Five Generic Competitive Strategies

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CHAPTER 5 THE FIVE GENERIC COMPETITIVE STRATEGIES - Which One to Employ? Copyright ®2012 The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 1. Understand what distinguishes each of the five generic strategies and why some of these strategies work better in certain kinds of industry and competitive conditions than in others. 2. Gain command of the major avenues for achieving a competitive advantage based on lower costs. 3. Learn the major avenues to a competitive advantage based on differentiating a company’s product or service offering from the offerings of rivals. 4. Recognize the attributes of a best-cost provider strategy and the way in which some firms use a hybrid strategy to go about building a competitive advantage and…show more content…
♦ Products are readily available from many sellers. ♦ Industry products are not easily differentiated. ♦ Most buyers use the product in the same ways. ♦ Buyers incur low costs in switching among sellers. ♦ Large buyers have the power to bargain down prices. ♦ New entrants can use introductory low prices to attract buyers and build a customer base. 5–11 Pitfalls of a Low-Cost Provider Strategy ♦ Lowering selling prices results in gains that are smaller than the increases in total costs, reducing profits rather than raising them. ♦ Relying on a cost advantage that is not sustainable because rivals can copy or otherwise overcome it. ♦ Becoming too fixated on cost reduction such that the firm’s offering is too features-poor to generate sufficient buyer appeal. 5–12 BROAD DIFFERENTIATION STRATEGIES ♦ Effective Differentiation Approaches: ● Carefully study buyer needs and behaviors, values and willingness to pay a unique product or service. ● Incorporate features that both appeal to buyers and create a sustainably distinctive product offering. ● Use higher prices to recoup differentiation costs. ♦ Advantages of Differentiation: ● ● ● Premium prices for products Increased unit sales Brand loyalty 5–13 Cost-Efficient Management of Value Chain Activities ♦ A Uniqueness Driver Can: ● ● ● ● ● Have a strong differentiating effect. Be based on physical as well as functional attributes of a firm’s products. Be the result of superior
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