How should a firm compete in an industry?

Hi, my name is Dave Ketchen. I serve as the Harbert Eminent Scholar and Professor of Management at Auburn University in Auburn, Alabama in the United States of America. We're going to talk about how a firm should compete in a particular industry.

If we look at any industry, what we're going to find is that each company competes a little bit differently. So think for example about the restaurants in your local area or the hotels in your local area, each one has a slightly different approach to try to be successful in the market. But if we move up a level of abstraction, what we find is that there are some general themes that successful companies choose from. So what I'm going to do is talk about each of these general themes that can lead to success and also talk about how companies can fall away from success and struggle.

The first strategy that we think about is cost leadership, and the name is really helpful here, this is a company that compete based on cost. That doesn't mean that they provide poor quality products that don't fulfill customers needs. Instead, they provide basic products that are reasonable quality but are offered at a low price. So each of these strategies, I'm going to talk about, each of these themes has certain advantages and disadvantages. In the case of cost leadership, a big advantage is that if another company launches a price war against you, you're well positioned to withstand that, because you're geared up towards efficiency and low cost. In many markets, there are great deal of customers who are interested in economizing. So you can enjoy a high market share with this particular strategy. On the downside, sometimes these companies are a little bit late to notice trends in the environment that are changing and reshaping the industry. They're so focused on efficiency that they don't necessarily notice changes as quickly as some other folks might, and that can lead to them being left behind.