1. Positioning Within Industries
The Competitive Advantage of Nations by Michael E. Porter
INB410 Lecture by Ms. Adina Malik

2. Learning Objectives Meaning of ‘Positioning’
Sources of Competitive Advantage
Competitive Scope and the STP Process
Michael Porter’s Generic Strategies
Learning Objectives

3. Positioning Within Industries
Firms must choose a position within the industry.
Positioning embodies the firm’s overall approach to competing.
American firms (such as Hershey and M&M/Mars) compete by mass-producing and mass-marketing relatively limited lines of standardized candy bars.
Swiss firms (such as Lindt and Sprüngli and Tobler/Jacobs) sell mainly premium products at higher prices through more limited and specialized distribution channels
Positioning Within Industries
They produce hundreds of separate items, employ top-quality ingredients, and manufacture using longer processing times.
As this example illustrates, positioning involves a firm’s total approach to competing, not just its product or target customer group.

4. Two Basic Types of Competitive Advantage: Lower Cost
Lower cost is the ability of a firm to design, produce, and market a comparable product more efficiently than its competitors.
At prices at or near competitors, lower cost translates into superior returns.
Korean steel and semiconductor producers, for example, have penetrated against foreign competitors using this strategy.
They produce comparable products at very low cost, employing low-wage but highly productive labor forces and modern process technology purchased or licensed from foreign suppliers.
At the heart of positioning is competitive advantage. In the long run, firms succeed relative to their competitors if they possess sustainable competitive advantage. There are two basic types of competitive advantage: lower cost and differentiation

5. Two Basic Types of Competitive Advantage: Differentiation
Differentiation is the ability to provide unique and superior value to the buyer in terms of product quality, special features, or after-sale service.
German machine tool producers, for example, compete with differentiation strategies involving high product performance, reliability, and responsive service.
Differentiation allows a firm to command a premium price, which leads to superior profitability provided costs are comparable to those of competitors.
Two Basic Types of Competitive Advantage: Differentiation

6. Competitive Advantage
Competitive advantage of either type translates into higher productivity than that of competitors. The low- cost firm produces a given output using fewer inputs than competitors require.
The differentiated firm achieves higher revenues per unit than competitors. Thus competitive advantage is directly linked to the underpinning of national income.
Competitive Advantage

7. Positioning: Competitive Scope
Competitive scope is another important variable of positioning (reach/customer base).
It is the breadth of the firm’s target within its industry.
A firm must choose the range of product varieties it will produce, the distribution channels it will employ, the types of buyers it will serve, the geographic areas in which it will sell, and the array of related industries in which it will also compete.
Positioning: Competitive Scope

8. Positioning: Competitive Scope
Competitive scope is important because industries are segmented.
In nearly every industry, there are distinct product varieties, multiple distribution channels, and several different types of customers.
Segments are important because they frequently have differing needs; an unadvertised basic shirt and a designer shirt are both shirts, but are sold to buyers with very different purchasing criteria.
Serving different segments requires different strategies and calls for different capabilities.
Positioning: Competitive Scope

10. The STP Process: VOLKSWAGEN GROUP
SEGMENTATION, TARGETING ANG POSITIONING OF VOLKSWAGEN GROUP:
“Segmentation, targeting, and positioning together comprise a three stage process. We first determine which kinds of customers exist, then select which ones we are best off trying to serve and, finally, implement our segmentation by optimizing our products/services for that segment and communicating that we have made the choice to distinguish ourselves that way”.
The STP Process: VOLKSWAGEN GROUP

11. The STP Process: VOLKSWAGEN GROUP
Volkswagen produces different types of cars for different needs under their subsidaries. Each model of the Volkswagen is fully segmented, with dedication to specific type of customer. They are producing small cars like Polo, Golf and famous Beetle; to much costly one like Lamborghini, Bentley and Bugatti.
All this is possible with acquisitions, mergers and strategies with research on different segments to target different markets and keeping their position in the market.

12. Positioning: Competitive Scope
It is quite typical for firms from one nation to achieve success in one industry segment (Taiwan in inexpensive leather footwear) while those from a different nation are successful in another (Italy in fashion leather footwear).
Positioning: Competitive Scope

13. Positioning: Competitive Scope
Competitive scope is also important because firms can sometimes gain competitive advantage from breadth through competing globally or from exploiting interrelationships by competing in related industries.
Sony, for example, gains important advantages from sharing its brand name, distribution channels, and technological skills across a wide range of electronic products on a worldwide basis.
Interrelationships among distinct industries arise from the ability to share important activities or skills in competing in them

14. Positioning: Competitive Scope
Firms in the same industry can choose different competitive scopes. The most basic choice is between a broad scope and focusing on a particular segment.
In automobiles, leading American and Japanese companies have wide product lines, while BMW and Daimler-Benz (Germany) emphasize high-performance cars and Hyundai and Daewoo (Korea) focus on compacts and subcompacts
Positioning: Competitive Scope
In the packaging machinery industry, for example, German firms offer wide product lines while Italian firms tend to focus on specialized end-use segments.

15. The type of advantage and the scope of advantage can be combined into the notion of generic strategies, or different approaches to superior performance in an industry.
Generic Strategies
Low cost Producer
Production in large scale
Economies of scale

16. Generic Strategies: Cost Leadership
Why is cost leadership important?
If selling prices are broadly similar, the ;lowest cost operator will enjoy the highest profits
Lowest cost operator can also offer the lowest prices (gain market share)
Suitable markets for this strategy?
Standard Product
Little product differentiation
Branding relatively unimportant
Generic Strategies: Cost Leadership

17. Generic Strategies: Cost Leadership
Key features of low-cost operators:
High levels of productivity and efficiency
High capacity utilization
Large scale economies
Use bargaining powers to negotiate lowest price from suppliers
Lean production methods and culture
Access to the widest and most important distribution channels

19. Generic Strategies: Differentiation
Ways to achieve differentiation:
Superior brand quality (features, benefits, durability, reliability)
Branding (strong customer recognition and desire; brand loyalty)
Wide distribution across all major channels (i.e. the product or brand is an essential item to be stocked by retailers)
Sustained promotion (often dominated by advertising, sponsorship, etc.)
Generic Strategies: Differentiation

20. Generic Strategies: Example from Shipbuilding Industry
In shipbuilding, for example, Japanese firms follow the differentiation strategy, offering a wide array of high-quality vessels at premium prices.
Korean shipyards pursue the cost leadership strategy, also offering many types of vessels but ones of good not superior quality. Korean firms, however, can produce vessels at lower cost than can Japanese firms.

21. Generic Strategies: Example from Shipbuilding Industry
Successful Scandinavian yards are focused differentiators, concentrating on specialized types of ships such as icebreakers and cruise ships that involve specialized technology and which command prices high enough to offset higher Scandinavian labor costs. Finally,
Chinese shipyards (cost focus), the emerging competitors in the industry, offer relatively simple, standard vessel types at even lower costs (and prices) than the Koreans.
Generic Strategies: Example from Shipbuilding Industry

22. Generic Strategies: Stuck in the middle
The worst strategic error is to be stuck in the middle, or to try simultaneously to pursue all the strategies. This is a recipe for strategic mediocrity and below-average performance, because pursuing all the strategies simultaneously means that a firm is not able to achieve any of them because of their inherent contradictions.
Example: Spanish and British shipyards have been declining
Example: IKEA (hybrid strategies)
Generic Strategies: Stuck in the middle
The shipbuilding industry also illustrates this problem. Spanish and British shipyards have been declining because they have higher costs than the Koreans, lack any basis for differentiation relative to the Japanese, and have failed to identify particular segments (such as Finnish yards have in icebreakers) in which they can gain competitive advantage in a narrower arena. They lack any competitive advantage and exist mainly on captive government orders.

23. Generic Strategies: Conclusion
The generic strategies make it clear that there is no one type of strategy that is appropriate for every industry. Indeed, different strategies can coexist successfully in many industries.
Underlying the concept of generic strategies is that competitive advantage is at the heart of any strategy, and that achieving advantage requires a firm to make choices. If a firm is to gain advantage, it must choose the type of competitive advantage it seeks to attain and a scope within which it can be attained.
Generic Strategies: Conclusion