Professor Michael Porter identified three generic strategies through which an organisation can achieve competitive advantage.
1) Cost leadership:
Set out to be the lowest cost producer in an industry. By producing at the lowest possible cost the manufacturer can compete on price with every other producer in the industry and earn the highest unit profits.
Advantages:
– Barrier to entry
– Win price war
– Reduced power of substitute
– High volume
Disadvantages:
– No fallback position
– Larger rival may enter market
– Strong currency makes import cheaper
2)Differentiation:
Here the firm creates a product that is perceived to be unique in the market.
Advantages:
– Brand loyalty and repeat purchase
– Higher margin
– Reduction in bargaining power
Disadvantages:
– Perform badly in recession
– Competitive advantage is difficult
– Need constant innovation
– High marketing
– Small volume
3) Focus:
Position one-self to uniquely serve one particular niche in the market. A focus strategy is based on fragmenting the market and focusing on particular market segments. The firm will not market its products industry wide but will concentrate on a particular type of buyer or geographical area.
Advantages:
– Little competition
– Become expert in your field
Disadvantages:
– Low volume
– Low barrier to entry