1. Michael Porter identified three generic strategies for gaining competitive advantage: cost leadership, differentiation, and focus.
2. Cost leadership involves having the lowest costs in the industry to be able to charge lower prices. Differentiation creates unique product attributes valued by customers allowing premium pricing. Focus targets a narrow market segment with either low costs or differentiation.
3. Porter argued that effective strategies require either lower costs than competitors or delivering something different that customers will pay a premium for.
1. Michael Porter identified three generic strategies for gaining competitive advantage: cost leadership, differentiation, and focus.
2. Cost leadership involves having the lowest costs in the industry to be able to charge lower prices. Differentiation creates unique product attributes valued by customers allowing premium pricing. Focus targets a narrow market segment with either low costs or differentiation.
3. Porter argued that effective strategies require either lower costs than competitors or delivering something different that customers will pay a premium for.
1. Michael Porter identified three generic strategies for gaining competitive advantage: cost leadership, differentiation, and focus.
2. Cost leadership involves having the lowest costs in the industry to be able to charge lower prices. Differentiation creates unique product attributes valued by customers allowing premium pricing. Focus targets a narrow market segment with either low costs or differentiation.
3. Porter argued that effective strategies require either lower costs than competitors or delivering something different that customers will pay a premium for.
1. Michael Porter identified three generic strategies for gaining competitive advantage: cost leadership, differentiation, and focus.
2. Cost leadership involves having the lowest costs in the industry to be able to charge lower prices. Differentiation creates unique product attributes valued by customers allowing premium pricing. Focus targets a narrow market segment with either low costs or differentiation.
3. Porter argued that effective strategies require either lower costs than competitors or delivering something different that customers will pay a premium for.
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PORTER’s GENERIC
STRATEGIES
Submitted to: Mrs Mandeep Kaur
Submitted by: Sharandeep Kaur Honey(4006,4007) INTRODUCTION Michael ….. E. Porter is a professor at Harward Business School Porter argued that a firm’s strength ultimately fall into into one of three headings: Cost leadership , Differentiation or Focus(Cost focus & Differentiation focus) Porter defined two types of competitive advantage: lower cost or differentiation relative to its rivals. Porter's generic strategies detail the interaction between cost minimization strategies, product differentiation strategies, and market focus strategies. GENERIC STRATEGIES
Cost DIFFERENTIATIO FOCUS
Leadership • Superior profits N • Creating a product or • Concentrate through lower services that offer on limited cost. unique attributes that part of • are valued by customers. market. • E.g. : Wal-Mart , • Cost focus • E.g.: Nokia , Samsung , Redmi Phones Medimix. • Differentiation focus. • E.g.: PepsiCo. , Apple. • PORTER’s GENERIC STRATEGY...
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). He then subdivided the Focus strategy into two parts: "Cost Focus" and COST LEADERSHIP STRATEGY Aiming .. cost producer. to become lowest Increasing market share by charging lower prices, while still making a reasonable profit on each sale because you've reduced costs. The firm can compete on the price with every other industries and earn high units of profits. Targets a board market. Competitive advantage is achieved by driving down cost. A successful cost leadership strategy requires that the firm is the cost leader and is unchallenged in this position. Especially Beneficial : where customers are price sensitive. At the time of price war, the firm can maintain some profitability while the competitors suffer losses. SUCCESS MANTRA…
Access to the capital required to make a significant
investment in production assets. Design skills for efficient manufacturing. High level of expertise in manufacturing process engineering. Efficient distribution channels. A low-cost base (labour, materials, facilities), and a way of sustainably cutting costs below those of other competitors. RISK INVOLVED...
Other firms may be able to lower their cost as well.
As the technology improves , the competitor's may be able to leapfrog the production capabilities, thus eliminate the competitive advantage. There might be difficulty in sustaining cost leadership in long run. A frim following a FOUCS strategy might be able to achieve even lower cost within there segment. • Xiao MI main strategy in keeping the prices low is through e- commerce • To keep marketing budget low in maintaining low price, Xiao MI make full use of the advantage of the social media and word of mouth. • Xiao MI vision of making the high-end quality technology cheap, Xiao MI sustain their high-end quality and features of product by making use of social media. • In accordance to Porter’s Generic theory, Xiao MI has successfully achieved cost leadership competitive advantage through economies of learning, economies of scale, process technology and value chain. • Xiao MI ability in applying the cost leadership strategy through efficiency and maintaining high-end quality is DIFFERENTIATION STRATEGY… Differentiation involves making your products or services different from and more attractive than those of your competitors. A Differentiation strategy calls for the development of the product or service that offer unique attributes that are valued by customers. The value added by the uniqueness of the product may allow them to charge premium price from customers. The firm hopes that higher price will more than cover the extra cost incurred in offering the new product. Differentiation can be based on product image or durability , after-sales services , quality, additional features. A differentiation strategy is appropriate where the target customer segment is not price-sensitive, the market is competitive or saturated, customers have very specific needs which are possibly under-served, and the firm has unique resources and capabilities which enable it to satisfy these needs in ways that are difficult to copy. SUCCESS MANTRA…
Access of leading scientific research.
Highly skilled and creative product development team. The ability to deliver high-quality products or services. Effective sales and marketing, so that the market understands the benefits offered by the differentiated offerings. It is more appropriate for big companies. Strong sales team with the ability to successfully communicate the perceived strength of the product. Corporate reputation for quality and innovation. RISK INVOLVED…
Involves higher cost.
Customers might become price sensitive and choose price rather than uniqueness. Change in consumers taste. Rivals pursuing a Focus strategy may be able to achieve even greater differentiation in there market segment. Large organizations pursuing a differentiation strategy need to stay agile with their new product development processes. Differentiation strategy is not suitable for small companies. • Medimix Ayurvedic differentiated itself on the HERBAL plank two decades back when there where only synthetic soaps. • A new brand of herbal soaps launched in today’s context has to probably define the herbal qualities through an enhance mix of ingredients to convey differentiation because HERBAL is the proposition of serval brands both NEW and OLD. • The established Medimix brand is currently running a campaign , which conveys the brand benefits through FOCUS STRATAGY… The focus strategy concentrate on narrow segment and within that segment attempts to achieve either a cost advantage or differentiation. The premise is that the need of the group can be better serviced by focusing entirely on it. A Firm use focus strategy often enjoys high degree of customers loyalty. And this entrenched loyalty discourages other firms from competing directly. Differentiation strategy is not suitable for small companies. Because of there narrow market focus , firm pursuing a focus strategy have lower volumes and less bargaining power from their suppliers. Firm pursuing differentiation-focused strategy may be able to pass higher cost on to customer since close substitute products do not exist. SUCCESS MANTRA…
Lower investment in resources.
The firm benefits for specialisation. Provide scope for greater knowledge of a segment of the market. Makes entry to new markets easier and less costly. Firm using a focus strategy often enjoy high degree of customers loyalty. This is definitely an appropriate strategy for small companies especially for those wanting to avoid competition with big one. RISK INVOLVED…
Limited opportunities for growth.
Danger of decline in chosen segment. Risk of imitation. It's simply not enough to focus on only one market segment because your organization is too small to serve a broader market. Other focusers may be able to curve out sub-segments that they can serve even better. • US based PepsiCo conducted a major restructuring exercise in 1997-1998 by spinning-off its restaurant and bottling business. The restructuring was aimed at achieving improved focus on the company's core beverage (Pepsi-Cola) and snack food operations (Frito-Lay). • By successfully adopting the ''focus'' strategy since 1997, PepsiCo has emerged as the second largest consumer packaged goods company (in terms of revenues) in the world. • By acquiring leading beverages' company like Tropicana products (July 1998), South Beach Beverage Company (October 2000) and Quaker Oats (December 2000), the company has significantly strengthened its competitive position in the beverages segment.