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SMGT T5 (Ch5): The five generic competitive strategies (Best-cost provider…
SMGT T5 (Ch5): The five generic
competitive
strategies
Five strategies
Focused cost
Focused differentiation
Best cost
Broad differentiation
Broad cost
Low-cost provider strategies (122)
Suits industries with: (128)
Low product differentiation
High price sensitivity (price elastic demand)
Buyers use products in the same way
Differentiation does not add value
Low switching costs
Approaches
Better cost efficiencies within each element of the value chain (123)
Modifying the value chain process itself (process re-engineering) (125)
Fig 5.2 (124) 10 cost drivers
2 ways to benefit
Cut price and win market share (risk of retaliation)
Retain prices and market share, but enjoy bigger profit margin per unit
Pitfalls (129)
Relying on cost savings that can be easily copied
Becoming too fixated on cost at expense of all else
Trade off calculation of unit profit v unit sales
Broad differentiation strategies (129)
8 value drivers - fig 5.3 (131)
Using value chain system to increase differentiation (132)
Routes to differentiation (132)
Tangible features, e.g. functionality, styling, etc
Intangible features, e.g. environmentally conscious, image
Lower the buyer's overall costs, e.g. increased fuel/power efficiency / B2B - reduce buyer waste / storage costs
Signals of value, e.g. high price, packaging, marketing
Suits markets that: (134)
Suits price inelastic demand - buyers not sensitive to price but rather quality, features, attributes
Buyers needs and uses of product are diverse
Many ways to differentiate product
Few rivals following same differentiation strategy
Rapid technology and product innovation
Pitfalls (135)
Features/methods that buyers don't value
Overspending on features/methods
Features/methods that are easily imitated
Trivial features/methods
Over-differentiating beyond buyer needs/interest
Too high a price premium
Focused or niche market strategies
Focused low-cost (136)
Focused differentiation (137)
Suitable market conditions (138)
Risks (138)
New entrants especially mainstream leaders who diversify
Changing buyer preference, especially towards the mainstream offering
Best-cost provider strategies (140)
Targets medium to high quality but at lower prices
A more recent strategy due to increasing process efficiency reducing cost
Eg, Toyota 'Lexus' / American Giant Hoodies
Risk - competing with both low-cost and high-differentiation rivals
Aimed at 'value-conscious' buyer, not 'price-conscious' buyer
Producer needs specific resources, know-how, and capabilities to pull this off
ARTICLE: How to maintain sustainable competitive advantages (2012)
Building strategic resilience (IBM example) (p.48)
Growth of the importance of sustainability (p.49)
Overcoming business inertia (those blinkers for a companies core competencies over anything else) (p.47)
The choice of strategy needs to be carefully aligned with the resources, know-how, and capabilities that the organisation has to support that strategy for the long-term
See Table 5.1 (144) for overall summary