1. Chapter Eight
Tailoring Strategy to Fit Specific
Industry and Company Situations

2. The Industry Environment
 Different industry environments present different
opportunities and threats.
 A company’s business model and strategies have
to change to meet the environment.
 Companies must face the challenges of
developing and maintaining a competitive strategy
in:
 Fragmented Industries • Mature Industries
 Embryonic Industries • Declining Industries
 Growth Industries
There is the need to continually formulate and implement
business-level strategies to sustain competitive advantage
over time in different industry environments.

3. Fragmented Industries
 Reasons for fragmented industries
 Low barriers to entry due to lack of economies of scale
 Low entry barriers permit constant entry by new companies
 Specialized customer needs require small job lots of products - no
room for a mass-production
 Diseconomies of scale
 Strategies
 Chaining – networks of linked outlets to achieve cost leadership
 Franchising – for rapid growth with proven business concepts,
reputation, management skills and economies of scale
 Horizontal Merger – acquisition to obtain economies and growth
 IT and Internet – to develop new business models
A fragmented industry is one composed of a large
number of small and medium-sized companies.

4. Competitive Features
of a Fragmented Industry
 Absence of market leaders with large market shares or
widespread buyer recognition
 Product/service is delivered to neighborhood locations to be
convenient to local residents
 Buyer demand is so diverse that many firms are required to
satisfy buyer needs
 Low entry barriers
 Absence of scale economies
 Market for industry’s product/service may be globalizing, thus
putting many companies across the world in same market arena
 Exploding technologies force firms to specialize just to keep up
in their area of expertise
 Industry is young and crowded with aspiring contenders, with
no firm having yet developed recognition to command a large
market share

5. An embryonic industry is one that is just beginning
to develop when technological innovation creates new
market or product opportunities.
A growth industry is one in which first- time demand
is expanding rapidly as many new customers enter the
market.
Embryonic and Growth
Industries
Strategy is determined by market demand
 Innovators and early adopters have different needs from the early
and late majority
 Company must be prepared to cross the chasm between the
early adopters and the later majority
Companies must understand the factors that affect a
market’s growth rate – in order to tailor the business
model to the changing industry environment.

6. Market Development
and Customer Groups
Both innovators and early adopters enter the market while the
industry is in its embryonic state.

7. Strategic Implications
of Market Growth Rates
 Different markets develop at different rates.
 Growth rate measures the rate at which the
industry’s product spreads in the marketplace.
 Growth rates for new kinds of products seem to
have accelerated over time:
 Use of mass media • Low-cost mass production
 Factors affecting market growth rates:
 Relative advantage • Complexity
 Compatibility • Observability
 Availability of • Trialability
complementary products
Business-level strategy is a major determinant of industry
profitability. The choice of business model and strategies can
accelerate or retard market growth.

8. Navigating Through the Life Cycle
to Maturity
 Embryonic stages – share building strategies
 Development of distinctive competencies and competitive advantage.
 Requires capital to develop R&D and sales/service competencies.
 Growth stages – maintain relative competitive position
 Strengthen business model to prepare to survive industry shakeout.
 Requires investment to keep up with rapid growth of the market.
 Shakeout stage – increase share during fierce competition
 Invest in share-increasing strategies at expense of weak competitors.
 Weak companies should exit the industry during the harvest stage.
 Maturity stage – hold-and-maintain to defend business model
 Dominant companies want to reap the reward of prior investments.
 A company’s investment depends on the level of competition and source of the
company’s competitive advantage.
1. Competitive advantage of company’s business model
2. Stage of the industry life cycle
The amount and type of resources and capital needed to pursue a
company’s business model depends on two crucial factors:

9. Mature Industries
 Evolution of mature industries
 Industry becomes consolidated as a result of the fierce
competition during the shakeout stage.
 Business level strategy is based on how established companies
collectively try to reduce strength of competition.
 Interdependent companies try to protect industry profitability.
 Strategies
 Deter entry into industry
 Product proliferation  Maintaining
 Price cutting excess capacity
 Manage industry rivalry
 Price signaling  Capacity control
 Price leadership  Non-price competition
A mature industry is dominated by a small number of large
companies whose actions are so highly interdependent that success
of one company’s strategy depends on the response of its rivals.

10. Product Proliferation in the
Restaurant Industry
Where the product spaces have been filled, it is difficult for a new
company to gain a foothold in the market and differentiate itself.

11. Toyota’s Product Lineup
Toyota has used market development to become a broad differentiator and
has developed a vehicle for almost every main segment of the car market.

12. Game Theory
Basic principles that underlie game theory:
 Look Forward and Reason Back – Decision Trees
 Look forward, think ahead, and anticipate how rivals will respond to
whatever strategic moves they make
 Reason backwards to determine which strategic moves to pursue today
based on how rivals will respond to future strategic moves
 Know Thy Rival – how is the rival likely to act
 Find the Dominant Strategy – Payoff Matrix
 One that makes you better off if you play that strategy
 No matter what strategy your opponent uses
 Strategy Shapes the Payoff Structure of the Game
Companies in an industry can be viewed as players that are all
simultaneously making choices about which business models and
strategies to pursue in order to maximize their profitability.
These basic principles of game theory can be used in
determining which business model and strategies to pursue.

13. A Decision Tree
for UPS’s Pricing Strategy

14. Declining Industries
 Reasons for and severity of the decline
 Reasons - technological change, social trends, demographic
shifts
 Intensity of competition is greater when:
 The decline is rapid versus slow and gradual.
 The industry has high fixed costs.
 The exit barriers are high.
 The product is perceived as a commodity.
• Not all industry segments typically decline at the same rate
 Creating pockets of demand
 Strategies
 Leadership – seeks to become dominant player in declining industry
 Niche – focuses on pockets of demand that are declining more slowly
 Harvest – optimizes cash flow
 Divestment – sells business to others
A declining industry is one in which market demand has
leveled off or is falling and the size of total market starts to shrink.
Competition tends to intensify and industry profits tend to fall.

15. Strategy Selection
in a Declining Industry
Choice of strategy is
determined by:
• Severity of the
industry decline
• Company strength
relative to the
remaining pockets
of demand

16. Matching Strategy to
a Company’s Situation
Most important
drivers shaping a
firm’s strategic
options fall into
two categories
Firm’s competitive
capabilities,
market position,
best opportunities
Nature of industry
and competitive
conditions

17.  New and unproven market
 Proprietary technology
 Lack of consensus regarding which of several
competing technologies will win out
 Low entry barriers
 Experience curve effects may permit cost reductions as
volume builds
 Buyers are first-time users and marketing involves
inducing initial purchase and overcoming customer
concerns
 First-generation products are expected to be rapidly
improved so buyers delay purchase until technology
matures
 Possible difficulties in securing raw materials
 Firms struggle to fund R&D, operations and build
Features of an Emerging Industry

18. Strategy Options for Competing
in Emerging Industries
 Pursue new customers and user applications
 Enter new geographical areas
 Make it easy and cheap for first-time buyers to
try product
 Focus advertising emphasis on
 Increasing frequency of use
 Creating brand loyalty
 Use price cuts to attract price-sensitive buyers

19. End-Game Strategies for
Declining Industries
 An end-game strategy can take either of two paths
 Slow-exit strategy involving
 Gradual phasing down of operations
 Getting the most cash flow from the business
 Fast-exit strategy involving
 Disengaging from an industry during early stages of
decline
 Quick recovery of as much of a company’s
investment as possible

20. Features of High-Velocity Markets
 Rapid-fire technological change
 Short product life-cycles
 Entry of important new rivals
 Frequent launches of new competitive
moves
 Rapidly evolving customer expectations

21. Meeting the Challenge of High-Velocity
Change

22. Three Strategy Horizons for Sustaining
Rapid Growth

23. Risks of Pursuing
Multiple Strategy Horizons
 Firm should not pursue all options to avoid
stretching itself too thin
 Pursuit of medium- and long-jump initiatives
may cause firm to stray too far from its core
competencies
 Competitive advantage may be difficult to
achieve in medium- and long-jump businesses
that do not mesh well with firm’s present
resource strengths

24. Thank you
♣