gaining comptv adv

8/8/2019 Gaining Comptv Adv

http://slidepdf.com/reader/full/gaining-comptv-adv 1/24

GAINING COMPETITIVE ADVANTAGE



Analysing the nature of

competition



The six forces model



The Industry Life Cycle



Typical features of phases in

the industry life cycle



Supplier power

If strong, firms in industry will face limits on prices and may be forced to incur high

costs

Factors similar to supplier power in reverse

High if buyers have many firms to choose from or if products undifferentiated

Switching costs very important can give small buyer power over large firm

Buyer power reduced if:Information lacking

Factors determining product quality

Producer reliability

Product cost small in relation to total

Economic situation may affect buyers willingness to exert power>



Threat of substitution

Customers may switch if alternative products available at competitive

prices industry must provide value for money

Substitute products competitors products

Are products from a different industry

Not all products have realistic substitutes

Three types of substitute:

Carry out same function as product/serviceFulfil similar psychological need

Compete for same spending power



Threat of new entrantsIf barriers to entry low, new firms enter, competition intensifies, profits fall

Apparent barriers to entry based on size:

Capital outlay

Production economies of scale

Threat of retaliation by incumbents

These do not work against determined, confident, well-funded entrants

Established brands and intellectual resources may deter entrants but can be

circumvented

Strong relationships with distributors, or control of key inputs or locations, can be

strong barriers



ComplementorsFirms that are not

Competitors in industrySuppliers or customers with whom firms in industry need acontractual relationship

but which can influence:Level of demand for product/servicePurchasers choices between competitors

Powerful if few substitutes for their servicesCan raise prices or limit supply

Will only use power if they have a reason to...See industry as threatNeed to ensure return on sunk costsWish to avoid new investment

...or no reason not to!



Competitive rivalry

Strength in other five forces intensifies competitive rivalry:Price wars and heavy discounting

E xpensive advertising and promotion battles

Commitments to investment, product development

Litigation

Firms compete away profits

Margins decline or fluctuate wildly



Effect of concentration on rivalry

Theoretically, concentrated industries...

Monopolies

Oligopolies

...are on aver age less intensively competitive than

fragmented ones:

Monopolistic competition

But there are many exceptions:Fragmented industries with little rivalry

Concentrated industries where rivalry fierce

Concentration influenced by economies of scale



Increasing returns and

hypercompetiton

Most industries show diminishing returns to scale:

Increasingly difficult to find good inputs and people

Increasing cost of finding extra customers

Unit profits decline as organization grows

Some hi-tech industries have increasing returns to scale:

High up-front costs, low unit production cost

Network effects

Increasing returns may lead to hypercompetition:

Frequent disruption, rapid change, high uncertainty



Collaborationand co-

opetition

Co-opetition collaboration with competitors:

Sharing high up-front costs and risks

Combining knowledge and capabilities

Competing on production and marketing

Benefits of collaboration:

Keep prices high, focus on defined market, avoid waste of

resources on defensive mechanisms

Game theory shows how it is often rational to cheat ones

collaborators

But in long-term relationships, collaboration pays



Distinctiveness :

Competitive Stance



Appraising competitive stance

Which market segments is the firm targeting and why are they

attractive?

-Segments are groups of individuals (B2C) or organizations

(B2B) with common characteristics

-For segments to be appropriate:

It must be possible to tailor products/services to them

It must be possible to serve them at a profit

Which products/services is the firm offering and why should

anyone want to buy them?Positioning/differentiation



Segmentation variables



Porters generic strategies



Bowmans generic strategies



Why should anyone buy our product?: types of

differentiationThe products:

Functionality

Compatibility and

interoperability

Richness of informationAppearance

Build quality, reliability

Price (high or low)

The firms:Network

reach

Levels of

support

Reputation/br

and image

Affiliation



Types of differentiation



Relevant indicators?

Market attr activeness

Profit margins for

competitors in market

Population, spendingpower

Growth rate

But has firm resour ces

needed to oper ate

profit abl y in attr active

segment?

Successf ul differenti ation

Ability to sustain price

premium

Above-averagecustomer loyalty

High brand valuation

Industry awards



Distinctiveness :

Scope, Scale, and Diversity



Appraising scope, scale and diversity

It is natural for firms to expand, but sometimes

they overdo it

Size and diversity involve trade-offs

At business level, has the firm chosen to be:

-Too big (insufficiently responsive)?

-Too small (too inefficient to be competitive)?Does the firm have an appropriate degree of

diversification:-Market (customer and geographic)?-Product?

gaining comptv adv

Documents