12 Sep Work #1:  Actual work where 2 students given their posts on this: Choose any company that you have admired as a co

Varun Work:

Operational Planning & Policy Discussion- Generic Strategies

According to chapter 5 reading, generic strategies refers to the organization’s general positioning within its respective industry (Thompson et al., 2022). These strategies were defined back in 1985 by Michael Porter Generic strategy gives firms a competitive advantage. There are five generic strategies that a firm can employ anticipating to gain competitive advantages or edge. These strategies include broad differentiation, Focused low cost, focused differentiation, overall low cost and best-cost provider strategy.

 Precisely, a lower-cost provider strategy involves a firm setting its prices lower than its rival’s hence attracting a spectrum of customers.  Broad differentiation strategy involves a firm differentiating its product and offerings by focusing on quality attributes, thus betting rival competition.  A focused low-cost strategy consists of a company narrowing down to a lower purchasing power segment. Focused differentiated generic strategy is offering targeted segment (niche members) customized products and services with superior taste than rivals. Lastly best cost provider strategy involves firms satisfying customers’ expectations and needs through value creation. The strategy is also known as the hybrid strategy since it blends the other generic strategies (Islami et al., 2020).

This article will use the case study of Toyota Motors Corporation. The firm employs two main generic strategies; broad differentiation and focused low-cost strategy (Notesmatic.com, n.d.).  Toyota's differentiation strategy focuses mainly on three main areas: product quality, customer experience, and the level of technology. Additionally, recently the firm’s differentiation strategy has incorporated manufacturing of more fuel-efficient models and environmentally friendly automobiles to address the CSR issue. Toyota Motors Corporation's strategy has given it a competitive advantage against its rivals such as GM, Ford, and Volkswagen (Toyota Motor Corporation, 2015).

Additionally, Toyota employs a focused, low-cost strategy. Although the firm doesn’t entirely depend on lower segment buyers, its production focuses on production and (reduced operating and distribution expenses) and its supply chain management. Therefore, the firm has managed to control its prices and set them low compared to its rivals, which have also yielded another competitive advantage.  Ford constitutes one major rival of Toyota Motors Corporation.  The firm initially utilized a focused low-cost strategy, and its central vision in the early 1990s was to manufacture affordable cars for the American working class (Panmure Institute, n.d.). However, the strategy never succeeded since GM was able to dethrone its position by 1927(Ford Motor Company, 2015). Currently, Ford employs Broad differentiation generic strategy towards competing with automobile giants such as Toyota, GM and Volkswagen. 

References

Ford Motor Company (2015). Business Strategy.

Islami, X., Mustafa, N., & Latkovikj, M. T. (2020). Linking Porter’s generic strategies to firm performance. Future Business Journal, 6(1), 1-15.

Notesmatic.com. Toyota Generic and Intensive Growth Strategies.  https://notesmatic.com/toyota-generic-and-intensive-growth-strategies/

Panmore Institute. Business, Management. Ford Motor Company: Generic & Intensive Growth Strategies  http://panmore.com/ford-motor-company-generic-intensive-growth-strategies

Thompson, A., Peteraf, M., Gamble, J., Strickland III, A. J., & Jain, A. K. (2022). Crafting & executing strategy 20/e: The quest for competitive advantage: Concepts and cases. McGraw-Hill Education.

Toyota Motor Corporation (2015). Toyota’s Strategy for Environmental Technologies.

Mukhesh Work:

Company             –             NIO        Industry          –          Electric Vehicles

NIO is a Chinese company that specializes in manufacturing Electric vehicles.  NIO Inc. was founded in 2014 and is headquartered in Shanghai, China. William Li is the founder and CEO of the company (NIO Inc. (NIO) company profile & facts 2021). The competitive strategy of any organization is dynamic, which means at various stages of the company's growth the competitive strategy changes to meet the needs to fuel the growth. A company's competitive strategy lays out the specific efforts of the company to position itself in the marketplace, please customers, ward off competitive threats, and achieve a particular kind of competitive advantage (Thompson et al., 2021). In the case of NIO, which is a fairly new company, started their business by implementing "A Focused Differentiation Strategy" to target a niche audience. As the company has grown over the years now, it is best to say that the strategy of the company has changed, and the current strategy would be "Best-Cost Strategy".

In the initial stages, NIO manufactured only SUVs at a higher price point to attract customers looking for a niche product in the electric vehicle category. With the absence of Tesla, NIO was able to capture a good market share. Now, NIO has ventured to broaden its offerings to multiple vehicles at various price points and unique services to lower the costs of its products. To achieve the previous objectives, NIO has to adapt to a new competitive strategy combing the benefits of differentiation and low cost. Hybrid strategies are more flexible and are therefore better able to respond to changing customer preferences and needs and shifting market landscapes. Hybrid strategies may help a company secure several sources of advantage and thus become more balanced (Salavou, 2015).

NIO is not trying to lower its costs by just decreasing the prices to compete with its competitors. The following are the ways NIO is able to offer lower costs cars with more features than Tesla

· BaaS ( Battery as a Service ) option decreases the overall car price and allows customers to subscribe for a monthly fee.

· Chinese government's new policy provides subsidies to electric vehicles that have battery swap technology.

For NIO, the business model is not just about premium EVs. Instead, it is a blend of EVs with charging solutions (NIO Power), subscription services (BaaS), NIO Life, NIO Spaces, and NIO House (Shenvi, 2021). NIO now offers multiple SUVs and sedans to compete with Tesla on all fronts. NIO is implementing a Best-Cost strategy to create an ecosystem of products that provide customers with a whole range of services after selling its initial product.

TESLA is the biggest competition for NIO in CHINA and still implementing a "Focused Differentiation" strategy catering to a niche audience. They only sell 3 models of electric vehicles and don't have proper charging infrastructure or ecosystem in China. As of now, NIO is in a hyper-growth phase and cannot look at a broad low-cost market because it will disrupt their path. The broad Low-Cost strategy should be considered after the electric vehicle market share reaches at least 50%, decades away. Maybe in the future, they can release a new car just for the mass market.

References:

SALAVOU, H. E. (2015). Competitive strategies and their shift to the future. European Business Review, 27(1), 80-99. doi:http://dx.doi.org.nec.gmilcs.org/10.1108/EBR-04-2013-0073   

Shenvi, D. (2021, July 12). NIO's business model & ecosystem strategy – the Strategy Story. TheStrategyStory. Retrieved September 9, 2021, from https://thestrategystory.com/2021/07/12/nio-business-model-ecosystem-strategy/.

Thompson, A. A., Peteraf, M. A., Gamble, J., & Strickland, A. J. (2021). Crafting & Executing strategy: The quest for competitive advantage: Concepts and cases. McGraw-Hill.

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Chapter 5 describes the five basic competitive strategy options—which of the five to employ is a company’s first and foremost choice in crafting overall strategy and beginning its quest for competitive advantage.

© McGraw-Hill Education

Learning Objectives

After reading this chapter, you should be able to:

Understand what distinguishes each of the five generic strategies and explain why some of these strategies work better in certain kinds of competitive conditions than in others.

Recognize the major avenues for achieving a competitive advantage based on lower costs.

Identify the major avenues to a competitive advantage-based on differentiating a company’s product or service offering from the offerings of rivals.

Explain the attributes of a best-cost strategy—a hybrid of low-cost and differentiation strategies.

© McGraw Hill

This chapter presents the concepts and analytical tools for zeroing in on a single-business company’s external environment.

© McGraw-Hill Education

3–2

Chapter Overview

This chapter describes the five generic competitive strategy options:

How well is the company’s present strategy working?

What are the company’s strengths and weaknesses in relation to the market opportunities and external threats?

What are the company’s most important resources and capabilities, and will they give the company a lasting competitive advantage over rival companies?

How do a company’s value chain activities impact its cost structure and customer value proposition?

Is the company competitively stronger or weaker than key rivals?

What strategic issues and problems merit front-burner managerial attention?

© McGraw Hill

Why Do Strategies Differ?

A firm’s competitive strategy deals exclusively with the specifics of its efforts to position itself in the market-place, please customers, ward off competitive threats, and achieve a particular kind of competitive advantage.

Key factors that distinguish one strategy from another:

Is the firm’s market target broad or narrow?

Is the competitive advantage being pursued linked to low costs or product differentiation?

© McGraw Hill

A company’s competitive strategy deals exclusively with the specifics of management’s game plan for competing successfully— its specific efforts to please customers, strengthen its market position, counter the maneuvers of rivals, respond to shifting market conditions, and achieve a particular kind of competitive advantage.

The biggest and most important differences among competitive strategies boil down to:

Whether a company’s market target is broad or narrow

Whether the company is pursuing a competitive advantage linked to low costs or product differentiation

© McGraw-Hill Education

Types of Generic Competitive Strategies

Types	GENERIC COMPETITIVE STRATEGIES
Broad, Low-cost Strategy:	Striving to achieve broad lower overall costs than rivals on comparable products that attract a broad spectrum of buyers, usually by underpricing rivals.
Broad Differentiation Strategy:	Seeking to differentiate the firm’s product offering from its rivals’ with attributes that will appeal to a broad spectrum of buyers.
Focused Low-cost Strategy:	Concentrating on a narrow buyer segment (or market niche striving to meet these needs at lower costs than rivals (thereby being able to serve niche members at a lower price).
Focused Differentiation Strategy:	Concentrating on a narrow buyer segment (or market niche) by offering its members customized attributes that meet their specific tastes and requirements of niche members better than rivals.
Best-cost (Hybrid) Strategy:	Striving to incorporate upscale product attributes at a lower cost than rivals. Being the “best-cost” producer of an upscale, multifeatured product allows a firm to give customers more value for their money by underpricing rivals whose products have similar upscale, multifeatured attributes.

© McGraw Hill

Five distinct competitive strategy approaches stand out:

A low-cost strategy: striving to achieve lower overall costs than rivals and appealing to a broad spectrum of customers, usually by under pricing rivals.

A broad differentiation strategy: seeking to differentiate the company’s product/ service offering from rivals’ in ways that will appeal to a broad spectrum of buyers

A focused low-cost strategy: concentrating on a narrow buyer segment and outcompeting rivals by serving niche members at a lower cost than rivals

A focused differentiation strategy: concentrating on a narrow buyer segment and outcompeting rivals by offering niche members customized attributes that meet their tastes and requirements better than rivals products

A best-cost producer strategy: giving customers more value for the money by incorporating good-to-excellent product attributes at a lower cost than rivals; the target is to have the lowest (best) costs and prices compared to rivals offering products with comparable attributes

© McGraw-Hill Education

FIGURE 5.1 The Five Generic Competitive Strategies

Access the text alternative for slide images.

© McGraw Hill

Figure 5.1 The Five Generic Competitive Strategies examines how each of the five strategies stake out a different market position.

© McGraw-Hill Education

Broad Low-Cost Strategies

Effective low-cost approaches:

Pursue cost savings that are difficult to imitate.

Avoid reducing product quality to unacceptable levels.

Competitive advantages and risks:

Greater total profits and increased market share gained from underpricing competitors.

Larger profit margins when selling products at prices comparable to and competitive with rivals.

Low pricing does not attract enough new buyers.

Rival’s retaliatory price-cutting sets off a price war.

© McGraw Hill

A low-cost producer’s basis for competitive advantage is lower overall costs than competitors. Successful low-cost leaders, who have the lowest industry costs, are exceptionally good at finding ways to drive costs out of their businesses and still provide a product or service that buyers find acceptable.

© McGraw-Hill Education

The Two Major Avenues for Achieving a Cost Advantage

Low-cost advantage:

Cumulative costs across the overall value chain must be lower than competitors’ cumulative costs.

Options for translating a low-cost advantage over rivals into attractive profit performance:

Perform value-chain activities more cost-effectively than rivals.

Revamp the firm’s overall value chain to eliminate or bypass cost-producing activities.

© McGraw Hill

A company has two options for translating a low-cost advantage over rivals into attractive profit performance.

© McGraw-Hill Education

Cost-Efficient Management of Value Chain Activities

Cost driver:

A factor with a strong influence on a firm’s costs.

Can be asset-based or activity-based.

Securing a cost advantage:

Use lower-cost inputs and hold minimal assets.

Offer only “essential” product features or services.

Offer only limited product lines.

Use low-cost distribution channels.

Use the most economical delivery methods.

© McGraw Hill

A cost driver is a factor that has a strong influence on a firm’s costs. A low-cost advantage over rivals can translate into better profitability than rivals attain.

© McGraw-Hill Education

FIGURE 5.2 Cost Drivers: The Keys to Driving Down Company Costs

Access the text alternative for slides images.

Source: Adapted from Michael E. Porter, Competitive Advantage: Creating and Sustaining Superior Performance (New York: Free Press, 1985).

© McGraw Hill

Figure 5.2 shows the most important cost drivers.

© McGraw-Hill Education

Cost-Cutting Methods 1

Capturing all available economies of scale.

Taking full advantage of experience and learning-curve effects.

Operating facilities at full or near-full capacity.

Improving supply chain efficiency.

Substituting lower-cost inputs wherever there is little or no sacrifice in product quality or performance.

Using the firm’s bargaining power vis-à-vis suppliers or others in the value chain system to gain concessions.

© McGraw Hill

Particular attention must be paid to a set of factors known as cost drivers that have a strong effect on a company’s costs and can be used as levers to lower costs.

© McGraw-Hill Education

Cost-Cutting Methods 2

Using online systems and sophisticated software to achieve operating efficiencies.

Improving process design and employing advanced production technology.

Being alert to the cost advantages of outsourcing or vertical integration.

Motivating employees through incentives and company culture.

© McGraw Hill

Particular attention must be paid to a set of factors known as cost drivers that have a strong effect on a company’s costs and can be used as levers to lower costs.

© McGraw-Hill Education

Revamping the Value Chain System to Lower Costs

Selling direct to consumers and bypassing the activities and costs of distributors and dealers by using a direct sales force and a company website.

Streamlining operations to eliminate low value-added or unnecessary work steps and activities.

Reduce materials-handling and shipping costs by having suppliers locate their plants or warehouses close to the firm’s own facilities.

© McGraw Hill

Dramatic cost advantages can often emerge from redesigning the company’s value chain system in ways that eliminate costly work steps and entirely bypass certain cost-producing value chain activities.

© McGraw-Hill Education

Vanguard’s Path to Becoming the Low-Cost Leader in Investment Management

Describe Vanguard’s business segment.

How well are its competitive strengths matched to the five forces in its competitive environment?

Which of its value chain activities would be most easily overcome by rivals? most difficult to overcome?

Assume you have been tasked to revamp a rival’s value chain activities to better compete with Vanguard. In what order of expected payoff should you attempt to revamp its value chain activities?

© McGraw Hill

Illustration Capsule 5.1 shows how Vanguard managed its value chain to achieve a huge low-cost advantage over rival supermarket chains.

© McGraw-Hill Education

The Keys to a Successful Low-Cost Strategy

Success in achieving a low-cost edge over rivals comes from out-managing rivals in finding ways to perform value chain activities faster, more accurately, and more cost-effectively by:

Spending aggressively on resources and capabilities that promise to drive costs out of the business.

Carefully estimating the cost savings of new technologies before investing in them.

Constantly reviewing cost-saving resources to ensure they remain competitively superior.

© McGraw Hill

Success in achieving a low-cost edge over rivals comes from out-managing rivals in finding ways to perform value chain activities faster, more accurately, and more cost-effectively.

A low-cost producer is in the best position to win the business of price-sensitive buyers, set the floor on market price, and still earn a profit.

© McGraw-Hill Education

When a Low-Cost Strategy Works Best

Price competition among rival sellers is vigorous.

Identical products are readily available from many sellers.

There are few ways to differentiate industry products to add buyer value.

Buyers incur low costs in switching among sellers.

Buyers are price-sensitive or have the power to bargain down prices.

© McGraw Hill

A low-cost producer strategy becomes increasingly appealing and competitively powerful when the forces of competition are favorable to a particular competitor’s market position.

© McGraw-Hill Education

Pitfalls to Avoid in Pursuing a Low-Cost Strategy

Engaging in overly aggressive price cutting that does not result in unit sales gains sufficient to recoup forgone profits.

Relying on a cost advantage that is not sustainable because rival firms can easily copy or overcome it.

Becoming so fixated on cost reduction such that the firm’s offerings lack the primary features that attract buyers.

Having a rival discover a new lower-cost value chain approach or develop a cost-saving technological breakthrough.

© McGraw Hill

Reducing price does not lead to higher total profits unless the added gains in unit sales are large enough to bring in a bigger total profit despite lower margins per unit sold.

A low-cost producer’s product offering must always contain enough attributes to be attractive to prospective buyers. Low price, by itself, is not always appealing to buyers.

© McGraw-Hill Education

Broad Differentiation Strategies

Effective Differentiation Approaches:

Carefully study buyer needs and behaviors, values, and willingness to pay for a unique product or service.

Incorporate features that both appeal to buyers and create a sustainably distinctive product offering.

Use higher prices to recoup differentiation costs.

Advantages of Differentiation:

Command premium prices for the firm’s products.

Increased unit sales due to attractive differentiation.

Brand loyalty that bonds buyers to the differentiating features of the firm’s products.

© McGraw Hill

Differentiation enhances profitability whenever a company’s product can command a sufficiently higher price or produce sufficiently greater unit sales to more than cover the added costs of achieving the differentiation.

The essence of a broad differentiation strategy is to offer unique product attributes that a wide range of buyers find appealing and worth paying for.

© McGraw-Hill Education

Cost-Efficient Management of Value Chain Activities 2

A value driver can:

Have a strong differentiating effect.

Be based on physical as well as functional attributes of a firm’s products.

Be the result of superior performance capabilities of the firm’s human capital.

Have an effect on more than one of the firm’s value chain activities.

Create a perception of value (brand loyalty) in buyers where there is little reason for it to exist.

© McGraw Hill

A value driver is a factor that can have a strong differentiating effect.

© McGraw-Hill Education

FIGURE 5.3 Value Drivers: The Keys to Creating a Differentiation Advantage

Source: Adapted from Michael E. Porter, Competitive Advantage: Creating and Sustaining Superior Performance (New York: Free Press, 1985).

Access the text alternative for slide images.

© McGraw Hill

Figure 5.3 contains a list of important value drivers.

© McGraw-Hill Education

Managing the Value Chain to Create the Differentiating Attributes

Create product features and performance attributes that appeal to a wide range of buyers.

Improve customer service or add extra services.

Invest in production-related R&D activities.

Strive for innovation and technological advances.

Pursue continuous quality improvement.

Increase marketing and brand-building activities.

Seek out high-quality inputs.

Emphasize HRM activities that improve the skills, expertise, and knowledge of company personnel.

© McGraw Hill

Differentiation is not something hatched in marketing and advertising departments, nor is it limited to the catchalls of quality and service. Differentiation opportunities can exist in activities all along an industry’s value chain. The most systematic approach that managers can take, however, involves focusing on the value drivers, a set of factors—analogous to cost drivers—that are particularly effective in creating differentiation.

© McGraw-Hill Education

Revamping the Value Chain System to Increase Differentiation

Approaches to enhancing differentiation through changes in the value chain system:

Coordinating with downstream channel allies to enhance customer perceptions of value.

Coordinating with upstream suppliers to better address customer needs.

© McGraw Hill

Just as pursuing a cost advantage can involve the entire value chain system, the same is true for a differentiation advantage.

Activities performed upstream by suppliers or downstream by distributors and retailers can have a meaningful effect on customers’ perceptions of a company’s offerings and its value proposition

© McGraw-Hill Education

Delivering Superior Value via a Broad Differentiation Strategy

Broad Differentiation: Offering Customers Something That Rivals Cannot or Do Not

Incorporate product attributes and user features that lower the buyer’s overall costs of using the firm’s product.

Incorporate tangible features (e.g., styling) that increase customer satisfaction with the product.

Incorporate intangible features (e.g., buyer image) that enhance buyer satisfaction in noneconomic ways.

Signal the value of the firm’s product offering to buyers (e.g., price, packaging, placement, advertising).

© McGraw Hill

Differentiation strategies depend on meeting customer needs in unique ways or creating new needs through activities such as innovation or persuasive advertising. The objective is to offer customers something that rivals can’t—at least in terms of the level of satisfaction. The four basic routes to achieving this aim are listed in the slide content.

© McGraw-Hill Education

Differentiation: Signaling Value

Signaling value is important when:

The nature of differentiation is based on intangible features and is therefore subjective or hard to quantify by the buyer.

Buyers are making a first-time purchase and are unsure what their experience will be with the product.

Product or service repurchase by buyers is infrequent.

Buyers are unsophisticated.

© McGraw Hill

Differentiation can be based on tangible or intangible attributes. Easy-to-copy differentiating features cannot produce a sustainable competitive advantage.

The value of certain differentiating features is rather easy for buyers to detect, but in some instances, buyers may have trouble assessing what their experience with the product will be. Successful differentiators go to great lengths to make buyers knowledgeable about a product’s value and employ various signals of value.

© McGraw-Hill Education

Successful Approaches to Sustainable Differentiation

Differentiation that is difficult for rivals to duplicate or imitate:

Company reputation.

Long-standing relationships with buyers.

A unique product or service image.

Differentiation that creates substantial switching costs that lock in buyers:

Patent-protected product innovation.

Relationship-based customer service.

© McGraw Hill

The most successful approaches to differentiation are those that are difficult for rivals to duplicate. Indeed, this is the route to a sustainable competitive advantage.

While resourceful competitors can, in time, clone almost any tangible product attribute, socially complex intangible attributes such as company reputation, long-standing relationships with buyers, and image are much harder to imitate.

Differentiation that creates switching costs that lock in buyers also provides a route to sustainable advantage.

© McGraw-Hill Education

When a Differentiation Strategy Works Best

Market Circumstances Favoring Differentiation

Buyer needs and uses for the product are diverse.

There are many ways that differentiation can have value to buyers.

Few rival firms are following a similar differentiation approach.

There is rapid change in the product’s technology and features.

© McGraw Hill

Differentiation strategies tend to work best in market circumstances where differentiation yields a longer-lasting and more profitable competitive edge that is based on a well-established brand image, patent-protected product innovation, complex technical superiority, a reputation for superior product quality and reliability, relationship-based customer service, and unique competitive capabilities.

© McGraw-Hill Education

Pitfalls to Avoid in Pursuing a Differentiation Strategy

Relying on product attributes easily copied by rivals.

Introducing product attributes that do not evoke an enthusiastic buyer response.

Eroding profitability by overspending on efforts to differentiate the firm’s product offering.

Offering only trivial imp

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