Download to read offline
7 generic strategies.pptx
- 1.
- 2. Competitive Advantage • Whena firm achieves profit more than the industry average • Cost Advantage – When the firm is able to deliver the same benefits as competitors but at lower cost • Differentiation advantage – When a firm is able to deliver benefits that exceed those of competing products – Offering unique product attributes that the customer values and will pay a premium for • Create superior value for its customers and superior profits for itself
- 3. 5 Generic Strategies Market Target Broad Narrow (Niche) LowerCost Differentiation Overall Low cost provider Broad Differentiation Focused Low Cost Focused Differentiation Type of Competitive Advantage Pursued Best Cost Provider
- 4. Cost Drivers ofVC • Economies of Scale • Learning • Cost of key resource inputs • Linkages among activities • Interrelationships among business units • Degree of vertical integration • Timing of market entry (Product Life Cycle) • Capacity Utilization • Firm’s Strategy
- 5. Cost Advantage • Controlthe drivers better than rivals • Reconfiguring the Value Chain
- 6. Controlling cost drivers •Economies of scale – Standardize products for different markets – Simplify product line – Use common parts/ components in different models • Learning curve – Bring improvements through experience
- 7. Controlling cost drivers •Cost of key Inputs • Linkages between activities – One VC activity can affect cost or performance of other activity • Eg. change design manufacturing cost service cost • Interrelationships among business units – Share resources and processes, eg sales force, order processing, warehouse, distribution, customer service, technical support – Share know-how and experience
- 8. Controlling cost drivers •Vertical Integration – To overcome bargaining power of suppliers or buyers – But outsourcing may be better • Timing of market entry (Industry/Product Life Cycle) – First mover advantage – When technology is developing fast, waiting for better & cheaper technology may help – Follow the innovator
- 9. Controlling cost drivers •Capacity Utilization – Higher rate – depreciation and other fixed spread over larger unit volume – fixed cost per unit – Find ways to operate close to full capacity year-round • Firm’s Policies – Add/cut services provided to buyers – Incorporate more/less performance or quality features – Increase/ decrease no. of channels – Increase/ decrease wages, incentives – Raise/ lower specifications for RM or components
- 10. Revamping the ValueChain • Make greater use of technology – Software for supply chain management, ERP – Internet – link customer orders to production and supplier delivery – Online systems – monitor sales – more accurate demand forecasting – adjust production schedules – Paperless, online processes, less labor, save time
- 11. Revamping the ValueChain • Direct-to-end-user sales – E-business – Tele or net booking of tickets • Simplify product design – Reduce no. of parts – Standardize parts across models and styles – Easy to manufacture design
- 12. Revamping the ValueChain • Strip away extras – Reduce multiple features and options – Eg. No frills / Low cost airlines • Relocate facilities – Close to customer or supplier or both • Prune product line
- 13. When Low-cost ProviderStrategy ? • Rigorous price competition among rivals • Identical products of rivals readily available • Low switching costs • Differentiation difficult • Common user requirements – low price more important than features or quality • High bargaining power of buyers • Pricing power of low cost provider acts as barrier for entry
- 14. Caution • Added unitsales should bring higher total profit • Price cut should not be large than the cost advantage • Avenues of cost advantage should be sustainable and not easy to copy • Firm’s offering should not end up non-attractive • New market developments - Declining buyer sensitivity to price, buyer interest in added features or service, etc.
- 15. Differentiation • Focus onactivities associated with core competencies and perform them better than competitors • Study buyer’s needs and behaviour • Can allow firm to – Command a premium price – Increase unit sales – Brand loyalty
- 16. Differentiation • Features thatraise product performance – reliability, durability, ease of use, cleaner, safer, quieter, maintenance-free • Features that enhance buyer satisfaction in intangible ways – status, image, fashion • Deliver value through competitive capabilities – innovation, eg. microsoft.
- 17. Differentiation and theValue Chain • Suppliers – Quality of raw material, strict specifications • R&D – Improve design or performance – Expand uses and applications – Higher quality, reliability, safety – Wider variety
- 18. Differentiation and theValue Chain • Technology and production – Custom manufacturing at lower cost • Outbound logistics – Faster delivery – Quicker and accurate order filings - Lower rejects • Marketing, sales and customer service – Provide better product information – Better training materials – Faster maintenance and repair – Better credit terms – Customer convenience
- 19. When Differentiate? • Buyersneeds and use diverse • There is scope for differentiation • Few rivals following similar differentiation • Fast technological change, rapidly evolving products
- 20. Focused Strategies • FocusedLow-cost strategy – Serving buyers in a target market niche at a lower cost and lower price than rivals – Limit customer base to a well-defined customer base – Eg. Generic manufacturers • Focused Differentiation strategy – Offering niche customers a product they perceive well-suited to their unique tastes and preferences
- 21. Best Cost ProviderStrategies • Value for Money • Deliver superior value to customers by satisfying their expectations, and beating their expectation on price • Ability to incorporate attractive attributes at lower cost than rivals • Diverse, price sensitive buyers • Offer medium quality product at below average price or high quality product at average price