Defensive Strategy

 Aim and Objective

Every firm is vulnerable to attack by competitors.
Attacks come from two types of Competitors:
New entrants.
Established competitors (Repositioning)
They can together be called as Challengers.
Defensive strategy aims to lower the probability and
intensity of attack, divert attacks to the less threatening
avenues. Instead of of increasing the competitive
advantage per se, it makes the competitive advantage
more sustainable.
 The process of entry or repositioning.

  Defensive strategy rests on an acute understanding of how a

challenger views the firm and on the perceived profitability of
challenger’s various options for improving position:
1.  The process of entry or repositioning
1.  Pre-entry: an entrant has commenced entry, during which it examines the
industry and hardest stage to detect..
2.  Entering: entrant invests in establishing base position. Continued
product, process and technology development, test markets, national roll
out and plant construction etc.
3.  Sequencing: Entrant’s strategy evolves from entry strategy to a long run
target strategy.
4.  Post Entry: Entry has fully occurred. Investment by the entrant has
shifted to that needed to maintain or defend position with in the industry.
Defensive Tactics

There are three types of Defensive Tactics.

–  Raising structural Barriers
–  Increasing expected retaliation
–  Lowering the inducement to attack.
Raising the Structural barriers

  Fill product or Positioning Gaps.

  Block Channel Access.
  Raise Buyer Switching Costs.
  Raise the cost of gaining trial.
  Defensively increase the scale of economies.
  Defensively increase the Capital
requirement.
  Foreclose alternative technologies.
  Invest in protecting proprietary know how.
Raising the Structural barriers

  Tie up Suppliers
  Raise competitors Input costs.
  Defensively pursue interrelationships.
  Encourage Government policies that raise
barriers to entry.
  Form Coalitions to raise barriers or Coopt
Challengers.
Increasing Expected Retaliation

A second type of defensive tactics is an action that

increases the threat of retaliation perceived by
challengers.
Some of the most important ways of increasing a firm’s
perceived threat of retaliation include:
  Signal commitment to defend.
  Signal incipient barriers.
  Establish blocking positions (e.g Price cuts.)
  Match Guarantees. (e.g. those offered by competitors.
  Raise the Penalty of Exit or Lost Share.
  Accumulate retaliatory resources. (e.g. reserves)
Increasing Expected Retaliation

  Encourage good competitors.

  Set Examples
  Establish defensive Coalitions.

  RETALIATION DURING ATTACK:

  Disruption of test Markets or Introductory markets.
  Leapfrogging. (e.g. Introducing new product)
  Litigation. (e.g. Patent suits)
  Lowering the inducement to attack
  Reducing profit targets. (making industry less attractive)
  Managing competitor assumptions
Defensive Strategy

  There are two types of defensive strategy:

  The ideal defensive strategy is deterrence–
preventing a challenger from initiating a
move in the first place or deflecting it to
become less threatening.
  The other type is called response, is one in
which the firm reacts to challenges as they
occur.
Deterrence

  Thoroughly understand the existing barriers.

  Anticipate the likely challengers.
  Forecast the likely avenues of attack.
  Choose the defensive tactics to block the likely avenue
of attack.
  Manage the Firm image as the tough defender.
  Set realistic profit expectations.
Response

  Respond in some way ASAP.

  Invest in Early discovery of Actual Moves.
  Base the response on the reasons for the Attack.
  Deflect Challengers in Addition to trying to stop them.
  Take every challenger seriously enough.
  View response as a way to Gain position.
  RESPONSE TO PRICE CUTTING:
  Reasons for Competitor price cutting
  Willingness to Do battle.
  Localized response
  Cut price in other ways