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Competitive strategies - Coggle Diagram
Competitive strategies
Occur at the business levels and are the strategies that an SBU should adopt in its particular market
To be competitive in a market, an SBU must provide value to the customer for which the customer is prepared to pay
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An organisation that does not provide better value than competitors is vulnerable to the superior products or services of competitors
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Porter and Millar (1985) argue that competitive advantage is created by achieving lower costs than competitors or higher perceived value that allows an organisation to charge higher prices - he also suggests that the scope of an organisations activity and gaining a particular intimacy with and knowledge of a narrow market segment can be a source of competitive advantage. He termed these three strategies cost leadership, differentiation and focus
Cost leadership
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The price we can charge is a different matter and will be impacted on by a wide range of factors of which cost is only one
Can be obtained in a number of ways and is often achieved by a combination of factors rather than a single one
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Economies of scale: these occur where fixed costs are high and an organisation can spread these costs over a large number of outputs - also allow organisations to negotiate reduced prices for input costs
Experience: this can be the key to efficiency. Experience can lead to greater productivity of workers or in the use of machinery. Experience in design and process, learning from experience allows organisations to build efficiencies into processes and systems
Quality: Cost leadership does not imply poor quality; cost leadership is not enough in itself - it must also meet the market standards expected.
To benefit from both economies of scale and experience the competitive scope of organisations seeking cost leadership will be broad
Differentiation
About doing or perceiving something special, extra or different that is valued by the customer and allows an organisation to charge a price premium
May be considered as a strategy for gaining competitive advantage by providing a product or service of the same cost and quality as a competitor but with some additional attributes that makes it different from the competition or creating a product which is different in some way from its main competitors in eyes of the target market
Focus
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Differentiation focus strategies target particular segment needs that are not or cannot be met by organisations seeking a broader target. This could be because they are too generalist and there are requirements for special skills, knowledge or service. Can lead to increased brand awareness or improved customer loyalty eg Beatson Clark
Cost focus aim to identify market needs the most generalist providers cannot satisfy because of their higher cost base eg Ryanair or Southwest Arlines
In more recent times, organisations have also utilised time compression and responsiveness as a source of advantage
Time based competition considers time as an organisational resource and is about competition based on speed in responding to customer demands and developing new products
Time compression reduces the time required to produce and deliver a product or service, time to deliver refers to the time taken for the product to reach the consumer
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Time to market is also seen as a source of advantage - this is of particular concern to the marketing function and refers to the elapsed time taken for the whole design activity from concept through to market introduction; it is the length of time taken to bring a new product to market - it is usually taken as the time from deciding to develop a new product to its market launch
First mover - a business that is first in its industry to adopt a technology or method - advantages are enjoyed by the first entrant in an industry or market which may yield increasing returns making it harder for other entrants to follow and acting as a barrier to entry