home Self-development Competitive basic strategy is. Basic strategies of the company in competition

Competitive basic strategy is. Basic strategies of the company in competition

- The company can protect itself from challenging competitors due to the benevolence of customers to its outstanding ability to serve customers in the segment. Risks of a focused strategy: there is a possibility that competitors will find an opportunity to approach the company's actions in a narrow target segment; the requirements and preferences of consumers of the target market segment are gradually spreading to the entire market; a segment can become so attractive that it attracts the attention of many competitors. 3. Modern competitive strategies: advantages and requirements Philip Kotler identified four types of competitive strategies, based on the market share occupied by the firm: 1. market leader strategies; 2. leadership aspirant strategies; 3. follower strategies; 4. Niche dweller strategies. Market leader - the organization with the largest market share in the small business industry. Such organizations are leaders in pricing policy, developing new products, using a variety of distribution systems, and optimizing marketing costs. Market expansion strategies. When the market expands, as a rule, the leader wins. He can implement this strategy in the following ways: 1. Attracting new customers. 2. New ways to use the product. 3. Increasing the intensity of product use. This is an attempt to convince consumers to increase the intensity of use of the company's products. defensive strategies. The goal of a defensive strategy is to protect your market share by countering the most dangerous competitors. The dominant company has the opportunity to use six defensive strategies: 1. Positional defense. Aimed at creating insurmountable barriers around its current position; should be accompanied by a change in production and marketing policy and adaptation to changes in the external environment. The best defense method is continuous product updates. 2. Flank defense. It is aimed at protecting the most vulnerable places in the organization's position in the market, where competitors can first of all direct their attacks. 3. Preemptive defense. It is based on anticipatory actions that make a potential attack by competitors impossible or significantly weaken it. For example, anticipating the appearance of a new competitor on the market, you can reduce the price of your products. 4. Counterattack. Used by the leader when pre-emptive and flanking defensive strategies fail. The leader can pause to see the weaknesses of the attacking competitor, and then strike for sure (for example, by contrasting the reliability of their products with the flaws in the competitor's new products in advertising). 5. Mobile defense. Aimed at expanding its activities to new markets in order to create a springboard for future defensive and offensive actions. Market expansion implies that the company shifts attention from a specific product to the needs that satisfy this class of goods as a whole, conducts research and development work along the entire technological chain. 6. Shrinking defense. It is based on the “surrender” of weakened market territories to competitors while concentrating resources on more significant and stronger ones; allows you to save resources, rationally use the funds allocated for marketing activities. Market share expansion. Market leaders have the opportunity to increase profits by expanding their market share. The expansion of the market share served does not mean an automatic increase in profits. Much depends on the company's market expansion strategy. Because the costs of market expansion can far outweigh the revenue generated, a company should carefully consider the impact of the following factors: 1. Potential conflict with antitrust laws. 2. Economic costs. It is known that the profitability of a company when it reaches a certain market share may decrease. 3. The possibility of a wrong strategy aimed at expanding market share and reducing profits. High market share leads to increased profits when the company's unit costs are reduced, when it offers a product of exceptionally high quality, setting a corresponding premium on the price. Companies with high market share outperform their competitors in three areas: new products, relative product quality and marketing costs. Leadership Strategies. Market challenger- an organization that is fighting to increase its market share, to become one of the leaders. Applicants for leadership are an organization aggressively attacking the leader and other competitors on the front, using all possible and impossible strategies and attacks. The applicant can wage a price war, reduce production costs, and, consequently, prices, produce prestigious or unusual goods, expand the product range, develop new products, improve distribution channels, improve service levels, or roll out a brilliant advertising campaign . The advantage of the challenger is that he is guided by a high goal and concentrates his limited resources on achieving it. Offensive strategies: 1. Frontal offensive. This is a concentrated blow to the main strengths of a competitor: its product, prices and its advertising. It is reasonable to use this strategy when the firm has at least three times more human and financial resources than the target. 2. Flank offensive. Represents a real marketing flair, usually used by companies with limited resources. It can manifest itself either in a geographical sense: the company occupies places not covered by the leading competitor; or segmentation: determines the needs of consumers that are not thought out by the competitor and satisfies them. Flanking strategy is the ability to identify and fill gaps between supply and demand. 3. Attempt to encircle. It implies offensive actions against the enemy in several directions at once, when the attacking side offers the market everything the same as its competitor, only in some ways its product is slightly better, so that the consumer cannot refuse the offer. 4. Detour maneuver. It involves an attack on the most accessible markets, which expands the company's resource potential. 5. Guerrilla warfare. It consists in small but multiple attacks of competitors from all sides: selective price cuts, intense blitz campaigns to promote goods, or, as an exception, legal actions. Attacking strategies: 1. Strategy of discounts. A company that claims to be a market leader can set prices low compared to prices for similar products of the leader. 2. Strategy of cheaper goods. The candidate for leadership has the opportunity to offer products of average or low quality at a much lower price. 3. Prestige goods strategy. The challenger for leadership offers higher quality products at a higher price than the market leader. 4. Strategy for expanding the product range. The challenger for leadership attacks the leader by providing customers with a wide choice of products. 5. Innovation strategy. The challenger must constantly disturb the leader by offering the market new types of products. 6. Strategy to improve the level of service. The bidder offers new or better services to customers 7. Distribution innovation strategy. The applicant must create new distribution channels for products. 8. Strategy to reduce production costs. The applicant must strive to reduce production costs by increasing procurement efficiency, reducing labor costs and/or using modern production equipment which allows for a more aggressive pricing policy. 9. Intensive advertising. Some challengers attack the leader by increasing their advertising spending. Follower strategies. Market Follower- an organization that pursues a policy of following industry leaders, prefers to maintain its market share without making risky decisions. However, a market follower can also choose strategies for expanding its activities that do not cause active opposition from competitors. The advantages of a market follower strategy are that it can draw on the experience of market leaders, replicate or improve the leader's products and marketing activities, usually at lower levels of investment and risk. There are four strategies of followers: imitator, double, imitator or opportunist. 1. Imitator. Duplicates the leader's product and packaging, selling the product on the black market or dubious intermediaries. 2. Double. Copies products, up to a slightly modified brand name. 3. Simulator. Something copies from the leader, but retains differences in packaging, advertising, prices, etc. Its policy does not concern the leader as long as the imitator does not launch aggressive attacks, moreover, the imitator helps the leader avoid a complete monopoly in the industry. 4. Adaptor. Usually modifies or improves the leader's product. He starts in some other markets to avoid a direct confrontation with the leader, very often the opportunist becomes a challenger. Many Japanese companies have gone this way. Niche dweller strategies. market niche is, in fact, a segment within a segment. Market niches can be quite profitable due to the high level of satisfaction of the specific needs of a limited number of customers at higher prices. Niche organizations serve small market segments that other competing organizations have either overlooked or overlooked. The key idea of a niche is specialization. Niche companies choose one of the following roles: 1. End user specialization Vertical specialization. 2. Specialization according to the size and importance of clients. The company focuses on serving small, medium or large customers. 3. Geographic specialization. The company sells goods/services in a particular locality or region. 4. Product specialization. The company produces only a certain product or its own single product line. Specialization in individual customer service. 5. Specialization in a certain ratio of quality and price. The company is engaged in the production of either high-quality or cheap products. 6. Specialization in service. The firm offers one or more unique services that are not provided by its competitors. 7. Specialization in distribution channels. The firm specializes in the development of a single distribution channel. Since the position in the niche may change, the company must take care to create new niches. It is worth noting that by operating in two or more niches, the company increases its chances of survival in an atmosphere of fierce competition. 4. Developing a Competitive Strategy The goal of a competitive strategy is to find and position itself in an industry where the company will be best protected from, or able to influence, the forces of competition. The pressure of cumulative power can be felt by all contending parties, but in order to cope with it, the strategy must be based on a careful analysis of the origin of each component. The stages of developing a competitive strategy include: Stage 1 - analysis of the market situation, which allows you to characterize the state of the market, market relations in dynamics, including identifying production volumes on the market, sales volumes, product prices, the number of sellers, the number of buyers, determine the market capacity, make a forecast of market conditions. Stage 2 - analysis of the competitive environment of the enterprise, which will determine which type market structures belongs to the object under study, assess the degree of development or underdevelopment of competition on it. Stage 3 - assessment of the strengths and weaknesses of the enterprise, which includes: analysis of the internal potential of the enterprise, analysis of the external environment of the enterprise, analysis internal environment company, which together will identify the strengths and weaknesses of the enterprise. Stage 4 - analysis of the competitive advantages of the enterprise, which involves the search for competitive advantages of the company, which can be the basis of a competitive strategy. Competitive advantage can be achieved in any of three main areas: - providing more benefits, selling cheaper goods; - justification of high prices by providing increased or original quality and service; - meeting the specific needs of a narrow group of consumers. Stage 5 - the choice of a competitive strategy. After conducting the analysis collected in the previous stages, the managers of the enterprise select the basic competitive strategy. Stage 6 - development of competitive alternatives and calculation of their effectiveness.

View competitive advantage and the sphere in which it is achieved is united by the concept of basic competitive strategy (BCS).

The BCS concept is based on the idea that each of these strategies is based on a certain competitive advantage. In order to achieve it, the organization needs to choose its specific strategy. This approach is clearly shown in Fig. 1.3. AT real business practice the following BCS.

1. Strategy of differentiation. The purpose of the strategy is to give the product-product distinctive features that are important to the buyer and that distinguish this product from competitors' offerings.

Rice. 6.3. Basic competitive strategies.

Differentiation, like cost leadership, protects the organization from competitive forces, but in a very different way. While distinctiveness usually comes at a higher cost, successful differentiation allows commercial organization to achieve greater profitability due to the fact that the market is ready to accept a higher price.

2. Cost leadership strategy. The focus of the entire strategy is low costs compared to competitors. The cost advantage creates a relatively effective defense against all five competitive forces.

3. Focusing strategy (according to Porter), i.e. specialization in the needs of one segment or particular group buyers without the desire to cover the entire market. Its goal is to meet the needs of the selected target segment better than competitors. Such a strategy can be based on both differentiation and cost leadership, but only within the target segment. As a result, the focus strategy is broken down into the following two basic competitive strategies. 1. Focused cost leadership. 2. Focused differentiation.

For a specific business position, only one BCS is selected and implemented.

One of the biggest strategic mistakes of the organization is the desire to use several basic competitive strategies at the same time, since in essence these BCSs are alternative.

Business strategy: typical options and situations

The business strategy of a particular business is the main and most important subsystem of an organization's strategy. In a situation where an organization carries out only one specific business, the business strategy and overall strategy match. In a situation where an organization simultaneously implements several businesses, good, i.e. effective, strategy is a system of effective business strategies.

So, in 3.1, in relation to the product marketing strategy, it was noted that a well-developed strategy should end with sufficiently specific, precise and technologically advanced strategic instructions from a managerial point of view. In other words, the final strategic positions should be simple and clear.

With all the variety of specific business situations and specific business strategies, the theory strategic management managed to reduce them to some limited number standard options, the use of which in management practice turned out to be quite effective.

Such strategies are characterized by the fact that they essentially ensure the implementation of only one clearly dominant strategic direction. As a rule, such an indication is present in the very name of a typical strategy.

In addition, the typicality of strategies is also given by the fact that for each of them there is a specific set of situations or conditions under which this strategy is most effective. There are also lists of fairly typical business situations and adequate lists of typical effective strategies.

The presented provisions are concretized and refined by the data in Table. 6.1., 6.2.

Table 6.1. - this is an example of one of the options for a list of typical strategies: 13 typical business strategies and 1 typical organizational strategy.

Table 6.2. - an example of one of the options for a set of typical business situations: for each of the 13 typical business strategies, there is a specific list of typical situations in which this strategy, as a rule, turns out to be quite effective.

Table 6. 2. Typical strategies (according to David)

No. p / p	Name	Purpose (key strategic direction)
	Direct integration	Acquisition of ownership or establishment of full control over distribution network
	Reverse integration	The desire to get suppliers of raw materials in the property or under full control
	Horizontal Integration	The desire to get their competitors in the property or under complete control
	Market Capture	The desire to increase the share of their product in traditional markets
	Market Development	Bringing your product to market in new geographical areas
	Product Development	The desire to increase the volume of sales through the improvement or modification of its product
		Creation of new production facilities that match the profile of the organization
		Mastering the release of new products that do not coincide with the traditional profile of the organization
		Mastering the release of new non-core products, but for traditional consumers
	joint venture	Teaming up with another company to work on a special project
	Reduction	Restructuring to reduce costs to stop the decline in sales volume
	rejection	Sale of a branch or part of an organization
	liquidation	Sale of all assets of the organization
	Combination	The organization simultaneously pursues at least two different typical business strategies

Source: David F.R. Fundamentals of Strategic Management. Merrill Publishing Company, 1986.

Table 6. 3. Typical situations

No. p / p	Strategy	Situation

	Direct integration	When marketing opportunities are limited in terms of creating strategic advantages for the organization in competition

When the stability of production is especially valuable (this is due to the fact that through own system sales easier to predict market demand)
	Reverse integration	When an organization's suppliers are expensive, uncooperative, or weak
When an organization competes in a fast-growing industry and markets are expected to continue to expand
When an organization needs fast supplies of raw materials and supplies
	Horizontal Integration	When an organization can become a monopoly in a certain region

When competitors make mistakes due to lack of management experience or lack of special resources that your organization has
	Market Capture	When existing markets are not saturated with the organization's product
When the rate of consumption of the organization's product by traditional consumers can increase significantly
When scaling up delivers key strategic benefits
	Market Development	When new low-cost reliable distribution channels appear
When an organization is very successful in its business
When there are new unexplored or unsaturated markets
	Product Development	When an organization competes in an industry characterized by rapid technological change
When major competitors offer better quality products at a comparable price
When an organization excels in its research and project capabilities
	Concentric diversification	When new core products can be offered on the market at sufficiently high competitive prices
When traditional products are in the dying stage of their life cycle
When an organization has a strong management team
	conglomerate diversification	When there is an annual decline in sales volumes and profits in the underlying industry
When existing markets for an organization's product are already highly saturated
	Horizontal diversification	When the addition of new, but at the same time non-core products could significantly improve the implementation of traditional
When an organization competes in a highly competitive and/or non-growth business
When traditional distribution channels can be used to market new products
	joint venture	When two or more companies specializing in different businesses come together to complement each other
When there is a need for a quick time-to-market new technology
	Reduction	When an organization is one of the most weak competitors in branch
When a company is inefficient, low-profit, has a staff with a low average level of executive discipline and is under pressure from shareholders
When the organization this moment grew so rapidly that there was a need for internal reorganization
	rejection	When the reduction strategy did not give the desired effect
When a department is responsible for a general decrease in the effectiveness of the organization as a whole
When a certain division does not correspond well with the rest of the company
	liquidation	When neither the reduction strategy nor the rejection strategy led to desired result
When shareholders of a company can minimize their losses by selling its assets

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Classification of competitive strategies according to L.G. Ramensky

According to the so-called biological approach proposed by the Russian scientist L.G. Ramensky, distinguish strategies for ensuring the competitiveness of the organization:violent, patient, commutative, explerent(Table 1).

Violet strategy It also implies the supply to the market of products of acceptable quality for consumers at low production costs, which allows manufacturers to set low prices based on a significant amount of demand. Violet strategy is typical for large companies, dominating the market and ahead of competitors due to low production costs (and, therefore, low prices) and high performance labor, which is possible when organizing mass (large-scale) production of goods aimed at the average buyer. A violent strategy can be pursued by large organizations with a stable reputation, which have gradually mastered significant market segments.

Characteristics of types of competition according to L.G. Ramensky

Characteristics of the strategy	Strategies
Characteristics of the strategy	violet	patient	commutative	explerent
Needs Oriented	mass standard	relatively limited, specific	local limited	innovative
Type of production	mass, large-scale	specialized, serial	universal, small-scale	experimental
Company size		large, medium, small		medium, small
Level of competition
Company stability in the market environment
Relative share of R&D spending			absent or small	high, dominant
Competitive Advantage Factors	high productivity, low unit costs	benefits from product differentiation	flexibility	advance in innovation
Development dynamics	high, medium
Type of innovation	improving	adaptive	is absent	breakthrough, cardinal
Range				is absent

Patent strategy is to serve narrow market segments with specific needs based on the organization of specialized production of products with unique characteristics, designed to conquer and retain relatively narrow market niches within which exclusive special-purpose goods of very high quality are sold. Manufacturers and sellers of such goods sell them on the market at high prices for wealthy buyers, which makes it possible to receive significant profits with small sales volumes. Competitiveness is achieved by the sophistication of the product that satisfies delicate tastes and requests, quality indicators that surpass the quality of similar products of competitors.

Commutative strategy It is designed to satisfy not rare, but rapidly changing, short-term needs of consumers in goods and services. The switching strategy is aimed at adapting to the limited demand of the local market, meeting rapidly changing needs, and imitating new products. Therefore, the commutation strategy is primarily characterized by high flexibility, which imposes special requirements on the restructuring of production for the production of periodically updated products. Typically, such a strategy is followed by non-specialized organizations with fairly versatile technologies and limited production volumes, when the implementation of this strategy does not aim to achieve high quality and sell at high prices.

Explerent strategy focused on radical innovations and entering the market with a new product. The exploratory strategy is based on achieving the competitive advantages of the organization through the implementation of constructive and technological innovations that allow them to outperform competitors in the release and supply of fundamentally new types of products to the market, by investing in promising but risky innovative projects. Such projects, if successful implementation allow not only to surpass rivals in the quality of products presented on the market, but also to create new markets where for a certain time they may not be afraid of competition, since they are the only producers of a unique product. The implementation of such a strategy requires a significant initial capital, scientific and production potential, and highly qualified personnel. The introduction of innovations is one of the radical means of obtaining competitive advantages, contributing to the monopolization of the market. Discoveries, inventions and other innovations make it possible to create new market with the prospect of rapid growth and great opportunities for the company. The vast majority of modern market leaders appeared precisely as a result of the development and use of innovations that lead to revolutionary changes in the market situation. Examples include leaders in the aviation, automotive, electrical, and computer technology, development software, which arose from small pioneer enterprises, whose innovations at one time literally “blew up” existing markets.

The main advantage of the innovation strategy is blocking the entry of competitors into the industry (on certain time) and guaranteed high profits. The lack of substitute products and the high potential demand for innovation create favorable market conditions for an innovative company.

However, as experience shows, due to the high risks caused by the unwillingness of the market to accept innovations, and in some cases, technical and technological imperfection and lack of replication experience and other reasons, 80% of these companies fail. But the prospects of becoming a leader in the industry, in the market and the associated economic benefits create an incentive for the development of innovative activities.

Implementing an exploratory strategy, as a rule, they have highly qualified personnel, a project management structure, and a venture business organization at the initial stages of the innovation process.

Prerequisites for the application of such a strategy: lack of analogues (products, technologies, etc.); the presence of potential demand for the proposed innovations.

Benefits of an exploratory strategy:

blocking entry into the industry during the validity of the rights to innovation;
the possibility of large volumes of sales and obtaining excess profits. Exploratory strategy risks:
great uncertainty in the commercialization of the innovation;
danger of imitation, rapid development of similar products by competitors;
unwillingness of the market to accept innovation;
lack of distribution channels for new products;
design, technological and other flaws in the innovation.

A company's competitive strategy describes the business approach and initiatives it uses to attract new customers, compete, and strengthen its market position. The goal is very simple and is to conduct business ethically and fairly in relation to competitors, achieve a competitive advantage in the market and create your clientele, the so-called circle of loyal customers. A company's competitive strategy usually involves both offensive and defensive actions taken depending on changes in the market situation. In addition, the competitive strategy provides for short-term tactical moves for an immediate response to the situation and long-term actions on which the future competitive opportunities of the company and its position in the market depend.

Companies around the world use a variety of methods to attract customers, gaining their trust on repeat sales, overtaking competitors and maintaining their place in this market. Since company management began to combine short-term and long-term tricks to match the specific situation of the company and the market environment, there is a huge number of options and nuances of strategy. This means that there are as many competitive strategies as there are competitors themselves. Among them, there are five options for a competitive strategy (According to Thompson):

1. Cost leadership strategy provides for a reduction in the total cost of producing a product or service, which attracts a large number of buyers.
2. Broad differentiation strategy is aimed at giving the company's products specific features that distinguish them from the products of competing firms, which helps to attract more buyers.
3. Cost Optimal Strategy enables customers to get more value for their money through a combination of low costs and wide product differentiation. The challenge is to provide optimal (lowest) costs and prices relative to manufacturers of products with similar features and quality.

4. Focused strategy, or market niche strategy based on low costs, is focused on a narrow circle of buyers, where the company is ahead of its competitors due to lower production costs.

5. A formulated strategy, or a market niche strategy based on product differentiation, aims to provide representatives of the selected segment with goods or services that best meet their tastes and requirements.

Picture. 1.4.. Five basic competitive strategies

According to Thompson in figure 1.4. five main strategies of competition are shown; each of them occupies different positions in the market and provides for completely different approaches to business management.

Table 1 presents the research of A. Thompson in which he indicated character traits five competitive strategies (for simplicity, the two varieties of focused strategy are combined under one heading, since their only distinguishing feature is the basis of competitive advantage):

Table 1. Distinctive features of the main competitive strategies

Characteristic	Cost Leadership	Broad differentiation	Optimal costs	Focused low cost and differentiation
Strategic goal	Targeting the whole market	Targeting the whole market	Value-conscious buyer	Narrow market niche where customer needs and preferences differ significantly from the rest of the market
The basis of competitive advantage	lower production costs than competitors	The ability to offer customers something different from competitors	Giving buyers great value for their money	Lower costs in a niche served or the ability to offer customers something special that suits their requirements and tastes
assortment set	Quality basic product with no frills (acceptable quality and limited selection)	Many varieties of products, wide selection, strong emphasis on the ability to choose among various characteristics	Product characteristics - from good to excellent, from inherent qualities to special	Meeting the special needs of the target segment
Production	Constant search for ways to reduce costs without loss of quality and deterioration of the main characteristics of the product	Finding ways to create value for customers; striving to create a superior product	Implementation of special qualities and characteristics at low cost	Production of goods corresponding to this niche
Marketing	Identification of those characteristics of the product that lead to cost reduction	Creating such qualities of goods for which the buyer will pay	Offering products similar to those of competitors at lower prices	Linking focused unique capabilities to meeting specific customer requirements
Strategy support	Reasonable prices / good value	Creating feature differences that will pay for	Individual management of cost reduction and product/service quality improvement at the same time	Maintaining a niche service level higher than that of competitors; the goal is not to undermine the company's image and not to scatter efforts by expanding into other segments or adding new products to expand the market presence

Based on the above, we can distinguish (according to M. Porter) three BASIC competitive strategies, which we will consider in detail below. They are:

ü Absolute leadership in costs.

b Focusing.

b Differentiation.

STRATEGY: ABSOLUTE COST LEADERSHIP

This strategy has become widespread due to the concept of the experience curve. It consists in achieving absolute industry leadership in costs based on a set of economic measures aimed specifically at this goal. Porter identified that in order to achieve cost leadership, businesses need to:

actively create production capacity of cost-effective scale,
vigorously pursue cost reductions based on the accumulation of experience,
tight control over production and overhead costs,
avoid small transactions with clients,
· minimize costs in areas such as research and development, service, distribution system, advertising, etc.

All of the above requires great attention to cost control on the part of management. Lower costs compared to competitors become the leitmotif of the entire strategy, although the quality of the product and service, as well as other areas, cannot be ignored.

Porter concluded that with the advantage of lower costs, the firm will generate revenues that exceed the industry average, and he will receive it even in the face of strong competition. A low-cost position protects the firm from competitors, since this level means that it is able to earn a profit in conditions where its rivals have already lost such ability. A low-cost position protects the firm from powerful buyers, since the latter can only use their power to drive prices down to the level of less efficient competitors. Low costs protect against powerful suppliers, giving the firm a greater degree of flexibility as input costs rise. Factors that ensure a low cost position also tend to raise barriers to entry associated with economies of scale or cost advantages. Finally, a low-cost position tends to favor the firm relative to competitors in relation to substitutes.

Thus, the low-cost position protects the company from all five competitive forces, because market forces continue to operate in the direction of lower profits only until they wipe out the profits of competitors following the leader in efficiency, and since less efficient competitors are the first to suffer. from competitive pressure. Achieving an overall low cost position often requires a relatively high market share or other equally important advantages. It may also require changing the product itself to make it easier to produce, releasing a wide range of similar products to share costs, serving all major customer groups in order to expand sales. The implementation of a low cost strategy, in turn, may require large upfront investments in latest equipment, aggressive pricing, starting losses to gain the necessary market share. A high market share can, in turn, contribute to economies of scale in the supply chain and thus further reduce costs. If the low cost position is achieved, it provides a high net profit and the possibility of reinvesting in new, modern equipment to maintain cost leadership.

Low cost manufacturing is attractive and needs to be protected from the five competitive forces.

* Faced with the challenge of competitors, a low-cost company is in a better position to compete aggressively on price, to defend against a price war, and to use lower prices to increase sales or win market share from a competitor. This advantage also generates industry average profits (through higher margins or higher sales volume). Low costs are good protection in markets where price competition is strong.

* Confronting the strength of the buyers, the company with low costs partially maintains the level of profit, since strong buyers are rarely able to reduce the price to the survival line of the most cost-effective seller.

* Considering the leverage of suppliers, it should be noted that a company with low costs is better protected from the dictates of suppliers if the basis of its competitive advantage in terms of costs is better internal organization. (Low-cost companies whose advantage comes from being able to purchase components at preferential prices from external suppliers may be vulnerable to strong suppliers.)

* From positions potential participants A cost leader in a market can lower the price to make it harder for newcomers to win customers. The price power of a cost leader is a major barrier to entry into the industry.
* In competition against substitute products, the cost leader has a good position, since the use of low prices is a good defense against companies trying to introduce similar products and services to the market.

Low costs allow the company not only to install low prices and create barriers to protect their positions, but also make a profit. Sooner or later, price competition will become the main force in the market, less successful companies will be crushed by stronger ones. Firms with low costs are in a stronger position relative to competitors to meet the desire of customers to get a low price.

Competitive cost leadership strategy-- especially strong in the following cases (according to Thompson's research):

1. Price competition among sellers is especially strong.
2. The product produced in the industry is standard, the characteristics of the product meet the requirements of the entire range of consumers (such conditions allow buyers to make a purchase decision based only on the best prices).
3. There are several ways to differentiate a product in order to attract a buyer (assuming that the differences between brands do not matter to the buyer), but the differences in price for the buyer are significant.
4. Most buyers use the product in the same way -- satisfying general requirements in use, the standardized product fully satisfies the needs of customers. In this case, it is the price, and not the features or quality of the product, that is the dominant factor determining consumer preferences.
5. Buyers' switching costs for switching from one product to another are low enough to give them some freedom of choice in finding products with a lower price.
6. There are a large number of buyers who have serious power to reduce the price.

As a rule, most price-sensitive buyers opt for the lowest price. In this case, the low cost strategy will inevitably lead to success. In markets where the main competition is around price, low costs relative to competitors are a serious competitive advantage.

As a conclusion on the absolute cost leadership strategy, we can say that in order to avoid the problems and dangers of the cost leadership strategy, managers must understand that the strategic goal of "low costs" compared to competitors does not mean that this idea is absolutized. While gaining cost leadership, managers should not ignore other issues that buyers attach importance to. Moreover, a competitive strategy is promising if the value of competitive cost advantage is stable enough at key points where the company has achieved cost advantage, and it is difficult for competitors to copy it or get close to it.

STRATEGY: DIFFERENTIATION

The second basic strategy is the strategy of differentiating the product or service offered by the firm, that is, creating such a product or service that would be perceived within the framework of across the industry as unique.

Differentiation can take a variety of forms. Such forms were defined by Porter:

prestige of design or brand (Fieldcrest in the production of towels and linen, Mercedes in the automotive industry),
By technology (Hyster in the production of forklifts, Macintosh in the field of stereo components, Coleman in camping equipment),
· on functionality(Jenn-Air in the production of electric stoves),
consumer service (Crown Cork and Seal in the production of metal containers),
· by dealer network (Caterpillar Tractor in construction equipment) or by other parameters.

Ideally, a firm differentiates itself in several ways. For example, Caterpillar Tractor owes its fame not only to the dealer network and excellent organization of the supply of spare parts, but also high quality and product reliability, which is very important for heavy construction equipment whose downtime is expensive.

It should also be noted that the differentiation strategy does not mean a weakening of attention to costs, in this case they are only a non-primary strategic goal. A differentiation strategy, if successfully implemented, is an effective means of achieving above industry average profits, as it creates a strong position against the five competitive forces, albeit in a different way than a cost leadership strategy.

Differentiation protects against competitive rivalry because it creates consumer brand loyalty and reduces product price sensitivity. It leads to an increase in net profit, which reduces the severity of the cost problem. Consumer loyalty and the need for competitors to overcome the product uniqueness factor creates a barrier to entry into the industry.

Differentiation provides a higher level of profit to resist the power of suppliers, and also allows the power of buyers to be moderated, since the latter are deprived of comparable alternatives and therefore less price sensitive.

As a result, a firm that has differentiated and earned consumer loyalty has a more favorable position than its competitors in relation to substitutes. The implementation of differentiation can sometimes prevent the achievement of a high market share, since often the concept of product differentiation implies its exclusivity, which immediately excludes a high market share.

However, differentiation presents an alternative to a low-cost position, since the measures required to achieve it are costly. Such measures include:

large-scale research and development,
Purchase of high quality materials
Intensive work with clients.

Even if all consumers in an industry recognize the superiority of a particular firm, not all of them will be willing or able to buy the product at a higher price. In other types of business, differentiation may be compatible with relatively low level costs and do not interfere with the establishment of prices comparable to those of competitors.

Successful differentiation allows the firm to:

* set an increased price for a product / service;
* increase sales (because a large number of buyers are attracted due to the distinctive characteristics of the product);
* win customer loyalty to your brand (because some customers become very attached to additional product features).

Areas where there is room for differentiation.

The opportunity for successful differentiation exists in the actions being implemented along the entire industry value chain.

The most common moments when there is a possibility of differentiation are associated with the following links in the value chain (according to Thompson):

1. Logistics of those links that have the strongest impact on quality final product company (McDonald's has very strict requirements for the preparation of french fries, so there are clear specifications for potatoes purchased from suppliers).
2. Product development activities based on new research and development can potentially improve product design and performance, expand product end-uses and applications, make products more diverse, reduce new product development time, be first to market more often, ensure product safety, recycle used products and improve environmental protection.
3. The R&D-oriented production process allows manufacturers to use more advanced technologies that protect the environment, improve product quality, capabilities or attractiveness.
4. Improvement production process allows you to reduce scrap, prevent premature damage to products, increase the life of the product, provide greater safety, improve the economy of use, do everything so that the end consumer is interested in the appearance of such a product. (Quality end products Japanese automakers is the result of superior manufacturing process and assembly line operations.)
5. Ensuring shipments and product distribution activities can speed up delivery, more accurately fulfill orders, reduce warehouse space and reduce stocks of finished goods.

6. Actions for customer service, carrying out marketing research and sales support can result in distinctive features such as customer assistance, faster service and repair, better and more complete product information, more teaching materials for end users Better conditions sales, fast execution order, more frequent contact with the client and, finally, ensuring that it is convenient for the buyer. (IBM has added value to its products by offering its mainframe customers proactive technical support and 24/7 preventive maintenance.)

Managers need to fully understand the sources of differentiation and the activities that will lead to product uniqueness in order to give voice to a differentiation strategy and develop different approaches to differentiation.

Achieve competitive advantage based on differentiation. The key to a successful differentiation strategy is to create customer value in a way that is different from the competition. There are several approaches to creating customer value. Consider a few of them in more detail:

DIFFERENTIATED PRODUCT FEATURES THAT REDUCE CUSTOMER COSTS

Thompson developed a series of solutions that showed how to use the product produced more economically. A company should not lower the price to make it cheaper for the customer to use their product. The alternative is to give the product/service features that would allow the customer to:

· Reduce unnecessary waste and materials thrown away by the buyer. An example of a differentiating feature is returnable components (dishes, waste paper, etc.).
· Reduce buyer labor costs (less training time, lower skill and craftsmanship requirements). Examples of features are special assembly tools, modulators for replacing interchangeable components.
· Reduce buyer time. Examples are products with higher performance, availability of off-the-shelf parts, or less frequent maintenance.
· Reduce customer storage costs. An example of a differentiating characteristic is just-in-time delivery.
· Reduce buyer's waste disposal and pollution control costs. An example is the collection of waste and their subsequent processing.
· Reduce the buyer's logistics costs. An example is a computerized system for taking orders and issuing invoices.
· Reduce maintenance and repair costs. An example is the exceptional reliability of equipment.
· Reduce buyer's installation, bidding or financing costs. An example is payment within 90 days at the same price as for cash.
· Reduce the buyer's need for other goods/services (electricity, protective equipment, security, quality inspection, other tools and mechanisms). An example is high performance liquid fueled power equipment.
· Increase the benefit of using the model.
· Reduce the buyer's repair costs in the event of a sudden breakdown. An example is a long warranty period.
· Reduce customer costs technical staff. Example -- free technical support and help.
· Increase the efficiency of the buyer's production process. Examples - acceleration of processing of products, better interfacing with auxiliary equipment.

DIFFERENTIATIVE FEATURES OF THE PRODUCT THAT INCREASE THE EFFICIENCY OF ITS USE

This approach, according to Thompson, allows you to create a more perfect product and its consumer price. It is possible to increase the effectiveness of the goods/services offered to the buyer due to the following specific features and characteristics:

· Offer customers products that are more powerful, durable, comfortable, or easier to use.
· Make the company's product / service cleaner, sleeker, calmer or requiring less maintenance compared to competitors' products.
· Raise manufacturing standards over existing ones.
· Meet the requirements of customers to a greater extent than competitors offer.
· Give customers the opportunity to complete the product or receive more later perfect model offered for sale.
· Give the buyer more flexibility in adapting their products to the needs of their customers.
· Do your job even better to meet the buyer's returning requirements.

As a conclusion on the differentiation strategy, we can say: differentiation creates a certain protection for the company from the strategies of rivals, as buyers develop loyalty to the company's brand or model and they are ready to pay (a little, and possibly a lot) for the product they like. . Successful differentiation:

1) creates entry barriers (due to customer loyalty and product uniqueness) for newcomers to the industry, which are difficult for them to overcome;

2) smooths out the influence of the power of buyers, since the products of alternative sellers are less attractive to them.
3) helps the company avoid the threat from substitute products, since their characteristics and qualities are not comparable with differentiated products.

In addition, if differentiation allows a company to charge a higher price and have a higher profit margin, then it is free to resist the force of suppliers trying to raise the price of the products they supply. Thus, like cost leadership, successful differentiation creates defensive lines against the five competitive forces.

FOCUS STRATEGY

The third basic strategy is focusing on a particular customer group, product line, or geographic market segment. Like differentiation, focusing can take many forms. However, if the goals of a low cost or differentiation strategy apply to the industry as a whole, then a focus strategy means focusing on a narrower goal, which affects the activities of all functional areas of the business.

The basis of this strategy is the assumption that the company with its help is able to pursue a narrow strategic goal with greater efficiency or productivity than competitors operating in a wider area. As a result of its implementation, the firm achieves either differentiation due to better satisfaction of the needs of the target market, or lower costs in servicing this market, or both.

Even if the focus strategy does not lead to low costs or differentiation in terms of the market as a whole, it allows one of two or both of these positions in the space of a narrower target market. A firm pursuing a focus strategy also has the potential to earn higher profits than the industry average. Its focus suggests either a low-cost position within strategic goal, or a high degree differentiation, or both.

As we can see, when considering cost leadership and differentiation strategies, these positions provide protection against all competitive forces. In addition, focusing can serve as a means of selecting targets least threatened by substitutes, or those areas in which competitors are weakest.

Focused strategies become attractive when a number of conditions are met:

* the segment is too big to be profitable;
* the segment has a good potential for growth;
* the segment is not critical for the success of most competitors;
* a company using a focus strategy has enough skills and resources to successfully work in the segment;
* A company can defend itself against challenging firms by virtue of customer benevolence towards its superior ability to serve segment buyers.

The special skills and abilities of the company using this strategy in serving the target market niche provide a basis for protection against the five competitive forces. Firms operating in different segments may not have enough competitive opportunities to serve their target customers. The competence of a firm that focuses its efforts on a market niche erects entry barriers that make it difficult for competitors to enter the target segment. The company's exceptional ability to serve a niche market also makes it difficult to penetrate the target segment of substitute products. The impact of strong buyers is greatly reduced, in part by their own reluctance to do business with less capable competitors.

As a conclusion on the focusing strategy, we can say that focusing works well when:

1) it is quite expensive and difficult for firms operating in various segments to meet the requirements of buyers of a specialized niche;
2) none of the competing firms makes an attempt to specialize in this segment;
3) the firm does not have enough resources to serve a wider market share;

4) There are many different segments in the industry, which allows the company to choose its niche according to its strengths and abilities.

CONDITIONS FOR THE IMPLEMENTATION OF BASIC STRATEGIES

The three basic strategy options differ not only in the functional characteristics discussed earlier, but also in other parameters. To successfully implement them, various resources and skills are required. In addition, different organizational conditions, control procedures and incentive systems are needed for basic policy options. Therefore, to achieve success, as a rule, a long-term commitment to a certain strategy as a task of paramount importance is required. Below are some of the conditions of general importance associated with the implementation of the basic options for the strategy developed by M. Porter.

Table 2. Basic strategy options

Basic strategy	General Resource and Qualification Requirements	General requirements for organizational conditions
Absolute cost leadership	Real investment and access to capital Technological process development skills Careful supervision and control of labor processes Low cost system *Product design that facilitates production	Strict cost control Frequent and detailed control reports Clear organizational structure and accountability Incentives based on clear quantitative indicators
Differentiation	High marketing potential Product design Creativity High fundamental research potential High reputation for product quality or technological leadership firms Significant industry experience or a unique combination of skills from other industries *Close cooperation with distribution channels	Close functional coordination of R&D, product design, and marketing Subjective assessments and incentives instead of quantitative indicators Opportunities to attract a highly skilled workforce, researchers and creative staff
Focusing		A combination of the above conditions and measures aimed at achieving a specific strategic goal

Basic strategy options may also require different leadership styles, significantly change the corporate culture and atmosphere, and attract different types of people.

Competitive basic strategy is. Basic strategies of the company in competition

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