Types of Strategy Excerpt from Create and Implement the Best Strategy for your Business Harvard Business School Press, 2006

“Generic” Strategies Michael Porter – Competitive Strategy The Free Press, 1998 (1980)  How and Where to compete  Ways of competing – Low Cost, Differentiation, Focus  “Where’s” of competing – Variety-, Needs-, Access-based positions

Types of Strategies Create and Implement the Best Strategy for your Business Harvard Business School Press, 2006  Cost Leadership  Differentiation  Customer Relationship  Network

Cost Leadership  Striving for lower operating costs (than the competition) – Wal*Mart, the real Canadian Superstore

Superstore savings  What are some of the things the real Canadian Superstore may be doing in order to lower its operating costs?  What tradeoffs does it make by so doing?

Implementing Cost Leadership  Economies of scale  Economies of scope  Product design  Organizational structure  Emphasis on operating efficiency  Experience curve

Experience Curve  Overall costs decline in a predictable way as cumulative volume increases – X% decline as cumulative volume doubles  Implication, build volume (even by pricing at minimal or negative margins!) to drive down long-term costs

Differentiation  Striving to be different (than the competition) in ways for which the target market values and is willing to pay a premium. – For example, Safeway, Sobey’s

Safeway / Sobey’s differentiation  What are some of the things Safeway and / or Sobey’s may be doing in order to differentiate themselves in ways for which the customer will pay a premium?  What tradeoffs do they make by so doing?

Implementing Differentiation  Understanding target customers’ desired package of benefits is the key  Ancillary features, complementary services can often be the basis for differentiation. – e.g. after sales service, warranty

Stretching the profit

“Focus” way of competing  Consciously limiting the scope of the enterprise by choice, not by necessity, to achieve a specific excellence (not necessarily defined in relation to competition). – For example, De Luca’s Specialty Foods, La Grotta Mediterranean Market

Tradeoffs  Does a Cost leader care about differentiation?  Does a Differentiator care about reducing costs?  What is the tradeoff of Focus as a way of competing?

“Stuck in the Middle”  What is The Hudson Bay Company’s basis of competition?

“Stuck in the Middle”  What is The Bay’s basis of competition? – Certainly not a cost leader over Wal*Mart – As a department store, not at all focused Sells clothing, electronics, books, furniture, appliances, stationery, gift ware, cards etc., etc. – Differentiation from Sears not obvious

Customer Relationship  Building long term relationships with customers through – Personal contact, rapport – Personalized service, customized solutions – Ongoing, cumulative benefits – Saving customers switching costs  Best suited to smaller businesses

A North End institution

Network Effect “Strategy”  Some products become increasingly valuable as more people own / use them! – Wordprocessing software, auction sites, social media  What is the fundamental characteristic of such products?  What is the critical imperative for producers of such products?

Comparisons and Contrasts  What do Cost Leadership and Network Effect strategies have in common?

Type of Strategies – Cost Leadership – Differentiation – (Focus) – Customer Relationship – Network Effect  Make choices consistently over time and throughout the organization to build understanding, synergy and momentum

Types of Strategy Excerpt from Create and Implement the Best Strategy for your Business Harvard Business School Press, 2006