COMPETITIVE BUSINESS STRATEGY Besting one’s Rivals

How Do Firms Dominate their Rivals? Collusion Special knowledge about customers, products, or production techniques that enables them to make better products than other firms or make them at a lower cost Government protection Effective product-market strategies and tactics.

Goals of this class: You will know about Identifying competitor strategies Selecting competitors to attack or avoid Understanding the conflicts between customer and competitor orientation

Basic Concepts Porter’s Five Forces -- first 3 focus on rivals Identifying rivals Understanding their objectives Anticipating their reactions Designing competitive intelligence systems

Five Forces Determining Segment Structural Attractiveness Fig. 8.01 T30 Five Forces Determining Segment Structural Attractiveness Potential Entrants (Threat of Mobility) Suppliers (Supplier power) Industry Competitors (Segment rivalry) Buyers (Buyer power) Substitutes (Threats of substitutes) 1

Product / Market Battlefield for Toothpaste Fig. 8.03 Product / Market Battlefield for Toothpaste Customer segmentation Children / Teens Age 19-35 Age 36+ Plain toothpaste Colgate-Palmolive Procter & Gamble Colgate-Palmolive Procter & Gamble Colgate-Palmolive Procter & Gamble Toothpaste with fluoride Colgate-Palmolive Procter & Gamble Colgate-Palmolive Procter & Gamble Colgate-Palmolive Procter & Gamble Gel Colgate-Palmolive Procter & Gamble Lever Bros. Colgate-Palmolive Procter & Gamble Lever Bros. Colgate-Palmolive Procter & Gamble Lever Bros. Product segmentation Striped Beecham Beecham Smoker’s toothpaste Topol Topol 3

Strategic Groups in the Major Appliance Industry Fig. 8.04 T33 Strategic Groups in the Major Appliance Industry Group A Narrow line Lower mfg. cost Very high service High price High Group C Moderate line Medium mfg. cost Medium service Medium price Quality Group B Full line Low mfg. cost Good service Medium price Group D Broad line Medium mrg. cost Low service Low price Low High Low Vertical Integration 4 4 4

Five Patterns of Target Market Selection Fig. 9.05 T37 Five Patterns of Target Market Selection Single-segment concentration Selective specialization Product specialization M1 M2 M3 M1 M2 M3 M1 M2 M3 P1 P2 P3 P1 P2 P3 P1 P2 P3 Market specialization Full market coverage M1 M2 M3 M1 M2 M3 P1 P2 P3 P1 P2 P3 P = Product M = Market 8

Segment-by-Segment Invasion Plan Fig. 9.06 T38 Segment-by-Segment Invasion Plan Customer Groups Airlines Railroads Truckers Large computers Mid-size computers Product Varieties Personal computers Company A Company B Company C 9

TACTICS All’s Fair in Love & War?

GET THERE FIRST WITH THE MOST Positioning Entrenched products have several competitive advantages Consumer awareness and product reputation Production experience Advantageous arrangements with suppliers, wholesalers, and retailers Barriers to Entry

Barriers and Profitability Fig. 8.02 T31 Barriers and Profitability Exit barriers Low High Low, stable returns Low, risky returns Low Entry Barriers High, stable returns High, risky returns High 2

THREATEN, BLUFF, LIE Tacit -- take steps that CREDIBLY commit the firm to defend position -- Price, product, place, promotion Example: Walmart -- we will not be undersold Explicit THREATS-- if successful, will probably get you in trouble with law LIES may not

EXPLOIT YOUR STRENGTHS TO HANDICAP RIVALS ALLIANCES Tacit example: GM Explicit example: Wintel Plus threat example: Microsoft Government & Mafias KNOWLEDGE Market example: LiviCo/Mannesman Resource example: Shell, Exxon

UTILIZE SURPRISE AND MISDIRECTION DO THE UNEXPECTED (pursue avenues that the conventional wisdom rejects -- research) SEND ambiguous or deliberately misleading signals about your intentions KNOW YOUR RIVAL’ TENDANCIES AND TELLS -- formulas and recipes can be identified, anticipated, and defeated

DON’T GET SURPRISED OR MISLEAD KNOW YOUR CUSTOMERS AND YOUR BUSINESS and don’t get distracted by your RIVALS (Execution usually trumps strategy) SWOT

The Costs of Competitive Strategy Distracts attention from core business Corrupts Behavior tends to spill over into relationships with customers, suppliers, and employees Poisons those relationships Criminal behavior Leads to distorted aims -- winning as beating rivals rather than increasing value