Description
five generic competitive strategies like low cost provider strategies, differentiation strategy, best cost provider strategies, low price strategy, focused differentiation
Strategic Management
The Five Generic Competitive Strategies
Low-Cost Provider Strategies
?
Make meaningful lower costs than rivals as 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!
Differentiation Strategy
?
Differentiation strategy success is achieved through:
? ?
An emphasis on product or service quality. Innovation in providing new features for which customers will pay a premium price. Responsiveness to customers after the sale. Appealing to the psychological desires of customers.
? ?
Dimensions of Quality
Dimensions Quality
• • • • • • • •
Performance Features Reliability Conformance Durability Serviceability Aesthetics Perceived Quality
Focus / Niche Strategies
Objective
? ?
Involve concentrated attention on a narrow piece of the total market
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
?
Approaches to Defining a Market Niche
?
Geographic uniqueness
?
Specialized requirements in using product/service
?
Special product attributes appealing only to niche buyers
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
Risks of a Focus strategy
? Competitor
entry into focuser’s market
segment.
? Suppliers
capable of increasing costs affecting only the focuser.
? Buyers
defecting from market segment.
? Substitute
products attracting customers away from focuser’s segment. entrants overcoming entry barriers that are the source of the focuser’s competitive advantage.
? New
Advantages: Focus Strategies
?
The focuser is protected from rivals to the extent it can provide a product or service they cannot.
The focuser has power over buyers because they cannot get the same thing from anyone else. The threat of new entrants is limited by customer loyalty to the focuser. Customer loyalty lessens the threat from substitutes. The focuser stays close to its customers and their changing needs.
?
?
?
?
Disadvantages: Focus Strategies
?
The focuser is at a disadvantage with regard to powerful suppliers because it buys in small volume but it may be able to pass costs along to loyal customers.
Because of low volume, a focuser may have higher costs than a low-cost company. The focuser’s niche may disappear because of technological change or changes in customers’ tastes. Differentiators will compete for a focuser’s niche.
? ?
?
Focus / Niche Strategies and Competitive Advantage
Approach 1
Achieve lower costs than rivals in serving the segment -A focused low-cost strategy
Approach 2
Offer niche buyers something different from rivals -A focused differentiation strategy
Competitive Positioning The Value-Creation Frontier
Value-Creation Frontier represents the maximum amount of value that the products of different companies inside an industry can give customers at any one time by using different business models. Companies on the valuecreation frontier have the most successful strategy in a particular industry.
Generic Business Models : The Value-Creation Frontier
The Four Principal Generic Strategies 1. 2. 3. 4. Cost Leadership Focused Cost Leadership Differentiation Focused Differentiation
The Dynamics of Competitive Positioning
Retail Industry Dynamics Many successful companies lose their position on the frontier at some point in their history. To turn around their declining performance, they need to change their business models. Companies that can continually outperform their rivals are rare.
Porter’s Competitive Strategies
Stuck in the middle:
? No
competitive advantage performance
? Below-average
Risks of Generic Competitive Strategies
Risks of Cost Leadership Cost leadership is not sustained: • Competitors imitate. • Technology changes. • Other bases for cost leadership erode. Proximity in differentiation is lost. Cost focusers achieve even lower cost in segments. Risks of Differentiation Differentiation is not sustained: • Competitors imitate. • Bases for differentiation become less important to buyers. Cost proximity is lost. Differentiation focusers achieve even greater differentiation in segments. Risks of Focus The focus strategy is imitated: The target segment becomes structurally unattractive: • Structure erodes. • Demand disappears. Broadly targeted competitors overwhelm the segment: • The segment’s differences from other segments narrow. • The advantages of a broad line increase. New focusers subsegment the industry.
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-toexcellent product attributes, then use cost advantage to underprice comparable brands
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
?
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
?
Best-Cost Provider Strategies
When a successful differentiator has pursued its strategy in a way that has also allowed it to lower its cost structure:
? ? ? ? ? ?
Using robots and flexible manufacturing cells reduces costs while producing different products. Standardizing component parts used in different end products can achieve economies of scale. Limiting customer options reduces production and marketing costs. JIT inventory can reduce costs and improve quality and reliability. Using the Internet and e-commerce can provide information to customers and reduce costs. Low-cost and differentiated products are often both produced in countries with low labor costs.
The Broad Differentiation Business Model
Best-Cost Provider
Strategies The middle of the value-creation frontier is occupied by broad differentiators, which have pursued their differentiation strategy in a way that has allowed them to lower their cost structure at the same time. They may pose serious threats to both the cost leaders and differentiators over time.
Using a Business Model to Push Out the ValueCreation Frontier
The Dynamic & Changing Value-Creation Frontier Broad differentiators constantly improve their strategy to formulate and implement their broad differentiation business models and push out the value-creation frontier. Industry differentiators and cost leaders may find over time that they have lost their distinctive competencies that previously led to their superior performance.
The Strategy Clock
The Strategy Clock
“No Frills” Strategy
Low price Low perceived product/service benefits Focus on price-sensitive market segment
?
? ? ? ?
Commodity-like products or services
Price-sensitive customers High buyer power and/ or low switching costs Small number of providers with similar market shares Avoiding the major competitors
Low Price Strategy
Lower price than competitors Maintain similar product/service benefits
?
Pitfalls of low price strategy
? ?
Margin reduction (competitor reaction) Inability to reinvest leading to loss of perceived benefit of product Low cost itself not a basis for advantage
?
Need a low cost base
?
?
Low cost achieved in ways that competitors cannot match to give sustainable advantage
Differentiation Strategies
Offering benefits different from competitors Widely valued by buyers Better products/services at same or higher price
?
Success depends on
?
Identification of strategic customers and knowing what they value Knowing the competitors • Narrow competitor base – focused differentiation • Wide competitor base – address bases of differentiation valued by customers
?
Hybrid Strategy
Simultaneously achieving differentiation and a price lower than competitors
?
Achieve greater volumes
?
Clarity about activities on which differentiation can be built (core competences)
•
Reduce costs on other activities
?
Entry strategy in market with established competitors
Focused Differentiation
High perceived product/service benefits to selected market segment (niche) Premium products, heavily branded
?
Choice to be made between focused differentiation and broad differentiation if growth required Difficult when the focus strategy is only part of an organisation’s overall strategy Possible conflict with stakeholder expectations New ventures start off focused, but need to grow Market situation may change, reducing differences between segments
?
? ? ?
Competitive Positioning at the Business Level
Maximizing the profitability of the company’s business model is about making the right choices with regard to value creation through differentiation, costs, and pricing.
Competitive Positioning: Strategic Groups
Strategic Groups are groups of companies that follow a business model similar to other companies within their strategic group, but are different from that of other companies in other strategic groups.
Implications of Strategic Groups for Competitive Positioning:
1.
Strategic managers must map their competitors: • • • Map according to their choice of business model Use this knowledge to position themselves closer to customers Differentiate themselves from their competitors Use the map to better understand changes in the industry • • • Affecting its relative position vis-à-vis differentiation & cost structure To identify opportunities and threats Identify emerging threats from companies outside the strategic group Determine which strategies are successful
2.
3.
?
4.
Why certain business models are working or not
Fine tune or radically alter business models and strategies to improve competitive position
Failures in Competitive Positioning
Successful competitive positioning requires that a company achieve a fit between its strategies and its business model.
?
Many companies, through neglect, ignorance or error:
? ? ?
Do not work continually to improve their business model Do not perform strategic group analysis Often fail to identify and respond to changing opportunities and threats in the industry environment
?
Companies lose their position on the value frontier –
? ?
They have lost their source of competitive advantage Their rivals have found ways to push out the value-creation frontier and leave them behind
There is no more important task than ensuring that the company is optimally positioned against its rivals to compete for customers.
TOWS Matrix
doc_458148735.pptx
five generic competitive strategies like low cost provider strategies, differentiation strategy, best cost provider strategies, low price strategy, focused differentiation
Strategic Management
The Five Generic Competitive Strategies
Low-Cost Provider Strategies
?
Make meaningful lower costs than rivals as 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!
Differentiation Strategy
?
Differentiation strategy success is achieved through:
? ?
An emphasis on product or service quality. Innovation in providing new features for which customers will pay a premium price. Responsiveness to customers after the sale. Appealing to the psychological desires of customers.
? ?
Dimensions of Quality
Dimensions Quality
• • • • • • • •
Performance Features Reliability Conformance Durability Serviceability Aesthetics Perceived Quality
Focus / Niche Strategies
Objective
? ?
Involve concentrated attention on a narrow piece of the total market
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
?
Approaches to Defining a Market Niche
?
Geographic uniqueness
?
Specialized requirements in using product/service
?
Special product attributes appealing only to niche buyers
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
Risks of a Focus strategy
? Competitor
entry into focuser’s market
segment.
? Suppliers
capable of increasing costs affecting only the focuser.
? Buyers
defecting from market segment.
? Substitute
products attracting customers away from focuser’s segment. entrants overcoming entry barriers that are the source of the focuser’s competitive advantage.
? New
Advantages: Focus Strategies
?
The focuser is protected from rivals to the extent it can provide a product or service they cannot.
The focuser has power over buyers because they cannot get the same thing from anyone else. The threat of new entrants is limited by customer loyalty to the focuser. Customer loyalty lessens the threat from substitutes. The focuser stays close to its customers and their changing needs.
?
?
?
?
Disadvantages: Focus Strategies
?
The focuser is at a disadvantage with regard to powerful suppliers because it buys in small volume but it may be able to pass costs along to loyal customers.
Because of low volume, a focuser may have higher costs than a low-cost company. The focuser’s niche may disappear because of technological change or changes in customers’ tastes. Differentiators will compete for a focuser’s niche.
? ?
?
Focus / Niche Strategies and Competitive Advantage
Approach 1
Achieve lower costs than rivals in serving the segment -A focused low-cost strategy
Approach 2
Offer niche buyers something different from rivals -A focused differentiation strategy
Competitive Positioning The Value-Creation Frontier
Value-Creation Frontier represents the maximum amount of value that the products of different companies inside an industry can give customers at any one time by using different business models. Companies on the valuecreation frontier have the most successful strategy in a particular industry.
Generic Business Models : The Value-Creation Frontier
The Four Principal Generic Strategies 1. 2. 3. 4. Cost Leadership Focused Cost Leadership Differentiation Focused Differentiation
The Dynamics of Competitive Positioning
Retail Industry Dynamics Many successful companies lose their position on the frontier at some point in their history. To turn around their declining performance, they need to change their business models. Companies that can continually outperform their rivals are rare.
Porter’s Competitive Strategies
Stuck in the middle:
? No
competitive advantage performance
? Below-average
Risks of Generic Competitive Strategies
Risks of Cost Leadership Cost leadership is not sustained: • Competitors imitate. • Technology changes. • Other bases for cost leadership erode. Proximity in differentiation is lost. Cost focusers achieve even lower cost in segments. Risks of Differentiation Differentiation is not sustained: • Competitors imitate. • Bases for differentiation become less important to buyers. Cost proximity is lost. Differentiation focusers achieve even greater differentiation in segments. Risks of Focus The focus strategy is imitated: The target segment becomes structurally unattractive: • Structure erodes. • Demand disappears. Broadly targeted competitors overwhelm the segment: • The segment’s differences from other segments narrow. • The advantages of a broad line increase. New focusers subsegment the industry.
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-toexcellent product attributes, then use cost advantage to underprice comparable brands
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
?
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
?
Best-Cost Provider Strategies
When a successful differentiator has pursued its strategy in a way that has also allowed it to lower its cost structure:
? ? ? ? ? ?
Using robots and flexible manufacturing cells reduces costs while producing different products. Standardizing component parts used in different end products can achieve economies of scale. Limiting customer options reduces production and marketing costs. JIT inventory can reduce costs and improve quality and reliability. Using the Internet and e-commerce can provide information to customers and reduce costs. Low-cost and differentiated products are often both produced in countries with low labor costs.
The Broad Differentiation Business Model
Best-Cost Provider
Strategies The middle of the value-creation frontier is occupied by broad differentiators, which have pursued their differentiation strategy in a way that has allowed them to lower their cost structure at the same time. They may pose serious threats to both the cost leaders and differentiators over time.
Using a Business Model to Push Out the ValueCreation Frontier
The Dynamic & Changing Value-Creation Frontier Broad differentiators constantly improve their strategy to formulate and implement their broad differentiation business models and push out the value-creation frontier. Industry differentiators and cost leaders may find over time that they have lost their distinctive competencies that previously led to their superior performance.
The Strategy Clock
The Strategy Clock
“No Frills” Strategy
Low price Low perceived product/service benefits Focus on price-sensitive market segment
?
? ? ? ?
Commodity-like products or services
Price-sensitive customers High buyer power and/ or low switching costs Small number of providers with similar market shares Avoiding the major competitors
Low Price Strategy
Lower price than competitors Maintain similar product/service benefits
?
Pitfalls of low price strategy
? ?
Margin reduction (competitor reaction) Inability to reinvest leading to loss of perceived benefit of product Low cost itself not a basis for advantage
?
Need a low cost base
?
?
Low cost achieved in ways that competitors cannot match to give sustainable advantage
Differentiation Strategies
Offering benefits different from competitors Widely valued by buyers Better products/services at same or higher price
?
Success depends on
?
Identification of strategic customers and knowing what they value Knowing the competitors • Narrow competitor base – focused differentiation • Wide competitor base – address bases of differentiation valued by customers
?
Hybrid Strategy
Simultaneously achieving differentiation and a price lower than competitors
?
Achieve greater volumes
?
Clarity about activities on which differentiation can be built (core competences)
•
Reduce costs on other activities
?
Entry strategy in market with established competitors
Focused Differentiation
High perceived product/service benefits to selected market segment (niche) Premium products, heavily branded
?
Choice to be made between focused differentiation and broad differentiation if growth required Difficult when the focus strategy is only part of an organisation’s overall strategy Possible conflict with stakeholder expectations New ventures start off focused, but need to grow Market situation may change, reducing differences between segments
?
? ? ?
Competitive Positioning at the Business Level
Maximizing the profitability of the company’s business model is about making the right choices with regard to value creation through differentiation, costs, and pricing.
Competitive Positioning: Strategic Groups
Strategic Groups are groups of companies that follow a business model similar to other companies within their strategic group, but are different from that of other companies in other strategic groups.
Implications of Strategic Groups for Competitive Positioning:
1.
Strategic managers must map their competitors: • • • Map according to their choice of business model Use this knowledge to position themselves closer to customers Differentiate themselves from their competitors Use the map to better understand changes in the industry • • • Affecting its relative position vis-à-vis differentiation & cost structure To identify opportunities and threats Identify emerging threats from companies outside the strategic group Determine which strategies are successful
2.
3.
?
4.
Why certain business models are working or not
Fine tune or radically alter business models and strategies to improve competitive position
Failures in Competitive Positioning
Successful competitive positioning requires that a company achieve a fit between its strategies and its business model.
?
Many companies, through neglect, ignorance or error:
? ? ?
Do not work continually to improve their business model Do not perform strategic group analysis Often fail to identify and respond to changing opportunities and threats in the industry environment
?
Companies lose their position on the value frontier –
? ?
They have lost their source of competitive advantage Their rivals have found ways to push out the value-creation frontier and leave them behind
There is no more important task than ensuring that the company is optimally positioned against its rivals to compete for customers.
TOWS Matrix
doc_458148735.pptx