Competitive Advantage Strategies: Cost Leadership, Differentiation, and Focused Strategies, Apuntes de Dirección de Empresas

¡Descarga Competitive Advantage Strategies: Cost Leadership, Differentiation, and Focused Strategies y más Apuntes en PDF de Dirección de Empresas solo en Docsity! UNIT 6: THE FIVE GENERIC STRATEGIES Competitive Advantage Concept: Any characteristic of the company different from any another, which places it in a higher relative position to compete. It allows the company to get a higher return than any other in its competitive performance. It involves greater profitability and value creation for the company. Requirements: - To be related to a key success factor in the market. - It must be substantial enough to really make a difference. - To be sustainable against environmental changes and competitor actions, although in the long-term they are all vulnerable. Sources of competitive advantages: internal and external. Types: • Cost leadership: cost reduction to increase the margin. • Product differentiation: to rise the price to increase the margin. Competitive Strategy: way to achieve a competitive advantage. Concept: Method by which a company faces its competitors to try to obtain a performance superior to theirs. PORTER definition: to take offensive or defensive actions to create a defendable position in an industry, in order to fight successfully to the five competitive forces and thus obtain a higher return on the investment of the company. Generic competitive strategies: ▲ Cost leadership ▲ Product differentiation ▲ Market segmentation: necessary if we apply one of the above two in a particular part of the market. To be "stuck in the middle": to try to apply the two basic competitive advantages at the same time. Consequences: • The company does not have any competitive advantage • The company would obtain a lower return than its competitors. • Risk of being kicked of from the industry Arguments to do “not be stucked”, to chose one: • Differentiation advantage: to incur in higher costs to achieve a special feature. • Reduced costs: it does not allow to get differentiating features. • The achievement of one or the other advantage requires different resources and capabilities. Creating Competitive Advantage External factors: imperfections in the model of perfect market. Perfect market: one in which there is: product homogeneity, equal pricing, full information of all stakeholders, the absence of barriers to entry. Ability of the company to respond quickly to any market change: • To have the necessary information to identify and anticipate to changes. • To have flexible responses to redistribute all resources to face changes. • To take advantage of opportunities offered by the environment. The possibility of positive use of these external factors by all companies in an industry is similar, as they are factors outside the company. But not all companies in the industry get the same level of profitability because there are also internal factors: • Ability to scan the environment • Flexibility of response to changes • Strategic resources and capabilities of the company and its way of development. The form of development depends on 4 factors: 1. Efficiency: productivity. A> productivity> cost advantage 2. Quality: superior attributes. A> quality> differentiation advantage 3. Innovation in process ....> cost advantage> Quality costs> productivity 4. Innovation in Product ...> differentiation advantage Capability of Customer Satisfaction: influences product differentiation Leadership does not imply obtaining competitive advantage Low-Cost Provider Powerful competitive approach with price-sensitive buyers • Have lower costs than rivals—but not necessarily the absolutely lowest possible cost • Must include features and services that buyers consider essential • Must not be viewed by consumers as offering little value even if priced lower than competing products. Translating a Low Cost Strategy Into Attractive Profit Performance • Option 1: Use lower-cost edge to under-price competitors and increase market share. • Option 2: Maintain present price, be content with present market share, and use lower-cost edge to earn a higher profit margin on each unit sold. Approaches to Achieving Low Costs • Perform essential value chain activities more cost effectively than rivals • Revamp the firm’s overall value chain to eliminate or bypass some cost-producing activities altogether Hazards of a Low-Cost Strategy • Cutting price by an amount greater than size of cost advantage • Low-cost methods are easily imitated • Becoming too fixated on reducing costs and ignoring • Buyer interest in additional features • Declining buyer sensitivity to price • Technological breakthroughs open up cost reductions for rivals Differentiation Strategy ▲ Powerful competitive approach whenever buyers’ needs and preferences are too diverse to be fully satisfied by a standardized product or service ▲ Incorporate differentiating features that cause buyers to prefer the firm’s product or service over brands of rivals ▲ Not spending more to achieve differentiation than the price premium that customers are willing to pay for all the differentiating extras Differentiation vs. Segmentation DIFFERENTIATION: concerns choices of how a firm distinguishes its offerings from those of its competitors (i.e. How the firm competes) SEGMENTATION: concerns choices of which customers, needs, locali=es a firm targets (i.e. Where the firm competes). DOES DIFFERENTIATION IMPLY SEGMENTATION? Not necessarily, depends upon the differentiation strategy: - BROAD SCOPE DIFFERENTIATION Appealing to what is common between different customers (McDonald’s, Honda, Gilleoe) - FOCUSED DIFFERENTIATION Appealing to what distinguishes different customer groups (MTV, HarleyDavidson, Armani) Benefits of Successful Differentiation • Command a premium price and/or • Increase unit sales and/or • Gain buyer loyalty to brand Types of Differentiation: • Unique taste – Dr. Pepper • Multiple features –Microsoft Windows and Office • Wide selection –Amazon.com • Superior service – Ritz-Carlton • Spare parts availability – Caterpillar • Engineering design and performance – BMW • Prestige –Rolex • Product reliability – Johnson & Johnson • Quality manufacture – Toyota • Top-of-line image – Ralph Lauren, Starbucks, Chanel Creating Value for Customers through Differentiation ■ Incorporate product features/attributes that lower buyer’s overall costs of using product ■ Incorporate features/attributes that raise the performance a buyer gets out of the product ■ Incorporate features/attributes that enhance buyer satisfaction in non-economic way ■ Exploit competencies and competitive capabilities that rivals don’t have or can’t match