The Five Generic Competing Strategies

Chapter Five
The Five Generic Competing

Strategies
Reference:
Thompson, Peteraf, Gamble, Strickland, Jain
THIS CHAPTER WILL HELP YOU UNDERSTAND:
LO 1 What distinguishes each of the five generic
strategies and why some of these strategies
work better in certain kinds of competitive
conditions than in others.
LO 2 The major avenues for achieving a competitive advantage
based on lower costs.
LO 3 The major avenues to a competitive advantage based on
differentiating a company’s product or service offering from the
offerings of rivals.
LO 4 The attributes of a best-cost provider strategy—a hybrid of
low-cost provider and differentiation strategies.
WHY DO STRATEGIES DIFFER?
 A firm’s competitive strategy deals exclusively with the
specifics of its efforts to position itself in the market-place,
please customers, ward off competitive threats, and achieve a
particular kind of competitive advantage.
Is the firm’s market target

broad or narrow?
Key factors that
distinguish one strategy
from another
Is the competitive advantage
pursued linked to low costs
or product differentiation?
THE FIVE GENERIC COMPETITIVE
STRATEGIES
Low-Cost Striving to achieve lower overall costs than rivals on
Provider products that attract a broad spectrum of buyers.
Broad Differentiating the firm’s product offering from rivals’ with

Differentiation attributes that appeal to a broad spectrum of buyers.
Focused Concentrating on a narrow price-sensitive buyer

Low-Cost segment and on costs to offer a lower-priced product.
Focused Concentrating on a narrow buyer segment by meeting

Differentiation specific tastes and requirements of niche members
Best-Cost Giving customers more value for the money by offering

Provider upscale product attributes at a lower cost than rivals
5–4
FIGURE 5.1 The Five Generic Competitive Strategies
LOW-COST PROVIDER
STRATEGIES
Effective Low-Cost Approaches:
◦ Pursue cost-savings that are difficult imitate.
◦ Avoid reducing product quality to unacceptable levels.
 Competitive Advantages and Risks:
◦ Greater total profits and increased market share gained
from underpricing competitors.
◦ Larger profit margins when selling products at prices
comparable to and competitive with rivals.
◦ Low pricing does not attract enough new buyers.
◦ Rival’s retaliatory price cutting set off a price war.
Major Avenues for Achieving a Cost Advantage
Low-Cost Advantage
◦ A firm’s cumulative costs for its overall value chain
must be lower than its rival’s cumulative costs.
How to Gain a Low-cost Advantage:
◦ Do a better job than rivals of performing value chain
activities more cost-effectively.
◦ Revamp the firm’s overall value chain to eliminate or
bypass cost-producing activities.
Cost-Efficient Management of Value Chain Activities
Cost Driver
◦ Is a factor with a strong influence on a firm’s costs.
◦ Can be asset- or activity-based.
Ways to Secure a Cost Advantage:
◦ Use lower-cost inputs and hold minimal assets
◦ Offer only “essential” product features or services
◦ Offer only limited product lines
◦ Use low-cost distribution channels
◦ Use the most economical delivery methods
FIGURE 5.2 Cost Drivers: The Keys to Driving Down Company Costs
COST-CUTTING METHODS
1. Striving to capture all available economies of scale.
2. Taking full advantage of experience and learning-curve effects.
3. Operating facilities at full or near-full capacity.
4. Improving supply chain efficiency.
5. Substituting lower-cost inputs wherever there is little or no sacrifice in
product quality or performance..
6. Using the firm’s bargaining power vis-à-vis suppliers or others in the value
chain system to gain concessions.
7. Using online systems and sophisticated software to achieve operating
efficiencies.
8. Improving process design and employing advanced production technology..
9. Being alert to the cost advantages of outsourcing or vertical integration.
10. Motivating employees through incentives and company culture.
Revamping the Value Chain System to Lower Costs
Bypass the activities and costs of distributors and

dealers by selling directly to consumers.
Coordinate with suppliers to bypass activities, speed
up their performance, or otherwise increase overall
efficiency.
Reduce handling and shipping costs by locating
suppliers close to the firm’s own facilities.
When a Low-Cost Provider Strategy Works Best
1. Price competition among rival sellers is vigorous.

2. Products are readily available from many sellers.
3. Industry products are not easily differentiated.
4. Most buyers use the product in the same ways.
5. Buyers incur low costs in switching among sellers.
6. Large buyers have the power to bargain down prices.
7. New entrants can use introductory low prices to attract
buyers and build a customer base.
Pitfalls of a Low-Cost Provider Strategy
Lowering selling prices results in gains that are
smaller than the increases in total costs, reducing
profits rather than raising them.
Relying on a cost advantage that is not sustainable
because rivals can copy or otherwise overcome it.
Becoming too fixated on cost reduction such that
the firm’s offering is too features-poor to generate
sufficient buyer appeal.
BROAD DIFFERENTIATION
STRATEGIES
Effective Differentiation Approaches:
◦ Carefully study buyer needs and behaviors, values and
willingness to pay a unique product or service.
◦ Incorporate features that both appeal to buyers and create a
sustainably distinctive product offering.
◦ Use higher prices to recoup differentiation costs.
Advantages of Differentiation:
◦ Premium prices for products
◦ Increased unit sales
◦ Brand loyalty
Cost-Efficient Management of Value Chain Activities
A Uniqueness Driver Can:

◦ Have a strong differentiating effect.
◦ Be based on physical as well as functional attributes
of a firm’s products.
◦ Be the result of superior performance capabilities of
the firm’s human capital.
◦ Have an effect on more than one of the firm’s value
chain activities.
◦ Create a perception of value (brand loyalty) in
buyers where there is little reason for it to exist.
5.3 Uniqueness Drivers: The Keys to Creating
a Differentiation Advantage
Revamping the Value Chain
System to Increase Differentiation
Coordinating with channel

allies to enhance customer
perceptions of value
Approaches
to enhancing
differentiation
Coordinating with suppliers
to better address customer
needs
When a Differentiation Strategy Works Best
Market Circumstances
Favoring Differentiation
Diversity of Many ways that Few rival firms Rapid change

buyer needs differentiation follow a similar in technology and
and uses for can have value differentiation product
the product to buyers approach features
Pitfalls of a Differentiation Strategy
 Relying on product attributes easily copied by rivals.
 Introducing product attributes that do not evoke an
enthusiastic buyer response.
 Eroding profitability by overspending on efforts to
differentiate the firm’s product offering.
 Not opening up meaningful gaps in quality, service, or
performance features vis-à-vis the products of rivals.
 Adding frills and features such that the product exceeds
the needs and uses of most buyers.
 Charging too high a price premium.
FOCUSED (OR MARKET NICHE)
STRATEGIES
Focused Strategy
Approaches
Focused Focused
Low-Cost Market Niche
Strategy Strategy
When a Focused Low-Cost or Focused
Differentiation Strategy Is Attractive
 The target market niche is big enough to be profitable and
offers good growth potential.
 Industry leaders do not see that having a presence in the
niche is crucial to their own success.
 Itis costly or difficult for multisegment competitors to meet
the needs of target market niche buyers.
 The industry has many different niches and segments.
 Rivals have little or no interest in the target segment.
 The focuser has a reservoir of buyer goodwill and long-term
loyalty.
The Risks of a Focused Low-Cost or
Focused Differentiation Strategy
Competitors will find ways to match the focused
firm’s capabilities in serving the target niche.
The specialized preferences and needs of niche
members to shift over time toward the product
attributes desired by the majority of buyers.
As attractiveness of the segment increases, it draws
in more competitors, intensifying rivalry and
splintering segment profits.
BEST-COST PROVIDER
STRATEGIES
Differentiation: Low Cost Provider:

Providing desired quality/ Charging a lower price
features/performance/ than rivals with similar
service attributes caliber product offerings
Best-Cost Provider
Hybrid Approach
Value-Conscious Buyer
Market Characteristics Favoring
a Best-Cost Provider Strategy
 Product differentiation is the market norm.
 There are a large number of value-conscious buyers who
prefer midrange products.
 There is competitive space near the middle of the market for
a competitor with either a medium-quality product at a
below-average price or a high-quality product at an average
or slightly higher price.
 Economic conditions have caused more buyers to become
value-conscious.
The Big Risk of a Best-Cost Provider Strategy—Getting
Squeezed on Both Sides
Best-Cost
Low-Cost High-End
Provider
Providers Differentiators
Strategy
THE CONTRASTING FEATURES OF THE FIVE
GENERIC COMPETITIVE STRATEGIES: A
SUMMARY
Each Generic Strategy:
◦ Positions the firm differently in its market.
◦ Establishes a central theme for how the firm intends to
outcompete rivals.
◦ Creates boundaries or guidelines for strategic change
as market circumstances unfold.
◦ Points to different ways of experimenting and tinkering
with the basic strategy.
5.1 Distinguishing Features of the Five Generic Competitive Strategies
5.1 Distinguishing Features of the Generic Competitive Strategies (cont’d)
5.1 Distinguishing Features of the Generic Competitive Strategies (cont’d)
Successful Competitive Strategies
Are Resource-Based
A firm’s competitive strategy is unlikely to succeed
unless it is predicated on leveraging a
competitively valuable collection of resources and
capabilities that match the strategy.
Sustaining a firm’s competitive advantage depends
on its resources, capabilities, and competences that
are difficult for rivals to duplicate and have no
good substitutes.

The Five Generic Competing Strategies

Uploaded by

Copyright:

Available Formats

The Five Generic Competing Strategies

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

The Five Generic Competing Strategies

Uploaded by

Copyright:

Available Formats

Chapter Five

The Five Generic Competing

Is the firm’s market target

Broad Differentiating the firm’s product offering from rivals’ with

Focused Concentrating on a narrow price-sensitive buyer

Focused Concentrating on a narrow buyer segment by meeting

Best-Cost Giving customers more value for the money by offering

Bypass the activities and costs of distributors and

1. Price competition among rival sellers is vigorous.

A Uniqueness Driver Can:

Coordinating with channel

Diversity of Many ways that Few rival firms Rapid change

Differentiation: Low Cost Provider:

You might also like