships

6 Degree of Integration

7 Timing

8 Policy Choices

9 Location and Institutional Factors

ACHIEVING COST LEADERSHIP

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1- Economies of Scale

• Doing things differently in volume or more efficiently

• The most effective way of reducing costs

• E.g. More production rate or less waste

• Usually there is an optimal size: very large production may increase complexity

ACHIEVING COST LEADERSHIP

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2- Experience and Learning

• Employees having performed the necessary tasks many times before.

• Possible in all aspects of business: manufacturing, marketing, advertising, selling, … .

• That’s why companies with larger market share have a cost advantage.

• Experience can also be achieved by hiring experts and training

ACHIEVING COST LEADERSHIP

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3- Optimal Capacity Utilization

• Planning production and inventory to minimize the impact of

seasonal demand fluctuations

4- Linkage

• Side internal/external activities (other than manufacturing and

marketing) that may affect costs:

• Quality control and inspection: The better product test and quality check,

the lower cost of product failure and return or warranty costs

• Distribution relationships: Just-in-Time (JIT) manufacturing and delivery by

getting customer data from retailers

• Supplier relationships: Lower cost of raw material, …

ACHIEVING COST LEADERSHIP

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5- Interrelationships

• With other SBUs (Small Business Units) in the corporate to share some activities such

as R&D and quality control in order to save costs. E.g., the line of iPhone and the line

of MacBook share a software quality control process.

6- Integration

• Which activities should the firm do itself (integrated into corporation)? Which ones

should be outsourced?

• Manufacturing: Make vs. buy decisions

• Contracting delivery or service

ACHIEVING COST LEADERSHIP

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7- Timing (of market entry or product introduction)

• Sometimes first mover may have cost advantage by

• Securing prime locations

• Cheap or good quality raw materials

• Technological leadership

• Sometimes second (late) mover may have cost advantage by

• Benefiting from market awareness

• Leaning from the mistakes of the first mover

.

ACHIEVING COST LEADERSHIP

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8- Policy Choices

• Example: Ryanair

• Reducing service levels and charging for all extras which enabled company

to offer low fares.

9- Location and institutional factors

• Better geographic location to take advantage in distribution, assembly, raw

materials, or energy costs

• Government regulations

• The sensitivity of government to lobbyists and pressure groups is important.

ACHIEVING DIFFERENTIATION

1 Product Differentiation

2 Distribution Differentiation

3 Price Differentiation

4 Promotional Differentiation

5 Brand Differentiation

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PRODUCT DIFFERENTIATION

1- Differentiation the core and expected product

2- Augmenting the product

3 Quality

4 Packaging

5 Service

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PRODUCT DIFFERENTIATION 1 Differentiation the core and expected product

• A new way, e.g. step-change in technology, of providing benefits.

2 Augmenting the product

• Offering more exciting features

3 Quality

• E.g. Durability of product, reliability of service

4 Packaging

• Storing, protecting, facilitating usage, creating image, and promoting the product

5 Service

• After-sales services and relationships with customers

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ACHIEVING DIFFERENTIATION 1 Product Differentiation

2 Distribution Differentiation

• Using a different network

• How internet has changed distribution?

3 Price Differentiation

• If you have cost advantages you can reduce prices and survive price wars

• If you have product/service differentiation you can charge premium prices

• If you address multiple customer segments you can offer a menu of prices

4 Promotional Differentiation

• Public Relations (PR): Creating relationships with media to get positive exposure.

• How social media has changed promotions and distributions?

5 Brand Differentiation

• Changing images, social status, and emotions connected to your brand

OFFENSIVE AND DEFENSIVE COMPETITIVE STRATEGIES

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1 Build (growth) strategies

2 Hold (maintenance) and defensive strategies,

3 Niche Market (focus) strategies

4 Harvest (reaping) strategies

5 Deletion (divestment) strategies

OFFENSIVE AND DEFENSIVE COMPETITIVE STRATEGIES

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1 Build (growth) strategies

• In growing markets by market expansion:

• New Users

• New uses

• Increased frequency of use

• In non-growing markets by stealing shares from weak

competitors

BUILD STRATEGIES: STEALING FROM COMPETITORS

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1 Frontal attack

2 Flanking attack

3 Encirclement attack

4 Bypass strategy

5 Guerilla tactics

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BUILD STRATEGIES: STEALING FROM COMPETITORS

1- Frontal attack

• Attacking competitor where it is strong

• When you are superior on at least one key area

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BUILD STRATEGIES: STEALING FROM COMPETITORS

2- Flanking attack

• Attacking where the competitor is weak

Example:

• Attacking geographical regions or customer

segments underserved by the defender

Key factors:

• Identification of the competitor’s weaknesses

and its inability to serve particular segments

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BUILD STRATEGIES: STEALING FROM COMPETITORS

3- Encirclement attack

• Cutting the competitor from critical

resources, and access to suppliers or

customers

• Example:

• Isolate the competitor from the

supply of raw material

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BUILD STRATEGIES: STEALING FROM COMPETITORS

4- Bypass strategy

• Avoid competing where the competitor is strong: leapfrogging by

a new technology or trade model

• Remember core offer: coming up with a totally new way of

satisfying needs, e.g. iPod replacing cd players.

• Don’t try to imitate resources of the competitor, achieve new ones.

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BUILD STRATEGIES: STEALING FROM COMPETITORS

5- Guerilla tactics

• Are employed primarily as ‘spoiling’ activities

to weaken the competition.

• Often used by a weaker attacker on a stronger

defender.

Example

• Selective price cuts, especially during a

competitor’s new product testing or launch

• Executive raids and legal maneuvers

DEFENSIVE STRATEGIES

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• Good for market leaders operating in mature or declining markets

• Specially in cash generator markets

• Even in growing markets when potential rewards of expansion is outweighed by

its costs

Examples:

• Price cutting when you have cost advantage by economies of scale or

experience

• Guarding of technological expertise

DEFENSIVE STRATEGIES

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Types:

1 Position defense

2 Flanking defense

3 Pre-emptive strike

4 Counter-offensive

5 Mobile defense

6 Contraction defense

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DEFENSIVE STRATEGIES

1- Position defense

• Erecting barriers to copy and/or

entry by:

• Differentiation on non-copyable

grounds (e.g. distinctive skills,

competencies and marketing assets)

• Brand name and reputation

• Higher quality

• Lower prices

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DEFENSIVE STRATEGIES

2- Flanking defense

• Against a flanking attack

• Identify where the attacker is going to strike

your weaknesses and work on those weaknesses

• Concerns:

• New position weakens the company on the core

position

• It may be hard to defend the new position

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DEFENSIVE STRATEGIES

3- Pre-emptive strike

• Attacking the competitor before it can mount at

attack

• Or merely signal an intention to attack

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DEFENSIVE STRATEGIES

4- Counter-offensive

• Attacking the competitor right after it attacked you

• Most effective where the aggressor is vulnerable

through overstretching resources.

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COUNTER-OFFENSIVE EXAMPLE

• When Xerox attempted to break into the mainframe computer market against the

established market leader, IBM launched a classic counter-offensive in Xerox’s bread-and-

butter business (copiers). The middle-range copiers were the major cash generators of

Xerox operations and were, indeed, creating the funds to allow Xerox to attack in the

mainframe computer market. The IBM counter was a limited range of low-priced copiers

directly competing with Xerox’s middle-range products, with leasing options that were

particularly attractive to smaller customers.

• The counter-offensive had the effect of causing Xerox to abandon the attack on the

computer market (it sold its interests to Honeywell) to concentrate on defending its copiers.

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DEFENSIVE STRATEGIES

5- Mobile defense

• continuously update and improve the company’s offerings to the marketplace

• keep the product in line with changing customer requirements.

• Persil going through many reformulations as washing habits have changed and evolved.

• Good for markets where technology and/or customer wants and needs are

changing rapidly.

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DEFENSIVE STRATEGIES

6- Contraction defense

• Giving up untenable ground to reduce overstretching and allow concentration on

the core business that can be defended against attack

• Necessary where the company has diversified too far away from the core skills

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MARKET NICHE STRATEGIES

• To identify new and potential niches not yet exploited by

major competitors.

• Focusing effort (not blindly pursue any potential customer)

• An ability to segment the market

• Efficient use of R&D resources

• Concentrating not on pioneering work but on improvements to

existing technologies

• Thinking small

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HARVESTING STRATEGIES

• Obtaining maximum returns from the product before its eventual death or withdrawal from the market

• Since no long-term future could be imagined for them because of major changes in customer

requirements or technology

• For products which are obsolete or do not generate cash

• Cutting expenses:

• Marketing support

• Advertising

• Sales support

• R&D

• Reducing production and increasing prices

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DIVESTMENT/DELETION STRATEGIES

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