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Michael Porter is a professor at Harward Business School. A firm’s success in strategy rests upon how it positions itself in respect to its environment.
Michael Porter has argued that a firm's strengths ultimately fall into one of two headings: cost advantage and differentiation. By applying these strengths in either a broad or narrow scope, three generic strategies result:, cost leadership differentiation, and focus
g. : Mcdonald. • E. : PepsiCo . • E. FedEx Focus • Concentrating on a limited part of the market. Tesco Differentiation • Creating a product or service that is perceived as being unique “throughout the industry” • E.g.Generic Strategies Cost Leadership • Superior profits through lower costs. : WalMart.g.
Porter’s Generic Strategy… Target Scope Advantage (Low Cost) Advantage (Product Uniqueness) Differentiation Broad (Industry wide) Narrow (Market wide) Cost Leadership Focus Strategy (low cost) Focus Strategy (differentiation) .
A successful cost leadership strategy requires that the firm is the cost leader and is unchallenged in this position. Especially beneficial : where customers are price sensitive . Cost reduction provides the focus of the organisation’s strategy. Competitive advantage is achieved by driving down costs.Cost Leadership Strategy Aiming to become Lowest Cost Producer The firm can compete on the price with every other industries and earn higher unit profits. Targets a broad market.
) Type Industry : : Public Retailing Founded Founder(s) Headquarters Number of locations : : : : 1962 Sam Walton Bentonville. Arkansas. 2008-present.970 (2011) Area served Key people : : Worldwide Mike Duke(CEO) H.1 million (2011) Employees Subsidiaries : Walmex Asda Sam's Club Seiyu Group .US 8. 2. Robson Walton (Chairman) : Approx. Lee Scott(Chairman) S.(Walmart logo. used from June 30.
Wal-Mart Stores Inc. but also means price changes are kept to a minimum. The central goal of Wal-Mart is to keep retail prices low -. EDLP means working with suppliers to ensure their prices are constantly low. is rolling out its "everyday low prices" (EDLP) retail strategy to more international markets to replace the more usual high-low pricing in emerging markets. Experts estimate that Wal-Mart saves shoppers at least 15 percent on a typical cart of groceries.and the company has been very successful at this. Wal-Mart also employs a good structure that works with the systems to empower the low price strategy. Wal-Mart has in place a set of systems that helps it achieve its strategy of low prices everyday. .
. Efficient distribution channels. Design skills for efficient manufacturing High level of expertise in manufacturing process engineering.Success Mantra… Access to the capital required to make a significant investment in production assets.
. the competition may be able to leapfrog the production capabilities. Other firms may be able to lower their costs as well. It could lead to a damaging price wars. There might be difficulty in sustaining cost leadership in the long run.. A firm following a focus strategy might be able to achieve even lower cost within their segment.Risks Involved. As technology improves. thus eliminating the competitive advantage.
It requires flair. Customers perceive the product to be different and better than that of rivals.quality. .after-sales.Differentiation Strategy A differentiation strategy calls for the development of a product or service that offers unique attributes that are valued by customers. The value added by the uniqueness of the product may allow the firm to charge a premium price for it. Differentiation can be based on product image or durability.research capability and strong marketing.additional features.
Illinois Founder(s) : Richard and Maurice McDonald. 1940 in San Bernardino.Illinois. Skinner (Chairman & CEO) Headquarters Area served Key people : : : . California ~ April 15.US Worldwide James A.( McDonald’s restaurant concept ) Ray Kroc. 1955 in Des Plaines.( McDonald’s Corporation founder ) Oak Brook.Type Industry Founded : : : Public Restaurants McDonald’s Corporation ~ May 15.
. breakfast ) McDonald's customers are of all classes. and people of all ages. McDonald’s strove to meet a customer wait time at no more than one minute in line and 30 seconds at the counter. desserts .Number of locations Employees Products : : : 32.000 4. milkshakes . soft drinks .00. salads. french fries . chicken . but largely working and middle classes. coffee .000 ( 2010) Fast Food ( hamburgers .
” says Greshes. Then they marketed it to the kids. calling it a Happy Meal. service. What McDonald's marketing executives did was ingenious. So McDonald's marketing executives then put together the phrase. “Have you had your break today?” They've taken competing on price right out of the picture.50 toy in with the hamburger. McDonald's understood that the parent was making the purchasing decision. McDonald's knows that some customers go to its stores to take a quick break from their day's activities and not because McDonald's was able to make their food ten seconds faster than a competitor. “They bring you quality. french fries. . convenience. They put a $. Then they gave it a special name. most likely based solely on price. and value — and they make you feel like you are getting a break in your hectic day. and Coke.
Strong sales team with the ability to successfully communicate the perceived strengths of the product. Corporate reputation for quality and innovation.Success Mantra… Access to leading scientific research. . Highly skilled and creative product development team.
Customers might become price sensitive and choose on price rather than uniqueness. .Risks Involved… Involves higher costs. Customers may no longer need the differentiation factor. Rivals pursuing a focus strategy may be able to achieve even greater differentiation in their market segments. Imitation by competitors and changes in customer tastes.
. A firm using a focus strategy often enjoys a high degree of customer loyalty. and this entrenched loyalty discourages other firms from competing directly. The premise is that the needs of the group can be better serviced by focusing entirely on it. firms pursuing a differentiation-focused strategy may be able to pass higher costs on to customers since close substitute products do not exist. firms pursuing a focus strategy have lower volumes and therefore less bargaining power with their suppliers However.Focus Strategy The focus strategy concentrates on a narrow segment and within that segment attempts to achieve either a cost advantage or differentiation. Because of their narrow market focus.
Trademarks ~ Frito-Lay ~ Quaker Oats ~ Tropicana Subsidiaries : . PepsiCo Americas Beverages. PepsiCo Europe.New York.Herman Lay Purchase.S.Type : Public Industry Founded Founder(s) Headquarters : : : : Food and Beverages North Carolina.US Area served Key people Employees Divisions : : : : Worldwide Indra Nooyi (Chairman & CEO) 2. PepsiCo Asia.(1986) Donald Kendall.U. Middle East & Africa Products.000 (2010) PepsiCo Americas Foods.94.
PepsiCo has emerged as the second largest consumer packaged goods company. By successfully adopting the 'focus' strategy since 1997. South Beach Beverage Company (October 2000) and Quaker Oats (December 2000) . The company has significantly strengthened its competitive position in the beverages segment. By acquiring leading beverages' company like Tropicana products (July 1998).
Success Mantra… Lower investment in resources. The firm benefits from specialisation. Firms using a focus strategy often enjoy a high degree of customer loyalty. . Makes entry to new markets easier and less costly. Provides scope for greater knowledge of a segment of the market.
Risk of imitation. A reputation for specialisation inhibits move into new sector. Danger of decline in the chosen segment or niche.Risk Involved… Limited opportunities for growth. The firm could outgrow the market. . Risk of changes in the target segment.
We have Learnt… Cost Leadership .Being the lowest cost producer in the industry as a whole Differentiation .The exploitation of a product or service which is believed to be unique Focus .Providing goods or services at lower cost to that segment (cost focus) .Restricting activities to only part of the market through: .Providing a differentiated product or service to that segment (differentiation focus) .
prepared by…………. DiPALi ..
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