3.3 Competitive Strategy

Risks associated with low cost strategy

If there can only be one lowest cost producer in the industry becoming the second lowest producer is pointless. If your competitors have other profitable products and you do not, even of you are the lowest cost producer you may not be able to survive a price War: they can cover their fixed cost with profit from the other lines and price close to what the variable cots are. Because of these risks many companies prefer the other strategy .

Differentiation

A differentiation strategy calls for the development of a product or service that offers unique attributes that are valued by customers and that customers perceive to be better than or different from the products of the competition. The value added by the uniqueness of the product may allow the firm to charge a premium price for it. The firm hopes that the higher price will more than cover the extra costs incurred in offering the unique product.

Risks associated with low cost strategy

over-emphasis on costs makes the company inward looking, production orientated and poorly focused on customer needs. Gains to be made through learning—i.e. through more efficient production are usually minimal and the most efficient scale of the plant can be copied. That is “many routes to a low cost position can be easily copied"
Business Environment
Unit 6
Competitive Strategy
OUTCOME 3.3

Explain the behavior and competitive strategies employed and organization and discuss the role of regulatory bodies (3.2)

Risks associated with low cost strategy

over-emphasis on costs makes the company inward looking, production orientated and poorly focused on customer needs. Gains to be made through learning—i.e. through more efficient production are usually minimal and the most efficient scale of the plant can be copied. That is “many routes to a low cost position can be easily copied"


The Benefits of Low Cost Strategy

The lowest cost producer is able to survive In a price war. Supernormal profits generate internal finance that can be reinvested to improve quality and continue cutting costs .
最大努力降低，通过低成本降低商品价格，维持竞争优势。要做到成本领 先，就必须在管理方面对成本严格控制，尽可能将降低费用的指标落实在 人头上，处于低成本地位的公司可以获得高于产业平均水平的利润。在与 竞争对手进行竞争时，由于你的成本低，，对手已没有利润可图时，你还 可以获得利润。你就主动，你就是胜利者。
• Explain the behavior and competitive strategies employed by Walmart • Discuss the role of regulatory bodies
What is Strategy

A strategy is a plan of action designed to achieve a particular goal . The word strategy has military connotations , because it derives from the Greek word for general.

Strategy is different from tactics. In military terms, tactics is concerned with conduct of an engagement while strategy is concerned with how different engagements are linked. In other words, how a battle is fought is a matter of tactics: the terms that it is fought on and whether it should be fought at all is a matter of strategy .
The Firms Succeed in Cost Leadership

Access to the capital required to make a significant investment in production assets;; this investment represents a barrier to entry that many firms may not overcome. Skill in designing products for efficient manufacturing, for example, having a small component count to shorten the assembly process. High level of expertise in manufacturing process engineering. Efficient distribution channels
Overall Cost Leadership
0verall cost leadership is a generic strategic thrust that emphasizes providing products and services at the lowest per unit cost within an entire market. Porter notes ( 1980 ) “ Cost leadership requires aggressive construction of efficient —scale facilities, vigorous pursuit of cost reductions from experience, tight cost and overhead control , avoidance of marginal customer accounts , and cost minimization in areas like R&D, Service, Sales force, advertising, eadership

This generic strategy calls for being the low cost producer in an industry for a given level of quality.

The firm sells its products either at average industry prices to earn a profit higher than that of rivals, or below the average industry prices to gain market Share.
In the event of a price war , the firm can maintain some profitability while the competition suffers losses.


Even without a price war , as the industry matures and prices decline , the firms that can produce more cheaply will remain profitable for a longer period of time .