In it, porter analyzes the complexity of the new competitive landscape in its five main forces. The effects of cost leadership strategy and product differentiation. Strategic cost management or otherwise called as scm is the cost management technique that aims at reducing costs while strengthening the position of the business. There are two basic types of competitive advantage. Differentiation strategy is one of three porters generic strategy. Product differentiation, petroleum, effimax, profitability, industry. In his book competitive advantage, he transformed theory and practice of business strategy teachings around the world. Keywords cost leadership strategy, differentiation strategy, dual strategy, emerging economies, china references ailawadi, kusum l. It entails development of a product or service, that is unique for the customers, in terms of product design, features, brand image, quality, or customer service. What are the different types of strategies in business. Teece whenever a business enterprise is established, it either explicitly or implicitly employs a particular business model that describes the design or architecture of the value creation, delivery, and capture mechanisms it employs.
Competitive advantage definition a competitive advantage is an advantage over competitors gained by offering consumers greater value, either by means of lower prices or by providing greater benefits and service that justifies higher prices. Thanks to ecommerce, goods and services have become more mobile and digitalized. There could be small businesses or involved in a single business or a large, complex and diversified conglomerate with several different businesses. A famous cliche contends that you get what you pay for. Competitive strategy, then, not only responds to the environment but also attempts to shape that environment in a firms favor. Goals, priorities and strategies outlines the goals, priorities, and strategies to meet the mission 3 4 overarching goals aligned with mission. Strategic management exam questions and answers pdf. The use of differentiation strategy by libraries to gain. Differentiation mastering strategic management 1st. According to porter, strategies allow organizations to gain competitive advantage from three different bases. Note, however, that a focus strategy means achieving either a low cost advantage or differentiation in a narrow part of the market.
The company is well known for its innovative products such as macintosh line computers, the ipod. Walmart has continued to retain the top position on the fortune 500 list consecutively for several years. How apple uses differentiation strategy to gain competitiveness. It is in the context of the overall generic strategy which a firm may be pursuing that strategic options may be usefully considered. The differentiation strategy focuses on developing a unique product or equally useful a perception of a unique product that customers are willing to pay a premium for. Differentiation strategy an overview sciencedirect topics. The five types of business level strategies are as follows. Let us examine the implications of each of the three generic strategies. Differentiation strategy differentiate the product or services in some way in order to compete successfully. Existing strategy business level strategy aldi adopted both cost leadership and differentiation strategy.
In 1980 porter introduced a model of generic strategies that has influenced much of the current thinking in strategy formulation. Apr 01, 2019 but the only proven to make your expertise visible and turn it into a credible differentiator is to have a clear strategy. For that purpose, a differentiation strategy is chosen as the topic for the thesis. As a result, japanese manufacturers enjoyed substantial cost and quality advantages for many years.
Porters generic strategies describe how a company pursues competitive advantage across its chosen market scope. The business strategy is a detailed plan outlined on how to deliver value to customer at the same time positioning itself as having a competitive advantage over the competitor. They are available to any consumers as long as the items are online. Strategies often include both product differentiation strategy and the cost leadership strategy. Low cost strategy and differentiation strategy on hr. Whereas low cost and differentiation are aimed at achieving their objectives industry wide, the focus or niche strategy is built on serving a particular target customer, product, or location very well. Apple company has utilized this strategy since it was founded and has retained its competitive advantage in the computer and consumer electronics industry. Pdf carrefours competitive strategy cost leadership. There are threefour generic strategies, either lower cost, differentiated. This saying captures the essence of a differentiation strategy.
How to use product differentiation to optimize your pricing. A differentiation strategy involves the firm creating a productservice, which is considered unique in some aspect that the customer values because the customers needs are satisfied. Differentiation strategy, as the name suggests, is the strategy that aims to distinguish a product or service, from other similar products, offered by the competitors in the market. Exploring the implications of lowcost leadership and. Choose and download from hundreds of powerpoint differentiation strategy premade slides. Explore the integration of cost leadership strategy and. The premise is that the needs of the group can be better serviced by focusing entirely on it. The report will develop key points using the porter competitive model as a guide. There are countless variations in the competitive strategies that companies employ. Differentiation strategy differentiation strategy is one of michael porters generic strategies. Background product differentiation is a positioning strategy that many firms use to distinguish their products from those of competitors. Nov 21, 2018 differentiation strategies enable companies to position themselves as industryleading providers of unique products and services. The source of amazons competitive advantage acca global. Other brands use a focused differentiation strategy.
Offering a lower tier of service can bring in new customers that have the potential to move upriver as their own businesses grow. That is, differentiation allows the company to change premium prices, while cost leadership allows the company to charge the lowest competitive price. The most obvious and winning strategy for competing in this market would be cost leadership, but this is only sustainable for a few players. A firm using a focus strategy often enjoys a high degree of customer loyalty, and this entrenched loyalty. In a strategy of differentiation, your company needs to have a unique product perceived by the market with superiority. The findings contradict with equity accounting theory. Having a basic strategy at the heart of your business is a crucial part of both short and long term success. A comparative analysis of strategies and business models. Nordstrom, for example, offers designer goods and excellent customer service, which gives it a competitive advantage. The tradeoff between cost leadership and differentiation daniela scheele essay communications public relations, advertising, marketing, social media publish your bachelors or masters thesis, dissertation, term paper or essay. Achieved via the delivery of features that have a highest marginal benefit to customer needs. Strategy both cost leadership and differentiation strategy has been implemented by.
Via, the new instant coffee line is straddling differentiation and low cost leadership. Differentiation versus low cost or differentiation and low. According to porter 1980, differentiating a business requires that, new and unique products with value are created for which customers will pay premium prices for. Building a low cost advantage the low cost strategy is based on locating and leveraging every possible source of cost advantage in a firms value chain of activities. The analysis describes how competitive strategies, generic strategies and. Pdf carrefours competitive strategy cost leadership and differentiation. Differentiation strategy for presentations in powerpoint. The focus strategy concentrates on a narrow segment and within that segment attempts to achieve either a cost advantage or differentiation. Contrary to this view, this article presents a contingency framework in which differentiation can be a means for firms to establish an overall low cost position and discusses that a combination of differentiation and low cost may. The business strategy of walmart a case study introduction. Competitive strategies involve taking offensive or. A cost leadership strategy is where the price may be similar or usually lower than the competition, but costs are certainly lower. Porters 1980, 1985 generic businesslevel strategies, overall cost leadership. Michael porter is one of the gurus of contemporary management.
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in. Your products can be differentiated by design, by creating your brand, by your customer service and sales model, or even by your unique technologies. Linking porters generic strategies to firm performance springerlink. The five generic competitive strategies semantic scholar.
Pricing in the chemical industry boost your pricing power. Developing and implementing a differentiation strategy is a fivestep process. He comes up with the five generic strategies which are low cost leadership, differentiation strategy, best cost provider, focus on low cost, focus on differentiation strategies. Types of strategies cost leadership,differentiation, focus.
Strategic management assignment are 1 low cost leadership strategies, 2 differentiation strategies, and 3 focus strategies. A differentiation strategy is where the product or service is either perceived to be, or is, of superior customer value and has a definite price premium. Some rearchers, in fact, refer to this model as being among the. Cost leadership strategy, differentiation strategy, single strategy, hybrid strategy. The strategic management process encompasses three phasesstrategy formulation, implementation, and evaluation and control. Know the advantages and disadvantages of a differentiation strategy.
Analyze the competition and determine the industry standard. Cost leading strategies and differentiation strategies have their own characteristics and scope of application. Learn product differentiation and low cost strategy with free interactive flashcards. Rebranding is a marketing strategy in which a new name, term, symbol, design, or combination thereof is created for an established brand with the intention of developing a new, differentiated identity in the minds of consumers, investors, competitors, and other stakeholders product differentiation strategy pdf.
Below are some of the examples of implementation of cost leadership strategy used by aldi stores. Choose from 192 different sets of product differentiation and low cost strategy flashcards on quizlet. In 2001, the downloading of music has just started and as we can see today, in 20. It is used to reduce the cost of the operation in running the grocery store. Differentiation strategy for the professional services firm. Bls existing strategy business level strategy aldi adopted. Start with an understanding of exactly what you want to be known for. Value innovation strategy competes in an uncontested market space. Cost leadership strategy aldi is a typical hard discounted store pursuing cost leadership strategy bonn, 2010. At the same time, a firm can clearly improve or erode its position within an industry through its choice of strategy. If a firm is not receiving a premium price for its goods or services it is not a differentiator. This type of strategy is totally based on the price as a competing factor. It is a process of combining the decisionmaking structure with the cost information, in order to reinforce the business strategy as a whole.
It is at the heart of structural empiricism and it smoothes jagged behavior that cause paradoxical outcomes in several theoretical models. The book is brilliant and incredibly simple, so reading is a must. The two approaches to strategies we are going to examine are. It is easy enough to set out in business with a general idea of what you want to accomplish, but those who lack a specific strategy will usually be swallowed up by the market. For competitive scope, aldi specialises in inexpensive household items and groceries and its products are for the mass market. Revisiting porters generic strategies for competitive. Apr 23, 2010 cost leadership and product differentiation. Ta b l e 1 comparison of cost and differentiation strategies. This is the direct result of the multiple, additive benefits of successfully pursuing the cost leadership and differentiation strategy simultaneously. Differentiation strategies enable companies to position themselves as industryleading providers of unique products and services.
Thus, the main alternative for exporters from developing countries would be to opt for a cost leadership strategy. These companies, driven by operational excellence and exploiting their scale of production. Keywords costleadership strategy, differentiation strategy, dual strategy, emerging economies, china references ailawadi, kusum l. In the differentiation strategy, the company produces and delivers products or services with unique features to attract consumers. Strategy has different perspectives and points of views most of them lies in the concepts of cost leadership, differentiation and focus strategies or a combination of them. Choose your most appropriate competitive strategy and look for potential practical solutions.
Building a lowcost advantage the lowcost strategy is based on locating and leveraging every possible source of cost advantage in a firms value chain of activities. Competitive strategy is the process of developing competitive advantage and earning aboveaverage returns for stakeholders. The brands growth is driven mainly by its everyday low prices strategy. Porter 10 suggests two basic corporate strategies that can be distinguished. Collection of differentiation strategy diagrams and charts is available in powerpoint ppt format for your presentations. The tradeoff between cost leadership and differentiation.
Once a firm pursuing a low cost leadership strategy has discovered an important source of cost improvement and reduction, however, it must then seek new ways to. In the policy literature there is an assumption that the generic businesslevel strategies of differentiation and overall cost leadership are generally inconsistent. This presentation draws on ideas from professor porters books and articles, in particular, competitive strategy the free press, 1980. It is also concerned with innovative software such as mac operating system, x operating. View low cost strategy and differentiation strategy on hr. The financial leverage measure for each firm is based on the book value of debt and assets.
Low cost and differentiation strategy may be compatible. Business level strategy cost leadership strategy the firm winning market share by appealing to cost conscious or price sensitive customers. Pdf group iii institute of cost accountants of india 4 december. Cost leadership and differentiation strategies are popular research topics within the field of strategy and have been widely discussed, in particular since michael porter presented his model of generic strategies in 1980. Competitive advantage is achieved through the strategic management of. The focus strategy has two variants, cost focus and differentiation focus. Porter 1980 suggested the cost leadership strategy for the first time. It will describe low cost strategy and differentiation strategy and its impact in key hr function such as hr planning, recruitment and selection, orientation, training and development, career planning, performance management, compensation management, health and safety and international operations. The ratio of total sales to total strategy of product differentiation. Apple is an american corporation that designs, manufactures and sells electronics, computer hardware and software, and personal computers. Corporate social responsibility, product differentiation. However, with the change of modern production management mode and the development of information network technology in the information economy era, a single competitive strategy can not get competitive advantage.
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