Michael Porter presents three generic strategies that firms can use to overcome the five forces and attain competitive advantage. The first, overall cost leadership, is based on creating a low cost position relative to one’s peers. The second, differentiation, requires that the firm (or business unit) create products and/or services that are unique and valued. Finally, firms following a focus strategy must direct their attention (or “focus”) toward narrow product lines, buyer groups or geographical markets. Firms emphasizing a focus strategy must attain advantages either through differentiation or a cost leadership approach. As an example, Lamborghini cars focus on the wealthy people of the world and they do this by making their cars “different” than the typical car. Cost is not a factor. Dollar General focuses on the lower income people and they do this by controlling costs in several ways.
Cost leadership requires a tight set of interrelated tactics such as: aggressive construction of efficient-scale facilities, vigorous pursuit of cost reductions from experience, tight cost and overhead control, avoidance of managerial customer accounts, and cost minimization in all activities in a firm’s value chain.
Differentiation consists of creating differences in the firm’s products or service offerings by creating something that is perceived industry-wide as being unique and valued by customers. Differentiation can take many forms such as: prestige or brand image, technology, innovation, features, customer service, or dealer networks.
The third generic strategy (focus) is based on the choice of a narrow competitive scope within an industry. Competitive advantages are attained by focusing on a segment of the market (wealthy, poor, young, old, professionals, blue collar workers, etc) and this segment of the market tailors its strategy.
Instructions: Using Porter’s three competitive strategies (cost, differentiation and focus), name a company that uses the cost leadership strategy, a different company that uses the differentiation strategy and another company that uses the focus strategy and explain why they fit that strategy.
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