Five generic competitive strategies for global market success

International Strategy

The five generic competitive strategies

In order for a company to successfully compete in the highly competitive global market, it needs to develop its own game plan. The game plan will require the company's management to decide which competitive strategy would best suit its needs Arthur a. Thompson, 2010.

The competitive strategy will deal only with the methods that the company will use in order to successfully compete, how it will please customers, defensive and offensive moves for countering rivals, and its responses to market conditions. To achieve a competitive advantage, the company will need to have an edge over its rivals by coping with competition forces and attracting customers Arthur a. Thompson, 2010()

There are various competitive strategies that can be employed by a company. This is because each company will need to tailor make a strategy to suit its needs, and this ensures two businesses cannot have the same strategy Hough, 2011.

At the bottom of all these strategies lie five fundamental strategies, which companies use to develop their overall competitive strategy. Arthur a. Thompson (2010)

states the five strategies are low-cost provider strategy, broad differentiation strategy, best-cost provider strategy, focused strategy based on low costs, and focused strategy based on differentiation.

A company will need to select one of the five strategies to formulate its framework. According to Arthur a. Thompson (2010)

this will not be a trivial matter as each generic strategy has the ability to position the company differently in its market. The company should ensure that it avoids using two strategies as they can have negative effects for the company. Deciding on the generic strategy to be used by the company will drive all the strategic actions that the company will undertake. This is because the generic strategy will have formulated methods on how to handle competition within the market, the defensive and offensive measures, and how to please its customers.

Low-cost provider strategy

Arthur a. Thompson (2010)

posits that, in markets that have price sensitive customers this generic strategy would be a powerful approach. To achieve low-cost leadership, a company will need establish itself as the lowest-cost provider in its industry instead of being one of other competitors with low prices.

There are different ways that a company can achieve low cost and not just by reducing its prices. In the airline industry, majority of the major airlines have introduced online ticketing, which enables the airlines to sell the tickets directly to their customers Arthur a. Thompson, 2010.

This eliminates the need for paying commissions to travel agents. Overall this reduces the airlines operational costs and allows them to reduce their ticket prices. The tickets are mainly sold via the airline website, telephone reservation systems, and ticket counter agents Arthur a. Thompson, 2010.

Online systems allow data to be shared instantly and in all departments, which reduces the turnaround time. This way a company will manage to reduce its production times and labor costs.

Modifying how it operates it flights has allowed Southwest Airlines to change the commercial airline value chain and lower its costs. The airline has managed to reduce its turnaround times at the gates from 45 minutes to 25 minutes Arthur a. Thompson, 2010()

, which enables it to have more flights per day. This way though the airline has fewer aircrafts it is able to schedule more flights in a day. The company has also eliminated assigned seating, first-class seating, and in-flight meals. This enabled it to eliminate the costs associated with these services. Other budget airlines have also adopted this strategy in order to reduce their operating costs and offer lower prices to their customers Arthur a. Thompson, 2010.

Using friendlier and faster reservation systems has also allowed the airlines to reduce its staff. They also use automated check-in at the terminals.

Broad differentiation strategy

This generic strategy focuses mostly on fulfilling the needs of the buyers. When the needs of the buyers are too diverse and cannot be satisfied by a standard product, differentiation strategies will be employed by a company that wants to gain competitive advantage over its rivals Hill and Jones, 2012.

A successful differentiation will allow the company to charge a premium price for the products, increase its unit sales, and attract loyal customers Arthur a. Thompson, 2010.

A differentiation strategy will require a company to study the consumer needs, and their behavior in order to establish what the customer is willing to pay, and what is considered vital. A company can achieve profitability by using differentiation as it is able to charge extra for its products. Arthur a. Thompson (2010)

argues that differentiation opportunities exist along the whole value chain of the company. They are not limited to a specific place or department. This allows a company to differentiate its product at any level of its value chain.

Differentiation has been mostly used in the auto industry. Good examples are Mercedes and BMW. These companies have differentiated themselves in the auto industry with their products. They both offer executive and prestigious brands, which buyers are willing to purchase. This is because they have created a reputation of developing quality, luxury, and prestigious vehicles. BMW and Mercedes have differentiated themselves using performance and engineering standards for their vehicles. They assure customers that their vehicles are safe and have been designed using the highest standards within the industry. This differentiation allows these companies to charge premium prices for their vehicles. Rivals have tried to copy their standards, but they have not been able to achieve the same design standards.

Arthur a. Thompson (2010)

states Japanese car makers have differentiated themselves from other car makers by having distinctive competence in their assembly lines. They have reduced product defects, premature products, and extend their product life.

Best-cost provider strategy

This strategy solely aims at providing buyers with more value for their money. Flouris and Oswald (2012)

posits that best-cost strategy attempts to deliver a superior value similar to what is been offered by other companies, but at a lower cost. This strategy is a hybrid of the other generic strategies as it attempts to take a middle ground Arthur a. Thompson, 2010.

Including the same upscale features in its product like its rivals and pricing the product lower than them will give a company the competitive advantage that it seeks. The main difference between low-cost strategy and best-cost strategy is that best-cost strategy caters for value conscious consumers, while low-cost strategy caters for budget conscious consumers.

Toyota is known worldwide to be a low-cost producer of vehicles, but it was able to introduce the Lexus brand in order to compete with BMW and Mercedes Arthur a. Thompson, 2010.

The company used its low-cost production facilities to develop a car that had the same upscale features as the other luxury cars, but priced its car lower than the rivals. This allowed the company to capture the value conscious consumers. These are the consumers who would have loved to own a luxury car, but they are not prepared to pay the high prices. This way the company was able to use a best-cost strategy to compete successfully with the luxury car manufacturers.

Arthur a. Thompson (2010)

posits that best-cost strategy requires a company to have the capability to develop a product that has similar upscale attributes like its competitors. The company will need the capabilities and resources required to develop upscale attributes, but at a lower price. Toyota used its low manufacturing costs to develop the Lexus brand with all the luxury features of Mercedes, and BMW. It also used its supply chain capabilities to incorporate high-tech performance features into the Lexus brand. This way it was able to provide a quality product with features offered by its rivals, but priced its cars cheaper than the rivals. Toyota has clearly managed to become a best-cost producer using its Lexus brand.

Focused strategy based on differentiation

This strategy is aimed at differentiating the product in order to appeal to some unique needs and preferences of a narrow group Arthur a. Thompson, 2010.

In order for this strategy, to be successful there needs to be buyers who are looking for certain product attributes. This buyer segment is always willing to pay a premium price in order to obtain the product, and a company will definitely increase its profit margins if it successfully uses this strategy. A company has the opportunity to focus on catering for the needs and preferences a narrow group, which has the potential to provide it with some competitive advantage over its rivals Arthur a. Thompson, 2010.

According to Lewis et al. (2006)

focusing on a smaller group allows a company to specialize and create products that satisfy this market instead of catering for a broad market.

The airline industry has managed to focus on a narrow group of business travelers. These are guys who have to travel because of business purposes and they need to travel in comfort. Airlines have developed business lounges where the travelers can relax as they await their flight or transfers. At this lounges, they have the facilities to check their emails and relax. Airlines also offer business classes that are geared towards the business traveler. The consumer is willing to pay the premium price charged to travel in comfort away from all the other travelers. Business-class offers premier services and seats that can lie flat, which allows the travelers to relax and be prepared for their next meeting location.

Using this focused differentiation, the airlines have managed to attract and cater for the needs of business-class travelers. This class is not aimed at all consumers, and it has a higher cost than the other classes, which restricts it access. Airlines have also launched business-class clubs where their frequent business-class travelers can enjoy specific facilities. This attracts consumers though the charges are mostly paid for with their air tickets.

Conclusion

According to Arthur a. Thompson (2010)

the process of deciding on the generic strategy to be used within a company is the most important commitment that managers can make for the company. The managers should avoid taking the middle ground as this would only hurt the company's competitiveness. Analyzing the different strategies, and focusing on what the company wants to achieve will allow the company's managers to decide on the best generic strategy to suit the company's needs. Picking a generic strategy will lay down the guidelines on how a company conducts its business, how it manages its value chain, its reaction to market forces, defensive and offensive strategies for competition.