1. The Five Generic Competitive Strategies
Chapter 5
The Five Generic Competitive Strategies

2. Competitive Strategy
Deals exclusively with management’s game plan for competing successfully and securing a competitive advantage over rivals
Specific efforts to give customers superior value
A good product at a lower price
A superior product worth paying more for
An attractive mix of price, features, quality, service, and other appealing attributes

3. Competitive Strategies and Industry Positioning

4. Figure 5.1: The Five Generic Competitive Strategies
Type of Advantage Sought
Lower Cost
Differentiation
Overall Low-Cost
Provider
Strategy
Broad
Differentiation
Strategy
Broad
Range of Buyers
Stuck in
the
middle
Market Target
Focused
Low-Cost
Strategy
Focused
Differentiation
Strategy
Narrow
Buyer
Segment
or Niche

5. Perils of “Stuck in the Middle” Strategy
Compromise strategies end up with a middle-of-the-pack industry rankings and provide for average performance
An average cost structure
Minimal product differentiation relative to rivals
An average image and reputation
Limited prospect of industry leadership
Compromise or middle-ground strategies rarely produce sustainable competitive advantage

6. Low Cost Provider Strategies
Powerful competitive approach with price-sensitive buyers
Have lower costs than rivals—but not necessarily the absolutely lowest possible cost
Must include features and services that buyers consider essential
Must not be viewed by consumers as offering little value even if priced lower than competing products. 6

7. Translating a Low Cost Strategy Into Attractive Profit Performance
Option 1: Use lower-cost edge to under-price competitors and increase market share
Option 2: Maintain present price, be content with present market share, and use lower-cost edge to earn a higher profit margin on each unit sold

8. Approaches to Achieving Low Costs
Perform essential value chain activities more cost-effectively than rivals
2. Revamp the firm’s overall value chain to eliminate or bypass some cost-producing activities altogether

9. When a Low Cost Strategy Works Best
Price competition is vigorous
Product is standardized
There are few ways to achieve differentiation
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

10. Hazards of a Low-Cost Strategy
Cutting price by an amount greater than size of cost advantage
Low cost methods are easily imitated
Becoming too fixated on reducing costs and ignoring
Buyer interest in additional features
Declining buyer sensitivity to price
Technological breakthroughs open up cost reductions for rivals

11. Differentiation Strategies
Powerful competitive approach whenever buyers’ needs and preferences are too diverse to be fully satisfied by a standardized product or service

12. Differentiation Strategies
Incorporate differentiating features that cause buyers to prefer firm’s product or service over brands of rivals
Not spending more to achieve differentiation than the price premium that customers are willing to pay for all the differentiating extras

13. Benefits of Successful Differentiation
Successfully executed
differentiation strategies
allow a company to:
Command a premium price, and/or
Increase unit sales, and/or
Gain buyer loyalty to its brand

14. Types of Differentiation Themes
Unique taste – Dr. Pepper
Multiple features – Microsoft Windows and Office
Wide selection – Amazon.com
Superior service – Ritz-Carlton
Spare parts availability – Caterpillar
Engineering design and performance – BMW
Prestige – Rolex
Product reliability – Johnson & Johnson
Quality manufacture – Toyota
Top-of-line image – Ralph Lauren, Starbucks, Chanel

15. Creating Value for Customers through Differentiation
Incorporate product features/attributes that lower buyer’s overall costs of using product
Incorporate features/attributes that raise the performance a buyer gets out of the product
Incorporate features/attributes that enhance buyer satisfaction in non-economic or intangible ways
Exploit competencies and competitive capabilities that rivals don’t have or can’t match

16. Where to Find Opportunities to Differentiate
Supply chain activities
Product R&D and product design activities
Production R&D and technology-related activities
Manufacturing activities
Distribution-related activities
Marketing, sales, and customer service activities

17. Perceived Value and Signaling
The price premium commanded by a differentiation strategy reflects actual value delivered and value perceived by the buyer.
Buyers seldom pay for value that is not perceived

18. Perceived Value and Signaling
Important to signal value when:
Nature of differentiation is subjective
When buyers are making first-time purchases
When repurchase is infrequent
When buyers are unsophisticated

19. Market Conditions Favoring a Differentiation Strategy
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

20. Hazards of a Differentiation Strategy
Buyers see little value in a product’s unique attributes
Appealing product features are easily copied by rivals
Overspending on efforts to differentiate

21. Hazards of a Differentiation Strategy
Overdifferentiating such that product features exceed buyers’ needs
Charging a price premium buyers perceive is too high
Failing to open up meaningful gaps in product or service attributes

22. Focused Low-Cost Strategy
Reflects a concentration on a narrow piece of the total market - defined by geographic uniqueness or special product attributes
Avenues to achieving cost advantage are the same as for low- cost leadership—outmanage rivals in keeping costs low and bypassing or reducing nonessential activities

23. Focused Differentiation Strategy
Keyed to offering carefully designed products or services to appeal to the unique preferences and needs of a narrow, well-defined group of buyers

24. Market Conditions Making a Focused Strategy Viable
The target niche is big enough to be profitable and offers good growth potential
Industry leaders have chosen not to compete in the niche
It is costly or difficult for multisegment competitors to meet the specialized needs of niche buyers
Industry has many niches and segments
Few rivals are attempting to specialize in the niche

25. Hazards of a Focused 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
Segment becomes so attractive it becomes crowded with rivals, causing segment profits to be splintered

26. Successful Strategies Must Be Well-Matched to Resources and Capabilities
Low-Cost Providers
Must have the resources and capabilities to keep its costs below those of its competitors
Must have expertise to cost-effectively manage value chain activities better than rivals
Differentiators
Must have the resources and capabilities to incorporate unique attributes that a broad range of buyers will find appealing and worth paying for

27. Narrow Segment Focusers
Successful Strategies Must Be Well-Matched to Resources and Capabilities
Narrow Segment Focusers
Must have the capability to do an outstanding job of satisfying the needs and expectations of niche buyers