Two Dominant Schools of Thought on Competitive (4) Competitive Analysis : Competition happens on 2

Strategy: 1. Your comp. adv. = ind. profit+ your adv. levels 1. Product or service comp.: Level of the value
through comp. positioning 2. Resource based view: proposition and marketing 2. Company competition:
Resources and Capabilities determine financial return - Level of company strategy
VRIO Framework
PESTEL Framework (for Environment Analysis) (6)
Seven Questions for Industry Analysis
1.Ind Dominant Economic Traits (level of
integration, rate & scope of tech change, ease of
entry/exit, capital req., prod characteristics)
2. Competitive Forces at Work & their strength
3. How attractive Ind is for Above-Avg Profit.
(growth pot., comp. & its impact on ind. Future, risk
& uncertainty, driving forces, demand stab.)
4. Comp. w. Strongest/Weakest Compet. Pos. Competitive Strategy: Operational Effectiveness Is Not Strategy!
5. Anticipated Competitive Moves (assumptions,
current strategy, future obj., capabilities)
6. Key Success/Failure Factors (KSF)
7. Forces of Change & Impact on Ind Profit Pool &
Actors
Strategy to Neutralize The Five Competitive Forces
(2) Entry: Erecting barriers (isolating mechanisms) create &
exploit economies of scale, aggressive deterrence, design
Sixth: in switching costs, etc.
Complements
Rivalry: Compete on various dimensions: cost leadership,
differentiation, cooperation, etc.
Substitutes Improve attractiveness compared to
substitutes: better service, more features, etc..
Buyers: Reduce buyer uniqueness: forward integrate,
differentiate product, new customers, etc..
Suppliers: Reduce supplier uniqueness: backward
integrate, obtain minority position, second source, etc
(Strategic) Competitive Positioning: Competitive advantage
can be achieved by widening the wedge between customer
WTP and company’s cost relative to competitors
1) Cost leadership: reap large cost savings with only slight
decreases in WTP 2) Differentiation: raise willingness to pay
a great deal with only a minimal increase in costs
Industry Structure: Implications for Managerial Actions:
Defensive Posture: Und. present ind. struc., take the ind. Differentiation Strategy: Value drivers, sources of
struc. as ‘given’, Take actions to “defend” your position in differentiation – 1. Tangible/Observable Dimensions Crafting Competitive Strategy: 1. Identify attractive Customer Segments & Compe. Space; 2. Develop
that ind. Offensive Posture: Und. present ind. struc., rec. (Physical attributes of the product (size, colour), and Deliver customer value superior to competition (sustain WTP); 3. Create and Sustain competitive
the ind. Struc. can be ‘changed’, Take proactive actions to Customer service, Complements, Customization) 2. advantage (increase WTP/reduce cost) 4. Create and Sustain unique and profitable Strategic Competitive
“change” the ind. Struc. & attractiveness Intangible Dimensions/Motivational (Desire for status, Position (create more consumer surplus); 5. Capture economic value through an appropriate
exclusivity, individuality by consumers) combination of cost, pricing, variety and volume
 Value Innovation Framework:
Resource-based Approach to Strategy: When the external Leveraging Resources & Capabilities for Growth
RED OCEAN STRATEGY BLUE OCEAN STRATEGY environment is subject to rapid change, internal resources Important questions to be asked: What resources and capabilities do we have
Compete in existing market that we want to exploit to enter a new business or geography?
Create uncontested market space and capabilities offer a more secure basis for strategy than
space Do they pass the RAT test in a new business or geography: Are they Relevant?
market focus. Are they Appropriable? Are they Transferable?
Beat the competition Make the competition irrelevant 1. Identify a sequence of the major functions and activities that
Exploit existing demand Create and capture new demand the firm performs. 2. What is distinctive or different about how Value Based Strategy: Conceive, Create, Communicate and help Consume
Make the value-cost trade-off Break the value-cost trade-off the firm performs these activities (compared with other firms)? Customer Value (CV) and Capture economic value (EV) for the organization
And do these characteristics confer either cost or differentiation through the configuration and coordination of value chain activities and
Align the whole system of a
Align the whole system of a firm's advantage? 3. Examine the resources that underlie them. resources & capabilities
firm's activities with its strategic
activities in pursuit of
choice of differentiation or low
differentiation and low cost
cost
Economic Logic of Competitive Strategy: Retain distinctiveness of
the product in terms of its tangible/physical attributes (To
retain customers’ existing WTP) + Further differentiate the product
by highlighting the ‘intangible attributes’ associated
with it (This will increase customers’ WTP) + Take certain actions to
reduce some of the costs of the product without affecting
customers’ willingness to pay for the physical product
Differentiation Strategy Challenges: may require ‘constant
upgrading’ of the product (to prevent imitation), Differentiation
may limit a company’s ability to fully enjoy benefits associated with
economies of scale or size, Is the ‘size’ of its target market large
enough to support higher ‘costs of differentiation’? Levels of Strategy: Corporate, Business, Functional
When Does Positioning Change Normally Work out Well?
1) Chose (or move to) a position (either cost leadership or
creative form of differentiation) 2) where there was yet no (or
less) rivalry 3) and where it was not too far from the existing
position 4) The new position, if fundamentally different from the
existing one (moving from cost leadership to differentiation or
vice versa), may not work out well.

Better Before Cheaper: company may possess VRI resources,

but unless not organized to create value, it can’t get a
competitive advantage. Competitive advantage often comes
from activity systems and bundled resources (more difficult to
imitate) not one or two unique resources. For a company
following a differentiation strategy, before allocating scarce
resources among competing priorities, think about which
initiatives will contribute most to enhancing the nonprice
elements of your value proposition and which will allow you
to charge higher prices or to sell in greater volume. Then give
those the nod.