GENERIC COMPETITIVE STRATEGIES

PRESENTED BY SIKHA JAIN

(MFC PART II)

Business-Level Strategies

Courses of action adopted by an organization for each of its businesses separately, to serve identified customer groups and provide valueto the customer by satisfaction of their needs

Core Competencies and Strategy

Resources and superior capabilities that are sources of competitive advantage over a firm’s rivals

Providing value to customers and gaining competitive advantage by exploiting core competencies in individual product markets

Core Competencies

Strategy

Business-level Strategy

An integrated and coordinated set of actions taken to exploit core competencies and gain competitive advantage

Dynamic factors that determine the choice of a competitive strategy

According to porter, are two, namely

Industry structure

Positioning of a firm in the industry

Industry structure

Positioning of firm in Industry

Porter considers positioning as the overall approach of the firm towards competing. It is based on two variables :

Competitive advantage

Competitive scope

Types of Potential Competitive Advantage

Achieving lower overall costs than rivals

Possessing the capability to differentiate the firm’s product or service and command a premium price

Two Targets of Competitive Scope

Broad Scope

The firm competes in many customer segments

Narrow Scope

The firm selects a segment or group of segments in the industry and tailors its strategy to serving them at the exclusion of others

Porter’s generic business strategies

Cost leadership

Differentiation

Focused cost leadership

Focused differentiation

Board target

Narrow target

COM

PETI

TIVE

SCO

PE

Low-cost products/services

Differentiated products/services

COMPETITIVE ADVANTAGE

Generic competitive strategies

Cost leadership (low cost/broad target)

Differentiation (differentiation/broad target)

Focus (lower cost or differentiation/narrow target)

Cost Leadership Business Strategy

When the competitive advantage of an organization lies in its lower cost of products or services relative to what the competitors have to offer

Amul The Taste of India

The three tier- Amul Model Responsible for Marketing of Milk & Milk

Products Responsible for Procurement & Processing of Milk Responsible for Collection of Milk Responsible for Milk Production

Cold chain of supplying its refrigerated products through an efficient distribution network

Found everywhere including STD booths, kirana shops, chemists and bakers

Actions taken for achieving cost leadership

•Accurate demand forecasting and high capacity utilisation•Attaining economies of scale•High level of standardisation of products and offering uniform service packages using mass production techniques•Aiming at the average customer•Investments in cost-saving technologies•Withholding differentiation

ConditionsMarket for the product/service operate in such a away that price-based competition is vigorousStandardised product/service and its consumption takes place in such a manner that differentiation is superfluousLarge buyers and possess a significant bargaining power Lesser customer loyalty and the cost of switching from one seller to another is lowFew ways available for differentiation to take place

Benefits associated with cost leadership strategy

Cost advantage the best insurance against industry competitionLow-cost provides some protection from bargaining leverage of powerful BUYERS Low-cost provides some protection from bargaining leverage of powerful SUPPLIERSLow-cost provider’s pricing power acts as a significant barrier for POTENTIAL ENTRANTSLow cost puts a company in position to use low price as a defense against SUBSTITUTES

Pitfalls of cost Leadership Strategy

Low cost methods are easily imitated by rivalsSevere cost reduction can dilute customer

focus and limit experimentation with product attributes

Technological shifts are a great threat to the cost leader

Depending on the industry structure, sometimes less efficient Producers may not choose to remain in the market

Differentiation Business Strategy

When the competitive advantage of an organisation lies in special features incorporated into the product/service which is demanded by the customers, who are willing to pay for it, then the strategy adopted is the differentiation business strategy

Multimodal transport company in the express cargo delivery business

Services like risk insurance offer for shipments, refund on failure to deliver on time, door-to-door pick up and delivery and online tracking

Measures that a differentiator organisation can adopt

Offer utilityLower the overall costRaise the performance

of the productIncrease the buyer

satisfaction in tangible or intangible ways

High quality of product/service

Which hat is

unique?

conditionsMarket is too large to be catered to by a few organisationsCustomers needs and preferences are too diversifiedOrganisation can charge premium price Nature of the product/service is such that brand loyalty is possibleScope for increasing the sale of the product/service on the basis of differentiated features and premium pricing

Benefits Associated with Differentiation strategy

Act as a formidable entry barrier to new entrants and substitutes product/service suppliersPowerful buyers do not usually negotiate price decrease Buyers develop loyalty to brand they like best--can beat rival competitors in the marketplaceBrand loyal customers are also less price sensitive

What Can Make aDifferentiation Strategy Fail

Charging a price premium that buyers perceive is too highOver-differentiating such that product features exceed buyers’ needsFirst-mover advantages associated with the differentiation strategy are limitedFailure on the part of the organisation to communicate adequately the benefit arising out of differentiation

Focus Business Strategies

Focus business strategies essentially rely on either cost leadership or differentiation, but cater to a narrow segment of the total market

Branded jewellery business of Titan IndustriesAdopts differentiation strategyOffer gold, pearl and diamond jewellery for women and men treating it as fashionable items rather than an investmentDesigns are made on the basis of continual feedback from its extensive retail network of showrooms

Measures that a focussed organisation can adopt

Choosing specific niches Creating superior skillsCreating superior efficiencyAchieving lower

cost/differentiation Developing innovative ways in

managing the value chain

Conditions

Uniqueness in the segmentSpecialised requirements for using the products or services Niche market is big enough Potential for growthFocussing organisation can guard its turf from other predator organisations on the basis of customer relations and loyalty

Benefits Associated with Focus Strategies

Protected from competitionPrice increments can be passed on to the loyal customersPowerful buyers are less likely to shift loyaltiesSpecialisation of focused organisations act as a powerful barrier to substitute products/services

Risks Associated with Focus Strategies

Long-drawn and difficult processDifficult to move to other segments of the marketsCosts for the focussed organisation are higherNiches are often transient. May disappear owing to technology or market forcesNiches may sometimes become attractive enough for the big players Rivals can out-focus the focussed organisations by devising ways to

serve niche markets in a better manner

Integrating Cost Leadership and Differentiation

Combine a strategic emphasis on low-cost with a strategic emphasis on differentiation

Make an upscale product at a lower costGive customers more value for the money

objectives

Create superior value by MEETING OR EXCEEDING buyer expectations on product attributes and BEATING their price expectationsBe the low-cost producer of a product with GOOD-TO-EXCELLENT product attributes, then use cost advantage to UNDERPRICE comparable brands