Transcript Framework for Strategic Analysis

Stanford GSB
Sloan Program
Stramgt 258
Strategy and Organization
8. The Spectrum of Competition
and Niche Markets
Skil Corp
Industry Segments (Niches)
• Preconditions:
– Heterogeneity in market:
• Customer preferences
• Geographic markets
– Not easy for firms to serve multiple niches:
• Requires different capabilities or positional assets
• Barriers due to reputation (legitimacy):
– Some segments defined by what they are not (e.g. microbreweries, green marketing approaches)
• These constitute “mobility barriers.”
• Niches not established by fiat or natural law
January 31, 2003
John Roberts
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Niches as Outcome
• Differentiation often reflects underlying
differences in tastes among buyers.
• It may also be the outcome of incumbents’
behavior.
– E.g., Skil’s strategic shift made the power tool
market into more of a set of niche markets
relative to the previous situation, where there
was more head-to-head competition.
January 31, 2003
John Roberts
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Benefit of Niches
• Want to be close to customers, but far from
competitors
• If not all firms can equally serve all
consumers, niches make it possible to be
close to some customers and sheltered from
some competitors
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Degree of Niche Overlap
• Consumer preferences establish distinct
categories:
– Horizontal:
• e.g. speed boats vs. sail boats
– Vertical:
• e.g. Rolex vs. Timex
– Consumer’s “second choice” is a poor substitute
• Requires firms to have distinct type of capability
(e.g. operations) or positional (e.g. brand)
advantage
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John Roberts
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Niches and Strategy Formation
• Challenge:
– Can we find/create a distinct and unfulfilled consumer
preference?
– Can we uniquely serve this demand given our
capability and positional assets?
– Will others let us have this niche?
• Opportunity may also be constraint:
– Spanning multiple niches can be difficult
– Growth opportunities tied to the growth of the niche
January 31, 2003
John Roberts
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Value Capture vs. Value Creation
• The main premise of industry analysis is that the
interests of an industry incumbent stand opposed
to those of their customers and suppliers. E.g., the
incumbent wants to get as high a price for what it
sells and its customers want to lower the price.
• However, incumbents and their exchange partners
may often have common interests, which foster a
less adversarial, partner-like mode of relationship.
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Value Capture vs. Value Creation
• In particular, in order for parties to an exchange to
create more value, they often need to enter into a
partnership with one another, which involves
relationship-specific investments that reduce
negotiating power on both sides.
• Such partnerships generally require making
credible commitments to withdraw from other
exchanges and thus necessarily increase
vulnerability and reduce power.
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Strategy in a Strategic Context
• Crafting a successful strategy requires that
one understand and anticipate the strategies
taken by competitors, buyers, and suppliers.
– Skil’s new strategy worked because it reflected
a deep understanding of both Black & Decker’s
strategy and that of the hardware stores/home
centers.
• Put yourself in the other guy’s shoes.
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John Roberts
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