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[CHAPTER 6] March 5, 2012 INTRODUCTION 1.

1 Model of Competitive Generic Strategy The generic competitive strategies are one of the marketing tools in the business. For businessman who are having analyzed of an attractiveness of respected industry, he or she must to decide what strategies will allow for their business to compete most effectively. COST STRUCTURES LOW COST Overall Cost Leadership (OCL) HIGHER COST Differentiation

BROAD- industry wide or many segments MARKET SCOPE NARROW- single segment or niche

Best-cost producer

FocusLow cost


Figure 1 Model of competitive generic strategies

There are variety kinds of strategies. For example growth strategies and future activity based strategies. There are also strategies that linked to competitive position. In generic competitive strategies (Figure 1) it helps strategists understand how the position of a company within its industry can be directly related to the strategy it employs. From the strategy that have been applied, then they able to analyze in order to understand where a companys competitive advantage lies, with intention to maintain it. In business world there must always some businesses that gained more profit than the other even they served the same target market and offer the same product usage. Thus, for any company that maintain at maturity stage is because they are able to achieve sustainable competitive advantage. Either the company achieve significantly lower cost structures than all competitors that are sustainable long terms or if the cost structure is high, the offering have differentiation in some point which totally different from other, have unique feature and importantly not easily copied. Michael Porter is person that responsible in identifying the two main types of competitive advantage as cost advantage and differentiation. In developing and maintaining their competitive advantage, companies have the option to adopt one of the three generic strategies: cost

[CHAPTER 6] March 5, 2012 leadership, differentiation or focus. The focus strategy can be achieved in one of two ways, depending on the cost structure achievable by the business. Which are focus- low cost and focusdifferentiation. It ends up with total of four strategies. However, there is some argue from Thompson and Strickland that argue for existence of fifth strategies that call as best cost producer. The strategy describes those businesses that pursue a low-cost strategy while differentiating themselves from other and offering customer better value. This strategy seems to fit well with some businesses for current business world today which emphasize more the important of this strategy. 1.2 History of the Business World In Porters article that written in 2003 call as Strategy and the Internet shown that Porter has renamed those strategies. For overall cost leadership (OCL) is call as operational effectiveness meanwhile for differentiation is now known as strategic positioning. As well as for focus it becomes a combination of one of these with a narrow market scope. However, the original term is already applied by most of theorist thus it is more comfortable to discuss all the strategy by using the original term. There is a lot of argument among the theorist regarding, is it possible for any business apply more than one strategy. The statement of stuck in the middle is represent the situation for firm that have no clear direction of strategy but simply do what others do. Moreover, it is situation whereby the firm is unlikely to be attractive to high-volume and low-customer or high-price or value-based customer. Such businesses also suffer a lack of corporate direction and organizational confusion.


[CHAPTER 6] March 5, 2012 COMPANY IKEA STRATEGY APPLIED Combine cost management with clear differentiation Woolworths Supermarkets The Sainsbury Combine cost management and minimization policies Best Cost Producer Coles IMITATOR/COMPETITOR Freedom Furniture

Figure 2 Example of company that applied competitive generic strategy As theorist state that it is impossible for any firm to apply more than one strategy, IKEA and Woolworths Supermarket prove otherwise. As shown in Figure 2 IKEA which is a furniture retailer, have experienced very successful profit by combining cost management strategies with clear differentiation which no other furniture retailer could done. Looking from the success of IKEA, there is Freedom Furniture who imitates the strategies and management that have been applied by IKEA. Like IKEA, Woolworths Supermarkets also applied cost management and minimization policies. Due to both strategies, Woolworths Supermarket able to give value of differentiation that have been offered by its main competitor Coles. Coles which could not compete with Woolworths end up shut the business in 2007. Coles management finally announced that it was up for sale, as it could not match the cost management practices of Woolworths. Meanwhile, the Sainsbury supermarket chain in England is example of company who applied of applying best cost producer strategy.


[CHAPTER 6] March 5, 2012 OVERALL COST LEADERSHIP 2.1 Introduction First and foremost, the strategy that requires firms to develop policies aimed at becoming and remaining the lowest-cost producer or distributor in the industry is known as overall cost leadership. The company strategies aimed at controlling costs include construction of efficientscale facilities, tight control of costs and overhead, minimization of operating expenses, requires a business to maintain substantially lower costs than competitors and sustain the cost differential over time. The companies who are apply this strategy gained competitive advantage by getting its cost of production or distribution lower than those of the firms in its market. In simple explanation is that its competitors are not able to lower their costs to the same point and lost in business battle. This strategy is generally applied to business targeting multiple segments, or the entire industry, and therefore really only applies to the larger companies in the industry with substantial resources and market share. The strategy is especially important for firms selling unbranded commodities such as beef or steel.

2.2 Method in Applying OCL Cost leadership requires the business to plan all its operations around achieving the lowest possible cost structures. Methods of achieving this include combining some or all of the following activities: Outsourcing non-essential activities which is to reduce the workforce as it is the most expensive parts of any business Limiting internal expenditure on accommodation and management extras Managing and minimizing waste very well Redesigning production processes to automate wherever possible: This will speed up production, provides consistent quality and reduces costs by removing the human element By using backward integration or forming strategic alliances to create cheaper raw materials or essential component parts

[CHAPTER 6] March 5, 2012 Improving processing efficiencies to reduce production complexity and cost; for instance, standardizing wherever possible, particularly internal parts that the customer cannot see or aspect the customer doesnt care about, such as packaging Maximizing internal cost efficiencies through market share and designing operations to achieve maximum capacity usage Involving employee in the cost management process and providing cost-effective incentives, such as share packages instead of wage increases Relocating labor-based production to low labor cost locations such as South-East Asia, China or Mexico 2.3 The Specific Strength In order to effectively carry out the OCL strategy, a business needs specific strength as a follow: Ongoing capital investment- Good access to capital is needed and the ability to raise further capital when needed at a lower cost than competitors. A good financial base and credit record are essential here High levels of engineering expertise to allow the most efficient product design and production processes. The company needs to identify and create management policies that will identify, attract and keep well-trained and innovative staff Excellent supervision of labor to ensure maximum efficiency. This should be carried out in a positive and motivating manner, as a prime source of industrial sabotage is disgruntled worker Total understanding of cost drivers within the business including an understanding of which ones can be adjusted without harming quality or positioning in customers eyes Efficiencies in distribution and marketing to minimize without losing impact


[CHAPTER 6] March 5, 2012 2.4 Reason for Pursuing OCL

Dollars SP0 P0 C0 Cn Pn

Company A

Company B

Figure 3 Competitive advantages through low cost leadership

Figure 3 shows the competitive advantage firms may achieve through OCL. C o is the cost of production that most of other company may produce which in this case cost produce by Company A. Meanwhile Cn is representing cost of production that firm may achieve as it produces lower cost of production which is Company B. SPO is the selling price that has be offer by both company to the market. Lastly P show the profit margin gained by both company. As we can see Company A has less profit margin than Company B since Company B able to produce offering with lower product. From these additional gross profit that enjoyed by Company B will give variety of purposes that give benefit to the company. For example: Able to spend more on marketing, selling and distribution to gain additional market share (this will generate even lower until costs as internal economies increased) Can spend more on research, product development and refinements to attract higher prices as customers needs are better met Able to fund an integration or diversification growth program Initiate a price war to drive less cost-efficient competitors out of the market Use the low-cost advantage to keep price low, making the industry, market or segment less attractive for potential new entrants Return more dividends to shareholder enhancing the businesss reputation in the marketplace and making it easier to gain additional capital if needed


[CHAPTER 6] March 5, 2012 2.5 OCL and the Five Forces BY using OCL, a business can make the industry or market it is in more attractive for it and less attractive for competitors and counter the impact of the five forces. It can be seen clearly form Figure 4 below Five Forces Intensity of rivalry/ competition Explanation Lower cost structures give a business more choices. They can use the additional revenue to intensify the competition, forcing competitors to follow suit and increase their costs or to lose market share. The low-cost advantage also allows the business to start and win the price war, as it can still generate some profit at the price point at which all other competitors reach their break-even point OCL creates entry barriers, as any new entrants are automatically in worse cost position. This makes it harder to compete and give the industry, market or segment a lower attractiveness Lower-priced substitutes will always be a threat; however the business with the lowest cost structure can afford to move its pricing closest to the substitute offer. It can also use its additional profit margins to create buyer loyalty or emphasize the differentiation importance, raising switching costs Maintenance of low cost structures throughout the business allows it to better absorb price increases from individual suppliers. The additional revenue also allows the business to have the resources to source elsewhere, or seriously consider backward integration to become its own supplier, thus negating the power of external suppliers Individual buyers or buying groups be using their power to drive down prices throughout the industry, the business with the lowest cost structure will always be in a better position than less efficient competitors. It can also use the additional revenue to forward integrate or seek new markets, lowering the power of existing buyers

Threat of new entrants

Threat of substitutes

Bargaining power of suppliers

Bargaining power of buyers

Figure 4 OCL with five forces


[CHAPTER 6] March 5, 2012 2.6 Disadvantages of OCL Overall cost leadership is not without potential problems. Two or more firms competing for cost leadership may engage in price wars that drive profits to very low levels. Ideally, a firm using a cost leader strategy will develop an advantage that is not easily copied by others. Cost leaders also must maintain their investment in state-of-the-art equipment or face the possible entry of more cost-effective competitors. Major changes in technology may drastically change production processes so that previous investments in production technology are no longer advantageous. Finally, firms may become so concerned with maintaining low costs that needed changes in production or marketing are overlooked. The strategy may be more difficult in a dynamic environment because some of the expenses that firms may seek to minimize are research and development costs or marketing research costs, yet these are expenses the firm may need to incur in order to remain competitive. There are several clear stated disadvantages in applying OCL: 1) Competitor may find it comparatively easy or inexpensive to imitate the leaders low cost methods, other than those based on market share, reducing the advantage gained 2) Technology breakthrough open up cost reductions for competitors, negating a low-cost providers efficiency advantages 3) Changes in consumer demand may result in cost advantages being lost through needing to change production methods or the market size shrinking as customer go elsewhere

The low-cost provider can become so fixated on cost reduction it fails to respond to: Increased buyer desires for added quality or service features New developments in related products Declining buyer sensitivity to price Employee discontent leading to key staff and management being lured away by more attractive offers from competitors


[CHAPTER 6] March 5, 2012 DIFFERENTIATION 3.1 Introduction The second generic strategy, differentiating the product or service, requires a firm to create something about its product or service that is perceived as unique throughout the industry. Whether the features are real or just in the mind of the customer, customers must perceive the product as having desirable features not commonly found in competing products. The customers also must be relatively price-insensitive. Adding product features means that the production or distribution costs of differentiated product may be somewhat higher than the price of generic, non-differentiated product. Customers must willing to pay more than the marginal cost of adding the differentiating feature if a differentiation strategy is to succeed. Differentiation strategy is used where the company sees its key product competencies as a more profitable advantage than simple cost leadership.

3.2 Method in Applying Differentiation Differentiation is generally achieved using three main methods: 1) Functional capabilities 2) Product performance 3) Specifically targeting and satisfying customers need Differentiation may be attained through many features that make the product or service appear unique. Possible strategies for achieving differentiation may include:

warranties (e.g., Sears tools) brand image (e.g., Coach handbags, Tommy Hilfiger sportswear) technology (e.g., Hewlett-Packard laser printers) features (e.g., Jenn-Air ranges, Whirlpool appliances) service (e.g., Makita hand tools) quality/value (e.g., Walt Disney Company) dealer network (e.g., Caterpillar construction equipment)

Differentiation may lead to customer brand loyalty and result in reduced price elasticity. Differentiation may also lead to higher profit margins and reduce the need to be a low-cost

[CHAPTER 6] March 5, 2012 producer. Since customers see the product as different from competing products and they like the product features, customers are willing to pay a premium for these features. As long as the firm can increase the selling price by more than the marginal cost of adding the features, the profit margin is increased. Firms must be able to charge more for their differentiated product than it costs them to make it distinct, or else they may be better off making generic, undifferentiated products. Firms must remain sensitive to cost differences. They must carefully monitor the incremental costs of differentiating their product and make certain the difference is reflected in the price. 3.3 The Specific Strength In order effectively carry out the differentiation strategy, a business needs some or all of the following specific strengths: Excellent marketing capabilities, it is through the marketing effort that customers will become aware of the differentiation and be convinced that they are being offered value for which it is worth paying a premium price Access to skilled research and development to identify needs and develop innovative solutions A high level of product engineering skills- needed to maintain high levels of quality Corporate reputation to match the differentiation sought Effective and efficient distribution channels Creativity and innovation to create and market offerings that are, or that the customer will believe are different A high level of integration so that all parts of the business reflect and reinforce the point of differentiation

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[CHAPTER 6] March 5, 2012 3.4 Reason for Pursuing Differentiation By consider the following example where help to understand what the benefit by applying differentiation strategy: Business A UNIT COST $10.90 Business B UNIT COST $8.00 UNIT PRICE $22.00 UNIT PROFIT $14.00 TOTAL UNITS 100,000 TOTAL PROFIT $1,400,000 UNIT PRICE $26.00 UNIT PROFIT $15.10 TOTAL UNITS 100,000 TOTAL PROFIT $1,510,000

Figure 5 Comparison of total profit between Business A and B From the figure 5 above shows that Business A have higher cost production than Business B which is much lesser. Due to that Business A is sell at higher price for per unit price. Business A is business who provide unique feature that not be offered by Business B. Thus it is reasonable for Business A has higher cost production and offer a bit higher unit price than Business B. Business A has a gross unit cost of 41.92 per cent of selling price. Business B has a gross unit cost of 36.36 per cent of selling price, which is 5.56 per cent lower than Business As product. However, as Business A can sell at higher price, it earns $1.10 per unit higher profit than Business B. At the same number of units, Business A earns $110,000 more gross profit. In fact Business A could afford to sell 7,284 units less than Business B and still earn the same profit.

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[CHAPTER 6] March 5, 2012 3.5 Important of Differentiation There is situation when this strategy play important role for firm to gained big benefit from it. The situations are: Markets are crowded, making it necessary to stand out Customers have low switching costs because all offering are seen similar Customers are more interested in value buying than price buying Offering have parity, that is, they are basically the same There is potential for substantial segmentation within the market, based on real or created needs Significant tangible or intangible needs are being ignored by competitors 3.6 Differentiation and Five Forces Five Forces Intensity of rivalry/ competition Explanation Differentiation that is valued by customer will create loyalty, increase switching costs and counter the marketing efforts by competitors to lure customers, whether by lower prices or other advantages that are less desired by the customers Threat of new entrants Due to the uniqueness that have been offered will cause for strong brand loyalty and create barriers to entry. It is dissatisfied customers that create opportunities for new entrants Threat of substitutes As product offered a unique feature will create strong brand loyalty and valued by customer cause them increase switching costs and lessen the threat imposed by substitutes Bargaining power of suppliers The higher price commanded by the differentiated business can be used to offset any cost increases caused by suppliers with high bargaining power Bargaining power of buyers The more buyers value the point of differentiation the less price sensitive they become

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[CHAPTER 6] March 5, 2012 3.7 Disadvantages of Differentiation Differentiation is like another alternative strategy for OCL. It is basically most common apply by company. However, there are some disadvantages: Advance in technology will cause imitation much easier Buyers are better informed and have a wider variety of information sources readily available. This, combined with increased levels of worldwide consumer activism means that points of differentiation that are based on intangibles are becoming less credible and less valued by some parts of the market Changes in macro-environment factors, particularly demographic and cultural factors, may make point of differentiation less valued by customer Differentiation on particular feature may not be perceived by buyers to be lowering their cost or enhancing their well-being Over-differentiation can make a products feature exceed buyers needs It is possible to over-estimate the price premium customers will be willing to pay

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[CHAPTER 6] March 5, 2012 FOCUS 4.1 Introduction Focus in generic strategies was divided into two, which is focus-low cost and focusdifferentiation. Therefore, they hold the third and fourth strategies in competitive generic strategies. In simple word, focus is a refinement of either the differentiation or the cost leadership strategy (OCL). What differ between CSL and differentiation with focus-low cost and focus-differentiation is, both CSL and differentiation suited for broad market segment and focuslow cost and focus-differentiation applicable in narrow market segment. Thus, it shows that those two focus strategies often been used by the small producers who concentrate on a single product category or market segment. In additional, the segment may be a demographic, psychographic, or benefits sought type segment, or it may be a geographically based segment.

4.2 Focus-low cost Reviewing from the introductory of focus generic strategy, focus-low cost is similar to OCL but on a narrow, segment based approach rather than wide-industry. By lowering cost, the producer may gain an advantage and gain more profit compared to the competitors. If the cost of making 175 gram toothpaste for company A is RM 3.00 and the cost of making the same weight and toothpaste for company B is RM 3.80, but both company sell the toothpaste for the same price, RM 5.00, we can clearly see that company A making more profit rather than company B. we also know that both OCL and focus-low cost apply the same theory, the major different with both is the total profit. Since OCL is often apply to broad market segment, OCL will have larger total profit due to the larger number of units sold. Much smaller business can remain quite profitable using a combination of focus-segment and cost management.

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[CHAPTER 6] March 5, 2012 4.3 Focus differentiation Focus differentiation is one of a strategy that using uniqueness of the product as the main strength but of course this happen in a narrow market segment. This strategy can be pursued when the customers concerned more about the differentiation of a product rather than the price. One of the most advantages of focus differentiation is, it is difficult for competitors to imitate the products. For example, even if the drinks products of Yakult and Vitagen is almost the same (provide healthy drinks for stomach and intestine), there is also difference despite the similarities can be seen quite large. Yakult is just the only provide probiotik drinks which have strong and good bacteria (strain), differ with Vitagen in which it gives advantage to Yakult when customers prefer more to something that gives more benefits even the price is a bit higher. The other example would be the Sensodyne that offered toothpaste for sensitive gum.

4.4 Reason for pursuing focus Usually, new producer will start their business from bottom to up, from a narrow market range to a broad market range and just concentrate on one part or segment. So, this focus generic strategy is the most often used by the new comers. Expanding the growth of business to broad market will depend on the producer itself whether to remain with their chosen segment or gradually grow and develop their business. As their business growth bigger, their focus business will perhaps shift to the overall cost leadership or differentiation strategy. In addition, focus strategy is the most suitable choice for small to medium sized business that do not have the resources or desire to grow beyond what they see as manageable size. A focus strategy also sometimes be the choice for some SBUs within a larger corporate structure. Usually, the corporate owners may identify some desirable narrow market scope opportunities that will provide additional value to the business and their customers.

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[CHAPTER 6] March 5, 2012 4.5 Focus and the five forces 1. Intensity of rivalry or competition The strength of differentiation of a company may reduce the impact of rivalry or competition from the direct competitors or even geographically indirect competitors by creating a strong loyalty of customers toward the product. Whereas, in focus-low cost

2. Threat of new entrants The strongest competitive advantage for focus competitors would be the customer loyalty. When a differentiate product was sold at lower price, they will gain customer loyalty by repurchased of the products. This would deter the entrants for competitors to enter the market or it is very difficult to gain market share.

3. Threat of substitutes The threat of substitutes is lessened. It is due to the main concept of focus strategy is the needs of a specific group of customers are not being served by the existing of mainstream offerings. So, since the focus strategy provided the focused business, the customers need remain important to them. So, the threat of substitute is lessened.

4. Bargaining power of suppliers Since the focus strategy is in a small and narrow market, supplies generally tend to have higher bargaining power, which can give impact on the cost structure of focus business. This impact might be lessened if the company able to pass the high cost of structure to the customer in form of premium price. Since the product is different, some of the customers do not care but the cost surely must not too high.

5. Bargaining power of buyers Buyer power is low due to the limited competitors and resources itself. Since the market is low, the customers have no choice to choose. So, they have to buy from the producer. For example, there are not many business involved in selling kerepek. So, when people who like to eat kerepek see them, they will just buy, because sometimes it is quite hard to see people sell kerepek in town.
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[CHAPTER 6] March 5, 2012 4.6 Disadvantages of focus 1. Higher cost structure Since focus generic strategy is involve in narrow market and small size business, the most disadvantage would be the higher cost structure. Focus strategy might increase the cost and this will lead the producer to sell their product at higher price than other competitors. The problem might arise if the customers are no able or willing to pay for the price, hence the profit might lose.

2. Suppliers generally have more power Suppliers are the most important person to the producer as the suppliers might supply materials needed by the producer. So, sometimes they may not give the focus business the attention or materials that they need. Hereby, even if the producers have an idea of differentiation, if the materials needed are lack, it would be trouble.

3. Needs of the focus segment may change Time changes fast in this modernization era. If the need of the focus segment change, the businesss offerings will be no longer relevant or desired. In a simple word, the focus segment is already out-dated.

4. Technology change may reduce barrier to entry Fast changes in technology may also make it easier for the low-sourced of new entrants to penetrate the market. For examples, since everyone is fascinated for tabs and mobile phones, there are a flooding of business selling mobile phones and tabs and most of them are up to date.

5. Macro environmental change Large increased in retrenchment in recent years may result in increased competition as sole operators who seek a share of the market for example pets-grooming, lawnmowing and small sub-urban restaurants and take-away food business in recent years. These new competitors might provide even better and greater focus to serve the customer need, better than the original provider.
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[CHAPTER 6] March 5, 2012 BEST COST PRODUCER 5.1 Introduction A business can provide value for its consumers by using the best cost provider strategy and giving the consumer a higher-end product at a lower cost. Best cost producer is the combination of both low-cost and the differentiation strategy. It works well when the target customer is extremely price sensitive and small changes in price bring about large changes in the sales volume. It may be a risky strategy to undertake as it may be difficult to sustain the lowest pricing in the market but still turn a profit. The best cost producer may actively manage cost structures to make a comparable at lower price for same product or provide a better product at the same cost as competitors. By doing so, they are able to offer customers additional value, with comparable product offerings at a lower price than competitors, or better product at the same price. Since the best cost producer is the combination from the low-cost and differentiation strategy, hence it gains a combination of advantages from both and it can be apply for broad and narrow market.

5.2 Reasons for pursuing best cost producer The existence of product parity (substitute product) from the competitors along with the customers that also value and price sensitive may need the use of this best cost producer strategy. Besides, the best cost producer strategy is the combination of both focus-low cost and focusdifferentiation. So, best cost producer will take the advantages from both focus strategy. The best example of this best cost producer might be the grocery store. The most successful supermarket usually the one that have the best cost structure management, but appears to the customers to offer comparable value at lower prices or better value at similar prices.

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[CHAPTER 6] March 5, 2012 5.3 Best cost producer and the five forces 1. Intensity of rivalry or competition Since best cost producer adapt both advantages, the lower cost structure of differentiate products might gives higher satisfaction to the customer and this might reduce the number of competitors.

2. Threat of new entrants The combination of both focus strategy might raises the barrier for the new entrants to penetrate the market. New competitors need to spend more to attract customers because the producer has gained the customers loyalty. If they intend to penetrate the market they have to create more differentiation at lower cost.

3. Threat of substitutes The threat of substitute is lessened, if the producer success to give high satisfaction to the customers and they believe that the product is met with their expectation.

4. Bargaining power of suppliers Low cost structures will allow price increases from more powerful suppliers to be absorbed. The consistent and growing demand from the satisfied customers can give the best cost producer increased power when dealing with the suppliers, as the best cost producer will become a more attractive customer to the supplier.

5. Bargaining power of buyer Buyer will have less power because there are not many producers might satisfy their needs to the same extent.

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[CHAPTER 6] March 5, 2012 5.4 Disadvantages of best cost producer One of the disadvantages of best cost producer is, this strategy requires the business management to remain consistent and pursue quality and excellent cost management practice over time. To remain this strategy, excellent staff development, motivation and management is needed because any reduction in the level of perceived value to customers will result in loss of credibility and market share. The other most important disadvantages would be, the rivals may rapidly learn from the best cost producer and be able to imitate their successes. For example, Radix Fried Chicken (RFC) now becomes a new rival for Kentucky Fried Chicken (KFC) in serving customers based on fried chicken. Even if KFC had establish for many years, RFC still become a major competitor because they served more organic and halal chicken rather than KFC.

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[CHAPTER 6] March 5, 2012 CONCLUSION In conclusion, competitive generic strategies model by Michael Porter is depending on the business which on how a business might gain a sustainable competitive advantage, regardless of size and or industry. When applied to a broad market scope, this led to the competitive generics strategies of overall cost leadership and differentiation. When applied to a narrow market scope, it led to the competitive generics strategies of focus low cost and focus differentiation. A fifth generic strategy has been proposed by Thompson and Strickland, who suggested that it is possible to combine low cost and differentiation strategies, regardless of market scope, to give a competitive generic strategy of best cost producer. Each strategy has benefits and limitations, and each will provide some protection against the impact of some or all of the five forces. Competitive generic strategies can be change according to the market scope or market conditions change. For instance, the product life cycle or business life cycle will give the impact to the change of the competitive strategy to remain in the market. Both competitive strategy and sustainability are mutual dependent to each others in giving the good direction to the producer. Although strategic directional change is possible and sometimes necessary, the competitive strategic direction chosen by a business should be regarded as long-term rather than short-term in nature.

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[CHAPTER 6] March 5, 2012 ABC CHEESE FACTORY CASE Actually ABC Cheese Factory is a small business that serves a small scope of market in city of Tilba. When they want to expand their business, they should think something different from others. They had a good strategic alliance with their distributor which is Menora Gourment Products. Menora Gourment Products had given them an idea on how to sell their cheese products by make some adjustment on their products in term of different wax colors and labels. Their distributor also encourages them to develop a vintage cheese to expend their business. They are lucky because their distributor had an expertise and willing to share the expertise to create a vintage cheese. This situation makes them to differentiate their products by create a vintage cheese to be sustain in the market. Cheese market is look like to easy to enter by the competitors. Thus, they should different their products either in term of quantity, colors, labels or cheese overall. At the same time, they had fulfilled the customers needs on the cheese products which had actually needed a vintage cheese from the producers. In addition, they had made collaboration with an established supermarket dealer that advice them to present their products in vacuum-packed portions of random weight to be commercialize in the market. They need to change their packaging in order to fulfill the supermarket chain requirements. It had been an opportunity for them to broad their market segmentation. In conclusion, ABC Cheese Factory had been chosen a differentiation strategy to ensure their sustainability and competitiveness in the cheese market. Differentiation strategy chosen by ABC Cheese Factory had given them the opportunities to create a customer loyalty towards their cheese product by providing vintage cheese through the effective packaging. Based on five forces model, cheese market is one of the high competitive rivalry. Each competitors need to compete to grasp the consumers mind towards their product and give some reason to choose their offering over the alternatives. If they can serve a quality product, they will not face a problem to increase a price to generate sale. The greater the differentiation between

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[CHAPTER 6] March 5, 2012 offerings, the less likely competitors is to remedy to price competition. At the same time, they can target a different segment of customers. Since they can serve a differentiation, they may increase threat of new entrants to enter the market. They are also having the expertise through their distributors to create a vintage cheese. Thus, it not seems too difficult for them to serve a large market since they have their own strength. They are also having the effective and efficient distribution channel by Menora Gourment products and Woolworths that had been a leader of the supermarket channel to distribute their products. At last, they need made some investment in order to fulfill the market demand. They should consider about the cost for the strategy that had been chosen. Actually, they have a limitation in term of cost but they need to decide either to grasp the opportunity or not but they decide to continue the strategy. They bought a vacuum packaging machine, learned how to use it and taught the staff and began to look at their market opportunities for sale their products. In conclusion, the business strategy should be done for a long term in nature to ensure the competitiveness and sustainability in the market. We cant take it for granted to ensure the successfulness of the products offer. We need to make some research on business and product cycle.

REFERENCES Strategic Marketing Analysis; Genevieve Healy, 2nd Edition, Cengage Learning

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