Capstone - Generic Strategies
Summary
TLDRThis 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
- π The distinction between strategy and tactics is crucial; strategies encompass tactics, and tactics are executed on a shorter time scale.
- π 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.
- π 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.
- π° 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.
- πΏ 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.
- π 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.
- π οΈ 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.
- π¨ 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.
- π‘οΈ 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.
- β³ 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
π 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.
π 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.
Mindmap
Keywords
π‘Strategy
π‘Tactics
π‘Cost Leader
π‘Differentiator
π‘Product Lifecycle
π‘Niche Cost Leader
π‘Niche Differentiator
π‘Broad Cost Leader
π‘Broad Differentiator
π‘Positioning
π‘Generic Strategies
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
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