Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
Competitive advantage grows out of value a firm is able to create for its buyers that
exceeds the firms cost of creating it. Value is what buyers are willing to pay, and
superior value stems from offering lower prices than competitors for equivalent
benefits or providing unique benefits that more than offset a higher price. There are
two basic types of competitive advantage: cost leadership and differentiation.
Michael Porter, Competitive Advantage 1985, p3
Despite the ongoing recession two of the largest supermarket retailers Tesco and
Sainsburies announced in 2009 that they both had strong first quarter sales growth.
The key factor of this growth was due to the expansion of their ‘value’ product
ranges, both supermarkets were eager to attach cash strapped consumers away from
budget retailers such as Lidl and Aldi.
This demonstrates the point in which Porter is making in the above paragraph. ‘Value
is what buyers are willing to pay, and superior value stems from offering lower prices
than competitors for equivalent benefits’. Because of the economic climate Lidl and
Aldi increased their customer base both are no-frills operators who have reduced there
on costs to a minimum and therefore pass on their savings to their customers in lower
prices. To compensate for this Tesco and Sainsburies increased there value ranges to
compete with Lidl and Aldi. This they successfully did with increased sales especially
within their value product ranges.
This is one example of generic strategies (cost Leadership) which were first brought
about by Michael Porter in 1985 in his book Competitive Advantage: Creating and
Sustaining Superior Performance.
Generic strategies are broken down into three areas “Cost leadership” the firms
strategy is to minimise costs giving greater flexibility on pricing decisions,
“Differentiation” the firm offers a product or service which is different some way but
has value to the customer, this could be high quality service or product features,
“Focus” is where the firm targets a particular marker sector or market segment.
Therefore organisations that achieve Cost leadership will benefit from either increased
market share through lowering prices whilst still maintaining profitability, or by
maintaining average prices and therefore increased profits. All of this is achieved
through reducing costs below that of the organisations competitors. Organisations that
pursue a differentiation strategy win market share by offering unique features that are
valued by the customer. Focus strategies involve achieving cost leadership or
differentiation within certain niche markets in ways that are not available to more
broadly focused organisations.
According to Porter (1980) an organisation that fails to follow either Cost Leadership
or Differentiation will result in the organisation being stuck in the middle. Therefore
having no competitive advantage would equates to poor financial performance.
Analysis
Porter’s generic strategies demonstrate the need to separate cost from differentiation.
The model showed that having a highly valued product which customers valued is as
profitable as a budget value product. Therefore his model showed that differentiation
is as effective as cost leadership. Focus within the market sector/segment applies to
both the any generic strategies
cons: