Administration approved a drug called Victrelis that Merck had developed to treat hepatitis C. Merck and Roche

Exercises

1. Divide your class into four or eight groups, depending on the size of the class. Each group should select a different industry. Find examples of each generic business-level strategy for your industry. Discuss which strategy seems to be the most successful in your selected industry.

2. This chapter discussed Target and other retailers. If you were assigned to turn around a struggling retailer such as Kmart, what actions would you take to revive the company?

Chapter 6: Supporting the Business-Level Strategy:

Competitive and Cooperative Moves

Chapter 6: Supporting the Business-Level Strategy: Competitive and Cooperative Moves 6.1 Supporting the Business-Level Strategy: Competitive and Cooperative Moves 6.2 Making Competitive Moves 6.3 Responding to Competitors’ Moves 6.4 Making Cooperative Moves 6.5 Conclusion

6.1 Supporting the Business-Level Strategy: Competitive and Cooperative

Moves

Learning Objectives

After reading this chapter, you should be able to understand and articulate answers to the following questions:

1. What different competitive moves are commonly used by firms?

2. When and how do firms respond to the competitive actions taken by their rivals?

3. What moves can firms make to cooperate with other firms and create mutual benefits?

Can Merck Stay Healthy?

The financial stakes are high for Merck and its rivals in the pharmaceutical industry.

Wikimedia Commons – public domain.

On June 7, 2011, pharmaceutical giant Merck & Company Inc. announced the formation of a strategic alliance with Roche Holding

AG, a smaller pharmaceutical firm that is known for excellence in medical testing. The firms planned to work together to create tests

that could identify cancer patients who might benefit from cancer drugs that Merck had under development (Stynes, 2011).

This was the second alliance formed between the companies in less than a month. On May 16, 2011, the US Food and Drug

Administration approved a drug called Victrelis that Merck had developed to treat hepatitis C. Merck and Roche agreed to promote

Victrelis together. This surprised industry experts because Merck and Roche had offered competing treatments for hepatitis C in the

past. The Merck/Roche alliance was expected to help Victrelis compete for market share with a new treatment called Incivek that was

developed by a team of two other pharmaceutical firms: Vertex and Johnson & Johnson.

Experts predicted that Victrelis’s wholesale price of $1,100 for a week’s supply could create $1 billion of annual revenue. This

could be an important financial boost to Merck, although the company was already enormous. Merck’s total of $46 billion in sales in

2010 included approximately $5.0 billion in revenues from asthma treatment Singulair, $3.3 billion for two closely related diabetes

drugs, $2.1 billion for two closely related blood pressure drugs, and $1.1 billion for an HIV/AIDS treatment.

Despite these impressive numbers, concerns about Merck had reduced the price of the firm’s stock from nearly $60 per share at

the start of 2008 to about $36 per share by June 2011. A big challenge for Merck is that once the patent on a drug expires, its profits

related to that drug plummet because generic drugmakers can start selling the drug. The patent on Singulair is set to expire in the

summer of 2012, for example, and a sharp decline in the massive revenues that Singulair brings into Merck seemed inevitable.1

A major step in the growth of Merck was the 2009 acquisition of drugmaker Schering-Plough. By 2011, Merck ranked fifty-third on

the Fortune 500 list of America’s largest companies. Rivals Pfizer (thirty-first) and Johnson & Johnson (fortieth) still remained much

bigger than Merck, however. Important questions also loomed large. Would the competitive and cooperative moves made by Merck’s

executives keep the firm healthy? Or would expiring patents, fearsome rivals, and other challenges undermine Merck’s vitality?

Friedrich Jacob Merck had no idea that he was setting the stage for such immense stakes when he took the first steps toward the

creation of Merck. He purchased a humble pharmacy in Darmstadt, Germany, in 1688. In 1827, the venture moved into the creation

of drugs when Heinrich Emanuel Merck, a descendant of Friedrich, created a factory in Darmstadt in 1827. The modern version

of Merck was incorporated in 1891. More than three hundred years after its beginnings, Merck now has approximately ninety-four

thousand employees.

Merck’s origins can be traced back more than three centuries to Friedrich Jacob Merck’s purchase of this pharmacy in 1688.

Wikimedia Commons – public domain.

For executives leading firms such as Merck, selecting a generic strategy is a key aspect of business-level strategy, but other

choices are very important too. In their ongoing battle to make their firms more successful, executives must make decisions about

what competitive moves to make, how to respond to rivals’ competitive moves, and what cooperative moves to make. This chapter

6.1 Supporting the Business-Level Strategy: Competitive and Cooperative Moves 180

 

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