Chapter #5 Outline

Five Generic Competitive Strategies

Low-Cost Leadership Strategy
Broad Differentiation Strategies
Best-Cost Provider Strategies
Focused Low-Cost Strategies
Focused Differentiation Strategies
Vertical Integration Strategies
Merger and Acquisition Strategies
Cooperative Strategies
Offensive and Defensive Strategies
First-Mover Advantages and Disadvantages
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Strategy and Competitive Advantage

Competitive advantage exists when a firms
strategy gives it an edge in
Defending against competitive forces and
Securing customers

Key to Gaining a Competitive Advantage

Convince customers firms product / service offers
superior value
Offer buyers a good product at a lower price
Use differentiation to provide a better product
buyers think is worth a premium price
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Figure 5.1: The Five Generic

Competitive Strategies
Type of Advantage Sought

Market Target

Lower Cost

Broad
Range of
Buyers

Narrow
Buyer
Segment
or Niche

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Differentiation

Overall Low-Cost
Broad
Provider
Differentiation
Strategy
Strategy
Best-Cost
Provider
Strategy
Focused
Focused
Low-Cost
Differentiation
Strategy
Strategy
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Low-Cost Leadership
Keys to Success
Make achievement of low-cost relative to
rivals the theme of firms business strategy
Find ways to drive costs out of business yearafter-year

Low-costleadership
leadership
means
Low-cost
means
lowlow
overall costs,
costs,not
notjust
justlow
low
OVERALL
manufacturing
costs!
manufacturing or
or production
production costs!
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Figure 5.2: Reconfiguring Value Chain

Systems to Lower Costs -- Software Industry
A. Value Chain System of Software Developers Using
Traditional Wholesale-Retail Channels - Highest Cost
Software
development
activities

CD-ROM
production
and
packaging
activities

Technical
support
activities

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Marketing
and
promotion of
software

Warehousing
and shipping
of
wholesalerretailer
orders

Activities of
software
retailers

Activities of
wholesale
distributors
of software
products

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Figure 5.2: Reconfiguring Value Chain

Systems to Lower Costs -- Software Industry
B. Value Chain System of Software Developers
Using Direct Sales and Physical Delivery of CDs
Software
development
activities

CD-ROM
production
and
packaging
activities

Direct and
online
marketing
and
promotion
activities

Warehousing and
shipping of
customer
orders

Technical
support and
customer
service
activities

C. Value Chain System of Software Developers

Using Online Sales and Internet Delivery - Lowest
Cost
Software
development
activities

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Online
marketing
and
promotion
activities

Systems to
accept credit
card
payment and
allow
immediate
download

Technical
support and
customer
service
activities

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Differentiation Strategies
Objective
Incorporate differentiating features that cause
buyers to prefer firms product or service over
brands of rivals

Keys to Success
Find ways to differentiate that create value for
buyers and that are not easily matched or
cheaply copied by rivals
Not spending more to achieve differentiation
than the price premium that can be charged
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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-toexcellent product attributes, then use cost
advantage to underprice comparable brands
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How a Best-Cost Strategy

Differs from a Low-Cost Strategy
Aim of a low-cost strategy--Achieve lower costs
than any other competitor in the industry
Intent of a best-cost strategy--Make a more
upscale product at lower costs than the makers
of other brands with comparable features and
attributes
A best-cost provider cannot be the industrys

absolute low-cost leader because of the added

costs of incorporating the additional upscale
features and attributes
that the low-cost leaders
product doesnt have

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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
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