1. Competitive Strategy: The Core Concepts
Chapter 1

2. What is Competitive Strategy???
“ It is the search for a favourable competitive position in an industry and it aims to establish a profitable and sustainable position against the forces that determine competitive position”

3. Choice of Competitive Strategy
Two factors determine the choice of competitive strategy
Attractiveness of industries for long term profitability and the factors that determine it
The determinants of relative competitive position within an industry
Competitive strategy can shape industry attractiveness and competitive position

4. How to study Industry Attractiveness
It can be done by the structural analysis of industries
The tool for it is known as
“ The five competitive forces model”
This model determines industry profitability because it influences cost, price and required investment

5. How to study relative competitive position of the firm
It is important to study this because relative position determines the firm’s profitability
And this can happen only if the firm has a “sustainable competitive advantage” over rivals
This “sustainable competitive advantage is of two types
Low cost
Differentiation

6. Competitive advantage and Generic strategies
The two types of competitive advantages combined with scope of activities (broad and narrow) give three generic strategies
Cost leadership
Differentiation
Focus
Focus has two variants
Cost focus
Differentiation focus
Cost leadership and differentiation seeks competitive advantage in broad segment whereas focus seeks competitive advantage in a narrow segment

7. Three Generic Strategies
Competitive advantage
Lower cost Differentiation
Broad
target
Competitive
Scope
Narrow
Cost leadership Differentiation
Cost focus Differentiation focus

8. Cost Leadership It can be achieved by Economies of scale
Preferential access to raw material
Proprietary technology
Offering low cost, no frills product/services
The firm also needs to achieve parity or proximity to the bases of differentiation relative to its rivals in order to gain competitive advantage
(Toyota pitched its Lexus model as similar to Mercedes but at half the price)

9. Differentiation
The firm seeks to be unique in its industry along some dimension that are widely valued by buyers
(Sony is known for its technology in handy cams and so it charges a premium price)
Source of differentiation:
Product
Delivery system
Marketing approach
The differentiator needs to have cost parity or proximity in relation to its rivals by reducing costs in areas that do not affect differentiation

10. Focus
The focuses selects a narrow segment or group of segments and tailors its strategy to serve it and excludes other segments
It has two variants: Cost focus and Differentiation focus
Cost focus seeks cost advantage in its segment while differentiation focus seeks differentiation in its segment

11. Stuck in the middle
If a firm engages in a generic strategy but fails to achieve any of them, then it is “ stuck in the middle”
This firm is at a disadvantage because other firms may have achieved their generic strategies
This firm may be profitable only if the industry structure is attractive or other firms are also “stuck in the middle”

12. Pursuit of more than one generic strategy
It leads to a situation of “stuck in the middle” but in certain cases it can be pursued and can be successful
Below are mentioned three conditions under which it is possible
Rivals are stuck in the middle
Cost is strongly affected by market share or interrelationships
The firm pioneers a major innovation

13. Risk of Cost leadership
It cannot be sustained if:
Rivals imitate
Technology changes
Other bases of cost leadership erode
Proximity in differentiation is lost
Cost focusers achieve even lower cost in segments

14. Risks of differentiation
It cannot be sustained if:
Rivals imitate
Bases of differentiation become less important to buyers
Cost proximity is lost
Differentiation focusers achieve even greater differentiation in segments

15. Risk of Focus It cannot be sustained if: It is copied
Target segment becomes unattractive due to its structure eroding or the demand in it disappears
Broadly targeted rivals overwhelm the segment
New focusers sub-segment the industry