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Business Level Strategy

Bases of competition Price Differentiation Hybrid Focus

Achieving competitive advantage Sustainability Hypercompetition Collaboration Game theory

Strategies at SBU level

Detailed Choices Directions Methods

Price-based Strategies
e.g. Japanese automakers, Indian Pharma, etc.


1. No frills
2. Low price

Likely to be segment specific Risk of price war and low margins; need to be price leader

Price-based Strategies
no frills strategy combine low price, low perceived value product benefits and a focus on a price-sensitive segment Low price strategy achieve a lower price than competitors while maintaining similar perceived value product benefits

When Commodity/ commodity-like, price-sensitive customers, high buyer power and/or low switching costs, small no. of providers with similar market shares, to avoid major competitors
Pitfalls margin reduction, inability to reinvest, useless without a low-cost base

Differentiation-based Strategies
3. Hybrid Needs/risks Low cost base and reinvestment in low price and differentiation Perceived value added by user, yielding market share benefit Perceived value added sufficient to bear price premium Perceived value added to a particular segment, warranting price premium

4. Differentiation a) without price premium b) with price premium 5. Focused differentiation

Differentiation (Route 4)
Differentiation strategy Provide products benefits that are different form those of competitors and that are widely valued by buyers
Implications who is the strategic customer? What is valued? Who are the competitors?

Hybrid strategy (Route 3)

Hybrid strategy simultaneously achieve differentiation and a price lower than competitors Implications Better margins if the greater volumes can be achieved than competitors; clarity on activities on which differentiation can be built; May prove to be beneficial when entering new markets with established competitors E.g. IKEA

Focused differentiation (route 5)

provide high perceived product benefits justifying a substantial price premium (usually in a niche) Issues How to grow further?; Difficult when adopted as only part of an firms overall strategy; may conflict with stakeholder expectations; potential risks (niche vanishes, segments blurred, etc.) E.g. Harley-Davidson

Strategies destined to fail

6. Increased price/standard value 7. Increased price/low value 8. Low value/standard price Needs/risks Higher margins if competitors do not follow; risk of losing market share Only feasible in monopoly situation Loss of market share

Failure Strategies (route 6, 7 and 8)

does not provide perceived value-for-money in terms of product features, price or both

In addition, firms may get stuck in the middle leading to failure

Sustaining Competitive Advantage

Price-based Strategies Accept reduced margin Win a price war Reduce costs Focus on specific segments

Differentiation Create difficulties of imitation Achieve imperfect mobility (of resources/competencies) Reinvest margin

Sustaining Competitive Advantage

Lock in Achieve size/market dominance First-mover advantage Reinforcement Rigorous enforcement

Price-based Strategies
Accept reduced margins sell more volume/ crosssubsidize that business unit from elsewhere in its portfolio. E.g. Targeting BOP Win a price war leverage on lower cost structure; deep pockets to bear short- mid-term losses to drive out competitors. E.g. Wal-Mart Innovate in reducing costs leverage specific capabilities to drive down costs across the value chain; e.g. Airtel Focusing on market segment single minded focus

Differentiation-based Strategies
Create difficulties of imitation - transferability, preferred access, situation dependent, sunk costs Imperfect mobility can the resources/ capabilities be traded? Intangible assets (brand/reputation), Switching costs, Cospecialization Reinvest margin Imp. to achieve and sustain lower cost position

Lock-in- when a firm achieves a proprietary position in its industry; becomes an industry standard. E.g. Microsoft Dependent on size or market dominance, first mover advantage, self-reinforcing, rigorous enforcement

Competitive Strategy in Hypercompetitive Conditions

Hoarding of Jet Airways in a Busy Road in Mumbai

What Happened Next

A Few Days Latter

And Finally

Repositioning Overcoming competitors barriers Shorter life cycles Undermine strongholds Counter Deep pocket advantages Competitive strategies Competing successfully Pre-empt competition (new strategies) Do not attack competitors weaknesses Disrupt the market Be unpredictable Mislead competitors A series of smaller moves

Overcoming competitors market-based moves Block first mover advantages Imitate product/market moves

E.g. Position 5 to position 4

Overcoming competitors marketbased moves Block first mover advantages (e.g. leapfrog, attack a particular segment, start with no frills strategy) Imitate product/market moves

Overcoming competitors barriers Shorter life cycles (e.g. for markets where technology advances are rapid) Undermine strongholds (e.g. very different business models, e-business, etc.) Counter Deep pocket advantages` (e.g. avoid direct competition, build alliances)

Competing successfully
Pre-empt competition (new strategies) e.g. Sony Do not attack competitors weaknesses Disrupt the market, e.g. Apple Be unpredictable Mislead competitors A series of smaller moves

Competition & Collaboration

Organizational Field - a community of organizations that partake of a common

meaning system and whose participants interact more frequently with one another than with those outside the field

E.g. Silicon valley

Increased selling power Stakeholder expectations Increased buying power

Shared work with customers

Competition & Collaboration

Increased barrier to entry

Entry to New Markets

Decreased risk of substitution

Increased selling power e.g. Working closely with the client Intel works closely with OEMs

To increase buying power e.g. Working closely with Suppliers. Offering some suppliers preferred supplier status. Many OEM use this strategy e.g. Dell

To build barriers to entry or avoid substitution e.g. Industry bodies/trade associations are formed . Coffee tea

To gain entry and competitive power e.g. Joint ventures are formed. For venturing into new/international markets

To share work with customers e.g. P&Gs co-creation with customers In 2010, Harley-Davidson started Crowdsourcing for Marketing and product ideas

PPP e.g. Lifebuoy Swasthya Chetna with Government of India, for selling soup to rural/low income population MCXs Gramin Suvidha Kendra PPP with India Post