CHAPTER 9
QUESTION
Identify and briefly explain in three (3) to four (4) sentences the five competitive strategies
available for an organisation to obtain and maintain a competitive advantage.
ANSWER (to be discussed in detail with exam questions)
Differentiation, Low cost, Focus, Pre-emptive move and Synergy
DIFFERENTIATION STRATEGY
QUESTION
Discuss differentiation strategy as a competitive strategy using the following framework:
Explain the strategy (6)
Explain in detail the differentiation options (14)
Discuss FIVE common pitfalls of a differentiation strategy (5)
Read the XXX case study and answer all the questions below.
Use examples from the study to explain how Bell Equipment to differentiate their offerings from that of
competition. (15)
Differentiation is defined as the process whereby the organization’s market offering is adapted
physically of psychologically from competing products in such a way that the customers regard it as a
totally different product or service. Differentiation can be in the form of quality, prestige features, service
back up, reliability or convenience of the product or service.
Differentiation by means of product/service quality Product quality goes hand in hand with
performance, durability and reliability. For services, the politeness, helpfulness and friendliness of
the staff of a organization all serve as a measure to evaluate the quality of services.
Differentiation by brand Brands distinguish competitive products from one another but also gives
them specific symbolic value, creating an image or personality for the product.
Differentiation by unique product characteristics Unique product characteristics which make a
product some what better or different, initially create a competitive advantage.
Differentiation by distribution New and unusual distribution channels not only create new market
possibilities but can also serve as to differentiate products. E.g. Dell selling PCs through direct
distribution.
Differentiation based on consumer orientation An organization that intentionally strives to meet
consumer needs, demands and preferences, had already laid the basis for a strong and sustainable
, competitive advantage. Customers are inalienable assets because they do not even consider buying
the products of competing enterprises.
SUSTAINABIILITY OF DIFFERENTIATION
The continuance of the perceived value of the differentiation in the eyes of the consumers who buys
the product or service.
The speed or lack of it, of invitation by competitors. (The period between launch of an innovation
by the organization and imitation by competitors is called lead-time).
The following conditions make it easier for an organization to sustain its differentiation:
(i) When an organization’s sources of uniqueness have barriers to competitors.
(ii) When the organization has a cost advantage in differentiation of its product or service.
(iii) When there are multiple sources of differentiation.
(iv) The organization creates switching costs at the same time that it differentiates.
*A switching cost is a fixed cost that buyers must pay if they change suppliers.
COMMON PITFALLS OF A DIFFERENTIATION STRATEGY
Uniqueness that is not only available to the organization – if price is increased, will customers
continue to buy?
Over-elaborating – quality levels are higher than the consumer’s need hence an organization
becomes vulnerable to competitors who offer the exact qualify.
Too big a price difference – customers may re-evaluate the differentiation on offer.
Ignoring the need to signal value to the consumer – consumers must see value and it’s the duty of an
organization to bring this value to the attention of the consumer.
Not knowing the cost of differentiation – the cost must be compared with the price difference gained
by differentiation.
Focus on the product instead of the whole value chain
Failure to recognize different segments.
LOW COST STRATEGY
Discuss low-cost strategy as a competitive strategy using the following framework
1) Explain the strategy
2) Cost drivers
3) Pitfalls of low-cost
4) Give an example of an organisation that follows a low-cost strategy. Motivate your choice.
Organisation that follows a low cost strategy concentrate on reducing their costs of manufacturing with
the ultimate aim of lowering their prices to the customers. The strategy is also known as cost leadership
and it involves efficiency drives, tight cost controls and a preoccupation with low cost manufacturing. To
ensure cost savings, an organization should establish a low cost culture so that employees will constantly
look out for the wastage of resources and will attempt to keep costs low.
*Higher profit and the availability of funds to expand the market share, utilise new opportunities and
develop new products stems from the basis of preventing squandering.
Two distinct alternatives that an organization can select in order to be profitable.
(i) Lower margins/higher share The low cost manufacturers usually earn lower profit margins than
differentiated marketers but because of this they gain a higher share of the market.
(ii) Lower costs/higher margins The low cost manufacturer tries to reduce costs faster than prices,
hence higher profit margins than a share of the market.
Cost drivers are those factors that when combined, determine the cost of a given activity of an
organization and result in the determination of the cost position of the organisation in the sector.
Examples of Cost Drivers
QUESTION
Identify and briefly explain in three (3) to four (4) sentences the five competitive strategies
available for an organisation to obtain and maintain a competitive advantage.
ANSWER (to be discussed in detail with exam questions)
Differentiation, Low cost, Focus, Pre-emptive move and Synergy
DIFFERENTIATION STRATEGY
QUESTION
Discuss differentiation strategy as a competitive strategy using the following framework:
Explain the strategy (6)
Explain in detail the differentiation options (14)
Discuss FIVE common pitfalls of a differentiation strategy (5)
Read the XXX case study and answer all the questions below.
Use examples from the study to explain how Bell Equipment to differentiate their offerings from that of
competition. (15)
Differentiation is defined as the process whereby the organization’s market offering is adapted
physically of psychologically from competing products in such a way that the customers regard it as a
totally different product or service. Differentiation can be in the form of quality, prestige features, service
back up, reliability or convenience of the product or service.
Differentiation by means of product/service quality Product quality goes hand in hand with
performance, durability and reliability. For services, the politeness, helpfulness and friendliness of
the staff of a organization all serve as a measure to evaluate the quality of services.
Differentiation by brand Brands distinguish competitive products from one another but also gives
them specific symbolic value, creating an image or personality for the product.
Differentiation by unique product characteristics Unique product characteristics which make a
product some what better or different, initially create a competitive advantage.
Differentiation by distribution New and unusual distribution channels not only create new market
possibilities but can also serve as to differentiate products. E.g. Dell selling PCs through direct
distribution.
Differentiation based on consumer orientation An organization that intentionally strives to meet
consumer needs, demands and preferences, had already laid the basis for a strong and sustainable
, competitive advantage. Customers are inalienable assets because they do not even consider buying
the products of competing enterprises.
SUSTAINABIILITY OF DIFFERENTIATION
The continuance of the perceived value of the differentiation in the eyes of the consumers who buys
the product or service.
The speed or lack of it, of invitation by competitors. (The period between launch of an innovation
by the organization and imitation by competitors is called lead-time).
The following conditions make it easier for an organization to sustain its differentiation:
(i) When an organization’s sources of uniqueness have barriers to competitors.
(ii) When the organization has a cost advantage in differentiation of its product or service.
(iii) When there are multiple sources of differentiation.
(iv) The organization creates switching costs at the same time that it differentiates.
*A switching cost is a fixed cost that buyers must pay if they change suppliers.
COMMON PITFALLS OF A DIFFERENTIATION STRATEGY
Uniqueness that is not only available to the organization – if price is increased, will customers
continue to buy?
Over-elaborating – quality levels are higher than the consumer’s need hence an organization
becomes vulnerable to competitors who offer the exact qualify.
Too big a price difference – customers may re-evaluate the differentiation on offer.
Ignoring the need to signal value to the consumer – consumers must see value and it’s the duty of an
organization to bring this value to the attention of the consumer.
Not knowing the cost of differentiation – the cost must be compared with the price difference gained
by differentiation.
Focus on the product instead of the whole value chain
Failure to recognize different segments.
LOW COST STRATEGY
Discuss low-cost strategy as a competitive strategy using the following framework
1) Explain the strategy
2) Cost drivers
3) Pitfalls of low-cost
4) Give an example of an organisation that follows a low-cost strategy. Motivate your choice.
Organisation that follows a low cost strategy concentrate on reducing their costs of manufacturing with
the ultimate aim of lowering their prices to the customers. The strategy is also known as cost leadership
and it involves efficiency drives, tight cost controls and a preoccupation with low cost manufacturing. To
ensure cost savings, an organization should establish a low cost culture so that employees will constantly
look out for the wastage of resources and will attempt to keep costs low.
*Higher profit and the availability of funds to expand the market share, utilise new opportunities and
develop new products stems from the basis of preventing squandering.
Two distinct alternatives that an organization can select in order to be profitable.
(i) Lower margins/higher share The low cost manufacturers usually earn lower profit margins than
differentiated marketers but because of this they gain a higher share of the market.
(ii) Lower costs/higher margins The low cost manufacturer tries to reduce costs faster than prices,
hence higher profit margins than a share of the market.
Cost drivers are those factors that when combined, determine the cost of a given activity of an
organization and result in the determination of the cost position of the organisation in the sector.
Examples of Cost Drivers
