Generic Strategies Analysis by Porter - Essay Example

PORTER’S GENERIC STRATEGIES Porters Generic Strategy Introduction Michael Porter’s perception explained that, there are strictly three fundamental ways in which a firm should operate in order to achieve a sustainable competitive advantage considerably. These ways comprise of the cost leadership strategy, differentiation strategy and finally, focus strategy. In the overall generic strategy context, a firm pursues the strategic options and may be carefully considered (Eldring, 2009). Thus, it a requirement to re-examine the implications of the three generic strategies. Porter described a category scheme that consisted of three types of strategies commonly used in business setting to achieve and as well maintain competitive advantage. In his statement, the three generic strategies were defined alongside two distinct dimensions: the strategic strength and the strategic scope. A strategic scope is a demand-side dimension and mainly looks at the competency as well as the strength of a particular firm (Sehgal, 2011). Particularly he defined two competencies that he felt relevant and most important which were the product costs otherwise stated as efficiency and the product differentiation. Porters Competitive Generic Strategies Empirical studies on the profit impacts of the marketing strategy show clearly that a firm, which has a high market share, is often quite profitable although there were many firms that have had small market share (Lowy, 2011). Indeed, the firms that were least profitable were those that had moderate market share. However, this was referred to as a hole in the middle problem. Porter argued and gave an explanation that firms that had high market share were found to be most successful since they pursued a cost leadership strategy while those with low market shares were successful because they made good use of the market segmentation in focusing on a small although profitable sort of market niche. It was observed that the firms in the middle were less profitable since they lacked a viable generic strategy. He also argued that combining multiple strategies would only be successful in one case (Haberberg, 2008). Further, he added that combining both market segmentation and the product differentiation would be an effective way of matching a firm’s product strategy, which relied on the supply side to the characteristics of one’s target market segment on the demand side. Porter proved that, it was impossible to merge both cost leadership with the product differentiation in implementation due to conflict between the cost minimization and the additional cost, which is referred to as the value-added differentiation (Boyes, 2011). In such periods, some commentators brought up a distinction between the cost leadership specifically the low-cost strategy and the best cost strategy. The claim has been that the low-cost strategy is rarely able to give a sustainable competitive advantage. Mostly firms end up in wars claiming the best cost approach if preferred (Daft, 2010). A firms position within a particular industry normally has a choice of a competitive advantage as well as a selection of the competitive scope. Typically, the competitive scope distinguishes between the firms that target broad industry segmentation, as well as firms focusing on the narrow segment. The generic strategies characterize strategic positions at both simplest and most general level, therefore, they of much usefulness. Michael Porter maintained that, attaining a competitive advantage required a firm to make a clear choice about the type, as well as the scope of its competitive advantage (Frynas and Mellahi, 2011). The cost leadership strategy emphasizes on efficiency. In this regard by producing significant volumes of standardized products, the firm expects to take advantage of the economies of scale and experience curve effects. Often the product is basic no-frills product usually attained at a relatively low cost and availed in a very large customer base. To maintain this strategy, it required a continuous search for the cost reduction in entirely all aspect of the business (Goldman and Nieuwenhuizen, 2006). The associated distribution strategy remains to obtain the most extensive distribution possible strictly. However, the promotional strategy mainly involves attempt to make a virtue of the low-cost product feature. Obtaining success in the strategy usually requires a considerable market share advantage or even a preferential access to relevant raw materials, labor, components as well as other important input useful. In absentia of one or more of these advantages, the strategy could easily be mimicked by the competitors (DAngelo, 2010). Notably successful implementation benefits from; process engineering skills, products designed for the ease of manufacture, tight cost control, a very close supervision on labour as well as sustainable access to less expensive capital are imperative. Examples include the low-cost airlines for instance Easy Jet and also Southwest Airlines and supermarkets like the KwikSave. In the case of the differentiation strategy, the differentiation is focused on broad markets that mainly involve the creation of a certain product or a service, which is perceived unique in the entire industry. The business or the company may then set a charge on premium for the product. Differentiation is defined as a viable means of strategy of gaining above average profits in a specific firm since the resulting brand loyalty brings down the customers sensitivity of price. Usually, the increased cost could be passed on to the buyers (Klein, 2010). The buyers’ loyalties as well serve as penetration barrier where the new firms must come up with their distinctive competence that differentiates their products from successful competition. Examples of differentiation strategy successfully implemented include; Hero Honda, Apple computer, Mercedes-Benz HLL, Nike athletic shoes automobiles. Research has it that the differentiation strategy can generate their higher returns than the low-cost strategy since the differentiation creates makes a better penetration barrier. Consequently, the low-cost strategy is likely to generate an increase in the market share (Haberberg and Rieple, 2008). In the focus or the niche strategy, the firm carefully concentrates on the selected few target markets. It is normally hoped that in focusing ones marketing effort on a narrow market segment and at the same time tailoring ones market mix to the specialized markets one stands a better position of meeting the needs of that particular target market (Boyes, 2011). Typically the firm looks at gaining a competitive advantage in effectiveness than affiance. It has been found most suitable for relatively small firms although any company could use it at wish. This strategy may be used in selecting targets less vulnerable to substitution or where competition is weak to earn above average profit on the investment (Klein, 2010). The focus strategy has two variants. First, in cost focus a business seeks a cost advantage within its target segment and secondly, differentiation focuses where the firm finds the differentiation in its target segment. Both variants above rests on differences between a focusers target segment and other segments in the industry. The target segments discussed above must either obtain buyers with unusual needs or have the production as well as delivery system that serve best the target segment. The cost focus usually exploits differences in the cost behavior in some segments, on the other hand; differentiation focus exploits the special tastes of the buyers, in particular, specific segments (DAngelo, 2010). The generic strategies pitfalls There is the risk of the cost leadership in which positioning a firm as a low-cost manufacturer or even a service provider possess a severe burden on the business targeted. The cost leadership is prone to risks like technological diversity that erases and outdates past investments and past learning. Additionally it faced with a risk of imitation by the late entrants who take advantage of low-cost learning. Finally, it is faced with lack of attention towards the needs customers due to excess concerns on the cost minimization as well as unexpected inflations in the cost that reduces the businesses ability to offset product differentiation in the cost leadership (Boyes, 2011). As well, the differentiation strategy is vulnerable to risks such as raised cost differential between low-cost producers, differentiating firm will encourage brand loyalty customers to switch the brands and consequently the buyers would sacrifice additional features for massive savings. Secondly, imitation could also narrow down the perceived difference by the customers. Finally, for instance, in case a differentiating firm remains too behind, a low-cost business might take over the market of the differentiating business. An example is the Japanese motor producer that makes inroads into the territory of differentiated firms such a Harley-Davidson and Triumph in offering high-cost savings to the buyers (Koontz and Weihrich, 2010). A focus strategy likewise has risks such as; in case of an increased cost differentiated in broad range competitors and the focus firm may offset the differentiation attained through focus and turn the customers towards businesses that offer a broad variety of products (Polo and Weber, 2010). Additionally actual or even perceived differences between the products or even the services could disappear. Finally, the other firms might identify submarkets within the target market of the focus firm and out of focus. Conclusion Generic strategies help an organization to cope with the distinct five competitive forces in an industry and work out best than other organization in an industry or industries. By ways of producing greatly high volumes of standardized products, the firms wish to take advantage of the economies of scale and at the same time experience the curve effects. Maintaining the cost leadership strategy needs a continuous seeking for cost reductions in every aspect of business where the associated distribution strategy is basically to acquire the most extensive distribution possibly available. Differentiation is a viable strategy for earning more returns in as specific firm since the resulting brand loyalty brings down the customers sensitivity foe price. Focus strategy is the most suitable for the small firms. Firms are found only to pursue one of the above discussed generic strategies. However, some firm make effort in pursuing more than one strategy at a time by bringing out a slightly differentiated product at a low cost. In as much as approaches like these successful in the short term, hardly they are sustainable in the long term. If a firm attempts to maintain cost leadership as well as the differentiation at the same time are likelihood is that both may fail. Indeed combining multiple strategies is only successful in one case. That is combining the market segmentation strategy with a product differentiation is the only effective way of matching a firms product strategy. Combinations like the cost leadership and the product differentiation are extremely hard though not impossible to implement because of the potential of the conflict in the cost minimization and the additional cost of the value-added differentiation. References Boyes, W. 2011. Managerial economics. Boston, Mass.: Houghton Mifflin. Daft, R. 2010. Management. Mason, Ohio: South-Western Cengage Learning. DAngelo, J. 2010. Spa business strategies. Clifton Park, N.Y: Milady. Eldring, J. 2009. Porters (1980) generic strategies, performance and risk. Hamburg: Diplomica Verlag. Frynas, J. and Mellahi, K. 2011. Global strategic management. Oxford: Oxford University Press. Goldman, G. and Nieuwenhuizen, C. 2006. Strategy. Cape Town: Juta. Haberberg, A. and Rieple, A. 2008. Strategic management. Oxford: Oxford University Press. Henry, A. 2008. Understanding strategic management. Oxford: Oxford University Press. Jorge, M. 2009. The generic industry is changing and will require new global strategies and policies. J Generic Med, 6(2), pp.97-98. Klein, R. 2010. The architects guide to small firm management. Hoboken, N.J.: John Wiley & Sons. Koontz, H. and Weihrich, H. 2010. Essentials of management. New Delhi: Tata McGraw Hill Education Private Ltd. Kossowski, A. 2007. Strategic management: Porters model of generic competitive strategies - theory and analysis. Munchen: GRIN Verlag GmbH. Lowy, A. and Hood, P. 2013. The power of the 2 x 2 matrix. San Francisco, Calif.: Jossey-Bass. Paley, N. 2005. The managers guide to competitive marketing strategies, third edition. London: Thorogood. Sehgal, V. 2011. Supply chain as a strategic asset. Hoboken, N.J.: Wiley. Polo, E. and Weber, W. 2010. Competitive Generic Strategies Evolution and the Importance of Michael E. Porter. Revista de Gesto, 17(1), pp.99-117. West, D., Ford, J. and Ibrahim, E. 2010. Strategic marketing. Oxford: Oxford University Press. Read More