Generic Competitive Strategies
A firm's relative position within its industry determines whether a firm's profitability is above or below the industry average. The fundamental basis of above average profitability in the long run is sustainable competitive advantage.
Q: Definition of Generic Competitive Strategy-02
Basic approaches to strategic planning that can be adopted by any firm in any market or industry to improve its competitive performance. More precisely, generic strategies are approaches to outperforming competitors in the industry.
Q: Identify different generic strategies to cope successfully with the 5 competitive forces and explore some of the requirements and risks of each-10
In coping with the five competitive forces, there are three potentially successful generic strategic approaches to outperforming competitors, which are following: • Overall cost leadership
These 3 generic strategies can create a defendable position in the long run and outperform competitors in an industry
1) Overall cost leadership:
In cost leadership, a firm sets out to become the low cost producer in its industry. The sources of cost advantage are varied depending on the structure of the industry. They may include the pursuit of economies of scale, proprietary technology, and preferential access to raw materials, avoidance of marginal customer accounts, and other factors. Having a low cost position yields above average returns.
A differentiation strategy calls for the development of a product or service that offers unique attributes that are valued by customers and that customers perceive to be better than or different from the products of the competition. Differentiated firm can charge premium prices for the product. Through differentiation a firm can earn above average returns.
It focuses on the on a particular buyer group, segment of the product line, or geographic market rather than focusing industry wide. The strategy rests on the premise that the firm is thus able to serve its narrow strategic target more effectively or efficiently than competitors who are competing more broadly. The firm achieving focus may also potentially earn above-average returns for its industry through – either a low cost position with its strategic target, high differentiation, or both.
The above 3 generic strategy provides a defensible position against 5 competitive force
Generic Strategies and Industry Forces
|Five forces |Generic strategy | | |Cost Leadership |Differentiation |Focus | |Entry |Ability to cut price in |Customer loyalty can discourage potential |Focusing develops core competencies | |Barriers |retaliation deters potential |entrants. |that can act as an entry barrier. | | |entrants. | | | |Buyer |Ability to offer lower price |Large buyers have less power to negotiate |Large buyers have less power to | |Power |to powerful buyers. |because of few close alternatives. |negotiate because of few | | | | |alternatives. | |Supplier |Provides more flexibility in |Better able to pass on supplier price |A differentiation-focused firm is | |Power |coping with input cost prices |increases to customers. |better able to pass on supplier | | | | |price increases....
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