How are the drivers of Differential Advantage threatened in both Low Cost and Differential strategies (HINT: use Exhibit 5.8, page 149)?
One key threat with the low cost and differential strategies is the heavy possibility of imitation. Companies need to be continually innovative. Services are easily imitated; therefore, any differentiation is temporary (Hitt, Hoskisson & Ireland, 2014). I mentioned last week that one of our portfolio companies is a software company. The software industry is easy to enter and easy to imitate, and this puts pressure on prices and decreases the profitability of the industry (Ojala, 2016).
A possible solution to counter this threat would be product bundling. “An alternative is for companies to make consumers’ product comparison more difficult by differentiating their products from others… Product bundling promotes the benefits of the whole package, thus keeping buyers from comparing individual items” (Shin, 2001, p. 166). This is something that we do, in a sense, where we sell our software already uploaded on to iPadâ€s or terminals, to make it an easy one-stop shop purchase for the customer. Most of our competitorâ€s do not offer this bundle, and it gives us a vantage point during the sales process.
What threats (risks) affect firms pursuing a Focus and Integrated position?
Carpenter and Sanders (2008) explain the issue associated with a focus strategy, in that organizations may lose their competitive advantage in their efforts to rapidly grow and with the demand to meet the needs of their customers. An organization needs to be very specific about how they are positioned in the marketplace. Porter (2008) explains how many strategy errors emanate from defining the relevant industry too broadly or too narrowly. “Defining the industry too broadly obscures differences among products, customers, or geographic regions that are important to competition, strategic positioning, and profitability” (Porter, 2008, p.37).
A potential threat or risk of a focused strategy is the chance that limited demand exists or may become obsolete. I think Redbox was a prime example of a company that used a focused strategy. I now wonder how much longer they will survive in the market with the TV streaming options.
I would say that our auditing company has an integrated strategy. We offer a wide-variety of auditing services, including cybersecurity. We frequently make acquisitions that help broaden our service offerings. Our software company is highly focused. It is a performance metrics and management software that is tailored to the needs of race karting locations and family entertainment centers. I do not feel that we could compete with a company like MindBody who offers a similar software to gyms, salons, and the like, because the performance metrics are not necessary in most of those businesses and that is our differentiator. However, MindBody is also struggling to compete with us in our focused arena.
Carpenter, M. A. & Sanders, Wm., G. (2008). Strategic management: A dynamic perspective. Upper Saddle River, NJ: Pearson Prentice Hall.
Hitt, M., Hoskisson, R., & Ireland, D. (2014). Strategic Management: Concepts: Competitiveness and Globalization. Cengage
Ojala, A. (2016). Adjusting Software Revenue and Pricing Strategies in the Era of Cloud Computing. Journal of Systems and Software (Forthcoming). Published onlinedoi:10.1016/j.jss.2016.08.070
Porter, M.E. (2008). The Five Competitive Forces That Shape Strategy. Retrieved from…
Shin, Namchul. (2001). Shin: Strategies for Competitive Advantage in Electronic Commerce. Journal of Electronic Commerce Research. 2. 164-171.
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