CHAPTER 4

Developing
Competitive
Advantage
and Strategic
Focus
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SWOT Analysis

A widely used framework for organizing and

utilizing the pieces of data and information
gained from the situation analysis
 Encompasses both internal and external
environments
 One of the most effective tools in the analysis
of environmental data and information

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Major Benefits of SWOT Analysis
(Exhibit 4.1)

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Making SWOT Analysis Productive
(Exhibit 4.2)

 Stay Focused
 It is a mistake to complete one generic SWOT analysis
for the entire organization. SWOT analysis really means
SWOT analyses.

 Search Extensively for Competitors

 Information on competitors is an important aspect of a
SWOT analysis. All four types of competition are
important.

 Collaborate with other Functional Areas

 Information generated from the SWOT analysis can be
shared across functional areas.
 SWOT analysis can generate communication between
managers of different functions, creating an 4
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Making SWOT Analysis Productive
(Exhibit 4.2) (continued)

 Examine Issues from the Customers’ Perspective

 What do customers (and noncustomers):
 believe about us as a company?
 think of our product quality, customer service, price, overall value,
convenience, and promotional messages in comparison to
competitors?
 What is the relative importance of these issues as customers
see them?

 Separate Internal Issues from External Issues

 Failure to understand the difference between internal and
external issues is a major reason for a poorly conducted
SWOT analysis.

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Breaking Down Managerial Clichés
(Exhibit 4.3)

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Potential Issues to Consider in a
SWOT Analysis (Exhibit 4.4)

 Strengths and Weaknesses

 Presence or absence of scale and cost economies
 Presence or absence of financial or human resources
 Presence or absence of functional skills
 Presence or absence of intellectual, legal or
reputational resources

 Opportunities and Threats

 Conditions or changes in the customer environment
 Conditions or changes in the competitive environment
 Conditions or changes in the external environment

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SWOT-Driven Strategic Planning

 The assessment of strengths and weakness must look

beyond the firm’s resources and product offerings to
examine processes that meet customers’ needs. This
entails offering solutions to customers’ problems, rather
than specific products.
 Achieving goals and objectives depends on creating
capabilities by matching strengths with market
opportunities.
 Weaknesses can be converted into strengths with
strategic investment. Threats can be converted into
opportunities with the right resources.
 Weaknesses that cannot be converted become
limitations which must be minimized if obvious or
meaningful to customers or other stakeholders.
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The SWOT Matrix

A four-cell array used to categorize information

at the conclusion of a SWOT analysis
 Should be based on customer perceptions, not
the perceptions of the manager or firm
 Elements with the highest total ratings should
have the greatest influence in developing the
strategy.
 Focus on competitive advantages by matching
strengths with opportunities

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The SWOT Matrix (Exhibit 4.5)

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 Strengths, weaknesses,
opportunities, and threats: Which
is the most important? Why? How
might your response change if
you were the CEO of a
corporation? What if you were a
customer of the firm? An
employee? A supplier?

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Developing and Leveraging
Competitive Advantages

 Competitive advantages can arise from many

internal and external sources (see Exhibit 4.7).
 Competitive advantages refer to real
differences between competing firms.
 Competitive advantages can also be based
more on perception than reality.
 Capabilities or competitive advantages that do
not translate into specific benefits for
customers are of little use to a firm.

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Competitive Advantage Strategies
(Exhibit 4.8)

 Operational Excellence
 Focus on efficiency of operations and processes
 Lower cost operations lead to lower prices for
customers

 Product Leadership
 Excellence in technology and product development
 Most advanced, highest quality product offering in the
industry

 Customer Intimacy
 Understand customers better than the competition
 Develop long-term customer relationships
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 Support or contradict this
statement:

“Given the realities of today’s

economy and the rapid changes
occurring in business technology, all
competitive advantages are short-
lived. There is no such thing as a
sustainable competitive advantage
that lasts over the long term.”
Defend your position.

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Establishing a Strategic Focus

 Four major directions for strategic efforts

 Aggressive (many internal strengths / many external
opportunities)
 Diversification (many internal strengths / many
external threats)
 Turnaround (many internal weaknesses / many
external opportunities)
 Defensive (many internal weaknesses / many external
threats)

 These are the most common, but other

combinations of strengths and weaknesses are
possible.

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Aggressive (many internal
strengths/many external
opportunities).
 Firms in this enviable position can develop marketing
strategies to aggressively take on multiple opportunities.

 Expansion and growth, with new products and new markets,

are the keys to an aggressive approach. These firms are often
so dominant that they can actually reshape the industry or the
competitive landscape to fit their agenda.

 Google offers a good example of this approach in its

development of web-based applications that serve multiple
needs and markets. Voice, G Suite, Translate, Chrome,
AdSense, Drive, Gmail, and YouTube are a few examples of
Google’s offerings.

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Turnaround (many internal
weaknesses/many external
opportunities). Firmsstrategies because
 Firms often pursue turnaround they find
themselves in the situation—often temporary—of having too
many internal problems to consider strategies that will take
advantage of external opportunities.

 In these cases, firms typically have to put their own house

back in order before looking beyond their current products or
markets.

 For example, GM was once the dominant carmaker in the

world. However, a weak product portfolio, high pension costs,
stiff competition, and the downturn in the world economy
during the Great Recession created a perfect storm that forced
GM into bankruptcy in 2009. Though more than a decade later
GM is once again the world’s leading automaker, it has trailed
Tesla in producing viable electric vehicles. GM once again
faced a crisis during the COVID-19 recession in 2020. Shortly
after shutting down auto production, the company started
manufacturing ventilators to help combat the virus, converting 17
one of its facilities in Indiana.
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Defensive (many internal
weaknesses/many external
threats).
 Firms take a defensive posture when they become
overwhelmed by internal and external problems
simultaneously.

 For example, in the last decade, multiple retail chains have

filed for bankruptcy more than once as they struggle to cope
with declining foot traffic in malls and shopping centers (e.g.,
Barneys New York, RadioShack, Wet Seal, and American
Apparel).

 Filing for bankruptcy is a defensive strategy that allows

companies to break bad leases as they restructure.

 American Apparel, once highly popular with teens, faced

declining sales and internal issues with sexual harassment,
leading to two bankruptcy filings just over a year apart.

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Diversification (many internal
strengths/many external
threats).
 Firms in this position have a great deal to offer, but external
factors weaken their ability to pursue aggressive strategies.

 To help offset these threats, firms can use marketing strategy

to diversify their portfolio of products, markets, or even
business units.

 A good example of this strategy in action is the Altria Group,

whose divisions include Philip Morris USA (tobacco), U.S.
Smokeless Tobacco Company, John Middleton (cigars), Ste.
Michelle Wine Estates, Philip Morris Capital Corporation
(leasing), Juul (e-cigarettes and vapor products), ABInBev
(brewing), and more.

 Although Altria owns many of the world’s most recognizable

brands (e.g., Marlboro and Virginia Slims), the firm faces
innumerable threats from low-cost competitors, taxes, and
litigation.
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Blue Ocean Strategy

 [Link]
v=sYdaa02CS5E

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Principles of Blue Ocean Strategy

 Firms develop strategic focus by developing a

strategy that stands apart from the
competition.
 Firms can visually identify their strategic focus
through the use of the strategy canvas.
 Firms can use the Four Actions Framework to
reorient their strategic focus away from the
competition.

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Strategy Canvas

 Identifies factors that the industry currently

competes on and what customers receive from
existing product offerings (captured by the
horizontal axis)
 Identifies the offering level received by buyers
for each factor (captured by the vertical axis)
 High levels mean that a company invests more and
offers buyers more of that factor.

 Identifies a company’s relative performance

across its industry’s factors of competition
(captured by the value curve)

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Strategy Canvas for Southwest
Airlines (Exhibit 4.9)

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The Four Actions Framework

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The Four Actions Framework

 Which factors that the industry takes for granted

should be eliminated?
 These factors may no longer have value for buyers.

 Which factors should be reduced well below the

industry’s standard?
 Have products been over designed in a race to beat
competition?

 Which factors should be raised well above the

industry’s standard?
 Has the industry forced customers to make compromises?

 Which factors should be created that the industry

has never offered?
 What are the potential new sources of value for buyers? 25
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Example

 Case uploaded on LMS- 20 mins

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What Makes Good Strategy?

 Good strategy is about matching the firm’s

strengths to the available opportunities.
 Blue Ocean Strategy defines good strategy as
having these three characteristics:
 Focus – Good strategy does not diffuse the company’s
efforts across all key factors of competition (the value
curve clearly shows focus in the strategy).
 Divergence – Good strategy differs from other
competitors in the market (the value curve is unique
from competitors).
 Compelling Tagline – Good strategy can be
summarized in a clear-cut statement that delivers a
clear, compelling message to customers.

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 Is it possible for an organization to
be successful despite having a value
curve that is not distinct from the
competition? In other words, can an
organization be successful by selling
a me-too product (a product that
offers no compelling differences
when compared to the competition)?
Explain.

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Developing Marketing Goals and
Objectives

 Marketing Goals
 Statements of broad, desired accomplishments
 Attainability
 Consistency
 Comprehensiveness
 Intangibility: “the best-trained sales force in the industry”
or “the most creative and effective advertising campaign in
the industry”

 Marketing Objectives
 Specific, quantitative benchmarks used to measure
progress toward the achievement of marketing goals
 Attainability
 Time frame 29
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Continuous versus Discontinuous
Objectives

 Continuous Objectives
 Current objectives are similar to objectives set in the
previous planning period.
 Objectives that are only slightly modified over time do
not need new strategies, increased effort, or better
implementation to be achieved.

 Discontinuous Objectives
 Significantly elevate the level of performance on a
given outcome factor
 Typically require new strategies to achieve higher
performance

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