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chapter5 The Five Generic Competitive Strategies



What Is Competitive Strategy"?

‹Deals exclusively with a company's business plans to compete successfully 

Specific efforts to please customers 

Offensive and defensive moves to counter maneuvers of rivals 

Responses to prevailing market conditions 

Initiatives to strengthen its market position

Strategy and Competitive Advantage 

Attracting customers and 

Defending against competitive forces 

Key to Gaining a Competitive Advantage

Convince customers firm's product / service offers  

superior value 

A good product at a low price 

A superior product worth paying more for 

A best-value product

Low-Cost Provider Strategies 

Keys to Success 

Make achievement of meaningful lower costs than rivals  

Include features and services in product offering that buyers consider essential 

Find approaches to achieve a cost advantage in ways difficult for rivals to copy or match 

"Low-cost leadership means lowoverall costs, not just low manufacturing or production costs!"

Options Achieving a Low-Cost Strategy 

Open up a sustainable cost advantage over rivals, using lower-cost edge to either 

Under-price rivals and market share gains OR Earn higher profit margin going price

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 buyer's perspective

Controlling the Cost Drivers: 

Capture scale economies; avoid scale diseconomies 

Capture learning and experience curve effects 

Manage costs of key resource inputs 

Consider linkages with other activities in value chain 

Find sharing opportunities with other business units 

Compare vertical integration vs. outsourcing 

Assess first-mover advantages vs. disadvantages 

Control percentage of capacity utilization 

Make prudent strategic choices related to operations

Revamping the Value Chain: 

Abandon traditional business methods and shift to e-business  

technologies and use of Internet 

Use direct-to-end-user sales/marketing methods 

Simplify product design 

Offer basic, no-frills product/service 

Shift to a simpler, less capital-intensive, or more flexible technological process 

Find ways to bypass use of high-cost raw materials 

Relocate facilities closer to suppliers or customers 

Drop "something for everyone" approach and focus on a limited product/service 

Reengineer core business processes

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 reengineer how activities are performed and coordinated-eliminate the costs of unnecessary work steps  

Be creative in cutting low value-added activities out of value chain system-re-invent the industry value chain 

Invest in resources and capabilities that promise to drive costs out of the business

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

Pitfalls of Low-Cost Strategies: 

Being overly aggressive in cutting price 

Low cost methods are easily imitated by rivals 

Becoming too fixated on reducing costsand ignoring 

Buyer interest in additional features 

Declining buyer sensitivity to price 

Changes in how the product is used 

Technological breakthroughs open up cost reductions forivals

Differentiation Strategies: 

Objective: Incorporate differentiating features that cause buyers to prefer firm's product or service over brands of rivals 

Keys to Success: Not spending more to achieve differentiation than the price premium that can be charged 

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

Types of Differentiation Themes: 

Unique taste -- Listerine 

Multiple features -- Microsoft Windows and Office 

Wide selection and one-stop shopping -- Home Depot and

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