Generic Competitive Strategies

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Generic Strategies

The 5 Generic Competitive Strategies

1 - Low Cost Provider Strategy
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A low-cost leader’s competitive advantage is lower overall costs than competitor. Economies of scale- manufacturing units Learning curve effect Cost of key resource inputs – Walmart Sharing knowledge with other business units within the same enterprise Benefits of vertical integration versus outsourcing – Reliance Mart

Continued….
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First mover advantages and disadvantages – eBay, Google Percentage of capacity utilization Strategic choices and operating decisions – Walmart Making greater use of technology – Fedex Using direct-to-end-user sales and marketing approach – E-tickets by airlines Stripping away the extras – Dell computer

2 – Broad Differentiation Strategy
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Buyers needs and preferences are too diverse Company must study buyer’s need and behavior carefully Company incorporate buyer-desired attributes into its product or service Results in buyer becoming attached to the differentiated attributes

Differentiation allows a firm to :
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Command premium price for its product
Increase unit sales Gain buyers loyalty

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Differentiation along Value Chain
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Supply Chain Activities Product R&D Activities Product R&D and technology –related activities Manufacturing Activities Outbound logistics and distribution activities Marketing, sales, and customer service activities

3 – A Best Cost Provider Strategy
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To become a best cost provider ? Company must have resources and capabilities to achieve desirable quality ? Incorporate appealing features ? Match product performance ? Provide good-to-excellent customer service All at lower cost than rivals Rationale ? Safe, Middle ground ? Giving customers more value for money

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Illustration
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Toyota – Lexus model

4 – A Focused Strategy based on Lower Cost
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Securing a competitive advantage by offering low price than rival competitors in a niche market.
Out manage rivals in controlling the factors that drive costs & re configure the firm’s value chain in ways that yield a cost edge over rivals. Mainly adopted by private-label goods producers of generic items imitative of brand merchandise & selling directly to retail chains.

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Illustration
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low-cost clones of the premium priced replacement ink & toner cartridges sold by Hewlett-Packard, Lexmark, Canon & Epson. Pharmaceutical generic market in India.

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5 - Focused strategy based on Differentiation
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Key Features
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Concentrating on a narrow buyer segment Out-competing rivals by offering niche members customized attributes Market containing a buyer segment willing to pay a big price premium Target market niche is big enough to be profitable & offers good growth potential Few, if any, rivals are attempting to specialize in the same target segment

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Rationale
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Illustration: Progressive Insurance
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Focused Differentiation strategy in Auto Insurance
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Focused on high risk categories of drivers These high-risk drivers are affluent and pressed for time Management learning:
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Charge high enough premiums to cover the added risks Creation of Roving claim adjusters team. Expediting the process, decreasing the annoyance

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Progressive’s differentiation strategy allowed it to become a market leader in luxury-car insurance

Distinguishing Features - Snapshot
Low cost provider Strategic Target Broad differentiation Best cost provide Value-conscious buyers Ability to give customers more value-for-themoney Product with appealing, assorted upscale feature Unique expertise in managing costs down while providing upscale features Focused lowcost provider Focused differentiation

Broad cross section of the market Lower overall costs than competitors Offer buyers something attractively different from competitors Many product variations, wide selection

Niche market Lower overall cost than rivals in serving niche members Attributes that appeal specifically to niche customers

Basis of competitive advantage

Product line

Good basic product with few frills Economical prices / good value [not low value]

Features and attributes tailored to the tastes of niche members Don’t blur the firm’s image by entering other market segments. Avoid adding other products to widen market appeal

Keys to sustaining the strategy

Constant innovation

Risks involved in Generic Strategies
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Failing to attain or sustain Advantage erosion with industry evolution

Risks of overall cost leadership
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Technological change Imitation from new comers or followers

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More concentration on cost

Risks of differentiation
?Buyers sacrificing uniqueness over cost savings
?Need for differentiating factor falls ?Imitation narrows perceived differentiation

Risks of focus
?Restricting on target market
?Competitors find submarkets

Thank You



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