1 PAGE Analysis of the following READINGS:Gamble, et. al XXXXXXXXXXEssentials of Strategic Management, Chapters 4 and 5;Greiner, M. & Julian, S. (2020). "Avoid Making this Strategic Mistake in a...

Recessions Avoid Making This Strategic Mistake in a Recession by Michael Greiner and Scott Julian July 13, 2020 Summary.    Illustration by Israel G. Vargas The authors looked at data from the period right before the 2008 recession addressing how 5,278 publicly-traded firms fared based on their generic strategy of being either pure differentiators or pure cost leaders, according to Michael Porter’s theories. In their... In these difficult times, we’ve made a number of our coronavirus articles free for all readers. To get all of HBR’s content delivered to your inbox, sign up for the Daily Alert newsletter. more https://hbr.org/topic/subject/recessions https://hbr.org/search?term=michael%20greiner https://hbr.org/search?term=scott%20julian https://hbr.org/2020/08/working-through-the-covid-19-pandemic-a-reading-list https://hbr.org/email-newsletters?ab=articlewidget-newsletter-coronavirus&movetile=dailyalert We are currently in the midst of the most severe economic crisis since the Great Depression. The unemployment rate has hit a record high, and the International Monetary Fund is predicting a drop in our GDP of nearly 6 percent this year. If this is purely a supply shock, then our economy should recover quickly once restrictions on economic activity are lifted. On the other hand, according to a report from the Becker Friedman Institute of the University of Chicago, 42 percent of the jobs lost so far in this crisis could be permanent losses. If that is the case, then this supply shock will turn into a demand crisis much like the Great Recession of 2008, and recovery will be much slower. With so much uncertainty, what should a strategist do? Never miss an insight from HBR. Get unlimited articles and more. Subscribe Now Not ready to subscribe? Create a free HBR.org account below to read two more articles. FIRST NAME LAST NAME EMAIL Passwords must have at least 10 characters, one number, one lower and one upper case letter, and one special character By registering, you agree to receive occasional emails from HBR. You may unsubscribe at any time. View our privacy policy  PASSWORD https://blogs.imf.org/2020/04/14/the-great-lockdown-worst-economic-downturn-since-the-great-depression/ https://tradingeconomics.com/united-states/unemployment-rate https://www.imf.org/external/datamapper/NGDP_RPCH@WEO/OEMDC/ADVEC/WEOWORLD https://www.bloomberg.com/opinion/articles/2020-05-27/paul-krugman-is-pretty-upbeat-about-coronavirus-economic-recovery https://bfi.uchicago.edu/working-paper/covid-19-is-also-a-reallocation-shock/ https://washingtonmonthly.com/2020/05/28/the-covid-19-economic-recovery-will-be-a-whimper-not-a-bang/ https://hbr.org/subscriptions?ab=paywall-article-subtout&tpcc=houseads.site.paywall-article-subtout https://hbr.org/privacy-policy   reCAPTCHA I'm not a robot Privacy - Terms Already have an account? Sign in now. Need help getting access? Contact Customer Service: 800.988.0886 (U.S./Canada) 617.783.7500 (International) [email protected] Create Account https://www.google.com/intl/en/policies/privacy/ https://www.google.com/intl/en/policies/terms/ mailto:[email protected] Chapter 5 The Five Generic Competitive Strategies I. The Five Generic Competitive Strategies a. Competitive Strategy i. Definition 1. Concerns the specifics of managements game plan for competing successfully and securing a competitive advantage over rivals in the marketplace 2. Please customers, strengthen market position, counter rivals, respond to shifting markets, achieve competitive advantage, ii. Biggest factors that distinguish one competitive strategy from another 1. Market targe is broad or narrow 2. Is company pursuing a competitive advantage linked to lower costs or differentiation. II. Low-Cost Provider Strategies a. Characteristics i. Powerful approach in market with many price sensitive buyers ii. Firms achieves lower cost leadership when it is the lowest cost provider iii. Other, successful low cost providers have lower cost than rivals, but not necessarily the lowest cost. iv. Too frills free can be off putting to customers b. Methods of translating low cost advantage into profits i. Use low cost to attract enough price sensitive buyers to make a profit; ie volume dealers ii. Be content with current price and use lower costs to earn higher profit. c. The Two Major Avenues for Achieving Low-Cost Leadership i. To do so, firms cost across all value chain must be lower than competitors cumulative costs ii. Two methods to do so 1. Do essential value chain activities more cost effectively 2. Revamp value chain, eliminating/bypassing some cost producing activities. iii. Cost efficient Management of Value Chain Activities 1. Ferret out cost saving opportunities 2. Identify cost drivers a. Factors that have an esp strong impact on costs of companies value chain activities. 3. Factors affecting firms cost position a. # of products firm carries b. Capacity utilization c. Type of components used d. Employee benefits package iv. Cost saving approaches 1. Capture all available economies of scale 2. Taking advantage of experience/learning curves 3. Operating facilities at full capacity 4. Substituting lower cost inputs 5. Using advanced production tech/process design to improve efficiency 6. Using Telecom and IT to improve efficiencies 7. Using company bargaining power 8. Using outsourcing & vertical integration 9. Pursuing boosts in productivity and lowering overall comp cost. v. Revamping the Value Chain 1. List of a. Selling directly to consumers & cutting out the cost of distributors and dealers. b. Streamlining operations by eliminating low value added or unnecessary work steps and activities c. Improving supply chain efficiency to reduce materials handling and shipping costs. d. When a Low Cost Provider Strategy Works Best i. Price competition among rivals is vigorous ii. Rival products are identical and readily available from several sellers iii. Few product differentiation that have value to buyers iv. Low buyer switching costs e. Pitfalls to Avoid in Pursuing a Low Cost Provider Strategy i. List of 1. Overly aggressive price cutting leading to lower profitability a. Lowcost/lowprice advantage increases profit only when i. Price cuts are less than the cost advantage ii. Profits are volume driven. 2. Relying on an approach to reduce costs that can be easily copied by rivals. 3. Too fixated on cost reduction leading to featureless product III. Broad Differentiation Strategies a. Definition i. To offer unique product or service attributes that a wide range of buyers find appealing and worth paying for, b. Attractive when buyers needs/preferences are too diverse to be fully satisfied by a standard product/service. c. Successful differentiation allows firms to i. Command a premium price and/or ii. Increase unit sales (due to increased volume) and/or iii. Gain buyer loyalty to its brand (b/c buyers strongly attracted to differentiating features and bond with the company/products) d. Differentiation increases profits when the extra price outweighs the differentiation costs. i. This is lost if buyers reject the differentiation, or it is easily copied/matched e. Approaches to Differentiation i. Most appealing are those difficult/expensive to duplicate ii. Increase switching costs f. Managing the Value Chain in Ways that Enhance Differentiation i. Value Drivers 1. Definition a. A value chain activity or factor that can have a strong effect on customer value and creating differentiation. ii. Ways managers can enhance differentiation through systematic management of uniqueness drivers include 1. Seeking out high-quality inputs 2. Striving for innovation and technological advances 3. Creating superior product features, design, and performance 4. Investing in production related R&D activities 5. Pursuing continuous quality improvement 6. Emphasizing human resource management activities that improve skill, expertise, and knowledge of company personnel 7. Increasing emphasis on marketing and brand-building activities 8. Improving customer service or adding additional services iii. Revamping the Value Chain System to Increase Differentiation 1. Approached to enhancing differentiation through changes in the value chain system include a. Coordinating with channel allies to enhance customer value. Upstream, downstream b. Coordinating with suppliers to better address customer needs g. Delivering Superior Value via a Differentiation Strategy i. Way to deliver customer value 1. Include product attributes and user features that lower the buyers costs 2. Incorporate tangible features that improve product performance 3. Incorporate intangible features that enhance buyer satisfaction in noneconomic ways h. Perceived Value and the Importance of Signaling Value i. The premium price of a differentiation strategy reflects the value actually delivered to the buyer and the value perceived by the buyer. ii. Successful differentiators educate customers about their products value; signaling value. iii. Signals are important when 1. Hard to quantify differentiation 2. First time buyers 3. Infrequent repurchases 4. Unsophisticated buyers i. When a Differentiation Strategy Works Best i. Buyers needs/uses are diverse ii. There are many ways to differentiate the product or service that have value to buyers. iii. Few rival firms are following a similar differentiation approach 1. Appeal based on product attributes rivals don’t emphasize iv. Technological change is fast paced and competition revolves around rapidly evolving product features. j. Pitfalls to Avoid in Pursuing a Differentiation Strategy i. List of 1. Easily/quickly copied attributes/products 2. Little value in the unique attributes of a company’s product 3. Overspending on efforts to differentiate can decrease profits 4. Failing to create quality, service or performance increases vs. rivals 5. Over differentiation so product/service exceeds what buyers want/need 6. Charging too much IV. Focused (or Market Niche ) Strategies a. Characteristics i. Concentration on a narrow piece of the total market ii. Advantageous to small/medium firms iii. Defined by geography or special product attributes b. A Focused Low Cost Strategy i. Characteristics 1. Competitive advantage by serving customers in target market niche at lower cost/lower price than competitors, 2. Achieve cost advantage by a. Keeping cost to bare minimums b. Find innovative ways to bypass/reduce nonessential activities 3. Difference between low cost provider and focused low cost is the size of the buyer group. c. A Focused Differentiation Strategy i. Characteristics 1. Offer carefully designed products/services to narrow, well defined group of buyers; examples Trader Joes and Louis Vuitton d. When a Focused Low-Cost or Focused Differentiation Strategy is Viable i. List of conditions 1. Target market niche is big enough for profitability and growth 2. Industry leaders wont compete in the niche market 3. Multisegment competitors cannot meet needs of niche buyers 4. Industry has many niches & segments for a new comer to chose from 5. Few rivals e. The Risks of a Focused Low Cost or Focused Differentiation Strategy i. List of 1. Rivals will find ways to match/beat focused firms capabilities in the niche markets 2. Niche members may shift their preferences V. Best-Cost Provider Strategies a. Definition i. Hybrid of low cost provider and differentiation strategies that aim at satisfying buyer expectations on key quality/features/performance/service attributes and beating customer expectations on price. ii. Giving customers more value for the money b. To be profitably, best cost provider strategy company must have the capability to incorporate attractive or upscale attributes at a lower cost tha rivals. i. Superior value chain that eliminates non value added activities ii. Value chain efficiencies iii. Core competencies allow diff. attributes to be integrated at low costs. c. When a Best Cost Provider Strategy Works Best i. In markets where product differentiation is the norm and attractively large numbers of value conscious buyers can be induced to purchase midrange products. ii. Best cost provider usually is in the middle of the market with medium quality product at below average price