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2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright
STRATEGY AND
COMPETITIVE
ADVANTAGE
CHAPTER 5
Screen graphics created by:
Jana F. Kuzmicki, PhD, Mississippi University for Women
The essence of strategy lies in
creating tomorrows competitive
advantages faster than competitors
mimic the ones you possess today.
Strategies for taking the hill
wont necessarily hold it.
2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright
Gary Hamel and C.K. Prahalad
Amar Bhide
Quote
3
2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright
Chapter Outline
Five Generic Competitive Strategies
Low-Cost Leadership Strategy
Broad Differentiation Strategies
Best-Cost Provider Strategies
Focused Low-Cost Strategies
Focused Differentiation Strategies
Vertical Integration Strategies
Merger and Acquisition Strategies
Cooperative Strategies
Offensive and Defensive Strategies
First-Mover Advantages and Disadvantages
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2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright
Strategy and Competitive Advantage
Competitive advantage exists when a firms
strategy gives it an edge in
Defending against competitive forces and
Securing customers


Convince customers firms product / service offers
superior value
Offer buyers a good product at a lower price
Use differentiation to provide a better product
buyers think is worth a premium price
Key to Gaining a Competitive Advantage
5
2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright
What is Competitive Strategy?
Consists of a companys market
initiatives and business approaches to
Attract and please customers
Withstand competitive pressures
Strengthen market position
Includes offensive and defensive moves to
Counter actions of key rivals
Shift resources to improve long-term market
position
Respond to prevailing market conditions
Narrower in scope than business strategy
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Objectives of Competitive Strategy
Build a competitive advantage
Cultivate clientele of loyal customers
Knock the socks off rivals, ethically and
honorably
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2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright
Figure 5.1: The Five Generic
Competitive Strategies
M
a
r
k
e
t

T
a
r
g
e
t

Type of Advantage Sought
Overall Low-Cost
Provider
Strategy
Broad
Differentiation
Strategy
Focused
Low-Cost
Strategy
Focused
Differentiation
Strategy
Best-Cost
Provider
Strategy
Lower Cost Differentiation
Broad
Range of
Buyers
Narrow
Buyer
Segment
or Niche
Table 5-1: Distinctive
Features of the Five
Generic Competitive
Strategies
Which hat
is unique?
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Low-Cost Leadership
Make achievement of low-cost relative to
rivals the theme of firms business strategy
Find ways to drive costs out of business year-
after-year
Low-cost leadership means low
OVERALL costs, not just low
manufacturing or production costs!
Low-cost leadership means low
overall costs, not just low
manufacturing or production costs!
Keys to Success
10
2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright
Options: Achieving a Low-Cost Strategy
Open up a sustainable cost advantage
over rivals, using lower-cost edge to either
Under-price rivals and
reap market share gains
or
Earn higher profit margin
selling at going price
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2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright
Figure 5.2: Reconfiguring Value Chain
Systems to Lower Costs -- Software Industry
A. Value Chain System of Software Developers Using
Traditional Wholesale-Retail Channels - Highest Cost
Software
development
activities
CD-ROM
production
and
packaging
activities
Marketing
and
promotion of
software
Warehousing
and shipping
of
wholesaler-
retailer
orders
Technical
support
activities
Activities of
software
retailers
Activities of
wholesale
distributors
of software
products
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Figure 5.2: Reconfiguring Value Chain
Systems to Lower Costs -- Software Industry
B. Value Chain System of Software Developers
Using Direct Sales and Physical Delivery of CDs
Software
development
activities
CD-ROM
production
and
packaging
activities
Direct and
online
marketing
and
promotion
activities
Ware-
housing and
shipping of
customer
orders
Technical
support and
customer
service
activities
C. Value Chain System of Software Developers
Using Online Sales and Internet Delivery - Lowest Cost
Software
development
activities

Online
marketing
and
promotion
activities
Systems to
accept credit
card
payment and
allow
immediate
download
Technical
support and
customer
service
activities
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Approaches to Securing
a Cost Advantage
Do a better job than rivals of
performing value chain activities
efficiently and cost effectively
Approach 1
Revamp value chain to bypass cost-
producing activities that add little
value from the buyers perspective
Approach 2
Control
costs!
By-pass
costs!
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Approach 1: Controlling the Cost Drivers
Capture scale economies; avoid scale diseconomies
Capture learning and experience curve effects
Manage costs of key resource inputs
Consider linkages with other activities in value chain
Find sharing opportunities with other business units
Compare vertical integration vs. outsourcing
Assess first-mover advantages vs. disadvantages
Control percentage of capacity utilization
Make prudent strategic choices related to operations
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Approach 2: Revamping the Value Chain
Abandon traditional business methods and shift to e-
business technologies and use of Internet
Use direct-to-end-user sales/marketing methods
Simplify product design
Offer basic, no-frills product/service
Shift to a simpler, less capital-intensive, or more
flexible technological process
Find ways to bypass use of high-cost raw materials
Relocate facilities closer to suppliers or customers
Drop something for everyone approach and focus on
a limited product/service
Reengineer core business processes
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Keys to Success in Achieving
Low-Cost Leadership
Scrutinize each cost-creating activity, identifying
cost drivers
Use knowledge about cost drivers to manage
costs of each activity down year after year
Find ways to reengineer how activities are
performed and coordinatedeliminate the costs
of unnecessary work steps
Be creative in cutting low value-added activities
out of value chain systemre-invent the
industry value chain
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Characteristics of a
Low-Cost Provider
Cost conscious corporate culture
Employee participation in cost-control efforts
Ongoing efforts to benchmark costs
Intensive scrutiny of budget requests
Programs promoting continuous cost
improvement
Low-cost producers champion
FRUGALITY while aggressively
INVESTING in cost-saving improvements!
Successful low-cost producers champion
frugality but wisely and aggressively
invest in cost-saving improvements !
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When Does a Low-Cost
Strategy Work Best?
Price competition is vigorous
Product is standardized or readily available
from many suppliers
There are few ways to achieve
differentiation that have value to buyers
Most buyers use product in same ways
Buyers incur low switching costs
Buyers are large and have
significant bargaining power
Industry newcomers use introductory low prices to
attract buyers and build customer base
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Pitfalls of Low-Cost Strategies
Being overly aggressive in cutting price
Low cost methods are easily imitated by rivals
Becoming too fixated on reducing costs
and ignoring
Buyer interest in additional features
Declining buyer sensitivity to price
Changes in how the product is used
Technological breakthroughs open up cost
reductions for rivals
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Differentiation Strategies

Incorporate differentiating features that cause
buyers to prefer firms product or service over
brands of rivals


Find ways to differentiate that create value for
buyers and that are not easily matched or
cheaply copied by rivals
Not spending more to achieve differentiation than
the price premium that can be charged
Keys to Success
Objective
21
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Appeal of Differentiation Strategies
A powerful competitive approach when
uniqueness can be achieved in ways that
Buyers perceive as valuable and are
willing to pay for
Rivals find hard to match or copy
Can be incorporated
at a cost well below
the price premium
that buyers will pay
Which hat
is unique?
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Benefits of Successful Differentiation
A product / service with unique and
appealing attributes allows a firm to
Command a premium price and/or
Increase unit sales and/or
Build brand loyalty
= Competitive Advantage
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Types of Differentiation Themes
Unique taste -- Dr. Pepper
Multiple features -- Microsoft Windows and Office
Wide selection and one-stop shopping -- Home
Depot and Amazon.com
Superior service -- FedEx, Ritz-Carlton
Spare parts availability -- Caterpillar
More for your money -- McDonalds, Wal-Mart
Prestige -- Rolex
Quality manufacture -- Honda, Toyota
Technological leadership -- 3M Corporation, Intel
Top-of-the-line image -- Ralph Lauren, Chanel
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Sustaining Differentiation: The Key to
Competitive Advantage
Most appealing approaches to differentiation
Those hardest for rivals to match or imitate
Those buyers will find most appealing
Best choices for gaining a longer-lasting, more
profitable competitive edge
New product innovation
Technical superiority
Product quality and reliability
Comprehensive customer service
Unique competitive capabilities
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Where to Find Differentiation
Opportunities in the Value Chain
Purchasing and procurement activities
Product R&D and product design activities
Production process / technology-related activities
Manufacturing / production activities
Distribution-related activities
Marketing, sales, and customer service activities
Internally
Performed
Activities,
Costs, &
Margins
Activities,
Costs, &
Margins of
Suppliers
Buyer/User
Value
Chains
Activities, Costs,
& Margins of
Forward Channel
Allies &
Strategic Partners
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How to Achieve a
Differentiation-Based Advantage
Incorporate product features/attributes that lower
buyers overall costs of using product
Approach 1
Incorporate features/attributes that raise the
performance a buyer gets out of the
product
Approach 2
Incorporate features/attributes that enhance buyer
satisfaction in non-economic or intangible ways
Approach 3
Compete on the basis of superior capabilities
Approach 4
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Signaling Value as Well as
Delivering Value
Buyers seldom pay for value that is not
perceived
Signals of value may be as important
as actual value when
Nature of differentiation is hard to
quantify
Buyers are making first-time
purchases
Repurchase is infrequent
Buyers are unsophisticated
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When Does a Differentiation
Strategy Work Best?
There are many ways to differentiate a
product that have value and please
customers
Buyer needs and uses are diverse
Few rivals are following a similar
differentiation approach
Technological change and product
innovation are fast-paced
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Pitfalls of Differentiation Strategies
Trying to differentiate on a feature buyers do
not perceive as lowering their cost or enhancing
their well-being
Over-differentiating such that product
features exceed buyers needs
Charging a price premium that
buyers perceive is too high
Failing to signal value
Not understanding what buyers want or prefer
and differentiating on the wrong things

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Competitive Strategy Principle
A low-cost producer strategy can
defeat a differentiation strategy
when buyers are satisfied with a
standard product and do not see
extra attributes as worth paying
additional money to obtain!

A low-cost provider strategy can
defeat a differentiation strategy
when buyers are satisfied with
a standard product and do not
see extra differentiating
attributes as worth
paying for!
31
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Best Cost Provider Strategies
Combine a strategic emphasis on low-cost with a
strategic emphasis on differentiation
Make an upscale product at a lower cost
Give customers more value for the money


Deliver superior value by meeting or exceeding
buyer expectations on product attributes and
beating their price expectations
Be the low-cost provider of a product with good-to-
excellent product attributes, then use cost
advantage to underprice comparable brands
Objectives
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How a Best-Cost Strategy
Differs from a Low-Cost Strategy
Aim of a low-cost strategy--Achieve lower costs
than any other competitor in the industry
Intent of a best-cost strategy--Make a more
upscale product at lower costs than the makers
of other brands with comparable features and
attributes
A best-cost provider cannot be the industrys
absolute low-cost leader because of the added
costs of incorporating the additional upscale
features and attributes
that the low-cost leaders
product doesnt have
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2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright
Competitive Strength of a
Best-Cost Provider Strategy
A best-cost providers competitive advantage
comes from matching close rivals on key product
attributes and beating them on price
Success depends on having the skills and
capabilities to provide attractive performance
and features at a lower cost than rivals
A best-cost producer can often out-compete both
a low-cost provider and a differentiator when
Standardized features/attributes wont meet the
diverse needs of buyers
Many buyers are price and value sensitive
34
2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright
Risk of a Best-Cost Provider Strategy
Risk A best-cost provider may get
squeezed between strategies of firms using
low-cost and differentiation strategies
Low-cost leaders may be able to siphon
customers away with a lower price
High-end differentiators may be able to steal
customers away with better product
attributes
35
2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright
Focus / Niche Strategies
Involve concentrated attention on a narrow
piece of the total market

Serve niche buyers better than rivals

Choose a market niche where buyers have
distinctive preferences, special requirements, or
unique needs
Develop unique capabilities to serve needs of
target buyer segment

Objective
Keys to Success
36
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Focus / Niche Strategies
and Competitive Advantage
Achieve lower costs than
rivals in serving the segment --
A low-cost strategy
Offer niche buyers something
different from rivals --
A differentiation strategy
Approach 1
Approach 2
Which hat
is unique?
37
2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright
Examples of Focus Strategies
eBay
Online auctions
Porsche
Sports cars
Horizon and Comair (commuter airlines)
Link major airports with small cities
Jiffy Lube International
Maintenance for motor vehicles
Bandag
Specialist in truck tire recapping
38
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What Makes a Niche
Attractive for Focusing?
Big enough to be profitable and offers good
growth potential
Not crucial to success of industry leaders
Costly or difficult for multi-segment competitors to
meet specialized needs of niche members
Focuser has resources and capabilities to
effectively serve an attractive niche
Few other rivals are specializing in same niche
Focuser can defend against challengers via
superior ability to serve niche members
39
2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright
Risks of a Focus Strategy
Competitors find effective ways to match a
focusers capabilities in serving niche
Niche buyers preferences shift towards
product attributes desired by majority of
buyers - niche becomes part of
overall market
Segment becomes so attractive
it becomes crowded with rivals,
causing segment profits to
be splintered
40
2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright
Cooperative Strategies
Companies sometimes use strategic
alliances or collaborative partnerships to
complement their own strategic initiatives
and strengthen their competitiveness. Such
cooperative strategies go beyond normal
company-to-company dealings but fall short
of merger or formal joint venture.
41
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Why Cooperative Strategies Are Integral
to a Firms Competitiveness
Collaborative arrangements can help a company lower its
costs or gain access to needed expertise and capabilities
Firms often lack the resources and competitive skills to be
successful in very demanding competitive races
Allies can be useful in helping a company establish a
stronger presence in global markets and helping it win
the race for global market leadership
Allies with competitively useful technological know-how
or expertise can greatly aid a company racing against
rivals for leadership in the industries of the future now
being created by todays technological and information
age revolution
Collaborative arrangements with foreign partners can be
very helpful in pursuing opportunities in unfamiliar national
markets


42
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Competitive Value of
Strategic Alliances to the Partners
Capacity of partners to defuse organizational
frictions
Ability to collaborate effectively over time and work
through challenges
Technological and competitive surprises
New market developments
Changes in their own priorities
and competitive circumstances
Competitive advantage emerges when a company
acquires valuable capabilities via alliances it could
not obtain on its own, providing an edge over rivals
43
2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright
Why are Strategic Alliances Formed?
To collaborate on technology development or
new product development
To fill gaps in technical or manufacturing
expertise
To acquire new competencies
To improve supply chain efficiency
To gain economies of scale in production and/or
marketing
To acquire or improve market access via joint
marketing agreements
44
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Potential Benefits of Alliances to Achieve
Global and Industry Leadership
Get into critical country markets quickly to accelerate
process of building a global presence
Gain inside knowledge about unfamiliar markets and
cultures
Access valuable skills and competencies concentrated
in particular geographic locations
Establish a beachead for participating in target industry
Master new technologies and build new expertise
faster than would be possible internally
Open up expanded opportunities in target industry by
combining firms capabilities with resources of partners
45
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Why Alliances Fail
Ability of an alliance to endure depends on
How well partners work together
Success of partners in responding
and adapting to changing conditions
Willingness of partners to renegotiate the bargain
Reasons for alliance failure include
Diverging objectives and priorities of partners
Inability of partners to work well together
Emergence of more attractive technological paths
Marketplace rivalry between one or more allies
46
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Merger - Combination and pooling of equals, with
newly created firm often taking on a new name
Acquisition - One firm, the acquirer, purchases
and absorbs operations of another, the acquired
Merger-acquisition
Much-used strategic option
Especially suited for situations where
alliances do not provide a firm with needed
capabilities or cost-reducing opportunities
Ownership allows for tightly integrated operations,
creating more control and autonomy than alliances
Merger and Acquisition Strategies
47
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Benefits of Mergers and Acquisitions
Combining operations may result in
More or better competitive capabilities
More attractive line-up of products / services
Wider geographic coverage
Greater financial resources to invest
in R&D, add capacity, or expand
Cost-saving opportunities
Filling in of resource or technological gaps
Stronger technological skills
Greater ability to launch next-wave products /
services
48
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Pitfalls of Mergers and Acquisitions
Combining operations may result in
Resistance from rank-and-file employees
Hard-to-resolve conflicts in management styles and
corporate cultures
Tough problems in combining and
integrating the operations of the
once-different companies
Greater-than-anticipated difficulties in
Achieving expected cost-savings
Sharing of expertise
Achieving enhanced competitive capabilities

49
2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright
Vertical Integration Strategies
Vertical integration extends a firms
competitive scope within same industry
Backward into sources of supply
Forward toward end-users of final
product
Can aim at either full or partial integration
Internally
Performed
Activities,
Costs, &
Margins
Activities,
Costs, &
Margins of
Suppliers
Buyer/User
Value
Chains
Activities, Costs,
& Margins of
Forward Channel
Allies &
Strategic Partners
50
2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright
Competitive Strategy Principle
A vertical integration strategy
has appeal only if it
significantly strengthens a
firms competitive position!
51
2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright
Strategic Advantages of
Backward Integration
Generates cost savings only if volume needed is
big enough to capture efficiencies of suppliers
Potential to reduce costs exists when
Suppliers have sizable profit margins
Item supplied is a major cost component
Resource requirements are easily met
Can produce a differentiation-based competitive
advantage when it results in a better quality part
Reduces risk of depending on suppliers of crucial
raw materials / parts / components
52
2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright
Strategic Advantages of
Forward Integration
Advantageous for a firm to establish its own
distribution network if
Undependable distribution channels undermine
steady production operations
Lacking a broad enough product line to justify
integrating forward into stand-alone distributorships
or retail outlets, a firm may sell directly to end users
Direct sales and Internet retailing may
Lower distribution costs
Produce a relative cost advantage over rivals
Enable lower selling prices to end users
53
2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright
Strategic Disadvantages of
Vertical Integration
Boosts resource requirements
Locks firm deeper into same industry
Results in fixed sources of supply
and less flexibility in accommodating
buyer demands for product variety
Poses problems of balancing capacity at each
stage of value chain
May require radically different skills / capabilities
Reduces manufacturing flexibility, lengthening
design time and ability to introduce new products
54
2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright
Pros and Cons of
Integration vs. De-Integration
Whether vertical integration is a viable or attractive
strategy depends on
How much it can lower cost, build expertise, increase
differentiation, or otherwise enhance performance of
strategy-critical activities
Its impact on investment cost, flexibility,
and administrative overhead
The contribution it makes to strengthening
a company market position or helping it
create competitive advantage
Many companies are finding that de-integrating,
unbundling, and out-sourcing value chain activities are a
better strategic option when it comes to lowering cost,
improving their competitiveness, or gaining added operating
flexibility
55
2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright
Unbundling and Outsourcing Strategies
De-Integration or unbundling involves narrowing
the scope of the firms operations, focusing on
performing certain core value chain activities and
relying on outsiders to perform the remaining
value chain activities
Concept
Internally
Performed
Activities
Suppliers
Support
Services
Functional
Activities
Distributors
or Retailers
56
2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright
When Does Outsourcing
Make Strategic Sense?
Activity can be performed better or more cheaply by outside
specialists
Activity is not crucial to achieve a sustainable competitive
advantage
Risk exposure to changing technology and/or changing
buyer preferences is reduced
Operations are streamlined to
Cut cycle time
Speed decision-making
Reduce coordination costs
Firm can concentrate on doing those core value
chain activities that best suit its resource strengths
and capabilities
57
2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright
Strategic Advantages of Outsourcing
Improves firms ability to obtain high quality and/or
cheaper components or services
Improves firms ability to innovate by interacting
with best-in-world suppliers
Enhances firms flexibility should customer needs
and market conditions suddenly shift
Increases firms ability to assemble diverse kinds of
expertise speedily and efficiently
Allows firm to concentrate its resources on
performing those activities internally which it can
perform better than outsiders
58
2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright
Pitfalls of Outsourcing
Farming out too many or the wrong
activities, thus
Hollowing out its capabilities
Losing touch with activities and
expertise that determine its overall long-
term success

59
2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright
Offensive and Defensive Strategies
Used to build new or stronger
market position and/or create
competitive advantage
Offensive Strategies
Used to protect competitive
advantage (rarely are they the
basis for creating advantage)
Defensive Strategies
60
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Figure 5.3: The Building and Eroding
of Competitive Advantage
S
i
z
e

o
f

C
o
m
p
e
t
i
t
i
v
e

A
d
v
a
n
t
a
g
e
Benefit Period Erosion Period Buildup Period
Strategic
moves
produce
competitive
advantage
Moves by
rivals
erode
competitive
advantage
Size of
competitive
advantage
achieved
Time
61
2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright
Competitive Strategy Principle
Any competitive advantage
currently held will eventually be
eroded by the actions of
competent, resourceful
competitors !
62
2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright
Options for Mounting Strategic Offensives
1. Initiatives to match or exceed competitor
strengths
2. Initiatives to capitalize on competitor
weaknesses
3. Simultaneous initiatives on many fronts
4. End-run offensives
5. Guerrilla warfare tactics
6. Preemptive strikes
63
2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright
Objectives
Attacking Competitor Strengths
Whittle away at a rivals
competitive advantage
Gain market share by out-matching
strengths of weaker rivals

Challenging strong competitors with a
lower price is foolhardy unless the
aggressor has a cost advantage or
advantage of greater financial strength!
64
2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright
Options for Attacking
a Competitors Strengths
Offer equally good product at a lower price
Develop low-cost edge, then use it to under-price
rivals
Leapfrog into next-generation technologies
Add appealing new features
Run comparison ads
Construct new plant capacity ahead of the rival
or in the rivals market strongholds
Offer a wider product line
Develop better customer service capabilities
65
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Attacking Competitor Weaknesses
Concentrate company strengths and resources
directly against a rivals weaknesses
Weaknesses to Attack
Go after
Those customers a rival has that it is
least equipped to serve
Rivals providing sub-par customer service
Rivals with weaker marketing skills
Geographic regions where rival is weak
Segments rival is neglecting
Objective
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Launching Simultaneous Offensives
on Many Fronts
Launch several major initiatives to
Throw rivals off-balance
Splinter their attention
Force them to use substantial
resources to defend their position
A challenger with superior resources can overpower
weaker rivals by out-competing them across-the-
board long enough to become a market leader.
Objective
Appeal
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End-Run Offensives
Dodge head-to-head confrontations that
escalate competitive intensity or risk cutthroat
competition
Attempt to maneuver around strong
competitorsconcentrate on areas of market
where competition is weakest
Objectives
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Optional Approaches for
End-Run Offensives
Introduce new products that redefine market
and terms of competition
Build presence in geographic areas where rivals
have little presence
Create new segments by introducing products
with different features to better
meet buyer needs
Introduce next-generation
technologies to leapfrog rivals
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Guerrilla Offenses
Use principles of surprise and hit-and-run to
attack in locations and at times where
conditions are most favorable to initiator
Appeal
Well-suited to small challengers
with limited resources and
market visibility
Approach
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Options for Guerrilla Offenses
Make random, scattered raids on leaders
customers
Occasional low-balling on price
Intense bursts of promotional activity
Special campaigns to attract buyers
from rivals plagued with a strike or having
problems meeting delivery schedules
Challenge rivals encountering problems with
quality, meeting delivery times, or providing
adequate technical support
File legal actions charging antitrust violations,
patent infringements, or unfair advertising
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Preemptive Strikes
Involves moving first to secure an advantageous
position that rivals
are foreclosed or discouraged
from duplicating!
Approach
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Preemptive Strike Options
Acquire firm which has exclusive control of a valuable
technology
Secure exclusive/dominant access to best distributors
Tie up best or most sources of essential raw materials
Secure best geographic locations
Obtain business of prestigious customers
Expand capacity ahead of demand in hopes
of discouraging rivals from following suit
Build an image in buyers minds that is unique
or hard to copy
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Choosing Who to Attack
Four types of firms can be the target of an
fresh offensive
Market leaders
Runner-up firms
Struggling rivals on verge
of going under
Small local or regional
firms not doing a good job
for their customers

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Offensive Strategy and
Competitive Advantage
Strategic offensive offering strongest basis for
competitive advantage usually entail
Developing lower-cost product design
Making changes in production operations that
lower costs or enhance differentiation
Developing product features that deliver superior
performance or lower users costs
Giving more responsive customer service
Escalating marketing effort
Pioneering a new distribution
channel
Selling direct to end-users
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Offensive Strategy Principle
The chances for a successful
offensive initiative are improved
when it is based on a companys
resource strengths and strongest
competencies and capabilities!
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Defensive Strategy
Fortify firms present position
Help sustain any competitive
advantage held
Lessen risk of being attacked
Blunt impact of any attack that occurs
Influence challengers to aim attacks at
other rivals
Objectives
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Defensive Strategies: Approaches
Block avenues open
to challengers
Approach 1
Approach 2
Signal challengers that
vigorous retaliation
is likely
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Block Avenues Open to Challengers
Participate in alternative technologies
Introduce new features, add new models, or broaden
product line to close gaps rivals may pursue
Maintain economy-priced models
Increase warranty coverage
Offer free training and support services
Reduce delivery times for spare parts
Make early announcements about new
products or price changes
Challenge quality or safety of rivals products
using legal tactics
Sign exclusive agreements with distributors
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Signal Challengers Retaliation Is Likely
Publicly announce managements strong
commitment to maintain present market share
Publicly announce plans to put adequate capacity
in place to meet forecasted demand
Give out advance information about new products,
technological breakthroughs, and other moves
Publicly commit firm to policy of matching prices
and terms offered by rivals
Maintain war chest of cash reserves
Make occasional counter-response to moves of
weaker rivals
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First-Mover Advantages
When to make a strategic move is often as
crucial as what move to make
First-mover advantages arise when
Pioneering helps build firms image and
reputation
Early commitments to new technologies,
new-style components, and distribution
channels can produce cost advantage
Loyalty of first time buyers is high
Moving first can be a preemptive strike
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First-Mover Disadvantages
Moving early can be a disadvantage (or fail
to produce an advantage) when
Costs of pioneering are sizable and loyalty of
first time buyers is weak
Innovators products are
primitive, not living up to
buyer expectations
Rapid technological change
allows followers to leapfrog pioneers
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Timing and Competitive Advantage
Being a first-mover holds potential for competitive
advantage in some cases but not in others


Principle 1
Being a fast follower can sometimes yield
as good a result as being a first mover
Principle 2
Being a late-mover may or may not be fatal --
it varies with the situation
Principle 3