Department: Management Sciences

Subject: Seminar in Marketing

Article: Competitive strategy by

Michael Porter

Submitted to: Dr. Abou Bakar

Submitted by: Aasir Ali (BBA 8th)

Roll No. 01

Submission date: 24-03-2016

 Competitive strategy by Michael Porter
Industry attractiveness and competitive position can be shaped by a firm, and this is what makes
the option of competitive strategy both tough and exciting. While industry attractiveness is partly
a reflection of factors over which a firm has little power, competitive strategy has considerable
power to make an industry more or less attractive. At the same time, a firm can clearly improve
or erode its position within a business through its choice of strategy. Competitive strategy, then,
not only responds to the environment but also attempts to shape those surroundings in a firm's
favor.

The structural analysis of industries:

The ultimate aim of competitive strategy is to cope with and, ideally, to change those rules in the
firm's favor. In any industry, whether it is domestic or international or produces a product or a
service, the rules of competition are embodied in five competitive forces: the entry of new
competitors, the threat of substitutes, the bargaining power of buyers, the bargaining power of
suppliers, and the rivalry among the existing competitors.
The five forces determine industry profitability because they influence the prices, costs, and
required investment of firms in an industry the elements of return on investment. Buyer power
influences the prices that firms can charge. The strength of each of the five competitive forces is
a function of industry structure, or the underlying economic and technical characteristics of an
industry.

Industry structure and buyer needs:

Industry structure, determines who keeps what portion of the value a product creates for buyers.
If an industry's product does not create much value for is buyer there is little value to be captured
by firms regardless of the other elements of structure. If product creates lot of value, structure
becomes crucial.

Industry structure and the supply/demand balance:

Industry structure is fundamental to both the speed of adjustment of supply to demand and the
relationship between capacity utilization and profitability.

Generic competitive strategies:

The fundamental basis of above-average performance in the long run is sustainable competitive
advantage. Though a firm can have a myriad strength, three generic strategies and weaknesses of
its competitors, there are two basic types of competitive advantage a firm can possess: low cost
or differentiation. The significance of any strength or weakness a firm possesses is ultimately a
function of its impact on relative cost or differentiation. Cost advantage and differentiation stem
from industry structure. They result from a firm's ability to cope with the five forces better than
its rivals.
Cost leadership:
Cost leadership is perhaps the clearest of the three generic strategies. In it, a firm sets out to
become the low-cost producer in its industry. The firm has a broad scope and serves many
industry segments, and may even operate in related industries- the firm's breadth is often
important to its cost advantage. The sources of cost advantage are varied and depend on the
structure of the industry. The strategic logic of cost leadership usually requires that a firm be the
cost leader, not one of several inns vying for this position

Differentiation:
The logic of the differentiation strategy requires that a firm choose attributes in which to
differentiate itself that are different from its rivals'. A firm must truly be unique at something or
be perceived as unique if it is to expect a premium price. In contrast to cost leadership, however,
there can be more than one successful differentiation strategy in an industry if there are a number
of attributes that are widely valued by buyers.

Focus:
The focus strategy bas two variants. In cost focus a firm seeks a cost advantage in its' target
segment, while in differentiation focus a firm seeks differentiation in its target segment. Both
variants of the focus strategy rest on differences between a focuser's target segments and other
segments in the industry. The target segments must either have buyers with unusual needs or else
the production and delivery system that best serves the target segment must differ from that of
other industry segments.

Pursuit of more than one generic strategy:

Each generic strategy is fundamentally variant approach to creating and sustaining a competitive
advantage, combining the type of competitive advantage a firm seeks and the scope Of its
strategic Usually a firm must make a choice among them, or it will become stuck in the middle.
The benefits of optimizing the firm's strategy for a particular target segment (focus) cannot be
gained if a firm is simultaneously serving a broad range of segments (cost leadership or
differentiation). Sometimes a firm may be able to create two largely separate business units
within the same corporate entity, each with a different generic strategy.

Sustainability:
The sustainability of a generic strategy requires that a firm possess some barriers that make
imitation of the strategy difficult. Since barriers to imitation are never insurmountable, however,
it is usually necessary for a firm to offer a moving target to its competitors by investing in order
to continually improve its position.