competitive advantage

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Strategy Internal Consistency External Consistency

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Page 1: Competitive advantage

Strategy

Internal Consistency External Consistency

Page 2: Competitive advantage

Definition of Strategy

Strategy: A firm’s theory about how to gaincompetitive advantages

Page 3: Competitive advantage

Mission Objectives

ExternalAnalysis

InternalAnalysis

StrategicChoice

StrategyImplementation

CompetitiveAdvantage

The Strategic Management Process

Page 4: Competitive advantage

The Strategic Management Process

Objectives:• specific, measurable targets

• the things a firm needs to ‘do’ to achieveits mission

• should influence other elements in the strategicmanagement process

Page 5: Competitive advantage

The Strategic Management ProcessCompetitive Advantage

Definition: the ability to create more economic valuethan competitors

• all other elements of the strategic managementprocess are aimed at achieving competitive advantage

Mission Objectives

ExternalAnalysis

InternalAnalysis

StrategicChoice

StrategyImplementation

CompetitiveAdvantage

Page 6: Competitive advantage

Competitive AdvantageTemporary & Sustainable

• competition limits the duration of competitiveadvantage in most cases

• profits attract competition

• competitive advantage typically results in high profits

Therefore,

• most competitive advantage is temporary

• competitors imitate the advantage or offersomething better

Page 7: Competitive advantage

Competitive AdvantageTemporary & Sustainable

Some competitive advantages are sustainable if:

• competitors are unable to imitate the sourceof advantage

• no one conceives of a better offering

Of course,

• in time, even sustainable competitive advantagemay be lost

Page 8: Competitive advantage

Competitive Advantage

Competitive Advantage

Disadvantage

Parity

Advantage

Below Normal

Normal

Above Normal

Economic Returns

• exceeding expectations

• meeting expectations

• failing expectations

Page 9: Competitive advantage

Pricing Strategies

You don’t sell through price. You sell the price.

Page 10: Competitive advantage

The Learning Objectives

Setting Pricing Policy Price-adjustment Strategies Price changes

Page 11: Competitive advantage

1.Pricing objectives

Survival Maximum current profit Maximum market share Maximum market skimming Product-quality leadership

Page 12: Competitive advantage

Setting Pricing Policy

1. Selecting the pricingobjective

2. Determining demand

3. Estimating costs

4. Analyzing competitors’costs, prices, and offers

5. Selecting a pricingmethod

6. Selecting final price

Page 13: Competitive advantage

Types of Costs

Total CostsSum of the Fixed and Variable Costs for a Given

Level of Production

Total CostsSum of the Fixed and Variable Costs for a Given

Level of Production

Fixed Costs(Overhead)

Costs that don’tvary with sales or production levels.

Fixed Costs(Overhead)

Costs that don’tvary with sales or production levels.

Variable Costs

Costs that do varydirectly with the

level of production.

Variable Costs

Costs that do varydirectly with the

level of production.

Page 14: Competitive advantage
Page 15: Competitive advantage

The Three C’s Modelfor Price Setting

Costs Competitors’prices andprices ofsubstitutes

Customers’assessmentof uniqueproductfeatures

Low Price

No possibleprofit at

this price

High Price

No possibledemand atthis price

Page 16: Competitive advantage

Some important pricing definitions

Utility: The attribute that makes it capable of want satisfaction

Value: The worth in terms of other products

Price: The monetary medium of exchange.

Page 17: Competitive advantage

Examples: new-product pricing

Market-skimming pricing Market-penetration pricing

Page 18: Competitive advantage

Market-skimming pricing

Setting a high price for a new product to skim maximum revenues layer by layer from the segments willing to pay the high price: the company makes fewer but more profitable sales.

Page 19: Competitive advantage

The conditions:

1. A sufficient number of buyers have a high current demand;

2. The unit costs of producing a small volume are not so high that they cancel the advantage of charging what the traffic will bear;

3. The high initial price does not attract more competitors to market;

4. The high price communicates the image of a superior product.

Page 20: Competitive advantage

Market-penetration pricing

Setting a low price for a new product in order to attract a large number of buyers and a large market share.

Page 21: Competitive advantage

The conditions:

1. The market is highly price sensitive,and a low price stimulates market growth;

2. Production and distribution costs fall with accumulated production experience;

3. A low price discourages actual and potential competition.

Page 22: Competitive advantage

Pricing changing

Initiating price cuts Initiating price increases

Page 23: Competitive advantage

Discussion

Please explain the reasons for price cuts. Please explain the reasons for price increases. Please describe the advantage and

disadvantage of price cuts and increases.

Page 24: Competitive advantage

The reasons for price cuts

Excess capacity Price competition

Page 25: Competitive advantage

The reasons for price increases

Cost inflation overdemand

Page 26: Competitive advantage

Reactions to price changes

Customers’ reactions Competitor’s reactions

Page 27: Competitive advantage

Responding to competitors’ price changes

Maintain price Maintain price and add value Reduce price Increase price and improve quality Launch a low-price fighter line

Page 28: Competitive advantage
Page 29: Competitive advantage

Competitive Advantage & The Strategic Management Process

Emergent vs. Intended Strategies• the strategic management process leads managers

to intended strategies

However,

• conditions often change or new informationbecomes available

• managers respond and adopt emergent strategies

Example: Honda Motorcycles

Page 30: Competitive advantage

The Strategic Management Process

Summary

Firms could achieve competitive parity and survive

• they would face a flat demand curve

• their cost structure would be the industry average

• they would need to adapt their strategy overtime just to survive

• they would fail if they didn’t adapt their strategy

Page 31: Competitive advantage

The Strategic Management Process

Summary

This course is not about mere survival, it is aboutthriving—achieving competitive advantage

• the strategic management process helps managersachieve competitive advantage

• competitive advantage depends on differences

• strategy is about discovering and exploiting these differences

Page 32: Competitive advantage

The Strategic Management ProcessApplying Strategy to Your Career

• a solid understanding of strategy concepts willhelp set you apart from other job candidates

• you can use the process to identify andexploit difference between you and others

• you can use the process to determine if youwant to stay with a company

Page 33: Competitive advantage

The Strategic Management Process& Competitive Advantage

Strategy Matters!

• success and failure, between mediocrity and excellence

Strategy is often the difference between:

• a great manager and average managers

• stumbling through life and moving ahead with purpose