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The Five GenericCompetitive Strategies
Session 4
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Competitive strategy is aboutompetitive strategy is aboutbeing different. It means
deliberately choosing to performti iti diff tl t fDifferent Inputs Same activities differently or to perform
different activities than rivals toutputs,
deliver a unique mix of value.eren npu ,Different Outputs,
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Michael E. Porter
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Lo -Cost Provider Strate ies
Broad Differentiation Strate ies
Best-Cost Provider Strategies
Focused (or Market Niche) Strategies
The Contrasting Features of the Five Generic
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ompe ve ra eges: ummary
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Corporate strategy choice of direction for the firm as a whole
Directional
Parenting
Business strategy improving the competitive positionCompetitive strategy
Coo erative strateBlue Ocean Strategy
to achieve corporate and business unit objectives and
Strategies by maximizing resource productivity
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plans to compete successfully
Specific efforts to please customers
Offensive and defensive movesto counter maneuvers of rivals
Responses to prevailing market condit ions
Initiatives to strengthen its market position
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arrower n scope an us ness s ra egy
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Fig. 5.1: The Five Generic Competitive Strategies
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Low-Cost Provider Strategies
Keys to SuccessKeys to Success
Make achievement ofmeaningful lower costs
than rivals the theme of firms strategy
Include features and services in product
offering that buyers consider essential
Find approaches to achieve a cost advantage
in ways difficult for rivals to copy or match
Low-cost leadership means low overall costs, not
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us ow manu ac ur ng or pro uc on cos s
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When Does a Low-Cost
ra egy or es
Product is standardized or readily available
There are few ways to achieve
Most buyers use product in same ways
uyers ncur ow sw c ng cos s
Buyers are large and havesignificant bargaining powe
Industry newcomers use introductory low prices to
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attract buyers and build customer base
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-
Low cost methods are easily imitated by rivals
Becoming too fixated on reducing costs
Buyer interest in additional features
Declining buyer sensitivity to price
Technological breakthroughs open up cost
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reductions for rivals
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Differentiation Strategies
Incorporate differentiating features that causebrands of rivals
Keys to SuccessKeys to Success
n ways o eren a e a crea e va ue or
buyers and are not easily matched or cheaplycop e y rva s
Not s endin more to achieve differentiation
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than the price premium that can be charged
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A product / service with unique,
Which
unique?
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Uni ue taste Yakult Dr. Pe e
Multiple features Microsoft Windows and Office, Google
- Amazon.com
Su erior service -- FedEx, Ritz-Carlton
Spare parts availability Caterpillar, Toyota En ineerin desi n and erformance Mercedes BMW
Prestige Rolex
Product reliabilit ohnson & ohnson Quality manufacture Karastan, Michelin, Toyota
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Top-of-line image Ralph Lauren, Starbucks, Chanel
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Sustaining Differentiation:
eys o ompe ve van age
Those hardest for rivals to match or imitateThose buyers will find most appealing
Best choices to ain a lon e -lastin , more
profitable competitive edge
Technical superiority (MS Office, Google)
Product quality and reliability (Sony, eBay)
Comprehensive customer service (Toyota)
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Unique competitive capabilities (PTT)
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Price remiumof a differentiation strate reflects
Value actually delivered to the buyer
and ?!?
Value perceived by the buyer
Actual and perceived value can differ when buyersare unable to assess their experience with a
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product
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Signaling Value as Well
as e ver ng a ue Incomplete knowledge of buyers causes them to
udge value based on such signals as Price
Extensive ad campaigns Ad content and image e er ac tes or pro ess ona sm an
personality of employees Having a list of prestigious customers
Signals of value may be as important asactual value when
Buyers are making first-time purchases (Real Estate, MBA) Repurchase is infrequent (Cars)
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Buyers are unsophisticated (Red-Bull)
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Buyers see little value in unique attributes of product
Overspending on efforts to differentiate the product
o er ng, us ero ng pro a y(
)
Over-differentiating such that productfeatures exceed buyers needs ()
Char in a rice remium bu ers erceive is too hi h Not striving to open up meaningful gaps in quality,
- -
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products ()
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-
-
a strategic emphasis on differentiation
Give customers more value for the money
Deliver superior value by meeting or exceedingObjectives
buyer expectations on product attributes and
beating their price expectationsBe the low-cost provider of a product with good-to-
excellent roduct attributes then use cost
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advantage to underprice comparable brands
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When Does a Best-Cost
rov er ra egy or es
Where buyer diversity makesproduct differentiation the normand
Where many buyers are alsosensitive to price and value
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-
A best-cost providermay get squeezed between-
differentiation strategies
Low-cost leaders may be able to siphoncustomers away with a lower price
High-end differentiators may be able to
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the total market
Serve niche buyers better than rivals
Keys to Success
oose a mar e nc e w ere uyershave distinctive preferences, specialrequremen s, or unque nee s
Develo uni ue ca abilities to serve
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needs of target buyer segment
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eograp c unqueness - , arage
Specialized requirements in,
Special product attributes
a ealin onl to niche bu ers
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(Tattoos, Super cars )
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Cable TV
orsc eSports cars
CannondaleTo -of-the line mountain bikes
Enterprise Rent-a-Car
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Focus / Niche Strategies
an ompe ve van age
Approach 1
c eve ower cos s an rva s nserving a well-defined buyer segment
Focused low-cost strategy
Approach 2Which
hat is
unique?
Offer a product appealing to uniquepreferences of a well-defined buyer segment
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Focused differentiation strategy
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Competitors find effective ways to match
a focusers capabilities in serving niche
attributes desired by majority of buyers niche
Segment becomes so attractive it becomescrowded with rivals, causing segment profits to be
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splintered
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Deciding Which Generic
ompe ve ra egy o se Each ositions a com an differentl in its market and
competitive environment
Each establishes a central theme for how a company willen eavor o ou compe e rva s Each creates some boundaries for maneuvering as market
Each points to different ways of experimenting with thebasics of the strategy
Each entails differences in product line, productionemphasis, marketing emphasis, and means to sustain the
The big risk Selecting a stuck in the middle strategy!
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advantage or a distinctive competitive posit ion!
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Offensive and Defensive Strate iesOffensive and Defensive Strate ies
Offensive Strategies Defensive Strategies
stronger market competitive advantage
competitive advantage
advantage)
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.
.
.
-.
.
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Whittle away at a rivalscompe ve a van age
-
strengths of weaker rivals
Challenging strong competitors with a lower price
u cos
advantage or advantage ofgreater financial
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trength!
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Options for AttackingOptions for Attacking
Offer e uall ood roduct at a
a ompe or a ompe or s reng ss reng s
lower price
Develop low-cost edge, then use it toun er-pr ce r va s
Leapfrog into next-generation
Add appealing new features
Construct new plant capacity in
rivals market strongholds
Offer a wider product line
Develo better customer service
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capabilities
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Attacking Competitor WeaknessesAttacking Competitor Weaknesses
Objective
Utilize company strengths to exploit a rivals
weaknesses
Weaknesses to Attack
Customers that a rival is least equipped to serve
Rivals providing ub-par customer service
Rivals with weaker marketin skills
Geographic regions where rival is weak
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ar et segments a r va sneg ect ng
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L hi Si ltL hi Si lt
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Launching SimultaneousLaunching Simultaneous
Objective
Launch several major initiatives to
-
Splinter their attention
Force them to use substantialresources to defend their position
Achallenger withsuperior resources canoverpowerweaker rivals byout-competing them across-the-
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EndEnd--Run OffensivesRun Offensives
Objectives
aneuver aroun s rong compe ors
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Approaches forApproaches for
nn -- un ens vesun ens ves
terms of competition
Build presence in geographic areas
with different features to better meet buyer needs
Introduce next-generation
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Guerrilla OffensesGuerrilla Offenses
Approach
Use principles ofsurprise and hit-and-run to
a ac n oca ons an a mes w ere con ons
are most favorable to initiator
Appeal
Well-suited to small challengers
with limited resources and
market visibility
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O tions for Guerrilla OffensesO tions for Guerrilla Offenses
,customers
Occasional low-balling on price
Intense bursts of romotional activit
Special campaigns to attract buyers from
Challenge rivals encountering problems with qualityor providing adequate technical support
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,
patent infringements, or unfair advertising
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Preemptive StrikesPreemptive Strikes
Approach
Involves moving first to secure an
advantageous position that rivals are oreclosed
or discoura ed from du licatin !
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Preem tive Strike O tionsPreem tive Strike O tions
Secure exclusive dominant access to best distributors
Secure best geographic locations
Tie up best or most sources of essential raw materials
Expand capacity ahead of demand in hopeso scouragng rva s rom o owng su
Build an image in buyers minds thatis unique or hard to copy
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offensive
Vulnerable market leaders
-
where challenger is strong
Struggling rivals on vergeof going under
Small local or regional
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U i Off i S A hi C i iU i Off i S A hi C i i
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Using Offensive Strategy to Achieve CompetitiveUsing Offensive Strategy to Achieve Competitive
van agevan age
Strate ic offensives offerin stron est basis forcompetitive advantage entail
A unique competitive capability
Much-improved performance features
Technological superiority
A cost advantage in manufacturing or distribution
Some t e of differentiation advanta e
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D f i St tD f i St t
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Defensive StrategyDefensive Strategy
Objectives
Lessen risk of being attacked
un mpac o any a ac a occurs
Influence challengers to aim attacks at other rivals
A roaches
Block avenues open to challengers
Signal challengers vigorous
retaliation is likely
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Block AvenuesBlock Avenues
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Block AvenuesBlock Avenues
Open to ChallengersOpen to Challengers Partici ate in alternative technolo ies
Introduce new features, add new models, or broaden
roduct line to close a s rivals ma ursue Maintain economy-priced models
Offer free training and support services
Make early announcements about new
Challenge quality or safety of rivals products
usin le al tactics
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Sign exclusive agreements with distributors
Signal ChallengersSignal Challengers
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Signal ChallengersSignal Challengers
e a a on s e ye a a on s e y
commitment to maintain present market share
Publicly commit firm to policy of
a n a n war c es o cas reserves
Make occasional counterresponseto moves of weaker rivals
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strategic movement as you have learned from
strategy!
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