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Competitive strategies
1. Chapter
5
The Five Generic
Competitive Strategies
Screen graphics created by:
Jana F. Kuzmicki, Ph.D.
Troy State University-Florida and Western Region
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2. Chapter Roadmap
ï” Five Competitive Strategies
ï” Low-Cost Provider Strategies
ï” Differentiation Strategies
ï” Best-Cost Provider Strategies
ï” Focused (or Market Niche) Strategies
ï” The Contrasting Features of the Five Generic
Competitive Strategies: A Summary
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3. Strategy and
Competitive Advantage
ï” Competitive advantage exists when a firmâs strategy
gives it an edge in
ïš Attracting customers and
ïš Defending against competitive forces
Key to Gaining a Competitive Advantage
ï” Convince customers firmâs product / service offers
superior value
ïšA good product at a low price
ïšA superior product worth paying more for
ïšA best-value product
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4. What Is
âCompetitive Strategyâ?
ï” Deals exclusively with a companyâs
business plans to compete successfully
ïš Specific efforts to please customers
ïš Offensive and defensive moves
to counter maneuvers of rivals
ïš Responses to prevailing market conditions
ïš Initiatives to strengthen its market position
ï” Narrower in scope than business strategy
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5. Fig. 5.1: The Five Generic
Competitive Strategies
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6. Low-Cost Provider Strategies
Keys to Success
ï” Make achievement of meaningful lower costs
than rivals the theme of firmâs strategy
ï” Include features and services in product
offering that buyers consider essential
ï” Find approaches to achieve a cost advantage
in ways difficult for rivals to copy or match
Low-cost leadership means low
overall costs, not just low
manufacturing or production costs!
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7. When Does a Low-Cost
Strategy Work Best?
ï” Price competition is vigorous
ï” Product is standardized or readily available
from many suppliers
ï” There are few ways to achieve
differentiation that have value to buyers
ï” Most buyers use product in same ways
ï” Buyers incur low switching costs
ï” Buyers are large and have
significant bargaining power
ï” Industry newcomers use introductory low prices to attract
buyers and build customer base
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8. Pitfalls of Low-Cost Strategies
ï” Being overly aggressive in cutting price
ï” Low cost methods are easily imitated by rivals
ï” Becoming too fixated on reducing costs
and ignoring
ïš Buyer interest in additional features
ïš Declining buyer sensitivity to price
ïš Changes in how the product is used
ï” Technological breakthroughs open up cost reductions for
rivals
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9. Differentiation Strategies
Objective
ï” Incorporate differentiating features that cause buyers to
prefer firmâs product or service over brands of rivals
Keys to Success
ï” Find ways to differentiate that create value for buyers
and are not easily matched or cheaply copied by rivals
ï” Not spending more to achieve differentiation
than the price premium that can be charged
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10. Benefits of Successful
Differentiation
A product / service with unique, appealing
attributes allows a firm to
ïš Command a premium price and/or
ïš Increase unit sales and/or Which
hat is
unique?
ïš Build brand loyalty
= Competitive Advantage
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11. Signaling Value as Well
as Delivering Value
ï” Incomplete knowledge of buyers causes them to
judge value based on such signals as
ïš Price
ïš Attractive packaging
ïš Extensive ad campaigns
ïš Ad content and image
ïš Characteristics of seller
ïź Facilities
ïź Customers
ïź Professionalism and personality of employees
ï” Signals of value may be as important as actual value when
ïš Nature of differentiation is hard to quantify
ïš Buyers are making first-time purchases
ïš Repurchase is infrequent
ïš Buyers are unsophisticated
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12. When Does a Differentiation
Strategy Work Best?
ï” There are many ways to differentiate a product
that have value and please customers
ï” Buyer needs and uses are diverse
ï” Few rivals are following a similar
differentiation approach
ï” Technological change and
product innovation are fast-paced
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13. When Does a Differentiation
Strategy Work Best?
ï” There are many ways to differentiate a product that have
value and please customers
ï” Buyer needs and uses are diverse
ï” Few rivals are following a similar
differentiation approach
ï” Technological change and
product innovation are fast-paced
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14. Pitfalls of
Differentiation Strategies
ï” Buyers see little value in unique attributes of product
ï” Appealing product features are easily copied by rivals
ï” Differentiating on a feature buyers do not perceive as
lowering their cost or enhancing their well-being
ï” Over-differentiating such that product
features exceed buyersâ needs
ï” Charging a price premium
buyers perceive is too high
ï” Not striving to open up meaningful gaps in quality,
service, or performance features vis-Ă -vis rivalsâ products
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15. Best-Cost Provider Strategies
ï” Combine a strategic emphasis on low-cost with a
strategic emphasis on differentiation
ïš Make an upscale product at a lower cost
ïš Give customers more value for the money
Objectives
ï” Deliver superior value by meeting or exceeding buyer
expectations on product attributes and beating their price
expectations
ï” Be the low-cost provider of a product with good-to-
excellent product attributes, then use cost advantage to
underprice comparable brands
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16. Competitive Strength of a
Best-Cost Provider Strategy
ï” A best-cost providerâs competitive advantage comes
from matching close rivals on key product attributes and
beating them on price
ï” Success depends on having the skills and capabilities to
provide attractive performance and features at a lower
cost than rivals
ï” A best-cost producer can often out-compete both
a low-cost provider and a differentiator when
ïš Standardized features/attributes
wonât meet diverse needs of buyers
ïš Many buyers are price and value sensitive
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17. Risk of a Best-Cost
Provider Strategy
ï” A best-cost provider may get squeezed between
strategies of firms using low-cost and differentiation
strategies
ïš Low-cost leaders may be able to siphon
customers away with a lower price
ïš High-end differentiators may be able to
steal customers away with better product attributes
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18. Focus / Niche Strategies
ï” Involve concentrated attention on a narrow piece of the
total market
Objective
Serve niche buyers better than rivals
Keys to Success
ï” Choose a market niche where buyers have distinctive
preferences, special requirements, or unique needs
ï” Develop unique capabilities to serve needs of target
buyer segment
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19. What Makes a Niche
Attractive for Focusing?
ï” Big enough to be profitable and offers good growth
potential
ï” Not crucial to success of industry leaders
ï” Costly or difficult for multi-segment competitors
to meet specialized needs of niche members
ï” Focuser has resources and capabilities
to effectively serve an attractive niche
ï” Few other rivals are specializing in same niche
ï” Focuser can defend against challengers via superior
ability to serve niche members
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20. Risks of a Focus Strategy
ï” Competitors find effective ways to match
a focuserâs capabilities in serving niche
ï” Niche buyersâ preferences shift towards product
attributes desired by majority of buyers â niche
becomes part of overall market
ï” Segment becomes so attractive it becomes crowded with
rivals, causing segment profits to be splintered
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21. Deciding Which Generic
Competitive Strategy to Use
ï” Each positions a company differently in its market
ï” Each establishes a central theme for how a company will
endeavor to outcompete rivals
ï” Each creates some boundaries for maneuvering as market
circumstances unfold
ï” Each points to different ways of experimenting with the basics
of the strategy
ï” Each entails differences in product line, production emphasis,
marketing emphasis, and means to sustain the strategy
The big risk â Selecting a âstuck in the middleâ strategy!
This rarely produces a sustainable competitive
advantage or a distinctive competitive position.
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