Competitive strategies
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The document discusses five generic competitive strategies: low-cost provider, differentiation, best-cost provider, focus/niche, and their key characteristics. It provides an overview of each strategy, including their objectives, keys to success, benefits, pitfalls, and when each strategy works best. Choosing the right competitive strategy depends on a firm's resources and positioning in its market to outcompete rivals.
Competitive strategies
- 1. Chapter 5 The Five Generic Competitive Strategies Screen graphics created by: Jana F. Kuzmicki, Ph.D. Troy State University-Florida and Western Region 5-1
- 2. Chapter Roadmap Five Competitive Strategies Low-Cost Provider Strategies Differentiation Strategies Best-Cost Provider Strategies Focused (or Market Niche) Strategies The Contrasting Features of the Five Generic Competitive Strategies: A Summary 5-2
- 3. Strategy and Competitive Advantage Competitive advantage exists when a firm’s strategy gives it an edge in Attracting customers and Defending against competitive forces Key to Gaining a Competitive Advantage Convince customers firm’s product / service offers superior value A good product at a low price A superior product worth paying more for A best-value product 5-3
- 4. What Is “Competitive Strategy”? Deals exclusively with a company’s business plans to compete successfully Specific efforts to please customers Offensive and defensive moves to counter maneuvers of rivals Responses to prevailing market conditions Initiatives to strengthen its market position Narrower in scope than business strategy 5-4
- 5. Fig. 5.1: The Five Generic Competitive Strategies 5-5
- 6. Low-Cost Provider Strategies Keys to Success Make achievement of meaningful lower costs than rivals the theme of firm’s strategy Include features and services in product offering that buyers consider essential Find approaches to achieve a cost advantage in ways difficult for rivals to copy or match Low-cost leadership means low overall costs, not just low manufacturing or production costs! 5-6
- 7. When Does a Low-Cost Strategy Work Best? Price competition is vigorous Product is standardized or readily available from many suppliers There are few ways to achieve differentiation that have value to buyers Most buyers use product in same ways Buyers incur low switching costs Buyers are large and have significant bargaining power Industry newcomers use introductory low prices to attract buyers and build customer base 5-7
- 8. Pitfalls of Low-Cost Strategies Being overly aggressive in cutting price 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 5-8
- 9. Differentiation Strategies Objective Incorporate differentiating features that cause buyers to prefer firm’s product or service over brands of rivals Keys to Success Find ways to differentiate that create value for buyers and are not easily matched or cheaply copied by rivals Not spending more to achieve differentiation than the price premium that can be charged 5-9
- 10. Benefits of Successful Differentiation A product / service with unique, appealing attributes allows a firm to Command a premium price and/or Increase unit sales and/or Which hat is unique? Build brand loyalty = Competitive Advantage 5-10
- 11. Signaling Value as Well as Delivering Value Incomplete knowledge of buyers causes them to judge value based on such signals as Price Attractive packaging Extensive ad campaigns Ad content and image Characteristics of seller Facilities Customers Professionalism and personality of employees Signals of value may be as important as actual value when Nature of differentiation is hard to quantify Buyers are making first-time purchases Repurchase is infrequent Buyers are unsophisticated 5-11
- 12. When Does a Differentiation Strategy Work Best? There are many ways to differentiate a product that have value and please customers Buyer needs and uses are diverse Few rivals are following a similar differentiation approach Technological change and product innovation are fast-paced 5-12
- 13. When Does a Differentiation Strategy Work Best? There are many ways to differentiate a product that have value and please customers Buyer needs and uses are diverse Few rivals are following a similar differentiation approach Technological change and product innovation are fast-paced 5-13
- 14. Pitfalls of Differentiation Strategies Buyers see little value in unique attributes of product Appealing product features are easily copied by rivals Differentiating 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 buyers perceive is too high Not striving to open up meaningful gaps in quality, service, or performance features vis-à-vis rivals’ products 5-14
- 15. 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 Deliver superior value by meeting or exceeding buyer expectations on product attributes and beating their price expectations Be the low-cost provider of a product with good-to- excellent product attributes, then use cost advantage to underprice comparable brands 5-15
- 16. Competitive Strength of a Best-Cost Provider Strategy A best-cost provider’s competitive advantage comes from matching close rivals on key product attributes and beating them on price Success depends on having the skills and capabilities to provide attractive performance and features at a lower cost than rivals A best-cost producer can often out-compete both a low-cost provider and a differentiator when Standardized features/attributes won’t meet diverse needs of buyers Many buyers are price and value sensitive 5-16
- 17. Risk of a Best-Cost Provider Strategy A best-cost provider may get squeezed between strategies of firms using low-cost and differentiation strategies 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 5-17
- 18. Focus / Niche Strategies Involve concentrated attention on a narrow piece of the total market Objective Serve niche buyers better than rivals Keys to Success Choose a market niche where buyers have distinctive preferences, special requirements, or unique needs Develop unique capabilities to serve needs of target buyer segment 5-18
- 19. What Makes a Niche Attractive for Focusing? 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 5-19
- 20. Risks of a Focus Strategy Competitors find effective ways to match a focuser’s capabilities in serving 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 5-20
- 21. 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 outcompete rivals Each creates some boundaries for maneuvering as market circumstances unfold 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 The big risk – Selecting a “stuck in the middle” strategy! This rarely produces a sustainable competitive advantage or a distinctive competitive position. 5-21
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