THE FIVE GENERIC COMPETITIVE STRATEGIES: WHICH ONE TO EMPLOY?

THE FIVE GENERIC COMPETITIVE STRATEGIES: WHICH ONE TO EMPLOY?

The figure show the five generic competitive strategies

Low-Cost provider strategies:

Ø  Effective Low-Cost approaches

·         such as pursue cost-saving that are difficult imitate

·         avoid reducing product quality to unacceptable levels

Ø  competitive advantages and risks

·         Greater total profit and increased market share gained from underpricing competitors.

·         Larger profit margin when selling products at prices comparable to and competitive with rivals.

·         Low pricing does not attract enough new buyers.

·         Rival’s retaliatory price cutting set off a price war.

A low-cost provider’s basis for competitive advantage is lower overall costs than competitors. Successful low-cost leaders, who have the lowest industry costs, are exceptionally good at finding ways to drive costs out of their businesses and still provide a product or service that buyers find acceptable. In addition a cost driver is a factor that has a strong influence on a firm’s costs.

Example: Air Asia

AirAsia is one of the award winning and largest low fare airlines in the Asia expanding rapidly since 2001. With a fleet of 72 aircrafts, AirAsia flies to over 61 domestic and international destinations with 108 routes, and operates over 400 flights daily from hubs located in Malaysia, Thailand, and Indonesia. Today, AirAsia has flown over 55 million guests across the region and continues to create more extensive route network through its associate companies. AirAsia believes in the no-frills, hassle-free, low fare business concept and feels that keeping costs low requires high efficiency in every part of the business. Through the corporate philosophy of “Now Everyone Can Fly”, AirAsia has sparked a revolution in air travel with more and more people around the region choosing AirAsia as their preferred choice of transport.

The vision and mission that AirAsia want to achieve is:

Ø  Vision

ü  To be the largest low cost Airline in Asia and serving the 3 billion people who are currently underserved with poor connectivity and high fares.

Ø  Mission AirAsia is:

ü  To be the best company to work for whereby employees are treated as part of a big family.

ü  Create a globally recognized ASEAN brand.

ü  To attain the lowest cost so that everyone can fly with AirAsia.

ü  Maintain the highest quality product, embracing technology to reduce cost and enhance service levels.

Even though AirAsia have a low-cost provider and it can make strengths to AirAsia but AirAsia have lack service resource is limited by lower costs and also have new entrants to provide the price-sensitive services.

Strategic management principle is success in achieving a low-cost edge over rivals comes from out-managing rivals in finding ways to perform value chain activities faster ,more accurately, and more cost-effectively. In addition, a low-cost provider is in the best position to win the business of price-sensitive buyers, set the floor on market price, and still earn a profit. Thus, Reducing price does not lead to higher total profits unless the added gains in unit sales are large enough to bring in a bigger total profit despite lower margins per unit sold. Furthermore, A low-cost provider’s product offering must always contain enough attributes to be attractive to prospective buyers—low price, by itself, is not always appealing to buyers.