Chap 4 understanding competition

Natural and Strategic Competition TM 4-1 B.. Porter’s Model of Industry Competition TM 4-7 3.. NATURAL AND STRATEGIC COMPETITION A.. Strategic Competition: It is the studied deployment o

Understanding Competition

A Types of Competition

1 Natural and Strategic Competition (TM 4-1)

B Classifying Competitors

1 Sources of Competition (TM 4-2)

C Intensity of Competition

1 Factors Contributing to Competitive Rivalry (TM 4-3)

D Competitive Intelligence

1 Knowing the Competition (TM 4-4)

2 Sources of Competitive Information (TM 4-5)

E Seeking Competitive Advantage

1 Checklist for Understanding Industry Dynamics (TM 4-6)

2 Porter’s Model of Industry Competition (TM 4-7)

3 Industry Structure and Performance: Blue-Jeans Industry (TM 4-8)

4 Business Systems Framework

 Business System of a Manufacturing Company (TM 4-9)

 Sources of Economic Leverage In the Business System (TM 4-10)

 Plain-Paper Copier Strategy: Xerox vs Savin (TM 4-11)

5 Seeking Competitive Advantage: Ground Rules (TM 4-12)

6 Achieving Competitive Distinctiveness (TM 4-13)

7 Strategies for Sustaining Competitive Advantage (TM 4-14)

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NATURAL AND STRATEGIC

COMPETITION

A Natural Competition:

It refers to the survival of the fittest in a given

environment Applied to the business world, it

means that no two firms doing business across the

board the same way in the same market can coexist

forever.

B Strategic Competition:

It is the studied deployment of resources and

requires:

 Adequate information surrounding the

situation.

 Framework to understand the dynamic

interactive system

 Postponement of current consumption.

 Commitment to invest resources to an

irreversible outcome

 Ability to predict output consequences.

SOURCES OF COMPETITION

CUSTOMER NEED: LIQUID FOR THE BODY

Existing: Thirst

Latent: Liquid to reduce weight

Incipient: Liquid to prevent aging

INDUSTRY COMPETITION (How can I quench my thirst?)

Existing Industries: Hard liquor

Beer Wine Soft drink Milk Coffee Tea Water New Industry: Mineral water

PRODUCT-LINE COMPETITION (What form of product do I want?)

Me-Too Product: Regular cola

Diet cola Lemonade Fruit-based drink Improved Product: Caffeine-free cola

Breakthrough Product: Diet and caffeine-free cola providing full nutrition

ORGANIZATIONAL COMPETITION (What brand do I want?)

Type of Firms

Existing Firms: Coca-Cola

Pepsi-Cola Seven-Up

FACTORS CONTRIBUTING TO COMPETITIVE RIVALRY

 Opportunity potential

 Ease of entry

 Nature of product

 Exit barriers

 Homogeneity of the market

 Industry structure or competitive position of

firms

 Commitment to the industry

 Feasibility of technological innovations

 Scale economies

 Economic climate

 Diversity of firms

KNOWING THE COMPETITION

 Who is the competition—now? Five years from

now?

 What are the strategies, objectives, and goals of

major competitors?

 How important is a specific market to each

competitor and what is the level of its

commitment?

 What are the competitors’ relative strengths and

limitations?

 What weaknesses make the competitor

vulnerable?

 What changes are competitors likely to make in

their future strategies?

 So what? What will be the effects on the

industry, the market, and our strategy of all the

competitors’ strategies?

SOURCES OF COMPETITIVE INFORMATION

TRADE PUBLIC PROFESSIONALS GOVERNMENT INVESTORS

What compet-  Advertising  Manuals  SEC reports  Annual

itors say about  Promotional  Technical  FIC meetings themselves materials papers  Testimony  Annual

 Press  Licenses  Lawsuits reports releases  Patents  Antitrust  Prospectuses

 Speeches  Courses  Stock/bond

 Books  Seminars issues

 Articles

 Personnel changes

 Want ads What others  Books  Suppliers/  Lawsuits  Security say about  Articles vendors  Antitrust analyst

them  Case studies  Trade press  State/ reports

 Consultants  Industry federal  Industry

 Newspaper study agencies studies reporters  Customers  National  Credit

 Environmental  Subcon- plans reports groups tractors  Government

 Consumer programs groups

CHECKLIST FOR UNDERSTANDING

INDUSTRY DYNAMICS

 Industry profit economics

– Volume – Materials – Labor – Capital – Market penetration – Dealer strength

 Ease of entry

 Effect of integration

 Effect of cyclical swings on supply and demand

PORTER’S MODEL OF INDUSTRY

COMPETITION

4-8

INDUSTRY STRUCTURE AND PERFORMANCE: BLUE-JEANS INDUSTRY

BUSINESS SYSTEM OF A MANUFACTURING COMPANY

SOURCES OF ECONOMIC LEVERAGE

IN THE BUSINESS SYSTEM

PLAIN-PAPER COPIER STRATEGY:

XEROX VS SAVIN

SEEKING COMPETITIVE ADVANTAGE:

GROUND RULES

 Position the firm so that its capabilities provide the best defense against the existing array of competitive forces

 Influence the balance of forces through strategic

moves, thereby improving the firm’s relative position

 Anticipate shifts in the factors underlying the forces and responding to them, hopefully exploiting change

by choosing a strategy appropriate to the new

competitive balance before rivals recognize it

ACHIEVING COMPETITIVE

DISTINCTIVENESS

 Market focus

 Product differentiation

 Alternative distribution channel

 Selective pricing

STRATEG IES FO R SU STAIN ING

C O M PETITIVE ADVANT AG E