We have already identified the most important factors in the table below. It is more appropriate for big companies. Other procurement advantages could come from preferential access to raw materials, or backward integration. These approaches mean fixed costs are spread over a larger number of units of the product or service, resulting in a lower unit cost, i.
Apple's design skills or Pixar's animation prowesstalented personnel e. For example, it is difficult to be a cost leader while pursuing a differentiation strategy because differentiation costs money. The aimed goal is to increase efficiency and lower its costs in relation to competitors.
These should be distinct groups with specialised needs. Furthermore, Reeves and Routledge's study of entrepreneurial spirit demonstrated this is a key factor in organisation success, differentiation and cost leadership were the least important factors.
Although, Porter originally introduced five forces affecting an industry, scholars have suggested including the sixth force: Recent developments[ edit ] Michael Treacy and Fred Wiersema in their book The Discipline of Market Leaders have modified Porter's three strategies to describe three basic "value disciplines" that can create customer value and provide a competitive advantage.
Differentiation The second generic strategy is differentiation. This force is the major determinant on how competitive and profitable an industry is.
Or by increasing market share through charging lower prices while still achieving a reasonable profit on each sale because your cost has been reduced. Focus strategy usually combines with either cost leadership or differentiation as it is not enough on its own.
Bargaining power of suppliers. At the beginning low-cost budget airlines chose "cost focused" strategies but later when the market grow, big airlines started to offer the same low-cost attributes, and so cost focus became cost leadership!
Also, they have very efficient logistics and a low cost base such as labor, materials and facilities Ibid, In manufacturing, it will involve production of high volumes of output. An industry selects few attributes that most buyers in an industry perceive as vital and aims to uniquely present and position itself to meet those needs.
Cost leadership Cost leadership is intuitively the easiest strategy to understand. Higher levels of output both require and result in high market share, and create an entry barrier to potential competitors, who may be unable to achieve the scale necessary to match the firms low costs and prices.
According to Porterthere are two ways of achieving cost leadership either by increasing profit by reducing costs while charging the average price.
For examplein the sports utility segment, it offers six models of sports utility vehicles each offering a combination of price, size, performance, styling and luxury that appeals to different sets of buyers.
Keep in mind that if you are in control of all functional groups this is suitable for cost leadership; if you are only in control of one functional group this is differentiation.
Alongside, the unique needs of customers in those markets, it seeks to develop low cost and well specified products for the market.Chapter 6 global business. STUDY. PLAY. Porter argues that a nation's firms gain competitive advantage if their domestic consumers are: The observed pattern of trade in the world economy may be due in part to the ability of a firm in a given market to capture first-mover advantages.
Furthermore, Porter argues that a low cost position acts to a firm’s benefit against rivalry, and it can act as a defense against powerful suppliers by providing more flexibility to cope with input increases.
Porter argues that any company’s ability to compete in the international arena is based mainly on an interrelated set of location advantages that certain industries in different nations posses, namely: Firm Strategy, Structure and Rivalry; Factor Conditions; Demand Conditions; and Related and Supporting Industries.
If these conditions are. Porter argues that if a firm is to attain competitive advantage; it must choose between the types of competitive advantage it seeks, discuss using an industrial example? An industry can be defined as a group of companies offering products that are closely substituting for.
Michael Porter 5 Forces Porter's five forces of competitive position analysis is a simple framework for assessing and evaluating the competitive strength and position of a business organization that formed by Michael E.
Porter of Harvard Business School in Michael Porter argues that it goes to firms that create superior value by lowering the cost structure of the business and/or differentiating the product so that a premium price can be charged.Download