Competitive Strategy

3. Competition

By John Sanders
School of Management & Languages
Heriot-Watt University
Lecture Format
 Introduction
 What is strategic group analysis?
 Construction of strategic group maps
 Examples
 Role of mobility barriers / implications
 Conclusions: Strategic Group Analysis / Hints
 Blue vs Red Ocean Strategies
 Example: Yellow Tail
 Conclusions
 Strategy Statements

Corporate Strategy

SBU SBU SBU

Business Strategy

Competitive Strategy
Strategy Statements

Strategic
Competitive
Group
Conditions
Analysis

Strategy Statements Test desired focus

SBU Earnings/Growth
Strategy Statements
 Strategic Group Analysis
 Who are our competitors and how do they
compete in the marketplace?
 There are different approaches used to define
competitors and competitive approaches?
 Industry perspective Industry: is what you are selling; the sum total of cos. engaged in
the same kind of business and in fact competing with each other

 Market perspective Market: is who are you selling to; it refers to a population of buyers
or consumers of a specified commodity; customer needs
 Strategic group analysis perspective
 A strategic group consists of those rivals with
similar competitive approaches within an industry
In the field of corporate strategy the term adopted to identify a group of firms that are in the same competitive market is a 'strategic group. Johnson
et al. define such a group as 'órganizations within an industry with similar strategic characteristics, following similar strategies or competing on
similar bases. It is such a group of firms that occupies the central rectangle in Michael Porter's Five Forces Framework and is referred to as 'existing
competitors'. Notice that the total competitive environment of the business spreads beyond its current strategic group, and the composition of a
particular firm's strategic group may change over time. This change may be brought about through adjustments in the strategy of other firms entering
a particular market, changes in legislation, obvious changes in technology, etc...
 Monopolistic competition is a middle ground between monopoly on one hand, an perfect competition (pure) on the other, and combines elements of each.
Such a market resembles perfect competition in that there are a multiplicity of buyers and sellers and few barriers to entry. However, because each specific
good can only be obtained from one seller, the producer acquires a power to influence market prices that would not exist under perfect competition.

Industry and Market Perspectives

Monopolistic - many sellers
in the industry that one seller's
decision does not set off
a chain reaction; firms are
price setters rather price
takers (price power)
Increased price/low value
strategy; only feasible in monopoly situation
Price is determined for the entire
industry by
the forces of
supply and demand
Imperfect competition... products are differentiated from one another (i. e. by
branding or quality) and hence are NOT perfect substitutes
Non-competitive strategy - usually firms pursue a strategy that offers a high
payoff irrespective of the choice made by
other players because the firm wants to
maximise its own profit. It is used to
gain monopolistic advandage.
In Oligopoly, a price cut by
one firm can set off a price war
Oligopoly; few sellers / manufacturers (> 2)
within an industry selling homogeneous or
slightly diffrentiated products; markets for
automobiles, cement, steel, aluminium, etc..
are examples of oligopolistic markets where
there are few firms for each product; DUOPOLY
is a special case of Oligopoly; 2 sellers selling
homogeneous product having no substitute i.e.
Pepsi & Coca-Cola; Airbus & Boeing
Differentiated Oligopoly: similar products produced
by few manufacturers within an industry; each manu-
facturer attempts to differentiate their product slightly
to charge consumers higher prices; ex. cigarette &
beer cos.
Monopolistic competition; type of imperfect compe-
tition; many sellers offering similar but non-identical
goods; each specific good can only be obtained from
one seller; power to influence market price that would
not exist under perfect competition. It is in fact a
monopoly in its own product; product differentiation is
Perfect Competition essential; branding, advertising and marketing are
crucial - heavy marketing; ex. restaurants, watches,
clothing, hair salons & consumer electronics
Construction
1. Identify a complete list of all current providers in the
market
2. Identify several criteria that differentiate between the
providers on this list
3. Check whether you can source public domain and/or
proxy data for each of the criteria
4. Combine two criteria to produce a strategic map
5. Map individual firms in relation to axes chosen
6. Look for strategic groups (i.e. clusters of firms)
7. If the strategic groups aren’t meaningful, repeat the
process with new axes
Construction
Common competitive criteria
1. Extent of technological leadership (i.e. R&D spending)
2. Product quality
3. Pricing Policies
4. Distribution channels
5. Customer service
6. Size of firm
7. Breadth of market range; spread
8. Geographical distribution
9. Level of vertical integration
10. Profit/ Nonprofit
11. Any other relevant strategic factor
Strategic Group Analysis for UK Newspaper industry
High

B A

C
Word
count

Low

Focused Comprehensive

Breadth of Coverage
Strategic Group Analysis for UK Newspaper industry

High
B A

Word
count

Low

Focused Comprehensive

Breadth of Coverage
Strategic Group Analysis
Worked example
NEXT and the Children’s retail clothing
industry in the UK
 Strategic characteristics identified for each of the key players
Company (market Price Breadth of Quality/Styling Number of Advertising spend
share) products stores (£ Millions)

(11.5)

(10.4)

(9.7)

(8.7)

(6.4)

Niche
Retailers
(53.3)
Strategic characteristics identified for each of the key players
Children’s Retail Clothing Industry
Generic Strategies

Firms usually pursue a dominant

strategy where is emplys a strategy
that offers a higher payoff irrespective
of the choice made by other players
because the firm wants to maximise its
own profit
Generic Strategies
Children’s Retail Clothing Industry
Children’s Retail Clothing Industry
Children’s Retail Clothing Industry
 Children’s Retail Clothing Industry in the UK
Customers perceive
Some Niche retailers that fashionable styling
underperform contributes to product
quality Designer
clothing
Niche Niche supported by
Premium Retailers Retailers well-known
Must brand names
maintain
perceived Customers are brand loyal
Above average product because significant
Pricing Policy

differences product differences

to retain perceived
customer
Average loyalty Where M&S would like
to be positioned

Future ambition for

Below average several of these
companies?!

Poor Good Superior

(styling
and/or
Fashionable)

Quality
Children’s Retail Clothing Industry

Unique industry position

● Reputation/brand loyalty
● Superior/fashionable clothes

?
● Large and varied range of segmented
clothes
● Heavy advertising spend

Marks and Spencer

● Good quality
● Uncompetitive pricing
● Limited range
● Perceived as unfashionable
● Modest advertising
Children’s Retail Clothing Industry

Mobility barriers are factors which

impede (obstruct) the ability of
firms to enter or exit an industry or
to move from one segment / position
of an industry to another

Mobility Barrier
Questions over styling,
limited range, and poor
targeting
Role of Mobility Barriers
 Mobility Barriers are factors within an industry
that inhibit the movement of companies between
strategic groups
 Mobility barriers prevent quick imitation of
successful strategies
 The most important aspect of any strategic group
analysis is identifying the mobility barriers that
impede movement between groups
 There is no exhaustive list of mobility barriers
thorough or complete
Implications of Strategic Groups
 The closest industry competitors are those in the
same group
 Rivalry amongst these competitors will generally be
high.
 Competitive analysis varies across strategic
groups
 Profit potential of different strategic groups varies
due to the strengths and weaknesses in each
groups market position
 Categorizing the Objectives and Strategies of
Competitors
Competitive Market Share Competitive Strategic Competitive
Strategic Intent Objective Position Posture Strategy
Scope
• Aggressive •Getting •Striving for
• Be dominant •Mostly
• Local expansion via stronger; on the low-cost
leader offensive
acquisition & move leadership
internal growth •Mostly focusing
• Overtake •Well- •Mostly
• Regional on a market
industry leader entrenched defensive
well established niche
•Stuck in the •Combination of •Pursuing
• Be among • Expansion via
• National middle of the offensive & differentiation
industry leaders internal growth
pack defensive based on
•Going after a – Quality
• Move into top • Expansion via •Aggressive risk- – Service
• Multicountry different
10 acquisition taker – Technology
position
superiority
• Move up a – Breadth of
• Hold on to •Struggling; •Conservative
• Global notch in product line
present share losing ground follower
rankings – Image &
•Give up reputation
• Maintain – More value for
present share to
current position •Retrenching to the money
achieve short-
term profits a position that – Other
can be defended attributes
• Just survive
 SCHEMATIC: SEGMENTATION /
STRATIFICATION OF UK HEIs (~2005)

Golden Triangle

S:SR 10:1
T:R 50:50
PGRs 20%
Non-UK 30%

Russell Group

S:SR 12.5:1
RANKING

T:R 60:40
PGs 22%
Non-UK >20%
SMALL SPECIALISTS

1994 Group
Non-aligned
S:SR 15:1
HWU S:SR 16:1 T:R 70:30
Moderns T:R 76:24 PGs 22%
PGs 21% Non-UK 22%
S:SR >20:1 Non-UK 27%
T:R >90:<10
PGs 11%
Non-UK 15%

SCALE
 Strategic Direction Options (schematic)?
Golden Triangle

Russell Group

Merge with
Univ Ed

1994 Group
Academic capacity stays small
RANKING

Grow academic capacity

Specialise eg Subjects (…)
Research-led
SMALL SPECIALISTS

Mode (eg DL)

Enhance core R&T performance
Level (eg PG)
Options open

Non-aligned
HWU

Grow student numbers

Moderns
Teaching-led
One-way street

SCALE
Conclusions
 It allows for the investigation of multiple
competitors concurrently
 It provides a means of summarizing information
to bring key dimensions of strategy in high relief
 Make sure you construct many maps to
determine valid strategic differences.
 It capture the intuitive notion that “within-group”
rivalry and “between-group” rivalry differ
 While useful strategic group analysis is essentially
static.
Examination hints

Niche
Retailers

Type text here

Examination hints
Additional hints
 Mobility barrier
 Factors that deter the movement of firms from
one strategic position to another
 Entry barrier
 A barrier to entry is anything that stops a firm
not currently operating in an industry from
joining that industry
 Strategy Canvas
Red vs. Blue Oceans
How should How can I
I run my outperform
business? the competition?

Economy Differentiation Premium Blue Ocean

Chan Kim (South Korean) &

Renee Mauborgne (American)
Red vs. Blue Oceans
 Red Oceans represent all industries in
existence today.
 They have defined rules, competitors,
 and market boundaries.
 Blue Oceans represent all industries NOT in
existence today.
 This is undefined market space, otherwise
known as OPPORTUNITY.
Red vs. Blue Oceans
Red vs. Blue Oceans
 The principle behind a Blue Ocean strategy is
simple:
 To win in the future, companies must stop
competing with each other.
 The only way to beat the competition is to stop
trying to beat them.
 Value innovation is the “new” strategic logic
behind Blue Ocean Strategy.
 The focus is on both differentiation and low cost
to provide value to both customers and the
organization.
Yellow Tail Strategy
Premium Wines Budget Wines
Creating a Blue Ocean
 Yellow Tail Strategy
Premium and Budget Wines
Very high
Strategy Canvas
Offering Level versus Wine Drinkers’

High
Expectations

Normal

Low

Very low

Non-existent

enological -
the study and
making of wine
 Yellow Tail Strategy
Very high Non-customers
Offering Level versus Wine Drinkers’

High
Expectations

Normal

Low

Very low

Non-existent
 Yellow Tail Strategy
“The Essence of a Great Land”
Very high

Three Tests of a
Offering Level versus Wine Drinkers’

High
Blue Ocean Strategy:
Expectations

Normal

Low
1) Focused
Very low
2) Divergent different
3) Compelling Tagline catchphrase
slogan
Non-existent
Yellow Tail Strategy
 Industry criticizes them mercilessly at first
 No 1 imported wine (outsells French and Italian
wines)
 Fastest growing imported wine in the history of
the USA industry
 New consumers of wine
 Jug drinkers trade up
 Premium wine drinkers trade down
 Now the wine press gives it a “best buy” for value
& winning wine awards.
Conclusions
 A blue ocean strategy brings with it considerable
barriers to imitation
 More often than not, a blue ocean strategy tends to
go without credible challenges for as much as ten
to fifteen years
 As rivalry intensifies and total supply exceeds
demand, bloody competition commences and the
ocean will tend to turn “red”
connect; link up
 As competitors’ strategies converge, companies
should quickly begin reaching out for newer value
innovations to create another new blue ocean