Michael Porter suggested that in a highly competitive industry the options available to companies are that they follow any of the following strategies:
- Cost leadership
- Differentiation
- Focus
Cost Leadership is when the company can sell their products or services cheaper than all others offering similar products. This is usually achieved by a focus on reducing costs and increasing efficiency in the whole processes and systems within the organization.
An example in the retail space is Walmart. People flock to Walmart because of their low prices. Walmart is able to sell at the lowest prices because of its efficient supply chain system. They also have mark down on process to create loss leaders but the volume of sales is very high giving them a substantial profit overall.
Differentiation- Differentiation is when you are able to offer unique and high value products and services which cannot be replicated by your completion. The quality of the products, customer experience, convenience etc. are the usual differentiating factors. For offering this value the company usually prices their products very high.
Apple is a very good example for this as they are able to develop innovate and create high quality technology products that customers absolutely love. So, they have a cult following of customers who are willing to lap up all the newest products and upgrades as so as it is available.
Focus- is the strategy where you focus on a specific niche or a segment of the market and offer your products using either a Cost leadership or a differentiation strategy within that segment or niche.
Imagine you are property developer. Instead of targeting the entire market of home buyers you focus only on senior citizens. You may offer to them home at a lower cost (cots leadership) or with high value services (differentiation).
According to this model the companies that are hesitant to fully adopt wither the Cost Leadership or Differentiation will be ‘stuck in the middle’ with no real competitive advantage.
So what will it be for your business?
[learn_press_profile]