Basic Competitive Strategies
THE BASIC COMPETITIVE (Business Level) STRATEGIES
Business strategy focuses on improving the competitive position of a company’s or business unit’s products or services within the specific industry or market segment that the company or business unit serves.
Competitive strategy raises the following questions:
❖ Should we compete on the basis of lower cost (and thus price) or should we differentiate our products or services on some basis other than cost, such as quality or service?
❖ Should we compete head to head with our major competitors for the biggest but most sought-after share of the market, or should we focus on a niche in which we can satisfy less sought-after but also profitable segment of the market?
Michael Porter proposes two “generic” competitive strategies for outperforming corporations in a particular industry: lower cost and differentiation. They are called generic because they can be pursued by any type or size of business firm, even by not-for-profit organization.
Lower cost strategy is the ability of a company or a business unit to design, to produce, and to market a comparable product more efficiently than its competitors.
Differentiation strategy is the ability of a company to provide unique and superior value to the buyer in terms of product quality, special features, or after-sale services.
M. Porter further proposes that a firm’s competitive advantage in an industry is determined by its competitive scope, that is, the breadth of the company’s or business unit’s target market.
Simply put, a company’s business or business unit can choose a broad target (that is, aim at the middle of the mass target) or a narrow target (that is, aimed at a market niche).
Combining these two types of target markets with the two competitive strategies results in the four variations of generic strategies (see image on next page).
When the lower cost and differentiation strategies have a broad
Business strategy focuses on improving the competitive position of a company’s or business unit’s products or services within the specific industry or market segment that the company or business unit serves.
Competitive strategy raises the following questions:
❖ Should we compete on the basis of lower cost (and thus price) or should we differentiate our products or services on some basis other than cost, such as quality or service?
❖ Should we compete head to head with our major competitors for the biggest but most sought-after share of the market, or should we focus on a niche in which we can satisfy less sought-after but also profitable segment of the market?
Michael Porter proposes two “generic” competitive strategies for outperforming corporations in a particular industry: lower cost and differentiation. They are called generic because they can be pursued by any type or size of business firm, even by not-for-profit organization.
Lower cost strategy is the ability of a company or a business unit to design, to produce, and to market a comparable product more efficiently than its competitors.
Differentiation strategy is the ability of a company to provide unique and superior value to the buyer in terms of product quality, special features, or after-sale services.
M. Porter further proposes that a firm’s competitive advantage in an industry is determined by its competitive scope, that is, the breadth of the company’s or business unit’s target market.
Simply put, a company’s business or business unit can choose a broad target (that is, aim at the middle of the mass target) or a narrow target (that is, aimed at a market niche).
Combining these two types of target markets with the two competitive strategies results in the four variations of generic strategies (see image on next page).
When the lower cost and differentiation strategies have a broad