1. Introduction
A company has a competitive advantage when it is in a better position than rivals to secure customers and defend against competitive forces. There are many sources of competitive advantages: product development with the highest quality, providing superior service to customers, achieving lower costs in rivals, having a better geographical location, designing a product that has better performance than the brands of the competition.
Competitive strategy consists of what a company is doing to try to disarm rival companies and gain a competitive advantage. A company's strategy can be basically offensive or defensive, changing from one position to another depending on market conditions. Companies around the world have tried to follow every conceivable approach to beat their rivals and gain an edge in the market.
The three generic types of competitive strategy are:
- Strive to be the industry's leading producer of costs (The effort to be a low-cost producer) Seek to differentiate the product on offer from rivals (Differentiation Strategy) Focus on a more limited portion of the market rather than a complete market (Approach and specialization strategies).
Feature type
- Strategic objective Competitive advantage base Product line Production focus Mkt approach Strategy preservation
Low Cost Leadership
- A large representative sample of the market. Lower costs than the competitors. A good basic product with few superfluous elements. Cost reduction without sacrificing acceptable quality. Transform the characteristics of the product for its low cost. Economic prices / good value.
Differentiation
- A large cross-section of the marketplace Ability to offer something different to competitors Many variations in products Invent ways to create value for buyers Integrate features that customers are willing to pay Use features to create a reputation and image of the brand
Focus
- Limited market niche. Low cost serving the niche. Adapts the specialized needs of the target segment. Adapted to the niche. Communicates the ability to satisfy buyer requirements. Fully dedicate to satisfying the niche.
Focus and specialization strategies
They consist of the selection of a market niche where the collectors have specific preferences or needs. The niche can be defined by geographic exclusivity, by specialized requirements for the use of the product or by special attributes of the product that will only attract members of the niche. For example: Rolles Royce (Luxury cars).
Focus strategies are attractive when:
The competitive power of a focus strategy is greater when:
- The fast-growing segments are large enough to be profitable, but small enough not to interest large competitors. No other rivals are concentrating on the segment, and segment buyers require special products of experience or use.
The company's ability to focus imposes barriers to entry, which is why other non-niche companies find it very difficult to enter.
The 6 basic ways to mount strategic offensives are:
1. Attack on competitors' strengths:
To be successful, the initiator needs sufficient strength and resources to acquire at least a market share from the target rivals.
2.- attack on the weak points of the competitors:
You are more likely to succeed challenging opponents where they are more vulnerable than challenging them where they are stronger, especially if the challenger has advantages in areas where opponents are weak.
3.- simultaneous attack on many fronts.
It is to launch a great competitive offensive that includes several important initiatives, to try to unbalance the rival, distract his attention and force him to channel his resources in order to protect all his fronts simultaneously.
4.- lateral offensives
They avoid direct confrontations and instead focus on innovative product attributes, technological advancements, and early entry into less competitive geographic markets.
5.- guerrilla-type offensives
They are tailored for small challengers who have neither the resources nor the visibility in the market to mount a full-scale attack on companies.
6.- appropriation blows
They create a competitive advantage by placing the aggressor in a prime competitive position to which rivals do not have access or to which they feel discouraged and do not try to match.
2. Explanation of the figure »construction and erosion of competitive advantage”
This next figure explains the use of offensive strategies that some companies use to ensure competitive advantage.
Firstly, outside the box on the left side we have the "magnitude of the competitive advantage", that is, how far could that offensive strategy that the company is going to apply go, and at the bottom outside the box we have the "time" that it indicates to us how the offensive strategy will be developed to achieve a competitive advantage during its 3 periods.
The first period of development refers to the time in which the company takes to start implementing the offensive strategy or strategies against its competition. If a successful competitive offensive is achieved there is a benefit period.
In this benefit period the results of the strategy that the company achieved are enjoyed. This benefit period lasts until the competition or rivals (company) launch counter-offensives and begin to close that competitive advantage that the company had achieved. But it can take a long time for other companies to turn off the benefits that the other company has achieved.
When these counter-offensives exist, the erosion period begins. In this period, counter-offensives can end with this initial advantage that the company was achieving, so it is recommended to have a second offensive strategy since a company must always go one step ahead of rivals (companies).
All companies attack offensively: both companies with superior resources and to outperform their rivals, spending more time than they need to position themselves as the market leader and gain a competitive advantage; Like those companies that do not have the resources or the visibility in the market to mount a full-scale attack against the leading companies in the industry, they could use a guerilla-type offensive strategy (selectively attacking where and when it can be exploited temporary the situation for your own benefit.
3. Defensive strategies
In competitive and globalized markets, all companies are subject to attack from their competitors.
The attacks are usually of two types by new companies or by companies seeking to recover in the market.
The purpose of defensive strategy is to decrease the risk of attack and weaken the impact of levels.
Although defensive strategy does not usually increase a company's competitive advantage.
There are several ways to protect a company's competitive position:
- Expand the company's product lines to fill the niches and vacant gaps that challengers may take.Introduce models or brands that match the modules of the competition.Keep prices low on those models.Signing exclusive agreements with suppliers and distributors. Cheap or free training. Prompt offers, coupons and discounts. Reduce delivery times. Increase warranty coverage. Patent alternative technologies. Sign exclusive contracts with all suppliers. Avoid suppliers who provide services to competitors..Challenging rivals' products and practices in legal proceedings.
Movements of this type not only reinforce a company's current position, but also present competitors with a moving target.
A good defense involves quickly adjusting to changing industry conditions, and sometimes taking the first step to obstruct or hinder the movements of potential aggressors.
A mobile fender is always preferable to a stationary one. A second approach to defensive strategy includes sending strong counter defense signals in case the challenger attacks. Signals can be sent to potential challengers by:
- Publicly announce the commitment to maintain current market share. Publicly announce plans to increase production capacity to meet growing demand. Provide information in advance about a new product or new technology or plans to introduce new ones. brands, waiting for challengers to delay their movements until they confirm the announced actions. Publicly engage the company with a policy of matching the prices or terms offered by competitors. Give a robust response to the movements of weak competitors to enhance the image. of the company of being a tough advocate.
4. Advantages and disadvantages of taking the first step
It is often just as well to know when to make the strategic move as which move to make.
Timing is especially important when there are advantages and disadvantages to taking the first step.
Being the first to start the strategic move can have a good result when:
- Being a pioneer helps build the company's image and reputation with buyers. Timely commitments to sourcing raw materials, new technologies, distribution channels can yield an absolute cost advantage over rivals. Customers who buy for For the first time, they remain completely loyal to the pioneering companies by repeating their purchases. Taking the first step is a takeover blow, making the invitation difficult or unlikely.
However, the wait-and-see approach does not always carry a penalty in competitive ability. By taking the first step you can take more risks since the disadvantages arise when:
- Pioneering leadership is much more expensive and the effects of experience accumulate to the leader. Technological change is so fast that the initial investments soon become obsolete is easy for those who come later because they have more efficient processes.
Those who make the subsequent moves can easily copy and even exceed the skills and knowledge developed by market leaders, therefore a good choice of the right moment is an important ingredient in deciding whether it is preferable to be aggressive or cautious.
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