LOW COST STRATEGIES



|LOW COST STRATEGIES |DIFFERENTIATION STRATEGIES |OFFENSIVE STRATEGIES |DEFENSIVE STRATEGIES |VERTICAL INTEGRATION |FIRST MOVER ADVANTAGE |

|Structural Drivers |Value Chain |1. Initiatives to match or exceed |1. Block the avenues |Types |Advantages |

|1. Scale Economies |1. Purchasing and procurement | competitor strengths | challengers can take in |Forward |* Build image and reputation |

|2. Experience Curve |2. Product oriented R&D |2. Initiatives to capitalize on | mounting an offensive |Backward | with buyers |

|3. Linkages with activities in |3. Process oriented R&D | competitor weakness |2. Signal challengers that |Full |* Early commitments to |

| the value chain |4. Manufacturing |3. Simultaneous initiatives on | there is a real threat of |Partial | suppliers of raw materials, |

|4. Shared Opportunities with |5. Outbound Logistics and distribution | many fronts | retaliation if attacked |  | technologies, etc. can build |

| other SBUs |6. Marketing, sales and customer |4. End run offensives (enter |3. Lower the profit incentive |Advantages | a co advantage |

|5. Benefits of vertical | service | unoccupied market territory) | for challengers to launch |* When high volume is |* First time customers remain |

| integration vs. outsourcing |  |5. Guerilla offensives (hit and run) | an offensive | needed | loyal |

|6. Location Variables |Creating Buyer Value |6. Preemptive strikes |  |* Suppliers have high profit |* Constitutes a preemptive |

|  |1. Incorporated product attributes and |  |  | margins | strike |

|Executional Drivers | user features that lower the buyers |Purposes: |  |* The item is major cost |  |

|1. First Mover Timing | overall costs |* Lower the risk of being |  | component |Disadvantages |

|2. % capacity utilization |2. Incorporated features that raise the | attacked |  |* Technological skills are |* Pioneering is more costly |

|3. Strategic choices and | performance a buyer gets out of the |* Weaken the impact of any |  | easily mastered | than following |

| operating decisions | product | attack that occurs |  |* Can produce a |* Technological advancements |

|  |3. Incorporated features that enhance |* Influence challengers to aim |  | differentiation based | are rapid to render |

|Re-vamp the value change | buyer satisfaction | their efforts at other rivals |  | competitive advantage | innovations obsolete |

|  |  |  |  |* Avoids uncertainty of |* Easy market or industry |

|Competitive Defenses |Value |  |  | dependency on | to enter |

|Rivals: compete offensively, |1. Real, perceived or signaled |  |  | suppliers |* Skills and know-how easily |

|defend price margins |2. Long lasting when technically |  |  |* Avoids uncertainty of | imitated or surpassed |

|  | superior, high product quality, or |  |  | dependency on distributors |  |

|Buyers: cannot bargain below | comprehensive customer service |  |  | |  |

|survival level of the next |3. Leads to premium price, increased |  |  |Disadvantages |  |

|lowest cost competitor | unit sales, brand loyalty |  |  |* Stronger ties to the industry |  |

|  |  |  |  |* Inhibits other investments |  |

|Suppliers: only if cost |  |  |  |* Increases business risks |  |

|advantage is from internal |  |  |  |* Locks a firm into relying on |  |

|efficiency |  |  |  | its own in-house activities |  |

|  |  |  |  | and sources of supply |  |

|Entrants: low cost leader can |  |  |  |* Poses problems of balancing |  |

|use price cutting to defend |  |  |  | capacity at each stage in the |  |

|market share (a barrier to entry) |  |  |  | value chain |  |

|  |  |  |  |* Full integration requires |  |

|Substitutes: only when the costs |  |  |  | radically different skills and |  |

|are equal |  |  |  | business capabilities |  |

|  |  |  |  |  |  |

|EMERGING AND RAPIDLY GROWING |MATURING |HIGH VELOCITY |STAGNANT OR DECLINING |FRAGMENTED |INTERNATIONAL |INDUSTRY POSITION |

|1. Broad or focused |1. Prune the product line |1. Invest aggressively |1. Pursue a focused strategy |1. Construct and operate |1. License foreign firms |Industry Leader Strategies |

| differentiation is the best |2. Emphasize innovations | in R&D to stay on | by identifying, creating | formula facilities | to use the company's |1. Stay on the offensive |

| chance fir early competitive |3. Focus on cost | the leading edge | and exploiting the growth |2. Become a low cost | technology or produce | (best defense is a good |

| advantage | reductions |2. Develop organizational | segments (niches) | operator | and distribute the | offense) |

|2. Perfect the technology, |4. Increase sales to | capabilities for rapid |2. Stress differentiation |3. Increase customer value | company's products |2. Fortify and defend |

| improve the product quality, | present customers | response | based on quality | through integration |2. Maintain a national | (make entry hard, make it |

| develop attractive features |5. Purchase rivals |3. Rely on strategic | improvement and product |4. Specialize by product | (one country) | hard for rivals to gain |

|3. Capture first mover |6. Expand internationally | alliances | innovation | type | production base and | ground) |

| advantages with: |  |  |3. Work diligently and |5. Specialize by customer | export goods to |3. Follow the leader |

| more models, better styling, |  |  | persistently to drive costs | type | foreign markets | (encourage runner-ups |

| experience curve, commitment |  |  | down |6. Focus on a limited |3. Follow a multi-country | to be content followers |

| to dominant technology |  |  |  | geographic area | strategy | vice aggressive challengers) |

|4. Search out new customers, |  |  |  |  |4. Follow a global low |  |

| geographic locations, new |  |  |  |  | cost strategy |Runner-ups strategies |

| user applications |  |  |  |  |5. Follow a global focus |(economies of scale exist) |

|5. Shift marketing from product |  |  |  |  | strategy |1. Increase market share |

| awareness to increasing |  |  |  |  |6. Follow a global |2. Withdraw from the business |

| frequency of use; create |  |  |  |  | differentiation strategy | (economies of scale do exist) |

| brand loyalty |  |  |  |  |7. Follow a global |1. Vacant niche |

|6. Use price cuts to attract |  |  |  |  | best-cost strategy |2. Specialist |

| the next layer of consumers |  |  |  |  |  |3. Ours-is-better-than-theirs |

|7. Defend against new entrants |  |  |  |  |  |4. Content follower |

|  |  |  |  |  |  |5. Growth via acquisition |

|  |  |  |  |  |  |6. Distinctive image |

|  |  |  |  |  |  |  |

|  |  |  |  |  |  |Weak Business Strategies |

|  |  |  |  |  |  |1. Offensive turnaround |

|  |  |  |  |  |  |2. Fortify and defend |

|  |  |  |  |  |  |3. Abandon |

|  |  |  |  |  |  |4. Harvest |

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|WHEN TO DIVERSIFY | | | | |

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| | | | | |

| |Weak |Strong | | |

| | - Re-formulate single business strategy | - Continue as a single business (international expansion) | | |

| | - Acquire a firm to strengthen position | - Vertically integrate | |in order of attractiveness |

| | - Vertical Integration | - Related diversification | | |

|Rapid | - Diversify |  | | |

| | - Be acquired or sell to rival |  | | |

| | - Abandon |  | | |

|Market | - Re-formulate single business strategy | - International expansion | | |

|Growth Rate | - Merge with a rival | - Related diversification | | |

| | - Vertically integrate | - Unrelated diversification | | |

| | - Diversify | - Joint ventures into new areas | | |

| | - Harvest or divest | - Vertical Integration | | |

|Slow | - Liquidate | - Continue as a single business | | |

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The following table provides a heuristic device to gauge where a strategy may apply. Academic and popular literature describes many types of “strategies”. Nearly all strategies have the organization as the source of the action. The location of the strategy in the following table is the object of the strategy. For example, industry position strategies deal with the firm’s location in the industry and strategies to affect this location.

| |Environment |Industry/market |Organization |Examples of strategies not listed in the text |

| | | | |growth strategy |

| | | | |marketing strategy |

|Chapter 5 | |Cost, differentiation, best cost, broad or narrow |Competitive advantage | |

| | |market | | |

|Chapter 6 |Global |Global | | |

|Chapter 7 |Internet |Internet | | |

|Chapter 8 |Environmental strategies |Industry position | | |

|Chapters 9 and 10 | |Diversification and divestiture |Vertical integration | |

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