Strategic Marketing Management
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Chapter 13 : Generic Strategies
Porter's Five Competitive Forces
Potential Entry of New Competitors
Threat from Substitutes
Bargaining Power of Buyers
Bargaining Power of Suppliers
Competition between Already Existing Firms
Porter's Generic Competitive Strategies
Cost Leadership Strategy
Differentiation Strategy
Focus Strategy
Risks Associated with Generic Strategies
Deciding on the most Suitable Generic Strategy
Some Criticisms against Porter's Generic Strategies
Identifying Potential Competitive Advantages
Value Chain Analysis
Sustaining the Competitive Advantage
Influence of Market Position on Strategy
Market Leader Strategies
Market Challenger Strategies
Market Follower Strategies
Market Nicher Strategies
Market Pioneer Strategies
Strategic Wear-Out
Chapter Summary
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An organization has to gain competitive advantages, i.e. advantages over
competitors, in order to be successful in the market place. Competitive
advantage for an organization depends on the industry in which it is
operating and the position which it maintains in its chosen industry.
The profitability of an industry at a given point of time depends on five
important factors which include threat of new entrants, risk from
substitutes, the bargaining power of buyers, the bargaining power of
suppliers, and the competition between already existing firms. Once the
profitability of the industry has been determined, the next important factor
that the organization has to take into account is its relative position in
the industry. Porter's generic strategic model can be an efficient tool to
determine this. The three generic strategies – cost leadership,
differentiation, and focus – can help a firm obtain a competitive advantage.
All the three strategies cannot be adopted at the same time. The strategy
which is most suitable for the firm has to be adopted in order to gain
maximum benefits out of it. |
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Sustaining a competitive advantage is a difficult task. Some of the important
factors that can help a firm obtain a sustainable competitive advantage are
market orientation, proper understanding of direct as well as potential
competitors, an understanding of the changes in the marketing environment,
product differentiation, market segmentation, etc. Sustainable competitive
advantage can also be obtained by the growth of an organization in the
market, either naturally or through acquisitions.
In any market there will be a market leader which has maximum market share,
followed by challengers who try to overtake the market leader. In addition,
there will be various followers and nichers. Another player in the market is
the pioneer which, in most cases, will be the market leader. The strategies
to be adopted by all these players will be different. For a market leader,
the objective may be to consolidate its position in the market and to
increase its market share. For a challenger, the priority may be to conduct
an offensive attack against the market leader in order to gain a greater
market share. Followers may try to follow the same strategies that are
adopted by the market leader. A nicher may try to serve its chosen market
segment effectively and to gain customer loyalty. In the case of pioneers,
they are also able to obtain various competitive advantages which help them
capture a very good market share.
A successful strategy may not remain as such for a long period. This is
because after some time, market conditions will change and the effectiveness
of the strategy will decline. This strategic wear-out, is to be avoided by
adapting to the changes in the tastes and preferences of customers.
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