MGT 491 - Competitive Strategy

Delivering Superior Value via a Differentiation Strategy

1. Include product attributes and user features that lower the buyer's costs. 2. Incorporate tangible features that improve product performance. 3. Incorporate intangible features that enhance buyer satisfaction in noneconomic ways.

5 Generic Competitive Strategies

1. Overall Low-cost provider - Striving to achieve lower overall costs than rivals and appealing to a broad spectrum of customers, usually by underpricing rivals 2. Broad differentiation - Seeking to differentiate the firm's product or service from rivals' in ways that will appeal to a broad spectrum of buyers 3. Focused low-cost - Concentrating on a narrow buyer segment (or market niche) and outcompeting rivals by having lower costs than rivals and thus being able to serve niche members at a lower price 4. Focused differentiation - Concentrating on a narrow buyer segment (or market niche) and outcompeting rivals by offering niche members customized attributes that meet their tastes and requirements better than rivals' products 5. Best-cost provider - Giving customers more value for the money by satisfying buyers' expectations on key quality/features/performance/service attributes while beating their price expectations

The Two Major Avenues for Achieving Low-Cost Leadership

1. Perform essential value chain activities more cost-effectively than rivals. 2. Revamp the firm's overall value chain to eliminate or bypass some cost-producing activities altogether.

When a Differentiation Strategy Works Best

1.Buyer needs and uses of the product are diverse. 2. There are many ways to differentiate the product or service that have value to buyers. 3. Few rival firms are following a similar differentiation approach. 4.Technological change is fast-paced and competition revolves around rapidly evolving product features.

When a Best-Cost Provider Strategy Works Best

A best-cost provider strategy works best in markets where: -Product differentiation is the norm. -Large numbers of value-conscious buyers can be induced to purchase economically-priced mid-range products and services, especially during recessionary times. -A provider can offer either a medium-quality product at a below-average price or a high-quality product at an average or slightly higher-than-average price.

Perceived Value and the Importance of Signaling Value

A differentiation strategy's price premium reflects the value actually delivered to the buyer and the value perceived by the buyer. It is important to signal value when: -The nature of differentiation is subjective. -Buyers are making a first-time purchase. -Repurchase is infrequent. -Buyers are unsophisticated.

Low cost provider strategies

A powerful competitive approach with price-sensitive buyers when a firm's offering: - Has a lower cost than rivals—but not necessarily the absolutely lowest possible cost. - Includes features and services that buyers consider essential. - Is viewed by buyers as offering equivalent or higher value even if priced lower than competing products.

A Focused Low-Cost Strategy

Aims at securing a competitive advantage by serving buyers in the target market niche at a lower cost and a lower price than rival competitors. Achieves its cost advantage in the same way as for low-cost leadership—by outmanaging rivals in keeping costs low and bypassing or reducing nonessential activities.

Revamping the Value Chain System to Increase Differentiation

Approaches to enhancing differentiation through changes in the value chain system - Coordinating with downstream channel allies to enhance customer value - Coordinating with upstream suppliers to better address customer needs

Best-Cost Provider Strategies

Are a hybrid of low cost provider and differentiation strategies that: - Involves giving customers more value for money by satisfying buyer expectations on key quality/features/ performance/service attributes while exceeding customer expectations on price. -Is a powerful competitive approach with value-conscious buyers looking for a good-to-very-good product or service at an economical price. -Create a "best-cost" status as the low-cost provider of a product or service with upscale attributes.

Focused (or Market Niche) Strategies

Are strategies developed especially for competing in a narrow piece of the total market as defined by geographic uniqueness or special product attributes. Are strategies developed especially for competing in a narrow piece of the total market as defined by geographic uniqueness or special product attributes.

Broad Differentiation Strategies

Attractive competitive approaches to use whenever buyers' needs and preferences are too diverse to be fully satisfied by a standardized product or service. - Involves offering differentiating features that clearly set the firm's products or services apart from rivals. - Enhances profitability whenever the extra price the product commands outweighs the added costs of achieving the differentiation that is not easily copied or matched by rivals.

The Risks of a Focused Low-Cost or Focused Differentiation Strategy

Competitors will find effective ways to match a focuser's capabilities in serving the target niche. The preferences and needs of niche members to shift over time toward the product attributes desired by the majority of buyers. The segment may become so attractive it is soon inundated with competitors, intensifying rivalry and splintering segment profits.

Competitive strategy

Deals exclusively with management's game plan for competing successfully and securing a competitive advantage over rival sellers. Represents the firm's efforts to provide superior value to customers by offering: -A good product at a lower price -A superior product perceived as worth paying more for -An attractive combination of price, features, quality, service, and other appealing attributes

Focused Differentiation Strategy

Keyed to offering carefully designed products or services to appeal to the unique preferences and needs of a narrow, well-defined group of buyers (as opposed to a broad differentiation strategy aimed at many buyer groups and market segments).

The Danger of an Unsound Best-Cost Provider Strategy

Losing at both ends of the market: Dual vulnerability to both low-cost providers and high-end differentiators in not having the requisite core competencies and efficiencies in managing value chain activities to offer significantly differentiating product attributes or features at attractive lower prices without significantly increasing costs.

Translating a Low Cost Strategy Into Attractive Profit Performance

Option 1: Use a lower-cost edge to underprice competitors and attract price-sensitive buyers in great enough numbers to increase total profits. Option 2: Maintain present price, be content with present market share, and use lower-cost edge to earn a higher profit margin on each unit sold.

Employing Best-Cost Strategies

Profitable best-cost strategies are contingent on: 1. A superior value chain configuration that eliminates or minimizes activities that do not add value. 2. Unmatched efficiency in managing essential value chain activities. 3. Core competencies that allow differentiating attributes to be incorporated at a low cost.

Pitfalls to Avoid in Pursuing a Differentiation Strategy

Pursuing a differentiation strategy keyed to product or service attributes that are easily and quickly copied. Incorporating product features or attributes in which buyers see little value or are easily copied by rivals. Overspending on efforts to differentiate that erode profitability. Over-differentiating so that product quality or service levels exceed buyers' needs. Trying to charge too high a price premium. Not establishing meaningful gaps in quality or service or performance features over the products of rivals.

When a Focused Low-Cost or Focused Differentiation Strategy Is Viable

The target market niche is big enough to be profitable and offers good growth potential. Industry leaders have chosen not to compete in the niche—focusers can avoid battling head-to-head against the industry's biggest and strongest competitors. It is costly or difficult for multisegment competitors to meet the specialized needs of niche buyers and at the same time satisfy the expectations of mainstream customers. The industry has many different niches and segments, thereby allowing a focuser to pick a niche suited to its resource strengths and capabilities. Few, if any, rivals are attempting to specialize in the same target segment.

Uniqueness drivers

customer service input quality innovation and tech advances product features, design, performance production r&d continuous quality improvement employee skills, training, experience marketing and brand

Cost drivers

labor productivity and compensation costs economies of scale learning and experience capacity utilization input costs production technology and design communication systems and IT bargaining power outsourcing or vertical integration