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The Five Generic The Five Generic Competitive StrategiesCompetitive Strategies
The Five Generic The Five Generic Competitive StrategiesCompetitive Strategies
““Competitive strategy is about Competitive strategy is about
being different. It means being different. It means
deliberately choosing to deliberately choosing to
perform activities differently perform activities differently
or to perform different or to perform different
activities than rivals to deliver activities than rivals to deliver
a unique mix of value.”a unique mix of value.”Michael E. Porter
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Strategy andStrategy andCompetitive AdvantageCompetitive Advantage
Strategy andStrategy andCompetitive AdvantageCompetitive Advantage
Competitive advantage exists when a firm’s strategy gives it an edge in Attracting customers and
Defending against competitive forces
Convince customers firm’s product / service offers superior value A good product at a low price
A superior product worth paying more for
A best-value product
Key to Gaining a Competitive Advantage
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What IsWhat Is“Competitive Strategy”?“Competitive Strategy”?
What IsWhat Is“Competitive Strategy”?“Competitive Strategy”?
Deals exclusively with a company’sbusiness plans to compete successfully
Specific efforts to please customers
Offensive and defensive movesto counter maneuvers of rivals
Responses to prevailing market conditions
Initiatives to strengthen its market position
Narrower in scope than business strategy
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5 Generic Competitive 5 Generic Competitive StrategiesStrategies
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Low-cost leadership means Low overall costs,
not just low manufacturing or production costs!
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‘Lower costs than rivals’ the theme of firm’s strategy
Only those features and services in product offering that buyers consider essential
Such approaches to achieve a cost advantage that would be difficult for rivals to copy or match
Low-Cost - Low-Cost - Keys to Success
Low-Cost - Low-Cost - Keys to Success
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Nucor Corporation’sNucor Corporation’sLow-Cost Provider Low-Cost Provider
Strategy Strategy
Nucor Corporation’sNucor Corporation’sLow-Cost Provider Low-Cost Provider
Strategy Strategy Eliminate some production processes from value chain used by traditional integrated steel mills; cut investment in facilities and equipment
Eliminate some production processes from value chain used by traditional integrated steel mills; cut investment in facilities and equipment
Strive hard for continuous improvement in the efficiency of its plants and frequently invest in state-of-the art equipment to reduce unit costs
Strive hard for continuous improvement in the efficiency of its plants and frequently invest in state-of-the art equipment to reduce unit costs
Carefully select plant sites to minimize inbound and outbound shipping costs and to take advantage of low rates for electricity
Carefully select plant sites to minimize inbound and outbound shipping costs and to take advantage of low rates for electricity
Hire a nonunion workforce that uses team-based incentive compensation systems
Hire a nonunion workforce that uses team-based incentive compensation systems
Heavily emphasize consistent product quality and maintain rigorous quality systems
Heavily emphasize consistent product quality and maintain rigorous quality systems
Minimize general and administrative expenses by maintaining a lean staff at corporate headquarters and allowing only 4 levels of management
Minimize general and administrative expenses by maintaining a lean staff at corporate headquarters and allowing only 4 levels of management
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Do a better job than rivals of performing value chain activities efficiently and cost effectively
Revamp value chain to bypass cost-producing activities that add little value from the buyer’s
perspective
Approach 1
Approach 2
Control costs!
By-pass costs!
Approaches to Securing Approaches to Securing a Cost Advantagea Cost Advantage
Approaches to Securing Approaches to Securing a Cost Advantagea Cost Advantage
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Approach 1: ControllingApproach 1: Controllingthe Cost Driversthe Cost Drivers
Approach 1: ControllingApproach 1: Controllingthe Cost Driversthe Cost Drivers
Capture scale economies; avoid scale diseconomies Capture learning and experience curve effects Manage costs of key resource inputs Consider linkages with other activities in value chain Find sharing opportunities with other business units Compare vertical integration vs. outsourcing Assess first-mover advantages vs. disadvantages Control percentage of capacity utilization Make prudent strategic choices related to operations
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Approach 2: RevampingApproach 2: Revampingthe Value Chainthe Value Chain
Approach 2: RevampingApproach 2: Revampingthe Value Chainthe Value Chain
Make greater use of Internet technology applications Use direct-to-end-user sales/marketing methods Simplify product design Offer basic, no-frills product/service Shift to a simpler, less capital-intensive, or more flexible
technological process Find ways to bypass use of high-cost raw materials Relocate facilities closer to suppliers or customers Drop “something for everyone” approach and focus on a
limited product/service
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When Does a Low-CostWhen Does a Low-CostStrategy Work Best?Strategy Work Best?
When Does a Low-CostWhen Does a Low-CostStrategy Work Best?Strategy Work Best?
Price competition is vigorous
Limited Scope to achieve differentiation
Low switching costs
Buyers have significant bargaining power
For newcomers to use introductory low prices & build customer base
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Differentiation Differentiation StrategiesStrategies
Differentiation Differentiation StrategiesStrategies
Incorporate differentiating features that cause buyers to prefer firm’s product or service over brands of rivals
Objective
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Benefits of Successful Benefits of Successful DifferentiationDifferentiation
Benefits of Successful Benefits of Successful DifferentiationDifferentiation
A product / service with unique, appealing attributes allows a firm to
Command a premium price and/or
Increase unit sales and/or
Build brand loyalty
= Competitive Advantage
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Types of Differentiation Types of Differentiation ThemesThemes
Types of Differentiation Types of Differentiation ThemesThemes
Multiple features -- MS Windows and OfficeWide selection and one-stop shopping --
Home Depot and Amazon.comSpare parts availability -- CaterpillarMore for your money -- McDonald’s, Wal-
MartPrestige -- RolexQuality manufacture -- Honda, ToyotaTechnological leadership -- 3M Corporation
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Importance of Perceived Importance of Perceived ValueValue
Buyers seldom pay for value that is not perceived
Price premium of a differentiation strategy reflects
Value actually delivered to buyer &
Value perceived by the buyer
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When Does a When Does a DifferentiationDifferentiation
Strategy Work Best?Strategy Work Best?
When Does a When Does a DifferentiationDifferentiation
Strategy Work Best?Strategy 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 similardifferentiation approach
Technological change andproduct innovation are fast-paced
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When Does a When Does a DifferentiationDifferentiation
Strategy Work Best?Strategy Work Best?
When Does a When Does a DifferentiationDifferentiation
Strategy Work Best?Strategy 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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Best-Cost Provider Best-Cost Provider StrategiesStrategies
Best-Cost Provider Best-Cost Provider StrategiesStrategies
Combine a strategic emphasis on low-cost with a strategic emphasis on differentiation Make an upscale product at a lower cost Give customers more value for the money
Deliver superior value by meeting or exceeding buyer expectations on product attributes and beating their price expectations
Be the low-cost provider of a product with good-to-excellent product attributes, then use cost advantage to underprice comparable brands
Objectives
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Focus / Niche Focus / Niche StrategiesStrategies
Focus / Niche Focus / Niche StrategiesStrategies
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, special requirements, or unique needs
Develop unique capabilities to serve needs of target buyer segment
Objective
Keys to Success
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Beyond Competitive Beyond Competitive
StrategyStrategyOther Important Strategy ChoicesOther Important Strategy Choices
Beyond Competitive Beyond Competitive
StrategyStrategyOther Important Strategy ChoicesOther Important Strategy Choices
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““Successful business Successful business
strategy is about strategy is about
actively shaping the actively shaping the
game you play, not game you play, not
just playing the game just playing the game
you find.”you find.”The Koran
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Strategic Alliances and Strategic Alliances and Collaborative Partnerships Collaborative Partnerships Strategic Alliances and Strategic Alliances and
Collaborative Partnerships Collaborative Partnerships
Companies sometimes use strategic alliances
or collaborative partnerships to
complement their own strategic initiatives and
strengthen their competitiveness.
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Why Are Strategic Why Are Strategic Alliances Formed? Alliances Formed? Why Are Strategic Why Are Strategic Alliances Formed? Alliances Formed?
To collaborate on technology development or new product development
To fill gaps in technical or manufacturing expertise
To acquire new competencies
To improve supply chain efficiency
To gain economies of scale inproduction and/or marketing
To acquire or improve market access via joint marketing agreements
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Why Alliances FailWhy Alliances FailWhy Alliances FailWhy Alliances FailAbility of an alliance to endure depends on
How well partners work togetherSuccess of partners in adapting to changing conditionsWillingness of partners to renegotiate the bargain
Reasons for alliance failureDiverging objectives and prioritiesChanging conditions rendering purpose of alliance
obsoleteEmergence of more attractive technological pathsMarketplace rivalry between one or more allies
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Merger and Acquisition Merger and Acquisition Strategies Strategies
Merger and Acquisition Merger and Acquisition Strategies Strategies
Merger – Combination and pooling of equals, with newly created firm often taking on a new name
Acquisition – One firm, the acquirer, purchases and absorbs operations of another, the acquired
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Objectives of MergersObjectives of Mergersand Acquisitionsand Acquisitions
Objectives of MergersObjectives of Mergersand Acquisitionsand Acquisitions
To pave way for acquiring firm to gain more market share and create a more efficient operation
To expand a firm’s geographic coverage
To extend a firm’s business into new productcategories or international markets
To gain quick access to new technologies
To invent a new industry by convergence of industries whose boundaries are blurred
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Vertical Integration Vertical Integration StrategiesStrategies
Vertical Integration Vertical Integration StrategiesStrategies
Extend a firm’s competitive scope withinsame industry Backward into sources of supply Forward toward end-users of final product
Can aim at either full or partial integration
InternallyPerformedActivities, Costs, &Margins
Activities, Costs, &
Margins ofSuppliers
Buyer/UserValue
Chains
Activities, Costs,& Margins of
Forward ChannelAllies &
Strategic Partners
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Whether vertical integration is a viablestrategic option depends on its Ability to lower cost, build expertise,
increase differentiation, or enhanceperformance of strategy-critical activities
Impact on investment cost, flexibility, and administrative overhead
Contribution to enhancing a firm’s competitiveness
Pros and Cons ofPros and Cons ofIntegration vs. De-Integration vs. De-
IntegrationIntegration
Pros and Cons ofPros and Cons ofIntegration vs. De-Integration vs. De-
IntegrationIntegration
Many companies are finding thatde-integrating value chain activities is amore flexible, economic strategic option!
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Outsourcing StrategiesOutsourcing StrategiesOutsourcing StrategiesOutsourcing Strategies
Outsourcing involves withdrawing from certain valuechain activities and relying on outsiders
to supply needed products, supportservices, or functional activities
Concept
InternallyPerformedActivities
Suppliers
Support Services
Functional Activities
Distributors or Retailers
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Pitfalls of OutsourcingPitfalls of OutsourcingPitfalls of OutsourcingPitfalls of Outsourcing
Farming out too many or the wrong activities, thus
Hollowing out capabilities
Losing touch with activities and expertise that determine overall long-term success
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Offensive and Defensive Offensive and Defensive StrategiesStrategies
Offensive and Defensive Offensive and Defensive StrategiesStrategies
Used to build new or stronger market position and/or create
competitive advantage
Used to protect competitive advantage (rarely used to
create advantage)
Offensive Strategies Defensive Strategies
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Defensive StrategyDefensive StrategyDefensive StrategyDefensive StrategyObjectives
Lessen risk of being attacked
Blunt impact of any attack that occurs
Influence challengers to aim attacks at other rivals
Approaches
Block avenues open to challengers
Signal challengers vigorousretaliation is likely
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Strategies forStrategies forUsing the InternetUsing the Internet
Strategies forStrategies forUsing the InternetUsing the Internet
Strategic Challenge – What use of the Internet should a company make in staking out its position in the marketplace?
Five Approaches
Use company web site solely to disseminate product information
Use company web site as a minor distributionchannel for accessing customers and generating sales
Use company web site as one of several importantdistribution channels for accessing customers
Use company web site as primary distributionchannel for accessing buyers and making sales
Use company web site as the exclusive channelfor accessing buyers and conducting sales transactions
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Using the Internet toUsing the Internet toDisseminate Product Disseminate Product
InformationInformation
Using the Internet toUsing the Internet toDisseminate Product Disseminate Product
InformationInformation Approach – Website used to provide product information of
manufacturers or wholesalers Relies on click-throughs to websites of
dealers for sales transactions Informs end-users of location of retail stores
Issues – Pursuing online sales may Signal weak strategic commitment to dealers Signal willingness to cannibalize dealers’ sales Prompt dealers to aggressively market rivals’ brands
Avoids channel conflict with dealers – Important where strong support of dealer networks is essential
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Choosing AppropriateChoosing AppropriateFunctional-Area StrategiesFunctional-Area Strategies
Choosing AppropriateChoosing AppropriateFunctional-Area StrategiesFunctional-Area Strategies
Involves strategic choices about how functional areas are managed to support competitive strategy and other strategic moves
Functional strategies includeResearch and developmentProductionHuman resourcesSales and marketingFinance
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First-Mover AdvantagesFirst-Mover AdvantagesFirst-Mover AdvantagesFirst-Mover Advantages
When to make a strategic move is often as crucial as what move to make
First-mover advantages arise when
Pioneering helps build firm’s image and reputation
Early commitments to new technologies,new-style components, and distributionchannels can produce cost advantage
Loyalty of first time buyers is high
Moving first can be a preemptive strike
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First-Mover First-Mover DisadvantagesDisadvantages
First-Mover First-Mover DisadvantagesDisadvantages
Moving early can be a disadvantage (or fail to produce an advantage) when
Costs of pioneering are sizable andloyalty of first time buyers is weak
Innovator’s products are primitive,not living up to buyer expectations
Rapid technological change allowsfollowers to leapfrog pioneers
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