Strategic Positioning and Competitive Advantage (lect 11 part 3)

Michael Porter: A firm’s generic strategy describes how it positions itself to create value.

Two (+ one) competitive strategies:

Benefit leadership (Differentiation).

(+ Focus strategy)

Cost leadership.

Strategy of Cost Leadership

Applied strategy:

How?

A cost leader creates a larger B – C by achieving a lower C than its rivals.

Undercut rivals’ prices and sell more than they do.

Match rivals’ prices and attain higher price – cost margins than they can.

Strategy of Benefit Leadership

Applied strategy:

A benefit leader creates a larger B – C by achieving a higher B than its rivals.

How?

Match rivals’ prices and sell more than they do.

Charge price premium and attain higher price – cost margins than rivals can.

Benefit advantage is a suitable strategy when:

Cost advantage is a suitable strategy when:

– Consumers are relatively price sensitive.
• E.g.: Mars bar.

It concerns a search good.
• Quality of good is known before purchase. • E.g.:Chairs or other furniture.

– The nature of the product does not allow benefit enhancement.
• E.g.: Oil --> scale economies.

– When economies of scale and learning are significant (obtain benefit advantage through differentiation in a niche market).
• E.g.: Internet brokers.

– It concerns a experience good.
• Quality of good is only known after purchase and when it is used for a while.
• E.g.: Your brand new car.

– Consumers are willing to pay a premium for benefit enhancements.
• E.g.: Rolex.

+ Focus Strategy

– Product specialisation: Offer limited product variety for a wide range of customers.

– Geographic specialisation: Exploit the unique conditions of the region.

– Customer specialisation: Offer a wide range of products to a narrow customer group.