Chapter Outline

 Five Generic Competitive Strategies

 Low-Cost Leadership Strategy
 Broad Differentiation Strategies
 Best-Cost Provider Strategies
 Focused Low-Cost Strategies
 Focused Differentiation Strategies
 Vertical Integration Strategies
 Merger and Acquisition Strategies
 Cooperative Strategies
 Offensive and Defensive Strategies
 First-Mover Advantages and Disadvantages
 Strategy and Competitive Advantage
 Competitive advantage exists when a firm’s
strategy gives it an edge in
 Defending against competitive forces and
 Securing customers

Key to Gaining a Competitive Advantage

 Convince customers firm’s product / service offers
superior value
 Offer buyers a good product at a lower price
 Use differentiation to provide a better product
buyers think is worth a premium price
 Figure 5.1: The Five Generic
Competitive Strategies
Type of Advantage
Sought
Lower Cost Differentiation

Broad Overall Low-Cost Broad

Range of Provider Differentiation
Market Target

Buyers Strategy Strategy

Best-Cost
Provider
Strategy
Narrow Focused Focused
Buyer
Segment
Low-Cost Differentiation
or Niche Strategy Strategy
 Low-Cost Leadership

Keys to Success
 Make achievement of low-cost relative to
rivals the theme of firm’s business strategy
 Find ways to drive costs out of business year-
after-year

Low-costleadership
Low-cost leadership means
means lowlow
overall costs,
OVERALL costs,not
notjust
justlow
low
manufacturing or
manufacturing or production
production costs!
costs!
 Figure 5.2: Reconfiguring Value Chain
Systems to Lower Costs -- Software Industry
A. Value Chain System of Software Developers Using
Traditional Wholesale-Retail Channels - Highest Cost
Warehousing
CD-ROM
Marketing and shipping
Software production
and of
development and
promotion of wholesaler-
activities packaging
software retailer
activities
orders

Activities of
Technical Activities of wholesale
support software distributors
activities retailers of software
products
 Figure 5.2: Reconfiguring Value Chain
Systems to Lower Costs -- Software Industry
B. Value Chain System of Software Developers
Using Direct Sales and Physical Delivery of CDs
Direct and
CD-ROM Ware- Technical
online
Software production housing and support and
marketing
development and shipping of customer
and
activities packaging customer service
promotion
activities orders activities
activities

C. Value Chain System of Software Developers

Using Online Sales and Internet Delivery - Lowest
Cost
Systems to
accept credit Technical
Online
Software card support and
marketing
development payment and customer
and allow
activities service
promotion immediate activities
activities download
 Differentiation Strategies

Objective
 Incorporate differentiating features that cause
buyers to prefer firm’s product or service over
brands of rivals
Keys to Success
 Find ways to differentiate that create value for
buyers and that are not easily matched or
cheaply copied by rivals
 Not spending more to achieve differentiation
than the price premium that can be charged
 Best Cost Provider Strategies
 Combine a strategic emphasis on low-cost with a
strategic emphasis on differentiation
 Make an upscale product at a lower cost
 Give customers more value for the money

Objectives
 Deliver superior value by meeting or exceeding
buyer expectations on product attributes and
beating their price expectations
 Be the low-cost provider of a product with good-to-
excellent product attributes, then use cost
advantage to underprice comparable brands
 How a Best-Cost Strategy
Differs from a Low-Cost Strategy
 Aim of a low-cost strategy--Achieve lower costs
than any other competitor in the industry
 Intent of a best-cost strategy--Make a more
upscale product at lower costs than the makers
of other brands with comparable features and
attributes
 A best-cost provider cannot be the industry’s
absolute low-cost leader because of the added
costs of incorporating the additional upscale
features and attributes
that the low-cost leader’s
product doesn’t have
 Focus / Niche Strategies
 Involve concentrated attention on a narrow piece
of the total market
Objective
Serve niche buyers better than rivals

Keys to Success
 Choose a market niche where buyers have
distinctive preferences, special requirements, or
unique needs
 Develop unique capabilities to serve needs of
target buyer segment
 Cooperative Strategies

Companies sometimes use strategic

alliances or collaborative partnerships to
complement their own strategic initiatives
and strengthen their competitiveness.
Such cooperative strategies go beyond
normal company-to-company dealings but
fall short of merger or formal joint venture.
 Merger and Acquisition Strategies
 Merger - Combination and pooling of equals, with newly
created firm often taking on a new name
 Acquisition - One firm, the acquirer, purchases and
absorbs operations of another, the acquired
 Merger-acquisition
 Much-used strategic option
 Especially suited for situations where alliances
do not provide a firm with needed capabilities
or cost-reducing opportunities
 Ownership allows for tightly integrated operations,
creating more control and autonomy than alliances
 Vertical Integration Strategies
 Vertical integration extends a firm’s
competitive scope within same industry
 Backward into sources of supply
 Forward toward end-users of final
product
Can aim at either full or partial integration

Internally Activities, Costs,

Activities,
Performed & Margins of Buyer/User
Costs, &
Activities, Forward Channel Value
Margins of
Costs, & Allies & Chains
Suppliers
Margins Strategic Partners
Unbundling and Outsourcing Strategies

Concept
De-Integration or unbundling involves narrowing the
scope of the firm’s operations, focusing on performing
certain “core” value chain activities and relying on
outsiders to perform the remaining value chain
activities
Internally
Performed
Activities Functional
Suppliers
Activities

Support Distributors
Services or Retailers
 Offensive and Defensive Strategies

Offensive Strategies
Used to build new or stronger
market position and/or create
competitive advantage

Defensive Strategies
Used to protect competitive
advantage (rarely are they the
basis for creating advantage)
 Figure 5.3: The Building and Eroding
of Competitive Advantage

Buildup Period Benefit Period Erosion Period

Size of Competitive Advantage

Size of
competitive
Strategic advantage Moves by
moves achieved rivals
produce erode
competitive competitive
advantage advantage

Time
 Offensive Strategy and
Competitive Advantage
 Strategic offensive offering strongest basis for
competitive advantage usually entail
 Developing lower-cost product design
 Making changes in production operations that
lower costs or enhance differentiation
 Developing product features that deliver
superior performance or lower users’ costs
 Giving more responsive customer service
 Escalating marketing effort
 Pioneering a new distribution
channel
 Selling direct to end-users
 Defensive Strategy

Objectives
 Fortify firm’s present position
Help sustain any competitive advantage
held
Lessen risk of being attacked
Blunt impact of any attack that occurs
Influence challengers to aim attacks at
other rivals
 First-Mover Advantages
 When to make a strategic move is often as
crucial as what move to make
 First-mover advantages arise when
 Pioneering helps build firm’s image and
reputation
 Early commitments to new technologies,
new-style components, and distribution
channels can produce cost advantage
 Loyalty of first time buyers is high
 Moving first can be a preemptive strike
 First-Mover Disadvantages
 Moving early can be a disadvantage (or fail
to produce an advantage) when
 Costs of pioneering are sizable and loyalty of
first time buyers is weak
 Innovator’s products are
primitive, not living up to
buyer expectations
 Rapid technological change
allows followers to leapfrog pioneers