1. STRATEGY AND COMPETITIVE ADVANTAGE
GENERIC COMPETITIVE STRATEGIES

2. COMPETITIVE POSITIONING
WHAT IS A FIRM’S RELATIVE POSITION IN AN INDUSTRY?
POSITIONING REFERS TO WHETHER THE FIRM HAS ABOVE OR BELOW AVERAGE PROFITABILITY
A FIRM NEEDS SUSTAINABLE COMPETITIVE ADVANTAGE TO HAVE ABOVE-AVERAGE PROFITABILITY

3. GENERIC STRATEGIES Firms create value for customers through:
COST LEADERSHIP
DIFFERENTIATION
FOCUS
EACH OF THESE STRATEGIES INVOLVES A FUNDAMENTALLY DIFFERENT ROUTE TO COMPETITIVE ADVANTAGE

4. GENERIC STRATEGIES Lower cost Differentiation Target
Broad cost leadership differentiation
Narrow cost focus differentiation
focus

5. GENERIC STRATEGIES
COST LEADERSHIP AND DIFFERENTIATION STRATEGIES SEEK COMPETITIVE ADVANTAGES IN A BROAD RANGE OF INDUSTRY SEGMENT
FOCUS STRATEGIES AIM AT COST ADVANTAGE OR DIFFERENTIATION IN A NARROW SEGMENT
A QUESTION OF CHOICE

6. COST LEADERSHIP
FIRM SETS OUT TO BECOME THE LOW COST PRODUCER (SUSTAINABLE) IN ITS INDUSTRY
It serves broad scope and many industry segments

7. How? Economies of scale Technology
Special privileges e.g. Location, Access to raw materials, etc.
Learning curve
It exploits all sources of cost advantages:
It sells standard products and takes benefits from scale

8. REQUISITIES
THE FIRM SHOULD COMMAND PRICES AT OR NEAR THE INDUSTRY AVERAGE
IT CANNOT IGNORE THE BASES OF DIFFERENTIATION
SOME DIFFERENTIATION IS NECESSARY TO PRESERVE ITS MARKET
FIRM NEEDS TO BE COST LEADER, NOT JUST LOW COST PRODUCER
RIVALRY IN LOW COST WILL BE DISASTROUS

9. DIFFERENTIATION
FIRM SEEKS TO BE UNIQUE IN ITS INDUSTRY ALONG ONE OR MORE ATTRIBUTES THAT BUYERS PERCEIVE IMPORTANT
THE FIRM IS REWARDED FOR ITS UNIQUENESS WITH A PREMIUM PRICE

10. HOW? PRODUCT ITSELF DELIVERY SYSTEM MARKETING APPROACH
EXTRA COST IS INVOLVED IN BEING UNIQUE
FIRM IS REWARDED WHEN IT CAN COMMAND PREMIUM PRICE WHICH IS IN EXCESS OF THE EXTRA COST INCURRED.

11. A DIFFERENTIATOR CANNOT IGNORE ITS COST POSITION OTHERWISE ITS PREMIUM PRICE WILL BE NULLILFIED BY THE EXTRA COST
FIRM SHOULD AIM AT COST PARITY OR PROXIMITY RELATIVE TO ITS COMPETITORS

12. FOCUS STRATEGIES
IT RESTS ON THE CHOICE OF NARROW COMPETITIVE SCOPE WITHIN THE INDUSTRY
TWO VARIANTS:
COST FOCUS: COST ADVANTAGE IN ITS TARGET SEGMENT
DIFFERENTIATION FOCUS: DIFFERENTIATION IN ITS TARGET SEGMENT

13. HOW? FIRM SELECTS A SEGMENT OR GROUP OF SEGMENTS IN THE INDUSTRY
IT TAILORS ITS STRATEGY TO SERVE THE SEGMENT ONLY.
IT IS IMPORTANT TO SEE THAT:
Target segment must be different from other segments
Segment should be structurally attractive

14. STUCK IN THE MIDDLE IF A FIRM IS STUCK IN THE MIDDLE
IT WILL BE BELOW-AVERAGE PERFORMER
SUCH FIRM MAKES PROFIT IF ITS COMPETITORS ARE ALSO STUCK IN THE MIDDLE
STUCK IN THE MIDDLE INDICATES FIRM’S UNWILLINGNESS OR INABILITY TO MAKE CHOICES ABOUT THE COMPETITIVE STRATEGIES

15. PURSUIT OF MORE THAN ONE GENERIC STRATEGIES
EACH GENERIC STRATEGY HAS FUNDAMENTALLY DIFFERENT APPROACH IN CREATING ADVANTAGE
ACHIEVING COST LEADERSHIP AND DIFFERENTIATION ARE USUALLY INCONSISTENT BECAUSE DIFFERENTIATION IS USUALLY COSTLY WHILE FOR COST LEADERSHIP, STANDARDIZATION OF PRODUCTS BECOME NECESSARY

16. CONDITIONS WHEN MORE THAN ONE STRATEGIES CAN BE PURSUED SIMULTANEOUSLY
COMPETITORS ARE STUCK IN THE MIDDLE. THIS IS ONLY A TEMPORARY PHENOMENON
COST IS STRONGLY AFFECTED BY MARKET SHARE, RATHER THAN BY PRODUCT DESIGN, LEVEL OF TECHNOLOGY, SERVICE PROVIDED ETC. BIG MARKET SHARE MAY MAKE A FIRM CAPABLE TO DIFFERENTIATE IN ONE MARKET AND INCUR ADDED COSTS
FIRMS PIONEER A MAJOR INNOVATION THAT LOWERS COSTS, YET HELP TO MAINTAIN DIFFERENTIATION

17. BEST COST STRATEGY
Many firms have been successful at pursuing cost leadership and differentiation simultaneously
Profits generated from the successful pursuit of one strategy (Low cost) allow investment in other element such as differentiating features
High quality and low cost are complementary rather than conflicting strategy
A combination of low cost and differentiation is necessary for creating sustainable competitive advantages

18. MARKET-BASED GENERIC STRATEGIES THE STRATEGY CLOCK
High Differentiation 4
Hybrid Focused Differentiation
Perceived
Added
Value Low
Price 7
Low Price/ Strategies destined
added value for ultimate failure
Low
Low Price High

19. Price-based strategies ( 1 & 2)
Cheap and nasty option which entails reducing price and perceived value added and focusing on price sensitive segments
It entails reducing price while maintaining quality of product
Cost leadership – sustainable lower price

20. Differentiation Strategies ( 4)
It entails a broad differentiation strategy: Offering perceived added value over competitors at a similar or somewhat higher price

21. The Hybrid Strategy (3)
It provides added value to customers while keeping the prices down Many Japanese companies followed this strategy as an entry strategy in a market with established competitors. It is possible when the volume is greater than those of competitors and margins are kept attractive due to low-cost base

22. Focused differentiation (5)
It entails competition by offering higher value to the customers at a significantly higher price.
This strategy is followed while competing in a particular market segment

23. Failure Strategies (6,7, and 8)
Route 6 entails increasing price without increasing perceived value to the customers
Route 7 is more disastrous as it entails reduction in the perceived value of product while increasing relative price
Route 8 entails reducing value while maintaining price

24. SUSTAINABILITY RISK OF COST LEADERSHIP COMPETITORS IMITATE
TECHNOLOGY CHANGES
BASES FOR COST LEADERSHIP ERODE
PROXIMITY IN DIFFERENTIATION IS LOST

25. SUSTAINABILITY RISK OF DIFFERENTIATION COMPETITORS IMITATE
BASES FOR DIFFERENTIATION BECOME LESS IMPORTANT
COST PROXIMITY IS LOST

26. SUSTAINABILITY RISK OF FOCUS: FOCUS STRATEGY IS IMITATED
TARGET SEGMENT BECOMES UNATTRACTIVE
BROADLY-TARGETED COMPETITORS OVERWHELM THE SEGMENT

27. GENERIC STRATEGIES AND ENVIRONMENTAL THREAT
COST LEADERSHIP
DIFFERENTIATION

28. COST LEADRSHIP
THREAT OF ENTRY: It reduces threat of entry by rivals Caterpillar’s low cost advantage Komatsu emphasized on high quality machine that breaks down less

29. COST LEADERSHIP
THREAT OF RIVALRY: Cost leader has two choices in pricing: 1. Set price equal to the high cost competitors and earn above normal profit. 2. Set prices below the prices of their high cost rivals and earn profit by increase sale Choice depends on how rivals respond

30. COST LEADERSHIP
THREAT OF SUBSTITUTE: It reduces threat of substitutes as low price discourages other rivals to generate substitutes. Higher oil price has led to search for substitutes.

31. COST LEADERSHIP
THREAT OF SUPPLIERS: It reduces the threat of supplier as cost leader firm has greater flexibility to absorb high prices charged by its suppliers If cost leadership is due to large volume supplier will not charge high price to the firm

32. COST LEADERSHIP
THREAT OF BUYERS: Threat of buyers is low as buyers get more value. It also discourages backward integration by the buyers.

33. DIFFERENTIATION
THREAT OF ENTRY: Reduces threat of entry as new entrants are forced to incur additional cost to differentiate

34. DIFFERENTIATION
THREAT OF RIVALRY: Reduces it as each firm needs to carve out its own unique product niche Rivalry is not zero but it is reduced

35. DIFFERENTIATION
THREAT OF SUBTITUTES: Reduced as the product has high perceived value and is made more attractive

36. DIFFERENTIATION
THREAT OF SUPPLIERS: Reduced as increase in prices by suppliers can be accommodated in higher price

37. DIFFERENTIATION
THREAT OF BUYERS: Reduced as the product is differentiated and has high perceived value

38. GENERIC STRATEGIES AND ORGANIZATIONAL STRUCTURES
Each generic strategy require different skills and requirements for success which reflect on organization structure and culture

39. GENERIC STRATEGIES AND ORGANIZATIONAL STRUCTURES
Cost leadership requires
Tight control
Pursuit of economies of scale
Overhead minimization
Dedication to learning curve
Differentiation requires
Flexibility
High level of R & D

40. GENERIC STRATEGIES AND ORGANIZATIONAL STRUCTURES
ORGANIZATION CULTURE
Differentiation requires risk-taking, innovation and individuality while cost leadership requires discipline, frugality and attention to detail