strategicmanagement-110327110722-phpapp02.ppt

8/10/2019 strategicmanagement-110327110722-phpapp02.ppt

1/19

StrategicStrategic

ManagementManagementPorter's Generic StrategiesPorter's Generic Strategies


2/19

Porter's GenericPorter's Generic

StrategiesStrategies

A frm positions itsel by leveraging itsA frm positions itsel by leveraging its strengthsstren

gths

Michael Porter has argued that a frm'sMichael Porter has argued that a frm's

strengths ultimately all into one o twostrengths ultimately all into one o twoheadings: cost advantage and dierentiationheadings: cost advantage and dierentiation

!y applying these strengths in either a broad or!y applying these strengths in either a broad or

narrow scope" three generic strategies result:narrow scope" three generic strategies result:costcost lleadershipeadershi

p"" diferentiationdiferentiation" and" and ocusocus


3/19

Cost Leadership StrategyCost Leadership Strategy

#his generic strategy calls or being the#his generic strategy calls or being thelow cost producer in an industry or alow cost producer in an industry or agiven level o $ualitygiven level o $uality

#he frm sells its products either at#he frm sells its products either ataverage industry prices to earn a proftaverage industry prices to earn a proft

higher than that o rivals" or below thehigher than that o rivals" or below theaverage industry prices to gainaverage industry prices to gainmar%et sharemar%et share
http://www.quickmba.com/marketing/market-share/http://www.quickmba.com/marketing/market-share/http://www.quickmba.com/marketing/market-share/


4/19

&n the event o a price war" the frm can&n the event o a price war" the frm canmaintain some proftability while themaintain some proftability while the

competition suers lossescompetition suers losses

ven without a price war" as the industryven without a price war" as the industry

matures and prices decline" the frms thatmatures and prices decline" the frms thatcan producecan produce more cheaplymore chea

plywill remainwill remainproftable or a longer period o timeproftable or a longer period o time

#he cost leadership strategy always#he cost leadership strategy alwaystargets atargets a broad mar%etbroad mar%et


5/19

Firms that succeed in cost leadershipFirms that succeed in cost leadership

often have the following internaloften have the following internal

strengths:strengths:

Access to the capital re$uired to ma%e aAccess to the capital re$uired to ma%e asignifcant investment in production assets(signifcant investment in production assets(this investment represents a barrier tothis investment represents a barrier to

entry that many frms may not overcomeentry that many frms may not overcome S%ill in designing products or e)cientS%ill in designing products or e)cient

manuacturingmanuacturing

*igh level o e+pertise in manuacturing*igh level o e+pertise in manuacturing

process engineeringprocess engineering

)cient distribution channels)cient distribution channels


6/19

Riss !nvolvedRiss !nvolved

,ther frms may be able to lower their costs as,ther frms may be able to lower their costs aswellwell

As technology improves" the competition mayAs technology improves" the competition maybe able to leaprog the production capabilities"be able to leaprog the production capabilities"thus eliminating the competitive advantagethus eliminating the competitive advantage

Several frms ollowing a ocus strategy andSeveral frms ollowing a ocus strategy andtargeting various narrow mar%ets may be abletargeting various narrow mar%ets may be able

to achieve an even lower cost within theirto achieve an even lower cost within theirsegments and as a group gain signifcantsegments and as a group gain signifcantmar%et sharemar%et share


7/19

A leading cost strategy or Mc-onalds isA leading cost strategy or Mc-onalds isthe ability to purchase the land andthe ability to purchase the land andbuildings o its restaurantsbuildings o its restaurants

Mc-onalds also developed a strong divisionMc-onalds also developed a strong divisiono labor or its production processes" tighto labor or its production processes" tightmanagement control and productmanagement control and productdevelopment strategy .reating a strongdevelopment strategy .reating a strongtop/down style o management is anothertop/down style o management is another

leading cost strategy or Mc-onaldsleading cost strategy or Mc-onalds 0sing ewer in/store managers allows the0sing ewer in/store managers allows thecompany to hire lower/wage wor%ers tocompany to hire lower/wage wor%ers tocomplete tas%scomplete tas%s


8/19

Ater nearing complete ban%ruptcy in theAter nearing complete ban%ruptcy in the1234s" Apple clawed its way bac% into the1234s" Apple clawed its way bac% into thepersonal electronic industry through smartpersonal electronic industry through smartbusiness practices and highly desirablebusiness practices and highly desirable

consumer goodsconsumer goods Apple uses low/cost direct materials to developApple uses low/cost direct materials to develop

the cheapest consumer goods possiblethe cheapest consumer goods possible .reating long/standing business agreements.reating long/standing business agreements

with companies li%e A#5# or web hosting andwith companies li%e A#5# or web hosting andother applications helps Apple stay ocused onother applications helps Apple stay ocused ondeveloping products rather than &nternetdeveloping products rather than &nternethosting or accesshosting or access


9/19

"i#erentiation Strategy"i#erentiation Strategy

A dierentiation strategy calls or theA dierentiation strategy calls or thedevelopment o a product or service that oersdevelopment o a product or service that oersuni$ue attributesuni$ue attributesthat are valued by customersthat are valued by customersand that customers perceive to beand that customers perceive to be betterbetterthanthan

or dierent rom the products o theor dierent rom the products o thecompetitioncompetition

#he#he valuevalueadded by the uni$ueness o theadded by the uni$ueness o the

product may allow the frm to charge aproduct may allow the frm to charge apremiumpremiumprice or it #he frm hopes that theprice or it #he frm hopes that thehigher price will more thanhigher price will more than cover the e+tracover the e+tracostscostsincurred in oering the uni$ue productincurred in oering the uni$ue product


10/19

Firms that succeed in a di#erentiationFirms that succeed in a di#erentiation

strategy often have the followingstrategy often have the following

internal strengths:internal strengths:

Access to leading scientifc researchAccess to leading scientifc research

*ighly s%illed and creative product*ighly s%illed and creative product

development teamdevelopment team

Strong sales team with the ability toStrong sales team with the ability tosuccessully communicate the perceivedsuccessully communicate the perceived

strengths o the productstrengths o the product

.orporate reputation or $uality and.orporate reputation or $uality andinnovationinnovation


11/19


&mitation by competitors and&mitation by competitors and

changes in customer tasteschanges in customer tastes

6arious frms pursuing ocus6arious frms pursuing ocus

strategies may be able to achievestrategies may be able to achieveeven greater dierentiation in theireven greater dierentiation in theirmar%et segmentsmar%et segments


12/19

Medimi+ herbal soap dierentiated itsel onMedimi+ herbal soap dierentiated itsel onthe herbal plan% two decades bac% whenthe herbal plan% two decades bac% whenthere were only synthetic soapsthere were only synthetic soaps

A new brand o herbal soap launched inA new brand o herbal soap launched in

today7s conte+t has to probably defne thetoday7s conte+t has to probably defne theherbal $ualities through an enhanced mi+ oherbal $ualities through an enhanced mi+ oingredients to convey the dierentiationingredients to convey the dierentiationbecause 8herbal7 is the proposition obecause 8herbal7 is the proposition oseveral brands both new and oldseveral brands both new and old

#he established Medimi+ brand is currently#he established Medimi+ brand is currentlyrunning a campaign" which conveys therunning a campaign" which conveys thebrand benefts through appropriate imagerybrand benefts through appropriate imagery


13/19

Focus StrategyFocus Strategy

#he ocus strategy concentrates on a#he ocus strategy concentrates on a narrownarrowsegmentsegmentand within that segment attempts toand within that segment attempts toachieve either a cost advantage orachieve either a cost advantage ordierentiationdierentiation

#he premise is that the needs o the group can#he premise is that the needs o the group canbe better serviced by ocusing entirely on itbe better serviced by ocusing entirely on it

A frm using a ocus strategy oten en9oys aA frm using a ocus strategy oten en9oys ahigh degree ohigh degree o customer loyaltycustomer loyalty" and this" and thisentrenched loyalty discourages other frmsentrenched loyalty discourages other frmsromrom competing directlycompeting directly


14/19

!ecause o their narrow mar%et ocus"!ecause o their narrow mar%et ocus"frms pursuing a ocus strategy havefrms pursuing a ocus strategy havelower volumes and thereorelower volumes and thereore lesslessbargainingbargainingpower with their supplierspower with their suppliers

*owever" frms pursuing a*owever" frms pursuing adierentiation/ocused strategy maydierentiation/ocused strategy maybe able to passbe able to pass higher costshigher costson toon to

customers since close substitutecustomers since close substituteproducts do not e+istproducts do not e+ist


15/19

Firms that succeed in a Focus StrategyFirms that succeed in a Focus Strategy

often have the following internaloften have the following internal

strengths:strengths:

#he frm is able to tailor a broad#he frm is able to tailor a broad

range o product developmentrange o product developmentstrengths to a relatively narrowstrengths to a relatively narrowmar%et segment that they %now verymar%et segment that they %now verywellwell


16/19


&mitation and changes in the target segments&mitation and changes in the target segments

&t may be airly easy or a broad/mar%et cost&t may be airly easy or a broad/mar%et cost

leader to adapt its product in order toleader to adapt its product in order tocompete directlycompete directly

,ther ocusers may be able to carve out sub/,ther ocusers may be able to carve out sub/segments that they can serve even bettersegments that they can serve even better


17/19

!y successully adopting the 'ocus' strategy!y successully adopting the 'ocus' strategysince 122" Pepsi.o has emerged as the secondsince 122" Pepsi.o has emerged as the secondlargest consumer pac%aged goods companylargest consumer pac%aged goods company

#he company has signifcantly strengthened its#he company has signifcantly strengthened itscompetitive position in the beverages segmentcompetitive position in the beverages segment

!y ac$uiring leading beverages' company li%e!y ac$uiring leading beverages' company li%e

#ropicana products ;444= and ?ua%er!everage .ompany ;,ctober >444= and ?ua%er,ats ;-ecember >444=,ats ;-ecember >444=

dI d CC t i# i"i# ti t F


18/19

IndustIndustryryForceForce

CostCostLeadershLeadershipip

"i#erentiat"i#erentiationion

FocusFocus

$ntry$ntry%arrier%arrierss

Ability to cutAbility to cutprice inprice inretaliationretaliationdetersdeterspotentialpotentialentrants.entrants.

Customer loyaltyCustomer loyaltycan discouragecan discourage

potential entrantspotential entrants

Focusing developsFocusing developscore competenciescore competenciesthat can act as anthat can act as an

entry barrier.entry barrier.

%uyer%uyer

PowerPower

Ability to oferAbility to oferlower price tolower price topowerulpowerulbuyers.buyers.

Large buyers haveLarge buyers haveless power toless power tonegotiate because onegotiate because oew closeew closealternatives.alternatives.

Large buyers have lessLarge buyers have lesspower to negotiatepower to negotiatebecause o ewbecause o ewalternatives.alternatives.

SupplieSupplierr

PowerPower

BetterBetterinsulated rominsulated rompowerulpowerulsuppliers.suppliers.

Better able toBetter able topass on throughpass on throughsuppliers, pricesuppliers, priceincreases toincreases tocustomers.customers.

Suppliers haveSuppliers havepower because opower because olow volumeslow volumes

&hreat&hreat Can use lowCan use low Customers becomeCustomers become Speciali!ed productsSpeciali!ed products


19/19

Documents

strategicmanagement-110327110722-phpapp02.ppt