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a basis for the firms long term success? a basis for value creation?
Cost leadership
Differentiation
Market
Niche
Focus with low cost
Competitive Scope
Broad target
Narrow target
Cost Drivers
Value Chain
Alter production process Change in automation New distribution channel New advertising media Direct sales in place of indirect sales
New raw material Forward integration Backward integration Change location relative to suppliers or buyers
Economies of scale Asset utilization Capacity utilization pattern Seasonal, cyclical Interrelationships Order processing and distribution Value chain linkages Advertising & sales Logistics & operations
Product features Performance Mix & variety of products Service levels Small vs. large buyers Process technology Wage levels Product features Hiring, training, motivation
Differentiation Strategy
An integrated set of actions designed by a firm to produce or deliver goods or services (at an acceptable cost) that customers perceive as being different or unique in ways that are important to them.
price for product can exceed what the firms target customers are willing to pay Non standardized products customers value differentiated features more than they value low cost
Differentiation Strategy
A product differentiation strategy must meet the VRIO criteria Is it Valuable? Is it Rare? Is it costly to Imitate? Is the firm Organized to exploit it?
product features Unique product performance Exceptional services New technologies Quality of inputs Exceptional design skill Prestige and exclusivity
Differentiation Strategy
Differentiation actions required by this strategy: Analysis of the value chain identifies in what parts of the chain and through which links superior products can be created and customer perception may be changed Shaping perceptions through advertising Focus on quality customer loyalty. Capability in R&D.
may be outfocused by competitors Large competitor may set its sights on your niche market Preferences of niche market may change to match those of broad market
An integrated cost/differentiation business level strategy often involves compromises (neither the lowest cost nor the most differentiated firm) The firm may become stuck in the middle lacking the strong commitment and expertise that accompanies firms following either a cost leadership or a differentiated strategy
Examples of SCA
For many years, Singapore Airlines were riding on its SCA of having the best in-flight service As more airlines improved their service and narrowed the gap, SIA sought other competitive advantages among which are
The most modern fleet Outstanding Service on the Ground A super entertainment system in its cabins Comfort in its First Class cabins at an unparallel level
Warren Buffet's Investment Criteria Warren Buffet was once asked what is the most important thing he looks for when evaluating a company to invest in. Without hesitation, he replied, "Sustainable competitive advantage."
STRATEGIES
FOR
Position Defense Flanking Defense Contraction Defense Pre-emptive Defense Counter-Offensive Defense
Flanking Defense:
Secondary markets (flanks) are the weaker areas and prone to being attacked Pay attention to the flanks
Frontal Attack
e.g. Japanese and Korean car manufacturers launched frontal attacks in various ASPAC countries through quality, price and low cost
Flank attack
Attack the enemy at its weak points or blind spots i.e. its flanks Ideal for challenger who does not have sufficient resources e.g. In the 1990s, Yaohan attacked Mitsukoshi and Seibus flanks by opening numerous stores in overseas markets
Encirclement attack
Attack the enemy at many fronts at the same time Ideal for challenger having superior resources e.g. Seiko attacked on fashion, features, user preferences and anything that might interest the consumer
Bypass attack
By diversifying into unrelated products or markets neglected by the leader Could overtake the leader by using new technologies e.g. Pepsi use a bypass attack strategy against Coke in China by locating its bottling plants in the interior provinces
Guerrilla attack
By launching small, intermittent hit-andrun attacks to harass and destabilize the leader Usually use to precede a stronger attack e.g. airlines use short promotions to attack the national carriers especially when passenger loads in certain routes are low
Market-Follower Strategies
Theodore Levitt in his article, Innovative Imitation argued that a product imitation strategy might be just as profitable as a product innovation strategy e.g. Product innovation--Sony Product-imitation--Panasonic
Counterfeiter (which is illegal) Cloner e.g. the IBM PC clones Imitator e.g. car manufacturers imitate the style of one another Adapter e.g. many Japanese firms are excellent adapters initially before developing into challengers and eventually leaders
Market-Nicher Strategies
Smaller firms can avoid larger firms by targeting smaller markets or niches that are of little or no interest to the larger firms e.g. Logitech--mouse Microbrewers--special beers
Nichers must create niches, expand the niches and protect them
e.g. Nike constantly created new niches--cycling, walking, hiking, cheerleading, etc
Multiple Niching
A firm should `stick to its niching but not necessarily to its niche. That is why multiple niching is preferable to single niching. By developing strength in two or more niches the company increases its chances for survival. Philip Kotler
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