The Five Generic Competitive StrategiesWhich One to

Employ?

Part II

The Agenda• Best Cost Provider Strategy

• Focused Low-Cost Strategy

• Focused Differentiation Strategy

• Risks of Focused Strategies

• Deciding Which One to Choose

Best-Cost Provider StrategiesBest-Cost Provider Strategies

Make an upscale product at a lower Make an upscale product at a lower costcost

Combine a strategic emphasis on low-cost with a strategic emphasis on differentiation

Best-Cost Provider StrategiesBest-Cost Provider Strategies

Give customers more Give customers more value for moneyvalue for money

Combine a strategic Combine a strategic emphasis on low-cost with emphasis on low-cost with a strategic emphasis on a strategic emphasis on differentiationdifferentiation

Best-Cost Provider Best-Cost Provider

Strategic Targets Strategic Targets Value-conscious customersValue-conscious customers

Competitive AdvantageCompetitive Advantage Ability to give customers more Ability to give customers more

value for moneyvalue for money

Product LineProduct Line Items with appealing Items with appealing

attributes, assorted upscale attributes, assorted upscale featuresfeatures

Best-Cost Provider Best-Cost Provider

Marketing Emphasis Marketing Emphasis Tout delivery of best valueTout delivery of best value Either deliver comparable features at a lower price Either deliver comparable features at a lower price

than rivals or match rivals on prices and provide than rivals or match rivals on prices and provide better featuresbetter features

Keys to SustainKeys to Sustain

Unique expertise in simultaneously managing costs Unique expertise in simultaneously managing costs down while down while

incorporating upscale features and attributesincorporating upscale features and attributes

Risk of a Best-Cost Provider Strategy

Low-cost leaders may be able to siphonLow-cost leaders may be able to siphoncustomers away with a lower pricecustomers away with a lower price

High-end differentiators may be able toHigh-end differentiators may be able tosteal customers away with better product steal customers away with better product attributesattributes

A best-cost provider may get squeezed A best-cost provider may get squeezed between strategies of firms using low-cost between strategies of firms using low-cost and differentiation strategiesand differentiation strategies

Focused (Market Niche) Strategies

• Concentrated attention on a narrow piece of the total market

• Objective is to serve niche buyers better than rivals

• Niche can be defined by geographic uniqueness, specialized requirements in using the product, or by special product attributes appealing only to the selected niche

Introduction

Focused (Market Niche) Strategies

FUNCTIONAL

EXPERIENTIAL

RELATIONAL

PSYCHOLOGICAL

Value for me

SOCIAL

Value of me

Source: Adopted from “A Customer Value Typology: Beyond the Functional – Emotional Dichotomy., Liyanage (2003)

Re-Visiting Value Based Segmentation

Focused Low-Cost Strategy

Securing a competitive advantage by serving a lower price than rival competitors

Introduction

How?

• Out-manage rivals in controlling the factors that drive costs

• Reconfigure the firm’s value chain in ways that yield a cost edge over rivals

Focused Low-Cost Strategy

Strategic Target

• A narrow market niche where buyer needs and preferences are distinctively different

Basis of Competitive Advantage

• Low overall cost than rivals in serving niche members

Product Line

• Features and attributes tailored to the tastes and requirements of niche members

Focused Low-Cost Strategy

Production Emphasis

• A continuous search for cost reduction while incorporating features and attributes matched to niche member preferences Marketing Emphasis

• Communicate attractive features of a budget-priced product offering that fits niche buyers’ expectations

Keys to Sustaining the Strategy

• Stay committed to serving the niche at lowest overall cost; don’t blur the firm’s image by entering other market segments or adding other products to widen market appeal

Focused Low-Cost Strategy

Focused Differentiation StrategyIntroductionAims at securing a competitive advantage by offering niche members a product they perceive as, well suited to their own unique tastes and preferences

Targets upscale buyers who desire products and services with world class attributes.

Focused Differentiation StrategyStrategic Target

• A narrow market niche where buyer needs and preferences are distinctively different

Basis for Competitive Advantage

• Attributes that appeal specifically to niche members

Product Line

• Features and attributes tailored to the tastes and requirements of niche members

Focused Differentiation StrategyProduction Emphasis

• Custom made products that match the tastes and requirements of niche members

Marketing Emphasis

• Communicate how products offering does the best job of meeting niche buyers’ expectations

Keys to Sustaining the Strategy

• Stay committed to serving the niche better than rivals; don’t blur the firm’s image by entering other market segments or adding other products to widen market appeal

Focused Differentiation Strategy

When a Focused Low-Cost Strategy or Focused Differentiation Strategy is Attractive

Big enough to be profitable and offers good growth Big enough to be profitable and offers good growth potentialpotential

Not crucial to success of industry leadersNot crucial to success of industry leaders

Costly or difficult for multi-segment competitors to meet Costly or difficult for multi-segment competitors to meet specialized needs of niche membersspecialized needs of niche members

Focuser has resources and capabilities to effectively serve Focuser has resources and capabilities to effectively serve an attractive nichean attractive niche

Few other rivals are specializing in same nicheFew other rivals are specializing in same niche

Focuser can defend against challengers via superior Focuser can defend against challengers via superior ability to serve niche membersability to serve niche members

The Risks of Focused Strategies

Competitors find effective ways to match a focuser’s Competitors find effective ways to match a focuser’s capabilities in serving a nichecapabilities in serving a niche

Niche buyers’ preferences shift towards product Niche buyers’ preferences shift towards product attributes desired by majority of buyers – niche attributes desired by majority of buyers – niche becomes part of overall marketbecomes part of overall market

Segment becomes so attractive it becomes crowded Segment becomes so attractive it becomes crowded with rivals, causing segment profits to be splinteredwith rivals, causing segment profits to be splintered

Deciding Which Generic Competitive Deciding Which Generic Competitive Strategy to UseStrategy to Use

Each positions a company Each positions a company differently in its marketdifferently in its market

Each establishes a central theme Each establishes a central theme for how a company will endeavor for how a company will endeavor to out-compete rivalsto out-compete rivals

Each creates some boundaries for Each creates some boundaries for maneuvering as market maneuvering as market circumstances unfoldcircumstances unfold

Deciding Which Generic Competitive Deciding Which Generic Competitive Strategy to UseStrategy to Use

Each points to different ways of Each points to different ways of experimenting with the basics experimenting with the basics of the strategyof the strategy

Each entails differences in Each entails differences in product line, production product line, production emphasis, marketing emphasis, emphasis, marketing emphasis, and means to sustain the and means to sustain the strategystrategy

This rarely produces a sustainable competitiveadvantage or a distinctive competitive position

The big riskSelecting a “stuck in the middle” strategy!

Thank You!

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