Presentation on theme: "Competing For Advantage"— Presentation transcript:
1 Competing For Advantage Part III – Creating Competitive AdvantageChapter 5 – Business-Level Strategy
2 Business-Level Strategy Key TermsBusiness-Level Strategy – integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in specific product markets–Business-Level Strategy - Five basic approaches combine the scope of an organization's activities in the market (broad or narrow) with the primary source of its competitive advantage (low cost or uniqueness).The context for Chapters 5-10 is outlined here in terms of the five elements of strategy described in Chapter 2 (arenas, vehicles, differentiators, staging, and economic logic).
3 Types of Business-Level Strategy Economic Logic and Business-Level Strategy - The firm's business-level strategy is a deliberate choice about how it will perform the value chain's primary and support activities in ways that create unique value. Sound strategic choices reduce uncertainty, facilitate success, and depend upon continuously-updated competitive advantages to achieve long-term success.Types of Business-Level Strategy – There are five types of business-level strategies that firms choose among to establish and defend their desired strategic position against rivals.Five business-level strategic options are available to firms:Cost leadershipDifferentiationFocused cost leadershipFocused differentiationIntegrated cost leadership/differentiation
4 Features of the Five Business-Level Strategies Generic, can be used across industriesTwo distinct types of competitive advantage:Low CostDifferentiationChoice of scope:BroadNarrow (niche)Features of the five business-level strategies:They are generic and can be used in any business in any industryThey represent two distinct types of competitive advantage:Lower cost than rivalsAbility to differentiate and command a premium price relative to the additional cost of differentiatingThey represent a choice of scope (the nature and size of the customer group the firm will seek):Broad scope serving multiple customer segments in multiple geographic areas with multiple productsNarrow scope (niche) serving one customer segment, geographic area, or productThe effectiveness of each strategy is contingent upon the opportunities and threats in a firm's external environment and the possibilities provided by the firm's unique resources, capabilities, and core competencies
5 Cost Leadership Strategy Key TermsCost Leadership Strategy – integrated set of actions designed to produce or deliver goods or services with features that are acceptable to customers at the lowest cost, relative to competitorsCost Leadership Strategy – A strategy of low-cost leadership seeks cost advantages while serving a broad customer segment.
6 Cost Leadership Strategy – Implementation No-frill, standardized goodsContinuously reduce costs of value chain activitiesSuccessful Execution of the Cost Leadership Strategy – Certain activities and policies have shown success in the use of the cost leadership strategy. The value chain analysis (presented in Chapter 4) proves to be a critical tool for firms implementing a low cost strategy. Each of the five forces of competition can be related to a cost leadership strategy.Successful implementation of a cost leadership strategy involves these factors:Sell no-frills, standardized goods that minimally offer qualities and features acceptable to customersUse the value chain analysis to continuously identify ways of reducing the costs of activities in the value chain, while retaining important product/service featuresIf a firm is unable to link the activities shown in Figure 5.2, it probably lacks the resources, capabilities, and core competencies need to successfully use the cost leadership strategyLogistics can be a significant portion of a firm's activities' costs and offers cost reduction opportunities for firms using the cost leadership strategy
7 Value-Creating Activities Associated with Cost Leadership Strategy Successful Execution of the Cost Leadership Strategy – Certain activities and policies have shown success in the use of the cost leadership strategy. The value chain analysis (presented in Chapter 4) proves to be a critical tool for firms implementing a low cost strategy. Each of the five forces of competition can be related to a cost leadership strategy.Successfully implementation of a cost leadership strategy involves these factors:Sell no-frills, standardized goods that minimally offer qualities and features acceptable to customersUse the value chain analysis to continuously identify ways of reducing the costs of activities in the value chain, while retaining important product/service featuresIf a firm is unable to link the activities shown in Figure 5.2, it probably lacks the resources, capabilities, and core competencies need to successfully use the cost leadership strategyLogistics can be a significant portion of a firm's activities' costs and offers cost reduction opportunities for firms using the cost leadership strategy
8 Cost Leadership Strategy and the Five Forces of Competition Low-cost position is a valuable defense against rivalsPowerful customers can demand reduced pricesCosts leaders are in a position to absorb supplier price increases and relationship demands, and to force suppliers to hold down their pricesContinuously improving levels of efficiency and cost reduction can be difficult to replicate and serve as significant entry barriers to potential competitorsCost leaders hold an attractive position in terms of product substitutes, with the flexibility to lower prices to retain customersEffective use of the cost leadership strategy allows a firm to create value despite the presence of strong competitive forces described in the five forces model of competition (see Chapter 3). We now turn to how firms are able to do this, examining each of the five forces.The cost leadership strategy can be discussed in terms of the five forces model of competition:A low cost position is a valuable defense against rivals.Powerful customers can demand reduced prices, but only to the point of driving competitors out to of the market, at which point they would lose their power.Costs leaders are in a position to absorb supplier price increases and relationship demands. Alternatively, due to volumes, cost leaders can often force suppliers to hold down their prices.Continually improving levels of efficiency and cost reduction can be difficult to replicate and serve as a significant entry barrier to potential competitors unless they are willing to accept below-average returns.Cost leaders hold an attractive position in terms of product substitutes, with the flexibility to lower prices to retain customers. However, when the features and characteristics become attractive to the customers, lower prices may not be an incentive to stay with the lower-priced product.
9 How can Low Costs protect against…? Low cost leadership does not eliminate any of these forces, it just allows the low costs firm to more easily deal with these forces, or offset the power of these forces, and potentially, remain profitable.
10 Strategy and Organizational Structure SpecializationCentralizationFormalizationUsing the Functional Structure to Implement the Cost Leadership Strategy – Certain structural dimensions support a strategic approach.Three important characteristics of organizational structure help define a firm's structure in terms of its competitive strategy:Specialization - type and number of jobs required to complete workCentralization - degree to which decision-making authority is retained at higher managerial levelsFormalization - degree to which formal rules and procedures govern work
11 Cost Leadership Strategy and Structure Simple reporting relationshipsFew decision-making and authority layersCentralized corporate staffStrong operational focus on process improvementsLow-cost cultureCentralized staff decision-making authorityJobs specializationHighly formalized rules and proceduresUsing the Functional Structure to Implement the Cost Leadership Strategy – Certain structural dimensions support a strategic approach. The characteristics of a functional structure can support a firm using the cost leadership strategy.Characteristics of a functional structure support its use for a firm using the cost leadership strategy:Simple reporting relationshipsFew layers in the decision-making and authority structureCentralized corporate staffStrong focus on process improvements through operational functionsEstablishes a low-cost cultureDecision-making authority is centralized in a staff function to maintain a cost-reducing emphasis within each organizational functionJobs are highly specialized, with work divided into homogenous subgroups, to allow increased efficienciesHighly formalized rules and procedures emanate from a centralized staff to guide the work
12 Risks of Cost Leadership Strategy Processes can become obsoleteFocus on cost reductions can come at the expense of understanding customer perceptions and needsStrategy could be imitated, requiring the firm to increase the value offered to retain customersCompetitive Risks of the Cost Leadership Strategy - Some risks exist for firms that select a cost leadership strategy.Risks faced by firms that select a cost leadership strategy:Processes can become obsoleteFocus on cost reductions can be at the expense of understanding customer perceptions and needsStrategy could be imitated, requiring the firm to increase the value offered to retain customers
13 Differentiation Strategy Key TermsDifferentiation Strategy – integrated set of actions designed by a firm to produce or deliver goods or services at an acceptable cost that customers perceive as being different in ways that are important to themDifferentiation Strategy - A strategy of differentiation pursues a fairly broad competitive scope while serving a broad customer segment.
14 DifferentiationOffer attributes that customers want, and are willing to pay for. Leads to premium price, higher volume, loyaltyMaintaining uniqueness can be a challengeKodak, Wrigley’s, Campbell’s, Coca-Cola, Gillette, Del Monte, and Nabisco all leaders since 1923Marginal revenue must exceed the costs of differentiationPERCEIVED VALUEversusINCREMENTAL COSTS
15 Differentiation Strategy – Implementation Target customers – perceived product valueCustomized products – differentiating on as many features as possibleSuccessful Execution of the Differentiation Strategy - Certain activities and policies have shown success in the use of the differentiation strategy. The value chain analysis (presented in Chapter 4) proves to be a critical tool for firms implementing a differentiation strategy. Each of the five forces of competition can be related to a differentiation strategy.Successful implementation of a differentiation strategy:Target customers who perceive that value is added by the manner in which the firm's products are differentiatedBe able to produce non-standardized products at competitive costsHave a understanding of what their target customers value, the relative importance they attach to the satisfaction of different needs, and for what they are willing to pay a premiumBe different from competitors on as many dimensions as possible—examples of reducing product similarity to provide a buffer from rivals include:Unusual featuresResponsive customer serviceRapid product innovationsTechnological leadershipPerceived prestige and statusDifferent tastesEngineering designPerformanceUse the value chain analysis to determine if the firm is able to link the activities required to create value and implement a differentiation strategyIf a firm is unable to link the activities shown in Figure 5.4, it probably lacks the resources, capabilities, and core competencies need to successfully use the differentiation strategy
16 Differentiation Strategy – Implementation (cont.) Unusual featuresResponsive customer serviceRapid product innovationsTechnological leadershipPerceived prestige and statusDifferent tastesEngineering designPerformanceSuccessful Execution of the Differentiation Strategy - Certain activities and policies have shown success in the use of the differentiation strategy. The value chain analysis (presented in Chapter 4) proves to be a critical tool for firms implementing a differentiation strategy. Each of the five forces of competition can be related to a differentiation strategy.Success implementation of a differentiation strategy:Target customers who perceive that value is added by the manner in which the firm's products are differentiatedBe able to produce non-standardized products at competitive costsHave a thorough understanding of what their target customers value, the relative importance they attach to the satisfaction of different needs, and for what they are willing to pay a premiumBe different from competitors on as many dimensions as possible—examples of reducing product similarity to provide abuffer from rivals include:Unusual featuresResponsive customer serviceRapid product innovationsTechnological leadershipPerceived prestige and statusDifferent tastesEngineering designPerformanceUse the value chain analysis to determine if the firm is able to link the activities required to create value and implement adifferentiation strategy.If a firm is unable to link the activities shown in Figure 5.4, it probably lacks the resources, capabilities, and core competencies need to successfully use the differentiation strategy.
17 Differentiation (cont.) What firms pursue differentiation?How or on what basis do they achieve differentiation?
18 Value-Creating Activities Associated with the Differentiation Strategy Use the value chain analysis to determine if the firm is able to link the activities required to create value and implement a differentiation strategyIf a firm is unable to link the activities shown in Figure 5.4, it probably lacks the resources, capabilities, and core competencies need to successfully use the differentiation strategy(See Additional Notes at the end of slide 26.)
19 Differentiation (cont.) Signalling important when:nature of differentiation difficult to quantifyfirst-time purchase –re-purchase infrequentbuyers unsophisticated
20 Differentiation Strategy and Structure Complex and flexible reporting relationshipsCross-functional product development teamsStrong focus on marketing and product R&DDevelopment-oriented cultureDecentralized decision makingBroad job descriptionsInformal rules and proceduresUsing the Functional Structure to Implement the Differentiation Strategy - Certain structural dimensions support a strategic approach. The characteristics of a functional structure can support a firm using a differentiation strategy.Describe the characteristics of a functional structure for a firm using the differentiation strategy:Relatively complex and flexible reporting relationshipsFrequent use of cross-functional product development teamsStrong focus on marketing and product R&DEstablishes a development-oriented culture which encourages frequent interaction to exchange ideas and create valueDecision-making responsibility is de-centralized to ensure rapid response to cues from the external environmentJobs are not highly specialized and include a large number of tasks, to support creativity and the continuous pursuit of differentiationFew formalized rules and procedures(See Additional Notes at the end of slide 26.)
21 Risks of Differentiation Strategy quick imitationno value in uniquenessover differentiationcell phonespremium price or costs are costs too highpoorly understood/changing customer needsMinivan, FAO Schwartzcosts/price become more important than uniquenessunwillingness to offer true differentiationCompetitive Risks of the Differentiation Strategy - Some risks exist for firms that select a differentiation strategy.Risks faced by firms that select a differentiation strategy:Price differential for the differentiated product may be perceived to be too largeFirm's means of differentiation may cease to provide value for which customers are willing to pay, particularly if rivals have successfully imitated the firm's strategyExperience can narrow the customers' perceptions of the value of a product's differentiated featuresCounterfeit goods might appear in the marketplaceAdditional Discussion Notes for the Differentiation Strategy - These notes include additional materials that discuss the concept of differentiation, and the example of LVMH is used to illustrate these principles. In addition, examples from the retailing and airline industries are highlighted to demonstrate how to obtain a differentiation advantage. Finally, additional material on organizational structure for differentiation strategies uses General Motors as an illustration of different ways firms in the automobile industry use different structures to support their differentiation strategies.Differentiation StrategyRather than costs, a firm using the differentiation strategy tries to invest in and develop features that differentiate its goods or services in ways that customers value. Commonly recognized differentiated goods include Toyota’s Lexus, Ralph Lauren clothing, and Caterpillar’s heavy-duty earthmoving equipment.To give some concrete examples, think of a $58,000 watch, dresses that look like newspaper, or an eye-shadow called “Gangrene.” These are items no one really needs, yet millions of consumers worldwide line up to buy them. That’s because LVMH—the world’s largest, most successful purveyor of these and other luxury goods that no one needs—is a master of a differentiation strategy. LVMH has differentiated itself in industries ranging from retailing and cosmetics to jewelry, leather goods, and wines and in 2000 generated $10 billion. What is the company’s secret? LVMH uses a differentiation strategy. LVMH’s brands are simultaneously:Timeless, eternal. Timelessness takes decades to develop. However, you can create the impression of it sooner through uncompromising quality—by hiring dedicated people with the brand “in their bones” and keeping them for a long time.Modern, edgy, fashionable, sexy. A modern brand is so new and unique that people feel they must buy it.Fast growing. To show shareholders you have struck the right balance between timelessness and fashion, and to allow you to charge premium prices.Profitable. Through disciplined, efficient, and rigorous manufacturing processes that contrast sharply with freewheeling creativity.To execute a differentiated strategy, LVMH suggests these counterintuitive principles:Free creative people from financial and commercial concerns. Creative types freeze whenever calculator-clutching managers hover nearby. So hire innovative types who want to see their designs succeed “on the street” and then let them run wild. For example, Dior designer John Galliano shocked the fashion world when he clad runway models in newspaper dresses, yet LMVH never flinched. Blocking the plan would have crushed Galliano’s spirit. Later, when Dior manufactured dresses in newspaper-printed fabric, they sold briskly.Don’t follow consumers. You won’t generate breakthrough products, and people won’t pay premium prices for something they expect. Instead, let creators drive innovation, and listen to focus groups with only one ear. For example, focus groups responded lukewarmly to the new Kenzo perfume, Flower, with its oddly shaped bottle and scentless signature flower, the poppy. LMVH launched Flower anyway because the design team believed in it. Kenzo’s sales rose 75% early in 2001, largely on Flower’s success.Minimize risk. Don’t put your company at risk by introducing all new products all the time. Let proven products carry you. LMVH made only several thousand innovative Dior handbags ($1,800/each). The rest of the product line was less radical in fabric and design, but the company made more of them and sold them for less, thus encouraging creativity while minimizing risk.Give star brands time to grow. Star brands need great talent and heritage. Use incubation time to learn. Although the highly creative Christian Lacroix fashion house hasn’t been profitable since its 1991 launch, LMVH uses it as a laboratory, learning how to start a brand from scratch and nurturing it until it has some history.How to Obtain a Differentiation Advantage: Retailing and Airlines - Other examples in two domainsRetailing: DiscountWal-Mart says, “Always low prices”—CostK-Mart says, “Martha Stewart & low prices”—Mixed?Target / Kohl’s say, “Style,” “name brands” (e.g., Mossimo, Liz Lang, etc.), and “not the warehouse ambiance”—Differentiation on “value”; the “feel good” factorJC Penney / Sears / Belks / Dillard’s say, “We have been here forever” (What is their message?)—Mixed?Nordstrom’s / Saks 5th Avenue say, “style,” “exceptional service”—Differentiation: service, upscale mystique, high-end productsAskIf you parachuted into the cosmetics section of a major department store, could you immediately tell whether you were in Macy’s, Saks 5th Avenue, Bloomingdale’s, or one of their competitors? If the product names were disguised, could you immediately distinguish the Estée Lauder counter from dedicated Lancôme counter? Put another way, when was the last time you caught your breath as you walked past the cosmetics counter in some big department store? When was the last time you stopped, looked around, and thought, “This is so cool”? Never? Well, that’s no surprise. The way cosmetics are merchandised and sold has hardly changed over the past couple of decades. It seems, therefore, that many cosmetics companies are happy with the status quo of mostly imitating each others’ incremental strategies.AirlinesSouthwest Airline says, “low prices lead to freedom,” “airline with personality,” “Click’n Save,” the “fun factor”—Differentiate on cost and fun ambianceMidwest Express Airline says, “the best care in the air,” “high-quality travel experience,” “The best airline in the U.S.” (7 consecutive years), “Most comfortable coach seat” (10 consecutive years); typical meal: Filet mignon with lobster, a roll with butter, spinach, mandarin salad, and chocolate banana-split cake—Differentiate on prestige, comfortUnited, US Airways, Delta, American Airlines, etc. says more flights to . . ., more schedule flexibility, and if you want low cost you will need to be flexible on your schedule—Mixed(For example, Delta’s Fan Fares offers travel bargains to cities hosting special sports events, concerts, exhibitions, etc., but travel is restricted to this coming weekend. United offers various “specials” from E-Fares, last minute fares “priced to go,” etc. Finally, American Airlines offers “AAdvantage Net SAAver Awards.” Like their rivals, these are next weekend travel for either fewer miles than normally required or for lower fare and “must be purchased by Friday.”)Assume that you were placed in one of the above airlines’ jets, but all company logos and emblems were removed. Would be able to tell whether you were seated in a United, American, or Delta Airlines aircraft?Structure for Differentiation Strategy - General MotorsStructure and Product DifferentiationWhich structure is most efficient for multi-product line company like GM? Which structure is most effective? Consider the automobile industry.GM uses an M-Form Structure, which includes 12 automobile divisions.BuickGeographic reach: U.S., Canada, Israel, and ChinaSix models: midsized and luxury cars and SUVs emphasizing style and substanceLogo/Slogan: The Spirit of American StyleChevroletGeographic reach: U.S., Canada, Mexico, Europe, Middle East (Israel, Saudi Arabia, etc.), Far East (Japan, Taiwan and China)—Most global brand22 models: Ranges from small and midsize cars, trucks, vans, and SUVs emphasizing style and substanceLogo/Slogan: Full Throttle—Charging AheadCadillacGeographic reach: U.S., Canada, Mexico, Europe, Middle East (Israel, Saudi Arabia, etc.), Far East (Japan, Taiwan, and China)Six models: luxury cars and SUV emphasizing luxury and performanceLogo/Slogan: Heritage RebornEV1Geographic reach: U.S., California and Arizona onlyOne model: Electric car emphasizing fuel efficiency and environmentLogo/Slogan: An exceptional car. A different driving experienceGMC TrucksGeographic reach: U.S., Canada, and BrazilEight models: Trucks, vans, and SUVs emphasizing engineering strengthLogo/Slogan: Discover the Advantages of Professional Grade EngineeringHolden / IsuzuGeographic reach: Australia26 Models: Range from small midsize cars, trucks, vans, and SUVs, emphasizing ?Logo/Slogan: What is their logo/slogan?HummerGeographic reach: U.S.Two models: SUVs, emphasizing uniqueness of rugged styleLogo/Slogan: Like nothing elseOldsmobileGeographic reach: U.S., CanadaFive models: Range of midsize cars and SUVs, emphasizing driving performanceLogo/Slogan: No logo, brand being phased outOpelGeographic reach: Europe, Middle East (Israel, Saudi Arabia, etc.), Far East (Japan, Taiwan & China)Ten Models: Range from small to midsize cars, trucks, vans, and SUVs emphasizing performanceLogo/Slogan: Fresh Thinking—Better CarsPontiacGeographic reach: U.S., Canada, and MexicoSeven models: Range of small to midsize cars, vans, and SUVs emphasizing the one-of-a-kind experienceLogo/Slogan: Fuel for the SoulSaabGeographic reach: U.S., Canada, Mexico, Europe, Middle East (Israel, Saudi Arabia, etc.), Far East (Japan, Taiwan & China)—Most global brand15 Models: Range of small and midsize cars, wagons, and vans emphasizing safety and driving performanceSaturnFive Models: Range small and midsize cars and wagons emphasizing customer satisfaction and reliabilityStrategic Alliances and Joint VenturesFiatSubaruSuzukiDaewooFactsGM has multiple divisions beyond its auto division, including Hughes, GMAC (financing), etc.GM currently supports 17 global brands in 4 geographic arenas: (GMNA, GME, GMLAAM, GMAP) Sales breakdown for automobile division: GMNA—76.7%, GME—17.7, GMLAAM—3.5%, GMAP—3.1%GM does plan to phase out Oldsmobile brandGM is branded around a product, company structured around a product lineIs GM’s structure a hindrance to a customer-centric perspective? Are GM’s customers brand loyal (i.e., to Buick or Cadillac) or company loyal (i.e., to GM)? How does that impact structure and strategy?Assume that you were running Buick or another division of GM, what is your incentive to “share your customer” with the other product lines. For example, moving a current Buick Regal customer to a say Cadillac El Dorado? Where is the customer in this equation?Sources: Evans, P. and Wurster, T.S Blown to Bits: How the new economics of information transforms strategy. Boston: Harvard Business School Press; and Harvard Business Review (March). The Perfect Paradox of Star Brands: An Interview with Bernard Arnault of LVMH. HBR OnPoint Enhanced Edition.
22 Differentiation Strategy and the Five Forces of Competition Customer loyalty provides the most valuable defense against rivalsUniqueness products reduce customer sensitivity to raised pricesHigh margins (for differentiated products) insulate from supplier influenceCustomer loyalty and product uniqueness serve as significant entry barriersFirms with customers loyal to their products are positioned effectively against product substitutesFirms using the differentiation strategy can successfully position themselves in terms of the five forces of competition (see Chapter 3) to create value.Firms using the differentiation strategy can position themselves in terms of the five forces model of competition to create value:Customer loyalty (which reduces customer sensitivity to price) provides the most valuable defense against rivalsThe uniqueness of differentiated products also reduces customer sensitivity to raised prices when a product continues to satisfy the customer's perceived unique needsHigh margins that can be charged for differentiated products provide insulation from the influence of suppliersHigher supplier costs can be either absorbed in to the margin or passed along to willing customersCustomer loyalty and a high level of product uniqueness serve as significant entry barriers to potential competitors unless they are willing to make significant investments while seeking customers' loyaltyAgain, firms with customers loyal to their products are positioned effectively against product substitutes(See Additional Notes at the end of slide 26.)
23 How can Differentiation protect against…? Differentiation does not eliminate any of these forces, it just allows the differentiated firm to more easily deal with these forces, or offset the power of these forces, and potentially, remain profitable.
25 How has P&G responded?Introduction of new, higher margined products like battery powered toothbrush and white stripsIntroduction of “Rejuvenating Effects,” a toothpaste for women marketed as a beauty productUsing Emeril Lagasse to hawk their citrus, cinnamon, and herbal mint toothpastes
26 Focus Strategy Key Terms Focus Strategy – integrated set of actions designed to produce or deliver goods or services to a narrow target consumer based on specific differences in the marketFocus Strategies - A focus strategy seeks to serve a market niche through the core competencies of an organization.
27 Focus Strategy – Market Segments Buyer groupProduct line segmentGeographic marketExamples of specific market segments that might be targeted with a focus strategy:A particular buyer group, such as youths or senior citizensA particular product line segment, such as professional painters or "do-it-yourselfers"A different geographic market, such as the Southeastern U.S. region or a local market
28 Focus Strategy – Reasons Large firms may overlook small nichesFirms may lack resources to compete in the broader marketFirms may be able to serve a narrow market segment more effectively than larger, industry-wide competitorsFirms may direct resources to certain value chain activities to build competitive advantageReasons that firms choose a focus strategy:Large firms may overlook small nichesFirms may lack resources to compete in the broader marketFirms may be able to serve a narrow market segment more effectively than larger, industry-wide competitorsFocus may allow the firm to direct resources to certain value chain activities to build competitive advantage
30 Risks of Differentiation Strategy A competitor may be able to focus on a more narrowly defined competitive segment and "outfocus” the focuserA company competing on an industry-wide basis may decide that the market segment served by the focus strategy firm is attractive and worthy of competitive pursuitThe needs of customers within a narrow competitive segment may become more similar to those of industry-wide customers as a wholeCompetitive Risks of the Differentiation Strategy - Some risks exist for firms that select a focus strategy.In addition to the cost leadership and differentiation strategy risks, some of the risks faced by firms that select a differentiation strategy include:A competitor may be able to focus on a more narrowly defined competitive segment and “outfocus” the focuserA company competing on an industry-wide basis may decide that the market segment served by the focus strategy firm is attractive and worthy of competitive pursuitThe needs of customers within a narrow competitive segment may become more similar to those of industry-wide customers as a whole
31 Integrated Cost Leadership/Differentiation Strategy Key TermsIntegrated Cost Leadership/ Differentiation Strategy – integrated set of actions designed by a firm to produce or deliver goods or services at an acceptable cost that customers perceive as being different in ways that are important to themIntegrated Cost Leadership/Differentiation Strategy - An integrated strategy pursues more than one strategy simultaneously, rather than one dominant business-level strategy.
32 Integrated Strategy – Advantages Improved speed of adapting to environmental changesImproved speed of learning new skills and technologiesImproved leverage of core competencies while competing against rivalsAdvantages of an integrated strategy:Improved speed of adapting to environmental changesImproved speed for learning new skills and technologiesImproved leverage of core competencies while competing against rivals
33 Integrated Strategy – Implementation Benefits Evidence suggests a relationship between use of an integrated strategy and achieving above-average returnsBusinesses that combine multiple forms of competitive advantage in low-profit-potential industries are shown to outperform businesses that compete with a single formSuccessful Execution of the Integrated Cost Leadership/Differentiation Strategy – There is value and difficulty in implementing an integrated strategy. The value chain analysis (presented in Chapter 4) can be used to explain this difficulty.Benefits of implementing an integrated strategy:Evidence suggests a relationship between use of an integrated strategy and achieving above-average returnsBusinesses that combine multiple forms of competitive advantage in low-profit-potential industries are shown to outperform businesses that compete with a single form
34 Value-Creating Activities Associated with the Integrated Strategy Integrating cost leadership and differentiation strategies (which emphasize different primary and support activities) requires a balance when selecting the activities to performA flexible organizational structure is requiredThe value chain analysis explains the difficulties of successfully implementing an integrated strategy:Cost leadership and differentiation strategies emphasize different primary and support activitiesAchieving a successful balance when selecting the activities to perform is a difficult challenge and requires a flexible organizational structure
35 Integrated Strategy and the Flexible Structure Commitment to strategic flexibilityFlexible decision-making patterns, with partial centralizationLess specialized jobs than in a traditional functional structure—workers are more sensitive to balancing cost and differentiationModular structures to produce modular goods create differentiation and simultaneously hold down costsUsing a Flexible Structure to Implement the Integrated Cost Leadership/Differentiation Strategy - Certain structural dimensions support a strategic approach. The characteristics of a flexible structure can support a firm using an integrated strategy.Characteristics of a flexible structure support its use for a firm using an integrated strategy:A commitment to strategic flexibility (see Chapter 1) is necessary to effectively use the integrated strategyDecision-making patterns need to be flexible, partly centralized and partly decentralizedJobs are less specialized than in a traditional functional structure so that workers are more sensitive to the need for balance between low cost and differentiationSome use of modular structures to produce modular goods creates differentiation and simultaneously holds down costs
36 Risks of Integrated Strategy Failure to establish a leadership position can result in a firm being "stuck in the middle," unable to create value, and unable to earn above-average returnsCompetitive Risks of the Integrated Cost Leadership/Differentiation Strategy – Some risks exist for firms that select an integrated strategy. Failure to establish a leadership position can result in a firm being "stuck in the middle" and unable to create value and unable to earn above-average returns.
37 Competing For Advantage Part III – Creating Competitive AdvantageChapter 6 – Competitive Rivalry and Competitive Dynamics
38 Model of Competitive Rivalry Over time firms take competitive actions/reactionsPattern shows firms are mutually interdependentFirm level rivalry is usually dynamic and complexStrategic and tactical action does not occur within a vacuumStrategic actions/responses: market-based moves that signify a significant commitment of resourcesDifficult to implement and reverseTactical actions/responses: market-based moves that involve fewer resources to fine-tune a strategy that is already in placeEasy to implement and reverse
39 Prisoner’s Dilemma Silent S = 6 months S = 10 years T = 0 years TestifyT = 5 years
40 Competitive Rivalry Key Terms Competitors – firms operating in the same market, offering similar products and targeting similar customersCompetitive Rivalry – ongoing set of competitive actions and competitive responses occurring between competitors as they contend with each other for an advantageous market positionCompetitive Behavior – set of competitive actions and competitive responses the firm takes to build or defend its competitive advantages and to improve its market position
41 Competitive Rivalry Key Terms Competitive Dynamics – total set of actions and responses of all firms competing within a marketMultimarket Competition – firms competing against one another in several product or geographic markets
42 From Competitors to Competitive Dynamics Figure 6.1 shows the relationships among competitors, competitive rivalry, competitive behavior, and competitive dynamics.The success of a strategy is determined by:The firm’s initial competitive actionsHow well it anticipates competitors’ responses to themHow well the firm anticipates and responds to its competitors’ initial actionAdditional Discussion Notes for Competitive Rivalry - These notes include additional materials that cover the concept of competitive rivalry, including an example illustrating the signals and rules of engagement in the airline industry and an example of personality-driven competition in the electronics industry.From Competitors to Competitive DynamicsFirms use a variety of tactics to draw out and assess the competition. For example, rivals frequently signal their “rules of engagement,” which involves letting the competition know one’s intentions and to draw the competition out and examine how it responds. To examine how the competition responds, or to test its counter moves, a firm can always bluff. Signaling and rules of engagement in the airlines industry are rather clear and common.As an example, Delta was known for briefly lowering fares significantly on a particular route, say Atlanta to Los Angeles, in response to another carrier lowering the fares on the same route. The signal: “If you want to lower fares on this route, you are in for a bloody battle.” The other airline most often responded by raising fares along this route because Delta had the resources to enter into a long and grueling fare war on the route. If, on the other hand, rivals reacted by lowering fares even further, Delta had to interpret this signal as “they wished to compete with us for business along this route.” Of course, not all types of signaling are legal, but here are a couple of common signals: price movements, prior announcements (“we’ll meet or beat any competitor’s price”), media (press releases), counter attacks/moves, announcement of results, and litigation.Strategists must also note that firms might get into competitions that are not economically driven, but rather are personality driven. These competitive rivalries are based on an initial competition for resources or revenues—but that over time can become personal battles between CEOs. Sony and Matsushita have been battling for world dominance in the consumer electronics industry for decades. The rivalry has become so personal between the two CEOs that they refuse to attend the same dinner parties or events. It escalated to the point where in 1989, after Sony’s Akio Morita closed the deal to purchase Columbia Pictures for $3.4 billion, Matsushita’s Masaharu Matsushita, not willing to be one-upped by his rival, responded by purchasing MCA for $6.1 billion less than a year later.Understanding competition is important as research shows that intensified rivalry within an industry may results in decreased industry average profitability. As discussed in the textbook, in 2001, Dell launched an intense price war in the PC and server business, causing prices to drop by as much as 50%. Profit margins declined for all firms, including Dell. CEO Michael Dell believed that his direct sales model would enable Dell to better endure its own reduced profitability than rivals who seek economies of scale could. Competitors, however, responded to Dell’s pricing competitive action. For example, to increase their advantage from economies of scale and scope, Hewlett-Packard’s merged with Compaq Computer Corporation. While it remains to be seen whether the new HP would be able to sustain the intense rivalry Dell’s strategy may contribute to its ability to outperform its rivals. Indeed, it has been suggested that Dell sets the pace for the PC industry, reflecting the strength of its direct sales strategy, and its superior cash flow management.
43 Model of Competitive Rivalry A Model of Competitive Rivalry - This is a straightforward, yet integrative, model of competitive rivalry at the firm level which provides a useful way to discuss the various aspects of competitive dynamics.Major components of the competitive rivalry model:Competitor AnalysisDrivers of Competitive BehaviorInterim RivalryOutcomesThe patterns of action and response that result in competitive rivalry influence a firm's business-level strategy through:The mutual interdependence of competitors' actionsThe intensity of rivalry within a marketMutual interdependence based on:One firm’s competitive actions have noticeable effects on competitorsOne firm’s competitive actions elicit competitive responses from competitorsCompetitors feel each other’s actions and responses
44 Intensity of Rivalry The total number of competitors Market characteristicsQuality of individual firms' strategiesDrivers of competitive behaviorThese factors determine the intensity of rivalry within a market.
45 Competitor Determinants Market CommonalityResource SimilarityCompetitor Analysis - The concept of competitor analysis was addressed earlier in the text and is now extended to describe what firms study as the first step to being able to predict competitors' behavior in the form of its competitive actions and responses.Determinants of the extent to which firms are competitors:Market commonality - the number of shared marketsResource similarity - the similarity in resources
46 Market Commonality Key Terms Market Commonality – number of markets with which the firm and a competitor are jointly involved, and degree of importance of the individual markets to each firmMarket Commonality - Market commonality, multimarket competition, and the potential to respond competitively across markets complicate and impact the rivalry between competitors.Additional Discussion Notes for Competitor Analysis - These notes include additional materials that cover of market commonality, providing several marketplace situations that illustrate the concept.Market CommonalityFirms with high market commonality and highly similar resources are direct and mutually acknowledged competitors. However, direct rivals do not always intensify their competition. The drivers of competitive behavior—as well as the likelihood that a competitor will initiate competitive actions or reactions—influence the intensity of rivalry, even for direct competitors.Market Commonality is concerned with the number of markets with which the firm and a competitor are jointly involved and the degree of importance of the individual markets to each. For example, McDonald’s and Burger King compete against each other in multiple global fast-food markets, while Prudential and Cigna (financial/insurance) compete against each other in several market segments (institutional and retail) as well as product markets such as life insurance and health insurance. Airlines, chemicals, and pharmaceuticals are other industries in which firms often simultaneously engage each other in multiple market competitions.More recently AOL and Microsoft entered into a stiff competition for Internet Service Provider (ISP) dominance. The key to ISP profits is in selling add-ons and auxiliary products and services to its customers. AOL has a significant size advantage with 31 million subscribers to Microsoft’s 7 million. The rivalry between the two firms for customers is becoming increasingly intense. When AOL increased rates Microsoft responded by holding its rates and offering three free months to new subscribers. AOL responded by initiating negotiations with PC manufacturers to install AOL on new PC desktops. The two firms also compete for the instant messaging application market. While AOL pioneered the concept, Microsoft developed many added features and optimized its application. In an effort to capture even greater market share Microsoft began to bundle MSN Messenger with its newest Windows operating system, Windows XP. While research suggests that market commonality and multimarket competition may occur by chance, once it begins, the rivalry becomes intentional and oftentimes intense.
47 Resource Similarity Key Terms Resource Similarity – extent to which the firm's tangible and intangible resources are comparable to competitors' resources in terms of both type and amountResource Similarity - Firms with similar types and amounts of resources are likely to have similar strengths, weaknesses, and strategies. Assessing competitor resources is difficult (particularly assessing intangible resources).
48 Framework of Competitive Analysis Mapping a firm's competitor analysis can show the extent to which firms in an industry compete:Referring to Figure 6.3, firms in Quadrant I are direct and mutually-acknowledged competitorsReferring to Figure 6.3, firms Quadrant III share few markets and have little resource similarityThe results of a firm’s competitor analyses can be mapped for visual comparisons. In Figure 6.3, different hypothetical intersections are shown between the firm and individual competitors in terms of market commonality and resource similarity. These intersections indicate the extent to which the firm and those to which it has compared itself are competitors. For example, the firm and its competitor displayed in quadrant I of Figure 6.3 have similar types and amounts of resources and use them to compete against each other in many markets that are important to each. These conditions lead to the conclusion that the firms modeled in quadrant I are direct and mutually acknowledged competitors. FedEx and UPS would fall into quadrant I, as would Marriott and Hilton. In contrast, the firm and its competitor shown in quadrant III share few markets and have little similarity in their resources, indicating that they aren’t direct and mutually acknowledged competitors. The firm’s mapping of its competitive relationship with rivals is fluid as firms enter and exit markets and as companies’ resources change in type and amount. Thus, the companies with which the firm is a direct competitor change over time.Additional Discussion Notes for Competitor Analysis - These notes include additional materials that cover resource similarity, providing marketplace situations that illustrate the concept.Resource SimilarityResource Similarity is the extent to which the firm’s resources are comparable to a rival’s in terms of both type and amount. Firms with similar types and amounts of resources tend to have similar strengths and weaknesses—and use similar strategies. The rivalry between CVS and Walgreens demonstrates these expectations in the retail pharmacy business. These firms are using the integrated cost leadership/differentiation strategy to offer relatively low-cost goods with some differentiated features, such as services. Resource similarity (net income of $746 million for CVS vs. $776.9 million for Walgreens; 4,133 CVS stores in 34 states vs. 3,165 Walgreens stores in 43 states) suggests that the firms might suffer from strategy convergence and industry orthodoxy.
49 Drivers of Competitive Actions and Responses AwarenessMotivationAbilityResource SimilarityDrivers of Competitive Actions and ResponsesFactors that influence competitive behavior:Awareness - extent to which competitors recognize the degree of their mutual interdependence (resulting from market commonality and resource similarity) and the potential consequences of competitive behaviorMotivation - firm's incentive to take action or to respond to a competitor's attack as it relates to perceived gains and lossesAbility - firm's resources that allow competitive action and flexibility responsivenessResource dissimilarity - resource disadvantages that delay speed of response to competitive actionsAdditional Discussion Notes for Competitor Analysis - These notes include additional materials that cover resource similarity, providing marketplace situations that illustrate the concepts.Resource DissimilarityResource Dissimilarity also influences competitive actions and responses between firms. For example, Wal-Mart initially used its cost leadership strategy to compete only in small communities (population of 25,000 or less). Using logistics systems and extremely efficient purchasing practices as competitive advantages, Wal-Mart created what was at that time a new type of value—wide selections of products at the lowest competitive prices—for customers in small retail markets. Local stores lacked the ability to marshal resources at the pace required to respond quickly and effectively. However, even when facing competitors with greater resources or ability, firms should respond, no matter how daunting doing so seems. Choosing not to respond can ultimately result in failure (or greater failure), as happened with many local retailers who didn’t respond to Wal-Mart’s competitive actions.
50 Likelihood of Attack First mover incentives Organizational size QualityLikelihood of Attack – Several factors (other than market commonality, resource similarity, and the drivers of competitive behavior) affect the likelihood a firm will use strategic and tactical actions to attack its competitors.
51 Timing of Competitive Behavior Key TermsFirst Mover – firm that takes an initial competitive action to build or to defend its competitive advantages or to improve its market positionSecond Mover – firm that responds to first mover's competitive action, typically through imitationLate Mover – firm that responds to competitive action, but only after time has elapsed since first mover's action and second mover's responseFirst Mover Incentives – Firms are categorized within a marketplace based on the timing of their competitive behavior. This timed behavior affects their strategy.
52 Timing of Competitive Behavior Key TermsSlack – buffer or cushion provided by actual or obtainable resources not currently used by an organization, resources in excess of the minimum those needed to produce a given level of outputFirst Mover Incentives – Firms are categorized within a marketplace based on the timing of their competitive behavior. This timed behavior affects their strategy.
53 First Mover – Characteristics Often builds upon a strategic foundation of superior research and development skillsTends to be aggressive and willing to experiment with innovationTends to take higher, yet reasonable, risksNeeds to have liquid resources (slack) that can be quickly allocated to support actions
54 First Mover – Benefits Above-average returns Customer loyalty An early hold on market share
55 First Mover – RisksDifficulty in accurately estimating potential returnsSubstantial costs of product innovation, which reduce slack available for other opportunitiesLower likelihood of introducing (or converting to) the product that becomes the industry standard as the market evolves
56 Second Mover – Characteristics Responds to first mover, typically through imitationIs more cautious than first moversTends to study customer reactions to product innovationsTends to learn from the mistakes of first movers, reducing its risksTakes advantage of time to develop processes and technologies that are more efficient than first movers, reducing its costsWill not benefit from first mover advantages, lowering potential returnsCharacteristics of second movers compared to first movers.
57 Late Mover – Characteristics Responds to market opportunities only after considerable time has elapsed since first and second movers have taken actionHas substantially reduced risks and returnsCharacteristics of late movers compared to first and second movers.
58 Organizational Size Small firms Act as nimble and flexible competitors Rely on speed and surprise to defend their competitive advantageHave greater variety of competitive behavior options availableOrganizational Size - An organization's size affects its likelihood of taking competitive actions.The difference between large and small firms in terms of their likelihood of taking competitive actions:Small firms are nimble and flexible competitors who rely on speed and surprise to defend their competitive advantage. This allows greater variety of competitive behavior options available to the small firmLarge firms have a greater likelihood to initiate competitive and strategic actions over time because they often have greater slack—however, they tend to rely on a limited variety of competitive actions, which can ultimately reduce their competitive success
59 Organizational Size Large firms Often have greater slack Have greater likelihood to initiate competitive and strategic actions over timeTend to rely on a limited variety of competitive actions, which can ultimately reduce their competitive successOrganizational Size - An organization's size affects its likelihood of taking competitive actions.The difference between large and small firms in terms of their likelihood of taking competitive actions:Small firms are nimble and flexible competitors who rely on speed and surprise to defend their competitive advantage. This allows greater variety of competitive behavior options available to the small firmLarge firms have a greater likelihood to initiate competitive and strategic actions over time because they often have greater slack—however, they tend to rely on a limited variety of competitive actions, which can ultimately reduce their competitive success
60 QualityKey TermsQuality – customer perception that the firm's goods or services perform in ways that are important to customers, meeting or exceeding their expectationsQuality - Quality affects competitive rivalry and managers need to create an organizational culture that focuses on quality across all value chain activities.
61 QualityQuality - Quality affects competitive rivalry and managers need to create an organizational culture that focuses on quality across all value chain activities.Examples of product dimensions that customers use to measure quality:Product quality dimensions- performance, features, flexibility, durability, conformance, serviceability, aesthetics, perceived qualityService quality dimensions- timeliness, courtesy, consistency, convenience, completeness, accuracy
62 Likelihood of Response Types and effectiveness of the competitive actionReputation of the firm that takes competitive actionsDependence on the marketIf the action significantly strengthens or weakens the firm's competitive positionLikelihood of Response - Several factors (other than market commonality, resource similarity, and the drivers of competitive behavior) affect the likelihood a firm will competitively respond to actions by its competitors.
63 Actor’s Reputation Key Terms Actor – firm taking an action or response (in the context of competitive rivalry)Reputation – positive or negative attribute ascribed by one rival to another based on past competitive behaviorType of Competitive Action - Strategic actions generally elicit fewer responses than tactical actions because of the significant resource commitment and the amount of time needed for implementation.Actor’s Reputation - This section discusses how a firm's reputation to its competitors influences the likelihood of a competitive response to their competitive actions.Additional Discussion Notes for Actor’s Reputation - These notes include additional materials that cover the impact of actor's reputation on competitive response, providing marketplace situations that illustrate the concept.Actor’s ReputationCompetitors are more likely to respond to strategic and tactical actions taken by market leaders. For example, Home Depot—the world’s largest home improvement retailer and the second largest U.S. retailer (behind Wal-Mart)—is known as an innovator in home improvement market and for its ability to develop new store formats (EXPO Design Centers and Villager’s Hardware Stores). As such, Home Depot knows that its rivals study its strategic actions and respond to them. For example, watching Home Depot, Lowe’s has transformed from a chain of small stores into a chain of home improvement warehouses, thus increasing the similarity of its store design with Home Depot’s.Similarly, evidence shows that successful strategic actions are quickly imitated, almost regardless of the actor’s reputation. For example, although a second mover, IBM committed significant resources to enter the PC market. When IBM succeeded in this endeavor, rivals (Dell, Compaq, and Gateway) responded with strategic actions (imitation) to enter the market. IBM’s reputation as well as its successful strategic action strongly influenced entry by these competitors. Thus, in terms of competitive rivalry, IBM could predict that responses would follow its entry to a market if that entry proved successful. In addition, IBM could predict that those competitors would try to create value in slightly different ways, such as Dell’s direct sales and built-to-order, rather than to use storefronts as a distribution channel.
64 Dependence on the Market Key TermsMarket Dependence – extent to which a firm's revenues or profits are derived from a particular marketDependence on the Market - Competitors with high market dependence are likely to respond strongly to attacks threatening their market position.
65 Competitive Dynamics – Three Market Types Slow-cycle marketsFast-cycle marketsStandard-cycle marketsCompetitive Dynamics - Varying rates of competitive speed in different markets affects the behavior of all competitors within a given market. Sustainability of competitive advantage is an important difference among the three market types that are outlined.
66 Slow-Cycle Markets Key Terms Slow-Cycle Markets – markets in which the firm's competitive advantages are shielded from imitation for long periods of time, and in which imitation is costly
67 Slow-Cycle MarketsBuild a one-of-a-kind competitive advantage that is proprietary and difficult for competitors to understand (creating sustainability)Once a proprietary advantage is developed, competitive behavior should be oriented to protecting, maintaining, and extending that advantageOrganizational structure should be used to effectively support strategic effortsSlow-Cycle Markets - Firms can achieve competitive success in low-velocity environments through these efforts.Additional Discussion Notes for Competitive Rivalry - These notes include additional materials that cover slow-cycle markets, providing marketplace situations that illustrate the concept.Slow-Cycle MarketsSlow-cycle markets are markets in which competitive advantages are shielded from imitation for longer periods of time and/or where imitation is costly. Historical conditions, causal ambiguity, social complexity, copyrights, location, patents, and proprietary information could all lead to one-of-a-kind advantages.Walt Disney Co. continues to extend its proprietary characters, such as Mickey Mouse, Minnie Mouse, and Goofy. These characters have a unique historical development. Because patents shield it, the proprietary nature of Disney’s advantage in terms of animated characters protects the firm from imitation by competitors (e.g., the company once sued a day-care center, forcing it to remove the likeness of Mickey Mouse from a wall of the facility).Once a patent expires, a firm is no longer shielded from competition. For example, in 2002 Merck got rocked by the loss of revenue as the patent protection for leading drugs, such as gastroesophageal reflux soother Prilosec, cholesterol drug Mevacor, and hypertension medication Prinivil, expired.
68 Slow-Cycle MarketsFigure 6.4 shows the competitive dynamics generated by firms competing in slow-cycle markets. In slow-cycle markets, firms launch a product (e.g., a new drug) that has been developed through a proprietary advantage (e.g., R&D) and then exploit it for as long as possible while the product is shielded from competition. Eventually, competitors respond to the action with a counterattack. In markets for drugs, this counterattack commonly occurs as patents expire, creating the need for another product launch by the firm seeking a shielded market position.
69 Fast-Cycle Markets Key Terms Fast-Cycle Markets – markets in which the firm's capabilities that contribute to competitive advantages are not shielded from imitation and where imitation is often rapid and inexpensive
70 Fast-Cycle MarketsFocus on learning how to rapidly and continuously develop new competitive advantages that are superior to those they replace (creating innovation)Avoid loyalty to any of their products, possibly cannibalizing their own current products to launch new ones before competitors learn how to do so through successful imitationContinually try to move on to another temporary competitive advantage before competitors can respond to the first oneFast-Cycle Markets - Firms can achieve competitive success in high-velocity environments through these efforts.Additional Discussion Notes for Competitive Rivalry - These notes include additional materials that cover fast-cycle markets, providing marketplace situations that illustrate the concept.Fast-Cycle MarketsFast-cycle markets are markets in which competitive advantages are not shielded from imitation and where imitation happens quickly and somewhat inexpensively. Competitive advantages are not sustainable in fast-cycle markets. The pace of competition in fast-cycle markets is almost frenzied as companies rely on ideas and the innovations resulting from them as the engines of their growth. Because prices fall quickly in these markets, companies need to introduce new or improved product faster.For example, rapid declines in the prices of Intel’s and Advanced Micro Devices’ (AMD) microprocessor chips made it possible for PC manufacturers to continuously reduce their prices to end users. Imitation of many fast-cycle products is relatively easy. Dell and Gateway have imitated IBM’s initial PC design to create their own PCs. Continuous declines in the costs of parts, as well as the fact that the information and knowledge required to assemble a PC isn’t complicated and is readily available, made it possible for additional competitors to enter this market without significant difficulty.
71 Fast-Cycle MarketsFigure 6.5 shows the competitive behavior of firms competing in fast-cycle markets. Competitive dynamics in this market type finds firms taking actions and responses in the course of competitive rivalry that are oriented to rapid and continuous product introductions and the use of a stream of ever-changing competitive advantages.The firm launches a product as a competitive action and then exploits the advantage associated with it for as long as possible. However, the firm also tries to move to another temporary competitive action before competitors can respond to the first one.Thus, competitive dynamics in fast-cycle markets, in which all firms seek to achieve new competitive advantages before competitors learn how to effectively respond to current ones, often result in rapid product upgrades as well as quick product innovations.
72 Standard-Cycle Markets Key TermsStandard-Cycle Markets – markets in which the firm's competitive advantages are moderately shielded from imitation and where imitation is moderately costly
73 Standard-Cycle Markets Have competitive advantages that can be partially sustained when their quality is continuously upgradedSeek to serve many customers and gain a large market shareGain brand loyalty through brand namesCarefully control operations to manage a consistent experience for the customerFast-Cycle Markets - Firms can achieve competitive success in medium-velocity environments through these efforts.