[Music] in this course you'll understand what distinguishes each of the five generic strategies and why these strategies work better in certain kinds of industries in competitive conditions than in others a competitive strategy concerns the specifics of management's game plan for competing successfully and securing a competitive advantage over rivals in the marketplace a company's competitive strategy with its specific efforts to please customers strengthen its market position counter the maneuvers of rivals respond to shifting market conditions and achieve a particular competitive advantage the two biggest factors that distinguish one competitive strategy from another boiled down to first whether the company's market target is broad or narrow and whether the company is pursuing a competitive advantage linked to lower costs or differentiation in a low-cost provider strategy we strive to achieve lower overall costs than rivals by appealing to a broad spectrum of customers usually by underpricing rivals with a broad differentiation strategy we seek to differentiate the organization's product or service from rivals in ways that will appeal to a broad spectrum of buyers with a focused low cost strategy we concentrate on a narrow buyer segment or market niche and out competing rivals by having lower costs than rivals and thus being able to service a niche members at a lower price with a focused differentiation strategy we concentrate on a narrow buyer segment a market niche and out competing rivals by offering niche members customized attributes that meet their tastes and requirements better than rivals products do with a best cost provider strategy we give customers more value for their money by satisfying buyers expectations on key quality features performance or service attributes will beating their price expectations this option is a hybrid strategy that blends elements of the low cost provider and differentiation strategy she's the aim is to have the lowest the best costs and prices among sellers offering products with comparable differentiating attributes it's important to understand what distinguishes each of the five competitive strategies and why some of the strategies work better in certain kinds of industries and competitive conditions than others a Company achieves low-cost leadership when it becomes the industry's lowest cost provider rather than just being one of perhaps several competitors with low costs successful low-cost providers most meaningful lower costs than rivals but not necessarily the absolute lowest possible cost in striving for a cost advantage over rivals managers must include features and services that buyers consider essential a product offering that is too frills free can be viewed by customers as offering little value regardless of its pricing a low cost leaders basis for competitive advantage is lower overall costs than competitors success in achieving a low cost edge over rivals comes from eliminating and/or curbing non-essential activities and/or out managing rivals and performing essential activities a company has two options for translating a low cost advantage over rivals into attractive profit performance option one is to use the lower cost edge to underprice competitors and attract price sensitive buyers in great enough numbers to increase total profits option two is to maintain the present price be consistent with the present market share and use lower cost edge to earn a higher profit margin on each unit sold thereby raising the firm's total profits and overall return on investment to achieve a low cost edge over rivals a firm's cumulative costs across the overall value chain must be lower than competitors cumulative costs there are two major avenues for accomplishing this first performing essential value chain activities more cost-effectively than rivals and second revamping the firm's overall value chain to eliminate or bypass some cost producing activities a competitive strategy predicated on low cost leadership is particularly powerful when price competition among rival sellers is especially vigorous the products of rival sellers are essentially identical and are readily available from sellers there are a few ways to achieve product differentiation that have value to buyers and finally buyers incur low costs in switching their purchases from one seller to another perhaps the biggest pitfall of a low-cost provider strategy is getting carried away with overly aggressive price cutting and ending up with lower rather than higher profitability a second big pitfall is relying on an approach to reduce costs that can be easily copied by rivals a third and final pitfall is becoming too fixated on cost reduction a low-cost provider strategy means striving to achieve overall lower costs than rivals and appealing to a broad spectrum of customers usually by underpricing rivals the essence of a broad differentiation strategy is to offer unique product or service attributes that a wide range of buyers find appealing and worth paying for a company attempting to succeed through differentiation must study buyers needs and behavior carefully to learn what buyers think has value and what they're willing to pay for then the company must include these desirable features to clearly set itself apart from rivals lacking such product or service attributes successful differentiation allows a firm to command a premium price and/or increased unit sales because additional buyers are won over by the differentiating features and/or gained buyer loyalty to its brand because some buyers are strongly attracted to the differentiating features and bond with the company's products companies can pursue a differentiation strategy from many angles like a unique tastes like red bull or Doritos multiple features like Microsoft Office or the Apple iPhone a wide selection of one-stop shopping like the Home Depot or amazon.com superior service such as Ritz Carlson or Nordstrom engineering design and performance like Mercedes Benz or beamed you product reliability like whirlpool or Bosch quality manufacturing like Michelin or Toyota and technological leadership like 3m a uniqueness driver is a value chain activity or factor that can have a strong effect on customer value and creating differentiation differentiation opportunities can exist in activities along the industries value chain and particularly in activities and factors that meaningfully impact customer value such activities are referred to as uniqueness drivers and have a high impact on differentiation rather than on a company's overall cost position ways that managers can enhance differentiation through the systematic management of uniqueness drivers include the following seeking out high quality inputs striving for innovation and technological advances pursuing continuous quality improvement emphasizing human resource management activities that improve the skills expertise and knowledge of personnel and improving customer service or adding additional services well it's easy enough to graph that a successful differentiation strategy must offer value in ways unmatched by rivals a big issue in crafting a differentiation strategy is deciding what is valuable to customers typically value can be delivered to customers in three basic ways first including product attributes and user features that lower the buyers costs second incorporate tangible features that improve product performance and third incorporate intangible features that enhance buyer satisfaction in non-economic ways differentiation strategies tend to work best in market circumstances where buyers needs and users of the product are diverse there are many ways to differentiate the product or service that have value to buyers few rival firms are following a similar differentiation approach and technological change is fast paced and competition revolves around rapidly evolving product features differentiation strategies can fail for any of several reasons a differentiation strategy key to a product or service attribute that are easily and quickly copied is always suspect differentiation strategies can also falter when buyers see little value in the unique attributes of a company's product and overspending on efforts to differentiate is a strategy flaw that can erode profitability a low-cost provider strategy can always defeat a differentiation strategy when buyers are satisfied with a basic product and don't think extra attributes are worth a higher price the targeted segment or niche can be defined by Geographic uniqueness or by special product attributes that appeal only dinesh members the advantages of focusing a company's entire competitive effort on a single market niche are considerable let's take a look a focused strategy based on low-cost aims at securing a competitive advantage by serving buyers in the target market niche at a lower cost and at a lower price than rival competitors the strategy has considerable attraction when a firm can lower costs significantly by limiting its customer base to a well defined by our segments the avenues to achieving a cost advantage over rivals is to help manage rivals and keeping the cost to a bare minimum and searching for innovative ways to bypass or reduce non-essential activities the only real difference between a low cost provider strategy and a focused low-cost provider strategy is the size of the buyer group to which the company is appealing focused low cost strategies are fairly common focused differentiation strategies are keyed by offering carefully designed products or services to appeal to the unique preferences of the needs of a narrow well-defined group of buyers as opposed to a broad differentiation strategy aimed at many buyer groups or market segments companies employ successful differentiation based focused strategies targeted at a fluent buyers wanting products or services with world-class attributes indeed most markets contain a buyer segment willing to pay a price premium for the very few and finest items available thus opening the strategic window for some competitors to pursue differentiation based strategies aimed at the very top of the market pyramid a focus strategy aimed at securing the competitive edge based on either low cost or differentiation becomes increasingly attractive as more of the following conditions are met the target market niche is big enough to be profitable and offers good growth potential industry leaders have chosen not to compete in the niche it's costly or difficult to multi segment competitors to meet the specialized needs of niche buyers and at the same time spectate stream customers the industry has many different niches or segments thereby allowing a focuser to pick up a niche suited to its best strengths and capacities and few if any rivals are attempting to specialize in the same target segment focusing also carries several risks first the chance the competitors will find effective ways to match the focused firm's capabilities in serving the target niche second potential for the preferences and needs of niche members to shift over time toward the product attributes desired by the majority of buyers and third the segment may become so attractive that it's soon inundated with competitors intensifying rivalry and splintering segments profits niche strategies are focused closely unserviceable or niche markets business strategy may alternatively be based on the process of product or service differentiation across a range of markets and market segments best cost provider strategies are a hybrid of low cost provider and differentiation strategies that aim it satisfying buyer expectations on key quality features performance or service attributes and beating customer expectations on price the essence of a best cost provider strategy is giving customers more value for the money by satisfying buyer desires for appealing features performance quality or service and charging a lower price for these attributes compared to that of rivals with similar caliber product offerings to profitably employ a best cost provider strategy an organization must have the capability to in core operate attractive and upscale attributes at a lower cost and rivals this capacity is contingent upon first a superior value chain configuration that eliminates or minimizes activities that do not add value an unmatched efficiency in managing essential value chain activities and core competencies that allow differentiating attributes to be incorporated at a low cost when a company can incorporate appealing features good to excellent product performance or quality or more satisfying customer service into its product offering at a lower cost than most of its rivals then it enjoys a best cost status it is the low cost provider of a product or service within upscale attributes a best cost provider can then use its low cost advantage to underprice rivals whose products or services have similar upscale attributes and still earn attractive profits a best cost provider strategy works best in markets where product differentiation is the norm and attractively large numbers of value conscious buyers can be induced to purchase mid-range products a best cost provider usually needs to position itself near the middle of the market with either a medium quality product at a below average price or a high quality product at an average or slightly higher than average price a company's biggest vulnerability in employing best cost provider strategy is not having the requisite core competencies and efficiencies in managing value chain activities to support the addition of differentiation a company with a modest degree of differentiation and no real cost advantage will likely find itself squeezed between firms using low-cost strategies and those using differentiation strategies low-cost providers may be able to siphon customers away with the peel of a lower price and high-end differentiators may be able to steal customers with the appeal of appreciate really better product attributes a company's competitive strategy should be well matched to its internal situation and predicated on leveraging its collection of competitively valuable resources and competencies [Music] you