3.6 Interactive Competitive Strategies

0:00hello and welcome to another video in the course when we are learning about business strategy in this video we are going to discuss interactive competitive strategies well what are those in previous videos we have talked about generic competitive strategies that it's more about of how do we approach the business do we try to be the low-cost leader do we try to differentiate ourselves or do we try to have a focused strategy now once we are decided about our general business approach we will now have to sort of react to what our competitors do because for sure we are going to help some competitors around us and that is exactly where interactive

0:41competitive strategies come into play so we are going to discuss for instance a value one concept I'll do it straight away actually this picture shows different organizations competing by either emphasizing prices or high quality graph on the Left starts with a first value line describing various trade-offs in terms of price and perceived quality that are accepted by customers the cons leading firm L offers relatively poor perceived quality but customers accept this because of the lower price while the relative positions on the graph should not be taken exactly literally in the car market this cost leading position might describe some of humor I product the differentiator has higher

1:33price but much better quality this might be Mercedes in between there are a range of perfectly acceptable combinations with the midpoint firm M this might be formed in a competitive market competitors are going to make moves and countermoves at first differentiator is going to rapidly improve quality of his product this will cost a shift in value line as you can see this is an unfavorable situation for company M he will decide to make a counter move and will rapidly decrease the price it's affordability of his product what we are left with is the red value line which is much more demanding for competitors in terms of both price and

2:22quality of products then what we originally started with what have you seen was a typical example from market of course in a reality Dinaric say ab slightly more dyed mentions along which the competitors can compete but usually having these two price and quality of the product their satisfactory to draw some business models and these two are pretty useful now we are going to move on we have seen how competitors can react to each other which is an interaction between them the very common thing that happens within a market especially nowadays is when there is a well-established firm and all the sudden a low-cost competitor arrives and now

3:09this well-established company or maybe several companies have to decide whether they will interact or react to the low cost rival so let's look at it this is mainly a simple questionnaire but it's gonna answer us whether we should react to a low cost player that enters our industry first of all we start on the top left we need to ask ourselves will this company take away any of my present or future customers if the answer is no then we should watch but do not take on the new rival if the answer is yes we should not launch price war we should increase the differentiation of our

3:51product we ask ourselves again our sufficient number of consumers willing to pay more for the benefits I offer if the answer is yes then we should intensify differentiation by offering more benefits over time we should restructure our company to reduce the price of the benefits we offer however if the answer is no then we should learn to live with a smaller company if possible we should merge with or takeover rivals and we ask ourselves again if I set up a low-cost business will it generate synergies with existing business if the answer is yes then we should attacked our low-cost rival by setting up a low-cost business if the

4:38answer is no then we should switch to selling solutions or transform your company into a low-cost player I think what we have just seen is a pretty useful questionnaire especially at the very beginning of the questionnaire when we are asking ourselves whether if we create a low-cost business whether that will be a successful strategy how to counteract this low-cost rival that can be seen all over the world nowadays for instance Airlines for instance in Europe they usually have their basis around the original one the well-established one and then they purchased some low-cost company and operated as a separate low-cost airline provider as well if some company is unable to set up a

5:26low-cost sort of daughter company to itself they need to transform its business and offer solutions and consultancy that is as well a pretty realistic example that is for instance Ericsson and many other companies that were previously purely technological are right now moving also into a consultancy business where they rather sell the solutions and the knowledge that they have accumulated over the years now for the last part of this video I would like to discuss some other well-known practices - when it comes to responding to your competitors or especially responding to a low-cost rival so first of all sometimes companies have to combine eyes on the basis of their

6:12success what does it mean well imagine you're a company that has been successful in the market for 30 years you are doing the things the way that you have been doing them for a year for five years maybe for 15 years and you are still kind of successful because so far you didn't have too many competitors now all of a sudden one competitor comes who is doing things this Daniel thanks to lit maybe his benefits that he offers are higher or his costs are lower now sometimes what companies have to do is that they have to purposely cannibalize on what they have been successful with they really close

6:53down some business units that have been successful for 15 years because otherwise they would not be able to sort of persuade the people that helped been successful for 15 years that they have to do something differently so it's a very aggressive sort of internal strategy to really say okay this was the success for 15 years now we have to close it and do things differently at least from my practical experience this is a very common example when the sort of an organizational inertia created and this energy doesn't allow us to react to the environmental change which is a competitive secondly companies rather should do series of small moves rather

7:39than several big moles why is it so well performing a big move is much harder as if especially if you have a larger organization it takes a lot of time and effort to make a big step when you are a large corporate but if you do some small moves if you do sort of incremental change step by step that becomes much easier also with this comes your competitor if your competitor starts to see that that okay you are doing a big move in this direction you will for sure follow up with that in the future he will know how to react to you so you rather should do the small incremental

8:20changes so that the competitor maybe does not notice what is your main interest then we are touching already on the third point which is about unpredictability you should be unpredictable sometimes what companies do is that let's say they have a May in interest there is a bank that would like to be the greatest bank in certain European country while they are doing some other pursuing this main aim of becoming the best bank in this particular country they will maybe do activities in some other country as well so that they are unpredictable and their competitors cannot guess that well which country is going to be their main focus

9:02in the future now finally and this is maybe the most important point of this video use cooperative strategy I have seen many examples in the real world where it simply pays off more to cooperate with your competitors it it is going to save a lot of costs for each one of these competitors and usually if a synergy is created I know that sometimes it it might not seem possible let some cooperation on the rise but it always is possible and if synergy and cooperation is created always the two competitors are going to benefit more from it and that is all from this video where we started to talk about

9:45interactive competitive strategies