2 – Strategy Clock Analysis
Introduction
In many open markets, most goods and services can be purchased from any number of companies, and customers have a tremendous amount of choice. It's the job of companies in the market to find their competitive edge and meet customers' needs better than the next company.
When there are only a finite number of unique products and services out there, how do different organizations sell basically the same things at different prices and with different degrees of success? This is a classic question that has been asked for generations of business professionals. In 1980, Michael Porter published his seminal book, "Competitive Strategy: Techniques for Analysing Industries and Competitors", where he reduced competition
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• Product differentiation.
• Market segmentation.
These generic strategies represent the three ways in which an organization could provide its customers with what they wanted at a better price, or more effectively than others. Essentially, Porter maintained that companies compete either on price (cost), on perceived value (differentiation), or by focusing on a very specific customer (market segmentation).
Looking at Porter's strategies in a different way, in 1996, Cliff Bowman and David Faulkner developed Bowman's Strategy Clock. (7)This model of corporate strategy extends Porter's three strategic positions to eight, and explains the cost and perceived value combinations many firms use, as well as identifying the likelihood of success for each strategy.
2.1 Strategy Clock Analysis. When considering the following diagram and the strategies of Largo and its competitors, the first aspect to realise is that there is no single strategy that can be said they follow, but a combination of some. Largo could be said to follow the operations strategy through its modern factory and hence operating efficiencies. It has access to a skilled workforce whose experience benefits both quality control, and unit cost reduction. One of Largo’s main strategies is to differentiate itself by providing a high standard of service and product quality. Largo and its competitors are all strategically active in market, sales and quality/reputation to benefit their business. Therefore
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Porter Harvard University - Strategy Unit, 1980)
Figure 4 Bowman’s Strategy Clock.
Strategy 1 – Low Price and Low Added Value
Strategy 1 is when a company provides the product with low price and low perceived value to the customer. There is no evidence that this strategy exists and indications are that it is not feasible long term in the industry. The first reason is that there are high costs in the industry and it is difficult for a company to survive by providing the product at a significantly lower cost to its competitors. Secondly, value to the customers is based on the quality of the product and the consistency by which it is supplied.
Strategy 2 – Low Price
Strategy 2 is when the company provides the product at a relatively low cost but manages to maintain its perceived value to the customers. This is an option that can be pursued by Largo because it has recently constructed a modern and highly efficient production factory and can therefore supply product of quality at lower prices than its competitors, and still achieve the same profit margins. Largo do not do this; the price of crisps generally corresponds between
Managers generally consider the rivalry among competitors as a major source for deriving strategy. As explained by the Michael Porter it is a narrow view of competition. A set of other parameters should be evaluated, mentioned in article as five competitive forces, along with industry
The three main competitive strategies are cost leadership, differentiation, and price strategy. Cost leadership focuses on acquiring raw material of the highest quality at the lowest price. In return this company can lower production cost with the goal of being the company with the lowest production cost in the industry. Differentiation strategies allow companies to make their products stand out from the others. Differentiation can be actual or perceived. Actual differentiation occurs when the company creates products that are not available elsewhere. Perceived differentiation takes a lot of marketing and advertisement to convince the consumer that this company’s product is superior. Price strategy includes a variety of strategies that cause a particular product to be marketed at the lowest price possible. Price strategy includes skimming where companies set a high initial price only to turn around and lower it. Bundle pricing occurs when several products are offered for one price. Promotional pricing allows other incentives to buy such as buy one get one half off. Using the pricing strategies causes many consumers to actually purchase more believing that they are receiving a “deal” while the company is still profiting. Competitive strategies are always used by companies and are often used together. Companies that understand how to combine competitive strategies fare much
Thompson, Peteraf, Gamble, and Strickland (2012) found that competitive strategy depend on whether a company’s target market is narrow or broad, and whether a company is seeking competitive advantage through low-cost or product differentiation. These two factors reveal five generic competitive strategies. The five strategies are Overall Low-Cost Provider Strategy, Focused Low-Cost Strategy, Broad Differentiation Strategy, Focused Differentiation Strategy, and Best Cost
3.How these strategies are related the performance of these companies over time? Why? What is going on in terms of industry competition and markets that makes one strategy outperform the other at any point in time?
A competitive strategy, or business-level strategy, is the way a business used to successfully enter and penetrate into a market (Eastwood et al, 2006), and also, to succeed in this chosen market against its competitors (Johnson et al, 2014). A company needs to develop and apply appropriate strategy to help the company to generate distinctive competences (David, 2007). Compared with the strategies implemented in other levels of operation, competitive strategy is more focused on the competition against other competitors and strategic choices to better attain market share (Harrison and St. John, 2009). According to
Strategy formulation has been acknowledged as one of the most crucial factors of ensuring the long-term growth of the business. However, the manner in which strategy is formulated, and most importantly, the nature of the strategy chosen for the company determines its future position in the marketplace (Grant, 2005).
However, lowering the price decreases the overall profit of the market thus, non-price competition is most important win-win strategy for all the firm. As the game, does not allow us to make product differentiation, the other method that can increase the sales are advertising, product development and E-commerce enhancement. If these expenditures are below market average level, the firm can lose the market share.
There are two schools of thought pertaining to how firms should choose the competitive strategy that best suits them. One is of the opinion that firms should choose one of the generic strategies and commit all resources to making it work. Porter belongs to this category. They believe that the value chain necessary for cost leadership is quite different from that of differentiation strategy and that while differentiation deals with better quality, cost leadership deals with lowering costs wherever possible.(DESS and DAVIES 1984) What porter articulated here is that there is need for strategic clarity.
Low Cost Strategy is giving the greatest estimation of a product which the client anticipates. In today 's reality, each product is accessible in different price ranges. Low cost strategy doesn 't imply that the product does not have much value or the product is of low quality. Thus, if an organization has the capacity to utilize the accessible assets as a part of the best conceivable approach to produce an item and offer it to the client easily when contrasted with its rivals then the organization would
To attain competitive gain, organisations can differentiate their merchandise and services from their competitors they can also choose to lower their costs in order to compete with other contenders. By aiming their produces to a wide-ranging target, they are essentially covering most of the marketplace or if they choose, they can decide to concentrate on a narrower target within the market (Lynch 2003). While doing so may reduce their market range it essentially reduces their other competitors. Porter stated that there are three generic strategies that an organisation can follow to achieve competitive gain over other organisations. These are:
Competitive strategy is the moves and methods that the firm has taken and is taking to appeal buyers, improve its market position, and to endure competitive pressures. The strategy is about what a firm’s capability to try to knock off competitors and attain competitive advantage, which can be offensive or defensive. There are three approaches to competitive strategy, which are low-cost leadership strategy where struggling to be the overall low-cost manufacturer in the in industry. Moreover, pursuing to distinguish one’s product offering from competitors (differentiation strategy), and the last one is focus or niche strategy where aiming on thin portion of the market rather than the whole market (Porter, 1998).
There are five generic business strategies that companies choose from when trying to successfully compete within their respective industries. This is the first choice a company must make, even before deciding an overall strategy. These generic business strategies include low-cost provider strategy, broad differentiation strategy, best-cost provider strategy; focused strategy based on low costs, and focused strategy based on differentiation. These strategies have many advantages as well as disadvantages. Choosing which one to use depends on what market position a company wants to pursue. Deciding to be more offensive or defensive also plays a role in choosing a
I. Introduction 1. There are several basic approaches to competing successfully and gaining a competitive advantage, but they all involve giving buyers what they perceive as superior value compared to the offerings of rival sellers. 2. This chapter describes the five basic competitive strategy option for building competitive advantage and delivering superior value to customers – which of the five to
The manner in which firms are able to compete is most commonly categorized by implementing Michael Porter’s strategic typologies. Porter’s strategic theory has been the most widely accepted strategic approach used by fellow academics (Kim and Lim 1988; Bordean et al 2010). Porter proposed three generic strategies namely: cost leadership, differentiation and focus strategy. Warszawski (1996) later introduced a competitive strategy
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