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The Five Generic Competitive Strategies

OVERVIEW
Introduction to all five

Strategies
Competitive Advantages

How to achieve?
Key success Advantages and Pitfalls Examples

The Agenda
Overall Low Cost Provider

Strategy
Differentiation Strategy
Best Cost Provider Strategy Focused or Niche Low Cost

Strategy
Focused or Niche

Differentiation Strategy

Overall Low-Cost Provider Strategy


Introduction
Securing a competitive advantage by serving a lower price than rival competitors

How to achieve low-cost leadership?


Out-manage rivals in controlling the factors that drive costs Reconfigure the firms value chain in ways that yield a cost edge over rivals

Overall Low-Cost Provider Strategy


How to achieve low-cost leadership?
High Asset Turnover

Economies of Scale
Achieving low direct and indirect costs Control over supply/procurement chain to ensure low costs Location Technological up gradation

When Overall Low-Cost Provider Strategy Works Best


When price competition is a dominant competitive force There are few ways to differentiate the product Most customers have similar needs/requirements Customers incur low switching costs changing sellers

Customers are large and have significant bargaining power

Competitive strengths of low-cost provider strategy


Organization in a better position to compete offensively on price

Organization is better able to negotiate with large customers


Organization is able to use price as a defense against substitutes Low cost is a significant barrier to entry Organization is more insulated from the power of suppliers

Risk of low-cost provider strategy


When technological breakthroughs open cost reductions for competitors, negating a low-cost providers efficiency advantage Competitors find it relatively easy and inexpensive to imitate the leaders low cost methods Low-cost leader focuses so much on cost reduction that the organization fails to respond to Changes in customer requirements for quality and service New product developments Reduced customer sensitivity to price

Example of Overall low-cost provider strategy(Tata Nano)

Broad Differentiation Strategy


Introduction
Striving to build customer loyalty by differentiating an organizations products from competitors products

Key to success
Finding ways to differentiate to create value for customers that are not easily copied Not spending more to differentiate than the price premium that can be charged

Broad Differentiation Strategy


A successful differential strategy allows an organization to Set a premium price
Increase unit sales Build brand loyalty

Broad Differentiation Strategy


Where to look for differentiation opportunities Supply chain
Research and development Production activities

Marketing, sales and service activities

Competitive Strengths of Broad Differentiation Strategy


Customers develop loyalty to the brand Brand loyalty acts as an entry barrier Reduces bargaining power of large customers since other brands are less attractive Seller may be in a better position to resist efforts of suppliers to raise prices

Pitfalls of Broad Differentiation Strategy


Trying to differentiate on an unimportant product feature that doesnt result in providing more value to the customer Over differentiating the product such that the product features exceed the customers needs Charging a price premium that buyers perceive as too high Not identifying what customers consider valuable

Example of Broad Differentiation Strategy

Best-Cost Provider Strategies


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

Make an upscale product at a lower cost 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

Best-Cost Provider Strategies


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

Best-Cost Provider
Competitive Advantage 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

Best-Cost Provider
Marketing Emphasis Tout delivery of best value Either deliver comparable features at a lower price than rivals or match rivals on prices and provide better features Keys to Sustain Unique expertise in simultaneously managing costs down while incorporating upscale features and attributes

Example of Best-Cost Provider Strategy-DELL COMPUTERS Dell Leadership Strategy


Dell Computers have been the industry leader with there costleadership strategy. They strive to provide technology and support at a lower unit cost than their competitors. They have a strong focus on being a "market taker" rather than a "market maker". Capitalizing on their ability enter new markets and dominate them has been a crucial part of Dell's success.

On-line and telephone sales and support can also be attributed to Dell's superb direct model. By using this method Dell has managed to help keep internal costs low. Dell's cost leadership strategy has also allowed them to respond to market indicators favorably. Supply chain management is another key competitive advantage that dell holds. Suppliers are required to have hubs near Dell's factories and manufacturing plants. Dell has reduced its turn around time to less than 5 days.

Dell d410 DELL 6400 LAPTOP Dell xps m2010 DELL Latitude D410 Dell D620 laptop DELL LATITUDE 100L

Focused (Market Niche) Strategies


Introduction
Concentrated attention on a narrow piece of the total market Objective is to serve niche buyers better than rivals Niche can be defined by geographic uniqueness, specialized requirements in using the product, or by special product attributes appealing only to the selected niche

Focused (Market Niche) Strategies

Focused Low-Cost Strategy


Strategic Target A narrow market niche where buyer needs and preferences are distinctively different Basis of Competitive Advantage Low overall cost than rivals in serving niche members Product Line Features and attributes tailored to the tastes and requirements of niche members

Focused Low-Cost Strategy


Production Emphasis
A continuous search for cost reduction while incorporating features and attributes matched to niche member preferences Marketing Emphasis Communicate attractive features of a budget-priced product offering that fits niche buyers expectations Keys to Sustaining the Strategy Stay committed to serving the niche at lowest overall cost; dont blur the firms image by entering other market segments or adding other products to widen market appeal

Example of Focused Low-Cost Strategy


Safed Detergent

Focused Differentiation Strategy


Introduction
Aims at securing a competitive advantage by offering niche members a product they perceive as, well suited to their own unique tastes and preferences

Targets upscale buyers who desire products and services with world class attributes.

Focused Differentiation Strategy


Strategic Target A narrow market niche where buyer needs and preferences are distinctively different Basis for Competitive Advantage

Attributes that appeal specifically to niche members


Product Line Features and attributes tailored to the tastes and requirements of niche members

Focused Differentiation Strategy


Production Emphasis Customize products that match the tastes and requirements of niche members Marketing Emphasis Communicate how products offering does the best job of meeting niche buyers expectations Keys to Sustaining the Strategy Stay committed to serving the niche better than rivals; dont blur the firms image by entering other market segments or adding other products to widen market appeal

Focused Differentiation Strategy

Focused (Market Niche) Strategies


Keys to Success

Choose a niche were customers have a distinctive preference, unique needs or special requirements
Develop a unique ability to serve the needs of a niche target market

Focused (Market Niche) Strategies


What Makes a Niche Attractive?

Companies name will circulate amongst clients more quickly Good growth potential High profit margin Organization has the resources to effectively serve the niche Organization can defend itself against challengers through a superior ability to serve the niche Less competitors are focusing on the niche

The Strengths of Focused Strategies

Competitors dont have the matching capabilities to meet specialized needs of the niche Organization competencies and capabilities act as a barrier for potential entrants Organizations competitive advantage provides an obstacle for substitutes

Organizations ability to meet the needs of customers in the niche can reduce the bargaining power of large niche buyers

The Risks of Focused Strategies

It may be fairly easy for a broad market cost leader to adapt its product in order to compete directly. Niche customers preferences may move toward the product attributes desired by a larger market segment Limited profitability if many competitors enter the niche

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PRESENTED BY Saurabh Chakravarty Vikash Kumar Jha Proheli Basak Ayan Bhattacharya Gargi Mitra