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Porter'S Generic Competitive Strategies

Porter's generic competitive strategies include low-cost provider strategies, differentiation strategies, and focus or niche strategies. A low-cost provider strategy involves achieving overall lower costs than rivals. A differentiation strategy involves incorporating unique features that create value for buyers and are not easily matched by competitors. A focus or niche strategy involves concentrating on a narrow market segment and developing unique capabilities to serve that segment's specific needs better than competitors.

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66 views23 pages

Porter'S Generic Competitive Strategies

Porter's generic competitive strategies include low-cost provider strategies, differentiation strategies, and focus or niche strategies. A low-cost provider strategy involves achieving overall lower costs than rivals. A differentiation strategy involves incorporating unique features that create value for buyers and are not easily matched by competitors. A focus or niche strategy involves concentrating on a narrow market segment and developing unique capabilities to serve that segment's specific needs better than competitors.

Uploaded by

aniket_ras
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPT, PDF, TXT or read online on Scribd
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PORTER’S GENERIC

COMPETITIVE STRATEGIES
“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.”
What Is
“Competitive Strategy”?
• Deals exclusively 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


The Five Generic
Competitive Strategies
Low-Cost Provider Strategies
• Low-cost leadership means low overall costs,
not just low manufacturing or production costs!
• 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.
Approaches to Securing
a Cost Advantage
•Do a better job than rivals of performing
value chain activities efficiently and cost
effectively
•Revamp value chain to bypass cost-producing
activities that add little value from the buyer’s
perspective
Controlling the Cost Drivers
• Capture scale economies; avoid scale
diseconomies
• Capture learning and experience curve effects
• Manage costs of key resource inputs
• Find sharing opportunities with other business
units
• Compare vertical integration vs. outsourcing
Revamping the Value Chain
• Make greater use of Internet technology applications
• Use direct-to-end-user sales/marketing methods
• Simplify product design
• Offer basic, no-frills product/service
• Shift to a simpler, less capital-intensive, or more
flexible technological process
• Find ways to bypass use of high-cost raw materials
• Relocate facilities closer to suppliers or customers
• Drop “something for everyone” approach and focus on a
limited product/service
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
• 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
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
– Changes in how the product is used
• Technological development open up cost
reductions for rivals
Differentiation Strategies

• Incorporate differentiating features that cause buyers to


prefer firm’s product or service over brands of rivals

• Find ways 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
Benefits of Successful
Differentiation

A product / service with unique, appealing


attributes allows a firm to :

•Command a premium price and/or

•Increase unit sales and/or

•Build brand loyalty

which leads to competitive advantage


Types of Differentiation Themes
• Uniqueness --- Bose
• Multiple features -- Microsoft Windows and Office
• Wide selection and one-stop shopping -- Home
Depot and Amazon.com
• Superior service -- FedEx, Ritz-Carlton, Eureka Forbes
• More for your money -- McDonald’s, Wal-Mart
• Prestige -- Rolex
• Quality manufacture -- Honda, Toyota
• Technological leadership -- 3M Corporation
• Top-of-line image -- Ralph Lauren, Chanel, Cross
Where to Find Differentiation
Opportunities in the Value Chain
• Purchasing and procurement activities
• Product R&D and product design activities
• Production process / technology-related
activities
• Manufacturing / production activities
• Distribution-related activities
• Marketing, sales, and customer service activities
How to Achieve a
Differentiation-Based Advantage

•Incorporate product features/attributes that lower buyer’s


overall costs of using product

•Incorporate features/attributes that raise the performance


a buyer gets out of the product

•Incorporate features/attributes that enhance buyer


satisfaction in non-economic or intangible ways

•Compete on the basis of superior capabilities


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
Pitfalls of Differentiation
Strategies
• Buyers see little value in unique attributes of
product
• Appealing product features are easily copied by
rivals
• Over-differentiating such that product features
exceed buyers’ needs
• Charging a price premium buyers perceive is too
high
• Not striving to open up meaningful gaps in
quality, service, or performance features vis-à-
vis rivals’ products
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.
Risks of a Best-Cost Provider
Strategy
• A best-cost provider may ‘get squeezed
between’ strategies of firms using low-cost and
differentiation strategies

– Low-cost leaders may be able to siphon


customers away with a lower price

– High-end differentiators may be able to


steal customers away with better product attributes
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
Focus / Niche Strategies
and Competitive Advantage
Option 1 :

Achieve lower costs than rivals in serving the


segment --
A focused low-cost strategy

Option 2 :

Offer niche buyers something different from rivals --


A focused differentiation strategy
What Makes a Niche
Attractive for Focusing?
• Big enough to be profitable and offers good growth
potential
• Not crucial to success of industry leaders
• Costly or 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
Risks of a Focus Strategy
• Competitors find effective ways to match
a focuser’s capabilities in serving niche

• Niche buyers’ preferences shift towards product


attributes desired by majority of buyers – niche
becomes part of overall market

• Segment becomes so attractive it becomes crowded


with rivals, causing segment profits to be splintered

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