Generic Strategies
By
Anand
BUSINESS STRATEGY
FOCUSES ON IMPROVING
THE COMPETITIVE
POSITION OF A COMPANY’S
OR BUSINESS UNIT’S
PRODUCTS OR SERVICES
WITHIN THE SPECIFIC
INDUSTRY OR MARKET
SEGMENT THAT THE
COMPANY OR BUSINESS
UNIT SERVES
• The central role of
competitive advantage in
the study of strategic
management.
• The generic study of
strategic management.
• tradeoff bet. cost
leadership & differentiation
The generic
strategies
overall cost
leadership,
differentiation,
focus and
best cost
positions.
Tasks for the
strategist
• How firms can effectively combine
the generic strategies of overall
cost leadership and differentiation.
• The role of functional strategies in
relation to business level strategies
and need for internal consistency
• The pitfalls managers must avoid in
striving to attain generic strategies
Questions to be
answered
• Should the firm compete
on the basis of low cost or
differentiate its products
or services on some basis
other than costs?
• Should the firm compete
head to head with the
major competitors or
should it focus on a niche?
Ways of Generating
Competitive
Advantage
• Prices Charged
• Value Delivered
Ways of Generating
Competitive
• Cost Leadership
• Differentiation
Ways of
Generating
Competitive
Advantage
Concepts
• Lower cost strategy: the
ability of a company or a
business unit to design.
Produce, and market a
comparable product more
efficiently than competitors
• Differentiation Strategy:
Ability of a firm to provide
unique and superior value to
the buyer in terms of product
quality, special features, or
after sale service
INDUSTRY LIFE
CYCLE
Cost Leadership
Characteristics
• Become Industry’s lowest-
cost provider rather than just
a low cost provider
• Aim for average customer/
Large MS
• Lower production costs
• Few unique/new features that
buyers consider essential
• Difficult for rivals to copy or
match
Calls for
• Leveraging Scale
economies
• Marketing: Wide product
line/Aggressive
• Pricing/Start-up Losses
• Aggressive construction of
efficient scale facilities
• Vigorous pursuit of cost
reduction
Organizational
Requirements
• Efficient organizational
systems & structures
• Tight Cost & Overhead
Controls
• Incentives based on
quantitative targets
• Low cost distribution
systems
When Does a Low
Cost Strategy Work
Best?
• Price competition is
vigorous
• Product
standardized/readily
available with many
suppliers
• Most buyers use product in
same ways
• Buyers incur low switching
costs
• Large buyers have
significant bargaining power
• Industry newcomers use low
prices to attract buyers and
build customer base buyers
and build customer base
Examples
• WALMART
• SOUTHWEST AIRLINES
• TIMEX
Differentiation
Characteristics
• Perceived
Uniqueness/Quality/Service
Based on
• Design/Brand/Technology/F
eatures/ Service
Calls for
• Strong marketing abilities
• Product design skills/
Creative flair
• Strong cooperation from
channels
• Eschewing market share,
being exclusive
Organizational
resources
• Strong coordination skills
• Subjective measurement
incentives
• Amenities to attract
creative talent
When Does a
Differentiation
Strategy Work Best?
• There exist many ways to
differentiate a product
• Buyer needs and uses are
diverse
• Few rivals are following a
similar differentiation
approach
• Technological change and
product innovation are fast
paced
Types of
Differentiation
Themes
• Multiple features -- Microsoft
Windows and Office
• Superior service -- FedEx, Ritz-
Carlton
• Spare parts availability – Caterpillar
• Prestige – Rolex
• Quality manufacture -- Honda,
Toyota
• Technological leadership -- 3M
Corporation, Intel
• Top-of-the-line image -- Ralph
Lauren, Chanel
Focus
• Characteristics
• Small overall share of
market
• Serves chosen/well defined
mkt segment
• Either a cost
leader/differentiator or
both
Calls for
• Choice of buyer group/
product
• segment/geographic
market
• Strong marketing abilities
• Product design skills/
Creative flair
What Makes a Niche
Attractive for
Focusing?
• Potentially profitable,
offers 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 superior ability to
serve niche members
Generic Strategies -
Risks
Overall Cost leadership
• Technological change can
nullify past investment &
learning
• Low-cost learning by new
comers/followers
• High attention on cost >>
inability to foresee product-
market changes
• Inflation in costs can narrow
price advtg.
• Inflation in costs may increase
attractiveness of differentiators
Differentiation
• Uniqueness that is not valuable
• Too high a price premium
• Differentiation that is easily imitated
• Dilution of brand identification through
product line extension
• Perceptions of differentiation may vary
between buyers and sellers
• As buyers become more sophisticated fall
in buyers need for differentiating factor
• Imitation narrows perceived diffrtn.
Focus
• Narrowing prodt. Differences
between niche and market as a
whole
• High cost differential compared to
low cost may erode brand loyalty
• Erosion of cost advantages within
the narrow segment
• Focused products and services still
subject to competition from new
entrants and from imitation.
• Focusers can become too focused
to satisfy buyer needs
STUCK IN THE
MIDDLE: HP’s PC
DIVISION
• A NICHE PLAYER
• DIFFERENTIATION FOCUS
• COMPETE IN BROAD TARGET
MARKET DECIDED IN 1990
• REDUCED PRICES
• RESULTED IN 40% SALES
GROWTH
• BUT ONLY 4.6% OPERATING
MARGIN
COULD NOT KEEP UP ITS
QUALITY IMAGE
Competitive
Positioning
CORPORATE
STRATEGY
• FIRM’S OVERALL ORIENTATION
TOWARDS GROWTH, STABILITY, OR
RETRENCHMENT DIRECTIONAL
STRATEGY
• INDUSTRIES OR MARKETS IN
WHICH FIRM COMPETES
PORTFOLIO STRATEGY
• MANNER IN WHICH MANAGEMENT
CO ORDINATES ACTIVITIES,
TRANSFERS RESOURCES, AND
CULTIVATE CAPABILITIES AMONG
PRODUCT LINES AND BUSINESS
UNITS PARENTING STRATEGY
