Competitive Strategies Agenda: Generic Strategies Low cost leadership Differentiation Best Cost Focus Grand Strategies Concentration Market Development Product Development

Generic Strategies Low Cost Leadership Differentiation Best Cost Focus

Low Cost Leadership The firm attempts to be the low cost provider of a product or service. Sources of Cost Advantage: Economies of Scale (OPERATIONS) Economies of Learning (learning curve effects/improved coordination/ familiarity with technology, etc) (OPERATIONS/R&D) Production Techniques (Efficient utilization of materials/increased precision/automation) (OPERATIONS/AIS)

Low Cost Leadership Sources of Cost Advantage: Product Design (Designs economize on materials/design for automation) (OPERATIONS/R&D/ENGINEERING) Input Costs (Location advantages/ownership of inputs/exercising bargaining power/supplier cooperation) (PROCUREMENT/ INTERNATIONALIZATION/VERTICAL INTEGRATION(C-L STRATEGY) Capacity Utilization (OPERATIONS) Managerial or Organizational efficiency (operational effectiveness) (ALL FUNCTIONAL AREAS)

Low Input Costs Capacity Utilization Product Design Etc. Low Cost Strategy Competitive Advantage External Environment Firm Resources Firm Capabilities

1. Selects relatively inexpensive sites 2. Builds only basic facilities (no restaurant, no bar) 3. Relies on standard architectural designs 4. Uses inexpensive materials and low-cost construction techniques 5. Simple room furnishings and decorations Low Cost Strategy Competitive Advantage External Environment Motel 6 Sources of Advantage

Low Cost Leadership Low Cost works best when: Mature industry Price-based competition Standardized products Few ways to achieve a differentiation advantage Low switching costs from one seller to another Buyers are large and have significant bargaining power Buyers use the products in basically the same ways Risks of Low Cost: Competitors can imitate New Technologies are introduced

Differentiation Strategy When the firm attempts to provide something unique that is valuable to buyers beyond simply offering a low price. Firms pursue differentiation based on demand or supply: Demand involves understanding customers and their needs and preferences. Supply involves being aware of the resources, capabilities, skills and knowledge that a firm can leverage to create uniqueness.

Drivers of Uniqueness/Sources of Advantage Product features and product performance Complementary service (delivery, credit, repair) Intensity of marketing activities (advertising spending, signaling) Reputation Technology embedded in design and manufacture Quality of purchased inputs

Drivers of Uniqueness/Sources of Advantage continued.. Location (e.g., retail stores) Degree of vertical integration Skill and experience of employees Procedures influencing the conduct of each value-adding activity (e.g., rigor of quality control, service procedures, frequency of visits to a customer) Proper segmentation

Location Product Features Quality of Inputs Etc. Differentiation Strategy Competitive Advantage External Environment Firm Resources Firm Capabilities

1.Prime Location with Scenic Views 2.Custom Architectural Designs 3.Fine Restaurants 4.Elegantly appointed lobbies and bar lounges. 5.Swimming pools, exercise facilities 6.Upscale Room Accommodations 7.Multiple Guest Services 8.Large Well Trained Staff Differentiation Strategy Competitive Advantage External Environment Sources of Advantage

Differentiation works best when: There are many ways to distinguish the product Buyers’ needs are diverse Few firms are pursuing differentiation Risks of Differentiation: Imitation (by competitors) narrows perceived differentiation and renders differentiation meaningless. Technological changes can nullify past investments or learning Cost difference between low cost competitors and differentiated businesses becomes too great to hold brand loyalty.

Combines advantages based on both low cost and differentiation. The firm is able to offer what customers perceive as valuable while at the same time being cost efficient. Best Cost

1.Luxurious, yet comforting atmosphere (D) 2. Well-chosen yet limited menu of services (LC) 3. High quality dining (D) 4. Restaurants are profit centers (LC) 5. Each property has unique “personality”(D) 6. Low building costs (LC) 7. Low costs of capital (LC) Best Cost Strategy Competitive Advantage External Environment Kimpton Hotels Sources of Advantage

Focus Strategy: the firm focuses on a narrower segment of the industry. How would a firm select an appropriate segment? Can a firm pursue a just a “focus” strategy? Examples: Papa Joe’s Grocery, Oink Oink, Inc. (roasted pig ears)

Concentrated Growth Increasing the use of present products in present markets 1. Increasing the rate at which present customers use the product/service (Hospitals creating wellness programs) 2. Attracting competitors’ customers 3. Attracting nonusers of the product (Profiling and contacting potential cosmetic surgery patients) Drs. Rodan & Fields have their own private practices, specializing in dermatologic surgery, cosmetic surgery and acne treatments. Seeing over 1,000 patients a month, Drs. Rodan and Fields developed Proactiv Solution to help relieve the endless frustration and suffering of their patients.

Market Development 1. Opening additional geographic markets 2. Attracting other market segments Selling present products in new markets

Product Development Developing new products for present markets 1.Developing new product features 2. Combining quality variations 3. Brand Extension