ssf mod iv
TRANSCRIPT
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The Five GenericCompetitive Strategies
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Competitive strategy is about
being different. It means
deliberately choosing to perform
activities differently or to perform
different activities than rivals to
deliver a unique mix of value.
Michael E. Porter
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Product / Service offers superior value:
A
good productat a low price Abetter productat the same price
Asuperior value productat a reasonable
price
Abest-value productat apremium price
Key to Gaining a Competitive Advantage
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Concept of Value Creation :GeneratingConsumer surplus by
providing Utility Value in excess of the price paid
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Competitive Strategies
Low-Cost Strategies
Differentiation Strategies
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The Five Generic
Competitive Strategies
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Low-cost leadership means low
overall costs, not just low
manufacturing or production costs!
Low-Cost Provider Strategies
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Compare and Benchmark cost componentswith those of Rivals
Identify areas forsubstantial reduction in costs
Include essential features and services inproduct
from buyers point of view Find approaches to achieve a cost advantage
such that it becomes difficultfor rivalsto copy or match
Keys Steps
Low-Cost Provider Strategies
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Option 1: Use lower-cost edge to
Under-price and increase market share by
attracting price-sensitive buyers, thereby
increase profits
Option 2: Use lower-cost edge to
- Maintain present price and existing market share,
- Earn higher profit margin on sales, thereby
increase profits
Two options in achieving
Low-Cost Advantage
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Re-EngineerActivities to enhance Value Additions
by performing value chain activities more efficiently
and cost effectively
Revamp activities adding little value or eliminate
those activities adding No-Value in the value
chain
Approach 1
Approach 2
Approaches to Securing
a Cost Advantage
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Approach 1: Controlling
the Cost Drivers
Capture scale economies; avoid scale
diseconomies
Capture learning and experience curve
effects
Manage costs of key resource inputs
Consider linkages with other activities in
value chain
Find sharing opportunities with other
business units
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Approach 1: Controlling
the Cost Drivers
Compare vertical integration vs. outsourcing
Assess first-mover advantages vs.
disadvantages
Control percentage of capacity utilization
Make prudent strategic choices related to
operations
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Approach 2: Revamping
the Value Chain
Make greater use of Internet technology
applications
Use direct-to-end-user sales/marketing
methods
Simplify product design
Offer basic, no-frills product/service
Shift to a simpler, less capital-intensive, ormore flexible technological process
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Approach 2: Revamping
the Value Chain
Find ways to bypass use of high-cost raw
materials
Relocate facilities closer to suppliers or
customers
Drop something for everyone approach
and focus on a limited product/service
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Keys to Success in Achieving
Low-Cost Leadership
Scrutinize each cost-creating activity,
identifying cost drivers
Use knowledge about cost drivers to manage
costs of each activity down year after year
Find ways to restructure value chain to
eliminate
nonessential work steps and low-valueactivities
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Keys to Success in Achieving
Low-Cost Leadership
Work diligently to create cost-consciouscorporate cultures
Feature broad employee participation in
continuous cost-improvement efforts andlimited perks for executives
Strive to operate with exceptionally smallcorporate staffs
Aggressively pursue investments inresources and capabilities that promise todrive costs out of the business
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Characteristics of
Cost conscious corporate culture
Employee participation in cost-control efforts
Ongoing efforts to benchmark costs
Intensive scrutiny of budget requests
Programs promoting continuous cost
improvement
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Pitfalls of Low-Cost Strategies
Being overly aggressive in cutting price
Low cost methods are easily imitated by rivals
Becoming too fixated on reducing costs
and ignoring
Buyer interest in additional features
Declining buyer sensitivity to price
Changes in how the product is used
Technological breakthroughs open up cost
reductions for rivals
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Nucor Corporations
Low-Cost Provider StrategyEliminate some production processes from value chain used by traditionalintegrated steel mills; cut investment in facilities and equipment
Strive hard for continuous improvement in the efficiency of its plants andfrequently invest in state-of-the art equipment to reduce unit costs
Carefully select plan sites to minimize inbound and outbound shippingcosts and to take advantage of low rates for electricity
Hire a nonunion workforce that uses team-based incentive compensationsystems
Heavily emphasize consistent product quality and maintain rigorousquality systems
Minimize general and administrative expenses by maintaining a lean staffat corporate headquarters and allowing only 4 levels of management
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Differentiation Strategies
Incorporate differentiatingfeatures that
cause buyers topreferfirmsproduct orservice over brands of rivals
Objective
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Differentiation Strategies
Find ways to differentiate that create valuefor buyers and are not easily matchedor
cheaply copiedby rivals
Not spendingmore to achieve differentiationthan theprice premium that can be charged
Keys to Success
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Sustaining Differentiation: Keys to
Competitive Advantage
Most appealingapproaches to differentiation
Those hardest for rivals to match or imitate
Those buyers will find most appealing
Best choices to gain a longer-lasting, more profitablecompetitive edge
New product innovation
Technical superiority
Product quality and reliability
Comprehensive customer service
Unique competitive capabilities
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Differentiation Opportunities in the
Value Chain
Value Chain
Internally
Performed
Activities,
Costs, &
Margins
Activities,
Costs, &Margins of
Suppliers
Buyer/User
Value
Chains
Margins of
Forward
ChannelAllies &
Strategic
Partners
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Where to Find Differentiation
Opportunities in the Value Chain
Purchasing and procurement activities
Product R&D and product design activities
Production process / technology-relatedactivities
Manufacturing / production activities
Distribution-related activities
Marketing, sales, and customer service
activities
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How to Achieve a
Differentiation-Based Advantage
Approach 1
Incorporate features/attributes that raise theperformance a buyer gets out of the product
Approach 2
Incorporate features/attributes that enhance buyersatisfaction in non-economic or intangible ways
Approach 3
Compete on the basis ofsuperior capabilities
Approach 4
Incorporate product features/attributes thatlower buyers overall costs of using product
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When Does a Differentiation
Strategy Work Best?
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
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Pitfalls of
Differentiation Strategies
Buyers see little value in unique attributes of product
Appealing product features are easily copied by
rivals
Differentiating on a feature buyers do not perceiveas lowering their cost or enhancing their well-being
Over-differentiating such that product
features exceed buyers needs
Charging a price premiumbuyers perceive is too high
Not striving to open up meaningful gaps in quality,
service, or performance features vis--vis rivals
products
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Best-Cost Provider Strategies
Combine a strategic emphasis on low-costwith astrategic emphasis on differentiation
Make an upscale product at a lower cost
Give customers more value for the money
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-to-
excellent product attributes, then use cost
advantage to under-price comparable brands
Objectives
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A best-cost providers competitive advantage
comes from matchingclose rivals on key
product attributes and beatingthem on price Success depends on having the skills and
capabilities toprovide attractive performance
and features at a lower cost than rivals
Competitive Strength of a
Best-Cost Provider Strategy
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Focus / Niche Strategies
Involve concentrated attention on a narrow piece ofthe total market
Serve niche buyers better than rivals
Choose a market niche where buyers have
distinctive preferences, special requirements, or
unique needs
Develop unique capabilities to serve needs of target
buyer segment
Objective
Keys to Success
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Geographic uniqueness
Specialized requirements in
using product/service
Special product attributes
appealing only to niche buyers
Approaches to Defining
a Market Niche
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Focus / Niche Strategies
and Competitive Advantage
Achieve lower costs than
rivals in serving the segment --A focused low-cost strategy
Offer niche buyers something
different from rivals --
A focused differentiation strategy
Approach 1
Approach 2
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Examples of Focus Strategies
eBay
Online auctions
Porsche
Sports cars
Jiffy Lube International
Maintenance for motor vehicles
Pottery Barn Kids
Childrens furniture and accessories Bandag
Specialist in truck tire recapping
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Pitfalls of Focus Strategy
Competitors find effective ways to matcha focusers capabilities in serving niche
Niche buyers preferences shift towards
product attributes desired by majority of
buyers niche
becomes part of overall market
Segment becomes so attractive it becomes
crowded with rivals, causing segment profits
to be splintered
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