The Five Generic Competitive Strategies

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The Five Generic Competitive Strategies
Screen graphics created by Jana F. Kuzmicki,
Ph.D. Troy University-Florida Region
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Fig. 5.1 The Five Generic Competitive Strategies
BROAD
NARROW
Focus on value to customer
Focus on VALUE CHAIN
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Low cost providers Southwest Airlines

• Southwest Airlines has reconfigured the
  traditional value chain of commercial airlines to
  lower costs.
• It has mastered fast turnarounds at the gates(
  about 25 minutes versus 45 minutes for rivals).
  It increases the yield.
• It does not offer in-flight meals, assigned
  seating, baggage transfer to connecting flights,
  or first-class seating and service, thereby
  eliminating all these cost-producing activities.
• It has a fast, user-friendly online reservation
  system that facilitates e-ticketing and reduces
  staffing requirements at telephone reservation
  centers and airport counters. Its use of
  automated check-in equipment reduces staffing
  requirements for terminal check-in.

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Approaches to Securing a Cost Advantage
Approach 1

• Do a better job than rivals ofperforming value
  chain activitiesefficiently and cost effectively
• Revamp value chain to bypasscost-producing
  activities that add littlevalue from the buyers
  perspective

Approach 2
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When Does a Low-CostStrategy Work Best?

• Price competition is vigorous
• Product is standardized or readily availablefrom
  many suppliers
• There are few ways to achievedifferentiation
  that have value to buyers
• Most buyers use product in same ways
• Buyers incur low switching costs
• Buyers are large and havesignificant bargaining
  power
• Industry newcomers use introductory low prices to
  attract buyers and build customer base

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How can you achieve profitability when your
strategy is focused on lowering costs?

• ________________________
• ________________________
• _________________________
• _________________________
• _________________________

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Differentiation strategy
Objective

• Improve perceived value by customers by
  incorporating differentiating features that cause
  buyers to prefer firms product or service over
  brands of rivals.
• Examples
• 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 Michelin, Toyota
• Technological leadership 3M Corporation
• Top-of-line image Ralph Lauren, Starbucks,
  Chanel

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Differentiation Strategies
Keys to Success

• Find ways to differentiate that create value for
  buyers and are not easily matched or cheaply
  copied by rivals
• Not spending more to achieve differentiationthan
  the price premium that can be charged

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Where to Find DifferentiationOpportunities
in the Value Chain

• Purchasing and procurement activities
• Product RD and product design activities
• Production process / technology-related
  activities
• Manufacturing / production activities
• Distribution-related activities
• Marketing, sales, and customer service activities

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When Does a DifferentiationStrategy Work
Best?

• There are many ways to differentiate a
  productthat have value and please customers
• Buyer needs and uses are diverse
• Few rivals are following a similardifferentiation
  approach
• Technological change andproduct innovation are
  fast-paced

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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 productfeatures
  exceed buyers needs
• Charging a price premiumbuyers perceive is too
  high
• Not striving to open up meaningful gaps in
  quality, service, or performance features
  vis-à-vis rivals products

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How can you achieve profitability when your
strategy is focused on differentiation?

• ________________________
• ________________________
• _________________________
• _________________________
• _________________________

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Compare low cost and differentiation What is
best in capsim
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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
• 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-to-excellent product attributes, then use
  cost advantage to underprice comparable brands

Objectives
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Competitive Strength of a Best-Cost
Provider Strategy

• A best-cost providers competitive advantage is
  based on its capability to include upscale
  attributes at a lower cost than rivals
  comparable products
• To achieve competitive advantage, a company must
  be able to
• Incorporate attractive features at a lower cost
  than rivals
• Manufacture a good-to-excellent quality product
  at a lower cost than rivals
• Develop a product that delivers good-to-excellent
  performance at a lower cost than rivals
• Provide attractive customerservice at a lower
  cost than rivals

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When Does a Best-CostProvider Strategy Work
Best?

• Where buyer diversity makesproduct
  differentiation the norm and
• Where many buyers are alsosensitive to price and
  value

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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 siphoncustomers
  away with a lower price
• High-end differentiators may be able tosteal
  customers away with better product attributes

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Focus / Niche Strategies

• Involve concentrated attention on a narrow piece
  of the total market
• Serve niche buyers better than rivals
• Choose a market niche where buyershave
  distinctive preferences, specialrequirements, or
  unique needs
• Develop unique capabilities to serveneeds of
  target buyer segment

Objective
Keys to Success
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Focus/Niche strategy

• Animal Planet and History Channel
• Cable TV
• Google
• Internet search engines
• Porsche
• Sports cars
• Cannondale
• Top-of-the line mountain bikes
• Enterprise Rent-a-Car
• Provides rental cars to repair garage customers
• Bandag
• Specialist in truck tire recapping

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Focus / Niche Strategiesand Competitive
Advantage
Approach 1

• Achieve lower costs than rivals inserving a
  well-defined buyer segment
• Focused low-cost strategy

• Offer a product appealing to uniquepreferences
  of a well-defined buyer segment
• Focused differentiation strategy

Approach 2
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What Makes a NicheAttractive for Focusing?

• Big enough to be profitable and offers good
  growth potential
• Not crucial to success of industry leaders
• Costly or difficult for multi-segment
  competitorsto meet specialized needs of niche
  members
• Focuser has resources and capabilitiesto
  effectively serve an attractive niche
• Few other rivals are specializing in same niche
• Focuser can defend against challengers via
  superior ability to serve niche members

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Risks of a Focus Strategy

• Competitors find effective ways to matcha
  focusers capabilities in serving niche
• Niche buyers preferences shift towards product
  attributes desired by majority of buyers
  nichebecomes part of overall market
• Segment becomes so attractive it becomes crowded
  with rivals, causing segment profits to be
  splintered

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Deciding Which GenericCompetitive Strategy
to Use
The big risk Selecting a stuck in the middle
strategy! This rarely produces a sustainable
competitiveadvantage or a distinctive
competitive position!
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Fill in the boxes

• The company aims at providing a product/service
  that appeals to the average customer
• The company aims at providing multiple different
  products/service which appeal different market
  segments
• The company aims at providing a product/service
  that appeals to a niche