Strategic Elements of Competitive Advantage

1. Strategic Elements of Competitive Advantage Chapter 10 Global Marketing

2. Industry Analysis • Industry – group of firms that produce products that are close substitutes for each other • Five forces influence competition in an industry Keegan and Green, Chapter 10

3. Porter’s Five Forces Model Threat of New Entrants Threat of Substitutes Industry Competitiveness Bargaining Power of Buyers Bargaining Power of Suppliers Current Rivalry Keegan and Green, Chapter 10

4. Threat of New Entrants • New entrants mean downward pressure on prices and reduced profitability • Barriers to entry determines the extent of threat of new industry entrants Keegan and Green, Chapter 10

5. Economies of Scale Product differentiation Capital requirements Switching costs Distribution channels Government policy Cost advantages independent of scale economies Competitor response Barriers to Entry Keegan and Green, Chapter 10

6. Threat of Substitute Products • Availability of substitute products places limits on the prices market leaders can charge • High prices induce buyers to switch to the substitute Keegan and Green, Chapter 10

7. Bargaining Power of Buyers • Buyers seek to pay the lowest possible price • Buyers have leverage over suppliers when • They purchase in large quantities (enhances supplier dependence on buyer) • Suppliers’ products are commodities • Product represents significant portion of buyer’s costs • Buyer is willing and able to achieve backward integration Keegan and Green, Chapter 10

8. Bargaining Power of Suppliers • When suppliers have leverage, they can raise prices high enough to affect the profitability of their customers • Leverage accrues when • Suppliers are large and few in number • Supplier’s products are critical inputs, are highly differentiated, or carry switching costs • Few substitutes exist • Suppliers are willing and able to sell product themselves Keegan and Green, Chapter 10

9. Rivalry among Competitors • Refers to all actions taken by firms in the industry to improve their positions and gain advantage over each other • Price competition • Advertising battles • Product positioning • Differentiation Keegan and Green, Chapter 10

10. Competitive Advantage • Achieved when there is a match between a firm’s distinctive competencies and the factors critical for success within its industry Low Cost Differentiation Keegan and Green, Chapter 10

11. Figure 10-2: Generic Strategies TARGET MARKET Narrow Broad Focused Differentiation Product Differentiation Narrow Wide Product Mix Width Cost Focus Cost Leadership Keegan and Green, Chapter 10

12. Figure 10-3: The Flagship Model Keegan and Green, Chapter 10

13. Approaches to Competitive Innovation • Building layers of advantage • Searching for loose bricks • Changing the rules of engagement • Collaborating Keegan and Green, Chapter 10

14. Global Competition • Occurs when a firm takes a global view of competition and sets about maximizing profits worldwide, rather than on a country-by-country basis Keegan and Green, Chapter 10

15. Figure 10-4: National Diamond Keegan and Green, Chapter 10

16. Role of Chance and Government • Chance events are occurrences that are beyond control • They create major discontinuities • Government is also an influence on determinants through roles • Buyer of products • Maker of policies • Regulator of commerce Keegan and Green, Chapter 10

17. Figure 10-7: The Complete System Keegan and Green, Chapter 10