GENERIC COMPETITIVE STRATEGIES

COST, LEADERSHIP, DIFFERENTIATION & FOCUS

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Michael E. Porter

Michael E. Porter is a leading authority on competitive

strategy; the competitiveness and

economic development of nations.

“Father Of The Modern Strategy Field”

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GENERIC COMPETITIVE STRATEGIES

Cost Leadership

Cost Focus

Differentiation Leadership

Differentiation Focus

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Scope of Business Products

Cost Focus

Differentiation Focus

Differentiation Leadership

Broad Narrow

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COST LEADERSHIP

• It describes a way to establish the competitive advantage.

• Cost leadership, in basic words, means the lowest cost of operation in the industry.

• The cost leadership is often driven by company efficiency, size, scale, scope and cumulative experience (learning curve).

• A cost leadership strategy aims to exploit scale of production, well defined scope and other economies

Eg. producing highly standardized products, using high technology.

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Examples….

Video

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Scope of Business Products

Cost Focus

Differentiation Focus

Differentiation Leadership

Broad Narrow

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COST FOCUS

• Cost focus exploits differences in cost behaviour in segments

• The firm can choose to compete in a defined, focused market segment with a narrow scope

• In adopting a narrow focus, the company ideally focuses on a few target markets

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WHAT MAKES A SEGMENT ATTRACTIVE FOR FOCUSING?

• Size of the segment is big enough to be profitable• Size of the segment is small enough to be of secondary

interest to large rivals• Has good growth potential• Less vulnerable to substitutes

• Not crucial to the success of major competitors

• Buyers in the segment require specialized expertise OR customized product attributes

• No other rivals are concentrating on the segment

Points to remember……

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Example….

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Scope of Business Products

Cost Focus

Differentiation Focus

Differentiation Leadership

Broad Narrow

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DIFFERENTIATION LEADERSHIP• Customers perceive the product to be different and

better than that of rivals

• A differentiation strategy calls for the development of a product or service that offers unique attributes that are valued by customers.

• Approaches to differentiation include developing UNIQUE brand images, technology, features, channels, and customer service

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Examples….

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Examples….

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Scope of Business Products

Cost Focus

Differentiation Focus

Differentiation Leadership

Broad Narrow

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DIFFERENTIATION FOCUS

• Firms that are successful in a focus strategy are able to tailor a broad range of product development strengths to a relatively narrow geographic market segment, or to a particular buyer group or segment

• Also target market segments that are less vulnerable to substitutes.

• Also called a segmentation strategy or niche strategy

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Examples….

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Scope of Business Products

Cost Focus

Differentiation Focus

Differentiation Leadership

Broad Narrow

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Cost Leadership

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BEST COST PROVIDER STRATEGY• Low cost, differentiation markets (a hybrid)

• Broad markets and market niches (middle ground)

• Value conscious buyers

• Those who shy away from cheap, low-end products and expensive high-end products

• Willing to pay a fair price for functionality and performance

• More for the money

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BEST COST PROVIDER STRATEGY‣ Positioning near the middle of the market

‣ Combines other basic strategies

‣ Medium quality at below average price, or

‣ Somewhat higher quality at an average or slightly higher price

‣ Adjust strategy for economic conditions, i.e. more value conscious

‣ Match strategy to internal resources and capabilities

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Examples….

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• http://www.youtube.com/watch?v=UA3C0SK-bEs

• http://www.youtube.com/watch?v=6kgMMgqLL24