Capstone - Generic Strategies

Summary

This script discusses the critical difference between strategy and tactics in business, using the example of building a production facility. It outlines six generic strategies: broad cost leader, broad differentiator, niche cost leader, niche differentiator, cost leader with Product Lifecycle focus, and differentiator with Product Lifecycle focus. The script contrasts cost leaders, who prioritize low prices, with differentiators, who emphasize value. It also provides practical examples, like toothpaste brands, to illustrate these concepts and encourages strategic planning to gain a competitive edge.

Takeaways

• 🔍 The distinction between strategy and tactics is crucial; strategies encompass tactics, and tactics are executed on a shorter time scale.
• 🏭 Building a production facility is an example of a tactic within a broader strategic plan, and it also has its own strategy involving site selection and staffing.
• 📈 Six generic strategies are discussed: broad cost leader, broad differentiator, niche cost leader, niche differentiator, cost leader with Product Lifecycle focus, and differentiator with Product Lifecycle focus.
• 💰 A cost leader focuses on low prices, cutting costs first and then passing savings to customers, while a differentiator emphasizes value, meeting customer needs, and then setting the price.
• 🌿 The example of toothpaste brands illustrates the difference between a cost leader (Osco) and a differentiator (Crest), showing how both can achieve similar profit outcomes but through different approaches.
• 📊 Market segments evolve, and strategies must account for this movement, with cost leaders aiming to reposition products to maintain the ideal spot as costs decrease over time.
• 🛠️ A cost leader with a product lifecycle focus strategy sacrifices specialty segment size and performance to invent new products, aiming to stay ahead of the market.
• 🎨 A differentiator with a product lifecycle focus keeps up with market drift rates by inventing new products for each segment, as seen with automobile manufacturers like General Motors.
• 🛡️ A niche cost leader targets the low-end and traditional segments early to create a barrier to entry, while a niche differentiator focuses on high-end performance and size, giving up the low technology part of the market.
• ⏳ Early decision rounds in strategy implementation are critical as they make it harder for competitors to counter, emphasizing the importance of timely strategic planning.

Q & A

What is the primary difference between strategy and tactics in business?

Strategy encompasses the long-term goals and overall direction of a business, while tactics are the specific actions taken to achieve those strategic objectives. Strategies contain tactics, not the other way around, and tactics are typically on a shorter time scale.

What are the six generic strategies mentioned in the script?

The six generic strategies are: 1) Broad cost leader, 2) Broad differentiator, 3) Niche cost leader, 4) Niche differentiator, 5) Cost leader with Product Lifecycle focus, and 6) Differentiator with Product Lifecycle focus.

How does a cost leader differentiate itself from a differentiator?

A cost leader emphasizes low prices by cutting costs and passing savings to customers, while a differentiator emphasizes value, offering what the customer wants and charging a premium for it.

Can you provide an example of a cost leader and a differentiator from the script?

An example of a cost leader is OSCO toothpaste, which offers a single variety in an unattractive box without advertising, focusing on low costs. Crest toothpaste is an example of a differentiator, offering 27 varieties with a strong brand presence and high accessibility.

What is the significance of the product lifecycle in strategic planning?

The product lifecycle is significant as it illustrates the natural progression of a product from high-end to traditional to low-end segments. Strategies that focus on the product lifecycle aim to manage this progression by introducing new products and adjusting the positioning of existing ones.

How does a niche cost leader strategy differ from a niche differentiator strategy?

A niche cost leader focuses on the low-end and traditional segments to create a barrier to entry and consolidate its position, often sacrificing the high technology part of the market. In contrast, a niche differentiator focuses on the high-end, performance, and size segments, building a position in areas where design and value are paramount.

What is the role of promotion and sales budgets in differentiator strategies?

In differentiator strategies, promotion and sales budgets are heavily invested in to ensure high product awareness and accessibility. This is to ensure that the value proposition of the product is communicated effectively and that the product is easily found by customers.

Why is the early decision in strategy implementation crucial according to the script?

Early decision in strategy implementation is crucial because it allows a company to establish its position and make it more difficult for competitors to apply countermeasures, thus gaining a competitive advantage.

How does the ideal product positioning change over time in the high-end segment?

In the high-end segment, the ideal product positioning changes as the segment evolves. A cost leader might aim to have its product at the ideal spot at the beginning of the year, with costs falling as the year progresses. A differentiator, on the other hand, would continuously adjust the product positioning to stay ahead of the evolving ideal spot.

What are the pros and cons of broad strategies as mentioned in the script?

The pros of broad strategies include the potential for greater sales volume by playing in all parts of the market. The cons are the need to spread expensive investments across multiple segments, making the company vulnerable to more focused competitors.

How can a company decide which segments to emphasize in its strategy?

A company can decide to emphasize segments based on its strengths and market opportunities. It might choose to focus on performance, size, or a combination of factors, tailoring its strategy to compete in high-end, traditional, or size segments accordingly.

Outlines

00:00

🔍 Strategy vs. Tactics in Business

This paragraph discusses the importance of distinguishing between strategy and tactics in business. It uses the example of building a production facility to illustrate the difference, where strategy involves the overall plan and long-term goals, while tactics are the specific actions taken to achieve those goals. The paragraph introduces six generic strategies: broad cost leader, broad differentiator, niche cost leader, niche differentiator, cost leader with Product Lifecycle focus, and differentiator with Product Lifecycle focus. The difference between cost leaders and differentiators is also explained, with cost leaders focusing on low prices and differentiators emphasizing value. An example of toothpaste brands, Crest and Osco, is used to demonstrate these concepts in practice.

05:01

📈 Generic Strategies and Product Lifecycle

Paragraph two delves into the concept of generic strategies and how they relate to the product lifecycle. It explains that a cost leader with a product lifecycle focus aims to keep production at the ideal spot on the lifecycle curve, adjusting as costs and market demands change. Differentiators, on the other hand, proactively move their products to align with the shifting ideal spot in the market. The paragraph outlines various strategies, including how a broad cost leader or differentiator might approach market segments differently, and the pros and cons of each strategy. It also touches on niche strategies, where companies focus on either the low-end or high-end segments of the market, and the importance of early decision-making in implementing a successful strategy.

Keywords

💡Strategy

Strategy refers to a long-term plan designed to achieve a particular goal or set of goals. In the context of the video, strategy is distinguished from tactics and is focused on broader objectives. The video discusses how strategies encompass tactics and are typically on a longer timescale. For example, building a production facility is a tactic within a broader strategic plan to expand a company's production capabilities.

💡Tactics

Tactics are specific actions taken to achieve a short-term goal or objective. They are part of a larger strategy and are usually time-sensitive. The script illustrates this by mentioning that tactics like repositioning a product or raising money are part of the broader strategic approach to business operations.

💡Cost Leader

A cost leader is a company that aims to become the low-cost producer in its industry, thereby gaining a competitive advantage through lower prices. The video uses the example of OSCO toothpaste, which is positioned as a cost leader by offering a lower price than Crest, a differentiator, by cutting costs and passing savings to customers.

💡Differentiator

A differentiator is a company that seeks to differentiate its products from competitors by offering unique features or qualities that customers value. Crest toothpaste is used as an example in the script, offering 27 varieties and investing heavily in advertising and distribution to emphasize value over price.

💡Product Lifecycle

Product lifecycle refers to the stages a product goes through from its introduction to the market to its eventual decline. The script discusses how a cost leader with a product lifecycle focus strategy capitalizes on this by creating new products as older ones become obsolete, ensuring a continuous stream of offerings at different stages of the lifecycle.

💡Niche Cost Leader

A niche cost leader is a company that focuses on a specific market niche, aiming to be the low-cost producer within that segment. The script suggests that by concentrating on the low-end and traditional segments, a niche cost leader can create a barrier to entry for competitors and consolidate its position.

💡Niche Differentiator

A niche differentiator is a company that focuses on a specific market niche and differentiates its products to appeal to that segment. The video mentions that a niche differentiator would phase out low-technology products and build a position in high-end performance and size segments.

💡Broad Cost Leader

A broad cost leader is a company that aims to offer products across all market segments at the lowest possible cost. The script indicates that this strategy involves emphasizing traditional and low-end segments where customers are more price-sensitive.

💡Broad Differentiator

A broad differentiator is a company that seeks to differentiate its products across all market segments by offering unique features or qualities. The video explains that this strategy focuses on the high-end performance and size segments where design is more important.

💡Positioning

Positioning is the act of defining the place a product occupies in the minds of consumers relative to its competitors. The script discusses how differentiators and cost leaders use positioning differently; differentiators aim to be ahead of the ideal spot in the market, while cost leaders aim to align their products with the drifting ideal spot as costs decrease.

💡Generic Strategies

Generic strategies are broad approaches to competing that companies can adopt. The video outlines six generic strategies: broad cost leader, broad differentiator, niche cost leader, niche differentiator, cost leader with product lifecycle focus, and differentiator with product lifecycle focus. These strategies guide how a company competes in the market.

Highlights

Emphasis on tactics in rehearsal simulation and practice, such as repositioning a product, buying plant and equipment, and raising money.

Shifting focus from tactics to strategy and discussing the difference between the two.

Strategy encompasses tactics, not the other way around, with tactics being on a shorter time scale.

Introduction of six generic strategies: broad cost leader, broad differentiator, niche cost leader, niche differentiator, cost leader with Product Lifecycle focus, and differentiator with Product Lifecycle focus.

Definition of a cost leader and a differentiator, with examples from economics class and toothpaste market.

Example of cost leader and differentiator in toothpaste market: OSCO vs. Crest.

Cost leaders and differentiators coexist in the market, each with their own strategies.

Discussion on the evolution of market segments and the movement from upper-left to lower-right quadrant over time.

Material costs are cheapest at the trailing edge of the low-end segment and highest at the leading edge of the high-end segment.

Differentiators focus on design and accessibility, while cost leaders focus on material and labor costs.

High-end customers emphasize positioning, but the ideal spot is transient.

Cost leaders aim to have their production on the ideal spot at the beginning of the year as costs fall.

Differentiators keep up with the drift rates and invent new products for each segment.

Broad strategies allow a company to play in all parts of the market but require spreading investments over multiple segments.

Niche cost leaders focus on the low end and traditional segments to create a barrier to entry.

Niche differentiators phase out low technology and build a position in high-end performance and size.

There are infinite combinations of strategies a company might employ based on their goals.

The importance of early decision rounds in implementing strategy to make it difficult for competitors to apply countermeasures.

Transcripts

in the rehearsal simulation and practice

rounds we place an emphasis on tactics

repositioning a product buying plant and

equipment raising money etc now we're

going to shift our attention to strategy

what's the difference between strategy

and tactics consider something like

building a production facility the

project could take a year at one level

it is a tactic in a larger scheme that

says we need a new production facility

and another it has a strategy of its own

that ranges from selecting a site to

staffing with people the relationship

between strategy and tactics can be

confusing at first but there are a few

distinctions we can make we can say that

strategies contain tactics not the other

way around we can observe that tactics

are on a shorter time scale and we can

see that strategies can have many

tactics running in parallel or in

sequence to help you think about the

long term we're going to discuss six

generic strategies they are broad cost

leader broad differentiator niche cost

leader niche differentiator cost leader

with Product Lifecycle focus and

differentiator with Product Lifecycle

focus what's the difference between a

cost leader and a differentiator well

you learned in your economics class is

that people tend to trade-off price

against value a cost leader emphasizes

low prices first it cuts costs then it

passes along some of the savings to

customers as a price break a

differentiator emphasizes value they

give the customer whatever it is that

the customer wants then they raise the

price in any market we find cost leaders

and differentiators let me offer an

example suppose I wanted to buy some

toothpaste here in Chicago there's a

supermarket drug store chain called osco

ausco likes to cut deals with suppliers

and offer in-house generic alternatives

you walk up to the toothpaste display

you see Crest toothpaste right beside it

you see a little sign that says ausco

toothpaste compared with crest you think

to yourself AHA ausco is cut some sort

deal with crest its crest in the two but

are you sure crest is a differentiator

they offer toothpaste in 27 varieties of

packaging flavors and ingredients

everybody's aware of crest they spend a

fortune on advertising and their

distribution system is world-class

you can find crest in a gas station Auto

is a cost leader their toothpaste is in

one size box and it's an ugly box they

never advertise you wouldn't be aware of

it until you walked into the store and

you can only find osco toothpaste in an

Oscar but crest is three dollars and

fifty cents and osco is two dollars you

think to yourself is it really crest in

the tube or does it just look and taste

like crest if you went to osco

headquarters and did a sales comparison

of crest versus the osco brand you might

discover that from a profit perspective

they produced about the same result

ausco toothpaste has very low costs they

don't have a factory or advertise or

spend much on distribution ausco can

pass along those cost savings and still

maintain a good margin crest on the

other hand requires a higher price to

compensate for its excellent design high

awareness and easy accessibility with

this distinction in mind let's have a

look at six generic strategies that you

can employ in capstone look at your

starting position you have a product in

every segment none of them is attractive

in a differentiation sense nor are they

attractive in a cost leadership sense

you are middle-of-the-road identical

with your competitors over time

customers want smaller size and higher

performance over the next eight years

the segment's will move from the

upper-left quadrant to the lower right

quadrant it's easy to draw comparisons

with real-world industries you find the

same sort of evolution in cell phones

computers cameras etc from a cost

standpoint material costs are cheapest

at the trailing edge of the low-end

segment and highest at the leading edge

of the high-end segment the higher the

technology the more expensive the

materials

differentiators will give their

customers a good design

they might add a second product in the

segment think back to crest 27 varieties

of the same toothpaste differentiate her

sacrifice cost they spend heavily on

promotion so that everyone knows about

their product they also spend heavily on

sales budgets so that everyone finds

them easily accessible a costly turret

axis material and labor costs and would

be stingy with product extenders promo

budgets and sales budgets they attack

costs first differentiators attack

design first let's consider the high end

customers here place an emphasis on

positioning they want a product at the

ideal spot but the high end segment is

moving no matter how hard you try your

product can only hit the ideal spot once

during the year knowing this and knowing

that material costs fall as the product

trails in the segment a cost leader

would try to have its production on the

ideal spot on January 1st as the year

unfolded the ideal spot would drift away

but its costs would fall in late

December the cost leader would finish an

R&D project that would reposition the

product to the ideal spot again

in contrast a differentiator would put

their product in front of the ideal spot

on January 1st as the segment evolved

the ideal spot would slide under the

product in July and in December they

would move the product in front of the

ideal spot again let's have a look at

our generic strategies you'll find these

described in the online team member

guide under six basic strategies a cost

leader with product lifecycle focus

strategy recognizes that there is a

natural product lifecycle from high end

to traditional to low end if a high end

product just sit still it will

eventually become a low end product in

the real world you will find this sort

of strategy at companies like Intel or

Taiwan Semiconductor the latest greatest

chip today will be superseded by a new

one but the older chip will continue to

sell at a lower price in this strategy

the specialty segments size and

performance are sacrificed to allow the

company to invent new products a new

product will never move again

although it will be tweaked now and then

to manage its age since it will not move

the company highly automates the plant

on day one a differentiator might also

recognize the product lifecycle but it

would approach it differently instead of

letting segments slide past the product

they would keep up with the drift rates

and invent new products for each segment

for example automobile manufacturers do

this General Motors has Cadillac Buick

Chevrolet

there are many tactics that this type of

differentiator might employ for example

they might invent a new high-end product

reposition their original traditional

product to low end and finally shift

their size and performance products into

the traditional segment a broadcast

leader keeps a product in every segment

but it tends to emphasize the

traditional and low-end segments where

customers are more price sensitive a

broad differentiator puts emphasis on

high-end performance and size where

design is more important

of course there are pros and cons to all

strategies for both broad strategies the

pro is that the company can play in all

parts of the market that gives it more

potential for sales volume in the long

run on the other hand it has to spread

out some very expensive investments over

all five segments that makes it

vulnerable to more focused competitors

here we have a niche cost leader it

hammers low end and traditional early

hoping to create a barrier to entry then

consolidates its position of course the

downside is that it had to give up the

high technology part of the market

finally we have the niche differentiator

it phases out the low technology and

builds a position in high-end

performance and size of course there are

many other strategies for example your

company might decide to place an

emphasis on performance you would

compete in the high-end traditional and

performance segments or you might decide

to emphasize size and play in the size

traditional and high-end segments there

are an infinite number of combination

strategies the early decision rounds are

important because the sooner you begin

to implement your strategy the more

difficult you make it for competitors to

apply countermeasures good luck with

your planning

you