STRATEGIC MANAGEMENT

FIVE GENERIC COMPETITIVE STRATEGIES

By
Charles D. Little, Ph.D
FIVE GENERIC COMPETITIVE STRATEGIES


Competitive strategy relates to all the different strategies a company may do to:


Gain a competitive advantage

Retain existing market share

Capture new market share

Identify and access new market opportunities

Satisfy wants and needs

Provide superior value in a product or service

Position and differentiate the product

Optimize manipulation of the marketing mix

Achieve its goals in the competitive market place
FIVE GENERIC COMPETITIVE STRATEGIES


Competitive strategy then integrates with

All other functional level activities

Operational processes to deliver value to the customer

Organizational structure

Technical talent and human capital

Organizational politics

Organizational policy

Budget policy

Management and leadership

et al


in order to optimize success in the market place.
FIVE GENERIC COMPETITIVE STRATEGIES


Question:


To what extent do you believe that the competitive strategy sets
the tone for the organizational mission and vision of the organization?


Answer:


Likely to a significant extent, because assessment of market opportunities
can give rise to the potential for organizational success and the specific
organizational efforts necessary to satisfy customer wants and needs.
FIVE GENERIC COMPETITIVE STRATEGIES


Broad factors that distinguish one competitive strategy from another:



Whether a companys target market is broad or narrow, or


Whether the company is pursuing a competitive advantage linked to low costs or
product differentiation.
FIVE GENERIC COMPETITIVE STRATEGIES


1. Low-cost provider strategy

Targeting:

Price sensitive marketsprice conscious buyers

Segments with limited incomes

Price sensitive customers in greater numbers thereby
increasing profits (although thin profit margins)

Extreme price competitive markets

Products are essentially the same

Where brand differences are inconsequential to the consumer

When substitutes are readily available

Good strategy for new entrants
FIVE GENERIC COMPETITIVE STRATEGIES


1. Low-cost provider strategy

Strategic inputs:

Optimize economies of scale
Purchase in volume, JIT, keep raw materials costs low
Utilize bargaining power
Low cost inputs
Reduce materials handling and shipping costs
Advanced production technology and process designs
Offer incentives
Minimize operational and administrative staff and cost
Merge support systems (ordering, procurement, billing, etc.)
Pursue supply chain efficiency, i.e. limit middle men
Efficient utilization of resources (plant, materials, human capital)
Vertical integration
Operate at full capacity (full advantage of fixed costs)
Efficient communications systems and information technology
Outsource where practicable
Sell direct to customer (where practicable)
Continuous improvement
Continuous learning
FIVE GENERIC COMPETITIVE STRATEGIES


1. Low-cost provider strategy

*Keeping costs low, yet offering basic features that low cost buyers consider
essential.

Examples:


Wal-Mart

Sams

99 Cent Stores

The Attic

Dollar Tree

Dollar General

Family Dollar
FIVE GENERIC COMPETITIVE STRATEGIES


2. Broad differentiation strategy

Targeting:

Diverse needs and preferences among target markets

A broad range of buyers

Value conscious consumers

Products and services stand apart in consumers minds

Customers looking for a unique value proposition

Premium price products

Buyers loyal to the brand (value the unique differentiation)
FIVE GENERIC COMPETITIVE STRATEGIES


2. Broad differentiation strategy


Strategic inputs:
Customer service
Unique tangible and intangible attributes
Special order availability
Continuous product improvement and innovation (design and features)
Uninterrupted product availability
Value enhancement through efficient marketing channels
Constant value signaling (through price, quality, performance, taste,
packaging, advertising, standout attributes, reputation, status, et al)
Coordination with suppliers
Marketing intensity
Make it more difficult for a competitor to copy it
Employee skill and knowledge of the product
Continuous improvement in organization
Defensive strategy
FIVE GENERIC COMPETITIVE STRATEGIES


2. Broad differentiation strategy

Examples:
Rolex
Microsoft
FedEx
BMW
Michelin
Gucci
Lands End
Nike
Snack Wells
Briggs and Stratton
Harley-Davidson
Avis
Versaci
Starbucks
Victoria Secret
HEB Plumbing
FIVE GENERIC COMPETITIVE STRATEGIES

3/4. Market focused strategycost and niche*

Targeting:

Price conscious customers (similar to low cost provider strategy)

Well defined segments

Appealing to cultures and geographical preferences

Brand loyal customers

Appeal to broad market segments (low cost)

Wants and needs of narrow and unique market segment (niche)



*Good way to discourage entry of industry leaders
*Another differentiation and positioning strategy
FIVE GENERIC COMPETITIVE STRATEGIES


3/4. Market focused strategycost and niche

Strategic inputs (essentially the same as low cost provider strategy):
Optimize economies of scale
Purchase in volume, JIT, keep raw materials costs low
Utilize bargaining power
Low cost inputs
Reduce materials handling and shipping costs
Advanced production technology and process designs
Offer incentives
Minimize operational and administrative staff and cost
Merge support systems (ordering, procurement, billing, etc.)
Pursue supply chain efficiency, i.e. limit middle men
Efficient utilization of resources (plant, materials, human capital)
Vertical integration
Operate at full capacity (full advantage of fixed costs)
Efficient communications systems and information technology
Outsource where practicable
Sell direct to customer (where practicable)
Continuous improvement
Continuous learning
FIVE GENERIC COMPETITIVE STRATEGIES

3/4. Market focused strategycost and niche

Examples:
Community Coffee (niche)
Grand Ole Opry (niche)
Krispy Kreme Doughnuts (niche, cost now broad)
Red Box (niche, cost)
Best Buy (niche, cost now broad)
Trader Joes (niche)
Tabasco (niche, cost)
Oberweis Dairies (niche)
Haltoms Jewelers (niche)
Dairy Queen (niche, cost)
Bluebonnet Bakery (niche)
Exparanzas Bakery (niche)
Micro-breweries and local bars (niche)
Family Dollar, Dollar General, Freds (niche, cost now broad)
Coors (niche, cost, now broad)
Duck Head (niche, cost - now broad)
Local restaurants (niche)
Mens Warehouse (niche)
Market Basket (niche)
Central market (niche)
FIVE GENERIC COMPETITIVE STRATEGIES


5. Best cost provider strategy*

Targeting:

Low cost, differentiation markets (a hybrid)

Broad markets and market niches (middle ground)

Value conscious buyers

Those who shy away from cheap, low-end products and
expensive high-end products

Willing to pay a fair price for functionality and performance

More for the money




*Balances low-cost against emphasis on differentiation and positioning
FIVE GENERIC COMPETITIVE STRATEGIES


5. Best cost provider strategy

Strategic inputs:

Positioning near the middle of the market

Combines other basic strategies

Medium quality at below average price, or

Somewhat higher quality at an average or slightly higher price

Adjust strategy for economic conditions, i.e. more value conscious

Match strategy to internal resources and capabilities
FIVE GENERIC COMPETITIVE STRATEGIES

5. Best cost provider strategy


Examples:

Lexus (by Toyota)
Target
Savane
Marriott Courtyard
Spalding
UPS
Little Debbie
Bimbo Bakeries
Black Eyed Pea
Ruby Tuesday
Budweiser
Goodyear
FIVE GENERIC COMPETITIVE STRATEGIES


Summary



The differences between the classic five generic competitive strategies is
somewhat subtle to the untrained eye. Admittedly, there is some degree
of overlap. However, they are significant in strategic planning as they
relate to the ability of the organization to gain a competitive advantage.
They offer product and brand distinction in terms of price, value, quality, and
performance, which not only positions the product uniquely, but the brand,
itself.

Thus, the competitive strategy may indeed set the tone for the mission of the
organization, because the entire organization must function jointly to provide
the level of quality and performance in the market place, that is consistent with
the organizations overall business level strategy.