Competitive Marketing Strategy
Competition is at core of success or failure of firm
Competitive strategy is "the search for a favorable competitive position in an industry"
Competitive strategy aims to establish profitable and sustainable position against forces that determine industry competition
2 central questions underlie choice of competitive strategy:
1. Attractiveness of industry for long-term profitability and factors that determine it
2. Determinants of relative competitive position within an industry
Industry attractiveness and competitive position are dynamic - they change
Even long periods of stability can be abruptly ended by competitive moves
Both industry attractiveness and competitive position can be shaped by firm
Competitive strategy not only respond to environment but also attempts to shape it in firm's favor
The Structural Analysis of Industries
1st fundamental determinant of firm's profitability is industry attractiveness
Rules of competition are embedded in 5 competitive forces:
Entry of new competitors
Threat of substitutes
Bargaining power of buyers
Bargaining power of suppliers
Rivalry among existing competitors
Collective strength of these 5 determines firm's ability to earn ROI in excess of cost of capital
5 forces determine profitability because they influence prices, costs and required investment - which are elements of ROI
Buyer power and substitution threat influence prices that firms can charge
Bargaining power of suppliers determines costs of raw materials
Intensity of rivalry influences prices and costs of competing in product development, advertising, and sales force
Threat of entry places limit on prices
Firms can influence 5 forces with their strategies, they are not prisoners of the industry
5 Forces Framework aims to raise odds of discovering desirable strategic innovation
In tobacco industry, generic cigarettes are a threat.
They increase price sensitivity of buyer -> trigger price
Competitive strategy is "the search for a favorable competitive position in an industry"
Competitive strategy aims to establish profitable and sustainable position against forces that determine industry competition
2 central questions underlie choice of competitive strategy:
1. Attractiveness of industry for long-term profitability and factors that determine it
2. Determinants of relative competitive position within an industry
Industry attractiveness and competitive position are dynamic - they change
Even long periods of stability can be abruptly ended by competitive moves
Both industry attractiveness and competitive position can be shaped by firm
Competitive strategy not only respond to environment but also attempts to shape it in firm's favor
The Structural Analysis of Industries
1st fundamental determinant of firm's profitability is industry attractiveness
Rules of competition are embedded in 5 competitive forces:
Entry of new competitors
Threat of substitutes
Bargaining power of buyers
Bargaining power of suppliers
Rivalry among existing competitors
Collective strength of these 5 determines firm's ability to earn ROI in excess of cost of capital
5 forces determine profitability because they influence prices, costs and required investment - which are elements of ROI
Buyer power and substitution threat influence prices that firms can charge
Bargaining power of suppliers determines costs of raw materials
Intensity of rivalry influences prices and costs of competing in product development, advertising, and sales force
Threat of entry places limit on prices
Firms can influence 5 forces with their strategies, they are not prisoners of the industry
5 Forces Framework aims to raise odds of discovering desirable strategic innovation
In tobacco industry, generic cigarettes are a threat.
They increase price sensitivity of buyer -> trigger price