Generic Competitive Strategies

Question 1

What are the Generic Competitive Strategies?

Answer 1

• Cost Leadership.
• Differentiation.
• Specialisation.

Porter, Competitve Strategy — P. 65.

Each one requires different resources, strengths, organizational arrangements, and managerial styles; rarely is a Firm suited for all three. Firms should heavily bias efficacy, practicality, and irreplicability in their selection.

Question 2

What is Cost Leadership?

Answer 2

Achieving the lowest-cost position in an Industry through aggressive cost control and minimization, usually resulting in high market share.

Porter, Competitve Strategy — P. 65.

Although lowest relative cost is the strategic theme, quality, service, and other areas must also be addressed and cannot be sacrificed.

Question 3

What are the advantages of Cost Leadership?

Answer 3

• It usually creates substantial Entry Barriers, e.g. through Scale Economies.
• It guards against IIC by increasing the Firm’s competitiveness through higher profits.
• It guards against powerful Buyers because prices cannot be pushed lower if yours are the best.
• It guards against powerful Suppliers by providing more flexibility to cope with input cost increases.
• It usually decreases Substitutes’ price-performance attractiveness.

Porter, Competitve Strategy — P. 66.

Question 4

What are the Risks of Cost Leadership?

Answer 4

• Technology nullifying expertise or prior investments.
• Erosion of cost advantages through cost inflation or Rival imitation.
• Neglect of necessary changes due to a hyperfocus on cost.

Porter, Competitve Strategy — P. 76.

Question 5

What is Differentiation?

Answer 5

Distinguishing one’s Product in one or more dimensions on an Industrywide scale.

Porter, Competitve Strategy — P. 67.

Dimensions may include such things as design, branding, technology, features, customer service, distribution network, etc.

Question 6

What are the advantages of Differentiation?

Answer 6

• It usually creates substantial Entry Barriers through CDISs.
• It guards against powerful Suppliers by providing more flexibility to cope with input cost increases.
• It guards against powerful Buyers by minimising comparable alternatives, which decreases price sensitivty.
• It guards against Substitution through brand loyalty and minimising comparable alternatives.
• It guards against IIC by decreasing price sensitivity and increasing profit margins through brand loyalty.

Porter, Competitve Strategy — P. 68.

Question 7

What are the Risks of Differentiation?

Answer 7

• Imitation eroding the market’s perception of Differentiation.
• Changing demand weakening the Differentiating factor’s attractiveness.
• The cost differential vis-à-vis low-cost Rivals widens to undermine brand loyalty.

Porter, Competitve Strategy — P. 77.

Question 8

What is Specialisation?

Answer 8

Making a Product the best available for a Target Demographic (TD) through a bespoke combination of Differentiation and Cost Leadership in that segment.

Porter, Competitve Strategy — P. 68.

Specialisation trades profitability for market share. The Firm achieves Differentiation, Cost Leadership, or both in its selected segment, but not Industrywide. Consequently, the Firm may reap some, or all, of the strategies’ competitive advantages on that scale.

Question 9

What are the Risks of Specialisation?

Answer 9

• The TD’s needs become more generic.
• Rivals find submarkets in the TD and outspecialise the Firm.
• The cost differential vis-à-vis generalist Rivals widens to undermine the Cost Leadership or Differentiation achieved by specialising.

Porter, Competitve Strategy — P. 78.