competitive strategy

Competitive strategyclick for a larger image
Fig. 22 Competitive strategy. Three generic strategies. (Source: Michael Porter).
Competitive strategyclick for a larger image
Fig. 21 Competitive strategy. Forces driving competition in a market. (Source: Michael Porter).

competitive strategy

The formulation of strategic plans by a firm aimed at ensuring that the firm is able to meet and beat its competitors in supplying a particular product. Competitive strategy constitutes an integral part of overall BUSINESS STRATEGY formulation (deciding which markets to operate in etc.), since no matter how few or many product markets the firm chooses to be in, its corporate prosperity depends fundamentally on how well it succeeds in the individual product markets making up its business. A main concern of competitive strategy is to identify:
  1. the competitive strengths and weaknesses of one's own firm and of rival firms (see SWOT ANALYSIS);
  2. the nature and strength of the various forces driving competition in a market (see Fig. 21). The key to a successful competitive strategy is then
  3. to understand fully what product attributes are demanded by buyers (whether it be low prices or product sophistication) with a view to
  4. establishing, operationally, a position of COMPETITIVE ADVANTAGE which makes the firm less vulnerable to attack from established competitors and potential new entrants, and to erosion from the direction of buyers, suppliers and substitute products.

There are three generic strategies for competitive success (Fig. 22): cost leadership, product differentiation and ‘focus’. Low costs, particularly in commodity-type markets, help the firm not only to survive price competition should it break out, but, importantly, enable it to assume the role of market leader in establishing price levels which ensure high and stable levels of market profitability. The sources of cost-effectiveness are varied, including the exploitation of ECONOMIES OF SCALE, investment in best state-of-the-art technology (e.g. COMPUTER-AIDED MANUFACTURING, LEAN MANUFACTURING) and preferential access to raw materials or distribution channels. By adopting a PRODUCT DIFFERENTIATION strategy a firm seeks to be unique in its market in a way that is valued by its potential customers. Product differentiation possibilities vary from market to market but are associated with the potential for distinguishing products by their physical properties and attributes and the experience of satisfaction – real and psychological – imparted by the product to consumers. General cost leadership and differentiation strategies seek to establish a COMPETITIVE ADVANTAGE over rival suppliers across the whole market. By contrast, ‘focus’ strategies aim to build competitive advantages in narrower segments of a market, but again either in terms of cost or, more usually, differentiation characteristics, with ‘niche’ suppliers primarily catering for speciality product demands. See VALUE ADDED MODEL, MARKET STRUCTURE, MARKET CONDUCT, MARKET PERFORMANCE, STRATEGIC GROUP.

Competitive strategyclick for a larger image
Fig. 27 Competitive strategy. (a) Forces driving competition in a market. (b) Three generic strategies. Source: Michael Porter.

competitive strategy

an aspect of BUSINESS STRATEGY that involves the firm developing policies to meet and beat its competitors in supplying a particular product. This requires the firm to undertake an internal appraisal of its resources and capabilities relative to competitors to identify its particular strengths and weaknesses. It also requires the firm to undertake an external appraisal of the nature and strength of the various ‘forces driving competition’ in its chosen markets (see Fig 27 ), namely:
  1. rivalry amongst existing firms;
  2. bargaining power of input suppliers;
  3. bargaining power of customers;
  4. threat of new entrants; and
  5. the threat of substitute products.

The key to a successful competitive strategy is then:

  1. to understand fully what product attributes are demanded by buyers (whether it be low prices or product sophistication) with a view to;
  2. establishing, operationally, a position of COMPETITIVE ADVANTAGE that makes the firm less vulnerable to attack from established competitors and potential new entrants, and to erosion from the direction of buyers, suppliers and substitute products.

There are three generic strategies for competitive success (Fig. 27 (b)): cost leadership, product differentiation and ‘focus’. Low costs, particularly in commodity-type markets, help the firm not only to survive price competition should it break out but, importantly, enable it to assume the role of market leader in establishing price levels that ensure high and stable levels of market profitability The sources of cost-effectiveness are varied, including the exploitation of ECONOMIES OF SCALE, investment in best state-of-the-art technology and preferential access to raw materials or distribution channels. By adopting a PRODUCT DIFFERENTIATION strategy, a firm seeks to be unique in its market in a way that is valued by its potential customers. Product differentiation possibilities vary from market to market but are associated with the potential for distinguishing products by their physical properties and attributes and the experience of satisfaction - real and psychological -imparted by the product to consumers. General cost leadership and differentiation strategies seek to establish a COMPETITIVE ADVANTAGE over rival suppliers across the whole market. By contrast, ‘focus’ strategies aim to build competitive advantages in narrower segments of a market but, again, either in terms of cost or, more usually, differentiation characteristics, with ‘niche’ suppliers primarily catering for speciality product demands. See MARKET STRUCTURE, MARKET CONDUCT, MARKET PERFORMANCE, RESOURCE-BASED THEORY OF THE FIRM.

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