reflection paper
tiantian 123
SmallBusinessCompetitiveStrategy.pptx
Competitive Strategy
Susie Pryor PhD
Associate Professor, Entrepreneurship
California State University San Bernardino
Competitive Strategy
A competitive strategy consists of moves to
Attract customers
Withstand competitive pressures
Strengthen an organization’s market position
The objective of a competitive strategy is (generally to) increase the loyalty of customers and beat competitors
A competitive strategy is narrower in scope than a business strategy
Five competitive strategies are
Broad differentiation strategy
Overall low-cost leadership strategy
Best cost provider strategy
Focused low-cost strategy
Focused differentiation strategy
Broad Differentiation Strategies
Striving to build customer loyalty by differentiating an organization’s products from competitors’ products
Keys to success include
Finding ways to differentiate to create value for customers that are not easily copied
Not spending more to differentiate than the price premium that can be charged
A successful differential strategy allows an organization to
Set a premium price
Increase unit sales
Build brand loyalty
Broad Differentiation Strategies
Where to look for differentiation opportunities
Supply chain
Research and development
Production activities
Marketing, sales and service activities
Strengths of a Differentiation Strategy
Customers develop loyalty to the brand
Brand loyalty acts as an entry barrier
Organization is better able to fend off threats of substitute products because of brand loyalty
Reduces bargaining power of large customers since other brands are less attractive
Seller may be in a better position to resist efforts of suppliers to raise prices
Pitfalls of a Broad Differentiation Strategy
Trying to differentiate on an unimportant product feature that doesn’t result in providing more value to the customer
Over differentiating the product such that the product features exceed the customers’ needs
Charging a price premium that buyers perceive as too high
Ignoring need to signal value
Not identifying what customers consider valuable
Overall Low-Cost Leadership Strategy
Strive to be the overall low-cost provider in an industry
How to achieve overall low-cost leadership
Scrutinize each cost activity
Manage each cost lower year after year
Reengineer cost activities to reduce overall costs
Cut some cost activities out of the value chain
Competitive strengths of a overall low-cost strategy
Organization in a better position to compete offensively on price
Organization is better able to negotiate with large customers
Organization is able to use price as a defense against substitutes
Low cost is a significant barrier to entry
Organization is more insulated from the power of suppliers
When Does an Overall Low-Cost Strategy Work the Best
When price competition is a dominant competitive force
The product is a “commodity”
There are few ways to differentiate the product
Most customers have similar needs/requirements
Customers incur low switching costs changing sellers
Customers are large and have significant bargaining power
When Doesn’t Low-Cost Strategy Work
When technological breakthroughs open cost reductions for competitors, negating a low-cost provider’s efficiency advantage
Competitors find it relatively easy and inexpensive to imitate the leader’s low cost methods
Low-cost leader focuses so much on cost reduction that the organization fails to respond to
Changes in customer requirements for quality and service
New product developments
Reduced customer sensitivity to price
Best-Cost Provider Strategy
Striving to give customers more value for the money by combining an emphasis on low cost with an emphasis on upscale differentiation
Combines low-cost and differentiation
The objective is to create superior value by meeting or beating customer expectation on product attributes and beating their price expectations
Keys to success
Match close competitors on key product attributes and beat them on cost
Expertise at incorporating upscale product attributes at a lower cost than competitors
Contain costs by providing customers a better product
Advantages of Best-Cost Provider Strategy
Competitive advantage comes from matching close competitors on key product attributes and beating them on price
Most successful best-cost providers have skills to simultaneously manage costs down and product quality up
Best-cost provider can often beat an overall low-cost strategy and a broad differentiation strategy where
Customer diversity makes product differentiation the norm
Many customers are price and value sensitive
Focus Strategies
Focus strategy based on low-cost
Concentrate on a narrow customer segment beating the competition on lower cost
Focus strategy based on differentiation
Offering niche customers a product customized to their needs
Overall objective of both focus strategies is to do a better job of serving a niche target market than competitors
Keys to success
Choose a niche were customers have a distinctive preference, unique needs or special requirements
Develop a unique ability to serve the needs of a niche target market
What Makes a Niche Attractive?
Large enough to be profitable
Good growth potential
Not critical to the success of major competitors
Organization has the resources to effectively serve the niche
Organization can defend itself against challengers through a superior ability to serve the niche
No competitors are focusing on the niche
Strengths and Risks of Focus Strategies
Strengths
Competitors don’t have the motivation to meet specialized needs of the niche
Organization’s competitive advantage could be seen as a barrier to entry
Organization’s competitive advantage provides an obstacle for substitutes
Organization’s ability to meet the needs of customers in the niche can reduce the bargaining power of large niche buyers
Risks
Broad differentiated competitors may find effective ways to enter the niche
Niche customers’ preferences may move toward the product attributes desired by a larger market segment
Profitability may be limited if too many competitors enter the niche
