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Business level strategy

Michael Porter’s Generic Strategies Low cost leadership strategy Broad differentiation strategy Focus strategy
Best cost provider strategy

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Business level strategy

  1. 1. BUSINESS LEVEL STRATEGY http://solvetechnicalprob lem.blogspot.com
  2. 2. BUSINESS LEVEL GENERIC STRATEGY  Michael Porter’s Generic Strategies Low cost leadership strategy Broad differentiation strategy Focus strategy Best cost provider strategy
  3. 3. PORTER’S GENERIC STRATEGIES  Low cost leadership strategy  It is also known as low cost provide strategy, cost leadership strategy or low cost strategy  When a company adopts a strategy of selling its products at a price lower than its competitors, this strategy is known as low-cost strategy.
  4. 4. PORTER’S GENERIC STRATEGIES: LOW COST LEADERSHIP STRATEGY  A company may achieve cost advantage by-  Doing a better job than competitors recognizing internal value chain activities  Taking initiative to cut down costs of value chain activities  Recognizing the value chain to avoid some cost producing activities.
  5. 5. PORTER’S GENERIC STRATEGIES: LOW COST LEADERSHIP STRATEGY  Benefits to business organization  Overcoming threats from competitors  Effective dealing with powerful suppliers  Facing powerful buyers effectively  Overcoming threats from the entry of potential competitors
  6. 6. PORTER’S GENERIC STRATEGIES: LOW COST LEADERSHIP STRATEGY  Market situations favorable for low cost strategy  The brand differences is minor  A large number of price sensitive buyers  Few ways to achieve product differentiation  Switching cost is low  Large number of buyers with significant bargaining power  Price competition is tough  Favorableness of company’s position
  7. 7. PORTER’S GENERIC STRATEGIES: LOW COST LEADERSHIP STRATEGY  Reasons for failure of low cost strategy-  May invite aggressive price cutting by competitors.  Competitors can easily imitate the strategy  If low cost product does not contain enough attributes  The emergence of technological breakthrough
  8. 8. PORTER’S GENERIC STRATEGIES: LOW COST LEADERSHIP STRATEGY  Strategic choices of low cost provider  Low level of product differentiation  Mainly target the average customers  Developing distinctive competence in manufacturing  Developing skills in flexible manufacturing, just in time (JIT), TQM etc.  Emphasizing on strict production control and rigorously use budget controls
  9. 9. PORTER’S GENERIC STRATEGIES: BROAD DIFFERENTIATION STRATEGY  Differentiation strategy  It is concerned with product differentiation  It is the act of designing a set of meaningful differences to distinguish the company’s offerings form competitors’ offerings.  The goal of this strategy is to achieve competitive advantage.  It may be either broad or focused differentiation strategy.
  10. 10. PORTER’S GENERIC STRATEGIES: BROAD DIFFERENTIATION STRATEGY  The ways to achieve product differentiation  Differences in quality  Innovation  Responsiveness to customers  Responding to customers’ psychological desires  Wide choice of customers
  11. 11. PORTER’S GENERIC STRATEGIES: BROAD DIFFERENTIATION STRATEGY (MAJOR THEMES FOR DIFFERENTIATING) Themes Examples of applicability Unique taste Foods products (Bread, chocolate etc) Multiple features BMW and Mercedes-Benz, Microsoft office 2000 Wide selection/one stop shopping Agora and Meena Bazaar etc. Special features Transparent ball pen or soap Full range of service Apollo Hospital; Lab Aid
  12. 12. PORTER’S GENERIC STRATEGIES: BROAD DIFFERENTIATION STRATEGY  Sustainability of differentiation strategy:  Hard or expensive for competitors to copy  Has to be linked to core competencies  Basing differentiation on new products, technological superiority, comprehensive customer service  Differentiation must be value to the customers
  13. 13. PORTER’S GENERIC STRATEGIES: BROAD DIFFERENTIATION STRATEGY  Suitability of differentiation strategy-  Ways for differentiation  Buyers’ perception  Diversity in needs  Various differentiation approaches  Rapid technological changes and innovation  Competition around rapidly evolving product features
  14. 14. PORTER’S GENERIC STRATEGIES: BROAD DIFFERENTIATION STRATEGY  Shortcomings of differentiation strategy-  Attributes with little value  Easy to copy  Inability to benefit buyers  Over-differentiation  Failure to understand buyers  Buyers’ satisfaction with basic product
  15. 15. PORTER’S GENERIC STRATEGIES: FOCUS STRATEGY/ MARKET-NICHE STRATEGY  The concept of focus strategy  It concerns with the identification of a niche market  A niche market is a narrow segment of a total market  A company usually follows focus strategy when it is able to serve a narrow piece of the market better than competitors.
  16. 16. PORTER’S GENERIC STRATEGIES: FOCUS STRATEGY/ MARKET-NICHE STRATEGY Examples of niche strategies organizations Market niches E-bay Online auctions Porsche Sports car Nissan motor company Mid-sized cars Toyota motor company Small-sized cars: CAMRY Hallmark Greetings card with distinctive looks Amazon.com Online books
  17. 17. PORTER’S GENERIC STRATEGIES: FOCUS STRATEGY/ MARKET-NICHE STRATEGY  Classification of focus strategy-  Focused low cost strategy  Focused differentiation strategy
  18. 18. PORTER’S GENERIC STRATEGIES: FOCUS STRATEGY/ MARKET-NICHE STRATEGY  Focused low cost strategy It is the 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 company can concentrates on small- volume custom-built products for which it has a cost advantage.
  19. 19. PORTER’S GENERIC STRATEGIES: FOCUS STRATEGY/ MARKET-NICHE STRATEGY  Focused differentiation strategy-  It is the strategy of operating business with a differentiated product in a chosen niche market.  The focuser company competes against competitors not based on low-cost, rather based on product differentiation.
  20. 20. PORTER’S GENERIC STRATEGIES: FOCUS STRATEGY/ MARKET-NICHE STRATEGY  Requirements for effective implementation of focus strategy-  Developing a well defined but narrow market  Clearer identification of competitors  Ability to, provide adequate capital  Designing a low cost distribution system  Strong marketing ability and creative flair
  21. 21. PORTER’S GENERIC STRATEGIES: FOCUS STRATEGY/ MARKET-NICHE STRATEGY  Favorable market situations for focus strategy-  Consumers’ distinctive preferences  Competitors’ apathy  Profitable niche  High growth potential  Availability of different niches in the industry  Inability or unwillingness of competitors to serve niche market  No risk of segment overcrowding  Focuser’s competitive ability  Company’s farsightedness
  22. 22. PORTER’S GENERIC STRATEGIES: FOCUS STRATEGY/ MARKET-NICHE STRATEGY  Risks associated with focused strategy-  Risks from more appealing products  Shifting of customers’ preferences  High attractiveness of the niche market  Universality of customers’ needs  Price-war  Withering cost advantages  Fear of low attractiveness
  23. 23. PORTER’S GENERIC STRATEGIES: BEST COST PROVIDER STRATEGY  Best cost provider strategy-  Best cost strategy is the strategy of increasing quality of products while reducing costs.  It is hybrid in nature  It balances a strategic emphasis on low cost against a strategic emphasis on differentiation.  It presupposes relentlessly striving to become a lower and lower cost provider of a higher and higher caliber product.
  24. 24. PORTER’S GENERIC STRATEGIES: BEST COST PROVIDER STRATEGY  Preconditions for becoming a best-cost provider-  Availability of resources and competitive capabilities  Ability to incorporate appealing features  Ability to give good-to-excellent customer service
  25. 25. PORTER’S GENERIC STRATEGIES: BEST COST PROVIDER STRATEGY  Market situations where best cost strategy works best-  Buyer diversity  Positioning advantage  Resources and capabilities
  26. 26. Thank You For Attending the Session

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