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
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
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.
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