strategicmanagement ppt

7/28/2019 strategicmanagement ppt

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PORTERS GENERIC STRATEGIES


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Introduction

Michael Porter is a professor at Harward BusinessSchool.

A firms success in strategy rests upon how it positions

itself in respect to its environment.

Michael Porter has argued that a firm's strengthsultimately fall into one of two headings: cost advantageand differentiation.

By applying these strengths in either a broad or narrowscope, three generic strategies result:, cost leadershipdifferentiation, andfocus


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CostLeadership

Superior profitsthrough lowercosts.

E.g. : WalMart,Tesco

Differentiation

Creating aproduct or servicethat is perceivedas being unique

throughout theindustry

E.g. : Mcdonald,FedEx

Focus

Concentrating ona limited part ofthe market.

E.g. : PepsiCo

Generic Strategies


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Target ScopeAdvantage

(Low Cost)

Advantage

(Product

Uniqueness)

Broad

(Industry wide)Cost Leadership Differentiation

Narrow

(Market wide)

Focus Strategy

(low cost)

Focus Strategy

(differentiation)

Porters Generic Strategy


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Cost Leadership Strategy

Aiming to become Lowest Cost Producer

The firm can compete on the price with every otherindustries and earn higher unit profits.

Cost reduction provides the focus of the organisations

strategy.

Targets a broad market.

Competitive advantage is achieved by driving downcosts.

A successful cost leadership strategy requires that thefirm is the cost leader and is unchallenged in thisposition.

Especially beneficial : where customers are pricesensitive


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(Walmart logo, used from June 30, 2008-present.)

Type : Public

Industry : Retailing

Founded : 1962

Founder(s) : Sam Walton

Headquarters : Bentonville, Arkansas,US

Number of locations : 8,970 (2011)

Area served : Worldwide

Key people : Mike Duke(CEO)H. Lee Scott(Chairman)

S. Robson Walton (Chairman)Employees : Approx. 2.1 million (2011)

Subsidiaries : WalmexAsdaSam's ClubSeiyu Group
http://en.wikipedia.org/wiki/File:New_Walmart_Logo.svg


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The central goal of Wal-Mart is to keep retail prices low -- andthe company has been very successful at this.

Experts estimate that Wal-Mart saves shoppers at least 15percent on a typical cart of groceries.

Wal-Mart Stores Inc. is rolling out its "everyday low prices"

(EDLP) retail strategy to more international markets to replacethe more usual high-low pricing in emerging markets. EDLPmeans working with suppliers to ensure their prices areconstantly low, but also means price changes are kept to aminimum.

Wal-Mart also employs a good structure that works with thesystems to empower the low price strategy.

Wal-Mart has in place a set of systems that helps it achieve itsstrategy of low prices everyday.


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Access to the capital required to make a significantinvestment in production assets.

Design skills for efficient manufacturing

High level of expertise in manufacturing processengineering.

Efficient distribution channels.

Success Mantra


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Risks Involved.. Other firms may be able to lower their costs as well.

As technology improves, the competition may be able toleapfrog the production capabilities, thus eliminatingthe competitive advantage.

It could lead to a damaging price wars.

There might be difficulty in sustaining cost leadership

in the long run.

A firm following a focus strategy might be able toachieve even lower cost within their segment.


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Differentiation Strategy

A differentiation strategy calls for the development of aproduct or service that offers unique attributes that arevalued by customers.

Customers perceive the product to be different andbetter than that of rivals.

The value added by the uniqueness of the product mayallow the firm to charge a premium price for it.

Differentiation can be based on product image ordurability,after-sales,quality,additional features.

It requires flair,research capability and strongmarketing.


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Type : Public

Industry : Restaurants

Founded : McDonalds Corporation

~ May 15, 1940 in SanBernardino, California~ April 15, 1955 in Des

Plaines, Illinois

Founder(s) : Richard and MauriceMcDonald,( McDonalds

restaurant concept )Ray Kroc,( McDonalds

Corporation founder )

Headquarters : Oak Brook,Illinois,US

Area served : Worldwide

Key people : James A. Skinner

(Chairman & CEO)


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Number of locations : 32,000

Employees : 4,00,000 ( 2010)

Products : Fast Food( hamburgers , chicken ,french fries , soft drinks ,coffee , milkshakes , salads,desserts , breakfast )

McDonald's customers are of all classes, but largelyworking and middle classes, and people of all ages.

McDonalds strove to meet a customer wait time at nomore than one minute in line and 30 seconds at thecounter.


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McDonald's understood that the parent was making thepurchasing decision, most likely based solely on price.What McDonald's marketing executives did was

ingenious. They put a $.50 toy in with the hamburger,french fries, and Coke. Then they gave it a specialname, calling it a Happy Meal. Then they marketed it tothe kids.

McDonald's knows that some customers go to its storesto take a quick break from their day's activities and notbecause McDonald's was able to make their food tenseconds faster than a competitor. So McDonald'smarketing executives then put together the phrase,

Have you had your break today?

They've taken competing on price right out of thepicture, says Greshes. They bring you quality,

convenience, service, and valueand they make you

feel like you are getting a break in your hectic day.


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Success Mantra

Access to leading scientific research.

Highly skilled and creative product development team.

Strong sales team with the ability to successfullycommunicate the perceived strengths of the product.

Corporate reputation for quality and innovation.


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Risks Involved

Involves higher costs.

Customers might become price sensitive and choose onprice rather than uniqueness.

Customers may no longer need the differentiationfactor.

Imitation by competitors and changes in customertastes.

Rivals pursuing a focus strategy may be able to achieveeven greater differentiation in their market segments.


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Focus Strategy

The focus strategy concentrates on a narrow segmentand within that segment attempts to achieve either acost advantage or differentiation.

The premise is that the needs of the group can be

better serviced by focusing entirely on it. A firm using a focus strategy often enjoys a high degree

of customer loyalty, and this entrenched loyaltydiscourages other firms from competing directly.

Because of their narrow market focus, firms pursuing afocus strategy have lower volumes and therefore lessbargaining power with their suppliers

However, firms pursuing a differentiation-focusedstrategy may be able to pass higher costs on tocustomers since close substitute products do not exist.


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Type : Public

Industry : Food and Beverages

Founded : North Carolina,U.S.(1986)

Founder(s) : Donald Kendall,Herman Lay

Headquarters : Purchase,New York,US

Area served : WorldwideKey people : Indra Nooyi

(Chairman & CEO)

Employees : 2,94,000 (2010)

Divisions : PepsiCo Americas Foods;

PepsiCo Americas Beverages;PepsiCo Europe; PepsiCoAsia, Middle East & Africa

Subsidiaries : Products,Trademarks

~ Frito-Lay~ Quaker Oats~ Tropicana


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By successfully adopting the 'focus' strategy since 1997,PepsiCo has emerged as the second largest consumerpackaged goods company.

The company has significantly strengthened itscompetitive position in the beverages segment.

By acquiring leading beverages' company like Tropicanaproducts (July 1998), South Beach Beverage Company(October 2000) and Quaker Oats (December 2000)


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Success Mantra

Lower investment in resources.

The firm benefits from specialisation.

Provides scope for greater knowledge of a segment ofthe market.

Makes entry to new markets easier and less costly.

Firms using a focus strategy often enjoy a high degreeof customer loyalty.


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Risk Involved

Limited opportunities for growth.

The firm could outgrow the market.

Danger of decline in the chosen segment or niche.

Risk of imitation.

Risk of changes in the target segment.

A reputation for specialisation inhibits move into newsector.


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Cost Leadership- Being the lowest cost producer in the industry asa whole

Differentiation

- The exploitation of a product or service which isbelieved to be unique

Focus

- Restricting activities to only part of the market through:

- Providing goods or services at lower cost to that

segment (cost focus)

- Providing a differentiated product or service to that

segment (differentiation focus)

We have Learnt


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prepared by..DiPALi

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strategicmanagement ppt