It is clear that competing for sustainable and superior performance enhances a firm’s profitability. Equally, this same level of profitability depends largely on the attractiveness of the industry which is easily measured using the Porter’s 5 tools and more importantly, the position the firm takes within the industry to leverage on its strengths. To compete properly, a firm must address two fundamental questions. Should it focus on identifying a microcosm of the industry or serve the entire market? According to Michael C. Porter, the porter’s three (3) generic strategies are very important strategies, which can be applied to products and services in any industry or organization regardless of its size. The Three Porter’s Generic Strategies
In order to gain competitive advantage, Michael Porter developed three generic strategies that a company could use; The Cost Leadership Strategy, The Differentiation Strategy and the Focus Strategy. These strategies have been used by various organizations to become more competitive in the market. Below is a representation of these strategies.
1. Cost Leadership Strategy: This strategy is all about minimizing the cost of creating/delivering the firm’s products or services. It means having the lowest average cost of production compared to relative competitors and still not compromise on quality. There are two main ways the strategy can be achieved; a. Increasing profits by reducing costs while charging industry-average prices. b. Increasing its market share by charging lower prices while making profit on each sale through economies of scale While this approach might be attractive because of its obvious advantages like the entry barriers that result when competitors are not able to produce at the same low level of cost or size of the market share the company gains, there is still the risk of losing the advantage when other rival firms begin to cut costs as well by using advancement in technology to enhance their production capacity. The cost leadership strategy is also broad in scope as it sells to different customers in its industry. Firms looking to use this strategy must be able to; i. Access the capital needed to invest in new technology, which will lead to a larger market share in the long run. ii. Provide continued capital investment to maintain its cost advantage through economies of scale. iii. Develop cheaper ways to produce existing products and.
iv. Maintain a tight control of its overhead costs.
2. Differentiation Strategy: This strategy allows companies to produce products and services that offer unique attributes that customers can perceive to be better than what the competition offers. It can be seen as a way for firms to compete by creating a completely new market and dominating it. The extra value the product or services provides to the market allow the firm to charge higher prices (premium) which then compensates the increase in costs used to provide that extra service. The differentiation strategy is achieved by using any combination of the following approaches; a. Different design.
b. Different brand image.
c. Different product or service features.
d. Different and more advanced technology.
3. Focus Strategy: This strategy is a slight variation of the other two generic strategies. However, as the name implies, the focus strategy allows firms to focus on a particular niche market and provide uniquely low costs (cost focus) or uniquely different products (differentiation focus). Since the strategy is targeted to a select part of the market, it creates a strong loyalty for its brand from its customers, which helps to further reduce the threat of rivalry. Porter’s Generic Strategies in Action: Apple Inc.
Founded on April 1, 1976 by Steve Jobs, Steve Wozniak and Ronald Wayne, Apple Inc is a multinational corporation that designs and leads innovation in the consumer electronics, computer software and personal computer’s industry. Apple Inc....
References: Chris Nosal. "Apple’s Marketing Strategy – Sell On Value, Not Price." Web. 25 Mar. 2014. < http://www.chrisnosal.com/apples-marketing-strategy-sell-products-on-value-not-price/>
Dan Mcgaw. "7 Key Strategies That You Must Learn From Apple’s Marketing." Web. 28 Mar. 2014. < http://blog.kissmetrics.com/7-strategies-apple-marketing/>
Fion McCormack. "Apple 's IPhone Marketing Strategy Exposed." Yahoo Small Business Advisor. Web. 20 Mar. 2014.
Grobart, Sam. "Apple Chiefs Discuss Strategy, Market Share-and the New IPhones." Bloomberg Business Week. Web. 23 Mar. 2014. < http://www.businessweek.com/articles/2013-09-19/cook-ive-and-federighi-on-the-new-iphone-and-apples-once-and-future-strategy>
Jerry Alison. "Business Strategy: The Three Generic Strategies." HubPages. Web. 30 Mar. 2014. .
Karl Stark and Bill Stewart. "3 Strategies to Adopt From Apple." Inc.com. Web. 23 Mar. 2014. < http://www.inc.com/karl-and-bill/3-strategies-to-adopt-from-apple.html>
Maha H. "A Study on the Marketing Strategies of Apple Inc (Dissertation)." Web. 20 Mar. 2014.
MindTools.com "Porter 's Generic Strategies." Web. 27 Mar. 2014. .
Smita Nair. "Apple 's Premium Pricing Strategy and Product Differentiation." Yahoo Finance. Web. 20 Mar. 2014. < http://finance.yahoo.com/news/apple-premium-pricing-strategy-product-191247308.html>
Quick MBA. "Porter 's Generic Strategies." Web. 29 Mar. 2014. < http://www.quickmba.com/strategy/generic.shtml>
Please join StudyMode to read the full document