Michael Porter’s Three Competitive Strategies Essay

2804 Words Aug 27th, 2013 12 Pages
Michael Porter is a Professor of HBS . He established that A firm's relative position within its industry determines whether a firm's profitability is above or below the industry average. The fundamental basis of above average profitability in the long run is sustainable competitive advantage. There are two basic types of competitive advantage a firm can possess: low cost or differentiation. The two basic types of competitive advantage combined with the scope of activities for which a firm seeks to achieve them, lead to three generic strategies for achieving above average performance in an industry: cost leadership, differentiation, and focus
Cost leadership Strategy: This strategy involves the firm winning market share by appealing to
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This provides a short-term advantage only. If a firm lacks the capacity for continual innovation, it will not sustain its competitive position over time.

Focus or Strategic scope: This strategy describes the scope over which the company should compete based on cost leadership or differentiation. The firm can choose to compete in the mass market (like Reliance Fresh, Big Bazaar) with a broad scope, or in a defined, focused market segment with a narrow scope (Indigo Airlines). In either case, the basis of competition will still be either cost leadership or differentiation.

In adopting a narrow focus, the company ideally focuses on a few target markets (also called a segmentation strategy or niche strategy). These should be distinct groups with specialized needs. The choice of offering low prices or differentiated products/services should depend on the needs of the selected segment and the resources and capabilities of the firm. It is hoped that by focusing your marketing efforts on one or two narrow market segments and tailoring your marketing mix to these specialized markets, you can better meet the needs of that target market. The firm typically looks to gain a competitive advantage through product innovation and/or brand marketing rather than efficiency. It is most suitable for relatively small firms but can be used by any company. A focused strategy should target market segments that are less

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