Lesson 7: Developing Corporate Strategies

Question 1

What is the overview of the competitive strategies?

Answer 1

1) Generic strategies: 
Cost leadership
Differentiation
Focus
The strategy clock

2) Interactive strategies:
Hypercompetitive strategy
Cooperation
Game theory

Question 2

What are the grounds of competition?

Answer 2

Product features, functionality, quality, service, place, distribution, terms of delivery and payment, communication, time and price

Competitive strategies are based on:
Analysis of the environment
Analysis of the internal firm

Question 3

What are Porters Generic strategies?

Answer 3

Competitive scope:

1) Broad target
2) Narrow target

Competitive advantage: lower cost of uniqueness

Cost leadership, focused cost leadership, differentiation, focused differentiation

Question 4

What is cost leadership?

Answer 4

Strategy to become the lowest-cost organisation
4 cost drivers:
1) Input costs: Labour, raw materials

2) Economics of scale: reduces average costs, minimum efficient scale

3) Experience curve: 
A) Gains in productivity = learning
B) More efficient designs or equipment
Implications for business strategy: 
1. Entry timing: early > late
2. Gain and hold market share = cumulative experience
3. Improvements continue over time

4) Product/ process design

Question 5

What is differentiation?

Answer 5

Uniqueness = valued by customers –> price premium

3 primary differentiation drivers:
1) Product and service attributes = better, unique product: eg. Apple

2) Customer relations:
Customer services and responsiveness (eg. Zalando)
Customisation eg. SAP
Marketing, brand and reputation: eg. Coca Cola

3) Complements: eg. Apple universe

Question 6

What is focus strategy?

Answer 6

Targets narrow segment and tailors to exclusion of others.

Eg. Ecover = differentiation focuser vs. Ryanair = cost focuser

Question 7

What is a hybrid strategy?

Answer 7

Porter is not a fan = risk of being ‘stuck in the middle’ = no strategy at all

Sometimes it works: Southwest: customer service and low cost

Porter: when combining works:
1) Organisational separation: seperate SBU’s: risk: preven negative spill overs

2) Technological or managerial innovation
3) Competitive failures: less competitive pressure

Question 8

What is Porters generic strategies?

Answer 8

The company must either be n. 1 in low cost and a standard service or be unique in its products or services

The company can either serve a niche or the whole market.

There can only be one cost leader in an industry but there can be many companies following a differentiation strategy

There can be room for many who follow a differentiated niche strategy.

In a geographical fragmented industry, there is room for more than one focused cost leader.

Question 9

What is stuck in the middle?

Answer 9

If the company tries to combine these strategies it becomes stuck in the middle

Combinations of these strategies create a non-clear image of the company

The whole value chain must be organised to fulfil one of the generic strategies

The idea that is only efficient to follow one competitive strategy in a SBU seems to fit better in for instance the airline industry than within the financial sector.

Question 10

What is the strategy clock?

Answer 10

Bowman:
1) Perceived product / service benefits from high to low

2) Price

Question 11

What is the no frill strategy?

Answer 11

Focused cost leader

Low price combined with low perceived value of the product benefits, focusing on price sensitive market segments.

Commodity markets

Price sensitive customers: niche market

Buyers have switching costs and low power

Opportunity to avoid major competitors.

Eg. EasyJet, Aldi, Lidl

Question 12

Wat is the low price strategy?

Answer 12

Cost leader:
A large portion of the market ask for a standard product for a relative low price

Lower price than competitors while offering similar product benefits

Created by economics of scale, experience, procurement and production layout

Cost minimization in all activities

Pitfalls are margin reductions and inability to reinvest

Eg. Netto, Fakta, Rema 1000.

Question 13

What is a hybrid strategy?

Answer 13

Seeks to simultaneously achieve differentiation and law proce relative to competitors

Extra product qualities are converted from higher margins to higher market shares by only taking a moderate price

IN spite of differentiation prices are low in order to gain high market shares and volume

Going after big volume and low single unit margin, but big total profit

Sometimes cost saving, for instance outsourcing can be a way of differentiation the product (IKEA)

Eg. Fotex and Bilka

Question 14

What is differentiation with the strategy clock?

Answer 14

A large part of the market are willing to pay a little extra for a differentiated product with some extra features or unique qualities

All types of value activities can be objectives for differentiation, as for instance product features, functionality, quality, service, product development

Eg. ISO, Irma, SAS

Question 15

What is the focused differentiation strategy with the strategy clock?

Answer 15

A small part of the market are willing to pay a substantial amount of money extra to get some very unique product features, qualities and image

Eg: retail butchers and individual airplane services

High quality supermarkets: Magasin and special stores

Question 16

What are the strategies destined for ultimate failure?

Answer 16

Product and services with a high price and of low perceived value for the customers.

Can be applied by companies wih a monopolistic position or firms redrawing from an industry.

Question 17

What are “trading-up” processes?

Answer 17

Companies begin with a no-frill strategy and over time, they increase the quality of their products and perhaps their product assortment. IN the end they also offer products that follows a focused differentiated strategy.

Eg. Toyota: started with offering no-frill cars in the ’50s, cars that followed a hybrid strategy during the ’80s and created the Lexus brand in the 90s following a focues differentiated strategy.

Question 18

What are the trading down processes?

Answer 18

Companies start by producing and selling products and services that are strongly focused differentiated and afterwwards capitalise on this (the brand), by offering a differentiated product that appeals to a broader part of the market.

Fashion industry and the consumer electronic industry.

Question 19

What is attack and defence?

Answer 19

Elements in a cost leadership strategy?
Scale of economics, experience effects, procurements cost, optimising of production processes and design

Attack on a cost leader:

1) The focused cost leader tries to position his product closer to the cost leader and hold on to a lower price
2) Companies with a differentiation strategy attempt to increase the perceived value of the differentiated product compared with the standard product

Question 20

How can you defend a cost leadership strategy

Answer 20

Defending a cost leadership strategy:
Increase the ground for cost minimization further in all value chain activities

Make sure the product/sercives of the firm that are following a differentiated strategy

Question 21

What are the elements in a differentiation strategy and attack and defence?

Answer 21

Elements in a differentiation strategy:
Uniqueness within product features functionality, quality, service, delivery and payment terms, product development, communication
Make sure the uniqueness is complex and rooted across the value chain.
The unique feature must be valued by customers and possible to communicate

Attack a differentiation strategy:
Cost leaders will try to show that their products are just so good, but at a lower price. Companies with a focues differentiation strategy will seek to show that their products are of more value.

Defense of a differentiation strategy:
Increasing the basis for differentiation in all value chain activities further. Increase the similarity to companies which follow a focused differentiation strategy.

Question 22

What is the focused strategy with attack and defence?

Answer 22

Elements of a focus strategy:
A narrow segment with special needs, eg. Scraped product with a very low price.
A need for extra uniqueness and a willingsness to pay an extra high price. The entire value chain must focus on the segment’s special needs.

Attack on a focus strategy:
Cost leader lowers its prices
The company pursuing a differentiation strategy differentiates its products/services even further

Defense of a focused strategy:
The company with a focused strategy must focus its products and services even further so that the differences in price remains justified.

Question 23

What are lock-in strategies?

Answer 23

1) Size or market dominance
2) Self-reinforcing commitment
3) First-mover dominance
4) Insistence on preservation of position

Question 24

How can you establish strategic lock-in?

Answer 24

Lock-in is when a company sets the standard within an industry.

Product standars are often set in the early days of an industry or in the beginning of the life cycle.

Often put in place by first mover advantages or a dominant player

It could also be established through a coalition or a group of firms.

Standards are often self-reinforcing and difficult to change

Often lock-in is achied through mobilising customers or suppliers or by selling the product very cheap.

Question 25

What are the characteristics of succesful hypercompetitive strategies?

Answer 25

Cannabilse bases of success

Smaller moves may be more effective than bigger ones

Disruption of the status quo

Be unpredictable

Mislead the competition

Question 26

What are normal competitive moves?

Answer 26

Imitating competitors

Building “strongholds” = market segments with a strong position

Creating big financial reserves

Building barriers

Following a generic competitive strategy

Question 27

What are the moves in hyper competition

Answer 27

Recognise that every competitve advantage is only temporary but that many of these can create long term advantages

Create competitive breaks by developing and introducing new product variations before the success of existing products are left out

Make sure competitive moves are unpredictable and unreasonable

Be prepared for surprises = flexible and hold slack resources

Go directly after competitors weaknesses

Question 28

Can you both cooperate and compete?

Answer 28

Often companies both compete and collaborate at the same time:
The computer industry in California
The shoe and leather industry in North Italy
Electronic industry in South Germany
Pharmaceutical and biotech companies in the Oresund region

Collaboration can take place between:
Two competing companies for instance in order to develop technology or share procurement
A firm and one of its suppliers for instance in order to improve the quality.
A company and one of its customers for instance in order to make distribution more efficient.

Question 29

Competition as a game

Answer 29

Competition is not static, it is about moves and contra moves.

Competition is very often characterised with the limited knowledge of the consequences of our actions

The choice between competition or corporation can be illustrated by the prisonners dilemma

The behaviour and sensitivity of our competitors can be tested through a sequential game.