Industry segmentation and competitive strategy of the firm

Industry segments differ in their attractiveness and the sources of competitive advantage for competing in them. The key strategic questions that arise out of segmentation are: where in the industry a firm should compete (segment scope ) how its strategy should reflect this segmentation A firm can adopt a broadly-targeted strategy that addresses many

Segment Attractiveness and Interrelationships

1. The Attractiveness of a Segment The first issue in deciding where to compete in an industry is the attractiveness of the various segments. The attractiveness of a segment is a function of its structural attractiveness, its size and growth, and the match between a firm’s capabilities and the segment’s needs. STRUCTURAL ATTRACTIVENESS The

Choice of Focus strategy

1. The Choice of Focus Focus strategies rest on differences among segments, either differences in the firm’s optimal value chain or differences in the buyer value chain that lead to differing purchase criteria. The existence of costs of coordination, compromise, or inflexibility in serving multiple segments is the strategic underpinning of sustainable focus strategies.

Industry segmentation and industry definition

Drawing industry boundaries is always a matter of degree. Structural and value chain differences among product varieties and buyers work towards a narrower industry definition. Industry segmentation is thus a tool to probe for narrower industry definitions by exposing structural heterogeneity within an industry. Interrelationships among segments and business units (Chapter 9) create possibilities

Identifying substitutes of firm’s product-service

The first step in substitution analysis is to identify the substitutes an industry faces. This seemingly straightforward task is often not easy in practice. Identifying substitutes requires searching for products or services that perform the same generic function or functions as an industry’s product, rather than products that have the same form. A truck

The economics of substitution

One product substitutes for another if it offers buyers an inducement to switch that exceeds the cost or overcomes the resistance to doing so. A substitute offers an inducement to switch if the substitute provides the buyer with more value relative to its price than the product currently being used. There is always some

Changes in the substitution threat for firm’s product-service

The threat of a substitute often changes over time, with a corresponding impact on the pattern of substitution. Many of the sources of change in the substitution threat are predictable and can often be influenced through a firm’s offensive or defensive substitution strategy. Changes in the threat of substitution occur in five broadly defined

The path of substitution of firm’s product-service

The path of substitution in an industry is a function of how RVP, the perception of RVP, switching costs, and the propensity of buyers to switch evolve over time. The rate of penetration of substitutes differs widely from industry to industry. Some substitutes gain quick acceptance, while others penetrate slowly or not at all

Substitution and competitive strategy of the firm

The economics of substitution carry a variety of strategic implications for firms attempting to promote substitution, as well as for firms attempting to defend against it. Defenses against substitution are, by and large, the reverse of offensive strategies that promote substitution. I will first describe some principles of promoting substitution and then turn to

The growing importance of horizontal strategy of the firm

Horizontal strategy is something that few firms today can afford to ignore. Interrelationships among business units and the ability to exploit them have been increasing in the last decade, and powerful and interconnected forces are likely to accelerate the trend in the 1980s and 1990s. Diversification philosophy is changing. The philosophy guiding many firm’s

Interrelationships among business units of the firm

There are three broad types of possible interrelationships among business units: tangible interrelationships, intangible interrelationships, and competitor interrelationships. All three types can have important, but different, impacts on competitive advantage and are not mutually exclusive: Tangible Interrelationships. Tangible interrelationships arise from opportunities to share activities in the value chain among related business units, due

Tangible interrelationships among business units

The value chain provides the starting point for the analysis of tangible interrelationships. A business unit can potentially share any value activity with another business unit in the firm, including both primary and supporting activities. For example, Procter & Gamble enjoys interrelationships between its disposable diaper and paper towel businesses. Certain raw materials can

Intangible interrelationships among business units

Intangible interrelationships lead to competitive advantage through the transfer of skills among separate value chains. Through operating one business unit, a firm gains know-how that allows it to improve the way another generically similar business unit competes. The transference of skills can go in either direction—e.g., from existing business units to a new business

Competitor interrelationships among business units

Competitor interrelationships are present when a firm actually or potentially competes with diversified rivals in more than one business unit. Any action taken against multipoint competitors must consider the entire range of jointly contested businesses. In addition, a firm’s competitive advantage vis-à- vis a multipoint competitor depends in part on the interrelationships that both

The need for explicit horizontal strategy of the firm

Organizational structure in most firms works against achieving interrelationships. However, organizational impediments alone do not explain why related business units, proceeding independently, will rarely optimize the competitive position of the firm as a whole. Without a horizontal strategy, business units may well act in ways that reduce rather than enhance their ability to exploit

Formulating horizontal strategy of the firm

Formulating horizontal strategy involves a number of analytical steps that flow from the framework described in Chapter 9: Identify all tangible interrelationships. The starting point in formulating horizontal strategy is to identify systematically all the tangible interrelationships that are actually or potentially present among a firm’s business units. The first step in doing so

Interrelationships and diversification strategy of the firm

Diversification based on interrelationships is the form of diversification with the greatest likelihood of increasing competitive advantage in existing industries or leading to sustainable competitive advantage in new industries. Both tangible and intangible interrelationships have an important role in diversification strategy. Tangible interrelationships should be the starting point for formulating diversification strategy. Intangible interrelationships

Pitfalls in horizontal strategy of the firm

Although substantial competitive advantages can be gained from harnessing interrelationships, pitfalls exist in implementing horizontal strategy. The most serious pitfall is to ignore interrelationships altogether. Strategic planning solely done by business units is not enough. At the same time, however, it can be an equally big mistake to assume that every relationship should be

Impediments to achieving interrelationships among Firms

Achieving tangible interrelationships requires a business unit to share activities in its value chain with other units while remaining a separate entity that acts independently in other value activities and maintains profit responsibility. Similarly, achieving intangible interrelationships requires the transfer of know-how among business units. The pursuit of interrelationships may well lead to joint

Organizational mechanisms for achieving interrelationships among Firms

A purely vertical corporate organizational structure is insufficient to assure that beneficial interrelationships will be recognized and achieved. The impediments to achieving interrelationships not only get in the way of interrelationships at the working level, but also provide business unit managers with a set of arguments with which to counter efforts by group or