SM

Chapter # 5….. Part 1

The Five Generic Competitive

Strategies
The Five Generic Competitive Strategies
• Competitive strategy involves the specifics of management’s game
plan for competing successfully and securing a competitive advantage
over rivals in the marketplace
Type of Competitive Advantage
• 5 Generic Competitive Strategies are: Being Pursued
Lower Cost Differentiation
• Overall low-cost provider strategy
OVERALL BROAD
• Overall differentiation strategy Mark LOW-COST DIFFERENTIATIO
• Focused low-cost strategy et PROVIDER
Targe A Broad STRATEGY BEST-COST N
• Focused differentiation strategy t Cross-Section PROVIDER STRATEGY
STRATEGY FOCUSED
• Best-cost/hybrid provider strategy of Buyers FOCUSED
LOW-COST DIFFERENTIATIO
A Narrow STRATEGY N
Buyer Segment STRATEGY
 Overall Low-Cost Provider Strategy
• The Base of this Strategy is to achieve the competitive advantage by
ensuring lower overall costs than competitors’
• Success in achieving a low-cost edge over rivals comes from
eliminating and/or curbing “nonessential” activities and/or
outmanaging rivals in performing essential activities
• The Two Major Avenues for Achieving Low-Cost Leadership
1. Performing essential value chain activities more cost-effectively
than rivals.
2. Revamping the firm’s overall value chain to eliminate or bypass
some cost-producing activities
Cost-Efficient Management of Value
Chain Activities
Overall Low-Cost Provider Strategy
 Overall Low-Cost Provider Strategy
Revamping the Value Chain
• Dramatic cost advantages can often emerge from reengineering the
company’s value chain in ways that eliminate costly work steps and
bypass certain cost-producing value chain activities.

• Selling directly to consumers and cutting out the activities and costs
of distributors and dealers
• Streamlining operations by eliminating low-value-added or
unnecessary work steps and activities.
• Improving supply chain efficiency to reduce materials handling and
shipping costs.
 Overall Low-Cost Provider Strategy
When a Low-Cost Provider Strategy Works Best
• Price competition among rival sellers is especially vigorous
• The products of rival sellers are essentially identical and are readily
available from several sellers
• There are few ways to achieve product differentiation that have
value to buyers
• Buyers incur low costs in switching their purchases from one seller to
another.
• The majority of industry sales are made to a few, large-volume
buyers
• Industry newcomers use introductory low prices to attract buyers
and build a customer base
 Overall Low-Cost Provider Strategy
Pitfalls to Avoid in Pursuing a Low-Cost Provider Strategy
• Getting carried away with overly aggressive price cutting and ending up
with lower, rather than higher, profitability
• Relying on an approach to reduce costs that can be easily copied by rivals
• Becoming too fixated on cost reduction
• Increase in the cost of the inputs on which the advantage is based
• Obsolescence of the basis of cost advantage
• Too much focus on one or a few value-chain activities
• Reduced flexibility
 Broad Differentiation Strategies
• The essence of a broad differentiation strategy is to offer unique
product or service attributes that a wide range of buyers find appealing
and worth paying for.
• Successful differentiation allows a firm to:
• Command a premium price
• Increase unit sales (because additional buyers are won over by
the differentiating features), and/or
• Gain buyer loyalty to its brand (because some buyers are strongly
attracted to the differentiating features and bond with the
company and its products)
 Broad Differentiation Strategies
Approaches to Differentiation
• Companies can pursue differentiation from many angles:
 a unique taste
 multiple features
 wide selection and one-stop shopping
 superior service
 spare parts availability
 engineering design and performance
 product reliability
 quality manufacturing
 technological leadership
 a full range of services
 Broad Differentiation Strategies
• Managing the Value Chain in Ways That Enhance Differentiation
 Broad Differentiation Strategies

• Revamping the Value Chain System to Increase Differentiation

• Coordinating with channel allies to enhance customer value

• Coordinating with suppliers to better address customer needs
 Broad Differentiation Strategies
• Delivering Superior Value via a Differentiation Strategy
• Differentiation strategies depend on meeting customer needs in unique
ways or creating new needs through activities such as innovation or
persuasive advertising. The objective is to offer customers something
that rivals.
• There are four basic routes to achieving this aim:
1. Include product attributes and user features that lower the buyer’s
costs
2. Incorporate tangible features that improve product performance
3. Incorporate intangible features that enhance buyer satisfaction in
noneconomic ways
4. Signal the value of the company’s product offering to buyers
 Broad Differentiation Strategies
When a Differentiation Strategy Works Best

• Buyer needs and uses of the product are diverse

• There are many ways to differentiate the product or service that have
value to buyers
• Few rival firms are following a similar differentiation approach.
• Technological change is fast-paced and competition revolves around
rapidly evolving product features
 Broad Differentiation Strategies
Pitfalls to Avoid in Pursuing a Differentiation Strategy
• A differentiation strategy keyed to product or service attributes that are
easily and quickly copied is always suspect
• Differentiation strategies can also falter when buyers see little value in the
unique attributes of a company’s product
• Overspending on efforts to differentiate is a strategy flaw that can erode
profitability
• Failing to open up meaningful gaps in quality or service or performance
features vis- à-vis the products of rivals
• Over-differentiating so that product quality or service levels exceed buyers’
needs
• Trying to charge too high a price premium