CS Professional · Strategic Management and Corporate Finance

Competitive Positioning: formula sheet

Full chapter guide

Key formulas

Test for sustainable advantage (VRIO): Valuable + Rare + Costly to imitate + Organised to exploit = sustained advantage; If a resource is valuable but not rare, it gives only parity. Valuable and rare but easily copied gives a temporary advantage.
Two basic types of advantage: Cost advantage | Differentiation advantage; Combine each with a broad or narrow market scope to describe the positioning choice.
Positioning questions: Who (customer) + What (need) + Why us (advantage); Use this as a checklist when describing any firm's position.
Core idea of the model: Industry profit potential = f(entrants, buyers, suppliers, substitutes, rivalry); This is a framework, not a numerical formula. Stronger forces mean lower profit potential for the industry.
The five forces: 1. Threat of new entrants; 2. Bargaining power of buyers; 3. Bargaining power of suppliers; 4. Threat of substitutes; 5. Rivalry among existing competitors; Learn this list in order. Examiners often ask you to name and explain all five.
Barriers to entry: Economies of scale, capital requirement, product differentiation, switching costs, access to distribution, government policy, cost advantages independent of scale; High barriers reduce the threat of new entrants.
Conditions for strong buyers or suppliers: Few in number + large volume + easy switching + ability to integrate; The same logic applies to buyers and suppliers. For suppliers, add a unique or costly-to-replace input.
Two-by-two logic of generic strategies: Source of advantage (lower cost | uniqueness) × Scope (broad | narrow) = Cost leadership, Differentiation, Cost focus, Differentiation focus; Use this grid to place any case-study firm. Broad scope gives the first two; narrow scope gives the two focus strategies.
Differentiation viability rule: Price premium customers will pay > extra cost of the differentiating features; If the premium does not cover the added cost, differentiation destroys profit.
Cost leadership margin logic: Profit per unit = Price − Cost per unit; A cost leader can keep price at industry level and enjoy a wider margin, or cut price to win share.
Primary activities: Inbound logistics + Operations + Outbound logistics + Marketing and sales + Service; Directly create and deliver the product. Learn them in this order, which follows the flow of goods.
Support activities: Firm infrastructure + Human resource management + Technology development + Procurement; Support activities cut across all primary activities. Infrastructure covers general management, planning, finance, legal and compliance.
Margin: Margin = Total value created (what the buyer pays) − Total cost of all value activities; Advantage comes from a bigger margin than rivals, through lower cost, higher value, or both.
Prahalad and Hamel tests of a core competence: Core competence = access to many markets + significant customer benefit + difficult to imitate; All three tests should be met. Failing any one means it is a strength, not a core competence.
VRIO test: Valuable? → Rare? → Costly to imitate? → Organised to exploit?; Work in this order and stop at the first 'No'. Each stage gives a different competitive outcome.
VRIO outcomes: Not valuable = disadvantage; Valuable only = parity; Valuable + Rare = temporary advantage; Valuable + Rare + Costly to imitate (with organisation) = sustained advantage; Use these labels in your conclusion. Examiners look for the exact outcome.
Resource and capability link: Resources (assets) + Capabilities (ability to deploy them) → Competencies → Competitive advantage; Use this chain to show you understand how they differ.
Weighted score in Competitive Profile Matrix: Weighted score = Weight × Rating; Weights are assigned to critical success factors and must add up to 1.00. Ratings are usually 1 to 4 (1 = major weakness, 4 = major strength).
Total weighted score: Total = Σ (Weight × Rating) across all critical success factors; Compare totals across firms. The highest total marks the strongest firm on the chosen factors. With ratings 1 to 4, totals lie between 1.00 and 4.00.
Four-part competitor analysis framework: Future goals + Current strategy + Assumptions + Capabilities → Predicted response; Use this as the structure for any descriptive answer on profiling a rival.
Four stages of the industry life cycle: Introduction → Growth → Maturity → Decline; Some textbooks add a shake-out between growth and maturity. State the four stages and mention shake-out as an extra point if you wish.
Offensive strategy types: Frontal attack | Flanking | Encirclement | Bypass | Guerrilla | Pre-emptive; Learn at least three with a one-line meaning and an example. Use the names your study material gives if they differ.
Defensive strategy types: Block the challenger's paths | Signal retaliation | Reduce the attacker's incentive; Link each to a practical action such as matching prices, exclusive dealer contracts or filling product gaps.
Cooperative strategy forms: Alliance | Joint venture | Licensing | Franchising | Outsourcing | Consortium; Add one benefit and one risk for the form you pick.
Strategy by stage (memory line): Introduction: build awareness | Growth: capture share | Maturity: defend and cut cost | Decline: harvest, divest or niche; A guide, not a rule. Adjust to the firm's facts.

Quick revision

Competitive advantage means earning better returns than rivals, and keeping that lead over time.
Porter's Five Forces: threat of new entrants, bargaining power of buyers, bargaining power of suppliers, threat of substitutes, rivalry among existing competitors.
Strong forces reduce industry profitability; weak forces raise it.
Generic strategies: cost leadership, differentiation and focus.
Focus can be built on cost or on differentiation, aimed at a narrow segment.
A firm stuck in the middle with no clear strategy is likely to earn weak returns.
Value chain has primary activities and support activities; margin is value created minus cost of performing the activities.
Core competences are skills and knowledge that are valuable, hard to imitate and usable across products or markets.
The resource-based view looks at the firm's own resources and capabilities as the source of advantage.
Strategic groups are sets of firms in an industry following similar strategies.
Competitor analysis covers rivals' goals, strategies, strengths, weaknesses and likely moves.
Industry life cycle stages are introduction, growth, maturity and decline, and strategy changes with each.

Common mistakes

Treating any strength as a competitive advantage. Fix: Ask whether rivals have the same strength. If they do, it is only parity, not advantage.
Confusing positioning with advertising or promotion. Fix: Treat positioning as a strategic choice of customers, needs and value offered. Promotion only communicates it.
Treating the model as a firm-level analysis Fix: Say clearly that the model analyses the industry. Then link the result to the firm's position.
Confusing substitutes with competitors Fix: A competitor sells the same type of product. A substitute meets the same need in a different way, like online video calls replacing business travel.
Treating cost leadership as simply 'charging the lowest price'. Fix: Say cost leadership is about having the lowest cost. Price is a choice that follows from it, and a cost leader may price at par.
Saying differentiation means ignoring costs. Fix: Write that costs must still be controlled and the premium must exceed the extra cost of differentiating.
Treating support activities as a separate department list and ignoring how they serve primary activities. Fix: For each support activity, write one line on which primary activities it helps, such as procurement lowering inbound input cost.
Mixing up value chain and supply chain. Fix: Say the value chain studies activities inside one firm for advantage, while the supply chain is the network of firms moving goods.
Treating any strength or any product as a core competence. Fix: Apply all three tests. A product is an output. A competence is the skill behind many products.
Mixing up resources and capabilities. Fix: Say resources are what the firm has, and capabilities are what the firm can do with them.

Exam tips

Always link the advantage to a named source from the case, such as brand, technology or network.
Use the terms valuable, rare, hard to imitate when you comment on sustainability. Examiners look for this reasoning.
For short notes, give definition, types, sources and one example. Four short points score better than one long paragraph.
Do not mix this topic with a full discussion of generic strategies. Mention the link, then stay on advantage and position.
Close case answers with a clear conclusion in one line.
Case questions award marks for applying facts. Quote the fact from the case next to each force.
Always name all five forces, even if the question gives facts for only some. Say briefly that a force is low where the case is silent.
Use the words high, medium or low for each force and justify the rating in one line.