D3 - Planning

124 PART 1 Concepts and Techniques for Crafting and Executing Strategy

tho75109_ch05_122-151.indd 124 12/18/18 07:56 PM

TYPES OF GENERIC COMPETITIVE STRATEGIES A company’s competitive strategy lays out the specific efforts of the company to position itself in the marketplace, please customers, ward off competitive threats, and achieve a particular kind of competitive advantage. The chances are remote that any two companies—even companies in the same industry—will employ com- petitive strategies that are exactly alike in every detail. However, when one strips away the details to get at the real substance, the two biggest factors that distinguish one competitive strategy from another boil down to (1) whether a company’s market target is broad or narrow and (2) whether the company is pursuing a competitive advantage linked to lower costs or differentiation. These two factors give rise to four distinct competitive strategy options, plus one hybrid option, as shown in Figure 5.1 and listed next.1

1. A broad, low-cost strategy—striving to achieve broad lower overall costs than rivals on comparable products that attract a broad spectrum of buyers, usually by under- pricing rivals.

2. A broad differentiation strategy—seeking to differentiate the company’s product offering from rivals’ with attributes that will appeal to a broad spectrum of buyers.

3. A focused low-cost strategy—concentrating on the needs and requirements of a nar- row buyer segment (or market niche) and striving to meet these needs at lower costs than rivals (thereby being able to serve niche members at a lower price).

4. A focused differentiation strategy—concentrating on a narrow buyer segment (or mar- ket niche) and offering niche members customized attributes that meet their tastes and requirements better than rivals’ products.

• LO 5-1 Distinguish each of the five generic strategies and explain why some of these strategies work better in certain kinds of competitive conditions than in others.

FIGURE 5.1 The Five Generic Competitive Strategies

Lower Cost

Type of Competitive Advantage Being Pursued

M a

rk e

t Ta

rg e

t

Di�erentiation

Broad Di�erentiation

Strategy

Broad Low-Cost Strategy

Best-Cost Strategy

Focused Low-Cost Strategy

Focused Di�erentiation

Strategy

A Broad Cross-Section of Buyers

A Narrow Buyer Segment (or Market Niche)

Source: This is an expanded version of a three-strategy classification discussed in Michael E. Porter, Competitive Strategy (New York: Free Press, 1980).

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