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5
The Five Generic Competitive Strategies
Screen graphics created by: Jana F. Kuzmicki, Ph.D. Troy State University-Florida and Western Region
5-1 McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc. All rights reserved. 5-2 McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc. All rights reserved.
Competitive strategy is about being different. It means deliberately choosing to perform activities differently or to perform different activities than rivals to deliver a unique mix of value. value.
Michael E. Porter
Chapter Roadmap
Five Competitive Strategies Low-Cost Provider Strategies Differentiation Strategies Best-Cost Provider Strategies Focused (or Market Niche) Strategies The Contrasting Features of the Five Generic
gives it an edge in
Attracting Defending
Offensive
and defensive moves to counter maneuvers of rivals to prevailing market conditions to strengthen its market position
superior value
A A A
Responses Initiatives
good product at a low price superior product worth paying more for best-value product
2005 The McGraw-Hill Companies, Inc. All rights reserved.
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Low-cost leadership means low overall costs, not just low manufacturing or production costs!
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Underprice competitors and attract price-sensitive buyers in enough numbers 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
2005 The McGraw-Hill Companies, Inc. All rights reserved.
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Approach 2
Revamp value chain to bypass costproducing activities that add little value from the buyers perspective
5-11 McGraw-Hill/Irwin
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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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
Feature broad employee participation in continuous costimprovement efforts and limited perks for executives Strive to operate with exceptionally small corporate staffs
limited product/service
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Successful low-cost producers champion frugality but wisely and aggressively invest in cost-saving improvements !
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Differentiation Strategies
Objective
Incorporate differentiating features that cause buyers to
and ignoring
Buyer
Keys to Success
Find ways to differentiate that create value for buyers
Declining Changes
rivals
5-17 McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc. All rights reserved.
Amazon.com
Superior service -- FedEx, Ritz-Carlton Spare parts availability -- Caterpillar More for your money -- McDonalds, Wal-Mart Prestige -- Rolex Quality manufacture -- Honda, Toyota Technological leadership -- 3M Corporation Top-of-line image -- Ralph Lauren, Chanel, Cross
5-20 McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc. All rights reserved.
brand loyalty
= Competitive Advantage
5-19 McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc. All rights reserved.
hardest for rivals to match or imitate Those buyers will find most appealing
Best choices to gain a longer-lasting, more profitable
competitive edge
New
Comprehensive
competitive capabilities
2005 The McGraw-Hill Companies, Inc. All rights reserved.
5-22 McGraw-Hill/Irwin
judge value based on such signals as Price Attractive packaging Extensive ad campaigns Ad content and image Characteristics of seller
Facilities Customers Professionalism and personality of employees
differentiation approach
Technological change and
Nature of differentiation is hard to quantify Buyers are making first-time purchases Repurchase is infrequent Buyers are unsophisticated
5-25 McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc. All rights reserved.
differentiation approach
Technological change and
Objectives
Deliver superior value by meeting or exceeding buyer
from matching close rivals on key product attributes and beating them on price Success depends on having the skills and capabilities to provide attractive performance and features at a lower cost than rivals A best-cost producer can often out-compete both a low-cost provider and a differentiator when
Standardized
excellent product attributes, then use cost advantage to underprice comparable brands
5-29 McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc. All rights reserved.
features/attributes wont meet diverse needs of buyers Many buyers are price and value sensitive
5-30 McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc. All rights reserved.
total market
Objective
Serve niche buyers better than rivals
leaders may be able to siphon customers away with a lower price differentiators may be able to steal customers away with better product attributes
Keys to Success
Choose a market niche where buyers have distinctive
High-end
buyer segment
5-31 McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc. All rights reserved. 5-32 McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc. All rights reserved.
Porsche
Sports
Specialized requirements in
using product/service
Bandag
Specialist
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potential
Not crucial to success of industry leaders Costly or difficult for multi-segment competitors
Approach 2
Offer niche buyers something
competitive environment
Each establishes a central theme for how a company will
circumstances unfold
Each points to different ways of experimenting with the
circumstances unfold
Each points to different ways of experimenting with the basics
of the strategy
Each entails differences in product line, production emphasis,
marketing emphasis, and means to sustain the strategy The big risk Selecting a stuck in the middle strategy! This rarely produces a sustainable competitive advantage or a distinctive competitive position.
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