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MGT 7 - Assignment Example

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Any business has the ability to secure a competitive advantage that is sustainable by implementing any of Michael Porter’s generic strategies .These are cost leadership, differentiation and focus strategies. Porter also identified fourth strategy which he called “Stuck in…
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Competitive strategies Any business has the ability to secure a competitive advantage that is sustainable by implementing any of Michael Porter’s generic strategies .These are cost leadership, differentiation and focus strategies. Porter also identified fourth strategy which he called “Stuck in the Middle” which although employed by some companies, is not likely to lead to a competitive advantage. These strategies are discussed in more detail below together with the companies implementing them (Porter, 2008).
The first strategy is cost leadership which basically entails a business aiming at becoming the lowest cost leader in producing or distributing in its respective industry. In this case the firm strives to drive down cost for every single production components ranging from labour costs to sourcing of raw materials. To accomplish cost leadership the firm usually requires production on large scale so as to capitalize on “economies of scale”. Production in large scale means that the company will naturally appeal to a wider aspect of the given market. Cost leadership is therefore a wide scope strategy. A business practicing cost leadership gains competitive advantage through reduction of production costs, thus increasing profit margins on every sale since the company trusts that its trademark can control a premium price. Secondly a firm can reduce production costs and pass on the cost savings to consumers hoping to boost sales as well as market share.
Examples of companies practicing cost leadership include Wal-Mart Stores which implements everyday low prices so as to attract consumers. This idea of reduced prices is aimed at providing products at cheaper rate than competition on a frequent basis as opposed to relying to sales. Thus Walmart achieves this due to its efficient supply chain in addition to its large scale.
The second example of a firm using cost leadership is IKEA which is a Swedish leader in furniture making. This company provides cheap but classy furniture. IKEA manages to offer low prices by sourcing its materials in countries with low-wage as well as providing extremely simple service level. The third company utilising cost leadership is Southwest Airlines. The airline managed to provide the lowest achievable prices by becoming more effective than conventional airlines. Southwest Airlines thus minimizes the time their planes use while on tarmac so as to have them flying, thus keeping profits up. In addition, they provide very little in terms of extra thrills to their customers, but instead trickle down the cost savings on to them.
The second strategy is that of differentiation which basically involves standing out of the crowd and being different. Thus, companies can stand out from their competition basically by implementing a differentiation strategy. By using this strategy a company is able to develop a service or product features that differ from their competition and therefore appeal to consumers including product quality, functionality as well as customer support (Porter, 2008).
Examples of companies using this strategy include Brompton bicycles which when folded become more compact in relation to other bikes. Since folding bicycles are bought by individuals with storage space that is limited or those on the move, a bike that is compact is an invaluable feature in such a product and thus differentiates Brompton bikes from the rest. The second company using differentiation as a strategy is Coca-Cola Company which has cut a niche for itself in the soft drinks industry and anyone can have it at any place in the world at extremely affordable prices. The 3rd company using differentiation is Harpic-a toilet cleaner with an extremely friendly application nozzle (Scilly, 2013).
The 3rd strategy is that of focus which is a business strategy that focuses all its endeavors on one specific market segment and strives to become famous for offering services/products for that particular segment. Firms using this strategy form a competitive advantage simply by fulfilling the particular wants and needs of their niche market. For instance a company such as Rolls Royce has differentiated itself in the provision of luxury vehicles to a particular class of people.The company takes orders for customized vehicles from its customers (Scilly, 2013).
The other company employing this strategy is Apple Computers which has differentiated itself in the provision of desktop publishing as well as products with cutting edge technology. This is a technologically differentiated company and people love it for its unique products.
Some companies may try to employ all the 3 strategies; differentiation, cost leadership and focus. Such a company employing all the 3 strategies may be referred to as “stuck in the middle”. Firms such as those lack clear business strategy and therefore attempt to do everything so as to appeal to everyone; something that leads to increased running costs as well as confusion because it is hard to please all market sectors (Scilly, 2013).
An example of a company stuck in the middle is Chrysler GM which seems not to have identified its market niche yet. Chrysler GM has not been able to differentiate like Chrysler or become a cost leader like Toyota which manufactures small vehicles at affordable prices which almost everyone can afford. No wonder it almost went under recently and had to be bailed using tax payers’ money. The automaker needs to get its act right and come up with a winning strategy.
Works cited
M, Scilly. "Examples of Cost Leadership & Strategy Marketing." Chron (2013): np.
Michael, Porter. Competitive Strategy:Techniques for Analyzing Industries and Competitors. New York: The Free Press, 2008. Read More
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