“Competitive strategy is about being
different. It means deliberately choosing
to perform activities differently or to
perform different activities than rivals
to deliver a unique mix of value.”
Michael E. Porter
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Chapter Roadmap
Competitive Strategies
Low-Cost Provider Strategies
Differentiation Strategies
Focused (or Market Niche) Strategies
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Strategy and Competitive Advantage
Competitive advantage exists when a firm’s
strategy gives it an edge in
Attracting customers and
Defending against competitive forces
Key to Gaining a Competitive Advantage
Convincecustomers firm’s product / service offers
superior value
A good product at a low price
A superior product worth paying more for
A best-value product
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What Is Competitive Strategy?
Dealsexclusively with a company’s business
plans to compete successfully
Specific efforts to please customers
Offensive and defensive moves
to counter maneuvers of rivals
Responses to prevailing market conditions
Initiatives to strengthen its market position
Narrower in scope than business strategy
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Low-Cost Provider Strategies
Keys to Success
Make achievement of meaningful lower costs
than rivals the theme of firm’s strategy
Include features and services in product
offering that buyers consider essential
Find approaches to achieve a cost advantage
in ways difficult for rivals to copy or match
Low-cost leadership means low overall costs, not
just low manufacturing or production costs!
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Translating a Low-Cost Advantage into
Higher Profits: Two Options
Option 1: Use lower-cost edge to
under-price competitors and attract
price-sensitive buyers in 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,
thereby increasing total profits
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Characteristics of a Low-Cost Provider
Cost conscious corporate culture
Employee participation in cost-control efforts
Ongoing efforts to benchmark costs
Intensive scrutiny of budget requests
Programs promoting continuous cost improvement
Successful low-cost producers champion
frugality but wisely and aggressively
invest in cost-saving improvements !
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When Does a Low-Cost
Strategy Work Best?
Price competition is vigorous
Product is standardized or readily available
from many suppliers
There are few ways to achieve
differentiation that have value to buyers
Most buyers use product in same ways
Buyers incur low switching costs
Buyers are large and have
significant bargaining power
Industry newcomers use introductory low prices to
attract buyers and build customer base
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Pitfalls of Low-Cost Strategies
Being overly aggressive in cutting price
Low cost methods are easily imitated by rivals
Becoming too fixated on reducing costs
and ignoring
Buyer interest in additional features
Declining buyer sensitivity to price
Changes in how the product is used
Technological breakthroughs open up cost
reductions for rivals
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Differentiation Strategies
Objective
Incorporate differentiating features that cause
buyers to prefer firm’s product or service over
brands of rivals
Keys to Success
Findways to differentiate that create value for
buyers and are not easily matched or cheaply
copied by rivals
Not spending more to achieve differentiation
than the price premium that can be charged
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Benefits of Successful Differentiation
A product / service with unique,
appealing attributes allows a firm to
Command a premium price and/or
Which
Increase unit sales and/or hat is
unique?
Build brand loyalty
= Competitive Advantage
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Types of Differentiation Themes
Unique taste – Dr. Pepper
Multiple features – Microsoft Windows and Office
Wide selection and one-stop shopping – Home Depot,
Amazon.com
Superior service -- FedEx, Ritz-Carlton
Spare parts availability – Caterpillar
Engineering design and performance – Mercedes, BMW
Prestige – Rolex
Product reliability – Johnson & Johnson
Quality manufacture – Karastan, Michelin, Toyota
Technological leadership – 3M Corporation
Top-of-line image – Ralph Lauren, Starbucks, Chanel
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Sustaining Differentiation:
Keys to Competitive Advantage
Most appealing approaches to differentiation
Those hardest for rivals to match or imitate
Those buyers will find most appealing
Best choices to gain a longer-lasting, more
profitable competitive edge
New product innovation
Technical superiority
Product quality and reliability
Comprehensive customer service
Unique competitive capabilities
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When Does a Differentiation
Strategy Work Best?
There are many ways to differentiate a product
that have value and please customers
Buyer needs and uses are diverse
Few rivals are following a similar
differentiation approach
Technological change and
product innovation are fast-paced
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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
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Approaches to Defining a Market Niche
Geographic uniqueness
Specializedrequirements in
using product/service
Special product attributes
appealing only to niche buyers
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Examples of Focus Strategies
Animal Planet and History Channel
Cable TV
Google
Internet search engines
Porsche
Sports cars
Cannondale
Top-of-the line mountain bikes
Enterprise Rent-a-Car
Provides rental cars to repair garage customers
Bandag
Specialist in truck tire recapping
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Focus / Niche Strategies
and Competitive Advantage
Approach 1
Achieve lower costs than rivals in
serving a well-defined buyer segment –
Focused low-cost strategy
Which
Approach 2 hat is
unique?
Offer a product appealing to unique
preferences of a well-defined buyer segment –
Focused differentiation strategy
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What Makes a Niche
Attractive for Focusing?
Big enough to be profitable and offers good growth
potential
Not crucial to success of industry leaders
Costlyor difficult for multi-segment competitors
to meet specialized needs of niche members
Focuser has resources and capabilities
to effectively serve an attractive niche
Few other rivals are specializing in same niche
Focuser can defend against challengers via
superior ability to serve niche members
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