Generic Competitive
Strategies
To cope with the five competitive forces, the
firms can adopt the following strategies to
outperform other firms in an Industry
[Link] Cost –Leadership
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Three Generic Competitive Strategies
Over all cost Leadership
Cost Leadership requires aggressive
construction of efficient scale facilities, tight
cost control, avoidance of marginal
customer accounts and cost minimisation.
However quality, services and other areas
can not be ignored.
Examples: Bajaj Motorcycles,Maruti,Nirma
Ford in U.S.A
The Risks of Following an Overall Cost Leadership Strategy
It can be expensive as the organization continually updates its
capital equipment
Competitors may be able to imitate the activities of the cost
leader
A change in technology may nullify past investments in capital
equipment and allow competitors to take market share
Customer tastes may change which results in them being less
price sensitive and more willing to pay a higher price for a
differentiated product
Differentiation
Differentiation implies creating something
that is perceived Industry wide as being
Unique. Approaches to differentiation can
take several forms
[Link] or Brand Image(Mercedes)
Technology (V-Tech by Honda)
Customer Service
Differentiation Strategy
Aimed at a broad market and involves the organization
competing on the basis of a product or service that is
recognised by consumers as unique
This difference must be sufficiently valued by consumers
that they are willing to pay a premium price for it
A major benefit of producing a differentiated product is
that rivals will find it difficult to imitate
A differentiation strategy will involve different resources,
capabilities and organizational arrangements than a
strategy based on cost leadership
Differentiation Strategy does not allow the
firms to ignore costs, but costs are not the
primary strategic target.
The Risks of Following a Differentiated
Strategy
The high price charged for differentiation must not be
too far above competitors that it results in reduced
brand loyalty
Buyers may decide that their need for a differentiated
product has declined
Competitors may narrow the attributes of
differentiation which results in consumers being faced
with a viable substitute
Focus
Focus can be on a particular buyer group, segment of the product line
or geographic market
Serving a segment (or segments) of the market
This might be a particular group of consumers, a specific
geographical market, in effect, any viable segment of the market
Examples of focus strategies include Cartier for jewellery,
Burberry for fashion and Toyota for hybrid cars
By focusing on a niche of the market, the organization may be
better placed to meet the needs of buyers than competitors who
are trying to compete across the whole industry
An organization can achieve competitive advantage either
through lower costs or differentiation focus
The Risks of Following a Focus
Strategy
Customer preferences may change and the niche
player may be unable to respond
Broad based competitors believe the segment
represents an attractive submarket and outfocus the
focuser
The difference between the segment and the main
market narrows leaving focus based competitors at a
disadvantage.
Stuck in the Middle
An organization that fails to pursue at least
one of these generic strategies:
lacks the market share, capital investment, and
resolve to play the low cost game, the industry
wide differentiation necessary to obviate the
need for a low-cost position, or the focus to
create differentiation or a low-cost position in a
more limited sphere.
Competetive Advantage of a Firm
A firm can use it’s resources and capabilities
to develop competitive advantage. However
the sustainability of these advantages
depends on
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Durability
It is the rate at which a firm’s core
competency can be duplicated by others.
New technology can make a firm’s core
competency obsolete or irrelevant.
Intel Corp
Imitability
It is the rate at which a firm’s underlying
resources and capabilities can be duplicated
by others.
Competitor’s effort may range from reverse
engineering to hiring employees from the
competitor to outright patent infringement
A core competency can be easily imitated to
the extent it is transparent,transferable and
replicable.
Transparency is the speed with which other
firms can understand the relationship of
resources and capabilities supporting a
successful firm’s strategy .
E.g. Gillete
Transferability-It is the ability of the
Competitor to gather the resources and
capabilities necessary to support a
competitive challenge.
E.g. It may be difficult for a wine maker to
duplicate a French winery’s key resources
of land and climate ,especially if the imitator
is located in Iowa.
Replicability-It is the ability of competitors to
use duplicated resources and capabilities to
imitate other firm’s success.
For example,even though many companies
have tried to imitate P&G’s success with
brand management by hiring brand
managers away from P&G they have often
failed to duplicate P&G’s success.