THE FIVE GENERIC THE FIVE GENERIC COMPETITIVE COMPETITIVE STRATEGIESSTRATEGIES

STRATEGIC MANAGEMENT

RAK_IM Telkom_MM Eks 23_CSBD MODULE_ 2009

What IsWhat Is“Competitive Strategy”?“Competitive Strategy”?

““is the management’s game is the management’s game planplan for for competing competing successfully”successfully”

How it plans to position the company in the How it plans to position the company in the market placemarket place

It’s Specific It’s Specific effortsefforts to to please customersplease customers

Fig. 5.1: The Five GenericFig. 5.1: The Five GenericCompetitive StrategiesCompetitive Strategies

A Low-Cost Leadership A Low-Cost Leadership StrategyStrategy

using lower-cost to :using lower-cost to :Under-price rivalsUnder-price rivalsEarn higher profit margin Earn higher profit margin

Objective

The Competitive Strengths of The Competitive Strengths of Low-Cost LeadershipLow-Cost Leadership

Better positioned than Better positioned than RIVAL COMPETITORS RIVAL COMPETITORS on basis of on basis of priceprice

Low-cost provides some protection from bargaining leverage Low-cost provides some protection from bargaining leverage of powerful of powerful BUYERSBUYERS

Low-cost provides some protection from bargaining leverage Low-cost provides some protection from bargaining leverage of powerful of powerful SUPPLIERSSUPPLIERS

Low-cost provider’s pricing power as a significant barrier Low-cost provider’s pricing power as a significant barrier for for POTENTIAL ENTRANTS POTENTIAL ENTRANTS

Low cost puts a company in position to use low price as a Low cost puts a company in position to use low price as a defense against defense against SUBSTITUTESSUBSTITUTES

Pitfalls of Low-Cost StrategiesPitfalls of Low-Cost Strategies Being overly aggressive in cutting price (profits go down,not Being overly aggressive in cutting price (profits go down,not

up)up) Low cost methods are easily imitated by rivalsLow cost methods are easily imitated by rivals

Differentiation StrategiesDifferentiation Strategies

To be unique in ways that are valuable to a wide range of To be unique in ways that are valuable to a wide range of customerscustomers

Find ways to differentiate that Find ways to differentiate that CREATE VALUECREATE VALUE for buyers for buyers andand that are that are NOT EASILY MATCHED NOT EASILY MATCHED oror CHEAPLY CHEAPLY COPIEDCOPIED by rivalsby rivals

Keys to Success

Objective

Which hat is unique?

The Benefits of Successful The Benefits of Successful DifferentiationDifferentiation

Command a premium price and/or

Increase unit sales and/or

Build brand loyalty

Types of Differentiation ThemesTypes of Differentiation Themes

Unique tasteUnique taste -- Dr. Pepper -- Dr. Pepper Multiple featuresMultiple features -- Microsoft Windows and Office -- Microsoft Windows and Office Wide selectionWide selection and and one-stop shoppingone-stop shopping -- Home Depot and -- Home Depot and

Amazon.comAmazon.com Superior serviceSuperior service -- FedEx, Ritz-Carlton -- FedEx, Ritz-Carlton Spare parts availabilitySpare parts availability -- Caterpillar -- Caterpillar More for your moneyMore for your money -- McDonald’s, Wal-Mart -- McDonald’s, Wal-Mart PrestigePrestige -- Rolex -- Rolex Quality manufactureQuality manufacture -- Honda, Toyota -- Honda, Toyota Technological leadershipTechnological leadership -- 3M Corporation -- 3M Corporation Top-of-line imageTop-of-line image -- Ralph Lauren, Chanel, Cross -- Ralph Lauren, Chanel, Cross

Pitfalls ofPitfalls ofDifferentiation StrategiesDifferentiation Strategies

Buyers see little value in unique attributes of productBuyers see little value in unique attributes of product Appealing product features are easily copied by rivalsAppealing product features are easily copied by rivals Over-differentiating such that productOver-differentiating such that product

features exceed buyers’ needsfeatures exceed buyers’ needs Charging a price premium,Charging a price premium,

buyers perceive is too highbuyers perceive is too high

Best Cost Provider StrategiesBest Cost Provider Strategies

“…“…Give customers more value for the money”Give customers more value for the money”

Create superior value by Create superior value by satisfying satisfying buyer expectations on buyer expectations on product attributes and product attributes and BEATINGBEATING their price expectations their price expectations

Be the low-cost producer of a product with Be the low-cost producer of a product with EXCELLENTEXCELLENT product attributes, then use cost advantage to product attributes, then use cost advantage to UNDERPRICEUNDERPRICE comparable brandscomparable brands

Objectives

Focus / Niche StrategiesFocus / Niche Strategies““..Involve concentrated attention on a narrow piece of the total ..Involve concentrated attention on a narrow piece of the total market”market”

Serve niche buyers better than rivalsServe niche buyers better than rivals

Choose a market niche where buyers have distinctive Choose a market niche where buyers have distinctive preferences, special requirements, or unique needspreferences, special requirements, or unique needs

Develop unique capabilities to serve needs of target buyer Develop unique capabilities to serve needs of target buyer segmentsegment

Objective

Keys to Success

Examples of Focus StrategiesExamples of Focus Strategies

eBayeBay Online auctionsOnline auctions

PorschePorsche Sports carsSports cars

Jiffy Lube InternationalJiffy Lube International Maintenance for motor vehiclesMaintenance for motor vehicles

Pottery Barn KidsPottery Barn Kids Children’s furniture and accessoriesChildren’s furniture and accessories

Focus / Niche StrategiesFocus / Niche Strategiesand Competitive Advantageand Competitive Advantage

Achieve lower costs thanAchieve lower costs thanrivals in serving the segment --rivals in serving the segment --

A focused low-cost strategyA focused low-cost strategy

Offer niche buyers somethingOffer niche buyers somethingdifferent from rivals --different from rivals --

A focused differentiation strategyA focused differentiation strategy

Approach 1

Approach 2 Which hat is unique?