PORTER 5 DIFFERENTIATION
Transcript of PORTER 5 DIFFERENTIATION
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Chapter Roadmap
Competitive Strategies
Low-Cost Provider Strategies
Differentiation Strategies
Focused (or Market Niche) Strategies
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What Is Competitive Strategy?
Deals exclusively with a companys business
plans to compete successfully
Specific efforts toplease customers
Offensive and defensive moves
to counter maneuvers of rivals
Responses to prevailing marketconditions
Initiatives to strengthen its market position
Narrower in scope than business strategy
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Low-Cost Provider Strategies
Make achievement ofmeaningful lowercosts
than rivals the theme of firms strategy
Include features andservices in productoffering that buyers consideressential
Find approaches to achieve a cost advantage
in ways difficultfor rivals to copy or match
Keys to SuccessKeys to Success
Low-cost leadership means low overallcosts, not
just low manufacturing or production costs!
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Option 1: Use lower-cost edge to
under-price competitors and attract
price-sensitive buyers in enoughnumbers to increase total profits
Option 2: Maintain present price, be
content with present market share,and use lower-cost edge to earn a
higher profit margin on each unit sold,
thereby increasing total profits
Translating a Low-Cost Advantage intoHigher Profits: Two Options
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Cost conscious corporate culture
Employee participation in cost-control efforts
Ongoing efforts to benchmark costs Intensive scrutiny of budget requests
Programs promoting continuous cost improvement
Successful low-cost producers champion
frugalitybut wisely and aggressively
invest in cost-saving improvements !
Characteristics of a Low-Cost Provider
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Price competition is vigorous
Product is standardized or readily availablefrom many suppliers
There are few ways to achievedifferentiation that have value to buyers
Most buyers use product in same ways
Buyers incur low switching costs
Buyers are large and havesignificant bargaining power
Industry newcomers use introductory low prices toattract buyers and build customer base
When Does a Low-CostStrategy Work Best?
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Pitfalls of Low-Cost Strategies
Being overly aggressive in cutting price
Low cost methods are easily imitated by rivals
Becoming too fixated on reducing costsand ignoring
Buyer interest in additional features
Declining buyer sensitivity to price
Changes in how the product is used
Technological breakthroughs open up cost
reductions for rivals
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Incorporate differentiatingfeatures that cause
buyers topreferfirmsproduct orservice over
brands of rivals
Find ways to differentiate that create value for
buyers and are not easily matchedorcheaplycopiedby rivals
Notspending more to achieve differentiation
than theprice premium that can be charged
ObjectiveObjective
Keys to SuccessKeys to Success
Differentiation Strategies
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Benefits of Successful Differentiation
A product / service with unique,
appealing attributes allows a firm to
Command apremium price and/or
Increase unitsales and/or
Buildbrand loyalty
= Competitive Advantage
Whichhat is
unique?
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Unique taste Dr. Pepper
Multiple features Microsoft Windows and Office
Wide selection and one-stop shopping Home Depot,
Amazon.com
Superiorservice -- FedEx, Ritz-Carlton
Spare parts availability Caterpillar
Engineering design and performance Mercedes, BMW
Prestige Rolex
Product reliability Johnson & Johnson
Quality manufacture Karastan, Michelin, Toyota
Technological leadership 3M Corporation
Top-of-line image
Ralph Lauren, Starbucks, Chanel
Types of Differentiation Themes
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Sustaining Differentiation:Keys to Competitive Advantage
Most appealing approaches to differentiation
Those hardestfor rivals to match or imitate
Those buyers willfind most appealing
Bestchoices to gain a longer-lasting, more
profitable competitive edge
New product innovation
Technical superiority Product quality and reliability
Comprehensive customer service
Unique competitive capabilities
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When Does a DifferentiationStrategy Work Best?
There are many ways to differentiate a product
that have value and please customers
Buyer needs and uses are diverse
Few rivals are following a similar
differentiation approach
Technological change and
product innovation are fast-paced
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Focus / Niche Strategies
Involve concentrated attention on a narrow piece of
the total market
Serve niche buyers better than rivals
Choose a market niche where buyers
have distinctive preferences, specialrequirements, or unique needs
Develop unique capabilities to serve
needs of target buyer segment
Objective
Keys to Success
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Geographic uniqueness
Specialized requirements in
using product/service
Special product attributes
appealing only to niche buyers
Approaches to Defining a Market Niche
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Examples of Focus Strategies
AnimalPlanet and History Channel Cable TV
Google Internet search engines
Porsche Sports cars
Cannondale Top-of-the line mountain bikes
Enterprise Rent-a-Car Provides rental cars to repair garage customers
Bandag
Specialist in truck tire recapping
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Focus / Niche Strategiesand Competitive Advantage
Achieve lower costs than rivals in
serving a well-defined buyer segment Focused low-coststrategy
Offer a product appealing to unique
preferences of a well-defined buyer segment
Focus
ed diff
erentiationstrategy
Approach 1
Approach 2Which
hat is
unique?
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What Makes a NicheAttractive for Focusing?
Big enough to be profitable and offers good growth
potential
Not crucial to success of industry leaders
Costly or difficult for multi-segment competitorsto meet specialized needs of niche members
Focuser has resources and capabilities
to effectively serve an attractive nicheFew other rivals are specializing in same niche
Focuser can defend against challengers via
superior ability to serve niche members
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