Generic Strategies for Competitive Advantage - Essay Example

Generic Strategies for Competitive Advantage Introduction Any business, whether offering services or goods, must market itself to the potential customers. Generally, marketing is the activity and process of communicating, creating and delivering the offers that have values for the clients, customers, partners and the public fraternity at large. Marketing is the core aspect of any business and without it, no sale can be made. A proper marketing strategy will enable it win more customers in the market and make high profit. In a market-place where companies crowd to grab the few available customers, a business has to formulate an amicable strategy to win the majority of the buyers and maximise profit. In 1985, Michael Porter came up with a set of strategies that he had termed as Generic Strategies. These strategies have, since then, been universally plausible to many enterprises across the globe. The Generic Strategies were proposed by Porter so as to help businesses boost their competitive advantage over the others. The competitive advantages are the unique best practices that single out a business in a competitive market place. The three Generic Strategies are Cost leadership, Differentiation and Focus strategies. These three approaches can be applied to all forms of organizations that deal with either goods or services delivery (Porter, 1980, Pp87). Cost Leadership Strategy The Cost Leadership is one form of generic strategy that can be used by a company to gain competitive advantage over its competitors in a competitive market. The cost leadership generic strategy can be applied in two different ways so as to a maximum competitive advantage. Cost Leadership, as it sounds, simply means gaining competitive advantage in the market through low cost. The cost leadership as a strategy involves two methods: One, a company can strategise to make maximum profit by lowering the cost of production while still charging average prices in the industry. Two, increasing the market share through lowering prices of the products while still making some reasonable profit (Kiechel, 2010, Pp99). Lowering Production Cost Lowering the cost of production will help an enterprise maximise profit since there will relatively lower input in the business. Lowering the production cost involves cutting the expenditure on supplies and reducing the wages offered to the workers. In some desperate cases, companies are forced to reduce the number of employees to allow them make savings. However, this can has usually painted a bad image of a company in the market. In the long run, companies may lose potential customers instead of making the intended profit. This may happen in two ways. First of all, when a population is full of jobless individuals, their power to purchase is reduced since there is no reliable source of income. Two, a company that keeps on sending workers home may lose competitive advantage on moral grounds. Another challenge that comes with lowering the cost of production is that suppliers may not be attracted to companies that offer low prices for their supplies. Instead, they will take their raw materials to the competitors who offer reasonable prices. The Human Resource managers may also go for cheap labor; a situation that may compromise the standard of production (Owens, 2014, pp45). However, a business is likely to make more profit if this method of cost leadership works out (Porter, 1980, Pp122). Lowering Prices of good and services Lowering the product prices will certainly attract a multitude of customers and increase the profitability of a company. It should be noted that lowering product prices goes alongside lowering production cost. As such, when a company sells its products at a relatively lower price, the gap is compensated for by the low cost of production. The secret here is to increase sales with the relatively lower prices. However, if the company does not make huge sales, very little profit will be realised. A good example in this case is Pepsi (Pepsi, 2010, npg). Pepsi is one of the leading Food and Beverage companies worldwide. The head quarter of this company is based in the United State of America. From the USA, Pepsi reaches out to over two hundred other countries of the world and has employed almost three hundred thousand workers in these various countries. This company specializes on the production of soft drinks of different brands. The main competitor of Pepsi is the Coca-Cola Company. Coca Cola Company is a multinational company (MNC) that was founded in the year 1892 and the main headquarter is situated in Atlanta, Georgia. It is currently the largest soft drink manufacturer in the world (Helen, 2013, pp5). This global enterprise has its subsidiaries in over 200 countries in various continents. These two companies offer same products to the market and Coca-cola seems to be miles ahead. However, Pepsi has employed this strategy of lowering the prices so as to counteract the monopoly of its main competitor. The competitors of Pepsi sell their products at relatively higher prices. Africans are low income earners and therefore would go for the commodities which are pocket friendly. Pepsi products are slightly cheaper and quantitative; therefore they are of best fit to these customers. Definitely, pricing will always be the haul mark of Pepsi that outdoes the rest of its strength and competitors. However, in some parts of the world, low pricing is associated with low quality. That notion may reduce the sales of Pepsi soft drinks in developed countries. As noted above, cost leadership as a strategy has quite a lot of challenges that a company must overcome before making the prospective profit. When a company decides to implement this strategy, it has to make sure that it takes the lead and that there no loopholes for attack by the competitors. Entrepreneurs that use this strategy must always remember that its sources are never new to one particular company and that the competitors can easily copy each other. Many companies that have succeeded with the Cost Leadership usually invest huge capitals so as to afford the required technology that facilitate the low cost operations of a business. They also have very efficient logistics and low-cost bases that enhance a sustainable operation. Differentiation Strategy Differentiation Strategy involves the production of goods and services in a more unique and attractive way than those of the competitors. This, however, shall depend on the specific nature of the products and the industry itself. The uniqueness must also meet the taste and the need of the targeted customers. It should also be noted that this uniqueness is not only restricted to the products but also to the company itself and its ways of operation and service delivery. In order for a company to realise maximum profit with this strategy, it has to be very innovative in making market research. Through a thorough research, a company will know the exact needs of the potential customers. It also has to be very effective in marketing and sales so that the customers understand the uniqueness and benefits in the products or services offered by the company. This uniqueness must be easily observed in the quality of products, packaging, taste and branding. In the example of Coca-Cola and Pepsi, the former has succeeded in gaining a lasting competitive advantage through quality brands and hiring of very skilled personnel. Every year, the Coca Cola Company has been sending about 200 of its very skilled talents from the US to oversee the operations in the Middle East, Asia and Africa. By so doing, the company aims at achieving consistent traditions and preservation of its differentiation strategy in all the subsidiaries across the world (Anfuso, 1994, pp 23-25). The BMW marketing strategy has also displayed uniqueness in the origin and approach. One aspect of this uniqueness is the formation and support of a strong dealer network from various nations. The Dedicated Dealer Marketing service (DDMS) has aided the company in the local marketing and sale through different promotions and advertisement (BMW 2). The dealers usually stock quality images of the cars, which directly communicate to the customers on behalf of the company. Besides these magnificent images, there is a continuous customer contacts program put in place by the dealers to ensure quality service delivery and loyalty of the clients. Pricing strategy of BMW that is referred to as the “premium-tization” has greatly polarized the automobile market (Ken, 2014, 20). The premium- tization has been effective in prompting the customers to pay high prices in return of the high quality cars, a strategy that has been partially emulated by Mercedes. Large companies such as Coca-Cola and BMW that practice Differentiation as a generic strategy must always stay alert with their developments and production of the new unique products. Otherwise, the competitors that pursue Focus Differentiation in other segments of the market might try to emulate them. Focus Strategy Companies that concentrate on the Focus strategy usually concentrate on a particular market niche. Here, these companies understand well the dynamics of this market and the appropriate needs and taste of the customers and by so doing, come up with low-cost products (cost-leadership) or unique products (differentiation) for this particular market. Through market research, the companies using this strategy eventually end up with a good understanding of their customers and thus, earn much loyalty from them (Barney, 1991, Pp 68-75). The loyalty earn through this strategy makes this market unattractive to the competitors. It should, therefore, be noted that ‘Focus’ here is on the market and not on the products or prices. It is while focusing on this particular market niche that a company will implement either Cost Focus or Differentiation Focus, since Focus alone is not good enough. The case of Pepsi also applies here. Recently, the company decided to extend the business to some African countries as a Focus Strategy by opening new stores and expanding the already existing deports. This move can be considered as a risk taking step, considering the high rate of unemployment and low income earning by most of the employees in the region. To understand and evaluate this move by Pepsi, the company had to conduct a thorough survey and market research. As Drucker says, knowledge is the major key to operating any competitive business (2009, pp17). This market research helped the company to discover the available opportunities and strategize how to exploit them. Knowledge of the continent would help the company manage and reinforce this change within the shortest time span possible and with minimum loss. Africa is a very hot continent. The diurnal temperatures are usually unbearable and one can not go without having to stop and take a cold drink. The bottled cold water would be very ideal for any traveler and those working in the open air. The high and increasing population of Africa prompted the extension. Most of the cities in Africa are densely populated and are bee hives of activities during the day. This large population offered a ready market for the drinks and snacks that go with them. With the annual growth in population, the demand for these products can only increase. By opening stores in Africa, Pepsi would have to employ new workers from these countries thereby creating employment opportunities for the many jobless youths. By the virtue of job creation, Pepsi would have furnished its image in the region. This, together with low-priced goods, would also help in attracting new customers and retaining their loyalty. This is a good example of Cost-Focus strategy. Whether Cost, Differentiation or Focus, a company needs to take sufficient in order to come up with a plausible strategy to use. It is also very vital to consider the strengths and competencies of a company before making a choice. Porter also warns companies which may try to follow more than one strategy as it may result to conflicting goals. Bibliography Anfuso D. 1994. The Phylosophy Behind Coca Cola’s International Service Program. Personnel Journal. 73(11). Atlanta. Business Source Premier. Pp 23-26 Barney, J .1991. Firm resources and competitive advantage. Journal of management. 68 -75 Doutigney, E. 2014.The Entrepreneur in Theory and Practice: The Journal of Economic Studies. 3(2).Harvard. Harvard University Press. Drucker, P. 2009. The New Society of Organizations. New York. Business Source Premier. pp17 Gartenstein, D. 2014. Basic Concepts and Characteristics of Entrepreneurship. Washington DC. Goodreadings. Grant, K. 2014. Porter’s Generic Strategies. Harvard. Harvard University Press. 2014. 3(2) Grant, R.1997. The resource-Based theory of the competitive advantage: Implication for strategy formulation. Harvard Business Press. Harvard. Harshak et al (2010) Strategic Organizational Culture. Boston Helen, D. 2013. International Management. Boston. Pearson Education Limited. Pp 4-7 Johnson, R.2013.BMW AG: Marketing Plan. Retrieved from laurarusbarsky.files.wordpress.com Ken, T. 2014. Analysis of BMW E-Marketing Boston. StrategyPrint. Available at [accessed 12 March 2015] Kiechel, W. 2010. The Lords of Strategy. Harvard Business Press. Harvard. Pp98-123 Owens, B. 2014. “Weak Wages Pose Threat to Liftoff for Economy”. Wall Street Journal. New York. Elsevier. Pp 45 Pepsi. 2010. Industrial Strategies: Companies Review, 5. Available at < http/www.compannies-review/pepsi> [accessed 12 March 2015] Porter, M. 1980. Competitive Advantage. London. Free Press. pp 23-87 Read More