Competitivestrategies focus on taking defensive or offensive actions in creatinga defendable position in the industry. Alternatively, genericstrategies help an organization in coping with the five competitiveforces that exist in the industry (Tanwar,2013 p.11).When crafting a strategy, managers have to make a decision on whichof the five competitive strategies to pursue. This report wouldexplore the differences amid the strategies and provide examples thatwould support the analysis.
Thelow-cost provider strategy emphasizes on an organization striving toattain lower overall costs compared to the rivals, and appealing to abroad spectrum of customers that is usually achieved by underpricingcompetitors. In using this strategy, an entity has to do a better jobin effectively managing the cost activities compared to thecompetitors. Indeed, a business that desires to pursue the low-costprovider approach must seek innovative ways that would assist it ineliminating or bypassing cost-producing activities (Lake,2012 p. 135).The tactic works well when the commodities of rival companies arevirtually identical or weakly differentiated, and the supplies areeasily available. Furthermore, the technique works better when mostof the buyers are price-sensitive and in instances where consumerswitching costs are low. Therefore, any organization that has thedesire of utilizing this generic strategy has to have the capacity ofincreasing efficiencies so as to mitigate production costssuccessfully.
Low-costprovider generates competitive advantage through charging a lowervalue for commodities compared to the competitors. Since customersare deemed to be price sensitive, they are attracted to buy theirmerchandise from a company that provides a low cost for its servicesor commodities. Thus, competitive pricing provides a competitive rimto an organization.
McDonald’scan be used as an example of an organization that applies thelow-cost provider strategy in its operations. McDonald’s providesproducts that are moderately cheaper compared to the rivals such asArby’s (Gregory, 2016 p. 3). As a low-cost provider, the company isinvolved in cost minimization so as to be in a position to offercommodities at low prices. The entity realizes cost mitigationthrough vertical integration for instance, the business ownsfacilities that generate standardized mixtures of ingredients. Inaddition, the organization embraces innovative approaches to itsproduction, which is a critical move in reducing costs.
Thebroad differentiation approach focuses on seeking to distinguish thecommodities or services of an entity from those of the rivals in waysthat would appeal to an extensive spectrum of buyers. In this case, abusiness may consider adding features or attributes to a commodity orservice so as to set the products or services apart from what isbeing offered by competitors (De& Business Expert Press, 2010 p. 113).Successful differentiation is imperative to a firm because it helpsan organization in commanding a premium price for its commodities,gaining buyer loyalty to its brand, and increasing unit sales sinceadditional shoppers are won by the extra features. The broaddifferentiation strategy works best in markets where there are variedcustomer preferences and big windows of opportunity fordifferentiating a firm’s products from those provided by rivals(Thompson et al., 2015 p.149). Besides, the approach would besuccessful in situations where there are very few companiespracticing a similar differentiation tactic. The technique is likelyto fail in scenarios where competitors are capable of copying most orall of the additional attributes that appeal to customers.Furthermore, organizations should be keen to avoid overspending in anattempt to create differentiation because it may end up unsuccessfuldue to bad reception from consumers. Therefore, it is important forentities to find out whether it would be in a position to recover thecost of developing distinguishing features to commodities orservices.
Thebroad differentiation strategy creates a competitive advantagethrough providing customers with additional attributes that theyvalue (Gimbert, 2011 p. 90). The valued features added to commoditiesor services have the ability to attract customers to buy themerchandise offered by an organization. From the extra elements thatdistinguish the company’s offerings from those of the rivals, thebusiness is in a position to charge a higher price. Therefore, thedistinguishing features give a company a competitive edge.
Asan example, McDonald’s applies broad differentiation strategy as asecondary generic plan. In using the approach, the entity developsthe business and its commodities to make them separate from theproducts provided by competitors. For instance, through McCafeproducts, the organization applies the strategy. Moreover, the firmis in a position to utilize innovations in its products as it triesto realize the broad differentiation tactic. Through distinguishingits merchandise, the company is capable of setting a preference forthe commodities to the consumers, which provides the ability tocompete with the rival companies.
Afocused low-cost approach is where an organization concentrates on anarrow buyer segment and out-competes the rivals through charginglower costs compared to the competitors, implying niche members areserved at a lower cost by the business. An entity that uses thisstrategy does not fundamentally charge the lowest prices in theindustry, but rather offer low fees relative to other companies thatcompete in the target market (Gimbert, 2011 p.91). When applying thisapproach, it is crucial to indicate that the nature of the narrowtarget market can vary across firms that utilize the strategy. Insome circumstances, the target market can be defined by demographics.In other cases, the intended market may be set by the sales routesused to reach customers.
Whenusing this generic strategy, competitive advantage is generated byensuring that an organization charges a lower price than itscompetitors for its commodities in the market niche where it needs tooperate. A lower outlay compared to the rivals attracts customers tobuy the products of the company instead of merchandise offered by thecompetitors. Thus, through attaching a lower price to a marketsegment, an entity is in a position to establish a competitiveadvantage.
McDonald’scan apply the focused low-cost strategy, where it has the desire toexpand to a new market segment. In this case, the company would focuson charging a lower price compared to the cost offered by other rivalorganizations in the market segment. Since the business is in aposition to present low price of its commodities, it would be easierto provide leadership in cost in the target market. Such a move wouldattract customers and make the company the preferred place forshoppers.
Thistactic focuses on a firm concentrating on a narrow buyer segment andout-competing rivals through offering market niche members withcustomized attributes which meet their tastes and needs bettercompared to the competitors’ commodities. Focused differentiationstrategy is tailored towards providing carefully designed services orproducts to appeal to the unique preferences and needs of awell-defined group of buyers. This compares to the broaddifferentiation, where the focus is on many consumer groups andmarket segments (Faarup, 2010 p.72). For the focused differentiationto become successful, it is vital to have various niches andsegments, which would allow an organization to select a portion thatmatches its resource strength and capabilities. Additionally, thereshould be few firms attempting to specialize in the targeted segment.Further, industry leaders and strong competitors should not becompeting in the market niche. Organizations that use this genericstrategy may tend to concentrate their efforts on a given saleschannel such as internet sales only while others may opt to select agiven demographic groups.
Inthe focused differentiation, a company gains a competitive advantagethrough concentrating on the features that a group in a narrowsegment desire to have (Wit & Meyer, 2010 p.268). Throughoffering products having the desired features to the small groupingin the target market, an organization is in a position to appeal tothe group to buy from it rather than buying services or commoditiesfrom the rival firms operating in the market.
InMcDonald’s, the focused differentiation strategy can be appliedwhen the company desires to provide specialized goods to a group in anarrow market niche. In such a case, the organization would emphasizeon matching the needs of the customers in the niche with the productattributes that they need. For instance, the company may desire toprovide food items that target the elderly only. This would mean thatthe firm would put into consideration the needs of the elderly in agiven market.
Thebest-cost provider approach centers on providing customers more valuefor their money by stressing both low cost and fashionable difference(Baroto et al., 2012 p.124). The primary goal here is to give lowerprices for services or commodities compared to the rivals, butensuring that the services or products are of quality attributes.Thus, when applying this generic strategy, an organization providesdifferentiated commodities and services at slightly lower fee thanthe competitors. This strategy is a combination of thedifferentiation and cost leadership strategies. The grouping of thetwo approaches helps in enhancing the competitiveness of anorganization as opposed to the use of a single strategy (Grundy,2012 p. 4).Entities may opt to center on innovation when applying this approachsince through novelty it is possible to mitigate production cost andenhance the quality of commodities. In such a case, organizationswould be capable of offering differentiated merchandise at lowprices.
Best-costprovider strategy creates competitive advantage throughdifferentiation and offering low charges for services and commodities(Baroto et al., 2012 p.123). Since consumers seek satisfactionthrough obtaining value for their money, they are likely to purchasemerchandise and services from firms that focus on quality as well aslow prices. Therefore, such organizations are to gain a competitiveedge from the strategy.
Anexample of the best-cost provider in McDonald’s is where theorganization focuses on innovation in an attempt to providedifferentiated commodities, as well as charging low prices for itsgoods. Through combining the differentiation and cost leadershipstrategies, McDonald’s is likely to gain a competitive advantageagainst its rivals.
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