IIM-K EPGP 11 CS-B S7-8 2019-20 Comp Dynamics Strategy

Session 7-8
Business Level Strategy:

Competitive Dynamics & Generic
Strategies
ePGP 11 CS-B 2019-20 Section-A S7-8:

August 9, 2019 1
Competitive Dynamics & Generic Strategies
Sources of Business Success
Demand
Structure
Demand
Strategy
Sources of Growth
Success
Market
Cost
Structure
Structure
& Rivalry
August 9, 2019 2
Firm & Its Environment
Political New Entrants Ecological

Disruptive Innov.
Obsolescence Firm
Rivals
Strengths
Threats Opportunities
Economic Legal
Weaknesses
Complacency
Social Industry Technological
©2008-2019 P Rameshan ePGP 11 CS-B 2019-20 Section-A

August 9, 2019 S7-8: Competitive Dynamics & 3
Generic Strategies
Industry Forces
1. Existing competitors
3. Potential competitors First mover advantage
Industry potentials Captive clients
Incumbents’ strategies Greater efficiency 2. Threat of substitutes
Incumbents’ profitability Wider reach Degree of substitutability
Unmet consumer needs Greater economies Price advantage
Entry & exit barriers Product advantages Consumer income base
Promotion efforts Promotion efforts
Brand image
4. Bargaining Power of Suppliers 5. Bargaining Power of Buyers
Suppliers’ market power Buyers’ market power
Suppliers’ threat perception Buyers’ threat perception
Suppliers’ resources 6. Complementarity of products Buyers’ resources
Industry potentials Availability Industry potentials
Incumbents’ strategies Quality Incumbents’ strategies
Cyclicality
7. Disruptive innovations 10. State of industry
Scale of disruption Technological obsolescence
Sustainability of disruption Product obsolescence
Incumbents’ strategies 9. Outsourcing
8. Cultural Shift New sources
Lost tastes & preferences Cheaper alternatives
New tastes & preferences
August 9, 2019 ePGP 11 CS-B 2019-20 Section-A S7-8: 4
Industry Attractiveness
Industry Profitability
Industry Attractiveness
Highly Profitable Industries Industry Profitability is not Adequate

More Attractive for Industry Attractiveness
Implied Argument: Any Firm in the Industry Actually, only for Firms with Distinct
can Benefit from the High Profitability Cost Advantage High Profit Industry
Attractive; Inefficient Firms May choose
Average-Profit Industry
Actually, Inefficient Firms Less Competitive Pressure;

Struggle to Complete Better Survival

August 9, 2019 5
Persistent Competitive Advantage
Perfect Markets
Non-persistence of Competitive Advantage
Imperfect Markets
Possession of Unique Advantages Ambiguity of Advantages

(Location, Patent etc)
Persistent Inter-firm
Difference in Efficiency
Persistence of Competitive Advantage

August 9, 2019 6
Generic Business Strategy Options
Strategy
Cost leadership Integrated strategy

(Acquired advantage) (Multi-level Efforts)
Focus on achieving costs far

below industry-competitors’;
Segment focused or non-focused
Focused differentiation
(Strategic positioning)
Differentiation Segment focused
(Seeking advantage)
Segment non-focused
Low cost
(Strategic positioning)
Focus on lower end segments &

lower end products

August 9, 2019 7
Competitive Profile Matrix
Critical Success Weight Company X Company Y Company Z

Factors Rating* W. Score Rating* W. Score Rating* W. Score
Market Share 0.15 3 0.45 2 0.30 4 0.60
Inventory System 0.08 2 0.16 2 0.16 4 0.32
Financial Position 0.10 2 0.20 3 0.30 3 0.30
Product Quality 0.08 3 0.24 4 0.32 3 0.24
Consumer Loyalty 0.02 3 0.06 3 0.06 4 0.08
Sales Distribution 0.10 3 0.30 2 0.20 3 0.30
Global Expansion 0.15 3 0.45 2 0.30 4 0.60
Organization Structure 0.05 3 0.15 3 0.15 3 0.15
Production Capacity 0.04 3 0.12 3 0.12 3 0.12

E-commerce 0.10 3 0.30 3 0.30 3 0.30
Customer Service 0.10 3 0.30 2 0.20 4 0.40
Price Competitiveness 0.02 4 0.08 1 0.02 3 0.06
Management Experience 0.01 2 0.02 4 0.04 2 0.02
Total 1.00 2.83 2.47 3.49
* Ranging between major strength (4) and major weakness (1)
ePGP 11 CS-B 2019-20 Section-A

Generic Strategies
Strategic Types of Markets
Market
Slow cycle Fast cycle
Defending competitive Defending competitive position

position easy difficult
Standard cycle
Characteristics
Disruptive actions -
Defending competitive position Advantage to rivals -
needs effort Catching up with rival -
Return to status quo -
New disruptions
etc

August 9, 2019 9
Strategic Types of Markets
Market
Slow cycle Fast cycle
Defending competitive Defending competitive position

position easy difficult
Standard cycle
Cost Product Differentiation
Defending competitive position

needs effort
Differentiation & Cost

August 9, 2019 10
Business Stages & Strategic Actions
Stage
Emerging stage Declining stage
Entrepreneurial actions Protective actions
Growth stage Mature stage
Growth-oriented actions Market-power actions

August 9, 2019 11
Business Stages & Strategic Actions
Stage
Emerging stage Declining stage
Entrepreneurial actions Protective actions
Differentiation Cost
Growth stage Mature stage
Growth-oriented actions Market-power actions
Differentiation Differentiation, Cost

August 9, 2019 12
Process of Competitive Rivalry
Initial competitive action Further competitive actions
Competitor analysis Initiator’s response
Competitive reaction Market feedback
Market movements

August 9, 2019 13
Competitive-Pressure-Over-Time Curve
Competitive Pressure
Favourable
Neutral
Bargaining Power
of Buyers
Unfavourable
Time
(Industry Life Cycle)
Generic Strategies
Customer-Bargaining-Power-Over-Time Curve
Customer Bargaining Power Customer

Locked in
Low
Medium
Customer
Becomes Astute
High
Time
(Industry Life Cycle)
Generic Strategies
Competitor Analysis
What competitor
What drives is doing & can do
competitor CURRENT
FUTURE GOALS STRATEGY
COMPETITOR’S RESPONSE PROFILE

Is competitor satisfied with its current
position?
What likely moves/strategy shifts will
competitor make?
Where is competitor vulnerable?
What will provoke greatest & most effective
retaliation by competitor?
Competitor’s CAPABILITIES
ASSUMPTIONS both strengths &
about itself & weaknesses
industry
August 9, 2019 16
SWOT Strategy Matrix for Air India 2010-13
Internal S W
S1. Well-known brand W1. Globally small size
S2. Established routes W2. Poor financial perform.
External S3. Government support W3. Poor customer feedback
S4. Experienced staff W4. Poor efficiency
S5. National carrier status W5. Management deficiencies
O SO WO
O1. Low fare opportunities S1S2O1. Leverage lucrative routes W1O3. Expand fleet
O2. Inorganic growth S1S5O3. Leverage intern. rights W1O2. Alliances, code-sharing
O3. International routes S4O4. Increase efficiency W2O1. Rationalize operations
O4. Competitive stimulus S3O2. Rationalize operations W4O1O4. Increase efficiency
W5O4. Organizational change
W3O4. Revamp services
T ST WT
T1. Low cost preference S1S2T1. Strengthening AIX W1T2. Expand fleet
T2. Foreign competition S3T4T5. Negotiations with govt. W2W4T1T2T3 Increase efficiency
W3T2T3 Revamp services
T3. Domestic rivalry S1S2S4T3. Aggressive positioning
W3T2T3. Rapid brand building
T4. Govt. withdrawal S1S4S5T2T3. Revamp services W5T2T3 Organizational change
T5. Absence of funding S5T2T3. Rapid brand building W2T4T5. Privatization
Cost strategy Differentiation Focus Cost, differentiation & focus Differentiation & focus
©2016-2019 P Rameshan ePGP 11 CS-B 2019-20 Section-A S7-8:

August 9, 2019 Competitive Dynamics & Generic 17
Strategies
Japanese Strategies Against Their Strategic Intent
Strategies
Building Layers of Competing Through

Advantage Collaboration
Searching for Loose Changing the Terms of

Bricks Engagement

August 9, 2019 18
Unsuccessful Approach Against Low Cost Rivals
Strategy
Ignore Change Business Focus
Initiate Price-cut or Change Segments

a Low-cost Venture
Differentiate

August 9, 2019 19
Successful Approach Against Low Cost Rivals
Strategy
Watch; act if necessary Rationalize business focus if

required
Rationalize segments
Rationalize costs; More value to /products as relevant
customers
Differentiate; recover cost of

added value

August 9, 2019 20
Case Analysis 4
adMart
Was It Competing To Fail?

August 9, 2019 21
Provoking Question
Could adMart have made sustained profits?
If yes, how?
If no, why?

August 9, 2019 22
Provoking Question
Was adMart’s entry into retailing flawed?
If yes, how?
If no, why?

August 9, 2019 23
Provoking Question
Could adMart’s value chain have facilitated profits by end of

2000?
If yes, how?
If no, why?

August 9, 2019 24
Provoking Question
Did competitors’ predatory strategy cause

adMart’s failure?
If yes, how?
If no, why?

August 9, 2019 25
Competitors as Source of
adMart Failure
Did adMart Do
Everything Right?
Entry Structural Un-

Decision attractiveness
Entry Goal Price Relief
Cheaper Than Competitive

PNS Reaction
Entry Mode Imitable
Strategy Low Cost No Cost Leadership
Competitive No Core Competency

Reaction
RPM (Cost/Quality)
Operational
Logistics
Challenges Delivery economies
August 9, 2019 26
Consumer Price Sensitivity
Online Growth Objective of Price Relief
Purchase Growth Rivals’ Low Price Offers
adMart’s Share

August 9, 2019 27
Differential Pricing
Online Ordering Low Price
Minimum Order Size Imported Goods
Free Delivery Above

Threshold

August 9, 2019 28
Rivals’ Pricing Strategy
Predatory Pricing Deeper Pockets
Free Delivery Supplier Access
Wider Coverage

August 9, 2019 29
Provoking Question
Did competitive dynamics cause adMart’s

failure?
If yes, how?
If no, why?

August 9, 2019 30
Competitive Dynamics
Market: Jimmy Lai:
Real Estate Cost Past Success
Top 2 Players Online Model
Carrefour’s Exit Price Relief Motto
RPM Mechanism Open Challenge to Top 2
Price Sensitivity Low Price & Free Delivery
Internet Penetration Product Portfolio & Imports

August 9, 2019 31
Competitive Dynamics & adMart’s Failure
Market: adMart:
Dominance of Top 2 Direct Competing
RPM Open Challenge to Top 2
Internet Limits Price-based Competition
Shopping Habits Lack of Cost Leadership
Business Model Imitation Limitations of Imports
Predatory Rivals Logistics Constraints
Lack of Staying Power

August 9, 2019 32
Provoking Question
Was adMart’s flawed strategy responsible for its

failure?
If yes, how?
If no, why?

August 9, 2019 33
Pricing Strategy
Price Relief
Free Delivery Value
Convenience Value
Large Consumer Surplus

Strategies
Did adMart’s Flawed Strategy Cause Its Failure?
Yes No
Shackles of Price Relief Mission Price Compulsions Noble Price Relief Mission
Open Challenge to Duopoly Direct Entry & Aggressive Reactions Predatory Duopolists
Imitable Business Model Me-too Online Stores Cost-effective Entry Model
Low Cost Strategy Without Cost Advantage Unmanageable Competitive Pressures Earnest Attempt to Compete
Inciting Discount War Bleeding Losses Hong Kong Customer Habits
Procurement Strategy & Quality Unreliable Imports Supply Constraints
Delivery Strategy & Logistics Delivery Bottlenecks Productivity & Efficiency Issues
Marketing & Branding Strategy Other-business Revenue Losses Financial Constraints
Service Deficiencies Customer Backlash Early Phase of Online Shopping

August 9, 2019 35
Did adMart’s Flawed Strategy Cause Its Failure?
Yes No
Shackles of Price Relief Mission Noble Price Relief Mission
Open Challenge to Duopoly Predatory Duopolists
Imitable Business Model Cost-effective Entry Model
Low Cost Strategy Without Cost Advantage Earnest Attempt to Compete
Inciting Discount War Hong Kong Customer Habits
Procurement Strategy & Quality Supply Constraints
Delivery Strategy & Logistics Productivity & Efficiency Issues
Marketing & Branding Strategy Financial Constraints
Service Deficiencies Early Phase of Online Shopping

August 9, 2019 36
Strategic Dos/Don’ts
Never Openly Challenge Market Leaders
Prefer Peripheral Market Entry
Take Evasive Action With Aggressive Players
Choose Strengths To Compete
Never Compete on Weaknesses
Provide Better Experience to Customers
Ensure Sustained Financial Availability
Build Staying Power

©2017-2019 P Rameshan 37
August 9, 2019
Strategic Dos/Don’ts vs. adMart
Never Openly Challenge Market Leaders X
Prefer Peripheral Market Entry X
Take Evasive Action With Aggressive Players X
Choose Strengths To Compete X
Never Compete on Weaknesses X
Provide Better Experience to Customers ?
Ensure Sustained Financial Availability X
©2017-2019 P Rameshan
Build Staying Power X 38
August 9, 2019
Self-destructive Pricing Strategy
Price Compulsions – Relief

Mission
Open Challenge to Duopoly
Low Cost Strategy Without Cost

Advantage
Inciting Discount War
Bleeding Losses

Strategies
Alternative Strategy
Peripheral Entry
Inconspicuous Operation
Building Cost Advantage
Delivering on Promises
Resource Development
Creeping Mainstreaming
Superman model vs. Puppy dog model

August 9, 2019 40

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Session 7-8

Business Level Strategy:

ePGP 11 CS-B 2019-20 Section-A S7-8:

Political New Entrants Ecological

Social Industry Technological

©2008-2019 P Rameshan ePGP 11 CS-B 2019-20 Section-A

Highly Profitable Industries Industry Profitability is not Adequate

Actually, Inefficient Firms Less Competitive Pressure;

ePGP 11 CS-B 2019-20 Section-A S7-8:

Non-persistence of Competitive Advantage

Possession of Unique Advantages Ambiguity of Advantages

Persistence of Competitive Advantage

ePGP 11 CS-B 2019-20 Section-A S7-8:

Cost leadership Integrated strategy

Focus on achieving costs far

Focus on lower end segments &

ePGP 11 CS-B 2019-20 Section-A S7-8:

Critical Success Weight Company X Company Y Company Z

Production Capacity 0.04 3 0.12 3 0.12 3 0.12

* Ranging between major strength (4) and major weakness (1)

ePGP 11 CS-B 2019-20 Section-A

Slow cycle Fast cycle

Defending competitive Defending competitive position

ePGP 11 CS-B 2019-20 Section-A S7-8:

Slow cycle Fast cycle

Defending competitive Defending competitive position

Defending competitive position

Differentiation & Cost

ePGP 11 CS-B 2019-20 Section-A S7-8:

Emerging stage Declining stage

Entrepreneurial actions Protective actions

Growth stage Mature stage

Growth-oriented actions Market-power actions

ePGP 11 CS-B 2019-20 Section-A S7-8:

Emerging stage Declining stage

Entrepreneurial actions Protective actions

Growth-oriented actions Market-power actions

Differentiation Differentiation, Cost

ePGP 11 CS-B 2019-20 Section-A S7-8:

Initial competitive action Further competitive actions

Competitor analysis Initiator’s response

Competitive reaction Market feedback

ePGP 11 CS-B 2019-20 Section-A S7-8:

Customer Bargaining Power Customer

COMPETITOR’S RESPONSE PROFILE

©2016-2019 P Rameshan ePGP 11 CS-B 2019-20 Section-A S7-8:

Building Layers of Competing Through

Searching for Loose Changing the Terms of

ePGP 11 CS-B 2019-20 Section-A S7-8:

Ignore Change Business Focus

Initiate Price-cut or Change Segments

ePGP 11 CS-B 2019-20 Section-A S7-8:

Watch; act if necessary Rationalize business focus if

Differentiate; recover cost of

ePGP 11 CS-B 2019-20 Section-A S7-8:

ePGP 11 CS-B 2019-20 Section-A S7-8:

Could adMart have made sustained profits?

ePGP 11 CS-B 2019-20 Section-A S7-8:

Was adMart’s entry into retailing flawed?