Five Generic Competitive Strategies by Michael Porter

1. The Five Generic
Competitive
Strategies
PRESENTATION BY OMKAR, VIJAY AND DILLESHWAR

2. The Five Generic
Competitive Strategies
Low-Cost Provider Strategy
Broad Differentiation Strategy
Focused Low Cost Strategy
Focused Differentiation Strategy
Best-Cost Provider Strategy

3. What is
Competitive Strategy?

4. Competitive Strategy
 Competitive Strategy is a long-term action plan for how a firm
will compete after evaluating its strengths and weaknesses.
 Competitive Strategy is defined as a "framework for making
decisions that create results in a competitive market.“
 The competitive theory was proposed by Michael Porter in
1980

5. Low-Cost Provider Strategy
 Effective Low-Cost Approaches:
Pursue cost-savings that are difficult imitate.
Avoid reducing product quality to unacceptable levels.
 Competitive Advantages and Risks:
Greater total profits and increased market share gained
from underpricing competitors.
Larger profit margins when selling products at prices
comparable to and competitive with rivals.
Low pricing does not attract enough new buyers.
Rival’s retaliatory price cutting set off a price war.

6. Pitfalls of a Low-Cost Provider Strategy
 Lowering selling prices results in gains that are smaller than the
increases in total costs, reducing profits rather than raising them.
 Relying on a cost advantage that is not sustainable because
rivals can copy or otherwise overcome it.
 Becoming too fixated on cost reduction such that the firm’s
offering is too features-poor to generate sufficient buyer appeal.

7. Broad Differentiation Strategy
 Effective Differentiation Approaches:
Carefully study buyer needs and behaviors, values and
willingness to pay a unique product or service.
Incorporate features that both appeal to buyers and create
a sustainably distinctive product offering.
Use higher prices to recoup differentiation costs.
 Advantages of Differentiation:
Premium prices for products
Increased unit sales
Brand loyalty

8. Pitfalls of a Broad Differentiation
Strategy
 Relying on product attributes easily copied by rivals.
 Introducing product attributes that do not evoke an
enthusiastic buyer response.
 Eroding profitability by overspending on efforts to
differentiate the firm’s product offering.
 Not opening up meaningful gaps in quality, service, or
performance features vis-à-vis the products of rivals.
 Adding frills and features such that the product exceeds the
needs and uses of most buyers.
 Charging too high a price premium.

9. Focused
Strategies

10.  Companies use Focus strategies to concentrate on a particular
market, by understanding the dynamics of that market and
the unique needs of customers within it.
 This helps the companies to develop uniquely low cost or
well-specified products for the market.
 They tend to build strong brand loyalty amongst their
customers.

11. Example: Tata Starbucks
• Tata Starbucks Ltd is a 50:50 joint venture
company.
• It was first launched on October 2012 in
India
• Tata Starbucks is targeted at urban
youths, office goers and families.
• Localized menu which are loved by the
Indians.

12. Focused Strategies
Focused Low
Cost
Focused
Differentiation

13. Focused Low Cost Strategy
 It aims at securing competitive advantage by selling products at lower
prices than those of its competitors.
 It concentrate on selling products at a low cost to a narrow target
segment.
 The main objective is to serve niche buyers better than the rivals.
 The features of the products offered are tailored according to the need
and taste of the niche buyers.

14. Example:
Google Nexus 5
• Offers advanced features at a price
much lower than its competitors.
• Specially targeted at geeks and
software developers who want to
customize the device to a great
extent.
• Value for Money (VFM) device.

15. Focused Differentiation Strategy
 Pursuing strategic differentiation within a focused market.
 In the focused differentiation strategy, a company aims to differentiate its
products within a small number of target market segments.
 Focused differentiation strategy is most effective when consumers have
different preferences or requirements and when rival firms are not
attempting to specialize in the same target segment.

16. Example: Apple iPhone
• Positioned itself as a status symbol
• Targeted at urban youths and office
goers in developed countries.
• Finger Print Scanner.
• The only smartphone in the world to
run on the iOS platform.

17. Best cost Provider: Core concept
Best cost provider strategies are a hybrid
of low cost provider and differentiation
strategies that aim at providing desired
quality/features/performance/service
attributes while beating rivals on price

18. Best-Cost Provider Strategy
 Striving to give customers more value for the money by combining an
emphasis on low cost with an emphasis on upscale differentiation
 Combines low-cost and differentiation
 The objective is to create superior value by meeting or beating customer
expectation on product attributes and beating their price expectations
 Keys to success:
 Match close competitors on key product attributes and beat them on cost
 Expertise at incorporating upscale product attributes at a lower cost than
competitors
 Contain costs by providing customers a better product

19. Advantages of Best-Cost Provider
Strategy
 Competitive advantage comes from matching close
competitors on key product attributes and beating them on
price
 Most successful best-cost providers have skills to
simultaneously manage costs down and product quality up
 Best-cost provider can often beat an overall low-cost strategy
and a broad differentiation strategy where
 Customer diversity makes product differentiation the norm
 Many customers are price and value sensitive

20. Thank You