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The Five Generic Competitive Strategies
Presented By: Group12Ajay ChoudharyArunkumar RImteyazuddin GhouseOnkar Pratap SIngh
The Idea:
• Understand each of these strategies and their application
Factors which distinguish one strategy from
another
Is the firm’s market target
broad or narrow?
Is the competitive advantage
pursued linked to low costs or product
differentiation?
Types of competitive advantage being pursued:
Low cost provider
Broad Differentiation
Focused Differentiation
Focused Low-Cost
Best-Cost Provider
Lower cost
Broad Buyer Segment
Differentiation
Narrow buyer segment
Low Cost Provider Strategies:
• The idea is simple:
• Pursue cost-savings that are difficult to imitate.
• Avoid reducing product quality to unacceptable levels.
• Under bid the competitors to achieve high sales volumes. • Companies using this strategy will typically earn low margins.
Reduce costs associated with
business
Charge same price as competitors
Greater profit without extra
expenses
Core Concept
Firms Cumulative Costs < Competitors’ Cumulative Costs
Two ways to accomplish this Cost-Efficient Management of Value Chain Activities Revamping the Value Chain System
Avenues for Achieving Cost Advantage
Cost-Efficient Management of Value Chain Activities
Cost Drivers
Economies of Scale
Learning & Experience
Capacity Utilization
Supply Chain Efficiency
Input CostsProduction
Technology & Design
Communication Systems
and IT
Bargaining Power
Outsourcing or Vertical Integration
Incentive System & Culture
Revamping the Value Chain System
Selling direct to customers and bypassing the activities and costs of distributors and dealers. Costs in the wholesale/retail portions of the value chain frequently represent 35-40% of the price consumers pay Create its own direct sales force Conduct sales operations through company’s website
Streamlining operations by eliminating low value-added or unnecessary work steps and activities
Reducing materials handling and shipping costs by having suppliers locate their plants or warehouses close to company’s own facilities
Revamping the Value Chain System | Nucor Steel
Inexpensive Arc Furnace
Continuous Casting Process
Low Labor Requirement
Lower Operating
Cost
Huge Market Share
Revamping the Value Chain System | Southwest Airlines
Faster turnaround
(25 vs 45 mins)
More Flight Hours per
Day
Fewer Aircraft
No First Class
Fast and User Friendly
Online Reservation
System
Automated Check-In
Point to Point Route
System
Keys to Being Successful Low Cost Provider
Spending aggressively on resources Estimating the cost savings of new technologies Reviewing cost-saving resources
Low Cost Strategy Works Best??
Price competition among rival sellers is vigorous Identical products are available from many sellers There are few ways to differentiate industry products Most buyers use the product in the same ways Buyers incur low costs in switching among sellers Large volume buyers New entrants
Pitfalls to Avoid in Low Cost Strategy
Aggressive price cutting Relying on a cost advantage that is not sustainable Too fixated on cost reduction
BROAD DIFFERENTIATION STRATEGIES
Uniqueness Drivers
Quality Control
Processes
Production R&D
Sales and Marketing
Technology and
Innovation
CustomerServices
Input QualityEmployee Skill and Training
Product Feature and Performance
Striving to create superior product features, design, and performance.
Improving customer service or adding additional services.
Pursuing production R&D activities.
Striving for innovation and technological advances.
Pursuing continuous quality improvement.
Increasing emphasis on marketing and brand-building activities.
Seeking out high-quality inputs.
Emphasizing human resource management activities that improve the skills, expertise, and knowledge of company personnel.The Keys to Creating a Differentiation Advantage
Delivering Superior value via Broad Differentiation strategy
Broad Differentiation Strategy depends on:1. Meeting customer needs in unique way
2. Creating New Needs
Ways of achieving Broad differentiation strategy 3. Incorporate product attributes and user features that lowers the buys overall cost.
4. Provide tangible features that increase customer satisfaction
5. Provide intangible features in noneconomic ways
6. Increase the value of the company’s product offering to the buyers
When differentiating strategy works best.
1. Buyer needs and Products are diverse 2. Many ways to differentiate a product or service 3. To quickly work upon the attributes that your competitor yet to explore (2)4. Technological change
(1) (4)(3)