chapter 5: The Five Generic Competitive Strategies: Which One to Employ?

This week, we moved to chapter five, namely…THE FIVE GENERIC COMPETITIVE STRATEGIES: WHICH ONE TO EMPLOY?

In this chapter, I have learned how to make a business more strategies by using the 5 generic competitive strategies.

LOW COST PROVIDER

Low cost provider strategy is a basis for competitive advantage is lower overall costs than competitors. It pursue cost-savings that are difficult imitate and avoid reducing product quality to unacceptable levels. A cost driver is a factor that has a strong influence on a firm’s costs. It is a factor with a strong influence on a firm’s costs and can be asset or activity-based. 

For instant, Air Asia is one of the examples of low cost provider strategy. How does Air Asia could manage to offer cheaper airfares? The answer is Air Asia are using cost-cutting method in order to minimize it expenditure. Cost-cutting method allows Air Asia to:  

• Striving to capture all available economies of scale.
• Taking full advantage of experience and learning-curve effects.
•  Trying to operate facilities at full capacity.
• Improving supply chain efficiency.
• Using lower cost inputs wherever doing so will not entail too great a sacrifice in quality.
• Using the firm’s bargaining power vis-à-vis suppliers or others in the value chain system to gain concessions.
• Using communication systems and information technology to achieve operating efficiencies.

It gives advantage over rivals can translate into better profitability than rivals attain.

this is the example of cost leadership strategy:

  

BROAD DIFFERENTIATION

Broad differentiation strategy is to offer unique product attributes that a wide range of buyers find appealing and worth paying for. A uniqueness driver is a factor that can have a strong differentiating effect. Effective differentiation approaches happen when consumer willingness to pay for a unique product or service, buyers can create a sustainably distinctive product offering and lastly the firm use higher prices to recoup differentiation costs. 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 performance capabilities of the firm’s human capital.
•  Have an effect on more than one of the firm’s value chain activities.
•  Create a perception of value (brand loyalty) in buyers where there is little reason for it to exist.

example of differentiation strategy:

Through differentiation also it can approached to enhancing differentiation through changes in the value chain system by coordinating with channel allies to enhance customer perceptions of value and coordinating with suppliers to better address customer needs but there is a differentiation that is difficult for rivals to duplicate or imitate:

• Company reputation
• Long-standing relationships with buyers
•  Unique product or service image

FOCUSED (OR MARKET NICHE) STRATEGIES

example of focused strategy

It can be divided in two ways:

Focused cost leadership is the first of two focus strategies. A focused cost leadership strategy requires competing based on price to target a narrow market. A firm that follows this strategy does not necessarily charge the lowest prices in the industry.

 Instead, it charges low prices relative to other firms that compete within the target market. Redbox(us), for example, uses vending machines placed outside grocery stores and other retail outlets to rent DVDs of movies for $1. There are ways to view movies even cheaper, such as through the flat-fee streaming video subscriptions offered by Netflix. But among firms that rent actual DVDs, Redbox offers unparalleled levels of low price and high convenience.

Focused differentiation is the second of two focus strategies. A focused differentiation strategy requires offering unique features that fulfill the demands of a narrow market. As with a focused low-cost strategy, narrow markets are defined in different ways in different settings. Some firms using a focused differentiation strategy concentrate their efforts on a particular sales channel, such as selling over the Internet only. Others target particular demographic groups.

While a differentiation strategy involves offering unique features that appeal to a variety of customers, the need to satisfy the desires of a narrow market means that the pursuit of uniqueness is often taken to the proverbial “next level” by firms using a focused differentiation strategy. Thus the unique features provided by firms following a focused differentiation strategy are often specialized.

The dedication of Mercedes-Benz to cutting-edge technology, styling, and safety innovations has made the firm’s vehicles prized by those who are rich enough to afford them. This appeal has existing for many decades. In 1970, acid-rocker Janis Joplin recorded a song called “Mercedes Benz” that highlighted the automaker’s allure. Since then Mercedes-Benz has used the song in several television commercials, including during the 2011 Super Bowl.

BEST COST PROVIDER STRATEGY

Are a hybrid of low-cost provider and differentiation strategies that aim at providing desired quality/features/ performance/service attributes while beating rivals on price.