Competitive strategies

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The Five Generic CompetitiveThe Five Generic Competitive
StrategiesStrategies

2. Competitive Strategy
Deals exclusively with management’s
game plan for competing successfully and
securing a competitive advantage over rivals
Specific efforts to give customers superior value
– A good product at a lower price
– A superior product worth paying more for
– An attractive mix of price, features, quality,
service, and other appealing attributes

3. Competitive Strategies and Industry Positioning

4. Perils of “Stuck in the Middle” Strategy
Compromise strategies end up with a
middle-of-the-pack industry rankings
and provide for average performance
An average cost structure
Minimal product differentiation relative to rivals
An average image and reputation
Limited prospect of industry leadership
Compromise or middle-ground strategies
rarely produce sustainable competitive
advantage

5. Low Cost Provider Strategies
Powerful competitive approach
with price-sensitive buyers
Have lower costs than rivals—but not
necessarily the absolutely lowest possible cost
Must include features and services that buyers
consider essential
Must not be viewed by consumers as offering
little value even if priced lower than
competing products.

6. Translating a Low Cost Strategy Into Attractive
Profit PerformanceOption 1: Use
lower-cost edge to
under-price competitors
and increase market share
Option 2: Maintain present price, be
content with present market share, and
use lower-cost edge to earn a higher
profit margin on each unit sold

7. Approaches to Achieving Low Costs
1. Perform essential value
chain activities more cost-
effectively than rivals
2. Revamp the firm’s overall
value chain to eliminate or
bypass some cost-
producing activities
altogether

8. When a Low Cost Strategy Works Best
Price competition is vigorous
Product is standardized
There are few ways to achieve
differentiation
Buyers incur low switching costs
Buyers are large and have significant bargaining
power
Industry newcomers use introductory low
prices to attract buyers and build customer base

9. Hazards of a Low-Cost Strategy
Cutting price by an amount greater than size of
cost advantage
Low cost methods are easily imitated
Becoming too fixated on reducing costs and
ignoring
Buyer interest in additional features
Declining buyer sensitivity to price
Technological breakthroughs open up cost
reductions for rivals

10. Differentiation Strategies
Powerful competitive approach whenever
buyers’ needs and preferences are too
diverse to be fully satisfied by a standardized
product or service

11. Differentiation StrategiesIncorporate differentiating features that
cause buyers to prefer firm’s product
or service over brands of rivals
Not spending more to achieve
differentiation than the price
premium that customers are
willing to pay for all
the differentiating extras

12. Benefits of Successful
Differentiation
Successfully executed
differentiation strategies
allow a company to:
 Command a premium
price, and/or
 Increase unit sales,
and/or
 Gain buyer loyalty to its
brand

13. Types of Differentiation
Themes
Unique taste – Dr. Pepper
Multiple features – Microsoft Windows and Office
Wide selection – Amazon.com
Superior service – Ritz-Carlton
Spare parts availability – Caterpillar
Engineering design and performance – BMW
Prestige – Rolex
Product reliability – Johnson & Johnson
Quality manufacture – Toyota
Top-of-line image – Ralph Lauren, Starbucks, Chanel

14. Creating Value for Customers through
Differentiation
Incorporate product features/attributes
that lower buyer’s overall costs of using
product
Incorporate features/attributes that raise
the performance a buyer gets out of the
product
Incorporate features/attributes that
enhance buyer satisfaction in non-
economic or intangible ways
Exploit competencies and competitive
capabilities that rivals don’t have or can’t
match

15. Where to Find Opportunities to Differentiate
Supply chain activities
Product R&D and product design
activities
Production R&D and technology-
related activities
Manufacturing activities
Distribution-related activities
Marketing, sales, and customer service activities

16. Perceived Value and Signaling
The price premium commanded by a differentiation
strategy reflects actual value delivered and value
perceived by the buyer.
Buyers seldom pay for value that is
not perceived

17. Perceived Value and SignalingImportant to signal value
when:
Nature of differentiation is
subjective
When buyers are making first-
time purchases
When repurchase is infrequent
When buyers are
unsophisticated

18. Market Conditions Favoring a Differentiation
Strategy
There are many ways to differentiate a
product that have value and please customers
Buyer needs and uses are diverse
Few rivals are following a similar
differentiation approach
Technological change and
product innovation are fast-paced

19. Hazards of a Differentiation StrategyBuyers see little value in a product’s
unique attributes
Appealing product features are easily
copied by rivals
Overspending on efforts to differentiate

20. Hazards of a Differentiation StrategyOverdifferentiating such
that product
features exceed buyers’
needs
Charging a price premium
buyers perceive is too high
Failing to open up
meaningful gaps in
product or service attributes

21. Focused Low-Cost Strategy
 Reflects a concentration on a
narrow piece of the total market -
defined by geographic uniqueness
or special product attributes
 Avenues to achieving cost
advantage are the same as for low-
cost leadership—outmanage rivals
in keeping costs low and bypassing
or reducing nonessential activities

22. Focused Differentiation Strategy
 Keyed to offering
carefully designed
products or services
to appeal to the
unique preferences
and needs of a
narrow, well-defined group of
buyers

23. Market Conditions Making a Focused Strategy
Viable
The target niche is big enough to be profitable and
offers good growth potential
Industry leaders have chosen not to compete in the
niche
It is costly or difficult for multisegment competitors to
meet the specialized needs of niche buyers
Industry has many niches and segments
Few rivals are attempting to specialize in the niche

24. Hazards of a Focused Strategy
Competitors find effective ways to match
a focuser’s capabilities in serving niche
Niche buyers’ preferences shift towards product
attributes desired by majority of buyers
Segment becomes so attractive it becomes
crowded with rivals, causing segment profits to
be splintered

25. Successful Strategies Must Be Well-Matched to
Resources and Capabilities
Low-Cost Providers
Must have the resources and capabilities to
keep its costs below those of its competitors
Must have expertise to cost-effectively
manage value chain activities better than
rivals
Differentiators
Must have the resources and capabilities to
incorporate unique attributes that a broad
range of buyers will find appealing and worth
paying for

26. Successful Strategies Must Be Well-Matched to
Resources and Capabilities
Narrow Segment Focusers
Must have the capability to do an outstanding
job of satisfying the needs and expectations of
niche buyers