Competitive Strategy

Competitive Strategy
Competitive Strategy
 A competitive strategy consists of moves to

 Attract customers
 Withstand competitive pressures
 Strengthen an organization’s market position
 The objective of a competitive strategy is to generate a competitive
advantage, increase the loyalty of customers and beat competitors
 A competitive strategy is narrower in scope than a business strategy
 Five competitive strategies are
 Overall low-cost leadership strategy
 Best cost provider strategy
 Broad differentiation strategy
 Focused low-cost strategy
 Focused differentiation strategy
Overall Low-Cost Leadership Strategy
 Strive to be the overall low-cost provider in an industry

 How to achieve overall low-cost leadership
 Scrutinize each cost activity
 Manage each cost lower year after year
 Reengineer cost activities to reduce overall costs
 Cut some cost activities out of the value chain
 Competitive strengths of a overall low-cost strategy
 Organization in a better position to compete offensively on price
 Organization is better able to negotiate with large customers
 Organization is able to use price as a defense against substitutes
 Low cost is a significant barrier to entry
 Organization is more insulated from the power of suppliers
When Does an Overall Low-Cost Strategy Work
the Best
 When price competition is a dominant competitive force

 The product is a “commodity”
 There are few ways to differentiate the product
 Most customers have similar needs/requirements
 Customers incur low switching costs changing sellers
 Customers are large and have significant bargaining power
When Doesn’t a Overall Low-Cost Strategy Work
 When technological breakthroughs open cost reductions for

competitors, negating a low-cost provider’s efficiency advantage
 Competitors find it relatively easy and inexpensive to imitate the
leader’s low cost methods
 Low-cost leader focuses so much on cost reduction that the
organization fails to respond to
 Changes in customer requirements for quality and service
 New product developments
 Reduced customer sensitivity to price
Broad Differentiation Strategies
 Striving to build customer loyalty by differentiating an organization’s

products from competitors’ products
 Keys to success include
 Finding ways to differentiate to create value for customers that are not easily
copied
 Not spending more to differentiate than the price premium that can be charged
 A successful differential strategy allows an organization to
 Set a premium price
 Increase unit sales
 Build brand loyalty
Broad Differentiation Strategies
 Where to look for differentiation opportunities

 Supply chain
 Research and development
 Production activities
 Marketing, sales and service activities
 Strengths of a Differentiation Strategy
 Customers develop loyalty to the brand
 Brand loyalty acts as an entry barrier
 Organization is better able to fend off threats of substitute products because of
brand loyalty
 Reduces bargaining power of large customers since other brands are less
attractive
 Seller may be in a better position to resist efforts of suppliers to raise prices
Pitfalls of a Broad Differentiation Strategy
 Trying to differentiate on an unimportant product feature that doesn’t result

in providing more value to the customer
 Over differentiating the product such that the product features exceed the
customers’ needs
 Charging a price premium that buyers perceive as too high
 Ignoring need to signal value
 Not identifying what customers consider valuable
Best-Cost Provider Strategy
 Striving to give customers more value for the money by combining an

emphasis on low cost with an emphasis on upscale differentiation
 Combines low-cost and differentiation
 The objective is to create superior value by meeting or beating customer
expectation on product attributes and beating their price expectations
 Keys to success
 Match close competitors on key product attributes and beat them on cost
 Expertise at incorporating upscale product attributes at a lower cost than
competitors
 Contain costs by providing customers a better product
Advantages of Best-Cost Provider Strategy
 Competitive advantage comes from matching close competitors on key

product attributes and beating them on price
 Most successful best-cost providers have skills to simultaneously manage
costs down and product quality up
 Best-cost provider can often beat an overall low-cost strategy and a broad
differentiation strategy where
 Customer diversity makes product differentiation the norm
 Many customers are price and value sensitive
Focus Strategies
 Focus strategy based on low-cost

 Concentrate on a narrow customer segment beating the competition on lower
cost
 Focus strategy based on differentiation
 Offering niche customers a product customized to their needs
 Overall objective of both focus strategies is to do a better job of serving a
niche target market than competitors
 Keys to success
 Choose a niche were customers have a distinctive preference, unique needs or
special requirements
 Develop a unique ability to serve the needs of a niche target market
What Makes a Niche Attractive?
 Large enough to be profitable

 Good growth potential
 Not critical to the success of major competitors
 Organization has the resources to effectively serve the niche
 Organization can defend itself against challengers through a superior ability
to serve the niche
 No competitors are focusing on the niche
Strengths and Risks of Focus Strategies
 Strengths
 Competitors don’t have the motivation to meet specialized needs of the niche
 Organization’s competitive advantage could be seen as a barrier to entry
 Organization’s competitive advantage provides an obstacle for substitutes
 Organization’s ability to meet the needs of customers in the niche can reduce the
bargaining power of large niche buyers
 Risks
 Broad differentiated competitors may find effective ways to enter the niche
 Niche customers’ preferences may move toward the product attributes desired by
a larger market segment
 Profitability may be limited if too many competitors enter the niche

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Competitive Strategy

 A competitive strategy consists of moves to

 Strive to be the overall low-cost provider in an industry

 When price competition is a dominant competitive force

 When technological breakthroughs open cost reductions for

 Striving to build customer loyalty by differentiating an organization’s

 Where to look for differentiation opportunities

 Trying to differentiate on an unimportant product feature that doesn’t result

 Striving to give customers more value for the money by combining an

 Competitive advantage comes from matching close competitors on key

 Focus strategy based on low-cost

 Large enough to be profitable

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