Bài giảng Crafting and Executing Strategy - Chapter 5: The Five Generic Competitive Strategies: Which One to Employ?

Chapter 5: The Five Generic Competitive Strategies: Which One to Employ?Screen graphics created by:Jana F. Kuzmicki, Ph.D.Troy UniversityChapter Learning ObjectivesGain command of how each of the five generic competitive strategies lead to competitive advantage and deliver superior value to customers.Learn why some of the five generic strategies work better in certain kinds of industry and competitive conditions than in others.Learn the major avenues for achieving a competitive advantage based on lower costs.Learn the major avenues for developing a competitive advantage based on differentiating a company’s product or service offering from the offerings of rivals in ways that better satisfy buyer needs and preferences.Chapter RoadmapThe Five Competitive StrategiesLow-Cost Provider StrategiesBroad Differentiation StrategiesBest-Cost Provider StrategiesFocused (or Market Niche) StrategiesThe Contrasting Features of the Five Generic Competitive Strategies: A SummaryStrategy and Competitive AdvantageCompetitive advantage exists when a firm’s strategy gives it an edge inAttracting customers andDefending against competitive forcesConvince customers firm’s product / service offers superior valueA good product at a low priceA superior product worth paying more forA best-value productKey to Gaining a Competitive AdvantageWhat Is Competitive Strategy?Deals exclusively with acompany’s business plansto compete successfullySpecific efforts to please customersOffensive and defensive movesto counter maneuvers of rivalsResponses to prevailing market conditionsInitiatives to strengthen its market positionNarrower in scope than business strategyFigure 5.1: The Five Generic Competitive Strategies5-6Low-Cost Provider StrategiesMake achievement of meaningfullower costs than rivals the themeof firm’s strategyInclude features and services in productoffering that buyers consider essentialFind approaches to achieve a cost advantage in ways difficult for rivals to copy or matchKeys to SuccessLow-cost leadership means low overall costs, not just low manufacturing or production costs!Option 1: Use lower-cost edge to under-price competitors and attract price-sensitive buyers in enough numbers to increase total profitsOption 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 profitsTranslating a Low-Cost Advantage into Higher Profits: Two OptionsApproaches to Securing a Cost AdvantageDo a better job than rivals ofperforming value chain activitiesefficiently and cost effectivelyRevamp value chain to bypasscost-producing activities that add little value from the buyer’s perspective Control costs!By-pass costs!Approach 1Approach 2Approach 1: Controlling the Cost DriversCapture scale economies; avoid scale diseconomiesCapture learning and experience curve effectsControl percentage of capacity utilizationPursue efforts to boost sales and spread costs such as R&D and advertising over more unitsImprove supply chain efficiencySubstitute use of low-cost forhigh-cost raw materialsUse online systems and sophisticatedsoftware to achieve operating efficienciesAdopt labor-saving operating methodsUse bargaining power to gain concessions from suppliersCompare vertical integration vs. outsourcingUse direct-to-end-usersales/marketing methodsMake greater use of onlinetechnology applicationsStreamline operations by eliminating low-value-added or unnecessary work stepsRelocate facilities closer to suppliers or customersOffer basic, no-frills product/serviceOffer a limited product/serviceApproach 2: Revamping the Value ChainKeys to Success in AchievingLow-Cost LeadershipScrutinize each cost-creating activity,identifying cost driversUse knowledge about cost drivers to managecosts of each activity down year after yearFind ways to restructure value chain to eliminatenonessential work steps and low-value activitiesWork diligently to create cost-conscious corporate culturesFeature broad employee participation in continuous cost-improvement efforts and limited perks for executivesStrive to operate with exceptionally small corporate staffs Aggressively pursue investments in resources and capabilities that promise to drive costs out of the businessPrice competition is vigorousProduct is standardized or readily availablefrom many suppliersThere are few ways to achievedifferentiation that have value to buyersMost buyers use product in same waysBuyers incur low switching costs Buyers are large and havesignificant bargaining powerIndustry newcomers useintroductory low prices to attractbuyers and build customer baseWhen Does a Low-CostStrategy Work Best?Pitfalls of Low-Cost StrategiesBeing overly aggressive in cutting priceLow cost methods are easilyimitated by rivalsBecoming too fixated onreducing costs and ignoringBuyer interest in additional featuresDeclining buyer sensitivity to priceChanges in how the product is usedTechnological breakthroughs open up cost reductions for rivalsDifferentiation StrategiesIncorporate differentiating features that cause buyers to prefer firm’s product or service over brands of rivalsFind ways to differentiate that createvalue for buyers and are not easilymatched or cheaply copied by rivalsKeeping the cost of achieving differentiation below the higher price that can be chargedObjectiveKeys to SuccessBenefits of Successful DifferentiationA product / service with unique, appealing attributes allows a firm toCommand a premium price and/orIncrease unit sales and/orBuild brand loyalty= Competitive AdvantageWhichhat is unique?Sustaining Differentiation:Keys to Competitive AdvantageMost appealing approaches to differentiation are thoseHardest for rivals to match or imitateBuyers will find most appealingBest choices to gain a longer-lasting, more profitable competitive edge New product innovationTechnical superiorityProduct quality and reliabilityComprehensive customer serviceUnique competitive capabilitiesWhere to Find DifferentiationOpportunities in the Value ChainPurchasing and procurement activitiesProduct R&D and product design activitiesProduction process / technology-related activitiesManufacturing / production activitiesDistribution-related activitiesMarketing, sales, and customer service activitiesActivities, Costs, &Margins ofForwardChannel AlliesInternallyPerformedActivities, Costs, &MarginsActivities, Costs, &Margins ofSuppliersBuyer/UserValueChainsHow to Achieve aDifferentiation-Based Advantage Incorporate features that raiseperformance a buyer gets out of the productIncorporate features that enhance buyer satisfaction in non-economic or intangible waysOutcompete rivals via superior capabilitiesIncorporate product features/attributes thatlower buyer’s overall costs of using productApproach 1Approach 2Approach 3Approach 4When Does a DifferentiationStrategy Work Best?There are many ways to differentiate a product that have value and please customersBuyer needs and uses are diverseFew rivals are following a similardifferentiation approachTechnological change andproduct innovation are fast-pacedPitfalls of Differentiation StrategiesAppealing product features are easily copied by rivalsBuyers see little value in unique attributes of productOverspending on efforts to differentiate the product offering, thus eroding profitabilityOver-differentiating such that product features exceed buyers’ needsCharging a price premiumbuyers perceive is too highNot striving to open up meaningfulgaps in quality, service, or performancefeatures vis-à-vis rivals’ productsBest-Cost Provider StrategiesCombine a strategic emphasis on low-cost with a strategic emphasis on differentiationMake an upscale product at a lower costGive customers more value for the moneyDeliver superior value by meeting or exceeding buyer expectations on product attributes and beating their price expectationsBe the low-cost provider of a product with good-to-excellent product attributes, then use cost advantage to underprice comparable brandsObjectivesCompetitive Strength of a  Best-Cost Provider StrategyCompetitive advantage is based on the capability to include upscale attributes at a lower cost than rivals’ comparable productsTo achieve competitive advantage,a company must be able toIncorporate attractive featuresat a lower cost than rivalsManufacture a good-to-excellent qualityproduct at a lower cost than rivalsDevelop a product that delivers good-to-excellent performance at a lower cost than rivalsProvide attractive customer service at a lower cost than rivalsWhen Is a Best-CostProvider Strategy Appealing?When buyer diversity makes product differentiation the norm When many buyers are also sensitive to price and valueRisk of a Best-Cost Provider StrategyA best-cost provider may get squeezed between strategies of firms using low-cost and differentiation strategiesLow-cost leaders may be able to siphoncustomers away with a lower priceHigh-end differentiators maybe able to steal customers awaywith better product attributesFocus / Niche StrategiesInvolve concentrated attention on a narrow piece of the total market Serve niche buyers better than rivalsChoose a market niche where buyershave distinctive preferences, specialrequirements, or unique needsDevelop unique capabilities toserve needs of target buyer segmentObjectiveKeys to SuccessFocus / Niche Strategiesand Competitive AdvantageAchieve lower costs than rivals inserving a well-defined buyer segmentFocused low-cost strategyOffer a product appealing to uniquepreferences of a well-defined buyer segment Focused differentiation strategyWhich hat is unique?Approach 1Approach 2What Makes a NicheAttractive for Focusing?Big enough to be profitable and offers good growth potentialNot crucial to success of industry leadersCostly or difficult for multi-segmentcompetitors to meet specializedneeds of niche membersFocuser has resources and capabilitiesto effectively serve an attractive nicheFew other rivals are specializing in same nicheFocuser can defend against challengers via superior ability to serve niche membersRisks of a Focus StrategyCompetitors with broad product lines having wide appeal find effective ways to matcha focuser’s capabilities in serving nicheNiche buyers’ preferences shifttowards product attributes desiredby majority of buyers – nichebecomes part of overall marketSegment becomes so attractive it becomes crowded with rivals, causing segment profits to be splinteredDeciding Which GenericCompetitive Strategy to UseEach positions a company differently in its market and competitive environmentEach establishes a central theme for how a company will endeavor to outcompete rivalsEach creates some boundaries for maneuvering as market circumstances unfoldEach points to different ways of experimenting with the basics of the strategyEach entails differences in product line, production emphasis, marketing emphasis, and means to sustain the strategyThe big risk – Mixing and matching pieces of the generic strategies to create a mixed bag or “stuck in the middle”strategy! This rarely produces a sustainable competitive advantage or a distinctive competitive position !