Pricing & Product Decisions I
Week 6
Pricing & Product Decisions I Generic Strategies
Overview Three generic strategies for creating a defendable position and outperforming competitors in an industry These require different organizational arrangements, control procedures, incentive systems and resources
Cost Leadership Low-cost relative to competitors as strategic main theme Central elements of the strategy • Efficient-scale facilities
• Rigorous cost reductions from experience • Avoidance of marginal customer accounts • Cost minimization in areas like R&D, service, sales force and advertising Aggressive pricing to achieve market share
Differentiation Differentiating the product or service, offering something that is perceived industry-wide as being unique Exemplary forms of differentiation
• Design or brand image • Technology • Customer service
• Dealer networks Differentiation along multiple dimensions Often incompatible with low prices and high market shares (e.g. due to exclusivity)
Focus Focus on particular buyer group, segment of the product line or geographic market Central rationale: Serving narrow strategic target group more effectively or efficiently than competitors Lower costs or more differentiation with regard to single niche
Competitive Strategy Tobias Kretschmer Professor of Management, LMU Munich
© 2013 LMU Munich
Week 6
Pricing & Product Decisions II Stuck in the Middle
Stuck in the Middle (I/II) Firms that fail to develop their strategy in at least one of the three directions are in poor strategic position Firms lack the market share, capital investment, and resolve to “play the low-cost game” Firms lack industry-wide differentiation to obviate the need for a low-cost position Firms lack focus to create differentiation or low-cost position
Profits
Stuck in the Middle (II/II) Differentiation/ Focus
Cost Leadership Stuck in the Middle
Market Share
Ambidexterity Stuck in the middle does not mean that firms cannot pursue multiple strategies simultaneously The pursuit of hybrid / ambidextrous strategies might lead to even better results than following pure strategies But tensions within organizations need to be managed Example: NikeID Shoes Mass customization through online stores
Competitive Strategy Tobias Kretschmer Professor of Management, LMU Munich
© 2013 LMU Munich
Pricing & Product Decisions I Generic Strategies
Overview Three generic strategies for creating a defendable position and outperforming competitors in an industry These require different organizational arrangements, control procedures, incentive systems and resources
Cost Leadership Low-cost relative to competitors as strategic main theme Central elements of the strategy • Efficient-scale facilities
• Rigorous cost reductions from experience • Avoidance of marginal customer accounts • Cost minimization in areas like R&D, service, sales force and advertising Aggressive pricing to achieve market share
Differentiation Differentiating the product or service, offering something that is perceived industry-wide as being unique Exemplary forms of differentiation
• Design or brand image • Technology • Customer service
• Dealer networks Differentiation along multiple dimensions Often incompatible with low prices and high market shares (e.g. due to exclusivity)
Focus Focus on particular buyer group, segment of the product line or geographic market Central rationale: Serving narrow strategic target group more effectively or efficiently than competitors Lower costs or more differentiation with regard to single niche
Competitive Strategy Tobias Kretschmer Professor of Management, LMU Munich
© 2013 LMU Munich
Week 6
Pricing & Product Decisions II Stuck in the Middle
Stuck in the Middle (I/II) Firms that fail to develop their strategy in at least one of the three directions are in poor strategic position Firms lack the market share, capital investment, and resolve to “play the low-cost game” Firms lack industry-wide differentiation to obviate the need for a low-cost position Firms lack focus to create differentiation or low-cost position
Profits
Stuck in the Middle (II/II) Differentiation/ Focus
Cost Leadership Stuck in the Middle
Market Share
Ambidexterity Stuck in the middle does not mean that firms cannot pursue multiple strategies simultaneously The pursuit of hybrid / ambidextrous strategies might lead to even better results than following pure strategies But tensions within organizations need to be managed Example: NikeID Shoes Mass customization through online stores
Competitive Strategy Tobias Kretschmer Professor of Management, LMU Munich
© 2013 LMU Munich
