The five distinct competitive strategy are:
1. A low-cost provider strategy – striving to achieve lower overall cost than rivals and appealing to a broad spectrum of customers, usually by underpricing rivals.
2. A broad differentiation strategy – seeking to differentiate the company’s product offering from rivals’ in ways that will appeal to a broad spectrum of buyers.
3. A best cost provider strategy – giving customers more value for the money by incorporating good-to-excellent product attributes at a lower cost than rivals; the target is to have the lowest (best) costs and prices compared to rivals offering products with comparable attributes.
4. A focused (or market niche) strategy based on low costs – concentrating on a narrow buyer segment and outcompeting rivals by having lower cost than rivals and thus being able to serve niche members at a lower price.
5. A focused (or market niche) 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.
Company should choose which one to apply from those five strategies above.
Key to Success in Low-Cost Provider Strategies : Make achievement of meaningful lower costs than rivals the theme of firm’s strategy, Include features and services in product offering that buyers consider essential, Find approaches to achieve a cost advantage in ways difficult for rivals to copy or match.
Low cost strategy works best when price competition is vigorous, product is standardized or readily available from many suppliers, there are few ways to achieve differentiation that have value to buyers, Most buyers use product in same ways, buyers incur low switching costs, buyers are large and have significant bargaining power, industry newcomers use introductory low prices to attract buyers and build customer base. Differentiation Strategy works best when there are many ways to differentiate a product that have value and please customers, buyer needs and uses are diverse, few rivals are following a similar differentiation approach, technological change and product innovation are fast-paced.
Best-Cost Provider Strategy works best when where buyer diversity makes product differentiation the norm and where many buyers are also sensitive to price and value.
Approaches to define market niche : Geographic uniqueness, Specialized requirements in using product/service, special product attributes appealing only to niche buyers. Market niche is nice to focus when it fulfills these conditions : big enough to be profitable and offers good growth potential, not crucial to success of industry leaders, costly or difficult for multi-segment competitors to meet specialized needs of niche members, focuser has resources and capabilities to effectively serve an attractive niche, few other rivals are specializing in same niche, focuser can defend against challengers via superior ability to serve niche members.
Things to notice when deciding which generic Competitive Strategy to Use are each positions a company differently in its market and competitive environment, each establishes a central theme for how a company will endeavor to outcompete rivals, each creates some boundaries for maneuvering as market circumstances unfold, each points to different ways of experimenting with the basics of the strategy, each entails differences in product line, production emphasis, marketing emphasis, and means to sustain the strategy.
Source: Thompson, Crafting and Executing Strategy, Chapter 5.
1. A low-cost provider strategy – striving to achieve lower overall cost than rivals and appealing to a broad spectrum of customers, usually by underpricing rivals.
2. A broad differentiation strategy – seeking to differentiate the company’s product offering from rivals’ in ways that will appeal to a broad spectrum of buyers.
3. A best cost provider strategy – giving customers more value for the money by incorporating good-to-excellent product attributes at a lower cost than rivals; the target is to have the lowest (best) costs and prices compared to rivals offering products with comparable attributes.
4. A focused (or market niche) strategy based on low costs – concentrating on a narrow buyer segment and outcompeting rivals by having lower cost than rivals and thus being able to serve niche members at a lower price.
5. A focused (or market niche) 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.
Company should choose which one to apply from those five strategies above.
Key to Success in Low-Cost Provider Strategies : Make achievement of meaningful lower costs than rivals the theme of firm’s strategy, Include features and services in product offering that buyers consider essential, Find approaches to achieve a cost advantage in ways difficult for rivals to copy or match.
Low cost strategy works best when price competition is vigorous, product is standardized or readily available from many suppliers, there are few ways to achieve differentiation that have value to buyers, Most buyers use product in same ways, buyers incur low switching costs, buyers are large and have significant bargaining power, industry newcomers use introductory low prices to attract buyers and build customer base. Differentiation Strategy works best when there are many ways to differentiate a product that have value and please customers, buyer needs and uses are diverse, few rivals are following a similar differentiation approach, technological change and product innovation are fast-paced.
Best-Cost Provider Strategy works best when where buyer diversity makes product differentiation the norm and where many buyers are also sensitive to price and value.
Approaches to define market niche : Geographic uniqueness, Specialized requirements in using product/service, special product attributes appealing only to niche buyers. Market niche is nice to focus when it fulfills these conditions : big enough to be profitable and offers good growth potential, not crucial to success of industry leaders, costly or difficult for multi-segment competitors to meet specialized needs of niche members, focuser has resources and capabilities to effectively serve an attractive niche, few other rivals are specializing in same niche, focuser can defend against challengers via superior ability to serve niche members.
Things to notice when deciding which generic Competitive Strategy to Use are each positions a company differently in its market and competitive environment, each establishes a central theme for how a company will endeavor to outcompete rivals, each creates some boundaries for maneuvering as market circumstances unfold, each points to different ways of experimenting with the basics of the strategy, each entails differences in product line, production emphasis, marketing emphasis, and means to sustain the strategy.
Source: Thompson, Crafting and Executing Strategy, Chapter 5.
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