Prepared by kindly restrict the use of slides for personal purpose. The two basic types of competitive advantage combined with the scope of activities for which a firm seeks to achieve them, lead to four generic strategies for achieving above average performance in an industry. Cost leadership and competitive advantage your business. According to michael porter there are four generic strategies.
The focus of this thesis will be on zara, the clothing. However, it was noted that differentiation strategy has the greatest impact when each strategy is applied separately. It pushesh forward the body of knowledge in the area of corporate innovation by linking innovation and strategy in a comprehensive model. To gain competitive advantage, small businesses can focus on different strategies, including leadership in cost, quality, innovation or customer service. Effective positioning for a product or service is based on the differentiating characteristics or qualities that make the productservice better than the competition in the minds of the target segment. Any attempt to combine or reconcile strategies would result in firms becoming stuck in the middle, a poor strategic choice due to the existence of an inevitable tradeoff. The principle focus of strategy regarding the creation of wealth will continue to dominate and. A firm that follows this strategy does not necessarily charge the lowest prices in the industry. Positioning strategies on mobile money transfer at safaricom. There are threefour generic strategies, either lower cost, differentiated, or focus. The basis was formed by three strategies, namely cost leadership, differentiation and focus. Low cost and differentiation strategy may be compatible. The advantage here is that there is less competition and, therefore, greater pricing flexibility.
Introduction in this paper i have evaluated michael porter. A critique of porters cost leadership and differentiation. Costco in taiwan has been ranked into the worlds top 20th out of 560 branch stores performance, their performance is always positive. Pdf both strategic management researchers and practitioners have realized the. Kmarts illfated attempt to engage walmart in a price war ended in disaster, in part because walmart was so efficient in its. The generic strategies of cost leadership, differentiation, and focus strategies. Competitive positioning and generic strategies tuck. Porters generic strategies describe how a company pursues competitive advantage across its chosen market scope. Types of strategies cost leadership,differentiation, focus. A focused cost leadership strategy requires competing based on price to target a narrow market table 5. All three generic strategies are designed to achieve distinction relative to a rival. A focused or market niche strategy based on low costsconcentrating on a.
Describe the nature of focused cost leadership and focused differentiation. Michael porter developed three generic strategies, that a company could use to gain competitive advantage, back in 1980. Note, however, that a focus strategy means achieving either a low cost advantage or differentiation in a narrow part of the market. Michael porter described the theory in his 1985 book competitive advantage. Cost leadership strategy, differentiation strategy, single strategy. Generic competitive strategies are the marketing strategy any of three strategies for marketing products or services. To obtain competitive advantage, company is following the three generic strategies.
Positioning and differentiation are connected in important ways. The differentiation and cost leadership strategies seek competitive advantage in a broad range of market or industry segments. Differentiated, imitation, innovation, efficiency, merchandising, and sustainable. Besides cost leadership, the other two general strategies include differentiation and focus. The importance of product positioning and global branding for sustaining. With this strategy, the objective is to become the lowest cost producer in the industry.
These strategies are based on certain principals of competitive advantage that is the delivery of superior value to. Focus strategies are among three porters archetypal strategies, these three strategies are cost leadership, differentiation, and focus. Eachstakes outadifferent market position a broad crosssection gi of buyers gi iii a narrovlf buyer segment or market niche overall lovv cost provider strategy broad diherentiation strategy focused lovv cost strategy lovlfercost differentiation type of competitive advantage being. With focus strategy, a company chooses a small segment of the industry to focus its marketing efforts on. Sep 22, 2018 since the advancement of the technology more focus of the company lies on gaining competitive advantage. Differentiation leadership focuses in providing perks that add value for consumers, while higher prices are a sort of. Competitive strategy, a modern classic of business thinking, provides a strong conceptual foundation for developing corporate strategy. This will be done through a discussion and analysis of all five of the differentiation strategies which are. A read is counted each time someone views a publication summary such as the title, abstract, and list of authors, clicks on a figure, or views or downloads the fulltext. He divided the latter into cost focus and differentiation focus. Types of strategies cost leadership, differentiation, focus strategies the term strategy has been adapted from war and is being increasingly used in business to reflect broad overall objectives and policies of an enterprise.
The fundamental basis of above average profitability in the long run is sustainable competitive advantage. Focused cost leadership strategy strategic management. Literally speaking, the term strategy stands for the warart of the military general, compelling the enemy to fight as per. Porters generic competitive strategies ways of competing a firms relative position within its industry determines whether a firms profitability is above or below the industry average. A company chooses to pursue one of two types of competitive advantage, either via lower costs than its competition or by differentiating itself along dimensions valued by customers to command a. In the case of cost leadership, one advantage is that cost leaders emphasis on efficiency makes them well positioned to withstand price competition from rivals table 5. The two basic types of competitive advantage combined with the scope of activities for which a firm seeks to achieve them, lead to three generic strategies for achieving above average performance in an industry. Since the advancement of the technology more focus of the company lies on gaining competitive advantage. Types of strategies cost leadership,differentiation, focus strategies the term strategy has been adapted from war and is being increasingly used in business to reflect broad overall objectives and policies of an enterprise. The most revolutionary development in the american automobile market then was the popularity of. Each business has a unique culture and distinctive characteristics.
The bases on which an organization may seek to achieve a lasting position in its. Differentiation is the positioning strategy of producing a product or service of acceptable quality at consistently lower production costs than competitors. Strategic planning in business using porters generic strategies. On the other hand, a generic strategy defines the general approach used for business competitiveness. Its approach to marketing, sales, customer acquisition and other key aspects will reflect its values. The cost leadership strategy advocates gaining competitive advantage due to the lowest cost of production of a product or service. Focused cost leadership and focused differentiation. Cost leadership is a strategy that having lowest operational cost and lowest prices in the target market segment.
At last, porters model of generic strategies per definition assumes that cost leadership, differentiation and focus strategies are valid independently of any particular industry or environment. A critique of porters cost leadership and differentiation strategies. One of the general strategies is the strategy of cost leadership. Porter wrote in 1980 that strategy targets either cost leadership, differentiation, or focus. Please seek permission to reproduce the same in public forms and presentations. These strategies are called generic because they can be pursued by any type or size of business company, even by notforprofit organizations.
Cost leadership cost leadership means having the lowest perunit i. Positioning analysis cost leadership and differentiation. Know the advantages and disadvantages of focus strategies. Even so, thus had the author been aware of any discussion suggesting cost.
Focused cost leadership strategy strategic management 2. The integrated cost leadershipdifferentiation strategy. Focused cost leadership strategy strategic management manu melwin joy 1. Cost leadership strategy a firm which finds and exploits all sources of cost. Strategic planning is a basic business process, which ensures an organization is able to maintain a competitive lead over its competitors though the design of strategies that ensure it captures market leadership. These three broad types of competitive strategies have also been labeled generic strategies. Basic business strategies, such as product differentiation, cost leadership and market expansion, can be adjusted to suit your companys resources and individual needs. There are two main ways of achieving this within a cost leadership strategy. Porter argues that firms face a choice between positioning as cost leaders or differentiators, where the latter have higher quality. The focus strategy has two variants, cost focus and differentiation focus. The five generic competitive strategies semantic scholar. This essay looks at the various differentiation strategies for a company in the fashion industry. In order to differentiate gm brands from their competition, he positioned each car.
Product differentiation being the most commonly used one of these two strategic typologies spencer, joiner, and salmon, 2009. These are known as porters three generic strategies and can be applied to any size or form of business. Focused cost leadership is the first of two focus strategies. Implication of combining the differentiation strategy with the cost. Quickmba strategy porters generic strategies if the primary determinant of a firms profitability is the attractiveness of the industry in which it operates, an important secondary determinant is its position within that industry. By contrast, the differentiation focus and cost focus strategies are adopted in a narrow market or industry. Porters generic strategies model does not suggest one strategy or focus is better than another. Eachstakes outadifferent market position a broad crosssection gi of buyers gi iii a narrovlf buyer segment or market niche overall lovvcost provider strategy broad diherentiation strategy focused lovvcost strategy lovlfercost differentiationtype of competitive advantage being. Porters generic competitive strategies ways of competing. The generic of differentiation strategy involves creating a market position that is. Porters model of generic strategies for business tutor2u. The main three generic strategies of cost leadership, differentiation, and focus. The most common models of strategic planning use the popular porters strategic models of cost leadership, differentiation and.
He then subdivided the focus strategy into two parts. Pdf carrefours competitive strategy cost leadership and. Below are some of the examples of implementation of cost. Porter called the generic strategies cost leadership no frills, differentiation creating uniquely desirable products and services and focus offering a specialized service in a niche market. Below are some of the examples of implementation of cost leadership strategy used by aldi stores. What are the different types of strategies in business.
F a focus strategy entails using either a cost leadership or a differentiation approach to producing a good or service. Business strategies on facebook gupea goteborgs universitet. Companies that use a cost leadership strategy and those that use a differentiation strategy share one important characteristic. It represents a greater value for the customer, created either by lower prices or by providing greater benefits and services that justify higher prices. Literature about strategy and social media is the main focus that is applied on. It is used to reduce the cost of the operation in running the grocery store. Cost leadership strategy aldi is a typical hard discounted store pursuing cost leadership strategy bonn, 2010. What are the four major types of competitive strategies. All three strategies have one goal that is to deliver superior value to the customers. The most revolutionary development in the american automobile market then was the popularity of the closedbody cars sloan, 1972, pp. A critique of porters cost leadership and differentiation strategies 40 strategy can bring about in gaining a low cost position, as porter 1985, p. Positioning strategies on mobile money transfer at.
Kotler and keller 2006 define positioning strategy designs the company. Differentiation strategy is built on a belief that one needs a clear and unique positioning. Strongest advantage comes through leadership in a factor that is important to customers and difficult for competitors to. This could mean having the lowest perunit cost among rivals in highly. The low cost leader in any market gains competitive advantage from being able to.
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