By: Rugvedita Shelar

Generic StrategiesA core idea about how a firm can best

compete in the market place.

3 generic strategies:Low Cost LeadershipDifferentiationFocus i. Cost Focus

ii. Differentiation Focus

LOW COST LEADERSHIP

Low cost strategy is centered on the capability of the company to produce and deliver products of competitive quality at lower costs.

Strategy is much more than cost reduction initiatives that get lot of prominence in strategic planning

Better way to strategically position a company on the advantage of cost is to increase market share by transforming from lowest cost producer to lowest cost supplier of products.

When a company is able to transform the efforts of cost reduction into cost advantage for customers the company can be said to be successfully pursuing low cost leadership strategy.

Example: Wal-Mart is one company that continuously

strives to reduce costs and in the market place it has got the image of supplier of products at the lowest prices.

Know the customersFirms obsessed with costs and pricing often

overlook customer value proposition. Example: Air Deccan offered no-frills when

not needed.

A company having low cost leadership when extends its thinking to the value its customers expect, can further strengthen its strategic position in the marketplace.

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Competitive Advantage Through Low Cost Leadership

The firm wins market share by appealing to price-sensitive customers. This is achieved by having the lowest prices in the target market segment, or at least the lowest price to value ratio.

3 ways to achieve Low Cost LeadershipHigh asset turnover. Ex: Restaurants, Tuition

Classes, Mini Tempos’. Achieving low direct and indirect operating

costs. Ex: Pop-in, Air Deccan.

Control over the supply/procurement chain to ensure low costs. Ex: Big Bazaar, Wal-mart, Dell.

Disadvantages of Low Cost LeadershipTwo or more firms competing for cost

leadership may engage in price wars. Ex: Cellular services

Cost leaders also must maintain their investment in state-of-the-art equipment.

Firms may become so concerned with maintaining low costs that needed changes in production or marketing are overlooked

Lower customer loyalty.

A reputation as a cost leader may also result in a reputation for low quality,

DIFFERENTIATION STRATEGY Differentiating the product or service,

requires a firm to create something about its product or service that is perceived as unique throughout the industry

Whether the features are real or just in the mind of the customer, customers must perceive the product as having desirable features not commonly found in competing products.

Customers must be willing to pay more than the marginal cost of adding the differentiating feature if a differentiation strategy is to succeed.

Ex: Loreal

Parameters for DifferentiationWarranties (Ex: )

Brand image (Ex: Levis, Pepe Jeans, Adidas )

Technology (Ex: )

Features (Ex: Tata Sky Plus)

Service (Ex: Domino Pizza, Maruti Suzuki)

Quality/value (Ex: Monte Blanc, Mercedez)

Dealer network (Ex: HLL)

Differentiation can be achieved through real product features or through advertising that causes the customer to perceive that the product is unique.

Ex: Lux Soap

Leads to customer brand loyalty and result in reduced price elasticity.

Differentiation may also lead to higher profit margins and reduce the need to be a low-cost producer.

A differentiation strategy is appropriate where the target customer segment is not price-sensitive.

Ex: Saffron

Differentiation strategy is more likely to generate higher profits than is a low cost strategy because differentiation creates a better entry barrier.

Disadvantages of Differentiation

Firms pursuing a differentiation strategy are vulnerable to different competitive threats than firms pursuing a cost leader strategy.

May loose out to store brands and private lables.

Ex:Big Bazaar – Dj & C.

Imitation may also reduce the perceived differences between products when competitors copy product features

A final risk for firms pursuing a differentiation strategy is changing consumer tastes.

FOCUS STRATEGY

Focusing involves concentrating on a particular

o Customer, (Rolex watches) o Product line, (Philips)o Geographical area, (Aditya Birla Milk)o Channel of distribution, o Stage in the production process (Data

Collection Firms, Firms organizing Job Fairs)

Underlying premise - a firm is better able to serve a limited segment more efficiently than competitors can serve a broader range of customers.

Firms using a focus strategy simply apply a cost leader or differentiation strategy to a segment of the larger market.

Focus strategies are most effective when customers have distinctive preferences or specialized needs.

A focus strategy is often appropriate for small, aggressive businesses that do not have the ability or resources to engage in a nationwide marketing effort. Ex: Wal-mart, Nirma.

Firms utilizing a focus strategy may also be better able to tailor advertising and promotional efforts to a particular market niche.

Ex: Tarun Bharat, Malyala Manorama

Firms may offer option for customization by allowing customer input into the finished product.

Ex: Interior Decoration.

Disadvantages of Focus StrategyNarrowing of differences between the limited

market and the entire industry. Ex: Nucleus mall-Nartaki theatre.

National firms may copy the strategies that appear successful.

Market size is always a problem. Ex: Eefa.

Competitors may find submarkets within the target market

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