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McGraw-Hill/Irwin Copyright 2010 The McGraw-Hill Companies, All Rights Reserved.
Chapter 5Chapter 5
The Five GenericThe Five Generic
CompetitiveCompetitive
StrategiesStrategies
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5-2
Competitive StrategyCompetitive Strategy
Deals exclusively with managementsgame plan for competing successfullyand 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
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Competitive Strategies and IndustryCompetitive Strategies and IndustryPositioningPositioning
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5-4
Approaches to Achieving Low CostsApproaches to Achieving Low Costs
1. Perform essential value
chain activities more cost-
effectivelythan rivals
2. Revamp the firms overall
value chain to eliminate or
bypass some cost-producing activities
altogether
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When a Low Cost StrategyWorksWhen a Low Cost StrategyWorksBestBest
Price competition is vigorous
Product is standardized
There are few ways to achieve
differentiation
Buyers incurlow switching costs
Buyers are large and have significant
bargaining power Industry newcomers use introductory
low prices to attract buyers and build
customer base
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5-6
Differentiation StrategiesDifferentiation Strategies
Powerful competitive approach
wheneverbuyers needs and
preferences are too diverse to befully satisfied by a standardized
product or service
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Differentiation StrategiesDifferentiation Strategies
Incorporate differentiating features that
cause buyers to prefer firms
product or service over brands of
rivals
Not spending more to achieve
differentiation than the price
premium that customers are
willing to payfor all
the differentiating extras
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Benefits of SuccessfulBenefits of SuccessfulDifferentiationDifferentiation
Successfully executed
differentiation strategies
allow a company to:
Command a premiumprice, and/or
Increase unit sales,
and/or Gain buyer loyaltyto its
brand
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Where to Find Opportunities toWhere to Find Opportunities toDifferentiateDifferentiate
Supply chain activities
Product R&D and productdesign activities
Production R&D andtechnology-related activities
Manufacturing activities
Distribution-related activities
Marketing, sales, and customer serviceactivities
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Market Conditions Favoring aMarket Conditions Favoring aDifferentiation StrategyDifferentiation Strategy
There are many ways to differentiate a
product that have value and please
customers
Buyerneeds and uses are diverse
Few rivals are following a similar
differentiation approach
Technological change and
product innovation are fast-paced
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Market ConditionsMaking aMarket ConditionsMaking aFocused Strategy ViableFocused Strategy Viable
The target niche is big enough to beprofitable and offers good growth potential
Industry leaders have chosen not to compete
in the niche It is costly or difficultfor multisegment
competitors to meet the specialized needs ofniche buyers
Industry has many niches and segments
Few rivals are attempting to specialize in theniche
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Best Cost Provider StrategiesBest Cost Provider Strategies
Ahybridof low cost provider and
differentiation strategies
Giving customers more value for
moneyby satisfying buyer
expectations on key
quality/features/performance/service
attributes and beat customer
expectations on price
Powerful competitive approach with
value-conscious buyers
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Employing Best Cost StrategiesEmploying Best Cost Strategies
Best Cost Strategies are contingent on:
A superior value chain configuration that
eliminates or minimizes activities that do not
add value
Unmatched efficiency in managing essential
value chain activities
Resource strengths andcore competencies that
allow differentiating attributes
to be incorporated at a low cost.
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Danger of Unsound Best CostDanger of Unsound Best CostProvider StrategyProvider Strategy
Lack of requisite core competencies,
efficiencies, and resources allowing
the addition of differentiating features
without significantly increasing costscould result in high prices relative to
low-cost providers and poor product
attributes relative to high-end
differentiators.
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Perils of Stuck in the MiddlePerils of Stuck in the MiddleStrategyStrategy
Compromise strategies end up with a
middle-of-the-packindustry rankings
and provide foraverage 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 strategiesrarely produce sustainable
competitive advantage