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Competitive Strategy

There are three generic competitive strategies: cost leadership, differentiation, and focus. Cost leadership involves having the lowest production and marketing costs to gain market share. Differentiation creates a unique product or service to be perceived as the best. Focus involves serving a narrow target market segment better than competitors. Each strategy provides competitive advantage if the requirements for that strategy, such as cost control or marketing abilities, are met. The risks include competitors imitating the strategy or the target market becoming unattractive.

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ragini sri
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334 views

Competitive Strategy

There are three generic competitive strategies: cost leadership, differentiation, and focus. Cost leadership involves having the lowest production and marketing costs to gain market share. Differentiation creates a unique product or service to be perceived as the best. Focus involves serving a narrow target market segment better than competitors. Each strategy provides competitive advantage if the requirements for that strategy, such as cost control or marketing abilities, are met. The risks include competitors imitating the strategy or the target market becoming unattractive.

Uploaded by

ragini sri
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© © All Rights Reserved
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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GENERIC COMPETITIVE STRATEGIES

• According to Porter, there are three potentially


successful generic strategic approaches to cope up
with the five competitive forces as well as gain
competitive advantage.

Overall Cost Leadership


Differentiation
Focus
PORTERS’ 3 GENERIC STRATEGIES
(BUSINESS LEVEL)
• Competitive advantage – providing customers
products and services more effective than
competitors.
• Difficult to imitate.
• A firm’s relative position - firm’s profitability is above
or below the industry average.
• The fundamental basis of above average profitability
in the long run is sustainable competitive advantage.
• Two basic types of competitive advantage:
Low cost &
Differentiation
Three Consistent Competitive Generic strategies used
by the organizations are:
Cost Leadership
Differentiation, and
Focus and Niche Strategies.
Purpose:
 Used to outperform competition and
 To defend its position in the industry
Each of these strategies is designed to give a firm a
competitive advantage.
Strategic Advantage
Overall Cost
Differentiation
Leadership

Focus

Uniqueness Perceived Low cost


By the Customer Position
Overall Cost Leadership:

• The aim is to gain a large market share.

• Company makes all possible attempts to achieve the


lowest costs in production and marketing.

• Efficiency is the key word.

• Reliance Industries, Bajaj Auto Ltd and TELCO are


the examples.
Overall Cost leadership
• Emphasizes producing standardized products at a
very low per-unit for consumers who are price –
sensitive.
• Firm yields above – average returns in its industry
despite the presence of strong competitive forces.
Requirements:
• high relative market share
• favorable access to raw materials
• ready availability of cash to finance the purchase of
the most efficient equipment.
Examples: Reliance Industries, Ranbaxy Laboratories,
Gujarat Ambuja & National Can Company etc.
Differentiation

• Aim is to achieve class leadership by creating


something which is perceived as unique.
• Can be achieved by creating highly differentiated
products and marketing programmes
– like design or brand image, customer service or
dealer network, or any other feasible dimension.
• Companies pursuing this strategy have major
strengths in R&D, design, QC and marketing.
Bata shoes, OTIS elevators, Cini Fans are some of
the examples.
Differentiation
• Producing products and services considered unique
industry wide and directed at consumers who are
relatively price insensitive.
• Approaches to differentiation include developing
unique brand images (Levi’s jeans), unique
technology (MacIntosh stereo components), unique
featues (Jenn – Air electric ranges), unique channels
(Tupperware), unique customer service (IBM), or the
like.
• Adv: Can be readily perceived by the consumer.
• Viable strategy for earning above – average returns
in an industry, because it creates a defensible
position for coping with the five competitive forces.
Focus
• Focus means producing products and services that
fulfill the needs of small groups of consumers.
• Limits its attention to one or a few market segments
can serve those segments better than firms that
seek to influence the entire market.
• For example, products such as Rolls – Royce
automobiles, Cross pens, and Hartmann luggage
are designed to appeal to the upscale market and
serve it well rather than trying to compete in the
mass market.
Focus:

• Firms should be able to serve a narrow


strategic target effectively and efficiently.
• As a result, the firm achieves either of the
above two.
Ponds talcum powder is one of the examples.
REQUIREMENTS FOR GENERIC COMPETITIVE
STRATEGIES:

OVERALL COST LEADERSHIP:


Commonly required skills Common organizational
and resources requirements

 Sustained capital  Tight cost control


investment and access to  Frequent, detailed control
capital reports
 Process engineering  Structured organization
skills and responsibilities
 Intense supervision of  Incentives based on
labour meeting strict quantitative
 Products designed for targets.
ease of manufacture
 Low-cost distribution
system
REQUIREMENTS FOR GENERIC COMPETITIVE
STRATEGIES:

DIFFERENTIATION:
Commonly required skills Common organizational
and resources requirements
 Storing marketing abilities  Strong coordination among
 Product engineering functions in R&D product
 Creative fair development, and
marketing
 Strong capability in basic
research  Subjective measurement
and incentives instead of
 Corporate reputation for quantitative measures
quality or technological
leadership  Amenities to attract highly
skilled labour, scientists or
 Storing cooperation from creative people.
channels
REQUIREMENTS FOR GENERIC COMPETITIVE
STRATEGIES:

FOCUS:
Commonly required skills Common organizational
and resources requirements
 Combination of the above  Combination of the above
policies directed at the policies directed at the
particular strategic target particular strategic target
Risks of the Generic strategies:
Cost leadership Differentiation Focus
Sustaining problem Sustaining problem The target segment
due to due to becomes unattractive
Competitors imitate Competitors imitate because
Technology changes Bases become less Demand disappears
important
Differentiation Cost proximity is lost The focus strategy is
Proximity is lost imitated.
Cost focusers achieve Differentiation focusers New focusers sub-
even lower cost in achieve even greater segment the industry
segments differentiation in
segments
Broadly targeted
--- --- competitors overwhelm
the segment.

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