Chapter 5

The Five Generic

Competitive
Strategies

McGraw-Hill/Irwin Copyright ©2010 The McGraw-Hill Companies, All Rights Reserved.

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

5-2
Competitive Strategies and Industry
Positioning

5-3
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

5-4
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

5-5
Differentiation Strategies

 Powerful competitive approach

whenever buyers’ needs and
preferences are too diverse to be
fully satisfied by a standardized
product or service

5-6
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

5-7
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

5-8
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

5-9
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

5-10
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

5-11
Best Cost Provider Strategies

 A hybrid of low cost provider and

differentiation strategies
 Giving customers more value for
money by satisfying buyer
expectations on key
quality/features/performance/service
attributes and beat customer
expectations on price
 Powerful competitive approach with
value-conscious buyers
5-12
Employing Best Cost Strategies

Best Cost Strategies are contingent on:

 A superior value chain configuration that
eliminates or minimizes activities that do not
add value

 Unmatched efficiency in managing essential

value chain activities

 Resource strengths and

core competencies that
allow differentiating attributes
to be incorporated at a low cost.

5-13
Danger of Unsound Best Cost
Provider Strategy

 Lack of requisite core competencies,

efficiencies, and resources allowing
the addition of differentiating features
without significantly increasing costs
could result in high prices relative to
low-cost providers and poor product
attributes relative to high-end
differentiators.

5-14
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

5-15