5

The Five Generic Chapter Title Competitive Strategies

15/e PPT
McGraw-Hill/Irwin

Screen graphics created by: Jana F. Kuzmicki, Ph.D. Troy University-Florida Region
2007 The McGraw-Hill Companies, Inc. All rights reserved.

Strategy and Competitive Advantage

Competitive

advantage exists when a firms strategy gives it an edge in

Attracting customers and Defending against competitive forces

Key to Gaining a Competitive Advantage

Convince

customers firms product / service offers superior value

A good product at a low price
A superior product worth paying more for A best-value product
5-2

Fig. 5.1: The Five Generic Competitive Strategies

5-3

Low-Cost Provider Strategies

Keys to Success
Make

achievement of meaningful lower costs than rivals the theme of firms strategy
features and services in product offering that buyers consider essential approaches to achieve a cost advantage in ways difficult for rivals to copy or match
Low-cost leadership means low overall costs, not just low manufacturing or production costs!
5-4

Include

Find

Approaches to Securing a Cost Advantage

Approach 1
Do a better job than rivals of performing value chain activities efficiently and cost effectively

Approach 2
Revamp value chain to bypass cost-producing activities that add little value from the buyers perspective
Control costs!
By-pass costs!

5-5

Keys to Success in Achieving Low-Cost Leadership

Scrutinize each cost-creating activity, identifying cost drivers

Use knowledge about cost drivers to manage costs of each activity down year after year
Find ways to restructure value chain to eliminate nonessential work steps and low-value activities Work diligently to create cost-conscious corporate cultures

Feature broad employee participation in continuous costimprovement efforts and limited perks for executives Strive to operate with exceptionally small corporate staffs

Aggressively pursue investments in resources and capabilities that promise to drive costs out of the business
5-6

Characteristics of a Low-Cost Provider

Cost

conscious corporate culture

Employee
Ongoing Intensive

participation in cost-control efforts

efforts to benchmark costs scrutiny of budget requests promoting continuous cost improvement

Programs

Successful low-cost producers champion frugality but wisely and aggressively invest in cost-saving improvements !
5-7

When Does a Low-Cost Strategy Work Best?

Price

competition is vigorous Product is standardized or readily available from many suppliers There are few ways to achieve differentiation that have value to buyers Most buyers use product in same ways 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
5-8

Pitfalls of Low-Cost Strategies

Being

overly aggressive in cutting price

Low

cost methods are easily imitated by rivals

Becoming

too fixated on reducing costs and ignoring

Buyer interest in additional features Declining buyer sensitivity to price

Changes in how the product is used

Technological

breakthroughs open up cost reductions for rivals

5-9

Differentiation Strategies
Objective
Incorporate

differentiating features that cause buyers to prefer firms product or service over brands of rivals Keys to Success

Find

ways to differentiate that create value for buyers and are not easily matched or cheaply copied by rivals spending more to achieve differentiation than the price premium that can be charged
5-10

Not

Benefits of Successful Differentiation A product / service with unique, appealing attributes allows a firm to

Command a premium price and/or

Increase unit sales and/or Build brand loyalty = Competitive Advantage
5-11

Which hat is unique?

Types of Differentiation Themes

Unique taste Dr. Pepper Multiple features Microsoft Windows and Office Wide selection and one-stop shopping Home Depot, Amazon.com Superior service -- FedEx, Ritz-Carlton Spare parts availability Caterpillar Engineering design and performance Mercedes, BMW Prestige Rolex Product reliability Johnson & Johnson Quality manufacture Karastan, Michelin, Toyota Technological leadership 3M Corporation Top-of-line image Ralph Lauren, Starbucks, Chanel

5-12

Where to Find Differentiation Opportunities in the Value Chain

Purchasing

and procurement activities process / technology-related activities / production activities

Product

R&D and product design activities

Production

Manufacturing

Distribution-related
Marketing,

activities

sales, and customer service activities

Internally Performed Activities, Costs, & Margins Activities, Costs, & Margins of Forward Channel Allies & Strategic Partners Buyer/User Value Chains

Activities, Costs, & Margins of Suppliers

5-13

How to Achieve a Differentiation-Based Advantage

Approach 1 Incorporate product features/attributes that lower buyers overall costs of using product Approach 2 Incorporate features/attributes that raise the performance a buyer gets out of the product Approach 3 Incorporate features/attributes that enhance buyer satisfaction in non-economic or intangible ways Approach 4 Compete on the basis of superior capabilities
5-14

When Does a Differentiation Strategy Work Best?

There

are many ways to differentiate a product that have value and please customers needs and uses are diverse

Buyer Few

rivals are following a similar differentiation approach change and product innovation are fast-paced
5-15

Technological

Pitfalls of Differentiation Strategies

Appealing product features are easily copied by rivals

Buyers see little value in unique attributes of product

Overspending on efforts to differentiate the product offering, thus eroding profitability Over-differentiating such that product features exceed buyers needs Charging a price premium buyers perceive is too high Not striving to open up meaningful gaps in quality, service, or performance features vis--vis rivals products
5-16

Best-Cost Provider Strategies

Combine

a strategic emphasis on low-cost with a strategic emphasis on differentiation

Make an upscale product at a lower cost Give customers more value for the money

Objectives Deliver superior value by meeting or exceeding buyer expectations on product attributes and beating their price expectations
Be

the low-cost provider of a product with good-toexcellent product attributes, then use cost advantage to underprice comparable brands
5-17

When Does a Best-Cost Provider Strategy Work Best?

Where

buyer diversity makes product differentiation the norm and

Where

many buyers are also sensitive to price and value

5-18

Risk of a Best-Cost Provider Strategy

A

best-cost provider may get squeezed between strategies of firms using low-cost and differentiation strategies

Low-cost leaders may be able to siphon customers away with a lower price

High-end differentiators may be able to steal customers away with better product attributes
5-19

Focus / Niche Strategies

Involve

concentrated attention on a narrow piece of the total market

Objective
Serve niche buyers better than rivals Keys to Success
Choose

a market niche where buyers have distinctive preferences, special requirements, or unique needs unique capabilities to serve needs of target buyer segment
5-20

Develop

Approaches to Defining a Market Niche

Geographic

uniqueness

Specialized

requirements in using product/service

Special

product attributes appealing only to niche buyers

5-21

What Makes a Niche Attractive for Focusing?

Big

enough to be profitable and offers good growth potential crucial to success of industry leaders or difficult for multi-segment competitors to meet specialized needs of niche members has resources and capabilities to effectively serve an attractive niche

Not

Costly

Focuser

Few

other rivals are specializing in same niche

Focuser

can defend against challengers via superior ability to serve niche members
5-22

Risks of a Focus Strategy

Competitors

find effective ways to match a focusers capabilities in serving niche buyers preferences shift towards product attributes desired by majority of buyers niche becomes part of overall market becomes so attractive it becomes crowded with rivals, causing segment profits to be splintered
5-23

Niche

Segment

Deciding Which Generic Competitive Strategy to Use

Each positions a company differently in its market and competitive environment Each establishes a central theme for how a company will endeavor to outcompete rivals Each creates some boundaries for maneuvering as market circumstances unfold Each points to different ways of experimenting with the basics of the strategy Each entails differences in product line, production emphasis, marketing emphasis, and means to sustain the strategy
The big risk Selecting a stuck in the middle strategy! This rarely produces a sustainable competitive advantage or a distinctive competitive position!
5-24