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The Five Generic Competitive Strategies Presented By: Group12 Ajay Choudhary Arunkumar R Imteyazuddin Ghouse Onkar Pratap SIngh

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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)

Pitfall in Pursuing a Differentiation Strategy

1. If Competitors copy quickly, attributes a company comes up with2. Unenthusiastic/ Pale response from the buyers 3. Overspending on efforts of differentiation (Unit cost of achieving differentiation should be

below the price premium)

(1)(2)