Today, we're focused on how to determine the competitive position of a firm within an industry or a market segment. And remember when it comes to business strategy, this is one of the key questions. How to understand affirms particular competitive position within an industry or market segment with respect to all of the other competitors that are in there. So let's start with an illustration if we think about an automobile manufacturer like Hyundai. Years ago and Hyundai entered the automobile market and specifically the US automobile market, they entered a sort of a low cost provider of a fuel efficient vehicles. And that was sort of their market position in the early days. Now, over time, Hyundai's market position sort of evolved to the point that they're offering a wider range of models and some luxury models and that sort of thing. So again, what we want to try to understand is, is how does a company like Hyundai make moves like that? And what are the implications of being in a particular competitive position versus another competitive position? And therefore, how would that influence whether or not a firm wants to make a move from one position to another. So to go back to a real basic question, when we think about the key challenge for the business strategist, we're trying to focus on this thing, that strategy is all about. How to find that valuable competitive position and remember this lies at the intersection of the capabilities that affirm has. What it's able to do well and distinctively well, and also what those market opportunities are not also has to intersect with the values and the mission and the purpose of the firm. And where all those things come together, that is the prime opportunity for a valuable competitive position. So let me introduce the idea to help us understand this a little better of generic competitive positions. Here's an idea from Michael Porter from Harvard Business School. And essentially this allows us to think about four different ideal types of businesses in a particular industry or market segment. And they're going to vary based on a couple of criteria, so on the horizontal axis we've got the source of the firm's competitive advantage. So we're going to talk about that for a bit on the vertical access. We have sort of the extent to which the competitive scope is more broader, more narrow within that firms industry or market segment, so let me talk about each of those in turn. First of all, when we think about the source of competitive advantage, we might think about it this way. If we, if we first consider sort of an average firm in an industry, we might think of this as the marginal firm in the industry. And let's just say they offer a product or service that's worth $6 and the cost of producing that product will say it's a product is $5 and that means the profit or rent that can come back to the firm is $1. So if that's the average sort of a source of competitive advantage for firms in that industry, we might think of a couple of different ways that might vary. For example, there might be a firm in that industry, if we look at the middle graph, that's more of a low cost firm. So let's say they offer the same product or service at that $6 price point, so the same price to the consumer, the buyer. But if that firm has a lower cost structure, then they're able to realize more profit on each unit. In this case, the stylized case, they'll get $2 of profit compared to the average firms, $1 of profit, right? So same price to the consumer, but because the cost structure is a lower cost structure, the low cost firm is able to realize a little bit more competitive advantage, right? So that's one way we might think about competitive advantage. On the other hand, think about this closest graph to me about a differentiator firm. So in the same industry, let's say that a firm has a differentiated product that they're able to actually charge more money for the consumer of the buyer. So maybe the willingness to pay is higher here. In this case it would be $8 and a lot of times that's going to be associated with a higher cost structure. But again, the differentiator is also in a superior competitive position as compared to kind of the marginal or the average firm in the industry. Because they're able to realize double the amount of profits, but they go about it differently than the low cost firm. So we think of that as being the horizontal axis, going back to this idea of generic strategies. What about the vertical access? The vertical axis has to do with what we refer to as competitive scope. And this is essentially the extent to which affirm targets multiple product markets, segments within an industry. In other words, how broadly does a firm offer different product lines or different kinds of services within an industry? Is it very narrow or is it or is it broader? And we might think of different ways that that could vary, an easy way to think about this as geographic markets. So if a firm operates in a broader set of geographic markets, we would think of them as having a broader competitive scope versus just one geographic location, right? They can also segment the types of services or products they offer based on consumer or buyer preferences, we know that buyer preferences can differ. And so firms might offer a broader scope of products or services in order to cater to each of those individual kinds of buyers. And therefore the products and services will vary based on the characteristics of the product line. So if we think about again those two axes to help us understand these generic competitive positions. This helps us sort of sort different types of firms into, essentially for ideal types. Now, of course, the world is rarely exactly this simple, right? So this is a little bit stylized and it just helps us understand sort of extremes and what the extreme positions would be. But this is helpful for us to basically understand the dynamics of an industry and the positioning of a firm relative to its competition.
