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Porters Generic Strategies

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Joel Borysiewicz

on 3 February 2014

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Transcript of Porters Generic Strategies

Porter's Generic Strategies
Cost Leadership Strategy
Strategy used by businesses to create a low cost of operation . The use of this strategy is primarily to gain an advantage over competitors by reducing operation costs below that of others in the same industry
Cost Leadership Strategy
Strategies for using cost leadership

Increasing profits by reducing costs, while charging industry-average prices

Increasing Market Share through charging lower price, while still making a reasonable profit on each sale because you've reduced costs.
Joel Borysiewicz
Porter's Generic Strategies
Generic Business-Level Strategy
A Strategy that gives a company a specific form of competitive position and advantage vis-a-vis it rivals that results in above-average profitability.
Porter's Generic Strategies
Cost Leadership Strategy

Differentiation Strategy

Focus Strategy
Cost Leadership Strategy
Strategic Choices For Cost Leadership

Develop skills in flexible manufacturing, and efficient materials managing techniques

Competitive Strategies intended to influence industry competition.

Cost leaders choose low to moderate level of product differentiation
Cost Leadership Strategy
Strategic Choices For Cost Leadership (Con't)

Cost leader ignores many different market segments and positions products for the average customer

Increase Asset inventory turnover, increase return on net operating assets and reduce cost of goods sold

A Low-Cost strategy implies minimizing the number of managers in the heirarchy, use of budget to control production and selling cost
Cost Leadership Strategy
Competitive Advantages

Less affected by increase of price of inputs due to powerful suppliers

Less affected by fall in price due to powerful buyers

Purchasing large quanities increases bargaining power over suppliers
Cost Leadership Strategy
Competitive Disadvantages

Competitors ability to pursue new strategies

Competitors may also draw a cost advantage from low cost labor

United States Labor costs are roughly 600% more than they are in Malaysia, China, or Mexico. (Hill & Jones, 2008)
Porter's Generic Strategies
References
Hill, C., & Jones, G. (2008). Strategic management: An integrated approach. (Eighth ed., p. 163). Boston: Houghton Mifflin Company.

Dictionary, B. (2009). Focus strategy. Retrieved from http://www.businessdictionary.com/definition/focus-strategy.html

Soliman, M. (2008). The use of Du Pont analysis by market participants. The Accounting Review 83(3), 823-853.

Tools, Mind. "Porters Generic Strategies." Chose You Route To Competitive Advantage. Mind Tools, n.d. Web. 3 Feb 2014. <http://www.mindtools.com/pages/article/newSTR_82.htm>.
Differentiation Strategy
Differentiation business model is based on pursuing a business-level strategy that allows a company to achieve a competitive advantage by creating a product that customers perceive as different or distinct in some important way
Differentiation Strategy
Benefits from using Differentiation strategy

Customers pay a premium price when they believe the product's differentiated qualities are worth of the extra money

Differentiation strategy allows the company to reach the value frontier,outperform its competitors, and achieve superior profitability
Strategic Choices For Differentiation Strategy

Three principal routes to high product differentiation
Superior Innovation
Excellent Quality
Responsiveness to Customer

When Differentiation is based on responsiveness to customers, a company offers comprehensive after-sales service and product repair.
Differentiation Strategy
Differentiation Strategy
Strategic Choices for Differentiation Strategy (Con't)

Making a product's appeal to customers' psychological desires is a source of differentiation

Studies suggest that retail firms using a differentiators strategy outperform (based on return on net operating assets) those using a cost leader strategy (Soliman, 2008)
Differentiation Strategy
Strategic Choices for Differentiation Strategy (Con't)

Divide market into many segments and niches and to offer different products in each segment

Concentrate on developing distinctive competencies in the function that provide the source of its competitive advantage

Benchmarking how cost leaders operate to find ways to imitate their cost-saving innovations while preserving its competitive advantage
Competitive Advantages

Differentiation safeguards against competitors through brand loyalty

Suppliers become less powerful because the strategy is geared more towards the price it can charge than toward costs

Ability to pass on price increases to customers because they are willing to pay a premium
Differentiation Strategy
Differentiation Strategy
Competitive Disadvantages

Strategic managers ability to maintain a products perceived difference or distinctness

Copying of a business's business methods

Implementing a Differentiation strategy is costly and may take time to build brand loyalty
Focus Strategy
A marketing strategy in which a company concentrates its resources on entering or expanding in a narrow market or industry segment. (Dictionary, 2009)


Focus Strategy
Benefits From Using Focus Strategy

develop uniquely low cost or well-specified products (Tools,2006)

they tend to build strong brand loyalty amongst their customers (Tools,2006)

Strong Brand Loyalty makes their particular market segment less attractive to competitors (Tools,2006)
Strategic Choices For Focus Strategy

Specialize in making products for one or two market segments

Don't attempt to serve all market segments because that would bring it in direct competition with competitor

Stay atop of new technologies and change in customers' tastes
Focus Strategy
Focus Strategy
Focus Strategy Combined

Focus Strategy can be used in conjunction with Differentiation Strategy or with Cost Leader Strategy

This dimension is not a separate strategy per se, but describes the scope over which the company should compete based on cost leadership or differentiation (Wikipedia,2014)
Porter's Generic Strategies
References

Wikipedia, . "Porters Generic Strategies." . Wikipedia, 20 Jan 2014. Web. 3 Feb 2014. <http://en.wikipedia.org/wiki/Porter's_generic_strategies
Joel Borysiewicz
Joel Borysiewicz
Joel Borysiewicz
Joel Borysiewicz
Joel Borysiewicz
Joel Borysiewicz
Joel Borysiewicz
Joel Borysiewicz
Joel Borysiewicz
Joel Borysiewicz
Joel Borysiewicz
Joel Borysiewicz

Porter's Generic Strategies Matrix
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