Comp Strategy

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Chapter

5
The Five Generic Competitive Strategies
Screen graphics created by: Jana F. Kuzmicki, Ph.D. Troy State University-Florida and Western Region 5-1 McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved. 5-2 McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

“Competitive strategy is about being different. It means deliberately choosing to perform activities differently or to perform different activities than rivals to deliver a unique mix of value.” value.” Michael E. Porter

Chapter Roadmap
Five Competitive Strategies Low-Cost Provider Strategies Differentiation Strategies Best-Cost Provider Strategies Focused (or Market Niche) Strategies The Contrasting Features of the Five Generic Competitive Strategies: A Summary 5-4 McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

Strategy and Competitive Advantage
Competitive advantage exists when a firm’s strategy gives it an edge in Attracting customers and Defending against competitive forces Key to Gaining a Competitive Advantage

What Is “Competitive Strategy”? “Competitive Strategy”? Strategy” Deals exclusively with a company’s business plans to compete successfully Specific efforts to please customers Offensive and defensive moves to counter maneuvers of rivals Responses to prevailing market conditions Initiatives to strengthen its market position

Convince customers firm’s product / service offers superior value A good product at a low price A superior product worth paying more for A best-value product 5-5 McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

Narrower in scope than business strategy
5-6 McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

1

Fig. 5.1: The Five Generic Competitive Strategies

Low-Cost Low-Cost Provider Strategies LowKeys to Success
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 leadership means low overall costs, not just low manufacturing or production costs! 5-7 McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved. 5-8 McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

Options: Achieving a Low-Cost Low-Cost Advantage LowOption 1: Use lower-cost edge to Underprice competitors and attract price-sensitive buyers in enough numbers to increase total profits

Nucor Corporation’s Corporation’s Corporation’ Low-Cost Provider Strategy Low-Cost LowEliminate some production processes from value chain used by traditional Eliminate some production processes from value chain used by traditional integrated steel mills; cut investment in facilities and equipment integrated steel mills; cut investment in facilities and equipment Strive hard for continuous improvement in the efficiency of its plants and Strive hard for continuous improvement in the efficiency of its plants and frequently invest in state-of-the art equipment to reduce unit costs frequently invest in state-of-the art equipment to reduce unit costs Carefully select plan sites to minimize inbound and outbound shipping Carefully select plan sites to minimize inbound and outbound shipping costs and to take advantage of low rates for electricity costs and to take advantage of low rates for electricity Hire aanonunion workforce that uses team-based incentive compensation Hire nonunion workforce that uses team-based incentive compensation systems systems Heavily emphasize consistent product quality and maintain rigorous Heavily emphasize consistent product quality and maintain rigorous quality systems quality systems Minimize general and administrative expenses by maintaining aalean staff Minimize general and administrative expenses by maintaining lean staff at...
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