Types of Strategies
According
to Michel Porter, the strategies can be classified into three types. They are
ü Cost
leadership strategy
ü Differentiation
strategy
ü Focus
strategy
1 Cost Leadership Strategy
This
generic strategy calls for being the low cost producer in an industry for a
given level of quality. The firm sells its products either at average industry
prices to earn a profit higher than that of rivals, or below the average
industry prices to gain market share. In the event of a price war, the firm can
maintain some profitability while the competition suffers losses. Even without
a price war, as the industry matures and prices decline, the firms that can
produce more cheaply will remain profitable for a longer period of time. The
cost leadership strategy usually targets a broad market. Some of the ways that
firms acquire cost advantages are by improving process efficiencies, gaining
unique access to a large source of lower cost materials, making optimal
outsourcing and vertical integration decisions, or avoiding some costs
altogether. If competing firms are unable to lower their costs by a similar
amount, the firm may be able to sustain a competitive advantage based on cost
leadership.
2 Differentiation Strategy
A
differentiation strategy calls for the development of a product or service that
offers unique attributes that are valued by customers and that customers
perceive to be better than or different from the products of the competition. The
value added by the uniqueness of the product may allow the firm to charge a
premium price for it. The firm hopes that the higher price will more than cover
the extra costs incurred in offering the unique product. Because of the
product's unique attributes, if suppliers increase their prices the firm may be
able to pass along the costs to its customers who cannot find substitute
products easily.
3 Focus Strategy
The focus
strategy concentrates on a narrow
segment and within
that segment attempts to achieve
either a cost advantage or differentiation. The premise is that the needs of
the group can be better serviced by focusing entirely on it. A firm using a
focus strategy often enjoys a high degree of customer loyalty, and this
entrenched loyalty discourages other firms from competing directly. Because of
their narrow market focus, firms pursuing a focus strategy have lower volumes
and therefore less bargaining power with their suppliers.
Related Topics
Privacy Policy, Terms and Conditions, DMCA Policy and Compliant
Copyright © 2018-2023 BrainKart.com; All Rights Reserved. Developed by Therithal info, Chennai.