~ THE FIVE GENERIC COMPETITIVE STRATEGIES ~

WHICH ONE TO EMPLOY ?

NUR FILZAH BINTI SULAIMAN

TMA 2

1110820

MGB4013 STRATEGIC MANAGEMENT

Why strategies differ ?

The key factors that distinguish one strategy from another :

1. Is the firm's market target broad or narrow ? or
2. Is the competitive advantage pursued linked to low costs or product differentiation ?

The Five (5) Generic Competitive Strategies.

• Low-Cost Provider : Striving to achieve lower overall costs than rivals on products that attract a broad spectrum of buyers. ( give a lower price to buyers )
• Broad Differentiation : Differentiating the firm's product offering from rivals' with attributes that appeal to a broad spectrum of buyers. ( the unit factors that different from other companies )
• Focused-Low Cost : Concentrating on a narrow price-sensitive buyer segment and on cost to offer a lower-priced product. ( focus more on target market )
• Focused Differentiation : Concentrating on a narrow buyer segment by meeting specific tastes and requirements of niche members.
• Best-Cost Provider : Giving customers more value for the money by offering upscale product attributes at a lower cost than rivals.

Figure 5.1  The Five Generic Competitive Strategies

Major avenues for achieving a cost advantage.

Low-cost advantage : A firm's cumulative costs across its overall value chain must be lower than competitors' cumulative costs.
How to gain a low-cost advantage :
- Perform value chain activities more cost-effectively than rivals.
- Revamp the firm's overall value chain to eliminate or bypass cost-producing activities.

Cost driver is a factor with a strong influence of a firm's costs. Its can be asset or activity-based.

Figure 5.2  Cost Drivers : The Keys to Driving Down Company Costs

Core Concept :

• The essence of a broad differentiation strategy is to offer unique product attributes that a wide range of buyers find appealing and worth paying for.
• A uniqueness driver is a factor that can have a strong differentiating effect.

Figure 5.3  Uniqueness Drivers : The Keys to Creating a Differentiation Advantage.

Revamping the value chain system to increase differentiation.

• Approaches to enhancing differentiation through changes in the value chain system.

1. Coordinating with channel allies to enhance customer perceptions of value.
2. Coordinating with suppliers to better address customer needs.

When the differentiation strategy work best ?

Pitfalls to avoid in pursuing a differentiation strategy :

• Relying on product attributes easily copied by rivals.
• Introducing product attributes that do not evoke an enthusiastic buyer response.
• Eroding profitability by overspending on efforts to differentiate the firm's product offering.
• Offering only trivial improvements in quality, service or performance features deal than the product of rivals.
• Adding frills and features such that the product exceeds the needs and use patterns of most buyers.
• Charging too high a price premium.

Focused ( or market niche ) Strategies.

Focused strategy approaches :
- Focused low-cost strategy

- Focused market niche strategy

Core Concept : Best-cost provider strategies are hybrid of low-cost provider and differentiation strategies that aim at providing desired quality, features, performance, service attributes while beating rivals on price.