Chapter 5

1. Chapter 5 The Five Generic Competitive Strategies

2. Competitive Strategy • Deals exclusively with management’sgame plan for competing successfully and 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

3. Competitive Strategies and Industry Positioning

4. Approaches to Achieving Low Costs • Perform essential value chain activities more cost-effectively than rivals 2. Revamp the firm’s overall value chain to eliminate or bypass some cost-producing activities altogether

5. When a Low Cost Strategy Works Best • Price competition is vigorous • Product is standardized • There are few ways to achievedifferentiation • Buyers incur low switching costs • Buyers are large and have significant bargaining power • Industry newcomers use introductory low prices to attract buyers and build customer base

6. Differentiation Strategies • Powerful competitive approach whenever buyers’ needs and preferences are too diverse to be fully satisfied by a standardized product or service

7. Differentiation Strategies • Incorporate differentiating features that cause buyers to prefer firm’s product or service over brands of rivals • Not spending more to achieve differentiation than the price premium that customers are willing to pay for all the differentiating extras

8. Benefits of Successful Differentiation Successfully executed differentiation strategies allow a company to: • Command a premium price, and/or • Increase unit sales, and/or • Gain buyer loyalty to its brand

9. Where to Find Opportunities to Differentiate • Supply chain activities • Product R&D and product design activities • Production R&D and technology-related activities • Manufacturing activities • Distribution-related activities • Marketing, sales, and customer service activities

10. Market Conditions Favoring a Differentiation Strategy • There are many ways to differentiate aproduct that have value and please customers • Buyer needs and uses are diverse • Few rivals are following a similardifferentiation approach • Technological change andproduct innovation are fast-paced

11. Market Conditions Making a Focused Strategy Viable • The target niche is big enough to be profitable and offers good growth potential • Industry leaders have chosen not to compete in the niche • It is costly or difficult for multisegment competitors to meet the specialized needs of niche buyers • Industry has many niches and segments • Few rivals are attempting to specialize in the niche

12. Best Cost Provider Strategies • A hybrid of low cost provider and differentiation strategies • Giving customers more value for money by satisfying buyer expectations on key quality/features/performance/service attributes and beat customer expectations on price • Powerful competitive approach with value-conscious buyers

13. Employing 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 and core competencies that allow differentiating attributes to be incorporated at a low cost.

14. Danger of Unsound Best Cost Provider Strategy Lack of requisite core competencies, efficiencies, and resources allowing the addition of differentiating features without significantly increasing costs could result in high prices relative to low-cost providers and poor product attributes relative to high-end differentiators.

15. Perils of “Stuck in the Middle” Strategy Compromise strategies end up with a middle-of-the-pack industry rankings and provide for average 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 strategies rarely produce sustainable competitive advantage