Assignment on Example of Five Generic Competitive Strategies

Course Title: Strategic Management

Course Code: MGT-600 (Sec 3)

Submitted To:

Md. Zahid Hossain (MZHN)

Adjunct Faculty

Submitted By:

Md. Asif Khan

ID: 2017-2-95-060

Date of Submission: 12-07-19

Overall Low-cost provider strategy:
A low-cost leader's basis for competitive advantage is lower overall costs than competitors.
Successful low-cost leaders are exceptionally good at finding ways to drive costs out of their
businesses.
A company has two options for translating a low-cost advantage over rivals into attractive profit
performance. Option I is to use the lower-cost edge to underprice competitors and attract price-
sensitive buyers in great enough numbers to increase total profits. The trick to profitably
underpricing rivals is either to keep the size of the price cut smaller than the size of the firm's
cost advantage or to generate enough added volume to increase total profits despite thinner profit
margins (larger volume can make up for smaller margins provided the underpricing of rivals
brings in enough extra sales). Option 2 is to maintain the present price, be content with the
present market share, and use the lower-cost edge to earn a higher profit margin on each unit
sold, thereby raising the firm's total profits and overall return on investment

To succeed with a low-cost-provider strategy, company managers have to scrutinize each cost-
creating activity and determine what factors cause costs to be high or low. Then they have to use
this knowledge to keep the unit costs of each activity low, exhaustively pursuing cost efficiencies
throughout the value chain. They have to be proactive in restructuring the value chain to
eliminate nonessential work steps and lowvalue activities. Normally, low-cost producers work
diligently to create cost-conscious corporate cultures that feature broad employee participation in
continuous cost improvement efforts and limited perks and frills for executives. They strive to
operate with exceptionally small corporate staffs to keep administrative costs to a minimum.
Wal-Mart has achieved a very substantial cost and pricing advantage over rival supermarket
chains both by revamping portions of the grocery retailing value chain and by out managing its
rivals in efficiently performing various value chain activities. Its cost advantage stems from a
series of initiatives and practices. makes daily deliveries to Wal-Mart's stores, and putting
assorted other cost-saving practices into place at its headquarters, distribution centers, and.
Striving to optimize the product mix and achieve greater sales turnover (resulting in about a 2
percent cost advantage). Installing security systems and store operating procedures that lower
shrinkage rates (producing a cost advantage of about 0.5 percent). Negotiating preferred real
estate rental and leasing rates with real estate developers and owners of its store sites (yielding a
cost advantage of2 percent). Managing and compensating its workforce in a manner that
produces lower labor costs.

Broad Differentiation Strategy:

The essence of a broad differentiation strategy is to be unique in ways that are valuable to a
wide range of customers. Differentiation strategies are attractive whenever buyers' needs and
preferences are too diverse to be fully satisfied by a standardized product or by sellers with
identical capabilities. A company attempting to succeed through differentiation must study
buyers' needs and behavior carefully to learn what buyers consider important, what they think
has value, and what they are willing to pay for. Then the company has to incorporate buyer-
desired attributes into its product or service offering that will clearly set it apart from rivals.
Competitive advantage results once a sufficient number of buyers become strongly attached to
the differentiated attributes.
Differentiation allows a firm to, Command a premium price for its product, and/or Increase unit
sales (because additional buyers are won over by the differentiating features), Gain buyer loyalty
to its brand (because some buyers are strongly attracted to the differentiating features and bond
with the company and its products). The most appealing approaches to differentiation are those
that are hard or expensive for rivals to duplicate. Indeed, resourceful competitors can, in time,
clone almost any product or feature or attribute. If Coca-Cola introduces a vanilla-flavored soft
drink, so can Pepsi; if Ford offers a 50,OOO-mile bumper-to-bumper warranty on its new
vehicles, so can Volkswagen and Nissan. If Nokia introduces cell phones with cameras and
Internet capability, so can Motorola and Samsung. As a rule, differentiation yields a longer
lasting and more profitable competitive edge when it is based on product innovation, technical
superiority, product quality and reliability, comprehensive customer service, and unique
competitive capabilities. Such differentiating attributes tend to be tough for rivals to copy or
offset profitably, and buyers widely perceive them as having value.
Apple Inc.’s generic strategy is broad differentiation. This generic strategy focuses on key
features that differentiate the company and its information technology products from
competitors. Through the broad differentiation generic strategy, Apple stands out in the market.
For example, elegant design and user-friendliness of products, combined with high-end branding,
effectively differentiate the technology business. This generic strategy means that Apple always
aims to set itself apart from competitors not by price but by competitive advantages based on
product design that attracts customers. Such design includes seamless connectivity among
devices and cutting-edge aesthetics. Even though this generic strategy makes Apple different, the
company still broadly reaches various segments of the market. The firm’s products are designed
for everyone, thereby supporting a broad market reach. For example, Apple targets individuals
and business organizations through the MacBook product line. In this way, the generic strategy
of broad differentiation supports the company in maintaining its competitive advantage,
leadership, and position as a high-end and high-value technology business.

The broad differentiation generic strategy has significant implications on Apple’s strategic
objectives. For example, to apply this strategy, the company must continue emphasizing
innovation through research and development. Apple must keep developing innovative products
so that the business maintains its competitive advantage. Competitors eventually catch up with
new technologies and new products, so the broad differentiation generic strategy compels the
company to continuously innovate to keep itself always ahead of the competition. Thus,
continuous innovation is one of Apple’s strategic objectives based on the broad differentiation
generic competitive strategy. In addition, to maintain business growth, the company must keep
growing its market reach, such as in the global consumer electronics market. In its generic
strategy for competitive advantage, Apple does not focus on any specific market segment.
Instead, the company competes by selling various goods and services that suit the various
segments of the consumer electronics and information technology services industries. Thus,
another of Apple’s strategic objectives based on its generic strategy is to penetrate markets to
ensure a broad reach. Such expansion and business growth are achieved through intensive
strategies for growth.

Best-Cost Strategy:
The competitive advantage of a best-cost provider is lower costs than rivals in incorporating
upscale attributes, putting the company in a position to underprice rivals whose products have
similar upscale attributes. Best-cost provider strategies aim at giving customers more value for
the money. The objective is to deliver superior value to buyers by satisfying their expectations on
key quality or features or performance or service attributes and beating their expectations on
price. A company achieves best-cost status from an ability to incorporate attractive or upscale
attributes at a lower cost than rivals. The attractive attributes can take the form of appealing
features, good-to-excellent product performance or quality, or attractive customer service. When
a company has the resource strengths and competitive capabilities to incorporate these upscale
attributes into its product offering at a lower cost than rivals, it enjoys best-cost status.
A best-cost provider strategy works best in markets where buyer diversity makes product
differentiation the norm and where many buyers are also sensitive to price and value. This is
because a best-cost provider can position itself near the middle of the market with either a
medium-quality product at a below-average price or a high-quality product at an average or
slightly higher price. Often, substantial numbers of buyers prefer midrange products rather than
the cheap, basic products of low-cost producers or the expensive products of top-of-the-line
differentiators. But unless a company has the resources, know-how, and capabilities to
incorporate upscale product or service attributes at a lower cost than rivals, adopting a best-cost
strategy is ill advised-a winning strategy must always be matched to a company's resource
strengths and capabilities.
IKEA is a Swedish company registered in the Netherlands that designs and sells ready-to-
assemble furniture (such as beds, chairs, and desks), appliances, and home accessories.
Since January 2008, the company has been the world’s largest furniture retailer. Ikea was
founded in Sweden in 1943 by then-17-year-old Ingvar Kamprad, who was listed as one of the
world’s richest people in 2013. Kampard’s fortune peaked at $33 billion, but he has transferred
the vast majority of his economic stake in the retailer to his philanthropic foundations. The
company is known for its modern architectural designs for various types of appliances and
furniture, and its interior design work is often associated with an eco-friendly simplicity.  In
addition, the firm is known for its attention to cost control, operational details, and continuous
product development, corporate attributes that allowed IKEA to lower its prices by an average of
2 to 3 percent over the decade to 2010 during a period of global expansion.
IKEA revolutionized the furniture industry by offering cheap but stylish furniture. Ikea is able to
keep its prices low by sourcing its products in low-wage countries and offering a very basic level
of service. Ikea will assemble or deliver furniture for an additional cost; otherwise, customers
must collect the furniture in the warehouse and assemble at home themselves. While this is less
convenient than traditional retailers, it allows Ikea to offer lower prices that attract customers.
As of January 2014, IKEA owns and operates stores in 26 countries, with 227 of its 298 stores in
Europe. It sells 9,500 products and its stores received 690 million store visits in 2013. The
company uses approximately 1 percent of the Earth’s wood supply, making it one of the largest
users of wood in the retail sector.

Focused low cost strategy:

concentrating on a narrow buyer segment and outcompeting rivals by having lower costs than
rivals and thus being able to serve niche members at a lower price. A focused strategy based on
low cost aims at securing a competitive advantage by serving buyers in the target market niche at
a lower cost and lower price than rival competitors. This strategy has considerable attraction
when a firm can lower costs significantly by limiting its customer base to a well-defined buyer
segment. The avenues to achieving a cost advantage over rivals also serving the target market
niche are the same as for low-cost leadership-out manage rivals in keeping the costs of value
chain activities contained to a bare minimum and search for innovative ways to reconfigure the
firm's value chain and bypass or reduce certain value chain activities. The only real difference
between a low-cost provider strategy and a focused low-cost strategy is the size of the buyer
group that a company is trying to appeal to-the former involves a product offering that appeals
broadly to most all buyer groups and market segments whereas the latter at just meeting the
needs of buyers in a narrow market segment.
A firm that follows this strategy does not necessarily charge the lowest prices in the industry.
Instead, it charges low prices relative to other firms that compete within the target market. For
example, you might be able to buy milk cheaper by driving to a big-box grocery store in your
local community or town, but the local corner store is the cheapest within walking distance.
Redbox, a major DVD rental company, uses vending machines placed outside grocery stores and
other retail outlets to rent DVDs of movies for $1. There are ways to view movies even cheaper,
such as through the flat-fee streaming video subscriptions offered by Netflix. But among firms
that rent actual DVDs, Redbox offers unparalleled levels of low price and high convenience. In
other cases, the target market is defined by the sales channel used to reach customers. Most pizza
shops offer sit-down service, delivery, or both. In contrast, Papa Murphy’s sells pizzas that
customers cook at home. Because these inexpensive pizzas are baked at home rather than in the
store, Papa Murphy’s may attract customers that might not otherwise be able to afford a prepared
pizza. In contrast to most fast-food restaurants, Checkers Drive in the United States is a drive-
through-only operation. To serve customers quickly, each store has two drive-through lanes: one
on either side of the building. Checkers saves money in a variety of ways by not offering indoor
seating to its customers—its buildings are cheaper to construct, its utility costs are lower, and it
needs fewer employees. These savings allow the firm to offer large burgers at very low prices
and still remain profitable. Checkers is not in Canada yet.

A Focused Differentiation Strategy:

A focused strategy based on differentiation-concentrating on a narrow buyer segment and
outcompeting rivals by offering niche members customized attributes that meet their tastes and
requirements better than rivals' products. A focused strategy keyed to differentiation aims at
securing a competitive advantage with a product offering carefully designed to appeal to the
unique preferences and needs of a narrow, well-defined group of buyers (as opposed to a broad
differentiation strategy aimed at many buyer groups and market segments). Successful use of a
focused differentiation strategy depends on the existence of a buyer segment that is looking for
special product attributes or seller capabilities and on a firm's ability to stand apart from rivals
competing in the same target market niche.
Some firms using a focused differentiation strategy concentrate their efforts on a particular sales
channel, such as selling over the Internet only. Others target particular demographic groups. One
example is Breezes Resorts, a company that caters to couples without children. The firm operates
seven tropical resorts where vacationers are guaranteed that they will not be annoyed by loud and
disruptive children. While a differentiation strategy involves offering unique features that appeal
to a variety of customers, the need to satisfy the desires of a narrow market means that the
pursuit of uniqueness is often taken to the proverbial “next level” by firms using a focused
differentiation strategy. Thus the unique features provided by firms following a focused
differentiation strategy are often specialized.
When it comes to uniqueness, few offerings can top Kopi Luwak coffee beans. High-quality
coffee beans often sell for $10 to $15 a pound. In contrast, Kopi Luwak coffee beans sell for
hundreds of dollars per pound (Cat’s Ass Coffee, 2010). This price is driven by the rarity of the
beans and their rather bizarre nature. As noted in a 2010 article in the New York Times, these
beans are found in the droppings of the civet, a nocturnal, furry, long-tailed catlike animal that
prowls Southeast Asia’s coffee-growing lands for the tastiest, ripest coffee cherries. The civet
eventually excretes the hard, indigestible innards of the fruit—essentially, incipient coffee beans
—though only after they have been fermented in the animal’s stomach acids and enzymes to
produce a brew described as smooth, chocolaty and devoid of any bitter aftertaste (Onishi, 2010).
Although many consumers consider Kopi Luwak to be disgusting, a relatively small group of
coffee enthusiasts has embraced the coffee and made it a profitable product. This illustrates the
essence of a focused differentiation strategy—effectively serving the specialized needs of a niche
market can create great riches. Larger niches are served by Whole Foods Market and Mercedes-
Benz. Although most grocery stores devote a section of their shelves to natural and organic
products, Whole Foods Market works to sell such products exclusively. For customers, the large
selection of organic goods comes at a steep price. Indeed, the supermarket’s reputation for high
prices has led to a wry nickname “Whole Paycheck”—but a sizable number of consumers are
willing to pay a premium to feel better about the food they buy. The dedication of Mercedes-
Benz to cutting-edge technology, styling, and safety innovations has made the firm’s vehicles
prized by those who are rich enough to afford them. This appeal has existing for many decades.
In 1970, acid-rocker Janis Joplin recorded a song called “Mercedes-Benz” that highlighted the
automaker’s allure. Since then Mercedes-Benz has used the song in several television
commercials, including during the 2011 Super Bowl.