1. Chapter 6. Competitive strategy: The analysis of strategic position

2. Outline The market positioning school
The nature and source of cost advantage
The nature and source of differentiation advantage
The concept of competitive advantage
Three major routes to competitive advantage
Market segmentation analysis
Value creation and value analysis
Strategic group analysis
Industry transformation
Business models

3. The Market Positioning School
Competitive advantage is based on the positioning of the firm in its markets versus competitors

4. The Sources of Cost Advantage
Economies of Scale
Indivisibilities and the spreading of fixed costs (costs per unit diminish after the initial investment until a new block of investment is needed)
The engineering characteristics of production (eg. the cube square rule)
The Experience Curve
Unit cost reductions arising from experience of production
Benefits accrue to first movers and those who facilitate learning
Vertical Integration
Enhances buying power

5. Economies of Scale

6. The learning curve

7. The Sources of Differentiation Advantage
Risks of investment in differentiation
Product quality may fail to improve
A competitor may do it better
Customers may fail to respond to the new proposition
Costs may outweigh the gains
Reputation is easily lost

8. Cost Leadership & Differentiation Comparison

9. Identifying Differentiation Potential

10. Competitive Advantage
The delivering of superior value to customers and, in doing so, earning an above average return for the company and its stakeholders.
Requires a firm to be sustainably different from its competitors in a way that customers are prepared to purchase at a sufficiently high price.

11. Bases of ‘Unfair’ Advantage

12. Sustainable Competitive Advantage
Power – maintaining resource commitments relative to competitors
Catching-up – ease of copying & nullifying the advantage
Keeping ahead – productivity of search for new advantages
The changing game – rate of change of customer requirements
The virtuous circle –mutual reinforcement of existing advantages.

13. Three Major Routes to Competitive Advantage

14. Is More than one Generic Strategy Possible?

15. The Differentiation Strategy

16. The Cost Leadership Strategy

17. The Focus Strategy

18. How Industry Dynamics Shape Competitive Threats

19. Industry Dynamics and Competitive Advantage

20. Market Segmentation Analysis
A market can be divided into strategic segments on the basis of product and price differentials.

21. Bases for Segmentation

22. Value Creation and Value Analysis
Key
B – perceived gross benefit, P – price paid, C – cost price, RM – cost of raw materials

23. Du Pont’s calculation of its cost advantage
capital charge = investment requirements per lb multiplied by hurdle rate (say 15%)
learning effect =79% learning curve and double the experience
scale effect = 85% doubling effect and twice the scale
capacity effect = differences in capacity utilisation
Source: Du Pont in Titanium Dioxide (A), Harvard Business School case (1984) exhibits 2 and 3.

24. Pricing, Advantage and Profits

25. Strategic Group Analysis
Strategic groups – supply side cost and product similarities leading to similar strategies
Mobility barriers – factors which deter movement of a firm from one strategic position to another; a limitation on replicability or imitation

26. Mobility Barriers in the European Food Processing Industry

27. Strategic Space Analysis of the European Food Processing Industry

28. Mapping strategic groups over time

29. Industry Transformation

30. Business Models

31. The 2G Business Model

32. Achieving a Sustainable and Defensible Strategic Position
The Five Forces model indicates the attractiveness of the industry.
Sustainability involves protection of cash flows from responses of competitors and new entrants.
Isolating mechanisms limit the extent to which competitive advantage can be neutralized or duplicated.
Legal restrictions
Superior access to inputs or to customers
Intangible barriers
Early mover advantages promote scale economies & market share creating entry barriers for latecomers

33. Concluding Remarks
Establishing and defending strategic position in the marketplace requires an understanding of:
Economic drivers of the firm
Cost position
Approach to differentiation
Ability to exploit economies of scale and scope
Firms can analyse their position in terms of:
Strategic market segments (demand side)
Strategic groups (supply side)
These underpin pricing, value and the sustainability of value over time.
A business model provides the means to turn competitive strategy into sustained cash flow.