Session 5 Competitive Strategy and the Industry Environment

Overview
How can a company in a fragmented industry develop competitive strategies? What strategies can be used at the embryonic, growth, mature and declining stages of an industry lifecycle?

Strategies in fragmented industries

Fragmented industry characteristics:
Localised markets with low entry barriers (e.g. restaurant industry) Few economies of scale opportunities exist High transportation costs for products Focus strategies predominate (e.g. customer group, region)

Strategies in fragmented industries

Competing in fragmented industries requires strategic consolidation by:
Chaining (Coles-Myer; Woolworths) Franchising (McDonalds; Century 21 Real Estate) Using the Internet (eBay)

Strategies in embryonic and growth industries

Embryonic industries are typically created by innovators who have first-mover advantage Profits attract imitators and secondmovers

Strategies in embryonic and growth industries

Three strategies for an innovator competing in an embryonic industry:
Develop and market the innovation itself Develop and market the innovation jointly with another company through a strategic alliance or joint venture License the innovation to existing companies and let them develop the market

Many

Strategies in embryonic and growth industries

(continued)

How an innovators profits can be competed away

Many

Strategies in embryonic and growth industries (cont.)

How an innovators profits can be competed away

Strategies in embryonic and growth industries

An innovators optimal choice of growth industry strategy depends on:
Complementary assets the innovator has that can be used to exploit and market the innovation Height of barriers to imitation by competitors (e.g. patents) The capability of competitors to quickly imitate the innovator

Many

Strategies in embryonic and growth industries

Complementary assets are required to exploit an innovation successfully Complementary assets include: manufacturing facilities; marketing know-how; and access to distribution systems Complementary assets can be expensive to develop

Many

Strategies in embryonic and growth industries

Height of barriers to imitation
Prevent second or late movers from copying a companys innovation Give an innovator time to establish a competitive advantage

Capable competitors
Research and development skills Access to complementary assets

Strategies for profiting from innovation

Strategies for profiting from innovation

Many

Strategies in mature industries

Mature industries often dominated by a small number of large companies Characterised by three strategic groups low-cost, differentiators and focusers Strategies are interdependent

Strategies in mature industries

Strategies for deterring the entry of rivals

Many

Strategies to deter entry in mature industries

Product proliferation
Production of a range of products or services aimed at different segments of the same market

Price cutting Maintenance of excess capacity

Product proliferation

Product proliferation in the jeans industry

Strategies to manage rivalry in mature industries

Price signaling
Leading competitors use price changes to convey their intentions to other competitors (i.e. tit-for-tat)

Price leadership
One company sets the industry price; other competitors reference their prices to that price

Strategies to manage rivalry in mature industries

Nonprice competition
Competition by any means other than price Market penetration Product development Market development Product proliferation

Four nonprice competitive strategies

Four nonprice competitive strategies

Strategies to manage rivalry in mature industries

Industry over-capacity may lead to lower prices and price competition Excess may result from
technological factors new entrants

Strategies to manage rivalry in mature industries

Capacity control strategies
Preempt rival firms by building capacity ahead of anticipated increases in demand Indirect coordination with rival firms to keep industry-wide capacity in line with demand

Changes in industry capacity and demand

Supply and distribution strategy in mature industries

Vertical integration
Backward towards input suppliers Forward into distribution to consumers

Choice of integration depends on

Need for close relationships with suppliers Need to ensure customer relationships
Complexity of product Amount of information

Intensity of competition in declining industries

Factors that determine the intensity of competition in declining industries

Strategy selection in a declining industry

Strategies to manage rivalry in mature industries

Leadership strategies are most effective when
a company possesses distinctive strengths the speed of decline is moderate the intensity of competition is moderate

Aggressive pricing and marketing

Strategies to manage rivalry in mature industries

Niche strategies focus on pockets of demand where the market is stable or declining less rapidly than other pockets or the industry as a whole Niche strategies are most effective when a company possesses unique strengths relevant to the niche

Strategies to manage rivalry in mature industries

Harvest strategies are used when a company wishes to exit an industry Cashflow at the expense of market share Ultimately ends in liquidation of the business

Harvest strategy

Strategies to manage rivalry in mature industries

Divestment strategies are most effective when a company has few strengths relevant to the pockets of demand Competition is likely to be intense Success of divestment strategies depend upon self-awareness and timing