Monday March 6, 2017 - Class #12 The Five Generic Competitive Strategies

Today:

After a company completes their SWOT analysis and/or Porter's 5 Forces analysis, they need to develop an action plan based on the analysis.

This week we will discuss how a company develops a strategy to combat competitive forces.

In the SWOT analysis, the competition can show up in any of the four sections:

1. Success
2. Weakness
3. Opportunity
4. Threat

 In Porter's 5 Forces analysis, the competition can show up in:

1. Rivalry
2. Substitutes
3. New Entries

The Five Generic Strategies:

1. Low-Cost Provider Strategy -  Broad set of customers with lower overall costs. 
2. Broad Differentiation Strategy - Broad set of customers with a customized product/service
3. Focused Low-Cost Strategy - Narrow set of buyer segment(s) (niche) with lower cost product/service
4. Focused Differentiation Strategy - Narrow set of buyer segment(s) with customized product/service
5. Best Cost Provider Strategy - Provide best value - Best price for the product or service attributes compared to competitors

1) LOW COST PROVIDER:
Works best when:

1. Price Competition is strong
2. Product Identical
3. Few ways to achieve differentiation
4. Buyers can easily switch
5. Few large volume buyers
6. New Entries use lower intro prices to grab market share

Problems:

1. Lower prices and profits
2. Too fixated on cost
3. Reduced cost approaches can be copied by competition

2) BROAD DIFFERENTIATION:
Works best when product/service can become unique.

1. Input Quality
2. Marketing/Brand
3. Employe Skills/Training/Experience
4. Continuous Quality Improvement
5. R&D
6. Product Features
7. Innovation

Works best:

1. Buyers are diverse
2. Many ways to differentiate the product
3. Few rivals
4. Technology changes fast

Risks:

1. Over differentiate so that the quality exceeds he buyer's needs
2. Premium price too high
3. Being too timid

3) FOCUSED LOW COST PROVIDER:
Works best when the company has a competitive advantage over its competition within a target market. See video below for discussion on competitive advantage.

4) FOCUSED DIFFERENTIATION PROVIDER:
They create carefully designed products or services to appeal to a unique target Market.

1. Gucci
2. Four Season Hotels
3. BMW

Works When:

1. Target market is large enough
2. Leaders choose not too compete
3. Too costly for others to compete
4. Too many market segments, so each company can have their own

Risks:

1. Market so profitable, other enter and lower prices
2. Customer preferences change over time
3. Competition find ways to reduce your competitive advantage

5) BEST COST PROVIDER:
Works Best:

1. Product Differentiation is the norm
2. Large number of Value customers
3. Market has both high price and low price competitors
4. When economy is slow

Risks:
Hard to remain in the middle and provide value as competitors move up and down to grab market share.