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Competitive Strategy

Hitherto we have been concerned with how the competitive environment impacts on businesses. The main market models such as perfect competition, monopoly, monopolistic competition and oligopoly – have featured, designed as tools of analysis which managers can use when analysis the competitive environment’ in the market. Once the nature of the ‘competitive environment’ in which the business operates is determined, an appropriate ‘competitive strategy’ may be designed on a ‘competitive analysis’, which will involve a consideration of customer demands, product developments, the firm’s strengths and weaknesses, and the strengths and weaknesses of competitors alongside their likely response to any competitive move. Ultimately two broad strategies usually exist-competing on price (cost) or non-price factor- though they are not necessarily mutually exclusive. Since industries go through life cycles and product market change, it is important to appreciate that what is the most appropriate strategy in one period may not be the best for another

In a perfectly competitive market it is difficult to see what kind of competitive strategy a firm could adopt as products are homogeneous and each firm is a price taker. But most real-world markets are well removed from being perfectly competitive.

Nevertheless, the economist’s market models do have important lessons for management interested in developing a competitive strategy. The main lessons are as follows:

(i) Whenever competition occurs in market which are highly competitive and products cannot be differentiated in the eyes of consumers, e.g., by branding, then survival depends on keeping supply costs, at least as low competitors’ costs.

(ii) In competitive markets, high profits tend to be competed away over tie. Hence, leaving aside cost reduction, the only way to maintain high profits is to introduce new products and stay one step ahead of the competition. Therefore, surviving in a competitive market requires a high rate of technical innovation and new product development.

(iii) Lowest cost producer: A firm can aim to be the lowest cost producer, thereby underpricing the product to face competition.

(iv) Product differentiation: A form can develop differentiated products (though innovation and marketing) and charge premium prices. This can lead, in turn, to a ‘focus’ strategy, i.e., focusing on particular narrow or broad product areas or markets.