The Five Generic Competitive StrategiesPRESENTATION BY OMKAR, VIJAY AND DILLESHWAR

The Five Generic Competitive Strategies

Low-Cost Provider StrategyBroad Differentiation StrategyFocused Low Cost StrategyFocused Differentiation StrategyBest-Cost Provider Strategy

What is Competitive Strategy?

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

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.

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.

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 productsIncreased unit salesBrand loyalty

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.

Focused Strategies

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.

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.

Focused Strategies

Focused Low Cost

Focused Differentiation

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.

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.

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.

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.

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

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

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

Thank You