Published on January 28, 2009
Prepared by: Hemant Kelkar (081123) Hitesh Gaur (081124) Institute of Management, Nirma University, Ahmedabad, Gujarat, India
Dimensions in competitive strategy •Cost position • Specialization •Service • Brand identification •Price policy • Push v/s pull •Leverage • Channel selection •Relationship with parent • Product quality company • Technology •Relationship to host & leadership home government • Vertical integration 1/26/2009 2
Strategic group Group of firms in an industry following the same or a similar strategy along the strategic dimensions. Reasons: Differing initial strength and weaknesses Differing time of entry into the business Historical accidents 1/26/2009 3
High Market penetration Low Broad range Specialty focus Product line mix High DOVE Product price HAMAM Low Broad Narrow Strategic focus differentiation 1/26/2009 4
Steps in structural analysis within industry Step-I Strategic groups and mobility barriers Step-II Strategic group and bargaining power Step-III Strategic group and threat of substitute Step-IV Strategic group and rivalry among firms Step-V Strategic group and a firm’s profitability 1/26/2009 5
Strategic groups and mobility barriers: Entry and mobility barriers: economies of scale, product differentiation, switching cost, cost advantages, access to distribution channels, capital requirements, and government policies. Mobility barriers and group formation: Differ in skills and resources Differ in goals and risk posture Differ in relationship to parent company Historical development of industry 1/26/2009 6
Strategic group and bargaining power Different degrees of vulnerability to common suppliers & suppliers May involve dealing with different buyers & suppliers • Strategic group and threat of substitute Focus on different parts of product line Serving different customers Operating at different levels of quality or technology Different cost position 1/26/2009 7
Strategic Groups and Rivalry among Firms • More the strategic groups, more the rivalry. • Differing preferences about risk taking, time horizon, price levels, quality levels, etc. -> repeated outbreaks of warfare. • Factors determining interaction among strategic groups in an industry: – Market interdependence, overlapping customer targets – Product differentiation – Number of strategic groups and their relative sizes – Strategic distance among groups 1/26/2009 8
Strategic Group Mapping and Intergroup Rivalry B A Key Strategic C Dimension F E D G Target Customer Segment 1/26/2009 9
Strategic Groups and a Firm’s Profitability • Common Industry Characteristics – Rate of industry demand, overall potential for product differentiation, structure of supplier industries, aspects of technology • Characteristics of Strategic Group – Height of mobility barriers – Bargaining power with suppliers and customers – Vulnerability to substitute products – Exposure to rivalry from other groups • Firm’s Position within its Strategic Group – Degree of competition within group – Scale of firm – Costs of entry – Ability to execute chosen strategy 1/26/2009 10
Are large firms more profitable than small firms? • Empirical evidence shows that the relationship between the profitability of larger share and smaller share depends on the industry. Followers RoR >> Followers RoR > Leader Return > Leader Return >> Leader Return Leader Return Followers RoR Followers RoR Meat products Sugar Dairy products Wine Liquor Tobacco(besides Grain mill Soft drinks Periodicals cigarettes) products Soap Carpets Knit goods Beer Perfumes, Leather goods Women’s clothing Drugs cosmetics and Optical, medical Men’s clothing Jewelry toiletries and ophthalmic Footwear Cutlery, hand goods Pottery and tools related products Household Electric lighting appliances Toys and sporting Radio, TV eqpt. Photographic eqpt 1/26/2009 11
Observations… Followers’ returns > leaders’ returns > leaders’ returns Followers’ returns • Economies of scale not great • heavy advertising (soap, or absent (clothing, footwear, perfumes, etc.) etc.) • Research outlays and • Highly segmented (optical, production economies of medical, etc.) scale(radio and TV, drugs) Strategic Groups and Cost Position Low cost position within strategic group may be crucial but not necessarily. 1/26/2009 12
Implications of Formulation of Strategy • SWOT analysis Strengths Weakness • factors increasing mobility barriers • factors lowering mobility barriers • factors enhancing bargaining • factors worsening bargaining power vis-à-vis buyers and suppliers power vis-à-vis buyers and suppliers • greater scale relative to its strategic •Smaller scale relative to its strategic group group • factors insulating from rivalry from • factors exposing it to rivalry from other firms other firms • strong implementation abilities • weak implementation abilities vis- vis-à-vis its strategy à-vis its strategy • factors allowing higher entry costs • factors allowing lower entry costs into its strategic group into its strategic group • resources and skills to overcome • lack of resources and skills to mobility barriers overcome mobility barriers 1/26/2009 13
• Opportunities: – Create new strategic group – Shift to more favorable strategic group – Strengthen structural position of existing group or firms position in group – Shift to new group and strengthen that group’s structural position. • Risks: – Other firms entering its group – Worsening scenario w.r.t. five forces – Risks involved in investments designed to improve firms position by increasing mobility barriers – Risks in attempting to overcome mobility barriers into more favorable strategic groups. 1/26/2009 14
Strategic group map as an analytical tool High Professional group Quality brand image Branded mass market group Private label group Average dealers Mass merchandisers Private label Mix of channels 1/26/2009 15
Strategic Group Map as an analytical tool Identifying Mobility Barriers Identifying Marginal Groups Charting Directions of Strategic Movement Analyzing Trends Predicting Reactions 1/26/2009 16
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