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Five generic competitive strategies

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Five generic competitive strategies

  1. 1. Five Generic Competitive Strategies<br />
  2. 2. Type of advantage sought <br /> Low costDifferentiation<br />Broad differentiation<br />Overall low-cost provider<br />Broad <br />range<br />of buyers<br />Market Target<br />Best-cost provider<br />Focused differentiation<br />Focused low-cost <br />Narrow <br />range<br />of buyers<br />
  3. 3. How to compete<br />Low cost provider<br />Obsessively control costs<br />Closely examine the value chain<br />Broad differentiation<br />Buyers have diverse needs<br />Buyers pay a premium for a good fit<br />Best cost provider<br />Need to create the perception of value compared to competitors<br />
  4. 4. How to compete (continued)<br />Low-cost niche<br />Narrow band of price conscious customers<br />Big enough and concentrated enough<br />Differentiation niche<br />High end customers<br />High quality<br />Customized, rare or exclusive products and services<br />
  5. 5. When to go low-cost<br />Heavy price competition <br />Standardized product<br />Hard to differentiate<br />Consumers use product in similar ways<br />Low switching costs for users<br />Buyers have bargaining power<br />Newcomers use pricing to get into the market<br />
  6. 6. Downside to low-cost<br />Heavy pricecutting can lead to losses<br />Train consumers to expect ever lower prices<br />Maybe easy for competitors to copy strategy<br />New technology may give rivals a pricing edge<br />Over focus on costs may mean;<br />Failure to notice change in usage<br />Failire to notice desire for additional benefits/ features<br />Failure to respond to changes in price sensitivity equated to growing spending power<br />
  7. 7. When to used differentiation<br />Customers have diverse needs<br />Firm has the ability to create diverse products<br />Rivals unable or unwilling to use a differentiation strategy<br />Rapid pace of design and technology change<br />
  8. 8. Downside to differentiation<br />Buyers may not care about the perceived benefits<br />Firm may not be able to create the perception of value<br />Competitors copy so no longer unique<br />Differentiation obsession may lead to unacceptable costs<br />Feature creep<br />
  9. 9. When to be a best-cost provider<br />Firm can provide a quality product at a relatively low cost<br />Firm can provide a better performance at cost lower than rivals<br />Firm can provide a higher level of customer service than rivals at no or low cost to customer<br />
  10. 10. Downside of best-cost provider<br />Danger of being stuck in the middle<br />Low cost providers draw away the price conscious<br />Focused differentiators draw away the more discerning<br />
  11. 11. When to use a niche focus<br />Segment not important for industry leaders<br />Availability of relatively rare resources and skills<br />Few rivals in the niche<br />Customers perceive firm to be experts and / or have high credibility <br />The niche is big enough to be profitable<br />
  12. 12. Downside of niche focus<br />Changes in technology and fashion may render product / service irrelevant<br />Profits in the segment make it attractive to new rivals<br />

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