THEME 3:

STRATEGY AND COMPETITIVE SITUATIONS

Part 1: Defensive Strategies and Strategies of Attack.

Basic bibliography: Lynch, R. Corporate Strategy.

Harlow: FT-Prentice Hall, 2006, sections 4.4.4 to
4.4.6.

© Alfonso VARGAS SÁNCHEZ 2

 Defensive vs Offensive strategies

-Offensive strategy is focused on achieving competitive advantage.

-Defensive strategy is focused on attacking/responding the competitor in order to

take him off.

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 Defensive strategies

“Do not assume the

enemy will not come, but
be prepared for his
coming…
Do not presume he will
not attack, but instead
make your own position
unassailable.” (Sun Tzu).

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 Defensive strategies

They are used to protect a competitive advantage, but rarely they can
establish any competitive advantage.
They are not suited to all businesses.

Objectives

Lessen risk of being attacked.

Soften impact of any attack that happens.

Drive assailant to aim at other rivals.

Make stronger firm’s present position.

Help sustain any competitive advantage held.

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 Defensive strategies

Approaches

Approach #1. Approach #2.

Actively block Make it known that any
competitors who attack on the business
attempt an attack on will be met with a
the firm. strong counterattack.

Example:
Example:
If there is a new entrant, the
Making advertising campaigns
company can take him off by
about product development.
cutting prices.
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 Defensive strategies

Approaches
Approach #1: block competitors. Approach #2: counterattacks.

Give out advance information about

Patent alternative technologies.
new products, technological

Sign exclusive contracts with
breakthroughs, and other moves.
distributors.

Publicly announce information about

Give better credit terms to buyers.
new production capacity to meet

Increase warranty coverage.
forecasted demand.

Sign exclusive contracts with best

Make occasional counter-responses
suppliers.
to rivals’ moves.

Etc.

Etc.
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 Defensive strategies
• It is considerably less risky
and needs less resources
than offensive strategy
Benefits
• It doesn’t allow
development. A firm that
uses just defensive strategy
may be able to maintain its
current position and
competitive advantage, but
can’t grow beyond this
situation
Drawbacks
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 Offensive (attack) strategies

“Out there in some

garage is an
entrepreneur who’s
forging a bullet with your
company’s name on it.”
(Gary Hamel, Business
Writer).

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 Offensive (attack) strategies

Three main principles:

• The need to concentrate the attack.

• The element of surprise (the right time).
• The need to consolidate the attack.

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 Offensive (attack) strategies

Four main alternatives:

• Head-on attack against the market leader.
• Flanking or market segmentation.
• Occupy totally new territory (i.e. where there
is no existing product or service).
• Guerrilla (a rapid sortie to seize a short-term
profitable opportunity).
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 Head-on attack against the market leader

• Unless resources are sustained, the campaign

is unlikely to be successful.
• Attack where the leader is weak.
• Pick a narrow front to open up the campaign.

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 Flanking or market segmentation

• Choose a flank that is relatively undefended.

• Aim to take a significant market share.
• Expect to invest in the flank for some years.
• Pricing and value for money are often
distinguishing features of a successful flank.

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 Occupy totally new territory

• Innovate if possible.
• Seek market niches.
• Create a “blue ocean”.

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 Guerrilla

• Appropriate for companies that are too small to

launch offensive or flanking moves.
• Relies on good information to identify opportunities.
• Fast response needed and rapid withdrawal after
success.
• Important not to stand and fight leaders on their
own ground but pick new areas.

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 Guerrilla

Examples (identify a segment that is small enough to defend.

Its scope can be limited geographically, demographically, by
industry, or by price):
• Local retailers who win customers with offerings better
tailored to the locale compared to the offerings of national
chains.
• Inc. magazine is an example that targets small business
owners who were not well served by publications such as
Business Week.
• Product guerrillas offer a unique product for which there is a
small market. The Jeep is an example of such a product.
• Rolls-Royce is a guerrilla in very high-priced automobiles.
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 Innovatory strategies

1. Rewriting the rules of the game (the phone selling in the

insurance industry -life, household,…-).
2. Technological innovation (Internet and the distribution of
recorded music).
3. Higher levels of service (i.e. shoe industry –personalized
service and design- & retailing -different timetables-).
4. Co-operation (joint ventures, alliances, etc.).

They are particularly suited to the underdogs, that is to say,

to small companies that don’t have substantial resources.

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 Innovatory strategies

• “If you have always done it that way, it is

probably wrong.” (Charles Kettering,
Engineer).
• “They thought they knew about everything:
pricing, product, marketing... They just had
closed ears”. Sean MacGowan, Toy-Industry
Analyst (about Lego).
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 Conclusions: attack or defend

Caution about:
• The exaggeration of the importance of size
and scale: distinctive capabilities are more
important.
• Excessive emphasis on charismatic leadership,
vision and attack (instead of teams).

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 EXAMPLES

Source: Ries & Trout:

“Marketing Warfare”

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 The “cola war”

In 1915 Coca-Cola introduced its unique 6-1/2 ounce bottle that became
closely associated with the brand. The size and shape was just right to fit the
hand, and this bottle and its association with Coca-Cola was a major strength.
However, when Pepsi introduced a larger bottle for the same price as the
smaller bottle of Coke, Coke did not have many options to respond. Because
of the way the size and shape of the bottle fit the hand, it could not be
enlarged easily. Furthermore, the dispensing machines for Coke were
designed for nickels only, so the price could not easily be changed.
These weaknesses were a direct result of Coke's strength: the challenger
should seek a weakness in the leader's strength.

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 The “beer war”

Schlitz was the top brand, but lost its lead to Budweiser in a close battle. Then
Heineken entered the market as an import with a successful flanking attack,
maintaining its import lead by following through with strong advertising
budgets. In the 1970's many brewers introduced light beers as line
extensions.
Ries and Trout believe that the line extensions are unwise because the
extensions inadvertently flank a firm's own leading brand. This happened to
Miller High Life after Miller Lite was introduced. Miller Lite was successful,
but Miller High Life suffered as it lost its position in the mind of the
consumer as the working man's beer.

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 The “burger war”

McDonald's was the leader, and Burger King tried offensive maneuvers. The moves
that were unsuccessful were those that extended the product line and that copied
McDonald's. The campaigns that were successful differentiated Burger King from
McDonald's. For example, “Have it your way” attacked a weakness in McDonald's
consistent production line process that had the flip side of being inflexible. Even more
successful were the advertisements emphasizing the fact that Burger King's burgers
were flame-broiled while McDonald's were fried.
Wendy's successfully flanked McDonald's by targeting adults rather than children,
offering adult-size portions and launching the highly successful “Where's the beef?”
campaign.
Finally, White Castle was the low-end guerrilla who limited their geographic scope,
did not add a confusing array of other products, and maintained a high level of sales in
each establishment. White Castle observed the guerrilla principle of never acting like
the leader, and as a result was able to coexist peacefully.
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 The “computer war”

IBM became the market leader in the 1950's, and many other companies attempted to emulate
IBM, but IBM continued to hold a majority market share. In the 1960's Digital Equipment
Corporation launched a successful flanking attack by introducing the PDP-8 minicomputer,
winning the position of small computers. According to Ries and Trout, IBM should have blocked
this move by introducing their own minicomputer, but they failed to do so until 11 years later.
With DEC owning the minicomputer market, Ries and Trout argue that DEC should have been the
company to introduce the PC in the business market. DEC failed to do so, and IBM launched its PC
in 1981 with virtually no competition in the business market. IBM effectively flanked DEC with a
product in the small computer market, just as DEC had done to IBM 15 years earlier. Many
companies introduced their own PC's but IBM pursued the defensive strategy that a leader
should pursue by attacking itself, first with the improved PC-XT and then with the PC-AT. While
IBM owned the business PC market, Apple took the lead in home PC's. IBM unsuccessfully
attempted to attack Apple in the home computer market with the PCjr, illustrating that a
company's position is more important than its size.

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 AND FINALLY, THINK ABOUT THIS QUOTATION!

“The surest way to corrupt a young man [or

woman] is to teach him to esteem more highly
those who think alike than those who think
differently.” (Friedrich Nietzsche, German
Philosopher, 1844-1900).

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