AMITY BUSINESS SCHOOL

Business Policy and Strategic Management

Module IV

Vivek Singh Tomar

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Any competitive advantage currently held will eventually be eroded by the actions of competent, resourceful competitors!

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Moves calculated to yield a competitive advantage

Size of C. Ad. Build Up Benefit Period Time Erosion

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Offensive Vs Defensive Moves

Competitive strategies: strategic moves multinationals use to defeat competitors - Offensive competitive strategies: direct attacks to capture market share (Nearly always result in successful achievement of competitive advantage ) - Defensive competitive strategies: attempts to discourage offensive strategies (Can protect competitive advantage, but RARELY are the basis for achieving competitive advantage ) - Counter-parry: fending off a competitors attack in one country by attacking in another country

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Examples of Offensive Strategies

Direct attacks: price cutting, adding new features, or going after poorly served markets End-run offensives: seeking unoccupied markets Preemptive competitive strategies: being first to obtain particular advantageous position Acquisitions: buying out a competitor

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Types of Strategic Offensive

1. Match / exceed competitive strengths 2. Capitalise on Weaknesses 3. Simultaneous initiatives on many fronts 4. End-run offensives 5. Guerilla offensives 6. Preemptive strikes

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ATTACKING COMPETITOR STRENGTHS Appeal Gain market share by out-matching strengths of weaker rivals Whittle away at a rivals competitive advantage Challenging strong competitors with a lower price is foolhardy unless aggressor has a COST ADVANTAGE or advantage of GREATER FINANCIAL STRENGTH!

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ATTACKING COMPETITOR STRENGTHS

Possible Offensive Options Offer equally good product at a lower price

Develop low-cost edge, then use it to under-price rivals

Leapfrog into next-generation technologies

Add appealing new features Run comparison ads Construct new plant capacity in rivals market strongholds Offer a wider product line Develop better customer service capabilities

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ATTACKING COMPETITOR Weaknesses

Basic Approach Concentrate ones competitive strengths & resources directly against rivals weaknesses Weaknesses to Attack Concentrate on geographic regions where rival has weak market share Go after buyer segments rival is neglecting Go after more performance-conscious customers of rivals who lag behind challenger Attack rivals with weaker advertising & brand recognition

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COMPETITIVE STRATEGY PRINCIPLE Challenging rivals where they are most vulnerable is more likely to succeed than challenging them where they are strongest, ESPECIALLY when challenger possesses competitive advantage in areas where rivals are weak!

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LAUNCHING OFFENSIVES ON MANY FRONTS

Objective Launch several major initiatives to
Throw rival off-balance, Splinter its attention in many directions, and Force it to use substantial resources to defend its position

Appeal A challenger with superior resources can overpower a weaker rival by outspending it across-the-board long enough to buy its way into the market

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END-RUN OFFENSIVES
Objective DODGE head-to-head confrontations that escalate competitive intensity and RISK cutthroat competition -- Attempt to MANEUVER AROUND competition
Appeal Gain first-mover advantage in a new arena Force competitors into playing catch up Change rules of competition in aggressors favor

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END-RUN OFFENSIVES: APPROACHES Move aggressively into new geographic markets where rivals have no market presence Introduce products with different attributes & features to better meet buyer needs Introduce next-generation technologies & leapfrog rivals Come up with more support services for customers

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GUERRILLA OFFENSES
Approach Use principles of surprise & hit-and-run to attack in locations & at times where conditions are most favorable to initiator Appeal Well-suited to small challengers with limited resources

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GUERRILLA OFFENSES: OPTIONS Focus on narrow target weakly defended by rivals Challenge rivals where they are overextended & when they are encountering problems Make random scattered raids on leaders with tactics such as
Occasional low-balling on price Intense bursts of promotional activity Legal actions charging antitrust violations, patent infringements, & unfair advertising

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PREEMPTIVE STRIKES
Approach Involves moving first to secure an advantageous position that rivals are foreclosed or discouraged from duplicating!

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PREEMPTIVE STRIKES: OPTIONS Expand capacity ahead of demand in hopes of discouraging rivals from following suit Tie up best or cheapest sources of essential raw materials Move to secure best geographic locations Obtain business of prestigious customers Build an image in buyers minds that is unique & hard to copy Secure exclusive or dominant access to best distributors Acquire desirable, but struggling, competitor

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Choosing whom to attack?

Market leaders Runner-up firms Struggling rivals on verge of going under Small local/regional firms with limited capabilities

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OFFENSIVE STRATEGY & COMPETITIVE ADVANTAGE

Competitive advantage areas offering strongest basis for a STRATEGIC OFFENSIVE Develop lower-cost product design Make changes in production operations that lower costs or enhance differentiation Develop product features that deliver superior performance or lower users costs Give more responsive customer service Escalate marketing effort Pioneer new distribution channel Chances for strategic success are improved when offensive Sell direct to end-users
is tied to what firm does best: Key skill Strong functional competence

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Offensive marketing Strategies

Fundamental Principles (Offence) There are four fundamental principles involved: 1) Assess the strength of the target competitor. Consider the amount of support that the target might muster from allies. Choose only one target at a time. 2) Find a weakness in the targets position. Attack at this point. Consider how long it will take for the target to realign their resources so as to reinforce this weak spot. 3) Launch the attack on as narrow a front as possible. Whereas a defender must defend all their borders, an attacker has the advantage of being able to concentrate their forces at one place. 4) Launch the attack quickly. The element of surprise is worth more than a thousand tanks.

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Types of Offensive Strategies

Frontal Attack This is a direct head-on assault. It usually involves marshaling all your resources including a substantial financial commitment. All parts of your company must be geared up for the assault from marketing to production. It usually involves intensive advertising assaults and often entails developing a new product that is able to attack the target competitors line where it is strong. It often involves an attempt to liberate a sizable portion of the targets customer base.

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In actuality, frontal attacks are rare. There are two reasons for this. Firstly, they are expensive. Many valuable resources will be used and lost in the assault. Secondly, frontal attacks are often unsuccessful. If defenders are able to re-deploy their resources in time, the attackers strategic advantage is lost. You will be confronting strength rather than weakness. Also, there are many examples (in both business and warfare) of a dedicated defender being able to hold-off a larger attacker. The strategy is suitable when
the market is relatively homogeneous brand equity is low customer loyalty is low products are poorly differentiated the target competitor has relatively limited resources the attacker has relatively strong resources

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Envelopment Strategy (also called encirclement strategy) This is a much broader but subtle offensive strategy. It involves encircling the target competitor. This can be done in two ways. You could introduce a range of products that are similar to the target product. Each product will liberate some market share from the target competitors product, leaving it weakened, demoralized, and in a state of siege. If it is done stealthily, a full scale confrontation can be avoided. Alternatively, the encirclement can be based on market niches rather than products. The attacker expands the market niches that surround and encroach on the target competitors market. This encroachment liberates market share from the target. The envelopment strategy is suitable when:
the market is loosely segmented some segments are relatively free of well endowed competitors the attacker has strong product development resources the attacker has enough resources to operate in multiple segments simultaneously the attacker has a decentralized organizational structure

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Pepsodent, launched in 1993, was the first toothpaste with a unique anti-bacterial agent to address the consumer need of checking germs even hours after brushing. Pepsodent packs included a Germ Indicator in February-May 2002, which allowed consumers to see the efficacy in fighting germs for themselves. As a follow-up, in October 2002, Pepsodent offered Dental Insurance to all its consumers to demonstrate the confidence the company has in the technical superiority of the product. Pepsodent connects directly with kids and their parents. Pepsodent has always worked in the direction of an overall awareness of dental health. The relaunch campaign in October 2003 widened the context to "sweet and sticky" food and leveraged the truth that children do not rinse their mouths every time they eat, demonstrating that this makes their teeth vulnerable to germ attack. Pepsodent's most recent campaign aims at educating consumers on the need for germ protection through the night. Pepsodent also includes a range of toothbrushes

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Colgate has developed a powerful Branding Strategy which has significantly helped the Brand in acquiring substantial amount of share in the oral care market of India. In order to strengthen its' Brand Identity, Colgate is still restructuring its Branding Strategy. Colgate Branding Strategy was strong enough to position the company as a major brand in the oral care market of India. The Brand Colgate emerged as a market leader as it bagged considerable amount of market share in all the segments of oral care market like toothpaste segment, tooth powder segment and toothbrush segment. Colgate has succeeded in establishing its Brand Image and gaining substantial market share in spite of facing tough competition from the brands like Hindusthan Liver, Babool and Anchor. Still the Brand Colgate is continuously updating and improving its' branding strategy in order to strengthen its' Brand Name and Brand Identity.

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The future Branding Strategy of Colgate may comprise the following steps and actions: For maintaining the Brand Equity in the market, every company requires a system of continuous growth and upgradation . So, in order to develop new products, Colgate may give emphasis on Research and Development Projects. The Brand Strategy of Colgate also aims at reaching to the rich and consuming customers of rural India by introducing some Ayurvedic Oral Care Products. In order to strengthen its' Brand Image in the urban market of India, Colgate may launch some oral care products specifically targeting the urban youth and the urban rich class. Colgate Branding Strategy aims at introducing some special oral care products which will focus on functional benefits. The Brand can launch specific oral care products for different age groups. The Branding Strategy of Colgate also plans to customize its packaging techniques, based on price points. This, in a way will establish a new pricing strategy. Colgate Branding Strategy has a objective strengthening its' business promotion network. The company is undertaking advertising strategies and campaigning programs with the objective of reaching to the customers of India across income classes

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Pepsodent Toothpaste Product Line Pepsodent Complete + Gum Care Complete 12 Pepsodent Herbal Pepsodent Milk Teeth Orange Pepsodent Milk Teeth Strawberry Pepsodent Sensitive Pepsodent Whitening

Colgate Toothpaste Product Line Colgate Dental Cream Colgate Total 12 Colgate Sensitive Colgate Max Fresh Colgate Kids ToothPaste Colgate Fresh Energy Gel Colgate Herbal Colgate Cibaca Family Protection Colgate Advanced Whitening Colgate Active Salt

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Leapfrog strategy This strategy involves bypassing the enemys forces altogether. In the business arena, this involves either developing new technologies, or creating new business models. This is a revolutionary strategy that re-writes the rules of the game. The introduction of compact disc technology bypassed the established magnetic tape based defenders. The attackers won the war without a single costly battle. This strategy is very effective when it can be realized.

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Flanking attack This strategy is designed to pressure the flank of the enemy line so the flank turns inward. You make gains while the enemy line is in chaos. In doing so, you avoid a head-on confrontation with the main force

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Defensive Strategies
Objectives Lessen risk of being attacked Blunt impact of any attack that occurs Influence challengers to aim attacks at other rivals Strengthen firms present position Help sustain any competitive advantage held

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DEFENSIVE STRATEGIES: APPROACHES

Approach #1 Block avenues challengers can take in mounting offensive attacks

Approach #2 Make it clear any challenge will be met with strong counterattack

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DEFENSIVE STRATEGIES: APPROACH #1 Broaden product line to fill gaps rivals may go after Keep prices low on models that match rivals Sign exclusive agreements with distributors Offer free training to buyers personnel Give better credit terms to buyers Reduce delivery times for spare parts Increase warranty coverages Patent alternative technologies Sign exclusive contracts with best suppliers Protect proprietary know-how

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DEFENSIVE STRATEGIES: APPROACH #2 Publicly announce managements strong commitment to maintain present market share Publicly announce plans to construct new production capacity to meet forecasted demand Give out advance information about new products, technological breakthroughs, & other moves Publicly commit firm to policy of matching prices & terms offered by rivals Maintain war chest of cash reserves Make occasional counter-responses to rivals moves

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Defensive Marketing Strategies

Fundamental principles (Defence) There are five fundamental principles involved: 1) Always counter an attack with equal or greater force. 2) Defend every important market. 3) Be forever vigilant in scanning for potential attackers. Assess the strength of the competitor. Consider the amount of support that the attacker might muster from allies. 4) The best defense is to attack yourself. Attack your weak spots and rebuild yourself anew. 5) Defensive strategies should be the exclusive domain of the market leader.

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Types of Defensive Strategies

Position defense This involves the defense of a fortified position. This tends to be a weak defense because you become a sitting duck. It can lead to a siege situation in which time is on the side of the attacker, that is, as time goes by the defender gets weaker, while the attacker gets stronger. In a business context, this involves setting up fortifications such as barriers to market entry around a product, brand, product line, market, or market segment. This could include increasing brand equity, customer satisfaction, customer loyalty, or repeat purchase rate. It could also include exclusive distribution contracts, patent protection, market monopoly, or government protected monopoly status. It is best used in homogeneous markets where the defender has dominant market position and potential attackers have very limited resources.

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Mobile defense This involves constantly shifting resources and developing new strategies and tactics. A mobile defense is intended to create a moving target that is hard to successfully attack, while simultaneously, equipping the defender with a flexible response mechanism should an attack occur. In business this would entail introducing new products, introducing replacement products, modifying existing products, changing market segments, changing target markets, repositioning products, or changing promotional focus. This defense requires a very flexible organization with strong marketing, entrepreneurial, product development, and marketing research skills.

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Flank position - This involves the redeployment of your resources to deter a flanking attack. You protect against potential loss of market share in a segment, by strengthening your competitive position in this segment with new products and other tactics. (see flanking marketing warfare strategies) Counter offensive - This involves countering an attack with an offense of your own. If you are attacked, retaliate with an attack on the aggressors weakest point.

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Counter-parry
Popular strategy for multinationals Respond to attack by attacking competitor in another country
Ex.: KodakWhen Fuji attacked Kodak in the U.S., Kodak retaliated by attacking Fuji in Japan. Goodyear also attacked Michelin in Europe as response to attack in U.S.

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Strategies for Using the Internet

Strategic Challenge What use of the Internet should a company make in staking out its position in the marketplace?
Five Approaches
Use company web site solely to disseminate product information

Use company web site as a minor distribution channel for accessing customers and generating sales
Use company web site as one of several important distribution channels for accessing customers

Use company web site as primary distribution channel for accessing buyers and making sales
Use company web site as the exclusive channel for accessing buyers and conducting sales transactions

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Using the Internet to Disseminate Product Information

Approach Website used to provide product information of manufacturers or wholesalers
Relies on click-throughs to websites of dealers for sales transactions Informs end-users of location of retail stores

Issues Pursuing online sales may

Signal weak strategic commitment to dealers Signal willingness to cannibalize dealers sales Prompt dealers to aggressively market rivals brands

Avoids channel conflict with dealers Important where strong support of dealer networks is essential

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Using the Internet as a Minor Distribution Channel

Approach Use online sales to
Achieve incremental sales
Gain online sales experience Conduct marketing research
Learn more about buyer tastes and preferences Test reactions to new products Create added market buzz about products

Unlikely to provoke much outcry from dealers

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Brick-and-Click Strategies: An Appealing Middle Ground Approach

Approach
Sell directly to consumers and Use traditional wholesale/retail channels

Reasons to pursue a brick-and-click strategy

Manufacturers profit margin from online sales is bigger than that from sales through traditional channels
Encouraging buyers to visit a firms website educates them to the ease and convenience of purchasing online

Selling directly to end users allows a manufacturer to make greater use of build-to-order manufacturing and assembly

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Strategies for Online Enterprises

Approach Use Internet as the exclusive channel for all buyer-seller contact and transactions Success depends on a firms ability to incorporate following features
Capability to deliver unique value to buyers Deliberate efforts to engineer a value chain that enables differentiation, lower costs, or better value for the money Innovative, fresh, and entertaining website Clear focus on a limited number of competencies and a relatively specialized number of value chain activities

Innovative marketing techniques Minimal reliance on ancillary revenues

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VERTICAL INTEGRATION STRATEGIES

Vertical integration extends a firms competitive scope within same industry
BACKWARD into sources of supply FORWARD toward end-users of final product

Moves to vertically integrate can aim at becoming

FULLY INTEGRATED PARTIALLY INTEGRATED
A vertical integration strategy has appeal ONLY if it significantly strengthens a firms competitive position!

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APPEAL OF BACKWARD INTEGRATION

Generates cost savings only if volume needed is big enough to capture efficiencies of suppliers Cost savings potential is strongest when
Suppliers have sizable profit margins Item being supplied is a major cost component Necessary technical skills are easily mastered

A differentiation-based competitive advantage arises when firm ends up with a better quality part Spares firm uncertainty of depending on suppliers of crucial raw materials

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APPEAL OF FORWARD INTEGRATION

Advantageous for firm to set up its own wholesale-retail distribution network if
Undependable distribution channels undermine steady production operations

Integration into distribution & retailing may be cheaper than going through independent distributors May help achieve greater product differentiation, allowing escape from price-oriented competition For manufacturer, may provide better access to ultimate consumer

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STRATEGIC DISADVANTAGES OF VERTICAL INTEGRATION

Boosts capital requirements Results in fixed sources of supply & less flexibility in accommodating buyer demands for product variety Extends firms scope of activity, locking it deeper into industry Poses problems of balancing capacity at each stage of value chain Requires radically different skills & capabilities Can reduce firms manufacturing flexibility, lengthening design time & ability to introduce new products

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UNBUNDLING & OUTSOURCING STRATEGIES

Involves withdrawing from certain stages in value chain system and relying on outside vendors to perform needed activities and services

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ADVANTAGES OF OUTSOURCING STRATEGIES Activity can be performed better or more cheaply by outside specialists Activity is not crucial to achieving competitive advantage Reduces firms risk exposure to changing technology and/or changing buyer preferences Streamlines firm operations in ways to
Cut cycle time Speed decision-making Reduce coordination costs

Allows firm to concentrate on its core business

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PROS & CONS OF VERTICAL INTEGRATION

Use of a vertical integration strategy depends on If it can enhance performance of strategy-critical activities to EITHER
Lower costs OR Increase differentiation

Impact on
Investment costs Flexibility & response times Administrative overhead of coordination

If a competitive advantage can be created

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FIRST-MOVER ADVANTAGES
WHEN to make a strategic move is often as crucial as WHAT move to make First-mover advantages arise WHEN
Pioneering helps build firms image & reputation Early commitments to raw material suppliers, new technologies, & distribution channels can produce cost advantage Loyalty of first time buyers is high Moving first can be a preemptive strike

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FIRST-MOVER DISADVANTAGES
Arise WHEN Costs of pioneering are sizable & loyalty of first time buyers is weak Rapid technological change allows followers to leapfrog pioneers Skills & know-how of pioneers are easily imitated by late movers It is easy for latecomers to crack market

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Timing of Strategic Moves

Advantages / disadvantages of First Mover
+ if pioneering helps build brand image + if early contracts with suppliers etc advantageous + first time customer loyalty + makes imitation harder

- expense - rapid change may lead to obsoletion - weak customer loyalty - easily imitated