Analysis of Generic Strategies - Report Example

Strategic Management Contents Contents 2 Introduction 3 Three generic strategies 4 Cost leadership 5 Differentiation 6 Focus 8 Conclusion 9 References 11 Introduction Strategic management deals with establishing and indentifying important strategies which helps the organization to achieve its goals and objectives in a better and efficient way. Managers of a company implements strategies to improve performance of its employees. Effective strategies help to create competitive advantage for the firm. A company experiencing competitive advantage will have more profit and customers than its competitors. The process of strategic management provides direction to the company in utilizing its resources and capacities. Organizations develop its internal and external strategies for accomplishing its business objectives. In strategic management process several types of decisions are taken by the company. The managers analyze internal and external environment of the business before developing and implementing any business strategy. The process of strategic management involves three vital stages like decision, analysis and actions. All of these stages help the companies to develop their strategies for establishing their competitive advantages. Porter’s three generic strategies play a vital role in developing competitive strategies. This model helps the firms to form strategies in a particular market according to their business objectives and aims. Business strategies play a vital role in developing business functions. As per its business strategies the organization develops its product and services for which it gets competitive advantage in the market. Three generic strategies Figure 1: Porters Generic Strategy Model (Porter, 2008) Three generic strategy model of Porter’s is a very useful tool for companies to establish its competitive advantage in a particular market or industry. For attaining competitive advantage the company have to decide which type of competitive advantage it want to have and according to that it develop and implements its different strategies by utilizing its resources, scope and opportunities effectively. Three generic strategies of Porter involve three important parts namely cost leadership strategy, differentiation strategy and focus strategy. Companies get competitive advantage by using any one strategy among these three. This model explains that there are various segment exist in the industry (Cheverton, 2005). A firm targets its customer segment according to its product and services. There are two types of advantage a firm can have by implementing one of these three strategies. It can have the competitive advantage of low cost leadership or highly different products. By achieving competitive advantage the organization can improve or develop its positing in the competitive market of a particular industry. Three generic model strategies can be used in every type of company. This model helps the company to gain more market shares. By acquiring more target customer the company generates huge revenues. Cost leadership This strategy focuses on lowering different expenses of the company and selling its product and services at a low cost. By implementing this strategy the organization lowers its different costs which are associated with production, operation and distribution system. This strategy is used in the business where the company generates product or services in a large scale. Large scale production helps the company to get the benefit of economics of scale. The organizations which have a large customer base get involved into large scale production. Cost leadership strategy focuses on the broader aspect of the business (Carpenter and Hamilton, 2008). This strategy helps the business to get competitive advantage by widening its business opportunities. The companies which implement this strategy experience competitive advantage by reducing its cost of production and increasing its profit or revenue. Low prices goods are easily sold in market. Other companies which are not using this strategy are not able to sell goods and services in such a low cost. Therefore this strategy helps to increase the sale on companies which help them to beat the competition. By increasing its sales the firm gains a huge amount of market share in a particular industry which contributes lot in establishing its leadership position in the market. As per this strategy the organization focuses on innovating new product and technology by reducing its unwanted business expenses (Hooley, Piercy and Nicoulaud, 2012). It helps the firm to satisfy its customers more by giving unique product and services at a low cost. By saving money from unwanted expenses, the company use money in its business development process. The retail company Tesco uses cost leadership strategy to get competitive advantage in the competitive market of retail industry. The company deals with a wide range of product and services. It has a large number of customers around the world. The company offers its different product at a very low cost by implementing effective strategies in its business process. Tesco controls its various operational costs at every level of its business process. It helps the company to save more money by reducing unwanted expenditure. For this reason Tesco is able to sell at a competitive price which helps to generate more revenue (Keller, 2006). The cost leadership strategy of Tesco influences the company to increase efficiency by various external pressures. The company aimed to achieve competitive advantage in regards to its product pricing. For this reason it has used cost leadership strategy from three generic strategy models. Tesco wants to have a scope of increasing its customer base by offering them product at low prices than other companies. By implementing this strategy the organization holds a leading position retail industry segment. The company has designed its business process in such a way which helps it to fulfill its strategic objectives (Joshi, 2005). Tesco have implemented various new technologies in its business operation process to lower its business expenses. Differentiation Another important strategy of Porter’s generic strategy model is differentiation strategy. In the present market there are many companies which products almost same kinds of products and services. For establishing a leading position in the industry the company needs to implement differentiation strategy which helps the company to attract more customers. By using differentiation strategy the company produces innovative kind of product and services which helps the company to get noticed in the crowd (Ulwick, 2005). Differentiation strategy influences organization to develop unique features in its product or services which are very much different from its competitors. Customers get attracted by these kinds of products which are different from the crowd. Therefore it acts as a competitive advantage for the company. Differentiation strategy focuses on broader aspect of business and market. Companies use this strategy for capturing a big market which not so much price sensitive. Aim of this strategy is to provide competitive advantage to the firm by producing attracting and unique goods. The companies using this strategy want to achieve the business scope of expansion and generating more revenue by differentiation its products from its competitors. Often the organizations use its brand image, new technologies and new product design for implementing this strategy (Wintzer, 2007). Differentiation strategy provides many types of competitive advantage to the firm. Unique products reduce its substitute. As a result this strategy helps to increase the sale of differentiated products. It facilitates the company to produce more profit. Another competitive advantage of this strategy is it produces a unique image of the company in the mind of customer by producing attractive products. Apple has implemented differentiation strategy to increase its product demand and customer base. The company applies different advanced technology to improve its product features or to develop new types of product. The organization implements differentiation strategy by improving technology and its product design. Apple deals in various industrial segments where a very high competition prevails. But in spite to this high competition the company is able to get many competitive advantages by implementing its differentiation strategy. The company focuses on a particular segment of customers. According to that apple differentiate its product from its competitors. The differentiation strategy of Apple has helped the company to improve its business position in the competitive market (Henry, 2011). By implementing this strategy the company is able to create high demand for its products. Though its products are highly priced but the unique features of its products attracts a huge number of customers. For developing unique features in its products the company has been able to establish a strong position in market. Apple focuses on its unique products for enhancing its brand image. This strategy also benefits the company by making it an entry barrier for other companies who wants to deal with same kinds of products. Focus In Porter’s generic model focus strategy of a company deals with definite market segments for selling its product and services. By focusing on a particular market segment the company enhances its product and services by for satisfying the customers of that segment. The organization establishes its competitive advantages by dealing with specific type of customers and their needs. By implementing this strategy the company mainly focuses on niche market. For getting competitive advantage the company first selects its targeted market segment for selling its product and after that the company implements differentiation or cost leadership strategy (Porter, 2008). Therefore focused strategies are aimed to achieve advantage of cost leadership or product differentiation. This strategy helps the company to establish a defendable position in the industry. Narrow focused strategy of the company deals with small target markets. Those strategies are developed by business only to satisfy specific needs of its targeted customers. The companies using this strategy develop its brand image in the mind of its targeted customer. In cost focused strategy the firm desires to achieve competition advantage in regards to its pricing strategies. In differentiation focused strategy the firm targets a particular market segment and produces unique products which are highly priced. The customers of this target segment are willing to pay high price to satisfy their desires. The automobile company AUDI uses focus strategies for getting competitive advantage. The company target high profile customers for selling its luxury cars. The company has priced its car very high than its competitors. But still its customers are very much interested to purchase AUDI’s car because the features of the car are very much different from the cars of other automobile company. AUDI has implemented focused differentiation strategy for getting competitive advantage. The automobile industry experiences a huge competition. To establish its position in the market the company manufactures and sell premium quality car having some unique features. These unique features make AUDI’s car different from its competitors. As a result many customers of its targeted market segment purchases and prefer AUDI’s car more. The unique design of AUDI’s car and its quality helps the company to get various competitive advantages (Lasserre, 2012). The company has designed its car to meet the luxurious needs of high income customers. Therefore it has targeted a particular segment of market which is capable of purchasing high priced cars. AUDI wants to place its brand as a company which deals in luxury cars. By implementing this focus strategy the company is able to establish strong position in the competitive market. People earning lot of money often spends more on purchase luxury goods to show their status. AUDI has utilized this business opportunity for by implementing its focused strategy. Conclusion Strategic management is a very important part of business. In the modern time business environment has become very competitive. Implementation of effective strategies helps the company to establish its position in competitive market. Business strategies are implemented by top managers of a company. They analyze the business requirements and objectives and according to that strategies are implemented in a company. In this case study Porter’s generic strategy has been discussed in details. Company follows any of the three strategy of this model for achieving competitive advantage. Organization chooses strategy according to its product and services. Industry competition also plays a vital role in this. Many companies implement cost leadership strategy by lowering its different unwanted expenses. By this process they are able to sell its product at a low price for which it beats the competition. Differentiation strategy provides competitive advantage to the company by influencing them to produce unique products. It helps the company to make its position in the market. Both of these strategies are focused on different market segmenting targeting various customers. By implementing any of these strategies the company expands its business opportunities and achieves growth. References Carpenter, G. S., and Hamilton, A., 2008. Handbook of marketing strategy. Stamford: Cengage Cheverton, P., 2005. Key marketing skills: strategies, tools and techniques for marketing success. Great Britain: Kogan Page Publishers. Henry, A., 2011. Understanding strategic management. New York: Oxford University Press. Hooley, G., Piercy, N., and Nicoulaud, B., 2012. Marketing strategy and competitive positioning. New York: FT Prentice Hall. Joshi, R. M., 2005. International marketing. New York: Oxford University Press. Keller, K. L., 2006. Marketing management. UK: Pearson Prentice Hall. Lasserre, P., 2012. Global strategic management. Singapore: Palgrave Macmillan. Porter, M. E., 2008. Competitive advantage: creating and sustaining superior performance. New York: Simon and Schuster. Ulwick, A. W., 2005. Business strategy formulation: theory, process and the intellectual revolution. New York: IAP. Wintzer, E., 2007. Global competition and strategic management. Germany: GRIN Verlag. Read More