It is clear that competing for sustainable and superior performance enhances a firm’s profitability. Equally, this same level of profitability depends largely on the attractiveness of the industry which is easily measured using the Porter’s 5 tools and more importantly, the position the firm takes within the industry to leverage on its strengths. To compete properly, a firm must address two fundamental questions. Should it focus on identifying a microcosm of the industry or serve the entire market? According to Michael C. Porter, the porter’s three (3) generic strategies are very important strategies, which can be applied to products and services in any industry or organization regardless of its size.
The Three Porter’s Generic Strategies
In order to gain competitive advantage, Michael Porter developed three generic strategies that a company could use; The Cost Leadership Strategy, The Differentiation Strategy and the Focus Strategy. These strategies have been used by various organizations to become more competitive in the market. Below is a representation of these strategies.
1. Cost Leadership Strategy: This strategy is all about minimizing the cost of creating/delivering the firm’s products or services. It means having the lowest average cost of production compared to relative competitors and still not compromise on quality. There are two main ways the strategy can be achieved; a. Increasing profits by reducing costs while charging industry-average prices. b. Increasing its market share by charging lower prices while making profit on each sale through economies of scale While this approach might be attractive because of its obvious advantages like the entry barriers that result when competitors are not able to produce at the same low level of cost or size of the market share the company gains, there is still the risk of losing the advantage when other rival firms begin to cut costs as well by using advancement in technology to enhance their production capacity.
The cost leadership strategy is also broad in scope as it sells to different customers in its industry. Firms looking to use this strategy must be able to; i. Access the capital needed to invest in new technology, which will lead to a larger market share in the long run. ii. Provide continued capital investment to maintain its cost advantage through economies of scale. iii. Develop cheaper ways to produce existing products and.
iv. Maintain a tight control of its overhead costs.
2. Differentiation Strategy: This strategy allows companies to produce products and services that offer unique attributes that customers can perceive to be better than what the competition offers. It can be seen as a way for firms to compete by creating a completely new market and dominating it. The extra value the product or services provides to the market allow the firm to charge higher prices (premium) which then compensates the increase in costs used to provide that extra service. The differentiation strategy is achieved by using any combination of the following approaches;
a. Different design.
b. Different brand image.
c. Different product or service features.
d. Different and more advanced technology.
3. Focus Strategy: This strategy is a slight variation of the other two generic strategies. However, as the name implies, the focus strategy allows firms to focus on a particular niche market and provide uniquely low costs (cost focus) or uniquely different products (differentiation focus). Since the strategy is targeted to a select part of the market, it creates a strong loyalty for its brand from its customers, which helps to further reduce the threat of rivalry.
Porter’s Generic Strategies in Action: Apple Inc.
Founded on April 1, 1976 by Steve Jobs, Steve Wozniak and Ronald Wayne, Apple Inc is a multinational corporation that designs and leads innovation in the consumer electronics, computer software and personal computer’s industry. Apple Inc. traditionally focused on personal computers but later shifted its focus to consumer electronics. It now has a range of high-end products including the Macintosh line of computers, iPod, iPhone, and the iPad. They are also involved in developing innovative operating systems and browser. Its main competitors are Microsoft, Samsung, HP, Blackberry, Acer, Toshiba, Nokia and Dell. Apple Inc. leads the competition by implementing a Differentiation Strategy. Apple Inc. sets itself apart from its competitors by providing unique features for its products, which the customers really cannot get anywhere else.
These unique features include design, functionality, durability and consistency. Also, Apple electronic products are known to be sleek, simple and minimalist. It’s MacBook and iMac products have a reputation for long battery life and completely zero tolerance for viruses, which are known to plague other competitor’s products that run either Windows or Linus operating systems. Another aspect of differentiation that Apple utilizes well is its amazing customer service.
Through its Apple Stores worldwide, Apple creates a very interactive forum where customers can come to purchase new devices or fix faulty ones. These unique aspects of its differentiation strategy are what give Apple the right to charge higher prices, thereby commanding a premium for their services. This strategy has proven to work well for the company because its market share has constantly been increasing since it released the iPod in 2005. The following diagram illustrates Apple inc’s strategic position relative to two of its competitors in the mobile industry;
Apple inc. implements a number of strategies that makes it different from its competitors. It is more focused on meeting the customer’s needs than anything else, so they didn’t need to compete on price, and could set their own prices, because they were delivering something much more valuable to the consumer. The following are some of Steve Job’s quotes that reflect Apple Inc’s focus on the differentiation strategy; “If it could save a person’s life, could you find a way to save ten seconds off the boot time?” “You’ve got to start with the customer experience and work back towards – not the other way around. “Being the richest man in the cemetery doesn’t matter to me.
Going to bed at night, saying we’ve done something wonderful; that’s what matters to me.” One of Apple Inc’s business strategies is to release few but highly anticipated high-end products while others like Samsung focused on releasing a wide variety of products to the market. Apple Inc. allows for long development cycles that grow anticipation and showcased new innovations with each new release under Steve Jobs whose strategy was develop and sell brand new, innovative products which blended art and technology in order to provide a simple and streamlined user experience. After its initial release of the iPod and iPhone, Apple Inc. continued to innovate in the mobile device market through smartphones and then tablets which began to create a loyal customer base around their brand.
Since inception, Apple Inc carved its own market by creating unique products that targeted a specific market. The company continuously innovates to produce the best products in the market and strategically rolls them out so that its customers appreciate it even more. The following are its production and marketing emphasis: Production Emphasis: Nobody does it better
Marketing Emphasis: Ours is better than theirs
Apple Inc. focused on making technology more artistic with design features that catch the eyes of the customer. The efficiency of its products also makes customers want to pay a higher price. The company differentiated itself and its products from the competition and ensured that its loyal customers were always satisfied.
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