Selecting a Competitive Strategy Competitive strategy deals exclusively with the specifics of management’s game plan for competing successfully: Actions and approaches to please customers Offensive and defensive moves to counter maneuvers of rivals Responses to shifting market conditions Initiatives to strengthen the firm’s market position and achieve a particular kind of competitive advantage. Competitive Strategy is narrower in scope than Business Strategy (which deals with all aspects of a company’s strategy for achieving its performance targets in a particular business)

Three Dimensions on which Companies compete Product Cost (often corresponds to pricing) Low  High Product Characteristics Standard  Differentiated (unique in some aspect) Targeted Customer Market Segment Narrow  Broad Leads to five modes of competitive advantage 

Five Modes of Competitive Advantage (Strategic Positioning) Low cost provider of standard product in broad customer market. Low cost provider of standard product in narrow (niche) customer market. Differentiated product in broad customer market segment. Differentiated product in narrow customer market segment. Cost appropriate (value) to some degree of product uniqueness across customer market segments. Can you give an example of each – not from the text?

Low Cost Positioning Make value chain activities more efficient Apply economies of scale – operations, knowledge Streamline/automate supply chain activities Utilize outsourcing for less productive activities Eliminate one or more value chain activities Sell directly to customers Have suppliers ship directly to store rather than warehouse Replace human activities with technology When is low cost advantage sustainable?

Examples of Cost Saving Actions Have lower specifications for purchased materials, parts, and components than rivals Strip frills / features from the product offering that are not highly valued by price-sensitive or bargain-hunting buyers Offer a limited selection / few versions of a product line and being content to meet the needs of most buyers rather than all buyers Distribute the firm’s product only through low-cost distribution channels Use the most economical method for delivering customer orders (even if it results in longer delivery times) Locate suppliers plants / warehouses close to a firm’s facilities to reduce materials handling and shipping costs Locate firm’s production facilities close to customer markets to reduce shipping costs

Wal-Mart’s Approach to Managing Its Value Chain Institute extensive information sharing with vendors via online systems Pursue global procurement of some items and centralize most purchasing activities Invest in state-of-the-art automation at the company’s distribution centers Strive to optimize the product mix and achieve greater sales turnover Install security systems and store operating procedures that lower shrinkage rates Negotiate preferred real estate rental and leasing rates with owners of store sites Manage and compensate the workforce in a manner that leads to lower labor costs Copyright © 2016 Glo-Bus Software, Inc.

Southwest Airlines Enhances Value Chain Made turnarounds at boarding gates more efficient (25 minutes versus 45 minutes for rivals) allows: Planes to fly more hours per day – increased capacity utilization More flights scheduled per day with fewer aircraft – increased productivity More revenue generated per plane than rivals – productivity advantage Eliminated several services – cost savings In-flight meals Assigned seating Baggage transfer to connecting airlines Used technology to automate human activities with online reservation system Reduces staffing requirements at reservation centers and airport counters Are any of these competitive advantages sustainable?

Broad Differentiation Positioning Offering unique product attributes that a wide range of buyers find appealing, valuable, and worth paying for Is attractive when buyer needs and preferences are too diverse to be satisfied by a single, standardized product Needs to be strongly differentiated from the offerings of rivals

What Are the Principal Uniqueness Drivers? Copyright © 2016 Glo-Bus Software, Inc.

Broad Differentiation Methods Companies can pursue differentiation from many angles: Unique taste – Dr. Pepper, Listerine Multiple features – Microsoft Office, iPhone, iPod, iPad Wide selection and one-stop shopping – Amazon.com Superior service – FedEx Engineering design and performance – Mercedes, BMW Prestige and distinctiveness – Rolex Product reliability – Johnson & Johnson Quality manufacture – Michelin, Honda Technological leadership – 3M Corporation Full range of services – Charles Schwab Wide selection/many varieties – Campbell’s soups High-fashion design – Gucci and Chanel Copyright © 2016 Glo-Bus Software, Inc.

Value Chain Differentiation Opportunities Incorporate valuable innovative features and performance attributes into the product that are not found in rivals’ products Pursue continuous quality improvements in products / processes Emphasize new product R&D and product innovation Improve product selection Invest in R&D for better production techniques Improve customer service / providing more service options. Emphasize HR management activities that improve the skills, expertise, and knowledge of personnel Pursue sales/marketing/advertising activities to enhance brand Improve distribution / delivery capabilities

Other Strategic Positions Narrow/focused low cost Ex: private labels Narrow/focused differentiation Ex: Alienware, Sig Zane, Mehana Brewing Co Best Cost – preferred product with better value Need to excel at both – distinction AND cost efficiencies Ex: Target, Hawaiian Style Cafe

STIHL Inc. Company information Dealer network Product features What is STIHL’s competitive strategy? Is their market narrow or broad?