Generic Business Strategies. Cost-based and Differentiation-based Competitive Strategies. Sources of Competitive Advantage. Competitive Advantages (Sources of Rates of Profit in Excess of the Competitive Level). Avoid Competitors. Be Better Than Competition. Attractive Industry.
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Cost-based and Differentiation-based Competitive Strategies
(Sources of Rates of Profit in Excess of the Competitive Level)
Be Better ThanCompetition
Competitive Advantages as the Source of Superior Profitability
Low Cost Leadership Strategies
Market Share (Quantity)
Low Cost Position
by the Customer
Source: Porter (1980)
ECONOMIES OF SCALE -Indivisibilities -Specialization & division of labor ECONOMIES OF LEARNING -Increased dexterity -Improved coordination/organization CAPACITY UTIIZATION -Ratio of fixed to variable costs PRODUCTION TECHNIQUES -Mechanization and automation -Efficient utilization of materials -Increased precision PRODUCT DESIGN -Design for automation -Designs to economize on materials INPUT COSTS -Location advantages -Ownership of low-cost inputs -Bargaining power -Supplier cooperation MANAGERIAL EFFICIENCY -Organizational slack
Products in the Differentiation Hall of Fame
IBM 370 series
Louis Vuitton bags
Holiday Inns hotels
Polaroid Land camera
Alcort Sunfish sailboat
American Express credit cards and travelers checks
Numbered Swiss bank accounts
• Understanding customer needs and preferences
• Commitment to customers
• Knowledge of company's capabilities
Source: Robert M. Grant,
Contemporary Strategy Analysis
, Basil Blackwell, 1991.
Observable product characteristics:
size, color, materials, etc.
Unobservable and subjective characteristics relating to image status, exclusively, identity.
The Nature of Differentiation
“Differentiation means providing something unique that is valuable to the buyer beyond simply offering a low price.” (M. Porter)
THE KEY IS CREATING VALUE FOR THE CUSTOMER
TOTAL CUSTOMER RESPONSIVENESS: Differentiation not just about the product, it embraces the whole relationship between the supplier and the customer.
How one goes about obtaining a differentiation advantage depends upon whether or not a product is an observable good, an experience good, or a communication good.