The Five Generic Competitive Strategies : Which One to Employ?

The Five Generic Competitive Strategies Which One to Employ? Part II

The Agenda
Best Cost Provider Strategy
Focused Low-Cost Strategy
Focused Differentiation Strategy
Risks of Focused Strategies
Deciding Which One to Choose

Best-Cost Provider Strategies
Make an upscale product at a lower cost
Combine a strategic emphasis on low-cost with a strategic emphasis on differentiation

Best-Cost Provider Strategies
Give customers more value for money
Combine a strategic emphasis on low-cost with a strategic emphasis on differentiation

Best-Cost Provider
Strategic Targets
Value-conscious customers
Competitive Advantage
Ability to give customers more value for money
Product Line
Items with appealing attributes, assorted upscale features

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

Risk of a Best-Cost Provider Strategy
Low-cost leaders may be able to siphon customers away with a lower price
High-end differentiators may be able to steal customers away with better product attributes
A best-cost provider may get squeezed between strategies of firms using low-cost and differentiation strategies

Focused (Market Niche) Strategies
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
Introduction

Focused (Market Niche) Strategies

FUNCTIONAL EXPERIENTIAL RELATIONAL PSYCHOLOGICAL Value for me SOCIAL Value of me Source: Adopted from “A Customer Value Typology: Beyond the Functional – Emotional Dichotomy., Liyanage (2003) Re-Visiting Value Based Segmentation

Focused Low-Cost Strategy Securing a competitive advantage by serving a lower price than rival competitors Introduction How?
Out-manage rivals in controlling the factors that drive costs
Reconfigure the firm’s value chain in ways that yield a cost edge over rivals

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

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; don’t blur the firm’s image by entering other market segments or adding other products to widen market appeal

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.

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

Production Emphasis
Custom made 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; don’t blur the firm’s image by entering other market segments or adding other products to widen market appeal

Big enough to be profitable and offers good growth potential
Not crucial to success of industry leaders
Costly or difficult for multi-segment competitors to meet specialized needs of niche members
Focuser has resources and capabilities to effectively serve an attractive niche
Few other rivals are specializing in same niche
Focuser can defend against challengers via superior ability to serve niche members
When a Focused Low-Cost Strategy or Focused Differentiation Strategy is Attractive

Competitors find effective ways to match a focuser’s capabilities in serving a niche
Niche buyers’ preferences shift towards product attributes desired by majority of buyers – niche becomes part of overall market
Segment becomes so attractive it becomes crowded with rivals, causing segment profits to be splintered
The Risks of Focused Strategies

Deciding Which Generic Competitive Strategy to Use
Each positions a company differently in its market
Each establishes a central theme for how a company will endeavor to out-compete rivals
Each creates some boundaries for maneuvering as market circumstances unfold

Deciding Which Generic Competitive Strategy to Use
Each points to different ways of experimenting with the basics of the strategy
Each entails differences in product line, production emphasis, marketing emphasis, and means to sustain the strategy

This rarely produces a sustainable competitive advantage or a distinctive competitive position The big risk Selecting a “ stuck in the middle ” strategy!

Thank You! www.amisampath.com

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The Five Generic Competitive Strategies : Which One to Employ?

by Ami Sampath

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