Introduction

Introduction

Michael Porter is a professor at Harward Business

School.

A frms success in strategy rests upon how it positions

itself in respect to its environment.

Michael Porter has argued that a frm's strengths

ultimately fall into one of two headings: cost advantage
and diferentiation.

By applying these strengths in either a broad or narrow

scope, three generic strategies result:, cost leadership
diferentiation, and focus
Generic Strategies
Target Scope
Advantage
(Low Cost)
Advantage
(Product
Uniqueness)
Broad
(Industry wide)
Cost Leadership Diferentiation
Narrow
(Maret wide)
Focus Strategy
(low cost)
Focus Strategy
(diferentiation)
Porters Generic Strategy
Porters Generic Strategy

Aiming to become Lowest Cost Producer

The frm can compete on the price with every other

industries and earn higher unit profts.

Cost reduction provides the focus of the organisations

strategy.

Targets a broad market.

Competitive advantage is achieved by driving down costs.

A successful cost leadership strategy requires that the

frm is the cost leader and is unchallenged in this
position.

Especially benefcial : where customers are price sensitive

(Walmart logo, used from June 30, 2008!resent"#
Type : Public
Industry : Retailing
Founded : 1962
Founder(s) : Sam Walton
Headquarters : Bentonville, Arkansas,US
Number of locations : 8,970(2011)
Area served : Worldwide
Key people : Mike Duke(CEO)
H. Lee Scott(Chairman)
S. Robson Walton(Chairman)
Employees : Approx. 2.1 million(2011)
Subsidiaries : Walmex
Asda
Sam's Club
Seiyu Group

The central goal of Wal-Mart is to keep retail prices low -- and the
company has been very successful at this.

Experts estimate that Wal-Mart saves shoppers at least 15 percent

on a typical cart of groceries.

Wal-Mart Stores Inc. is rolling out its "everyday low prices" (EDLP)
retail strategy to more international markets to replace the more
usual high-low pricing in emerging markets. EDLP means working
with suppliers to ensure their prices are constantly low, but also
means price changes are kept to a minimum.

Wal-Mart also employs a good structure that works with the

systems to empower the low price strategy.

Wal-Mart has in place a set of systems that helps it achieve its

strategy of low prices everyday.

Access to the capital required to make a signifcant

investment in production assets.

Design skills for efcient manufacturing

High level of expertise in manufacturing process

engineering.

Efcient distribution channels.

Success $antra
Success $antra
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Other frms may be able to lower their costs as well.

As technology improves, the competition may be able to

leapfrog the production capabilities, thus eliminating
the competitive advantage.

It could lead to a damaging price wars.

There might be difculty in sustaining cost leadership

in the long run.

A frm following a focus strategy might be able to

achieve even lower cost within their segment.

A diferentiation strategy calls for the development of a

product or service that ofers unique attributes that are
valued by customers.

Customers perceive the product to be diferent and

better than that of rivals.

The value added by the uniqueness of the product may

allow the frm to charge a premium price for it.

Diferentiation can be based on product image or

durability,after-sales,quality,additional features.

It requires fair,research capability and strong

marketing.
Type : Public
Industry : Restaurants
Founded : McDonalds Corporation
~ May 15, 1940 in San
Bernardino, California
~ April 15, 1955 in Des
Plaines, Illinois
Founder(s) : Richard and Maurice
McDonald,( McDonalds
restaurant concept )
Ray Kroc,( McDonalds
Corporation founder )
Headquarters : Oak Brook,Illinois,US
Area served : Worldwide
Key people : James A. Skinner
(Chairman & CEO)
Number of locations : 32,000
Employees : 4,00,000 ( 2010)
Products : Fast Food
( hamburgers , chicken ,
french fries , soft drinks ,
cofee , milkshakes , salads,
desserts , breakfast )

McDonald's customers are of all classes, but largely

working and middle classes, and people of all ages.

McDonalds strove to meet a customer wait time at no

more than one minute in line and 30 seconds at the
counter.

McDonald's understood that the parent was making the

purchasing decision, most likely based solely on price.
What McDonald's marketing executives did was ingenious.
They put a $.50 toy in with the hamburger, french fries,
and Coke. Then they gave it a special name, calling it a
Happy Meal. Then they marketed it to the kids.

McDonald's knows that some customers go to its stores to

take a quick break from their day's activities and not
because McDonald's was able to make their food ten
seconds faster than a competitor. So McDonald's
marketing executives then put together the phrase, Have
you had your break today?

They've taken competing on price right out of the picture,

says Greshes. They bring you quality, convenience,
service, and value and they make you feel like you are
getting a break in your hectic day.
Success $antra
Success $antra

Access to leading scientifc research.

Highly skilled and creative product development team.

Strong sales team with the ability to successfully

communicate the perceived strengths of the product.

Corporate reputation for quality and innovation.

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Involves higher costs.

Customers might become price sensitive and choose on

price rather than uniqueness.

Customers may no longer need the diferentiation

factor.

Imitation by competitors and changes in customer

tastes.

Rivals pursuing a focus strategy may be able to achieve

even greater diferentiation in their market segments.

The focus strategy concentrates on a narrow segment

and within that segment attempts to achieve either a
cost advantage or diferentiation.

The premise is that the needs of the group can be better

serviced by focusing entirely on it.

A frm using a focus strategy often enjoys a high degree

of customer loyalty, and this entrenched loyalty
discourages other frms from competing directly.

Because of their narrow market focus, frms pursuing a

focus strategy have lower volumes and therefore less
bargaining power with their suppliers

However, frms pursuing a diferentiation-focused

strategy may be able to pass higher costs on to
customers since close substitute products do not exist.
Type : Public
Industry : Food and Beverages
Founded : North Carolina,U.S.(1986)
Founder(s) : Donald Kendall,Herman Lay
Headquarters : Purchase,New York,US
Area served : Worldwide
Key people : Indra Nooyi
(Chairman & CEO)
Employees : 2,94,000(2010)
Divisions : PepsiCo Americas Foods;
PepsiCo Americas Beverages;
PepsiCo Europe; PepsiCo
Asia, Middle East & Africa
Subsidiaries : Products,
Trademarks
~ Frito-Lay
~ Quaker Oats
~ Tropicana

By successfully adopting the 'focus' strategy since 1997,

PepsiCo has emerged as the second largest consumer
packaged goods company.

The company has signifcantly strengthened its

competitive position in the beverages segment.

By acquiring leading beverages' company like Tropicana

products (July 1998), South Beach Beverage Company
(October 2000) and Quaker Oats (December 2000)
Success $antra
Success $antra

Lower investment in resources.

The frm benefts from specialisation.

Provides scope for greater knowledge of a segment of

the market.

Makes entry to new markets easier and less costly.

Firms using a focus strategy often enjoy a high degree

of customer loyalty.
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Limited opportunities for growth.

The frm could outgrow the market.

Danger of decline in the chosen segment or niche.

Risk of imitation.

Risk of changes in the target segment.

A reputation for specialisation inhibits move into new

sector.

Cost Leadership
- Being the lowest cost producer in the industry as
a whole

Diferentiation
- The exploitation of a product or service which is
believed to be unique

Focus
- Restricting activities to only part of the market through:
- Providing goods or services at lower cost to that
segment (cost focus)
- Providing a diferentiated product or service to that
segment (diferentiation focus)
We (a'e )earnt
We (a'e )earnt
prepared by..
DiPALi