Capstone: Strategy

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COMPETITION STRATEGY

MBA600 Week 3

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COMMONWEALTH OF AUSTRALIA COPYRIGHT REGULATIONS 1969

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DO NOT REMOVE THIS NOTICE.

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WEEK 3 FOCUSES ON ALL FOUR LEARNING OBJECTIVES

Critically assess a diverse range of theories accumulated throughout the Masters’ qualification and the connections that exist between each one.

Undertake independent research to solve complex business problems.

Discuss and translate theory, skills and knowledge into effective management practice

Acquire advanced knowledge and apply it in real workplace contexts to improve performance and competitive advantage.

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QUICK REVIEW OF KEY CONCEPTS What we learned in Week 2

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WHAT WE LEARNED LAST

WEEK

Resource-based View and the VRIO Framework

A firm’s internal resources may provide a competitive advantage if they create causal ambiguity by four means VRIO relates to creating a competitive advantage based on asset specificity, which competitors cannot easily imitate

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WHAT WE LEARNED LAST

WEEK

Dynamic Capabilities as a source of internal competitive advantage

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WHAT WE LEARNED LAST

WEEK

Isolating Mechanisms

The barriers that prevent a competitor from eroding the superior profitability of a firm

Mechanisms to develop inimitable resources and capabilities

Social complexity via organisation culture and reputation History via lengthy lead times to develop capabilities Causal ambiguity via tacit knowledge, social complexity and resource specificity (history) Low transferability via high transaction costs and inability to replicate skills in a rival firm

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WHAT WE LEARNED LAST

WEEK

Bases of Competitive Advantage

Grant, Figure 7.5 Sources of Competitive Advantage, p. 178

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WHAT WE WILL LEARN THIS

WEEK

Competition Strategy

Product Market Strategy PROFITABILITY

Product Life Cycle Stages

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THINKING UNDERPINS STRATEGY

Key concepts

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STRUCTURE FOLLOWS STRATEGY

FIRM goals, values

resources, capabilities

structure, systems

INDUSTRY ENVIRONMENT

competitors customers suppliers

STRATEGY corporate strategy,

competitive strategy

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'STRUCTURE FOLLOWS STRATEGY'

Thesis based on case studies in the 1920’s in the USA

Four sequential stages acquisition of resources (employees, raw materials, marketing and distribution channels) establishment of functional structures to increase efficiency adoption of growth and diversification strategy organisation structure to gather and allocate resources

(Alfred Chandler)

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IMPORTANT TERMS TO KNOW

Strategic fit the consistency of strategy with the firm’s internal environment and industry external environment

Fit is a concept in Contingency Theory There is no single best way of structuring or managing a firm

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IMPORTANT TERMS TO KNOW

CORPORATE STATEGY Choice of industries and markets in which the firm competes (or wants to compete)

COMPETITION STRATEGY Choice of how the firm defines its competitive advantage within a specific industry or market

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COMPETITION STRATEGY Porter’s Five Forces model

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RECALL FROM WEEK 1 THE DEFINITION OF COMPETITIVE ADVANTAGE

‘When two or more firms compete within the same market, on firm possesses a competitive advantage over its rivals with it earns (or has the potential to earn) a persistently higher rate of profit.’ (Grant, 2016, p. 169)

The key research question we explored since Week 1 What mix of capabilities and resources does a firm possess that would create profits above the industry average?

Competition strategy is introduced in this lecture Porter’s 5 Forces sheds light on the industry contest for profitability

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COMPETITION STRATEGY

Porter’s Five Forces of Competition

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PORTER’S FIVE FORCES OF

COMPETITION

Threat of new entrants Ease of entry in an industry Threat is high when

Low amount of capital is required to enter a market Existing firms cannot easily retaliate Existing firms lack isolating mechanisms (patents, brand reputation, etc) No government regulation Customer switching costs are low Low customer loyalty Products are nearly identical Economies of scale are easily achieved

POTENTIAL ENTRANTS

https://www.strategicmanagementinsight.com/tools/porters-five-forces.html

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PORTER’S FIVE FORCES OF

COMPETITION

Bargaining power Allows suppliers to control prices Strong bargaining power when

Few suppliers, many buyers Large suppliers threaten forward integration Few substitute raw materials exist Suppliers hold scarce resources Materials switching costs are high

SUPPLIER POWER

https://www.strategicmanagementinsight.com/tools/porters-five-forces.html

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PORTER’S FIVE FORCES OF

COMPETITION

Threats of Substitutes Strong when buyers can find

Substitute products or service with attractive prices or better quality Low cost of switching to substitute products or services

SUBSTITUTES

https://www.strategicmanagementinsight.com/tools/porters-five-forces.html

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PORTER’S FIVE FORCES OF

COMPETITION

Bargaining power Allows buyers to demand a lower price or higher quality Strong bargaining power when

Buying in large quantities or controlling access points to end consumers Few buyers exist Switching costs to other suppliers are low Buyers threaten backward integration Many substitutes exist Buyers are price sensitive

BUYER POWER

https://www.strategicmanagementinsight.com/tools/porters-five-forces.html

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PORTER’S FIVE FORCES OF

COMPETITION

Competition intensity Major determinant of industry profitability as firms content for market share Rivalry is intense when

There are many competitors High costs of leaving the industry Industry growth is slow or negative Undifferentiated and substitutable products or services Competitors are of equal size Customer loyalty is low

RIVALRY AMONG EXISTING COMPETITORS

https://www.strategicmanagementinsight.com/tools/porters-five-forces.html

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POSITIONING COMPETITION

STRATEGY Can a firm make superior profits in an industry?

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POSITIONING COMPETITION STRATEGY

Strategy problem Step 1 in the strategy planning process

Product Marketing plans for brand positioning, messaging, competitive differentiation, and sales enablement

Product market scope Product scope means the number of different lines (items) the firm offers for sale Market scope means the estimated value of products and services in a specific market or area

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POSITIONING COMPETITION STRATEGY

Strategy problem Step 1 in the strategy planning process

Vertical scope Each party in the supply chain provides different product-specific or market- specific goods and/or services

Horizontal scope Firms acquire others to increase size, diversify products or services, achieve economies of scale, reduce competition, attract new customers

Virtual scope Digital marketing: advertising, email, social media, blogs, other formats

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WORKSHOP TIME

Use the SWOT technique to assess the competition strategy position for the competitors you researched in

Week 2

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POSITIONING COMPETITION

STRATEGY

WORKSHOP

Assess a likely competition strategy for the 2 top competitors you selected in Week 2 (30 minutes)

Do a SWOT analysis (on the next slide) of the attributes outlined in Porter’s Five Forces model

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ASSESSING THE POSITIONING OF COMPETITION STRATEGY

Strategy Position, Mission, Vision SWOT analysis

STRENGTHS of the Mission

WEAKNESSES of the Mission

OPPORTUNITIES in the Vision

THREATS in the Vision

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PRODUCT MARKETING STRATEGY

Exploring: brand positioning, messaging, competitive differentiation, and sales enablement

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Describes the customers, how products fit into existing markets, and how to earn profits

Describes the tangible, intangible and symbolic attributes designed to satisfy customers’ needs and wants

Aligns with a firm’s competitive advantage and competition strategy

PRODUCT STRATEGY

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PRODUCT LIFE CYCLE STAGES

Development Stage Introduction Stage Growth Stage Maturity Stage Decline Stage

D ol

la rs

Time

Industry Sales

Industry Profits

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PRODUCT LIFE CYCLE STAGES

The product life cycle is a useful tool for addressing product strategy over time

Limitations of the product life cycle Most new products never get past development The length of each stage depends on the actions of other firms

The product life cycle forces managers to consider the future of their industry and their brand

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PRODUCT LIFE CYCLE STAGES

INTRODUCTION GROWTH MATURITY DECLINE

Overall Marketing Goals

Stimulate product awareness and trial

Grow market share with new customers

Maximise profit by defending market share or taking it from competitors

Reduce expenses to maximise profit

Product Strategy Limited models and features; frequent product changes

Introduce new models and features; continuous innovation

Full model line; add supplementary products to reposition brand

Eliminate unprofitable products and brands

Pricing Strategy Higher price to recover investment

Drop prices to match or beat competition

Drop prices to match or beat competition

Prices stabilise at a lower level

Distribution Strategy Gradual product rollout Intensify efforts to expand market reach

Extensive product availability Maintain brand loyal customers; phase out unprofitable channels

Promotion Strategy Build awareness to encourage trials

Aggressive brand advertising, selling to encourage product switching

Emphasise brand position and switching; reposition brand

Minimise or eliminate promotion costs

Source: adapted from William M. Pride and O. C. Ferrell, Marketing 2010 Edition. (Mason, OH: Cengage Learning, 2010), pp. 290-295

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PRODUCT OR SERVICE BRAND

Involves selecting the right combination of name, symbol, term, or design that identifies a product

Brands have two parts: Brand name – words, letters, and numbers that can be spoken Brand mark – symbols, figures, or a design

Critical to product identification and positioning in the minds of consumers An isolating mechanism

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WORKSHOP TIME

Use the product life cycle to discern how rival firms may react and retaliate to competitive threats

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POSITIONING COMPETITION

STRATEGY

WORKSHOP

Assess how rival firms may react and retaliate to market threats in the competing firms you chose in Week 2 (45 minutes)

Use the Product Life Cycle to determine the industry stage and likely reactions to marketing threats from competitors

Refer to Porter’s Five Forces of Competition for additional justification

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S e e k h e l p w h e n yo u n e e d i t !

Thank you