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Chapter 5

BUSI 4701U Chapter 5: Chapter 5

3 Pages

Course Code
BUSI 4701U

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Strategic Management Chapter 5: The Five Generic Competitive Strategies Competitive Strategies and Industry Positioning Superior value offering a good product at a lower price Worth paying more for a bestvalue offering attractive combination of price, features, quality, service and other appealing attributes Competitive strategy the specifics of managements game for competing successfully and securing a competitive advantage over rivals o To please customers, offensivedefensive moves to counter rivals, response to market conditions and approach to securing a competitive advantage Industry positioning and competitive advantage in the marketplace involve choosing: o A market target that is either broad or narrow o Whether the company should pursue a competitive advantage linked to low costs or product differentiation Low Cost Provider Strategies Striving to achieve lower overall costs than rivals and appealing to a broad spectrum of customers, usually by underpricing rivals To use the lowercost edge to underprice competitive s and attract price sensitive buyers or maintain the present price and be content with the present market shares s Achieving LowCost Leadership o Performing essential value chain activities more costeffectively than rivals o Revamping the firms overall value chain to eliminate or bypass some cost producing activities altogether Market Conditions Favoring a LowCost Provider Strategy 1. Price competition among rival sellers is especially vigorous 2. Product of rival sells are essentially identical and are readily available from several sellers 3. There are few ways to achieve product differentiation that have value to buyers 4. Buyers incur low costs in switching their purchases from ne seller to another 5. Majority of industry sales are made to a few, large volume buyers 6. Industry new comers use introductory low price to attract buyers and build customer base The Hazards of a LowCost Provider Strategy o Overly aggressive price cutting and ending up with lower profitability o Results in superior profitability if Prices are cut by less than the size of the cost advantage The added volume is large enough to bring in a bigger total profits despite lower margins per unit sold o Relying on an approach to reduce costs that can be easily copied by rivals o Becoming too fixated on cost reduction Broad Differentiation Strategies Seeking to differentiate the companys product or service from rivals in ways that will appeal to a broad spectrum of buyers Successful differentiation allows a firm to: o Command a premium price andor o Increase unit sales andor o Gain buyer loyalty to its brand
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