Week 6

Pricing & Product Decisions I

Generic Strategies

Overview

Three generic strategies for creating a defendable position and outperforming competitors in an industry
These require different organizational arrangements, control procedures, incentive systems and resources

Cost Leadership
Low-cost relative to competitors as strategic main theme
Central elements of the strategy Efficient-scale facilities

Rigorous cost reductions from experience

Avoidance of marginal customer accounts Cost minimization in areas like R&D, service, sales force and advertising Aggressive pricing to achieve market share

Differentiation
Differentiating the product or service, offering something that is perceived industry-wide as being unique
Exemplary forms of differentiation

Design or brand image

Technology Customer service

Dealer networks
Differentiation along multiple dimensions Often incompatible with low prices and high market shares (e.g. due to exclusivity)

Focus
Focus on particular buyer group, segment of the product line or geographic market
Central rationale: Serving narrow strategic target group more effectively or efficiently than competitors Lower costs or more differentiation with regard to single niche

Competitive Strategy
Tobias Kretschmer
Professor of Management, LMU Munich

2013 LMU Munich