Porter’s model for strategic management provides managers with the overall strategic approaches that they could use to develop and sustain a competitive advantage. The strategies often used include cost leadership, differentiation, and the focus strategies.
Cost leadership strategy
This generic strategy calls for low producer of an industry for a given level of quality. The firm either sells its products at average industry price to earn a profit higher than its competitors, or below the industry prices in order to gain market share.in the event of price war , the firm can attain some profitability while the competitors suffer the loses. Cost leadership strategy always targets a broad market and this helps when the firm matures and price declines, the firm that can produce more cheaply can remain profitable for the longer time.
Affirm may be able to sustain a competitive advantage based on cost leadership by improving process efficiency gaining unique access to a large source of low cost materials making optimal out sourcing and vertical integration decisions.
A firm that succeeds in cost leadership had the following internal strength;
- · Access to capital required to make significant investment in production asserts, this investment represent a berries that mast firms cannot overcome.
- · Skills in designing products for efficient manufacturing.
- · High level of expertise in manufacturing process engineering
- · Efficient distribution channels.
· Cost leadership also has risks as other firms may be able to lower their cost as well. As technology improves, the competitors may be able to improve production capabilities thus eliminating competitive advantage.
Differentiation strategy calls for the development of a product or service that that offers unique attributes that are valued by the customers and the customers perceive to be better than or different from the competitors. The uniqueness of a product may make accompany to charge higher than the competitors’. The firm hopes that the higher price will cover the extra cost incurred in offering the unique product. Because of the uniqueness so the product the firm may be able to pass the cost to the customers who cannot find substitute products daily.
For a firm to succeed In differentiation strategy the following internal strength’s must the achieved:
- · Access to leading scientific research.
- · High skilled and creative production department.
- · Strong sells team with the ability to succeed in communication and perceive the strength of the product.
- · Corporate reputation for quality and innovation.
Differentiation strategy also has risks including competitors being able to imitate the products that may confuse the customs and change their taste.
Focus strategy concentrates on narrow segment and within that segment attempt to achieve either cost advantage or differnciationa firm that uses focus strategy often enjoys a high degree of customer loyalty and when customers are loyal may discourage the completive firms from competing directly.
Firms using focus strategy have lower volumes and therefore less bargaining power with their suppliers. However firms practicing differentiation strategy may pass on their cost to the customers since close substitute products does not exist.
Firms that succeed in focus strategy are able to have a broader range of products development strength to a relative narrow market segment that they know well. Focus strategy also has limitation such as imitations and changes in the target segment.