University of Cagliari, Faculty of Economics, a.a.
2012-13
Business Strategy and Policy
A course within the II level degree in
Managerial Economics
year II, semester I, 6 credits
Lecturer:
Dr Alberto Asquer
[email protected]
Phone: 070 6753399
Business Strategy and Policy
Lecture 2
Strategic positioning and the generic
competitive strategies
Plan of this lecture
1. The “Bain paradigm”
2. The analysis of the industry: the 5 forces framework
3. The analysis of the position of the competitors: strategic grouping
4. Strategic positioning and the generic strategies
5. Hybrid strategies
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6. Summary
1. The “Bain paradigm”
The “Bain paradigm” refers to the theoretical approach for which:
Industry affects
Industrial affects
Firms'
structure behaviour performance
2. The analysis of the industry: the 5 forces framework
Michael Porter's (1980) theoretical framework for industry analysis
Threat of
substitutive
products
Bargaining Bargaining
power of Internal rivalry power of
suppliers clients
Threat of
new entrants
2. The analysis of the industry: the 5 forces framework
Michael Porter's (1980) theoretical framework for industry analysis
Threat of
substitutive
products
Bargaining Bargaining
power of Internal rivalry power of
suppliers clients
Threat of
new entrants
Assessment of the attractiveness of an industry
2. The analysis of the industry: the 5 forces framework
What are the effects of...
High brand preference and customer loyalty?
Low regulatory restrictions?
Threat of
High demand growth? substitutive Ease of market entry?
products
Bargaining Bargaining
power of Internal rivalry power of
suppliers clients
Threat of
new entrants
High switching costs? High economies of scale?
High learning or experience curves? There are just a few large buyers?
2. The analysis of the industry: the 5 forces framework
For example, what is the attractiveness of the car industry?
Brand preference and customer loyalty?
Regulatory restrictions?
Threat of
Demand growth? substitutive Ease of market entry?
products
Bargaining Bargaining
power of Internal rivalry power of
suppliers clients
Threat of
new entrants
Switching costs? Economies of scale?
Learning or experience curves? Are there just a few large buyers?
3. The analysis of the position of the competitors
Competitors tend to form groups whose members share similar
competitive approaches and behaviour in the market.
The analysis of the position of the competitors results in a map of
strategic groups.
Groups can be formed along any out of several dimensions, like:
pricing behaviour, quality of products, geographic coverage, degree
of vertical integration, product-line breath, distribution channels, type
of service, etc.
Strategic groups can be represented into graphs!
3. The analysis of the position of the competitors
Example: strategic group map of the automotive industry
Price, performance, reputation
BMW,
Mercedes
Wolkswagen,
Toyota
Honda
Nissan,
Chrysler,
Mazda General Motors,
Ford
Hundai,
Suzuki
Variety of models
3. The analysis of the position of the competitors
Example: strategic group map of the automotive industry
Price, performance, reputation
BMW,
Mercedes
More distance =
less rivalry
Wolkswagen,
Toyota
Honda
Nissan,
Chrysler,
Mazda General Motors,
Ford
Hundai,
Suzuki
Variety of models
3. The analysis of the position of the competitors
Example: strategic group map of the automotive industry
Different position
Price, performance, reputation
= different
BMW, competitive pressures,
Mercedes
different strategies,
different profit potential
Wolkswagen,
Toyota
Honda
Nissan,
Chrysler,
Mazda General Motors,
Ford
Hundai,
Suzuki
Variety of models
4. Strategic positioning and the generic strategies
Low-Cost Differentiation
Strategy Strategy
Hybrid
Strategies
Focus
Strategy
Low-cost Differentiation
4. Generic strategies: overall LOW COST
The basis for sustained competitive advantage is lower costs than
competitors
One way is to perform value chain activities more cost-effectively than
competitors
Another way is to reconfigure the value system in such a way as to
bypass or eliminate non-essential activities altogether
4. Generic strategies: overall LOW COST
Typical actions to improve cost-efficiency of the value chain:
Exploit economies of scale Use low-cost materials
Climb up the experience/learning curve Use online and other IT systems
Operate at full capacity Use labour-saving methods
Boost sales volumes Leverage on your bargaining power
Improve supply chain efficiency Outsourcing and vertical integration
4. Generic strategies: overall LOW COST
Typical actions to reconfigure the value system:
Bypassing intermediates and directly sell to customers
Replace activities with faster and cheaper ones
Streamline operations by eliminating activities that are not needed or deliver little value
Relocate facilities to save shipping (and sometimes labour costs)
Simplify the product (no-frills)
Narrow the product line
4. Generic strategies: overall DIFFERENTIATION
The basis for sustained competitive advantage is “being different” -
possibly, in a way that is difficult to imitate
Sources of differentiation are found in:
- Supply chain activities
- R&D activities
- Production and technology activities
- Distribution activities
- Marketing activities
And differentiation works by making the product
1) cheaper to use;
2) better performing;
3) better satisfy the consumer;
4) faster to reach consumer.
4. Generic strategies: FOCUS
The basis for sustained competitive advantage is the specialisation to
serve the particular needs (solve the specific problems) of selected
targets within the consumers market
There are two variants:
1) Focused low-cost strategy
4. Generic strategies: FOCUS
The basis for sustained competitive advantage is the specialisation to
serve the particular needs (solve the specific problems) of selected
targets within the consumers group
There are two variants:
2) Focused differentiation strategy
4. Strategic positioning in “Hybrid Strategies”
The basis for sustained competitive advantage is the ability to
incorporate attractive or upscale attributes at a lower cost than
rivals, i.e.,
“Best Cost” strategy
It's a 'middle ground', or 'hybrid', strategic approach that broadly seeks
to combine low cost and differentiation
There may be the risk to be “stuck in the middle” (Porter, 1980)
5. Summary
Main points
The 5-forces framework assists in analysing industry structure for the
sake of assessment of the attractiveness of the industry.
Competitors tend to form strategic groups that can be mapped.
The generic strategies provide broad guidelines for formulating the
direction for the strategic management of firms.
Low-cost, differentiation, and focus are the main generic strategies.
Firms may also try to follow “hybrid” strategies.
