4. Competitive Strategy
Competitive Strategy is a long-term action plan for how a firm
will compete after evaluating its strengths and weaknesses.
Competitive Strategy is defined as a "framework for making
decisions that create results in a competitive market.“
The competitive theory was proposed by Michael Porter in
1980
5. Low-Cost Provider Strategy
Effective Low-Cost Approaches:
Pursue cost-savings that are difficult imitate.
Avoid reducing product quality to unacceptable levels.
Competitive Advantages and Risks:
Greater total profits and increased market share gained
from underpricing competitors.
Larger profit margins when selling products at prices
comparable to and competitive with rivals.
Low pricing does not attract enough new buyers.
Rival’s retaliatory price cutting set off a price war.
6. Pitfalls of a Low-Cost Provider Strategy
Lowering selling prices results in gains that are smaller than the
increases in total costs, reducing profits rather than raising them.
Relying on a cost advantage that is not sustainable because
rivals can copy or otherwise overcome it.
Becoming too fixated on cost reduction such that the firm’s
offering is too features-poor to generate sufficient buyer appeal.
7. Broad Differentiation Strategy
Effective Differentiation Approaches:
Carefully study buyer needs and behaviors, values and
willingness to pay a unique product or service.
Incorporate features that both appeal to buyers and create
a sustainably distinctive product offering.
Use higher prices to recoup differentiation costs.
Advantages of Differentiation:
Premium prices for products
Increased unit sales
Brand loyalty
8. Pitfalls of a Broad Differentiation
Strategy
Relying on product attributes easily copied by rivals.
Introducing product attributes that do not evoke an
enthusiastic buyer response.
Eroding profitability by overspending on efforts to
differentiate the firm’s product offering.
Not opening up meaningful gaps in quality, service, or
performance features vis-à-vis the products of rivals.
Adding frills and features such that the product exceeds the
needs and uses of most buyers.
Charging too high a price premium.
10. Companies use Focus strategies to concentrate on a particular
market, by understanding the dynamics of that market and
the unique needs of customers within it.
This helps the companies to develop uniquely low cost or
well-specified products for the market.
They tend to build strong brand loyalty amongst their
customers.
11. Example: Tata Starbucks
• Tata Starbucks Ltd is a 50:50 joint venture
company.
• It was first launched on October 2012 in
India
• Tata Starbucks is targeted at urban
youths, office goers and families.
• Localized menu which are loved by the
Indians.
13. Focused Low Cost Strategy
It aims at securing competitive advantage by selling products at lower
prices than those of its competitors.
It concentrate on selling products at a low cost to a narrow target
segment.
The main objective is to serve niche buyers better than the rivals.
The features of the products offered are tailored according to the need
and taste of the niche buyers.
14. Example:
Google Nexus 5
• Offers advanced features at a price
much lower than its competitors.
• Specially targeted at geeks and
software developers who want to
customize the device to a great
extent.
• Value for Money (VFM) device.
15. Focused Differentiation Strategy
Pursuing strategic differentiation within a focused market.
In the focused differentiation strategy, a company aims to differentiate its
products within a small number of target market segments.
Focused differentiation strategy is most effective when consumers have
different preferences or requirements and when rival firms are not
attempting to specialize in the same target segment.
16. Example: Apple iPhone
• Positioned itself as a status symbol
• Targeted at urban youths and office
goers in developed countries.
• Finger Print Scanner.
• The only smartphone in the world to
run on the iOS platform.
17. Best cost Provider: Core concept
Best cost provider strategies are a hybrid
of low cost provider and differentiation
strategies that aim at providing desired
quality/features/performance/service
attributes while beating rivals on price
18. Best-Cost Provider Strategy
Striving to give customers more value for the money by combining an
emphasis on low cost with an emphasis on upscale differentiation
Combines low-cost and differentiation
The objective is to create superior value by meeting or beating customer
expectation on product attributes and beating their price expectations
Keys to success:
Match close competitors on key product attributes and beat them on cost
Expertise at incorporating upscale product attributes at a lower cost than
competitors
Contain costs by providing customers a better product
19. Advantages of Best-Cost Provider
Strategy
Competitive advantage comes from matching close
competitors on key product attributes and beating them on
price
Most successful best-cost providers have skills to
simultaneously manage costs down and product quality up
Best-cost provider can often beat an overall low-cost strategy
and a broad differentiation strategy where
Customer diversity makes product differentiation the norm
Many customers are price and value sensitive