STRATEGIC MANAGEMENT FIVE GENERIC COMPETITIVE STRATEGIES By Charles D. Little, Ph.D

1. STRATEGIC MANAGEMENT FIVE GENERIC COMPETITIVE STRATEGIES By Charles D. Little, Ph.D

2. FIVE GENERIC COMPETITIVE STRATEGIES • Competitive strategy relates to all the different strategies a company may do to: • Gain a competitive advantage • Retain existing market share • Capture new market share • Identify and access new market opportunities • Satisfy wants and needs • Provide superior value in a product or service • Position and differentiate the product • Optimize manipulation of the marketing mix • Achieve its goals in the competitive market place

3. FIVE GENERIC COMPETITIVE STRATEGIES • Competitive strategy then integrates with… • All other functional level activities • Operational processes to deliver value to the customer • Organizational structure • Technical talent and human capital • Organizational politics • Organizational policy • Budget policy • Management and leadership • et al… • …in order to optimize success in the market place.

4. FIVE GENERIC COMPETITIVE STRATEGIES • Question: • To what extent do you believe that the competitive strategy sets • the tone for the organizational mission and vision of the organization? • Answer: • Likely to a significant extent, because assessment of market opportunities • can give rise to the potential for organizational success and the specific • organizational efforts necessary to satisfy customer wants and needs.

5. FIVE GENERIC COMPETITIVE STRATEGIES • Broad factors that distinguish one competitive strategy from another: • Whether a company’s target market is broad or narrow, or • Whether the company is pursuing a competitive advantage linked to low costs or • product differentiation.

6. FIVE GENERIC COMPETITIVE STRATEGIES • 1. Low-cost provider strategy… • Targeting: • Price sensitive markets…price conscious buyers • Segments with limited incomes • Price sensitive customers in greater numbers thereby • increasing profits (although thin profit margins) • Extreme price competitive markets • Products are essentially the same • Where brand differences are inconsequential to the consumer • When substitutes are readily available • Good strategy for new entrants

7. FIVE GENERIC COMPETITIVE STRATEGIES • Low-cost provider strategy… • Strategic inputs: • Optimize economies of scale • Purchase in volume, JIT, keep raw materials costs low • Utilize bargaining power • Low cost inputs • Reduce materials handling and shipping costs • Advanced production technology and process designs • Offer incentives • Minimize operational and administrative staff and cost • Merge support systems (ordering, procurement, billing, etc.) • Pursue supply chain efficiency, i.e. limit ‘middle men’ • Efficient utilization of resources (plant, materials, human capital) • Vertical integration • Operate at full capacity (full advantage of fixed costs) • Efficient communications systems and information technology • Outsource where practicable • Sell direct to customer (where practicable) • Continuous improvement • Continuous learning

8. FIVE GENERIC COMPETITIVE STRATEGIES • Low-cost provider strategy… • *Keeping costs low, yet offering basic features that low cost buyers consider essential. • Examples: • Wal-Mart • Sam’s • 99 Cent Stores • The Attic • Dollar Tree • Dollar General • Family Dollar

9. FIVE GENERIC COMPETITIVE STRATEGIES • 2. Broad differentiation strategy… • Targeting: • Diverse needs and preferences among target markets • A broad range of buyers • Value conscious consumers • Products and services stand apart in consumers’ minds • Customers looking for a unique value proposition • Premium price products • Buyers loyal to the brand (value the unique differentiation)

10. FIVE GENERIC COMPETITIVE STRATEGIES • Broad differentiation strategy… • Strategic inputs: • Customer service • Unique tangible and intangible attributes • Special order availability • Continuous product improvement and innovation (design and features) • Uninterrupted product availability • Value enhancement through efficient marketing channels • Constant value signaling (through price, quality, performance, taste, • packaging, advertising, standout attributes, reputation, status, et al) • Coordination with suppliers • Marketing intensity • Make it more difficult for a competitor to copy it • Employee skill and knowledge of the product • Continuous improvement in organization • Defensive strategy

11. FIVE GENERIC COMPETITIVE STRATEGIES • 2. Broad differentiation strategy… • Examples: • Rolex • Microsoft • FedEx • BMW • Michelin • Gucci • Land’s End • Nike • Snack Wells • Briggs and Stratton • Harley-Davidson • Avis • Versaci • Starbucks • Victoria Secret • HEB Plumbing

12. FIVE GENERIC COMPETITIVE STRATEGIES • 3/4. Market focused strategy…cost and niche* • Targeting: • Price conscious customers (similar to low cost provider strategy) • Well defined segments • Appealing to cultures and geographical preferences • Brand loyal customers • Appeal to broad market segments (low cost) • Wants and needs of narrow and unique market segment (niche) • *Good way to discourage entry of industry leaders • *Another differentiation and positioning strategy

13. FIVE GENERIC COMPETITIVE STRATEGIES • 3/4. Market focused strategy…cost and niche • Strategic inputs (essentially the same as low cost provider strategy): • Optimize economies of scale • Purchase in volume, JIT, keep raw materials costs low • Utilize bargaining power • Low cost inputs • Reduce materials handling and shipping costs • Advanced production technology and process designs • Offer incentives • Minimize operational and administrative staff and cost • Merge support systems (ordering, procurement, billing, etc.) • Pursue supply chain efficiency, i.e. limit ‘middle men’ • Efficient utilization of resources (plant, materials, human capital) • Vertical integration • Operate at full capacity (full advantage of fixed costs) • Efficient communications systems and information technology • Outsource where practicable • Sell direct to customer (where practicable) • Continuous improvement • Continuous learning

14. FIVE GENERIC COMPETITIVE STRATEGIES • 3/4. Market focused strategy…cost and niche • Examples: • Community Coffee (niche) • Grand Ole Opry (niche) • KrispyKreme Doughnuts (niche, cost – now broad) • Red Box (niche, cost) • Best Buy (niche, cost – now broad) • Trader Joe’s (niche) • Tabasco (niche, cost) • Oberweis Dairies (niche) • Haltom’s Jewelers (niche) • Dairy Queen (niche, cost) • Bluebonnet Bakery (niche) • Exparanza’s Bakery (niche) • Micro-breweries and local bars (niche) • Family Dollar, Dollar General, Fred’s (niche, cost – now broad) • Coors (niche, cost, now broad) • Duck Head (niche, cost - now broad) • Local restaurants (niche) • Men’s Warehouse (niche) • Market Basket (niche) • Central market (niche)

15. FIVE GENERIC COMPETITIVE STRATEGIES • Best cost provider strategy…* • Targeting: • Low cost, differentiation markets (a hybrid) • Broad markets and market niches (middle ground) • Value conscious buyers • Those who shy away from cheap, low-end products and • expensive high-end products • Willing to pay a fair price for functionality and performance • More for the money • *Balances low-cost against emphasis on differentiation and positioning

16. FIVE GENERIC COMPETITIVE STRATEGIES • Best cost provider strategy… • Strategic inputs: • Positioning near the middle of the market • Combines other basic strategies • Medium quality at below average price, or • Somewhat higher quality at an average or slightly higher price • Adjust strategy for economic conditions, i.e. more value conscious • Match strategy to internal resources and capabilities

17. FIVE GENERIC COMPETITIVE STRATEGIES • Best cost provider strategy… • Examples: • Lexus (by Toyota) • Target • Savane • Marriott Courtyard • Spalding • UPS • Little Debbie • Bimbo Bakeries • Black Eyed Pea • Ruby Tuesday • Budweiser • Goodyear

18. FIVE GENERIC COMPETITIVE STRATEGIES Summary • The differences between the classic five generic competitive strategies is • somewhat subtle to the untrained eye. Admittedly, there is some degree • of overlap. However, they are significant in strategic planning as they • relate to the ability of the organization to gain a competitive advantage. • They offer product and brand distinction in terms of price, value, quality, and performance, which not only positions the product uniquely, but the brand, • itself. • Thus, the competitive strategy may indeed set the tone for the mission of the • organization, because the entire organization must function jointly to provide • the level of quality and performance in the market place, that is consistent with • the organization’s overall business level strategy.