According to the CA model of Porter, a competitive strategy takes offensive or defensive action to create a defendable position in an industry, in order to cope successfully with competitive forces and generate a superior Return on Investment. According to Michael Porter, the basis of above-average performance within an industry is sustainable CA.
2 basic types of CA
- Cost Leadership (low cost)
- Differentiation
Both can be more broadly approached or narrow, which results in the third viable competitive strategy:
- Focus
CA type 1: Cost Leadership
- Achieving Cost Leadership means that a firm sets out to become the low cost producer in its industry.
- A cost leader must achieve parity or at least proximity in the bases of differentiation, even though it relies on cost leadership for its CA.
- If more than one company try to achieve Cost Leadership, this is usually disastrous.
- Often achieved by economies of scale.
CA type 2: Differentiation
- Achieving of Differentiation means that a firm seeks to be unique in its industry along some dimensions that are widely appreciated by buyers.
- A differentiator can not ignore its cost position. In all areas that do not affect its differentiation it should try to decrease cost; in the differentiation area the costs should at least be lower than the price premium it receives from the buyers.
- Areas of differentiation can be: product, distribution, sales, marketing, service, image, etc.
CA type 3: Focus
- Achieving Focus means that a firm sets out to be best in a segment or group of segments.
- 2 variants: Cost Focus and Differentiation Focus.
Stuck in the middle
- This is usually a recipe for below-average profitability compared to the industry.
- Still, attractive profits are possible if and as long as the industry as a whole is very attractive.
- Manifestation of lack of choice.
- Especially dangerous for Focusers that have been successful, and then start neglecting their focus. They must seek other Focus niches. Rather then compromise their focus strategy.
Overview of the Book "Competitive Strategy"
- In Part I, Porter discusses the structural analysis of industries (with the five forces), the three generic competitive strategies (overall Cost Leadership, Focus, and Differentiation), offering an excellent framework for competitor analysis, competitive moves, strategy toward buyers and suppliers, structural analysis within industries (strategic groups, strategic mapping, mobility barriers), and industry evolution (life cycle, evolutionary processes).
- In Part II, Porter discusses competitive strategy within various generic industry environments. Such as: fragmented industries (with no real market leader), emerging industries, mature industries, declining industries, and global industries.
- In Part III, Porter discusses strategic decisions which businesses/firms can take. Such as: vertical integration (forward, backward, partnerships), capacity expansion, and entry into new industries/businesses.
Book: Michael E. Porter - Competitive Strategy
Book: Michael E. Porter - Competitive Advantage
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Sustained Competitive Advantage Industry Competitiveness As claimed by M. Porter the only way to sustain a competitive advantage is to upgrade it over time – to move to more sop...
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Not Generic Strategies...: Pseudo Strategies! All the following categeories are NOT generic strategies according to Porter:
- Build / Hold / Harvest / Liquidate / Qu...
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Differentiation and 5 Forces Influence of Differentiation A differentiation strategy usually requires consistent investments in operative marketing, particularly in communication...
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Low-Cost Strategy Pitfalls The main Risks of a Low-Cost Strategy are:The cost leadership is not sustained, because of:
- competitors imitatating
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Focus Strategy Pitfalls The main Risks of a Focus Strategy are:
1. The focus strategy is imitated
2. The target segment becomes structurally u...
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Differentiation Strategy When to apply Differentiation strategies tend to work best in following market circumstances:
- The needs and uses of buyers are div...
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Extreme Customer Trust as a Source of Competitive Advantage Competitive Advantage, CRM, Customer Loyalty, Customer Intimacy Many companies are already highlighting the importance of trustworthiness by setting and sustaining honest prices and pr...
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The Key Role of Strategists in Creating Competitive Advantage Business Strategy, Corporate Strategy, Competitive Advantage, Strategy Education Most organizational performance theories assume that there are certain “best practices”, or “best ways” that are needed ...
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Knowledge as Competitive Advantage The New Form of Advantange In an interview of Tomas Friedman to Hani Iskander, former CEO of Chevron Middle East Ltd who was negotiating a partners...
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Factors to Create a Sustainable Competitive Advantage Porter's SCA Factors In HBR article “What is strategy”, Nov-Dec 1996, M. Porter discusses the critical factors that help to create a sustaina...
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How to Sustain Competitive Advantage? Business Strategy, Sustaining Competitive Advantage, Sustainable Competitive Advantage, This presentation is about the question how a competitive advantage can be sustained. The presentation begins with compe...
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