Five Generic Competitive Strategies

Five Generic Competitive Strategies by Michael Porter

1. The Five Generic Competitive Strategies Presentation By Omkar, Vijay and Dilleshwar

2. The Five Generic Competitive Strategies Low-Cost Provider Strategy Broad Differentiation Strategy Focused Low C ost Strategy Focused Differentiation Strategy Best-Cost Provider Strategy

3. What is Competitive Strategy ?

4. Competitive Strategy Competitive Strategy is a long-term action plan for how a firm will compete after evaluating its strengths and weaknesses. Competitive Strategy is defined as a "framework for making decisions that create results in a competitive market .“ The competitive theory was proposed by Michael Porter in 1980

5. Low-Cost Provider Strategy Effective Low-Cost Approaches: Pursue cost-savings that are difficult imitate. Avoid reducing product quality to unacceptable levels. Competitive Advantages and Risks: Greater total profits and increased market share gained from underpricing competitors. Larger profit margins when selling products at prices comparable to and competitive with rivals. Low pricing does not attract enough new buyers. Rival’s retaliatory price cutting set off a price war.

6. Pitfalls of a Low-Cost Provider Strategy Lowering selling prices results in gains that are smaller than the increases in total costs, reducing profits rather than raising them. Relying on a cost advantage that is not sustainable because rivals can copy or otherwise overcome it. Becoming too fixated on cost reduction such that the firm’s offering is too features-poor to generate sufficient buyer appeal.

7. Broad Differentiation Strategy Effective Differentiation Approaches: Carefully study buyer needs and behaviors, values and willingness to pay a unique product or service. Incorporate features that both appeal to buyers and create a sustainably distinctive product offering. Use higher prices to recoup differentiation costs. Advantages of Differentiation: Premium prices for products Increased unit sales Brand loyalty

8. Pitfalls of a Broad 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. Not opening up meaningful gaps in quality, service, or performance features vis-à-vis the products of rivals. Adding frills and features such that the product exceeds the needs and uses of most buyers. Charging too high a price premium.

9. Focused Strategies

10. Companies use Focus strategies to concentrate on a particular market, by understanding the dynamics of that market and the unique needs of customers within it. This helps the companies to develop uniquely low cost or well-specified products for the market. T hey tend to build strong brand loyalty amongst their customers.

11. Example: Tata Starbucks Tata Starbucks Ltd is a 50:50 joint venture company. It was first launched on October 2012 in India Tata Starbucks is targeted at urban youths, office goers and families. Localized menu which are loved by the Indians.

12. Focused Strategies Focused Low Cost Focused Differentiation

13. Focused Low Cost Strategy It aims at securing competitive advantage by selling products at lower prices than those of its competitors. It concentrate on selling products at a low cost to a narrow target segment. The main objective is to serve niche buyers better than the rivals. The features of the products offered are tailored according to the need and taste of the niche buyers.

14. Example: Google Nexus 5 Offers advanced features at a price much lower than its competitors. Specially targeted at geeks and software developers who want to customize the device to a great extent. Value for Money (VFM) device.

15. Focused Differentiation Strategy Pursuing strategic differentiation within a focused market. In the focused differentiation strategy , a company aims to differentiate its products within a small number of target market segments . Focused differentiation strategy is most effective when consumers have different preferences or requirements and when rival firms are not attempting to specialize in the same target segment .

16. Example: Apple iPhone Positioned itself as a status symbol Targeted at urban youths and office goers in developed countries. Finger Print Scanner. The only smartphone in the world to run on the iOS platform.

17. Best cost Provider: Core concept Best cost provider strategies are a hybrid of low cost provider and differentiation strategies that aim at providing desired quality/features/performance/service attributes while beating rivals on price

18. Best-Cost Provider Strategy Striving to give customers more value for the money by combining an emphasis on low cost with an emphasis on upscale differentiation Combines low-cost and differentiation The objective is to create superior value by meeting or beating customer expectation on product attributes and beating their price expectations Keys to success: Match close competitors on key product attributes and beat them on cost Expertise at incorporating upscale product attributes at a lower cost than competitors Contain costs by providing customers a better product

19. Advantages of Best-Cost Provider Strategy Competitive advantage comes from matching close competitors on key product attributes and beating them on price Most successful best-cost providers have skills to simultaneously manage costs down and product quality up Best-cost provider can often beat an overall low-cost strategy and a broad differentiation strategy where Customer diversity makes product differentiation the norm Many customers are price and value sensitive

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