MAF 651

SEMINAR IN MANAGEMENT ACCOUNTING

SEMINAR 1

STRATEGIC POSITIONING

GROUP: AC220 8H

PREPARED BY:

NO NAME STUDENT ID
1. AMYRA BINTI AMERAN 2017639072
2. NIK NOR NAJWA BINTI NIK ZAINUDDIN 2017638998
3. NOR SALWANI BINTI SAMSUDIN 2017639284
4. NURUL FARHANA BINTI ZULKIFLI 2017668544
5. SITI NURUL AIN SOFEA BINTI MOHD NAWI 2017639006

PREPARED FOR: ASSOC. PROF. DR. NORZIATON ISMAIL KHAN

TABLE OF CONTENT
NO CONTENT PAGES

1 1.0 INTRODUCTION 1

2 2.0 PORTER’S GENERIC STRATEGIES

2.1 COST LEADERSHIP 1-3

2.2 DIFFERENTIATON 4-5

2.3 FOCUS STRATEGY 6-7

3 3.0 REFERENCES 8
1.0 INTRODUCTION

Strategic positioning is concerned with the way in which a business as a whole

distinguishes itself in a valuable way from its competitors and deliver values to
specific customer segment. Performing different activities from rivals and also
performing similar activities in different ways. The purpose of positioning strategy is
that it allows a company to spotlight specific areas where they can outshine and beat
their competitors.

Porter's generic strategies describe how a company pursues competitive advantage across
its chosen market scope. There are three/four generic strategies, either lower cost,
differentiated, or focus. A company chooses to pursue one of two types of competitive
advantage, either via lower costs than its competition or by differentiating itself along
dimensions valued by customers to command a higher price. A company also chooses one
of two types of scope, either focus (offering its products to selected segments of the market)
or industry-wide, offering its product across many market segments. The generic strategy
reflects the choices made regarding both the type of competitive advantage and the scope.
The concept was described by Michael Porter in 1980.

2.0 PORTER’S GENERIC STRATEGIES

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2.1 COST LEADERSHIP

Cost Leadership is the mechanism of establishing a competitive advantage by having the

lowest cost of operation in the industry. This strategy is especially beneficial in a market
where the price is an important factor. The primary objective of a firm aiming to attain cost
leadership is to become the lowest cost producer in comparison to the competitors. This is
usually achieved by large scale production which enables the firm to attain economies of
scale or by innovating the production process. Acquiring quality raw materials at the lowest
price is the basic goal of a cost leadership strategy. Furthermore, there is an additional
requirement of quality labour who’ll convert these raw materials into valuable goods for the
consumer. But, It needs to be noted that the way the cost of products differs from their price,
similarly, cost leadership isn’t the same as price leadership.

Albeit the confusing names, cost Leadership is not same as Price Leadership. Although the
two often go together, cost leadership is not necessarily price leadership. A company could
be the lowest cost producer yet not offer the lowest-priced products or services, thus
possessing higher profitability. A cost leader will be more profitable than a competitor at the
same price point. The profitability of cost leaders gives them room to innovate, manoeuvre,
and survive as compared to their lower-margin competitors, especially in price centred
industries. The goal of a cost leading company is to reduce costs, and not just prices. Also, a
company with the lowest prices isn’t necessarily the one with the lowest costs.

There are ways on how to achieve cost leadership. Although a little bit tricky, achieving cost
leadership isn’t a tough deal. A unique and effective cost leadership strategy which is better
than the competitors is the key. A cost leadership strategy works on the basic principle that
more the number of units produced, the lower the cost for each unit. It exploits the scale of
production, by producing highly standardized products using advanced technology. In short,
a successful cost leadership strategy enables companies to sell more units sold at a lower
margin per unit. However, there are no shortcuts or escapes for a company aiming to
achieve cost leadership in the long run. Either they have to commit to cost reduction or they
lose the race.

There are a few examples of real companies in the market that practices cost leadership
such as Amazon. Amazon offers maximum value for its customers at the lowest price and
wraps its business around the customers wherein they find it to be a reliable portal for their
online shopping needs. The other example is McDonald’s. McDonald’s practices a division of
labour by employing and training inexperienced staff instead of skilled cooks and thus
manages to cut huge amounts of costs from the salaries of its employees.

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For every strategy taken, there must be advantages and disadvantages of implementing it.
As for the cost leadership style, one of its advantages is that It provides better profits for the
team and organization. Cost leadership styles are focused on creating low-cost operations
within their market and industry. By reducing development and production costs, it becomes
possible for higher profit margins to appear. When competitive pricing is available, with
greater margins than what other companies are able to achieve, then you gain more
business because you’re offering a stronger value proposition to your customers. The other
advantage is, It can increase a team’s market share. Not only do teams employing cost
leadership styles achieve a higher profit margin, they are able to achieve an improved
market share over time as well. Customers who are conscious about their budget balance
the need for cost with the need for value. If your goods or services are at the lowest costs,
but with an acceptable value, then your items will be considered for purchase first. Over
time, these leaders can induce more business, even out of a mature market.

However, despite of giving advantages to the company, there are also shortcomings from it
that can be taken into measure for the company as well. One of the disadvantages is that, It
reduces product innovation. One of the first cuts that always tends to happen with the cost
leadership styles is in research and development. To many of these leaders, R&D seems
like an extraneous cost. The outcome of cutting funding here is that there are fewer new
products or services reaching the market. There are fewer chances at innovation. Instead,
this leadership style encourages the same products to be sold at lower prices only.
Secondly, it reduces the importance of consumer feedback. When leaders are focused
primarily on the price of the goods or services being offered, then it becomes easy to ignore
how the market shifts over time. Customers are always evolving their preferences and taste
for certain items. If the sole focus is to maintain a service or product and just reduce its cost,
you’ll find that some customers will pay more to go with a competitive product because it is
better able to meet their needs.

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2.2 DIFFERENTIATION STRATEGY

Differentiation involves making your products or services different from and more attractive
than those of your competitors. How you do this depends on the exact nature of your
industry and of the products and services themselves, but will typically involve features,
functionality, durability, support, and also brand image that your customers value.

Differentiation can take many forms:

 Prestige or brand image (Hotel Monaco, BMW automobiles).

 The ability to deliver high-quality products or services (Apple, Ruth’s Chris steak
houses, Michelin tires).

 Effective sales and marketing, so that the market understands the benefits offered by
the differentiated offerings.

 Technology (Martin guitars, Marantz stereo components, North Face camping

equipment).

 Innovation (Medtronic medical equipment, Apple’s iPhones and iPads).

 Dealer network (Lexus automobiles, Caterpillar earthmoving equipment).

Large organizations pursuing a differentiation strategy need to stay agile with their new
product development processes. Otherwise, they risk attack on several fronts by competitors
pursuing Focus Differentiation strategies in different market segments.

Successful differentiation is displayed when a company accomplishes either a premium price

for the product or service, increased revenue per unit, or the consumers' loyalty to purchase
the company's product or service (brand loyalty). Differentiation drives profitability when the
added price of the product outweighs the added expense to acquire the product or service
but is ineffective when its uniqueness is easily replicated by its competitors. Successful
brand management also results in perceived uniqueness even when the physical product is
the same as competitors. This way, Chiquita was able to brand bananas, Starbucks could
brand coffee, and Nike could brand sneakers. Fashion brands rely heavily on this form of
image differentiation.

Differentiation strategy is not suitable for small companies. It is more appropriate for big
companies. To apply differentiation with attributes throughout predominant intensity in any
one or several of the functional groups (finance, purchase, marketing, inventory etc.). This

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point is critical. For example, GE uses finance function to make a difference. You may do so
in isolation of other strategies or in conjunction with focus strategies (requires more initial
investment). It provides great advantage to use differentiation strategy (for big companies) in
conjunction with focus cost strategies or focus differentiation strategies. Case for Coca-Cola
and Royal Crown beverages is good sample for this.

Value Chain Activities:

Examples of differentiation:

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2.3 FOCUS STRATEGY

A focus strategy involves offering the niche-customers a product customized to their tastes
and requirements. It is directed towards serving the needs of a limited customer group.
According to Hitt, Ireland, and Hoskisson, a niche strategy or focus strategy is an integrated
set of actions designed to produce or deliver goods and services that serve the needs of a
particular competitive segment. A company usually follows a focus strategy when it can
serve a narrow piece of the market better than competitors.

A focus strategy is based on the choice of a narrow competitive scope within an industry. A
firm following this strategy select a segment or group of segments and tailors its strategy to
serve them. The essence of focus is the exploitation of a particular market niche. Focus
strategy concerns itself with the identification of a niche- market and launching a unique
product or service in that market. A niche can be identified based on certain issues such as
particular buyer group such as women, youths and adolescents and geographic uniqueness.

A company using a focus strategy may concentrate on geographic markets or a particular

group of customers or on a particular product line segment. The focus strategy is very
different in terms of the segment the pursuing organization decides to serve. A limited
segment to the complete exclusion of others is served. It is specific to a very narrow group of
buyers.

There are two types of focus strategies that can be pursued by a company either with cost
focus or differentiation focus. Cost focus exploits differences in cost behaviour in some
segments. The cost focus strategy of entering into a niche market at a low cost with a unique
type of product that has a special need among the customers in the niche market. A firm
strives to create a cost advantage in its target segment. This strategy is targeted to those
desire to have unique products at a low cost. The company that follows this strategy
competes against the cost leader in the niche market where it has a cost advantage. With
this strategy accompany concentrates on small volume custom-built products for which it has
a cost advantage. The company may adopt this strategy to serve a buyer segment whose
needs can be satisfied with less cost compared to the rest of the market.

Next is differentiation focus. It exploits the special needs of buyers in other segments. A firm
seeks to differentiate in its target market. Differentiation focus is the strategy of operating a
business with a differentiated product in a chosen niche market. When a company pursues a

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focused strategy based on differentiation, it concentrates on a harrow buyer-segment and
offers customized attributes in products better than competitors’ products.

Here, the focuser company competes against competitors not based on low-cost, rather
based on product differentiation. Since the focuser company knows the needs of niche
customer-groups, it can successfully differentiate its products.

Example of a company that adopts this strategy is LinkedIn. This is based on focus
differentiation strategy, Linkedin has staked out a position as the business social media site
of choice. Rather than compete with Facebook head on, Linkedin created a strategy that
focuses on individuals who wish to share their business experience and make connections
with individuals with whom they share or could potentially share business ties. Differentiation
focus emphasizing special need within a focused market such they produced high end
product like Lamborghini. Other example of company that adopts cost focus strategy is
defined by the sales channel used to reach customers. Most pizza shops offer sit-down
service, delivery, or both. In contrast, Papa Murphy’s sells pizzas that customers cook at
home. Because these inexpensive pizzas are baked at home rather than in the store, Papa
Murphy’s may attract customers that might not otherwise be able to afford a prepared pizza.

There must be advantages in every strategy. The advantages of focus strategy is the
company can build strong relationship with each target market. They are able to maintain
loyal customers which is will benefit their business as they will have regular customer. In the
meantime, they can improve the pricing structure for the business. Due to lower competitor,
they can improve their product to satisfy consumer’s needs and wants but the production
cost can be maintained, so the price can be reduced.

In contrast, there are a few disadvantages likes it will limit the initial demand of product or
services and limit future growth. As the company try to stay competitive in the market, they
might refuse any changes to their products. The changes might not satisfy customer’s needs
and afraid their sales will reduce. Focus strategy is focusing on certain segments based on
the characteristics such as demographic which is may be temporary. The changes will affect
the business or company to be removed from market.

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3.0 REFERENCES

BillT, Y. (2007, October 19). MindTools. Retrieved from MindTools:

https://www.mindtools.com/pages/article/newSTR_82.htm
Dess, M. E. (2019). Strategic Management. New York: McGraw-Hill Education.