THE FIVE GENERIC COMPETITIVE STRATEGIES STRATEGIC MANAGEMENT RAK_IM Telkom_MM Eks 23_CSBD MODULE_ 2009

What Is “Competitive Strategy”? “is the management’s game plan for competing successfully” How it plans to position the company in the market place How it plans to position the company in the market place It’s Specific efforts to please customers It’s Specific efforts to please customers

Fig. 5.1: The Five Generic Competitive Strategies

A Low-Cost Leadership Strategy using lower-cost to : Under-price rivals Under-price rivals Earn higher profit margin Earn higher profit margin Objective

The Competitive Strengths of Low-Cost Leadership Better positioned than RIVAL COMPETITORS on basis of price Better positioned than RIVAL COMPETITORS on basis of price Low-cost provides some protection from bargaining leverage of powerful BUYERS Low-cost provides some protection from bargaining leverage of powerful BUYERS Low-cost provides some protection from bargaining leverage of powerful SUPPLIERS Low-cost provides some protection from bargaining leverage of powerful SUPPLIERS Low-cost provider’s pricing power as a significant barrier for POTENTIAL ENTRANTS Low-cost provider’s pricing power as a significant barrier for POTENTIAL ENTRANTS Low cost puts a company in position to use low price as a defense against SUBSTITUTES Low cost puts a company in position to use low price as a defense against SUBSTITUTES

Pitfalls of Low-Cost Strategies Being overly aggressive in cutting price (profits go down,not up) Being overly aggressive in cutting price (profits go down,not up) Low cost methods are easily imitated by rivals Low cost methods are easily imitated by rivals

Differentiation Strategies To be unique in ways that are valuable to a wide range of customers To be unique in ways that are valuable to a wide range of customers Find ways to differentiate that CREATE VALUE for buyers and that are NOT EASILY MATCHED or CHEAPLY COPIED by rivals Find ways to differentiate that CREATE VALUE for buyers and that are NOT EASILY MATCHED or CHEAPLY COPIED by rivals Keys to Success Objective Which hat is unique?

The Benefits of Successful Differentiation 4 Command a premium price and/or 4 Increase unit sales and/or 4 Build brand loyalty

Types of Differentiation Themes Unique taste -- Dr. Pepper Unique taste -- Dr. Pepper Multiple features -- Microsoft Windows and Office Multiple features -- Microsoft Windows and Office Wide selection and one-stop shopping -- Home Depot and Amazon.com Wide selection and one-stop shopping -- Home Depot and Amazon.com Superior service -- FedEx, Ritz-Carlton Superior service -- FedEx, Ritz-Carlton Spare parts availability -- Caterpillar Spare parts availability -- Caterpillar More for your money -- McDonald’s, Wal-Mart More for your money -- McDonald’s, Wal-Mart Prestige -- Rolex Prestige -- Rolex Quality manufacture -- Honda, Toyota Quality manufacture -- Honda, Toyota Technological leadership -- 3M Corporation Technological leadership -- 3M Corporation Top-of-line image -- Ralph Lauren, Chanel, Cross Top-of-line image -- Ralph Lauren, Chanel, Cross

Pitfalls of Differentiation Strategies Buyers see little value in unique attributes of product Buyers see little value in unique attributes of product Appealing product features are easily copied by rivals Appealing product features are easily copied by rivals Over-differentiating such that product features exceed buyers’ needs Over-differentiating such that product features exceed buyers’ needs Charging a price premium, buyers perceive is too high Charging a price premium, buyers perceive is too high

Best Cost Provider Strategies “…Give customers more value for the money” Create superior value by satisfying buyer expectations on product attributes and BEATING their price expectations Create superior value by satisfying buyer expectations on product attributes and BEATING their price expectations Be the low-cost producer of a product with EXCELLENT product attributes, then use cost advantage to UNDERPRICE comparable brands Be the low-cost producer of a product with EXCELLENT product attributes, then use cost advantage to UNDERPRICE comparable brands Objectives

Focus / Niche Strategies “..Involve concentrated attention on a narrow piece of the total market” Serve niche buyers better than rivals Serve niche buyers better than rivals Choose a market niche where buyers have distinctive preferences, special requirements, or unique needs Choose a market niche where buyers have distinctive preferences, special requirements, or unique needs Develop unique capabilities to serve needs of target buyer segment Develop unique capabilities to serve needs of target buyer segment Objective Keys to Success

Examples of Focus Strategies eBay eBay Online auctions Online auctions Porsche Porsche Sports cars Sports cars Jiffy Lube International Jiffy Lube International Maintenance for motor vehicles Maintenance for motor vehicles Pottery Barn Kids Pottery Barn Kids Children’s furniture and accessories Children’s furniture and accessories

Focus / Niche Strategies and Competitive Advantage Achieve lower costs than rivals in serving the segment -- Achieve lower costs than rivals in serving the segment -- A focused low-cost strategy Offer niche buyers something different from rivals -- Offer niche buyers something different from rivals -- A focused differentiation strategy Approach 1 Approach 2 Which hat is unique?