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Business Strategy
6

Competitive Positioning

Prof. Dr. Bernd Venohr
Berlin, May 2007

© 2 0 0 7 P ro f. Dr. B e rn d V e n o h r

Agenda
Introduction to Strategy
1
2
3

Course Overview and Strategy Concept
Economics of Strategy
Shareholder Value

Business Strategy
4
5
6

External Environment
Internal Environment
Competitive Positioning

Corporate Strategy
7
8
9

Diversification
Mergers & Acquisitions
Global Strategy

Strategy Process
10 Organizational Structure and Control
11 Strategic Leadership
© 2 0 0 7 P ro f. Dr. B e rn d V e n o h r

2

The “art of strategy”: to find an advantaged competitive position in an attractive industry

Advantage

Competitive
position

ns
r

g

sin
a
re

u
et
r

c

In

Disadvantage
Lo
Industry attractiveness

© 2 0 0 7 P ro f. Dr. B e rn d V e n o h r

Hi

3

Porter’s Theory of Competitive Advantage

Attractive
Relative
Position

Firm Success

Attractive
Industry
Structure

Sustainable Competitive
Advantage
Activities /
Value Chain
Drivers

Sourc e: Mi c hael Porter, Toward a dynami c theory of s trategy © 2 0 0 7 P ro f. Dr. B e rn d V e n o h r

4

Deriving “Generic Strategies” leading to competitive
advantage and economic profit
Profit = price - cost
to increase profit, a firm must either :
Decrease cost
below its
competitors

Increase price
above its
competitors

“Cost leadership”

“Differentiation”

“Generic Strategies” (Porter)
Sourc e: Mi c hael Porter, Competi ti ve Advantage
© 2 0 0 7 P ro f. Dr. B e rn d V e n o h r

5

Basic economics of cost leadership and differentiation
PRICE = $12
PRICE = $10

PRICE = $8

COST = $5

COST = $2

PROFIT = $5
INDUSTRY
AVERAGE
© 2 0 0 7 P ro f. Dr. B e rn d V e n o h r

COST = $6

PROFIT = $6

PROFIT = $6

COST
LEADERSHIP

DIFFERENTIATION

6

Economics of overall cost leadership
If a product or service is of ‘standard’ quality, but costs are significantly lower than the industry average, earn superior profits can be earned

Market
Price

Profit
Profit
Costs
Costs
Average player

© 2 0 0 7 P ro f. Dr. B e rn d V e n o h r

Cost leader
7

Economics of overall cost leadership
However, if a product is considered of too low quality by the buyer, price cuts may be necessary to sell (potential superior profits are lost)

Market
Price

Profit
Costs

Profit

Cost
Leader
Price

Costs
Average player
© 2 0 0 7 P ro f. Dr. B e rn d V e n o h r

Low cost/cut price
8

Economics of differentiation
If products/services are unique in ways that customers value, and costs are under control, premium prices can be charged that lead to higher profitability

Market
Price

Profit

Profit

Costs

© 2 0 0 7 P ro f. Dr. B e rn d V e n o h r

Costs

Average player

Premium
Price

Differentiator
9

„Competitive scope“ is the second important
variable in positioning: a company can address
a broad or narrow market segment
 Range of product / service varieties offered
 Types of customers
 Distribution channels
 Geographic areas

Sourc e: Mi c hael Porter, Competi ti ve Advantage
© 2 0 0 7 P ro f. Dr. B e rn d V e n o h r

10

The concept of value proposition helps to define the
competitive scope (= substitution products from the
customer perspective)
What
Customers?

 What end users?
 What channels?
 Which regions

Which
Needs?

What Relative
Price?

 Which products?
 Which features?
 Which services?

Entrepreneurial/ creative process:
A new value proposition can create a new industry
Sourc e: Mi c hael M. Porter; W hat i s s trategy? W orl d Bus i nes s Forum, J une 6, 2006 © 2 0 0 7 P ro f. Dr. B e rn d V e n o h r

11

Competitive scope: Broad target market versus narrow
target market
 Broad target market:
– wide line of products/ services appealing to large number of customer segments
– company ignores...
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