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McGraw-Hill/Irwin Copyright 2010 The McGraw-Hill Companies, All Rights Reserved.

Chapter 5Chapter 5

The Five GenericThe Five Generic

CompetitiveCompetitive

StrategiesStrategies


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5-2

Competitive StrategyCompetitive Strategy

Deals exclusively with managementsgame plan for competing successfullyand securing a competitive advantage

over rivals

Specific efforts to give customers

superior value

A good product at a lower price

A superior product worth paying more

for

An attractive mix of price, features,

quality, service, and other appealing

attributes


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Competitive Strategies and IndustryCompetitive Strategies and IndustryPositioningPositioning


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5-4

Approaches to Achieving Low CostsApproaches to Achieving Low Costs

1. Perform essential value

chain activities more cost-

effectivelythan rivals

2. Revamp the firms overall

value chain to eliminate or

bypass some cost-producing activities

altogether


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When a Low Cost StrategyWorksWhen a Low Cost StrategyWorksBestBest

Price competition is vigorous

Product is standardized

There are few ways to achieve

differentiation

Buyers incurlow switching costs

Buyers are large and have significant

bargaining power Industry newcomers use introductory

low prices to attract buyers and build

customer base


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Differentiation StrategiesDifferentiation Strategies

Powerful competitive approach

wheneverbuyers needs and

preferences are too diverse to befully satisfied by a standardized

product or service


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Differentiation StrategiesDifferentiation Strategies

Incorporate differentiating features that

cause buyers to prefer firms

product or service over brands of

rivals

Not spending more to achieve

differentiation than the price

premium that customers are

willing to payfor all

the differentiating extras


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Benefits of SuccessfulBenefits of SuccessfulDifferentiationDifferentiation

Successfully executed

differentiation strategies

allow a company to:

Command a premiumprice, and/or

Increase unit sales,

and/or Gain buyer loyaltyto its

brand


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Where to Find Opportunities toWhere to Find Opportunities toDifferentiateDifferentiate

Supply chain activities

Product R&D and productdesign activities

Production R&D andtechnology-related activities

Manufacturing activities

Distribution-related activities

Marketing, sales, and customer serviceactivities


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Market Conditions Favoring aMarket Conditions Favoring aDifferentiation StrategyDifferentiation Strategy

There are many ways to differentiate a

product that have value and please

customers

Buyerneeds and uses are diverse

Few rivals are following a similar

differentiation approach

Technological change and

product innovation are fast-paced


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Market ConditionsMaking aMarket ConditionsMaking aFocused Strategy ViableFocused Strategy Viable

The target niche is big enough to beprofitable and offers good growth potential

Industry leaders have chosen not to compete

in the niche It is costly or difficultfor multisegment

competitors to meet the specialized needs ofniche buyers

Industry has many niches and segments

Few rivals are attempting to specialize in theniche


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Best Cost Provider StrategiesBest Cost Provider Strategies

Ahybridof low cost provider and

differentiation strategies

Giving customers more value for

moneyby satisfying buyer

expectations on key

quality/features/performance/service

attributes and beat customer

expectations on price

Powerful competitive approach with

value-conscious buyers


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Employing Best Cost StrategiesEmploying Best Cost Strategies

Best Cost Strategies are contingent on:

A superior value chain configuration that

eliminates or minimizes activities that do not

add value

Unmatched efficiency in managing essential

value chain activities

Resource strengths andcore competencies that

allow differentiating attributes

to be incorporated at a low cost.


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Danger of Unsound Best CostDanger of Unsound Best CostProvider StrategyProvider Strategy

Lack of requisite core competencies,

efficiencies, and resources allowing

the addition of differentiating features

without significantly increasing costscould result in high prices relative to

low-cost providers and poor product

attributes relative to high-end

differentiators.


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Perils of Stuck in the MiddlePerils of Stuck in the MiddleStrategyStrategy

Compromise strategies end up with a

middle-of-the-packindustry rankings

and provide foraverage performance

An average cost structure Minimal product differentiation relative to rivals

An average image and reputation

Limited prospect of industry leadership

Compromise or middle-ground strategiesrarely produce sustainable

competitive advantage

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