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Five generic competitive strategies

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This document outlines five generic competitive strategies: low cost, differentiation, best cost provider, focused low cost, and focused differentiation. It discusses when each strategy is most applicable, how to implement each one, and potential downsides. The strategies range from aiming for the broadest customer base with an overall low cost approach, to targeting a niche segment with specialized differentiation or low costs. Implementing the strategies successfully requires controlling costs, understanding customer needs, and preventing competitors from copying the approach.

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Five Generic Competitive Strategies
Type of advantage sought Low costDifferentiationBroad differentiationOverall low-cost providerBroad rangeof buyersMarket TargetBest-cost providerFocused differentiationFocused low-cost Narrow rangeof buyers
How to competeLow cost providerObsessively control costsClosely examine the value chainBroad differentiationBuyers have diverse needsBuyers pay a premium for a good fitBest cost providerNeed to create the perception of value compared to competitors
How to compete (continued)Low-cost nicheNarrow band of price conscious customersBig enough and concentrated enoughDifferentiation nicheHigh end customersHigh qualityCustomized, rare or exclusive products and services
When to go low-costHeavy price competition Standardized productHard to differentiateConsumers use product in similar waysLow switching costs for usersBuyers have bargaining powerNewcomers use pricing to get into the market
Downside to low-costHeavy pricecutting can lead to lossesTrain consumers to expect ever lower pricesMaybe easy for competitors to copy strategyNew technology may give rivals a pricing edgeOver focus on costs may mean;Failure to notice change in usageFailire to notice desire for additional benefits/ featuresFailure to respond to changes in price sensitivity equated to growing spending power
When to used differentiationCustomers have diverse needsFirm has the ability to create diverse productsRivals unable or unwilling to use a differentiation strategyRapid pace of design and technology change
Downside to differentiationBuyers may not care about the perceived benefitsFirm may not be able to create the perception of valueCompetitors copy so no longer uniqueDifferentiation obsession may lead to unacceptable costsFeature creep
When to be a best-cost providerFirm can provide a quality product at a relatively low costFirm can provide a better performance at cost lower than rivalsFirm can provide a higher level of customer service than rivals at no or low cost to customer
Downside of best-cost providerDanger of being stuck in the middleLow cost providers draw away the price consciousFocused differentiators draw away the more discerning
When to use a niche focusSegment not important for industry leadersAvailability of relatively rare resources and skillsFew rivals in the nicheCustomers perceive firm to be experts and / or have high credibility The niche is big enough to be profitable
Downside of niche focusChanges in technology and fashion may render product / service irrelevantProfits in the segment make it attractive to new rivals

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Five generic competitive strategies

  • 2. Type of advantage sought Low costDifferentiationBroad differentiationOverall low-cost providerBroad rangeof buyersMarket TargetBest-cost providerFocused differentiationFocused low-cost Narrow rangeof buyers
  • 3. How to competeLow cost providerObsessively control costsClosely examine the value chainBroad differentiationBuyers have diverse needsBuyers pay a premium for a good fitBest cost providerNeed to create the perception of value compared to competitors
  • 4. How to compete (continued)Low-cost nicheNarrow band of price conscious customersBig enough and concentrated enoughDifferentiation nicheHigh end customersHigh qualityCustomized, rare or exclusive products and services
  • 5. When to go low-costHeavy price competition Standardized productHard to differentiateConsumers use product in similar waysLow switching costs for usersBuyers have bargaining powerNewcomers use pricing to get into the market
  • 6. Downside to low-costHeavy pricecutting can lead to lossesTrain consumers to expect ever lower pricesMaybe easy for competitors to copy strategyNew technology may give rivals a pricing edgeOver focus on costs may mean;Failure to notice change in usageFailire to notice desire for additional benefits/ featuresFailure to respond to changes in price sensitivity equated to growing spending power
  • 7. When to used differentiationCustomers have diverse needsFirm has the ability to create diverse productsRivals unable or unwilling to use a differentiation strategyRapid pace of design and technology change
  • 8. Downside to differentiationBuyers may not care about the perceived benefitsFirm may not be able to create the perception of valueCompetitors copy so no longer uniqueDifferentiation obsession may lead to unacceptable costsFeature creep
  • 9. When to be a best-cost providerFirm can provide a quality product at a relatively low costFirm can provide a better performance at cost lower than rivalsFirm can provide a higher level of customer service than rivals at no or low cost to customer
  • 10. Downside of best-cost providerDanger of being stuck in the middleLow cost providers draw away the price consciousFocused differentiators draw away the more discerning
  • 11. When to use a niche focusSegment not important for industry leadersAvailability of relatively rare resources and skillsFew rivals in the nicheCustomers perceive firm to be experts and / or have high credibility The niche is big enough to be profitable
  • 12. Downside of niche focusChanges in technology and fashion may render product / service irrelevantProfits in the segment make it attractive to new rivals