Michael Porter’s Generic Strategies

Some of the companies we have adopted as role models before entering the market were Ikea, McDonald’s, Southwest Airlines, and Wal-Mart. We evaluated their techniques in order to be effective at our company’s strategy.

The industry we have chosen is the department store-retail industry. Within this industry, we have chosen the department stores of JCPenney and Macy’s. We find this industry, as well as these two companies, interesting from a strategic perspective. JCPenney has recently undergone a massive strategic restructuring in regards to its pricing, brand offerings, and store layout, pushing it away from the typical department store strategy of discounts and coupons. Its new strategy has become much closer to Wal-Mart’s strategy of every day low prices. Macy’s, on the other hand, has restructured with a push from the economic

The cost leadership strategy seeks to improve profit margins by bringing down the costs of producing while enabling the organization to still charge market prices. They also focus on increasing the market shares through lower pricing, enabling the organization to continue to reach profits because of reduced costs. As with any organization the goal is to minimize cost directly to the organization providing the delivery of products or services. According to Barney (2007) low cost leadership strategy takes pride in initiating its costs advantage abilities to charge lower prices while reaping the rewards of higher profits.

Riordan’s organization sells heart valves, plastic bottles, fans, and medical stents. Clearly, they have a large variety of products. According to Valdehueza, cost leadership is a competitive strategy with which the organization aggressively seeks efficient facilities, cuts costs, and employs tight cost controls to be more efficient than the competition. Decreasing business costs

This paper discusses Low-Cost Leadership and Differentiation business strategies. The paper explains what each strategy is and how they can be applied, utilized and maximized as strategies for a company. Suggestion of methods to implement and the strategies are discussed, including when the strategies work best.

Concepts Cost leadership is measured by the ability of firms in the industry to operate at lower cost than competitors. A competitive advantage firms endeavor to accomplish to lessen cost and increase profits. Cost leadership can be achieved by maintaining economies of scale, efficient production, lower input costs, and simpler product designs. Differentiation is achieved when a firm creates individuality within an industry. It can be measured by product quality and variety, brand image, flexible delivery, customer service, and research and development. They must be able to produce a product that is unique and valuable that consumers are willing to buy an attainable

The strategy that the corporation adopts affects inevitably the costs of the corporation. For example, the main objective of a corporation adopting cost leadership strategy in the market will be to reduce the costs and produce the quality products that the consumers demand at the desired price. On the other hand, the corporation adopting differentiation strategy aims to produce unique products that would meet the expectations of its consumers. Thus, the Research & Development costs of the corporation adopting differentiation strategy will be higher than the other corporations. (Sağmanlı 2002,

In cost leadership, a firm sets out to become the lowest cost producer in its industry.

First, we need to know, what is Cost Leadership Strategy? Cost leadership strategy is primarily to gain an advantage over competitors by reducing its cost. Cost of leadership is a strategy used by businesses to create a low cost of operation within the situation. Cost Leadership Strategies is one of the best strategies among the other Porter’s other strategies. This strategy supports the business to improvement in the market portion by putting lower price in judgement to other competitors. This plan is probable by only putting cost price lower. Businesses can put on diverse means to place their cost price less in estimation to other competitors. In evolving recruitment model, business must be price conscious. To save some money the business must hire the employees at the minimum wage and hope that they stay around after the trainings to avoid having to train increasingly, which can be

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A low-cost strategy in order to gain market share does possess inherent risk, for example, other competing firms with larger capital may be able to lower their costs, forcing the firm to operate at a reduced profit of even loss. As a result of technology advances, rival firms could be able to surpass their present production abilities, thus eliminating the competitive advantage. In addition, several rival firms could combine their efforts, following a focus strategy and target various narrow markets could be able to achieve an even lower cost within their segments and as a collective group, certainly gain considerable market advantage. Consequently, low-cost leadership, when combined with low prices can bring about a disadvantage which is less customer loyalty (Vokurka & Davis, 2004). Relatively low prices can also result in creating a lasting negative attitude towards the quality of the product in the mindset of the customers.

Cost leadership implies that an organization or business tries to have low costs so that they can sell their products and services at low costs. This type of leadership strategy allows them to make profits even with low costs than their competitors. It places the business at a position where it can effectively compete on the basis of price with both the new entrants in the industry and existing competitors. It also creates a potential for profits; charging prices that are almost average to the industry while earning profits above industry standards. The following process is used to achieve cost leadership: advertising and promoting the product to achieve sales in large volumes (Buchner, Ellerman & Carraro, 2007). Invest in the latest production technology to lower production costs. Achieve high levels of productivity to reduce labor costs, one can copy designs rather than producing originals and cheaper raw materials can be used. Reducing localization and distribution costs will reduce distribution costs. Exploitation of organizational experience and knowledge will also be helpful. Finally, secure government assistance will be important.

The Cost Leadership strategy appears to be broad/industry wide and their advantage is having low cost, which is important for a given level of quality. What makes this stategy so effective is the fact that they sell their products for average inventory prices to gain higher profits than their competitors or they will sell below average prices to gain a market share. The lessons that can be learned from the use of the Cost Leadership Strategy include: required access to the capital necessary to make a significant production asset investment, the required skills needed to design products for efficient manufacturing purposes, high levels of experience in the manufacturing process, and the most efficient distribution channels available.

1. Understand what distinguishes each of the five generic strategies and why some of these strategies work better in certain kinds of industry and competitive conditions than in others. 2. Gain command of the major avenues for achieving a competitive advantage based on lower costs. 3. Learn the major avenues to a competitive advantage based on differentiating a company’s product or service offering from the offerings of rivals. 4. Recognize the attributes of a best-cost provider strategy and the way in which some firms use a hybrid strategy to go about building a competitive advantage and

Porter’s generic strategies describe how a company attains competitive advantage across its chosen market scope. There are three generic strategies-cost leadership, differentiation and