Strat generic 7
- 2. Generic Competitive Strategies Two basic types: - Cost - Differentiation Additional generic strategies based on the scope of application : Cost - Focus Differentiation
- 3. Generic Competitive Strategies COST leadership promoted by attention to details such as frugality and discipline. DIFFERENTIATION requires a culture of trust that promotes individualism, risk taking and innovation.
- 4. Cost Low cost relative to competitors is the main pursuit but not at the cost of quality or service. The attained low cost position needs strengthening through reinvesting in high margin new equipment, machinery etc to further enhance the low cost leadership
- 5. Factors of Cost Leadership Aggressive construction of efficient-scale facilities Vigorous pursuit of cost reductions from experience curve Cost minimization in areas such as R&D, services, sales force and advertising Tight cost and overhead control
- 6. Differentiation Differentiating a product/service implies creating a perceived uniqueness in the industry through - design or brand image - technology - customer service - dealer network - other special features
- 7. Differentiation Differentiation does not mean total disregard to cost except that cost is not the primary strategic target. Differentiation insulates a company from rivalry through brand loyalty or price insensitivity.
- 8. Cost OR Differentiation Depends : - Toyota competes on cost (price) - Mercedes competes on differentiation Toyota is much larger company. An organization should choose either of the alternatives, not both. Being all things to all people can be ruinous that Porter calls ‘being stuck in the middle’.
- 9. Stuck in the Middle Such strategies are not sustainable in the long run because of factors such as a clash of cultures. An organizational structure that is supportive of cost leadership can be ruinous for differentiation. Conflicts can arise due to policies such as - tight control system - pursuit of scale economies - dedication to learning curve.
- 10. Focus Relates to targeting a particular buyer group, segment of product line or geographic market. The Focus strategy is built on the premises of serving a narrow market so that it can perform more effectively than the competitors who operate more broadly.
- 11. Threats to Cost : imitation technology changes proximity to differentiation Differentiation : imitation loss of attraction of differentiation base Focus : imitation target segment gets unattractive new focusers arrive
- 12. Elements of Low-cost Skills/resources required Organizational requirement Capital Tight cost control Engineering skill Frequent & detailed reports Close supervision Structured organization Easy product design Incentives based on target Low-cost distribution Strong supply chain
- 13. Elements of Differentiation Skills/resources required Organizational requirement Strong marketing Strong coordination Product engineering Subjective measurement Creative flair Amenities to attract skilled people Strong research Leadership in Quality Technology
- 14. Elements of Focus Combination of the Cost and Differentiation policies directed to particular strategic target
- 15. Hindrances to Low-cost Technology changes nullify the past investment or learning Low-cost learning by newcomers through imitation or new investment Inability to adopt to the required changes in the market
- 16. Hindrances to Differentiation Imitation narrows perceived differentiation Buyer need falls Cost differential is too wide to hold on to brand loyalty
- 17. Hindrances to Focus Cost differential between broad range and focus widens Difference between the broad range & the focused product narrows Competitors find submarket within the strategic target