Chapter V

THE FIVE GENERIC COMPETITIVE STRATEGIES

 

 Five Approaches

bullet Low Cost
bullet Broad Differentiation
bullet Focused Low Cost
bullet Focused Differentiation
bullet Best Cost

 

I. Low Cost Provider Strategies

bullet Low cost relative to competition
bullet To achieve a cost advantage, a firm's cumulative costs across the value chain must be lower than their rivals 
bullet Control cost drivers through:
bullet Economies of scale
bullet Learning/experience curve effects
bullet Controlling key resource inputs
bullet Nonunion labor
bullet Bargaining power
bullet Locational variables
bullet Supply chain management experience
bullet Assuring linked value chain
bullet Activities are performed in a cooperative/coordinated fashion
bullet Sharing opportunities with other organizational units
bullet Integrating forward/backward
bullet Becoming a first mover
bullet Maintaining high rates of capacity utilization
bullet Making good managerial decisions
bullet Revamping the value chain
bullet Keys to success
bullet Explore all avenues for reducing costs
bullet Must have low cost culture
bullet When low cost strategy works best:
bullet Price competition is vigorous
bullet Product is commodity
bullet Few ways to achieve differentiation
bullet Buyers use product in similar way
bullet Buyers can bargain prices down
bullet Pitfalls of low cost strategy
bullet Lower profitability
bullet Competitors may easily copy product innovations, etc.
bullet Frills free product may not generate enough customers

 

II) Differentiation Strategies

bullet Must study buyer needs!!
bullet Differentiation can allow a company to command a higher price
bullet Can gain buyer loyalty
bullet Types of differentiation themes
bullet Taste/features/service/guarantees, etc.
bullet Must be hard/expensive for rivals to duplicate efforts
bullet Where along value chain, should one differentiate?
bullet Purchasing activities
bullet R&D activities
bullet Technology activities
bullet Manufacturing activities
bullet Outbound activities
bullet Marketing/sales/customer service activities
bullet Achieving differentiation
bullet Lower cost of using product
bullet Include features that raise performance (See Capsule 21, page 165)
bullet Enhance buyer satisfaction in non economic ways
bullet Compete on capabilities that rivals do not have
bullet Trick is to keep costs of achieving differentiation below price premium can demand
bullet What makes differentiation strategies attractive?
bullet Erects loyalty barriers
bullet Lessens bargaining power
bullet Helps fend off substitute products
bullet Works best where:
bullet Many ways to differentiate product
bullet Buyers needs are diverse
bullet Few rival firms pursing differentiation
bullet Technology change is fast paced
bullet Pitfalls of differentiation Strategy
bullet Products/services do not enhance buyers' well being
bullet Price becomes too high
bullet Service level exceeds buyers needs
bullet Fail to identify what buyers consider value

 

III.  Best Cost Provider Strategies

bullet Combines low cost with differentiation
bullet Provides more value for the money
bullet Risk:  May get squeezed between strategies of firms using low cost and differentiation strategies

 

IV. Focused or Market Niche Strategy

bullet Key is to do a better job by focusing on market niche
bullet When is it attractive?
bullet Niche is large enough to be profitable
bullet Niche has growth potential
bullet Niche is not crucial to success of major competitors
bullet Can serve niche effectively
bullet Can defend niche market against challengers
bullet When does focus strategy work best
bullet Market has specialized needs and difficult for others to meet them
bullet No other rivals in the niche market
bullet No resources to go after the "larger market"
bullet Many niches exist
bullet Risk of focused strategy
bullet Competition may match efforts
bullet Needs may shift
bullet Competition inundates market

Note:  See Fig. 5.1, page 137 for a tabular summary.

Next Steps:  Please review the PowerPoint Overview slides (27-53) for this chapter.  Then proceed to the Discussion Area.

 
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