MICHAEL PORTER’S COMPETITIVE STRATEGIES
Competitive strategy raises the following questions:
Should we compete on the basis of lower cost (and thus price), or should we differentiate our products or services on some basis other than
cost, such as quality or service?
Should we compete head to head with our major competitors for the biggest but most sought-after share of the market, or should we focus on a
niche in which we can satisfy a less sought-after but also profitable segment of the market?
Three “generic” competitive strategies for outperforming other corporations in a particular industry:
Lower Cost Strategy
- ability of a company or a business unit to design, produce and market a comparable product more efficiently than its competitors
Differentiation Strategy
- ability of a company to provide unique and superior value to the buyer in terms of product quality, special features or after-sale
service
Focus
- ability of a company to provide unique and superior value to a particular buyer group, segment of a market line or geographic
market
Porter proposed that a firm’s competitive advantage in an industry is determined by its competitive scope—that is, the breadth of the
company’s or business unit’s target market.
-----BROAD MASS MARKET TARGET-----
Cost leadership
lower-cost competitive strategy that aims at the broad mass market and requires “aggressive construction of efficient-
scale facilities, vigorous pursuit of cost reductions from experience, tight cost and overhead control, avoidance of marginal customer
accounts, and cost minimization”
Because of its lower costs, the cost leader is able to charge a lower price for its products than its competitors and still make a
satisfactory profit.
Provides a defense against rivals
Provides a barrier to entry
Generates increased market share
Differentiation
is aimed at the broad mass market and involves the creation of a product or service that is perceived throughout the
industry as unique.
can be associated with design, brand image, technology, features, dealer network or customer service
Brand loyalty Lowers customers sensitivity to price
Increases buyer loyalty
Can generate higher profits
----MARKET NICHE (NAROOW MARKET) ----
Cost focus
low-cost competitive strategy that focuses on a particular buyer group or geographic market and attempts to serve only
this niche to the exclusion of others
Differentiation focus
concentrates on a particular buyer group, product line segment or geographic market to serve the needs of a narrow
strategic market more effectively than its competitors
RISKS IN COMPETITIVE STRATEGIES
A company following a differentiation strategy must ensure that the higher price it charges for its higher quality is not too far above
the price of the competition, otherwise customers will not see the extra quality as worth the extra cost- this is Cost Proximity
Risk of: Cost Leadership, Differentiation, Focus
ISSUES IN COMPETITIVE STRATEGIES
Stuck in the middle
when a company has no competitive advantage and is doomed to below-average performance
Successful entrepreneurial ventures follow focus strategies.
They differentiate their product or service from those of others by focusing on customer wants in a segment of the market, thereby achieving a
dominant share of that part of the market.
