Porters generic strategy
Types of competitive strategy
This is achieved by having the lowest prices in the target market segment, or at least the lowest price to value ratio price compared to what customers receive. Otherwise, with more than one single generic strategy the firm will be "stuck in the middle" and will not achieve a competitive advantage. This will allow the organisation to sell products or services for around or below the average price for the industry, and as a result of cost-limitation will achieve the greatest profits. If not, you may need to pick a different strategy — or at least use a blend of strategies to carve out part of the market for yourself. Wal-Mart is famous for squeezing its suppliers to ensure low prices for its goods. For this strategy to succeed, the organisation will have to first identify that a consumer group has a different set of needs than does the wider market population. If the achieved selling price can at least equal or near the average for the market, then the lowest-cost producer will in theory enjoy the best profits. Even without a price war, as the industry matures and prices decline, the firms that can produce more cheaply will remain profitable for a longer period of time. When in doubt, consumers are going to default to the most affordable choice, so you need to be able to educate them about your product and everything that it can do. To be the lowest-cost producer, a firm is likely to achieve or use several of the following: High levels of productivity Use of bargaining power to negotiate the lowest prices for production inputs Lean production methods e. Often, this can be achieved through mass-production of products, allowing the organisation to exploit the economies of scale; however, costs can be cut during many stages of the production process. The Focus Strategy Companies that use Focus strategies concentrate on particular niche markets and, by understanding the dynamics of that market and the unique needs of customers within it, develop uniquely low-cost or well-specified products for the market. Strong sales team with the ability to successfully communicate the perceived strengths of the product. Very efficient logistics.
Differentiation Strategy A differentiation strategy calls for the development of a product or service that offers unique attributes that are valued by customers and that customers perceive to be better than or different from the products of the competition.
A good example would be craft beer companies, who can charge a higher price compared with large breweries due to the uniqueness of their products.
As these organisations have identified a smaller consumer group to focus on, they can more specifically appeal to the needs and wants of this group than could an organisation which is attempting to differentiate for a wider population. Higher levels of output both require and result in high market share, and create an entry barrier to potential competitors, who may be unable to achieve the scale necessary to match the firms low costs and prices.
After eleven years Porter revised his thinking and accepted the fact that hybrid business strategy could exist Porter cited by Prajogop.
For this strategy to succeed, the organisation will have to first identify that a consumer group has a different set of needs than does the wider market population.
Journal of Business Strategies21 1 It is rewarded for its uniqueness with a premium price.
As to Wright and other cited by Akan et al. The focuser selects a segment or group of segments in the industry and tailors its strategy to serving them to the exclusion of others.
Five generic competitive strategies
Porter, M. It is easy enough to set out in business with a general idea of what you want to accomplish, but those who lack a specific strategy will usually be swallowed up by the market. Organisations that apply this strategy successfully usually have substantial investment capital at their disposal, efficient logistics and low costs when it comes to materials and labour. Share your knowledge and experience via the comment field at the bottom of this article. A strategy of cost leadership requires close cooperation between all the functional areas of a business. A not-for-profit can use a Cost Leadership strategy to minimize the cost of getting donations and achieving more for its income, while one pursuing a Differentiation strategy will be committed to the very best outcomes, even if the volume of work it does, as a result, is smaller. Thus, these companies become almost solely dependent on the spending habits of a very small percentage of people. Firms that succeed in cost leadership often have the following internal strengths: Access to the capital required to make a significant investment in production assets; this investment represents a barrier to entry that many firms may not overcome. Other procurement advantages could come from preferential access to raw materials, or backward integration. In the early s, he set out to uncover the ways companies maintain long-term advantages over their competitors. An organization with greater resources can manage risk and sustain profits more easily than one with fewer resources. Without a great marketing plan and team, you will probably be left with a high priced item that is stuck on the shelves.
based on 84 review