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Strategic Management (MGMT 2301) 2012

Generic strategies The Cost Leadership Strategy Porter's generic strategies are ways of gaining competitive advantage that gets you the sale and takes it away from your competitors. There are two main ways of achieving this within a Cost Leadership strategy:  Increasing profits by reducing costs, while charging industry-average prices.  Increasing market share through charging lower prices, while still making a reasonable profit on each sale because you've reduced costs. Cost Leadership is about minimizing the cost to the organization of delivering products and services. The Cost Leadership strategy is exactly that – it involves being the leader in terms of cost in your industry or market. Simply being amongst the lowest-cost producers is not good enough, as you leave yourself wide open to attack by other low cost producers who may undercut your prices and therefore block your attempts to increase market share. You therefore need to be confident that you can achieve and maintain the number one position before choosing the Cost Leadership route. Companies that are successful in achieving Cost Leadership usually have:  Access to the capital needed to invest in technology that will bring costs down.  Very efficient logistics.  A low cost base (labor, materials, facilities), and a way of sustainably cutting costs below those of other competitors. The greatest risk in pursuing a Cost Leadership strategy is that these sources of cost reduction are not unique to you, and that other competitors copy your cost reduction strategies. This is why it's important to continuously find ways of reducing every cost. One successful way of doing this is by adopting the Japanese Kaizenphilosophy of "continuous improvement".


DUSMAHOMED Goolamally (DTM/11A/PT/110520)

To make a success of a Differentiation strategy. Be cause they serve customers in their market uniquely well. they tend to build strong brand loyalty amongst their customers. 2|Page DUSMAHOMED Goolamally (DTM/11A/PT/110520) . This makes their particular market segment less attractive to competitors. How you do this depends on the exact nature of your industry and of the products and services themselves. As with broad market strategies.  Effective sales and marketing.Strategic Management (MGMT 2301) 2012 The Differentiation Strategy Differentiation involves making your products or services different from and more attractive those of your competitors. it is still essential to decide whether you will pursue Cost Leadership or Differentiation once you have selected a Focus strategy as your main approach: Focus is not normally enough on its own.  The ability to deliver high-quality products or services. Otherwise. they risk attack on several fronts by competitors pursuing Focus Differentiation strategies in different market segments. The Focus Strategy Companies that use Focus strategies concentrate on particular niche markets and. durability. support and also brand image that your customers value. development and innovation. so that the market understands the benefits offered by the differentiated offerings. but will typically involve features. by understanding the dynamics of that market and the unique needs of customers within it. develop uniquely low cost or well-specified products for the market. Large organizations pursuing a differentiation strategy need to stay agile with their new product development processes. organizations need:  Good research. functionality.

the key to making a success of a generic Focus strategy is to ensure that you are adding something extra as a result of serving only that market niche. USA. Each of these cells represents a particular type of business. with the horizontal axis representing relative market share and the vertical axis denoting market growth rate. It is the most renowned corporate portfolio analysis tool. Generic strategies apply to not-for-profit organizations too. question marks and dogs. you risk competing against better-resourced broad market companies' offerings. It provides a graphic representation for an organization to examine different businesses in its portfolio on the basis of their related market share and industry growth rates.Strategic Management (MGMT 2301) 2012 But whether you use Cost Focus or Differentiation Focus. cash cows. It's simply not enough to focus on only one market segment because your organization is too small to serve a broader market (if you do. BCG matrix has four cells. while one with pursing a Differentiation strategy will be committed to the very best outcomes. Local charities are great examples of organizations using Focus strategies to get donations and contribute to their communities. Boston consulting group matrix Boston Consulting Group Matrix is a four celled matrix developed by BCG. even if the volume of work they do as a result is lower. 3|Page DUSMAHOMED Goolamally (DTM/11A/PT/110520) . A not-for-profit can use a Cost Leadership strategy to minimize the cost of getting donations and achieving more for their income. The four cells of this matrix have been called as stars.) The "something extra" that you add can contribute to reducing costs (perhaps through your knowledge of specialist suppliers) or to increasing differentiation (though your deep understanding of customers' needs). It is a comparative analysis of business potential and the evaluation of environment.

a star will become a cash cow when the industry matures. They may generate cash but because of fast growing market. Net cash flow is usually modest.Strategic Management (MGMT 2301) 2012 Stars represent business units having large market share in a fast growing industry. SBU’s located in this cell are attractive as they are located in a robust industry and these business units are highly competitive in the industry. stars require huge investments to maintain their lead. If successful. 4|Page DUSMAHOMED Goolamally (DTM/11A/PT/110520) .

these business units face cost disadvantages. and are specifically the core business.Strategic Management (MGMT 2301) 2012 Cash Cows represent business units having a large market share in a mature. Due to low market share. poor quality. When cash cows lose their appeal and move towards deterioration. Unless a dog has some other strategic aim. These SBU’s are the corporation’s key source of cash. Most businesses start as question marks as the company tries to enter a high growth market in which there is already a market-share. then it can adopt expansion strategy. They require attention to determine if the venture can be viable. else retrenchment strategy can be adopted. These business firms have weak market share because of high costs. then question marks may become dogs. Dogs represent businesses having weak market shares in low-growth markets. then a retrenchment policy may be pursued. ineffective marketing. Number of dogs should be avoided and minimized in an organization. etc. it should be liquidated if there is fewer prospects for it to gain market share. 5|Page DUSMAHOMED Goolamally (DTM/11A/PT/110520) . There is no specific strategy which can be adopted. They neither generate cash nor require huge amount of cash. Question marks are generally new goods and services which have a good commercial prospective. They are the base of an organization. If ignored. Cash cows require little investment and generate cash that can be utilized for investment in other business units. while if huge investment is made. These businesses usually follow stability strategies. Generally retrenchment strategies are adopted because these firms can gain market share only at the expense of competitor’s/rival firms. They require huge amount of cash to maintain or gain market share. If the firm thinks it has dominant market share. and then they have potential of becoming stars. slow growing industry. Question marks represent business units having low relative market share and located in a high growth industry.

An example of this product would be regular Colgate toothpaste. how do we exactly find out what phase our product is in. and to build sales infrastructure. to build distribution channels. customers know what they are getting. but it is a product that is expected to bring the gold in the future. A high-growth product is for example a new one that we are trying to get to some market. It takes some effort and resources to market it. where does each of our products fit into our product mix? Should we promote one product more than the other one? The BCG matrix can help with this. 6|Page DUSMAHOMED Goolamally (DTM/11A/PT/110520) . The is the milking cow that brings in the constant flow of cash. A low-growth product is for example an established product known by the market. and how do we classify what we sell? Furthermore. This product has only limited budget for marketing.Strategic Management (MGMT 2301) 2012 When should I use the BCG matrix model? Each product has its product life cycle. In general. a company should maintain a balanced portfolio of products. and the price does not change much either. Characteristics of this product do not change much. The BCG matrix reaches further behind product mix. An example of this product would be an iPod. But the question is. Knowing what we are selling helps managers to make decisions about what priorities to assign to not only products but also company departments and business units. Having a balanced product portfolio includes both high-growth products as well as low-growth products. we also ask. and each stage in product's life-cycle represents a different profile of risk and return.

 High market share does not always leads to high profits. dogs may help other businesses in gaining competitive advantage. 7|Page DUSMAHOMED Goolamally (DTM/11A/PT/110520) . They can earn even more than cash cows sometimes. Are there any problems with the BCG matrix model? Some limitations of the BCG matrix model include:  The first problem can be how we define market and how we get data about market share  A high market share does not necessarily lead to profitability at all times  The model employs only two dimensions – market share and product or service growth rate  Low share or niche businesses can be profitable too (some Dogs can be more profitable than cash Cows)  The model does not reflect growth rates of the overall market  The model neglects the effects of synergy between business units  Market growth is not the only indicator for attractiveness of a market There are probably even more aspects that need to be considered in a particular use of the BCG model. There are high costs also involved with high market share.  Market is not clearly defined in this model. but generally businesses can be medium also. Thus. But BCG Matrix is not free from limitations. such as BCG matrix classifies businesses as low and high.Strategic Management (MGMT 2301) 2012 Limitations of BCG Matrix The BCG Matrix produces a framework for allocating resources among different business units and makes it possible to compare many business units at a glance.  Growth rate and relative market share are not the only indicators of profitability.  At times. the true nature of business may not be reflected. This model ignores and overlooks other indicators of profitability.  This four-celled approach is considered as to be too simplistic.

Strategic Management (MGMT 2301) 2012 8|Page DUSMAHOMED Goolamally (DTM/11A/PT/110520) .