The main challenge for business strategy is to find a way of achieving a sustainable competitive advantage over the other competing products and firms in a market (Thompson et al., 2019). According to Porter’s Generic Strategies model (1985), there are three basic strategic options available to organizations for gaining competitive advantage. These are: Cost Leadership, Differentiation and Focus. Organizations that achieve Cost Leadership can benefit either by gaining market share through lowering prices (whilst maintaining profitability) or by maintaining average prices and therefore increasing profits. All of this is achieved by reducing costs to a level below those of the organization’s competitors. Companies that pursue a Differentiation strategy win market share by offering unique features that are valued by their customers. Focus strategies involve achieving Cost Leadership or Differentiation within niche markets in ways that are not available to more broadly-focused players (Aaker, 2017).Successful companies leverage competitive advantages in the marketplace to achieve high levels of performance. They either attain overall market leadership by differentiating themselves from competitors or dominate market segments where they focus their efforts. Focus strategy identifies the market segments where the company can compete effectively. The strategy matches market characteristics with the company’s competitive advantages to select markets where a focus of the company’s resources is likely to lead to desired sales volumes, revenues and profits.In my opinion, cost leadership strategy is an effective competitive advantage as firm try to save money throughout the value chain so that it can offer customers low-priced goods and services. If the achieved selling price can at least equal (or near) the average for the market, then the lowest-cost producer will enjoy the best profits and it can further increase its market share (Thompson et al., 2019). Having say that, cost leadership strategy doesn’t apply in all markets. Since some consumers prefer to pay more to get better quality. If companies have a superior design, more expertise or access to higher-quality materials, they may have a competitive advantage on product quality. In this case, they have to identify market segments that will buy higher-priced products. Focus strategy lets then concentrate promotional resources on the sectors that match quality advantage. Since they are no longer competing on low price, they can cover the higher costs involved in identifying and reaching these high-value segments.Likewise, companies can compete on service by emphasizing customer satisfaction. Focus strategy for companies that develop a service competitive advantage relies less on market segmentation and more on assigning resources to increase excellence in customer service (Thompson et al., 2019). Customer service focused on high levels of customer satisfaction implies hiring employees with good people skills, training them in customer relations, training them on the products they are supporting and monitoring for rapid response times. Because such customer service is expensive, companies focused on customer service as a competitive advantage avoid the lowest-cost market segments but can do well in high-value sectors.As White (2019) suggested, it is also important that the factors lending a business competitive advantage are sustainable. The more dependable a business’ competitive advantage, the more likely it is that a business can maintain their profit levels and keep competitors from overtaking them.
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by | Mar 12, 2022 | Uncategorized
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