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  • Business Strategy

    Focussed Differentiation

    A focused strategy keyed to differentiation aims at securing a competitive advantage with a product offering carefully designed to appeal to the unique preferences and needs of a narrow, well-defined group of buyers (as opposed to a broad differentiation strategy aimed at many buyer groups and market segments). Successful use of a focused differentiation strategy depends on the existence of a buyer segment that is looking for special product attributes or seller capabilities and on a firm's ability to stand apart from rivals competing in the same target market niche.

    Focussed Low-cost Provider

    A focussed strategy based on low cost aims at securing a competitive advantage by serving buyers in the target market niche at a lower cost and lower price than rival competitors. This strategy has considerable attraction when a firm can lower costs significantly by limiting its customer base to a well-defined buyer segment. The avenues to achieving a cost advantage over rivals also serving the target market niche are the same as for low-cost leadership - outmanage rivals in keeping the costs of value chain activities contained to a bare minimum and search for innovative ways to reconfigure the firm's value chain and bypass or reduce certain value chain activities. The only real difference between a low-cost provider strategy and a focused low-cost strategy is the size of the buyer group that a company is trying to appeal to - the former involves a product offering that appeals broadly to most all buyer groups and market segments whereas the latter at just meeting the needs of buyers in a narrow market segment.
    Focused low-cost strategies are fairly common. Producers of private-label goods are able to achieve low costs in product development, marketing, distribution, and advertising by concentrating on making generic items imitative of name-brand merchandise and selling directly to retail chains wanting a basic house brand to sell to price-sensitive shoppers.

    Best-cost Provider

    Best-cost provider strategies aim at giving customers more value for the money.
    The objective is to deliver superior value to buyers by satisfying their expectations
    on key quality/features/performance/service attributes and beating
    their expectations on price (given what rivals are charging for much the same
    attributes). A company achieves best-cost status from an ability to incorporate
    attractive or upscale attributes at a lower cost than rivals. The attractive
    attributes can take the form of appealing features, good-to-excellent product
    performance or quality, or attractive customer service. When a company has
    the resource strengths and competitive capabilities to incorporate these upscale
    attributes into its product offering at a lower cost than rivals, it enjoys
    best-cost status-it is the low-cost provider of an upscale product.
    Being a best-cost provider is different from being a low-cost provider because the
    additional upscale features entail additional costs (that a low-cost provider can avoid
    by offering buyers a basic product with few frills). Best-cost
    provider strategies stake out a middle ground between pursuing a low-cost advantage
    and a differentiation advantage and between appealing to the broad market as a whole
    and a narrow market niche. From a competitive positioning standpoint, best-cost strategies are thus a hybrid, balancing a strategic emphasis on low cost against a strategic emphasis on differentiation (upscale features delivered at a price that constitutes superior value).

    Broad Differentiation

    Differentiation strategies are attractive whenever buyers' needs and preferences
    are too diverse to be fully satisfied by a standardized product or by
    sellers with identical capabilities. A company attempting to succeed through
    differentiation must study buyers' needs and behavior carefully to learn what
    buyers consider important, what they think has value, and what they are willing
    to pay for. Then the company has to incorporate buyer-desired attributes
    into its product or service offering that will clearly set it apart from rivals.
    Competitive advantage results once a sufficient number of buyers become strongly
    attached to the differentiated attributes.
    Successful differentiation allows a firm to:
    Command a premium price for its product, and/or Increase unit sales (because additional buyers are won over by the differentiating features), and / or Gain buyer loyalty to its brand (because some buyers are strongly attracted to the differentiating features and bond with the company and its products).

    Low-cost Provider

    Striving to be the industry's overall low-cost provider is a powerful competitive approach
    in markets with many price-sensitive buyers. 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 comparatively low costs. A low-cost
    provider's strategic target is meaningfully lower costs than rivals-but not
    necessarily the absolutely lowest possible cost. In striving for a cost advantage
    over rivals, managers must take care to include features and services that
    buyers consider essential - a product offering that is too frills-free sabotages
    the attractiveness of the company s product and can turn buyers off even if it
    is priced lower than competing products.

    Porter's Generic Strategies

    Porter's generic strategies describe how a company pursues competitive advantage across its chosen market scope. We cover five generic strategies, either low cost, differentiated, low-cost focus,  differentiated focus or best-cost. 
    The Five Generic Competitive Strategies

    Competitive rivalry

    For most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry. Having an understanding of industry rivals is vital to successfully marketing a product. Positioning pertains to how the public perceives a product and distinguishes it from competitors‘. An organization must be aware of its competitors' marketing strategies and pricing and also be reactive to any changes made. Rivalry among competitors tends to be cutthroat and industry profitability low while having the potential factors below:
    Potential factors:
    Sustainable competitive advantage through innovation Competition between online and offline organizations Level of advertising expense Powerful competitive strategy which could potentially be realized by adhering to Porter‘s work on low cost versus differentiation. Firm concentration ratio

    Bargaining power of suppliers

    The bargaining power of suppliers is also described as the market of inputs. Suppliers of raw materials, components, labor, and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes. If you are making biscuits and there is only one person who sells flour, you have no alternative but to buy it from them. Suppliers may refuse to work with the firm or charge excessively high prices for unique resources.
    Potential factors are:
    Supplier switching costs relative to firm switching costs Degree of differentiation of inputs Impact of inputs on cost and differentiation Presence of substitute inputs Strength of distribution channel Supplier concentration to firm concentration ratio Employee solidarity (e.g. labor unions) Supplier competition: the ability to forward vertically integrate and cut out the buyer.

    Bargaining power of customers

    The bargaining power of customers is also described as the market of outputs: the ability of customers to put the firm under pressure, which also affects the customer's sensitivity to price changes. Firms can take measures to reduce buyer power, such as implementing a loyalty program. Buyers' power is high if buyers have many alternatives. It is low if they have few choices.
    Potential factors:
    Buyer concentration to firm concentration ratio Degree of dependency upon existing channels of distribution Bargaining leverage, particularly in industries with high fixed costs Buyer switching costs Buyer information availability Availability of existing substitute products Buyer price sensitivity Differential advantage (uniqueness) of industry products RFM (customer value) Analysis

    Threat of substitutes

    A substitute product uses a different technology to try to solve the same economic need. Examples of substitutes are meat, poultry, and fish; landlines and cellular telephones; airlines, automobiles, trains, and ships; beer and wine; and so on. For example, tap water is a substitute for Coke, but Pepsi is a product that uses the same technology (albeit different ingredients) to compete head-to-head with Coke, so it is not a substitute. Increased marketing for drinking tap water might "shrink the pie" for both Coke and Pepsi, whereas increased Pepsi advertising would likely "grow the pie" (increase consumption of all soft drinks), while giving Pepsi a larger market share at Coke's expense.
    Potential factors:
    Buyer propensity to substitute. This aspect incorporated both tangible and intangible factors. Brand loyalty can be very important as in the Coke and Pepsi example above; however contractual and legal barriers are also effective. Relative price performance of substitute Buyer's switching costs. This factor is well illustrated by the mobility industry. Uber and its many competitors took advantage of the incumbent taxi industry's dependence on legal barriers to entry and when those fell away, it was trivial for customers to switch. There were no costs as every transaction was atomic, with no incentive for customers not to try another product. Perceived level of product differentiation which is classic Michael Porter in the sense that there are only two basic mechanisms for competition - lowest price or differentiation. Developing multiple products for niche markets is one way to mitigate this factor. Number of substitute products available in the market Ease of substitution Availability of close substitute
  • A business strategy is a set of competitive moves and actions that a business uses to attract customers, compete successfully, strengthening performance, and achieve organisational goals. It outlines how business should be carried out to reach the desired ends.

    A business strategy is a deliberate plan that helps a business to achieve a long-term vision and mission by drafting a business model to execute that business strategy. A business strategy, in most cases, doesn’t follow a linear path, and execution will help shape it along the way. - FourWeekMBA

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