Competitive Strategies - Tema 5 PDF

**COMPETITIVE STRATEGIES** **COMPETITIVE ADVANTAGE AND STRATEGY:** **CONCEPT OF COMPETITIVE ADVANTAGE AND STRATEGY:** **COMPETITIVE ADVANTAGE:** any aspect of the firm that distinguishes it from others and places it in a relatively better position for competing and which enables it to record a be...

**COMPETITIVE STRATEGIES** **COMPETITIVE ADVANTAGE AND STRATEGY:** **CONCEPT OF COMPETITIVE ADVANTAGE AND STRATEGY:** **COMPETITIVE ADVANTAGE:** any aspect of the firm that distinguishes it from others and places it in a relatively better position for competing and which enables it to record a better performance. REQUIREMENTS FOR A COMPETITIVE ADVANTAGE: 1. It needs to be related to a key factor of success in the market 2. It needs to be sufficiently substantial to truly make a difference 3. It needs to be sustainable in the face of changes in the environment and competitor´s movements. \*None of a firm´s differentiating traits constitutes a competitive advantage unless it leads to a better performance in a sustained manner over time. It´s also important to consider the value created by the firm = difference between the value customers give to the product or service (the most they would be prepared to pay) and the cost of obtaining it. The value created is broken down into 2 components: - **Margin:** it applies to the part of the value created that the firm appropriates - **Customer´s value added:** difference between the value perceived by the customer and the price they pay for the product or service it constitutes the part of the value created that is passed on to the customer ! Analyze the customer´s value added their degree of satisfaction with the product and the likelihood of whether or not they will acquire that product. They will seek to buy a product that provides the greatest possible value added if the value the customer perceives is lower than the price to be paid, they won´t proceed because the quality-price ratio is unfavorable to them. COMPETITIVE ADVANTAGES: - **Low cost position** - **Uniqueness perceived by the customer (differentiation)** \*A competitive advantage may be achieved within the scope of an entire industry or within a specific part of it or a market segment (strategic target) **COMPETITIVE STRATEGY:** the manner in which a firm faces its competitors in order to outperform them (the route by which a firm gains a competitive advantage). \*[Porter:] taking offensive or defensive actions to create a defendable position in an industry, to cope successfully with the 5 competitive forces and yield a superior return on investment for the firm. - **Cost leadership** - **Product differentiation** - **Market segmentation** \*A firm´s performance is informed by the [margin] it obtains in its core business (difference between the price of a product/service and the cost of producing it) when a firm has a competitive advantage margin greater than its competitors´ margin or it uses its assets more efficiently. Nonetheless, while a positive gross margin is a necessary condition, it´s not enough for a firm to be profitable. A firm may sometimes seek to successfully pursue both competitive advantages by cutting costs and increasing prices at the same time. It´s difficult to sustain, as a competitive advantage normally arises from an organization´s commitment to a chosen strategy it requires a choice to be made. To do otherwise **"stuck in the middle"** situation not having any competitive advantage and not performing as well as one´s rivals risk of being shut out of the industry. EXPLANATION: - Gaining an advantage in differentiation normally involves incurring higher costs and vice versa lower costs don´t lead to the differentiating traits for which a customer is ready to pay a higher price - Gaining one or other advantage requires different resources and capabilities for each one difficult to achieve them both at the same time. **CREATING AND SUSTAINING A COMPETITIVE ADVANTAGE:** EXTERNAL FACTORS FOR CREATING A COMPETITIVE ADVANTAGE: If the markets were to involve perfect competition, there would be no platform for creating a competitive advantage. The key features of markets in perfect competition (product homogeneity, equal pricing, complete information on all agents, absence of entry barriers) impede obtaining medium and long-term income above the industry average. As an industry has a more favorable competitive structure and the industry´s greater dynamism the greater the chances are of gaining advantages. The firm will need to become adept at [detecting changes and have the response capability] to make the most of them, adapting quickly and flexibly, and preempting the exploitation of opportunities by its competitors. INTERNAL FACTORS FOR CREATING A COMPETITIVE ADVANTAGE: The sum of resources and strategic capabilities available to a firma and the manner in which they are deployed and exploited provide the soundest platform for explaining the creation of competitive advantage. **SUSTAINING A COMPETITIVE ADVANTAGE DEPENDS ON:** - **Barriers to imitation:** obstacles that stop other competitors from reproducing a competitive advantage (causal ambiguity, protected knowledge, accumulated experience, possession of unique assets and corporate culture). (difficulties to enter in the market) - **Competitor´s ability** to imitate a rival´s competitive advantage - **Industry dynamism:** as an industry undergoes a greater number of changes, competitive advantages tend to become more transitory (how quickly the industry changes) **COST LEADERSHIP ADVANTAGE:** A firm has a **cost advantage** over its competitors its costs are lower for a product or service of a similar or comparable quality. The advantage in costs allows a firm to lower its prices until they annul the competitor´s margin (without this meaning the disappearance of profits). - Regarding customer the firm will be in a better position because customers won´t be able to find prices below the competitors´ costs, and profits will continue to be generated at those prices - Regarding suppliers the firm may more readily absorb increases in the cost of the resources it acquires CUSTOMER´S VIEWPOINT: The cost leadership strategy may also lead to some reduction in the product´s quality or its features drop in the value perceived by customers and in their value added. The success of this strategy requires the value created by the firm to be higher than that of its competitors. - The firm may record a higher margin if the price reduction is lower than the reduction in costs - A customer´s value added may increase if the drop in perceived value is less than the reduction in price. **SOURCES OF COST ADVANTAGE:** It has traditionally been considered that the main source of competitive advantage in costs stems from the experience effect, which has its origin in the learning effect. **\*Learning effect:** the time taken to manufacture one unit of product shortens as a great number of units are produced (time to make one product unit is less when other units have already been made because of the learning curve) lower unitary costs of direct labor lower unitary product costs. This is due to the introduction and fine-tuning of collective organizational routines within a firm and to the improvements made to individual skills. **\*Experience effect:** generalization of the learning effect it applies to direct labor costs and to other operating costs, as well as to other business activities. As a result of the experience accumulated, the true cost of the firm´s overall value added diminishes in unitary terms. !!The true overall cost of a product diminishes as accumulated output increases. Besides the experience effect, certain factors help a firm to gain a competitive advantage in costs: - **Economies of scale** appear when the increase in the number of inputs used in production gives rise to a more than proportional increase in the total number of outputs produced. They may stem from 3 resources: - The technical input-output relationship (the increases in output in certain activities don´t depend upon proportional increases in inputs) - A high market share allows placing large production volumes and reducing costs - Work specialization or the division of labor it prompts an increase in skills and permits mechanization and automation - **Development or adoption of a new process technology or a process redesign** that simplifies the production process, automates it, reduces the number of components, or cuts the cost of materials, stockpiling or distribution. The [redesign] of products may help to save on manufacturing costs through a reduction in the number of components, the use of cheap materials, or the easier assembly of the different parts. - **A lower cost of production factors by controlling access to raw materials** or other key supplies, sources of finance, service and maintenance contracts. \*A firm´s **favorable location** may sometimes lead to lower wage, energy or transport costs. \*This reduction in the cost of production factors may also be achieved by entering into **partner relationships with suppliers** that reduce the end costs, or by maintaining a **high bargaining power with them** to exert pressure on pricing and capture part of their margin. - **Tight cost controls** of the various operations (indirect costs, R&D expenditure, sales costs, after-sales service, advertising) - **Rapid adjustment of production capacity** to the true level of demand in industries subject to a major fluctuation of the same, avoiding the costs involved in the over or under use of facilities. - **Organizational efficiency**, which is related to the firm´s overall performance and to the productivity of human resources. Some firms maintain a margin between their true performance and their potential performance ([organizational lassitude/slack] or [X-inefficiency]). A firm that manages to reduce or eliminate this lassitude will improve its organizational efficiency and (under equal technical and economic conditions) it will record better costs than similar companies. \*Factors to improve organizational efficiency competitive pressure, suitable incentive systems and corporate values that foster zero tolerance toward the relaxation of costs **CONDITIONS OF APPLICATION AND IMPLEMENTATION OF COST ADVANTAGE:** The success of a cost leadership strategy requires taking into account when an adjustment is made to certain structural factors in the industry, as well as the most suitable conditions for its implementation in the firm. In terms of structural factors, cost leadership is recommendable in these cases: - Customers are especially price-sensitive and they don´t incur any costs when changing supplier - A key factor of success in the industry is intense price competition - The product is standardized and tendered by numerous firms - There are few ways of differentiating between products that matter to buyers due to their very similar needs or way of using the product - The customers of firms in the industry have high bargaining power due to their larger size or the low costs involved in changing supplier they apply pressure to bring down prices - New entrants in the industry seek to build up a customer portfolio by reducing prices. In these cases, a leader in costs may improve the offer to buyers to dissuade the newcomer from remaining in the industry - A cost advantage based on the experience effect is especially useful in cases of high business growth, in continuous manufacturing processes, in capital intensive firms, in firms that create high value added, or when price is a significant variable for customers **MAINTAINING THE COST ADVANTAGE AND ITS RISKS:** **BARRIERS TO IMITATION** that can defend a position of cost advantage may arise in these situations: - The scarcity of certain cost resources (the use of the experience effect in emerging sectors, or the availability of a technology arising and accumulated within a firm over the course of its history) - The difficulty competitors encounter in accessing certain costs factors (single location, closed distribution networks, preferential agreements with suppliers, the need for minimum quantities, or the special availability of raw materials) - The impossibility of imitating the cost resources forthcoming from complex decision-making processes involving the firm over time (reducing indirect costs or the absence of organizational lassitude) - Although a cost source may be replaced by another to obtain a similar result, such a substitution is much more complicated when it involves a complex combination of multiple resources. **RISKS THAT MIGHT REMOVE THE COMPETITIVE ADVANTAGE:** - It requires the **constant monitoring of costs,** looking out for superfluous costs (organizational slack), quickly adopting new process technologies, reinvesting in modern equipment - **Excessive use of the experience effect** damaging strategic outcomes (sustained growth for cornering a market share, inflexibility due to overly standardized products, failure to detect changes in demand that call for new products or new product attributes and processes, or the difficulties in looking for and accepting innovations) - When the advantage is based on the experience effect, the latter may soon be annulled due to the **appearance of substitute products**, major changes in the product or process, differentiation of products by competitors - Rapid or low-cost learning or **imitation by established competitors** or by industry newcomers that cancel out the experience effect achieved - **Inflation of costs related to production factors** may stop the firm sustaining a price differential that is sufficient to make its products attractive as regards another differentiated product - **Changes in demand** (lower appreciation of the price by the customer, a change or greater variety in tastes and requirements) may leave the company with an offer that is far removed from market expectations - Obsessive focus on reducing costs may **impair the quality of products or services** or eliminate features diminishing the value perceived by the customer. \*Despite the lower price, the customer may reject the product for its lower quality or fewer features - **Competitors in certain segments** may achieve even lower costs than those operating in the industry as a whole. \*A reduction in costs doesn´t automatically lead to a better performance. If this reduction is part of a price war with competitors, it may mean that the reduction in price is greater than the reduction in costs reduced margin for the firm. **DIFFERENTIATION ADVANTAGE:** A firm has a competitive advantage in product differentiation when it provides a **product or service that, being comparable with one provided by another firm, has certain attributes that make customers perceive it as being unique** they are willing to pay more for that product than for rival ones. \*A company seeking to have an advantage in differentiation needs to create more value than its competitors. The increase in value creation may lead to an increase in the margin if the price increases more than the costs arising from the differentiation. Customer´s perspective it´s not enough for the product to have different characteristics these differences also need to be positively perceived and appraised they´re ready to pay an overprice for that product (the price increase is offset by a bigger increase in the value perceived, so their value added will also be increased). **SOURCE OF DIFFERENTIATION:** A product or service may create value in 2 ways: - Reducing the cost customer is willing to pay slightly more for the product (its higher price is offset to some extent by the saving in cost) - Improving the customer´s experience customer is willing to pay more because the perceived value of the product/service is better than that of its rivals improving the customer´s experience and/or satisfaction a. **Product characteristics:** - The observable characteristics of a product/service (size, shape, color, weight, design, material, technology). All of which have a significant role to play in the customer´s decision-making process - The performance of the product/service in terms of reliability, safety, consistency, durability - The main product´s complementary aspects (pre-sales and after-sales service, accessories, availability and swiftness of delivery, and credit facilities) b. **Market characteristics:** - Variety of needs and tastes among consumers that may facilitate differentiation through a firm´s better adjustment to those specific tastes and needs. - Perceptions of a social, emotional, psychological and aesthetic nature feature in customer choices as intangible characteristics associated with the products or services. - The power of intangible characteristics in the choice is even greater when the performance of the product/service is difficult to ascertain c. **Firm characteristics:** - Manner in which the firm understands or undertakes its business - The way in which the firm interacts with its customers - Its identity, style, values or reputation, and prestige regarding its customers or the popularity of people associated with the firm d. **Other differentiating variables:** time and criteria of social responsibility (variables simultaneously linked to the product, the market or the firm itself) **\*RAPID RESPONSE STRATEGY:** Possibility of providing a product or rendering a service to customers on an immediate basis or of swiftly adapting to changes in technology or the market. \***SOCIAL RESPONSIBILITY CRITERIA:** Many customers are willing to pay a higher price to reward those firms that respect human rights, the environment. The differentiation may be linked to: - [The product:] pride of place goes to those natural or environmental-friendly products or ones produced through fair trade with less developed countries - [The manufacturing process:] many customers are willing to pay slightly more for products made by a firm whose production they know to be eco-friendly. - [The firm itself:] socially responsible firms are worthy of greater trust and their products/services are preferred to those from other socially less conscious businesses. **CONDITIONS FOR APPLYING AND IMPLEMENTING A DIFFERENTIATION ADVANTAGE:** \*The opportunities for differentiation may be considered low for a product that is technically straightforward, fulfils simple needs and is produced using a specific standardized technique. \*The greater the complexity and variety of the characteristics of products/services, customer´s tastes and needs and the nature of the supplying firms the greater the changes are of gaining a competitive advantage in differentiation. STRATEGY OF PRODUCT DIFFERENTIATION IS MORE APPROPRIATE IN: - Customers give special importance to aspects quality or use the product to differentiate themselves socially - Few competitors choose the same criterion of differentiation, as it would be more difficult for a customer to perceive and value the product as different - The distinctive characteristics are difficult to imitate (at least quickly and economically) - In rapid technological change and constantly renewed products differentiation through innovation is the only way of competing with some assurance of success. A firm that seeks to be successful through a product differentiation strategy needs to make considerable efforts to improve upon its competitors´ offerings: - Greater and better understanding of consumer needs and preferences - A firm commitment to its customers before, during and after the sale has been made - In-depth knowledge of its resources and capabilities for their suitable exploitation - Special focus on product and process innovation A differentiation strategy normally [impedes gaining a high market share] because it requires a perception of exclusivity that is often incompatible with a high market share. \*Upsidecreation of an entry barrier involving brand loyalty (a competitor will have to overcome the unique nature of the product perceived by the market) Differentiation [doesn´t mean ignoring costs], although these aren´t a primary consideration. Differentiation ensures customer loyalty and lower price sensibility, increasing profits (obviates the need for low cost). \*It involves transacting with the costs (many of the activities designed to achieve differentiation entail high costs). When costs soar potential customers are unwilling to pay the higher price the firm requires. **MAINTAINING THE ADVANTAGE IN DIFFERENTIATION AND ITS RISKS:** **BARRIERS TO IMITATION** that protect this type of advantage may stem from: - A firm with a high level of creativity may defend its advantages through successive differentiations that always keep it one step ahead of its competitors - The criteria underpinning the differentiation may have differing degrees of imitation those based on complex interrelations among the firm´s own capabilities and resources, its corporate image, or the level of customer service (difficult to imitate) - Location is often a differentiation criterion that is hard to reproduce (when it´s unique irreproducible) - As there are other alternative means of differentiation that from a customer´s perspective fulfil the same role as the original criterion advantage tends to be lost **RISKS** that may reduce its advantages: - [Price difference] between competitors pursuing a cost leadership strategy and the differentiated firm, or between the differentiated firm and other firms with differentiated offers, may be too high for customers to uphold their brand loyalty. \*Customers will forgo some of the characteristics, services or image provided by the differentiated firm in order to achieve cost saving. If the price is too high customer´s value added diminishes, as does their readiness to acquire the product - [Purchaser´s need or appreciation] may be reduced if the factor determining the differentiation vanishes. There´s a steady fall in the value perceived by customers reducing their value added and the product´s appeal. \*This strategy requires an ongoing effort in innovation to supply products that are new or have different attributes in order to continue providing a differentiating factor - [Imitation by competitors] limits the perceived difference. \*A major issue involves the **counterfeit** or illegal imitation of such products.\ The differentiation strategy requires a constant effort in product refreshment to mitigate the threats of imitation or forgery. - [Competitors with a focused strategy] may achieve a higher differentiation in the market segments they cater for than those others that cover the industry as a whole by offering specific products to customer that better fulfil their needs. ! A differentiation strategy doesn´t automatically generate a competitive advantage. If the firm, when focusing on those product characteristics that make it different, finds that its costs are soaring may achieve differentiation and find that customers are willing to pay for it. But its profitability may be compromised as the higher costs are not offset by the higher price, with an ensuing reduction in the margin. **THE "STRATEGY CLOCK" MODEL:** **LIMITATIONS OF PORTER´S COMPETITIVE STRATEGIES:** REGARDING THE COST ADVANTAGE: - Porter has used the terms "cost leadership" and "low price" as interchangeable concepts, but they refer to different variables Cost is an internal variable that refers to the consumption of resources Price is an external variable targeting the customer - Only one firm can be the leader in costs in any given industry, while several firms may pursue low-price strategies - Low-cost strategies don't provide an immediate competitive advantage if the trade-off is inferior product quality may force the firm to reduce its prices reduce its margin as regards its competitors. - A firm with low costs need not necessarily reduce its prices, but it may earmark part of the extra margin to reinvestment improve its competitive capability - Customers are unaware of or uninterested in the product´s cost. Their purchase cost is the price they pay for the product/service, so it´s a significant variable in their decision REGARDING THE DIFFERENTIATION ADVANTAGE: It´s defined in a way that should necessarily lead to a price increase, without considering the possibility that prices are maintained in order to increase the market share and reduce unitary costs through higher production. Cost leadership and differentiation strategies may not be as mutually exclusive as Porter suggests (there are successful firms that aren´t cost leaders and whose products are not the most differentiated ones). Customers make their decision seeking to maximize their value added comparing their own cost (price paid) with the perceived value. The higher this value added is the higher they will find the quality-price ratio. **THE "STRATEGY CLOCK":** Heavily based on Porter´s precepts, it seeks to qualify and extend them, giving his general strategies an approach that is more outward-looking (market focused). It adopts the customer´s perspective and that of the value added they expect to obtain customers in an industry may buy from one firm or another according to the price of the product/service and the value added perceived. A. **STRATEGIES FOCUSING ON LOW PRICES:** These strategies are closer to cost leadership and are defined by the fact the firm seeks to compete with lower prices maintaining a level of value added perceived to be low or middling. ["No frills"] low prices and low perceived value added. Firms don´t aim to uphold the average quality of their products, but they search those customers who are sensitive to reductions in prices without overly concerning themselves about the products/services received. \*This option doesn´t permit sustaining a margin over sales, but firms may record high end profits thanks to a large volume of sales and a high turnover of assets. [Low prices] offer low prices while upholding a certain level of product quality. It´s viable when a firm is the cost leader, as competitors can´t imitate that performance unless they are willing to embark upon a price war in which they would normally be the ones to lose out. B. **STRATEGIES FOCUSING ON DIFFERENTIATION:** The common purpose is to sustain a high perceived value added, through high or average prices. [Industry-wide differentiation] create a high value added perceived by the customer, maintaining similar prices or slightly higher ones. An improvement in the products or their perception leads to differentiation without forgoing an increase in the firm´s market share and its volume of sales. \*The firm needs to have a clear market focus, being fully aware at all times of the nature of its target customers, their tastes and needs and what they value in the products/services they acquire. \*The key aspect of differentiation is the manner in which the firm attends to or seeks to fulfil its customers´ needs. [Focused differentiation] provide customers with a high perceived value added at significantly higher prices (segments with a high purchasing power). \*Incompatible with a high market share this would remove the perception of exclusiveness and the incentive to pay a higher price.  C. **HYBRID STRATEGIES OR THOSE THAT FOCUS ON THE QUALITY-PRICE RATIO:** [Hybrid] between [differentiation] and [low prices], with a good quality-price ratio provides customers with high or average perceived value added while maintaining relatively low or medium prices upholding a good relationship between the quality offered and the price said. ! Important to understand and cater for customers´ tastes and needs while maintaining a structure of relatively low costs (not easy to achieve). It´s designed to maximize customer value added (most favorable to their interests). PROBLEM: if the firm has managed to generate the perception of a differentiated product among customers and lowers the price the firm would maximize consumer value added at the expense of reducing its margin losing profitability It may be useful when it enables a firm to record a higher turnover than its competitors upholding an attractive margin as a result of the reduction in costs achieved. It might be a valid strategy for overcoming the entry barriers to a market through the supply of products that are superior to rival ones at similar or lower prices. Once a suitable market share has been cornered with the recognition of a significant part of its potential customers, a firm may raise its prices and increase its margins and profitability (*time-wise* as a transitory strategy). [STABLE LONG-TERM OPTION] the value added perceived is higher than the price the customer is required to pay. These firms provide a good [quality-price ratio] and tend to be very attractive to customers because their value added is positive. D. **STRATEGIES DESTINED FOR ULTIMATE FAILURE:** The prices paid by customers are higher than the value added perceived value added negative. [Risky high margins and monopoly pricing] high prices but with a normal or low value perceived by the customer customers will look for competitors that will improve on the offer. They can be sustained if the firm pursuing them holds a monopoly the firm appropriates part of the customer´s value through price hikes or drops in the quality of the products obtaining extraordinary profits without the customer being in a position to switch supplier. [Loss of market share] reducing the value perceived by customers while maintaining prices. It´s pursued by firms with a high reputation in the market but with difficulties in terms of performance. Firms could use this strategy to recoup part of the margin lost, at the expense of reducing or eliminating consumer value added, relying on the firm´s positive image. Customers don´t perceive the firm to have a suitable value added loss of the firm´s image and its customers (in the medium term).  **STRATEGIES BASED ON AN INDUSTRY´S LIFE CYCLE:** The **degree of maturity** (the stage it is at according to its life-cycle) has a significant impact on the general conditions in which competition tends to take place within a given industry, and the chances of obtaining higher or lower rents.  Throughout an industry´s evolution, firms will need to adapt their strategies to their competitor´s characteristics in each one of the stages. Each industry has a specific life-cycle model depending on the greater or shorter length of each one of the stages, which depends on the nature of the business being pursued the evolutionary pattern varies considerably across industries. \*There are industries (food, clothing, construction, transport) that [don´t seem likely to ever enter into decline] they cater for customers´ basic needs. They could experience occasional declines, but they will never disappear. \*Other industries may see a [rejuvenation of their life-cycle] through an industrial "dematuration" entering a new cycle and/or concatenating several successive ones. **STRATEGIES FOR EMERGING INDUSTRIES:** High level of uncertainty firms face due to innovation´s lack of consolidation or the change it has made to the industry. Issues to address: - **Shaping industry structure:** establish the rules of the game regarding product policies, marketing approach and pricing strategies stronger positioning in the long-term. The industry´s consolidation and configuration depend on: - Its potential size - Its expected rate of growth - The prevailing technology - The distribution channels that open up - The possible competitors that appear - **Choosing the timing of entry to compete:** between early or late entry. [Early entry:] - Appropriate when a firm´s image is important to buyers - It favors the learning process generating an experience effect that is difficult to imitate - Customer loyalty will be strong - Absolute cost advantages may be gained through an early entry in terms of raw materials, distribution channels - **Risk management:** essential for ensuring survival and future success. Advisable: - Cooperate with initial users or "early adopters" major source of data for estimating possible market trends - Stringent financial policies that avoid borrowing - Flexibility that enables a firm to respond quickly and effectively to changes in the environment. **STRATEGIES FOR GROWTH INDUSTRIES:** Maintain or improve a relative competitive position as the industry develops, taking into account the entry of new competitors attracted by demand´s high growth rate. - Garner customer loyalty and attract the growing demand to the firm. This may be accompanied by product differentiation (achieve customer loyalty) or lower costs (attract customers with cheaper prices). - Position the firm in the different segments to be the only one or among the few competitors in different segments. \*The new segments that start appearing may be induced by the firm themselves through product differentiation strategies designed to meet the concrete needs of certain specific customer types - Detect the turning point in demand (prior to a shakeout) when growth begins to level off and the trends changes and draws closer to maturity. This enables the firm to avoid an excess of installed production capacity with a negative impact on its costs **STRATEGIES FOR MATURE INDUSTRIES:** In this stage, firms see their ability to grow curtailed, as well as more intense competition. Options that can be applied: - **Obtaining a sound competitive advantage:** - [In cost leadership:] product standardization, application of the experience curve, exploitation of economies of scale, cutting procurement costs, increasing operational efficiency. - [Product differentiation:] although the product is highly standardized, the potential for differentiation is focused on the levels of quality, service and/or distribution, corporate reputation, brand image - [Market segmentation:] focusing the business on those segments with more potential for development or with a more attractive competitive structure - **Re-orienting the scope of the firm:** - [Diversification strategies:] entry into new industries with greater potential for future development - [External growth strategies:] mergers, acquisitions or alliances with other firms for increasing market power - [Internationalization:] involving new countries with better perspectives for future growth **STRATEGIES FOR DECLINING INDUSTRIES:** - **Leadership in the industry:** the firm strives to be the only one (or one of the few) left in the industry control better the industry´s ultimate development - **Segmentation (Niche):** identifying any part of the industry that sustains itself, declines slowly or generates high profits because its structural conditions are upheld - **Harvest:** maximize the cash flow, reducing the investments required to minimum and exploiting any short-term source for generating income (selling off part of the original assets).\*It may be sometimes a way of accelerating the decline. - **Rapid withdrawal (quick divestment):** selling the business as soon as the downturn begins. The problem is finding a buyer for a business whose industry is in decline. The success of this strategy depends on a firm´s dexterity in the early detection of the industry´s future decline.