The Five Generic

Competitive Strategies
Presented By:
Group12
Ajay Choudhary
Arunkumar R
Imteyazuddin Ghouse
Onkar Pratap SIngh

The Idea:
Understand each of these strategies and their
Factors
application
which
distinguish
one
strategy
from
another

Is the firms
market target
broad or
narrow?

Is the
competitive
advantage
pursued
linked to low
costs
or product
differentiatio

Types of competitive advantage

being pursued:
Broad
Buyer
Segmen
t

Low cost
provider

Narrow
buyer
segment

Focused
Low-Cost

Broad
Differentia
tion

BestCost
Provid
er

Lower cost

Focused
Differentia
tion
Differentiation

Low Cost Provider Strategies:

The idea is simple:
Reduce costs
associated with
business

Charge same
price as
competitors

Greater profit
without extra
expenses

Pursue cost-savings that are difficult to imitate.

Avoid reducing product quality to unacceptable levels.
Under bid the competitors to achieve high sales volumes.
Companies using this strategy will typically earn low margins.

Avenues for Achieving Cost Advantage

Core Concept
Firms Cumulative Costs < Competitors Cumulative Costs
Two ways to accomplish this
Cost-Efficient Management of Value Chain Activities
Revamping the Value Chain System

Cost-Efficient Management of Value Chain

Activities
Economies
of Scale
Incentive
Learning &
System &
Experience
Culture
Outsourcin
g or
Vertical
Integration
Bargaining
Power

Capacity
Utilization

Cost Drivers
Supply
Chain
Efficiency

Communic
Input Costs
ation
Production
Systems
Technology
and IT
& Design

Revamping the Value Chain System

Selling direct to customers and bypassing the activities and costs of
distributors and dealers. Costs in the wholesale/retail portions of the
value chain frequently represent 35-40% of the price consumers pay
Create its own direct sales force
Conduct sales operations through companys website
Streamlining operations by eliminating low value-added or
unnecessary work steps and activities
Reducing materials handling and shipping costs by having suppliers
locate their plants or warehouses close to companys own facilities

Revamping the Value Chain System | Nucor Steel

Inexpensiv
e Arc
Furnace

Huge
Market
Share

Continuou
s Casting
Process

Lower
Operating
Cost

Low Labor
Requireme
nt

Revamping the Value Chain System | Southwest

Airlines
Faster
turnaroun
d
(25 vs 45
mins)
Point to
Point
Route
System

More
Flight
Hours per
Day

Automate
d Check-In

Fewer
Aircraft

Fast and
User
Friendly
Online
Reservatio
n System

No First
Class

Keys to Being Successful Low Cost Provider

Spending aggressively on resources
Estimating the cost savings of new technologies
Reviewing cost-saving resources
Low Cost Strategy Works Best??

Price competition among rival sellers is vigorous

Identical products are available from many sellers
There are few ways to differentiate industry products
Most buyers use the product in the same ways
Buyers incur low costs in switching among sellers
Large volume buyers
New entrants

Pitfalls to Avoid in Low Cost Strategy

Aggressive price cutting

Relying on a cost advantage that is not sustainable
Too fixated on cost reduction

 Striving to create superior product

features, design, and performance.

BROAD DIFFERENTIATION
STRATEGIES

Quality
Control
Processes

Sales and
Marketin
g

Product
Feature
and
Performan
ce

Uniquenes
s Drivers

Employee
Skill and
Training

Input
Quality

The Keys to Creating a

Differentiation Advantage

Improving customer service or

adding additional services.
Customer
Services

Productio
n R&D

Technology
and
Innovation

Pursuing production R&D

activities.
Striving for innovation and
technological advances.
Pursuing continuous quality
improvement.
Increasing emphasis on marketing
and brand-building activities.
Seeking out high-quality inputs.
Emphasizing human resource
management activities that
improve the skills, expertise, and

Delivering Superior value via Broad Differentiation strategy

Broad Differentiation Strategy depends on:
1.

Meeting customer needs in unique way

2.

Creating New Needs

Ways of achieving Broad differentiation strategy

3.

Incorporate product attributes and user features that lowers the buys overall cost.

4.

Provide tangible features that increase customer satisfaction

5.

Provide intangible features in noneconomic ways

6.

Increase the value of the companys product offering to the buyers

When differentiating strategy works best.

1. Buyer needs and Products are diverse
2. Many ways to differentiate a product or service
3. To quickly work upon the attributes that your competitor yet to
explore
(2)
4. Technological change

(1
)

(3
)

(4
)

Pitfall in Pursuing a Differentiation Strategy

1. If Competitors copy quickly, attributes a company comes up with

2. Unenthusiastic/ Pale response from the buyers
3. Overspending on efforts of differentiation (Unit cost of achieving
differentiation should be below the price premium)

(1

(2
)