PORTER 5 DIFFERENTIATION

8/7/2019 PORTER 5 DIFFERENTIATION

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Chapter Roadmap

Competitive Strategies

Low-Cost Provider Strategies

Differentiation Strategies

Focused (or Market Niche) Strategies


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What Is Competitive Strategy?

Deals exclusively with a companys business

plans to compete successfully

Specific efforts toplease customers

Offensive and defensive moves

to counter maneuvers of rivals

Responses to prevailing marketconditions

Initiatives to strengthen its market position

Narrower in scope than business strategy


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Low-Cost Provider Strategies

Make achievement ofmeaningful lowercosts

than rivals the theme of firms strategy

Include features andservices in productoffering that buyers consideressential

Find approaches to achieve a cost advantage

in ways difficultfor rivals to copy or match

Keys to SuccessKeys to Success

Low-cost leadership means low overallcosts, not

just low manufacturing or production costs!


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Option 1: Use lower-cost edge to

under-price competitors and attract

price-sensitive buyers in enoughnumbers to increase total profits

Option 2: Maintain present price, be

content with present market share,and use lower-cost edge to earn a

higher profit margin on each unit sold,

thereby increasing total profits

Translating a Low-Cost Advantage intoHigher Profits: Two Options


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Cost conscious corporate culture

Employee participation in cost-control efforts

Ongoing efforts to benchmark costs Intensive scrutiny of budget requests

Programs promoting continuous cost improvement

Successful low-cost producers champion

frugalitybut wisely and aggressively

invest in cost-saving improvements !

Characteristics of a Low-Cost Provider


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Price competition is vigorous

Product is standardized or readily availablefrom many suppliers

There are few ways to achievedifferentiation that have value to buyers

Most buyers use product in same ways

Buyers incur low switching costs

Buyers are large and havesignificant bargaining power

Industry newcomers use introductory low prices toattract buyers and build customer base

When Does a Low-CostStrategy Work Best?


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Pitfalls of Low-Cost Strategies

Being overly aggressive in cutting price

Low cost methods are easily imitated by rivals

Becoming too fixated on reducing costsand ignoring

Buyer interest in additional features

Declining buyer sensitivity to price

Changes in how the product is used

Technological breakthroughs open up cost

reductions for rivals


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Incorporate differentiatingfeatures that cause

buyers topreferfirmsproduct orservice over

brands of rivals

Find ways to differentiate that create value for

buyers and are not easily matchedorcheaplycopiedby rivals

Notspending more to achieve differentiation

than theprice premium that can be charged

ObjectiveObjective

Keys to SuccessKeys to Success

Differentiation Strategies


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Benefits of Successful Differentiation

A product / service with unique,

appealing attributes allows a firm to

Command apremium price and/or

Increase unitsales and/or

Buildbrand loyalty

= Competitive Advantage

Whichhat is

unique?


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Unique taste Dr. Pepper

Multiple features Microsoft Windows and Office

Wide selection and one-stop shopping Home Depot,

Amazon.com

Superiorservice -- FedEx, Ritz-Carlton

Spare parts availability Caterpillar

Engineering design and performance Mercedes, BMW

Prestige Rolex

Product reliability Johnson & Johnson

Quality manufacture Karastan, Michelin, Toyota

Technological leadership 3M Corporation

Top-of-line image

Ralph Lauren, Starbucks, Chanel

Types of Differentiation Themes


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Sustaining Differentiation:Keys to Competitive Advantage

Most appealing approaches to differentiation

Those hardestfor rivals to match or imitate

Those buyers willfind most appealing

Bestchoices to gain a longer-lasting, more

profitable competitive edge

New product innovation

Technical superiority Product quality and reliability

Comprehensive customer service

Unique competitive capabilities


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When Does a DifferentiationStrategy Work Best?

There are many ways to differentiate a product

that have value and please customers

Buyer needs and uses are diverse

Few rivals are following a similar

differentiation approach

Technological change and

product innovation are fast-paced


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Focus / Niche Strategies

Involve concentrated attention on a narrow piece of

the total market

Serve niche buyers better than rivals

Choose a market niche where buyers

have distinctive preferences, specialrequirements, or unique needs

Develop unique capabilities to serve

needs of target buyer segment

Objective

Keys to Success


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Geographic uniqueness

Specialized requirements in

using product/service

Special product attributes

appealing only to niche buyers

Approaches to Defining a Market Niche


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Examples of Focus Strategies

AnimalPlanet and History Channel Cable TV

Google Internet search engines

Porsche Sports cars

Cannondale Top-of-the line mountain bikes

Enterprise Rent-a-Car Provides rental cars to repair garage customers

Bandag

Specialist in truck tire recapping


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Focus / Niche Strategiesand Competitive Advantage

Achieve lower costs than rivals in

serving a well-defined buyer segment Focused low-coststrategy

Offer a product appealing to unique

preferences of a well-defined buyer segment

Focus

ed diff

erentiationstrategy

Approach 1

Approach 2Which

hat is

unique?


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What Makes a NicheAttractive for Focusing?

Big enough to be profitable and offers good growth

potential

Not crucial to success of industry leaders

Costly or difficult for multi-segment competitorsto meet specialized needs of niche members

Focuser has resources and capabilities

to effectively serve an attractive nicheFew other rivals are specializing in same niche

Focuser can defend against challengers via

superior ability to serve niche members


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Documents

PORTER 5 DIFFERENTIATION