1. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 7-1 Chapter 7: Competitive Strategy and the Industry Environment Text by Charles W. L. Hill Gareth R. Jones Multimedia Slides by Milton M. Pressley Univ. of New Orleans

2. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 7-2 Preview 4Strategy in Fragmented Industries 4Strategy in Embryonic and Growth Industries 4Strategy in Mature Industries 4Strategies to Deter Entry in Mature Markets 4Strategies to Manage Rivalry in Mature Industries 4Supply and Distribution in Mature Industries 4Strategy in Declining Industries

3. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 7-3 Strategy in Fragmented Industries Fragmented IndustryFragmented Industry ChainingChaining FranchisingFranchising Horizontal MergerHorizontal Merger RENTAL

4. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 7-4 Strategy in Embryonic and Growth Industries 4 Embryonic Industries Xerox

5. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 7-5 Figure 7.1: How an Innovator’s Profits Can Be Competed Away Time Innovator’s Profit Rate High Low Number of Competitors in the Market Many Few Time

6. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 7-6 Strategy in Embryonic and Growth Industries (Continued) Develop and Market the Innovation ItselfDevelop and Market the Innovation Itself Develop and Market the Innovation JointlyDevelop and Market the Innovation Jointly License the Innovation to OthersLicense the Innovation to Others Strategies Available to Innovator:

7. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 7-7 Strategy in Embryonic and Growth Industries (Continued) Complementary AssetsComplementary Assets Height of Barriers to ImitationHeight of Barriers to Imitation Capability of CompetitorsCapability of Competitors –R&D Skills –Access to Complementary Assets Choice of Strategy Depends On:

8. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 7-8 Table 7.1: Strategies for Profiting from Innovation

9. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 7-9 Strategy in Mature Industries 4 Mature Industries

10. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 7-10 Figure 7.2: Strategies for Deterring Entry in Mature Industries ProductProliferation Strategies for DeterringEntry

11. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 7-11 Figure 7.3: Product Proliferation in the Restaurant Industry McDonald’s UnoccupiedProductSpace Average Gourmet Candlelight Dining Fast Food Atmospheric Quality of Food

12. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 7-12 Figure 7.2: Strategies for Deterring Entry in Mature Industries ProductProliferation Strategies for DeterringEntry Price PriceCutting

13. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 7-13 Figure 7.2: Strategies for Deterring Entry in Mature Industries ProductProliferation Strategies for DeterringEntry Price PriceCutting MaintainExcessCapacity

14. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 7-14 Strategies to Manage Rivalry in Mature Industries Price SignalingPrice Signaling Price LeadershipPrice Leadership Nonprice CompetitionNonprice Competition

15. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 7-15 Table 7.2: Four Nonprice Competitive Strategies Products Existing Existing New New MarketSegments

16. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 7-16 Table 7.2: Four Nonprice Competitive Strategies Products Existing Existing New Market Penetration New MarketSegments

17. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 7-17 Table 7.2: Four Nonprice Competitive Strategies Products Existing Existing New Market Penetration New MarketSegments Product Development

18. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 7-18 Table 7.2: Four Nonprice Competitive Strategies Products Existing Existing New Market Penetration New MarketSegments Product Development Market Development

19. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 7-19 Table 7.2: Four Nonprice Competitive Strategies Products Existing Existing New Market Penetration New MarketSegments Product Development Market Development Product Proliferation

20. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 7-20 Price SignalingPrice Signaling Price LeadershipPrice Leadership Nonprice CompetitionNonprice Competition Capacity ControlCapacity Control Strategies to Manage Rivalry in Mature Industries (Continued)

21. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 7-21 Figure 7.4: Changes in Industry Capacity and Demand Capacity Demand Time Units

22. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 7-22 Technological FactorsTechnological Factors Industry Competitive FactorsIndustry Competitive Factors Age of a Company’s PlantAge of a Company’s Plant Simultaneous Competitive MovesSimultaneous Competitive Moves Factors Causing Excess Capacity Strategies to Manage Rivalry in Mature Industries (Continued)

23. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 7-23 Preempt RivalsPreempt Rivals Indirect Coordination with RivalsIndirect Coordination with Rivals Capacity Control Strategies Strategies to Manage Rivalry in Mature Industries (Continued)

24. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 7-24 Supply and Distribution Strategy in Mature Industries Vertical IntegrationVertical Integration

25. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 7-25 Supply and Distribution Strategy in Mature Industries Vertical IntegrationVertical Integration Contrast Relationship Between Suppliers and Distributors in:Contrast Relationship Between Suppliers and Distributors in: Vs.

26. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 7-26 Strategy in Declining Industries 4 Leadership 4 Niche 4 Harvest 4 Divestment

27. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 7-27 Figure 7.5: Factors That Determine the Intensity of Competition in Declining Industries Speed of Decline Speed of Decline Commodity Nature of Product Commodity Nature of Product Height of Exit Barriers Height of Exit Barriers Level of Fixed Costs Level of Fixed Costs Intensity of Competition Intensity of Competition

28. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 7-28 Figure 7.6: Strategy Selection in a Declining Industry Company Strengths Relative to Remaining Pockets of Demand Intensity of Competition in Declining Industry High Low FewMany

29. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 7-29 Figure 7.6: Strategy Selection in a Declining Industry Company Strengths Relative to Remaining Pockets of Demand Leadership or Niche Intensity of Competition in Declining Industry High Low FewMany

30. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 7-30 Figure 7.6: Strategy Selection in a Declining Industry Company Strengths Relative to Remaining Pockets of Demand Leadership or Niche Niche or Harvest Intensity of Competition in Declining Industry High Low FewMany

31. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 7-31 Figure 7.6: Strategy Selection in a Declining Industry Low Company Strengths Relative to Remaining Pockets of Demand Leadership or Niche Harvest or Divest Niche or Harvest Intensity of Competition in Declining Industry High FewMany

32. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 7-32 Figure 7.7: A Harvest Strategy Market Share Cash Flow Cash Flow Start to Harvest Liquidate (+)(+) (-)(-) O

33. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 7-33 Figure 7.6: Strategy Selection in a Declining Industry Low Company Strengths Relative to Remaining Pockets of Demand Leadership or Niche Harvest or Divest Niche or Harvest Intensity of Competition in Declining Industry High FewMany

34. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 7-34 Figure 7.6: Strategy Selection in a Declining Industry Low Company Strengths Relative to Remaining Pockets of Demand Leadership or Niche Harvest or Divest Niche or Harvest Intensity of Competition in Declining Industry High FewMany Divest

35. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 7-35 Chapter Summary   STRATEGY IN FRAGMENTED INDUSTRIES   STRATEGY IN EMBRYONIC AND GROWTH INDUSTRIES   STRATEGY IN MATURE INDUSTRIES   STRATEGIES TO DETER ENTRY IN MATURE MARKETS CONTINUED...

36. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 7-36 Chapter Summary (Continued)   STRATEGIES TO MANAGE RIVALRY IN MATURE INDUSTRIES   SUPPLY AND DISTRIBUTION IN MATURE INDUSTRIES   STRATEGY IN DECLINING INDUSTRIES