Competitive strategy


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Competitive strategy

  1. 1. Competitive Strategy Low-Cost & Differentiation
  2. 2. The Five Generic Competitive Strategies Type of Advantage Sought Lower Cost Market Target Broad Range of Buyers Narrow Buyer Segment or Niche Differentiation Overall Low-Cost Broad Leadership Differentiation Strategy Strategy Best-Cost Provider Strategy Focused Focused Low-Cost Differentiation Strategy Strategy
  3. 3. A Low-Cost Leadership Strategy Objective  Open up a sustainable cost advantage over rivals, using lower-cost edge as a basis either to Under-price rivals and reap market share gains OR  Earn higher profit margin selling at going price 
  4. 4. Approaches to Securing a Cost Advantage Approach 1 Do a better job than rivals of performing value chain activities efficiently and cost effectively Approach 2 Control costs! Revamp value chain to bypass some cost-producing activities By-pass costs!
  5. 5. Characteristics of a Low-Cost Provider    Cost conscious corporate culture Employee participation in cost-control efforts Ongoing efforts to benchmark costs Intensive scrutiny of budget requests Low-cost producers champion cost  Successful low-cost producers champion Programs promoting continuous FRUGALITY while aggressively frugality but improvement wisely and aggressively  INVESTING in cost-saving improvements! invest in cost-saving improvements !
  6. 6. The Competitive Strengths of Low-Cost Leadership  Better positioned than RIVAL COMPETITORS to compete offensively on basis of price  Low-cost provides some protection from bargaining leverage of powerful BUYERS  Low-cost provides some protection from bargaining leverage of powerful SUPPLIERS  Low-cost provider’s pricing power acts as a significant barrier for POTENTIAL ENTRANTS
  7. 7. Pitfalls of Low-Cost Strategies     Being overly aggressive in cutting price (revenue erosion of lower price is not offset by gains in sales volume-profits go down,not up) Low cost methods are easily imitated by rivals Becoming too fixated on reducing costs and ignoring  Buyer interest in additional features  Declining buyer sensitivity to price  Changes in how the product is used Technological breakthroughs open up cost reductions for rivals
  8. 8. Differentiation Strategies Objective  Incorporate differentiating features that cause buyers to prefer firm’s product or service over the brands of rivals Keys to Success   Find ways to differentiate that CREATE VALUE for buyers and that are NOT EASILY MATCHED or CHEAPLY COPIED by rivals Not spending more to achieve differentiation than the price premium that can be charged
  9. 9. The Appeal of Differentiation Strategies  A powerful competitive approach when uniqueness can be achieved in ways that  Buyers perceive as valuable  Rivals find hard to match Which hat or copy  Can be incorporated at a cost well below the price premium that buyers will pay is unique?
  10. 10. The Benefits of Successful Differentiation A product / service with unique and appealing attributes allows a firm to Command a premium price and/or Increase unit sales and/or Build brand loyalty = Competitive Advantage
  11. 11.  Sustaining Differentiation: The Key to Competitive Advantage Most appealing approaches to differentiation:    Those hardest for rivals to match or imitate Those buyers will find most appealing Types of Differentiation:  Quality – Design is the same but better  Design - Technical differences  Service – additional customer services  Image – Brand name
  12. 12. The Competitive Strengths of a     Differentiation Strategy Buyers develop loyalty to brand they like best--can beat RIVAL COMPETITORS in the marketplace Mitigates bargaining power of large BUYERS since other products are less attractive Buyer loyalty acts as a barrier to POTENTIAL ENTRANTS Differentiation puts a seller in better position to fend off threats of SUBSTITUTES not
  13. 13. What Can Make a Differentiation Strategy Fail      Trying to differentiate on a feature buyers do not perceive as lowering their cost or enhancing their well-being Over-differentiating such that product features exceed buyers’ needs Charging a price premium that buyers perceive is too high Failing to signal value Not understanding what buyers want or prefer and differentiating on the “wrong” things
  14. 14. 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  Give customers more value for the money Objectives   Create superior value by MEETING OR EXCEEDING buyer expectations on product attributes and BEATING their price expectations Be the low-cost producer of a product with GOOD-TOEXCELLENT product attributes, then use cost advantage to UNDERPRICE comparable brands