Intention
Competitive advantage is a term that allows an organisation to outperform its competitors. The Porter’s Competitive advantage strategy is about taking the action to create a competitive position in an industry in order to compete with competitive forces and generate profit and return on investment. According to Michal Porter’s, when a firm sustain profit that is above the average for its company, that firm is said to be sustainable competitive advantage over the competitors. This can be done by using the strategies that are cost leadership, differentiation and focus which can be used when there is lots of competition in the market and company want to compete with the competitors.
Purpose
The purpose of this tools is to know how a firm gets and create a competitive advantage over the competitors. So, this can be achieved by the three generic strategies which are used in Porter’s competitive advantage: Cost leadership Differentiation Focus source: www.mindtools.com Cost leadership: Cost leadership means that cost of the products is less than the rivals and a firm sets out to become a low-cost leader in the industry. This helps to increase the sales due to reduced cost of products and gain the profit. This strategy targets the broad market and having benefits from the customers who are price sensitive. In cost leadership strategy the selling price of the products are least equal to the average for the market, as a result, by making minimising cost the producers get the best profits. Differentiation Differentiation means that firm seeks to be unique in its industry some way that attract the more customers and create value for customers so that they are willing to pay and gain appreciation than their competitors.
Differentiation have a broad competitive scope. Areas that can be differentiated are product, marketing, service, sales etc. It involves making your products or services different and more attractive than the competitors in the market. To make this strategy successful, company must do good research, development and innovation. They should give the high-quality products and services to customers than their competitors.
Focus
Focus have the narrow competitive scope and targets small number of market segments particularly niche markets. Focus strategy further divided into two divisions that are Cost Focus and Differentiation focus and it is important when the company use this strategy, whether to choose cost leadership or differentiation. Cost Focus: In this strategy a firm wants the cost advantage in the target segment and focus on particular market and buyer group. Differentiation Focus: In this strategy firm wants to be unique in its target market and focus on particular group and geographic market.
Instructions
Company can use these strategies to sustain competitive advantage in market by follow these: For cost leadership strategy: Removing all frills and extra benefits from the products. Use cheaper material, labour and other facilities. Use the technology that helps to reduce the cost. For differentiation strategy: Make good quality product which are reliable and more features and having good services. Good market strategy and brand awareness. Experienced staff and creative product development team For focus strategies: Identifying the target market and design the market strategy to decide whether to implement cost leadership or differentiation.
