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.