Competitive advantage
It is a companys ability to perform in
one or more ways that competitors
cannot or will not match
For a brand to be effectively
positioned, customers must see any
competitive advantage as a
customer advantage
Dimensions of
Differentiation
Employee differentiation Companies can
have better-trained employees who
provide superior customer service.
Singapore Airlines is well regarded in large
part because of its flight attendants
Channel differentiation Companies can
design their channels coverage,
expertise, and performance to make
buying easier, more enjoyable, and more
rewarding for customers
Competitive strategies
40
%
Market leader
30
%
Market challenger
20
%
10
%
Market follower
Market nichers
Hypothetical
market structure
6 types of defensive
strategies
(2)
Flank
(3) Preemptive
ATTACKE
R
(4)
Counteroffensi
ve
(1)
Positio
n
Defend
er
(6)
Contracti
on
(5) Mobile
Defensive strategies
Even if companies do not launch any
offensives, the company should not expose
any of its major flanks
Aim of defensive strategies is to reduce
the probability of attack, divert attacks to
less threatening areas and lessen their
intensity
The defenders speed of response can
make an important difference in the profit
consequences
Defensive strategies
Position defense: involves building superior brand power,
making the brand almost impregnable. E.g. Nescafe
Flank defense: the market leader should erect outposts
to protect a weak front or which possibly might serve as
an invasion base for a counter attack
Preemptive defense: a more aggressive defense, attacks
the enemy before the enemy starts its offense, hitting
one competitor here and there, and throwing everyone
off balance, introduce a new stream of products and
preceding them with preannouncements which signal
markets that they have to fight for market share.
E.g. if Microsoft announces a new product, then smaller
firms may choose to concentrate their development
efforts in other directions in order to avoid head-to-head
competition.
Defensive strategies
Counteroffensive defense: when attacked, most market
leaders respond with a counter attack. In a counter
offensive, the leader can meet the attacker frontally or hit
its flank. An effective counter attack is to invade the
attackers main territory so that it will have to pull back
some of its troops to defend itself.
E.g.US companies invaded the Japanese market, when the
latter tried to expand in US
Mobile defense: the leader stretches its domain over new
territories which might serve as future centers for
defense. 1) Market broadening involves in shifting the
focus from the current product to the underlying generic
need. E.g. petroleum companies involving in R&D and
emerging as energy companies and 2) Market
diversification involves shifting into unrelated industries.
E.g. ITC when faced with growing concerns in the
cigarette industry went into cosmetics, garments, food
items etc.
Defensive strategies
Contraction defense: Large
companies sometimes recognize that
they cant defend all of their
territories. Then the best course of
action is planned
contraction/strategic withdrawal
giving up weaker territories and
reassigning resources to stronger
territories
Market Followers
The innovator bears the expense of developing the new
product, getting it into distribution and informing &
educating the market. The reward for all this work is
market leadership
However another firm can come and copy or improve on
the new product. These are market followers. These can
also achieve high profits because they did not bear any
innovation expense
Patterns of conscious parallelism are common in capitalintensive, homogenous-product industries such as
fertilizers, steel and chemicals. Here service quality is often
comparable and price sensitivity runs high
Market follower must know how to hold current customers
and win a fair share of new ones
Followers are main targets of challengers and hence they
must keep their manufacturing costs low and product &
service quality high. They must also enter new markets as
they open up.
Market-Nicher strategies
An alternative to be a follower in a large market is to be
a leader in a small market.
Firms with lower share of the market can become highly
profitable through smart niching
They offer high value, charge a premium price, achieve
lower manufacturing costs and shape a strong corporate
culture and vision
The ROI averaged 27% in smaller markets but only 11%
in larger markets. Niching is highly profitable because
the nicher ends up in knowing the target customer so
well and hence it meets their needs in a better way.
Nicher achieves high margin whereas mass marketer
achieves high volume
Market-Nicher strategies
Nichers have 3 tasks- creating niches,
expanding them and protecting them.
Nichers face the risk of market drying up
or being attacked and over-specialized
resources may not have alternate uses
Hence the firms should continually create
new niches. Multiple niching is always
preferable to single niching and the
company increases its chances of survival.