Chapter 5: The 5 Generic Competitive Strategies Flashcards
Competitive strategy
Specifics of mgmt’s game plan for competing successfully and securing a competitive advantage over marketplace rivals
Low cost leader
Basis for competitive advantage is lower costs than competitors. Success comes from eliminating “non-essential” activities and/or outmanaging rivals in performing “essential” activities
Two major avenues to achieve low-cost leadership
1) Perform activities more cost effectively
2) Revamp value-chain to eliminate or bypass cost activites
Cost drivers
Factors having effect on the cost of a firm’s VC activities and cost structure
Cost Drivers
Factors having effect on the cost of a firm’s VC activities and cost structure
Examples of Cost drivers
Comm systems and info technology, bargaining power, production tech and design, input costs, capacity utilization, learning and xp, economies of scale, outsourcing/vertical integration, labor productivity and compensation costs
When to use Low cost leadership
Price competition is vigorous, buyers are price sensitive, commodity/identical items, differentiating doesn’t add customer value, low switching costs
Pitfalls of low cost leadership
Overly aggressive price cutting, approach can be copied, product decreases quality too much
Broad differentiation strategies
Allows firm to command premium price,increase unit sales, and gain brand loyalty
Value drivers
Factors that can have strong effects on customer value and creating differentiation
Examples of value drivers
Input quality, innovation and tech advances, marketing and brand building, product features/design/performance, production R&D, employe skills/training/xp, continuous quality improvement, customer service
When to use broad differentiation strategies
Buyer needs and uses of product are diverse, many ways to differentiate that add value, few rivals have similar approach, tech change is fast-paced and competition revolves around rapidly evolving product features
Pitfalls of broad differentiation
Easily or quickly copies, buyer may see little value in “unique” attributes, overspending on differentiation efforts, over-differentiation that exceeds buyer’s needs, too high of a premium
When to use focused (Niche) strategies
Niche is big enough to be profitable, industry leaders don’t compete in niche, difficult to meet both mainstream and niche needs, industry has many niches, few rivals attempt to specialize same target segment
Risks of focused (Niche) strategies
Competition will serve niche, niche members shift to attributes desired by the majority, becomes so attractive that competitors inundate market
When to use best-cost provider strategies
Market where product differentiation is the norm and attractively large numbers of value-conscious buyers can be induced to purchase mid-range products (ie: iPad 10th gen) rather than basic low-cost or expensive and extremely differentiated products (medium-quality product at below average price or high-quality product at average/slightly above average price)
Pitfalls of best-cost prover strategies
Not having realistic core competencies and efficiencies to increase differentiation without increasing prices significantly, getting caught in the middle range without drawing customers from high and low market ends
