Michael Porter’s Generic Strategies

Bargaining Power of Suppliers: The bargaining power of suppliers in the industry is low. There are numerous suppliers in this industry, and the large department stores have the ability to negotiate for the lowest prices. In addition, the switching costs are low, as the products are not highly differentiated. There are a large volume of purchases in the industry, allowing the department stores to exert even more power over the suppliers.

The cost leadership strategy seeks to improve profit margins by bringing down the costs of producing while enabling the organization to still charge market prices. They also focus on increasing the market shares through lower pricing, enabling the organization to continue to reach profits because of reduced costs. As with any organization the goal is to minimize cost directly to the organization providing the delivery of products or services. According to Barney (2007) low cost leadership strategy takes pride in initiating its costs advantage abilities to charge lower prices while reaping the rewards of higher profits.

N.B. PLEASE NOTE THAT DETAILS OF ORDERING INSEAD CASES ARE FOUND ON THE BACK COVER. COPIES MAY NOT BE

This paper discusses Low-Cost Leadership and Differentiation business strategies. The paper explains what each strategy is and how they can be applied, utilized and maximized as strategies for a company. Suggestion of methods to implement and the strategies are discussed, including when the strategies work best.

Riordan’s organization sells heart valves, plastic bottles, fans, and medical stents. Clearly, they have a large variety of products. According to Valdehueza, cost leadership is a competitive strategy with which the organization aggressively seeks efficient facilities, cuts costs, and employs tight cost controls to be more efficient than the competition. Decreasing business costs

Porters Generic Competitive Strategies: The relative position of a company within its industry concludes whether the profitability of the firm is above or below the industry’s average. The above average profitability of the firm is fundamentally showing the sustainable competitive advantage in its long run. According to Michael Porter, competitive advantages originate from the value of a firm and there are two types of competitive advantages, which a company can own. These are low cost or differentiation. For any company, in

Strategy can be defined as being different from one’s competitors, finding the race to operate and accomplished it. According to Michael Porter (1996), while becoming better at what you do is desirable, it will not benefit you in the long run because it is something other competitors can also do. Strategies for organizations are originally developed by Michael E. Porter in 1979 by introducing the five forces model. A company can identify the industry profitability and attractiveness by analyzing the five forces of Porter (Johnson et al., 2008). And then a reasonable strategy can be set up in line with the strengths and the weakness of an organization is able to create a plan for a stronger position for the organization within its

The organizations that endeavour to wind up the least cost makers in an industry can be alluded to as those taking after a low cost procedure. The organization with the least expenses would gain the most elevated benefits in the occasion when the contending items are basically undifferentiated, and offering at a standard business market cost. Organizations taking after this methodology place accentuation on cost diminishment in each action in the value chain. Note that an organization may be a cost pioneer however that does not inexorably infer that the organization 's items would have a low cost. In specific occurrences, the organization can for occasion charge a normal cost while applying the low cost leadership strategy and put the earnings made back into the business

By following the patterns of these established low cost leaders, we were able to model our company by implementing the following key steps to ensure low costs while gaining market share:

♦ Buyers incur low costs in switching among sellers. ♦ Large buyers have the power to bargain down prices. ♦ New entrants can use introductory low prices to attract buyers and build a customer base.

Porter’s generic strategies describe how a company attains competitive advantage across its chosen market scope. There are three generic strategies-cost leadership, differentiation and

First, we need to know, what is Cost Leadership Strategy? Cost leadership strategy is primarily to gain an advantage over competitors by reducing its cost. Cost of leadership is a strategy used by businesses to create a low cost of operation within the situation. Cost Leadership Strategies is one of the best strategies among the other Porter’s other strategies. This strategy supports the business to improvement in the market portion by putting lower price in judgement to other competitors. This plan is probable by only putting cost price lower. Businesses can put on diverse means to place their cost price less in estimation to other competitors. In evolving recruitment model, business must be price conscious. To save some money the business must hire the employees at the minimum wage and hope that they stay around after the trainings to avoid having to train increasingly, which can be

A low-cost strategy in order to gain market share does possess inherent risk, for example, other competing firms with larger capital may be able to lower their costs, forcing the firm to operate at a reduced profit of even loss. As a result of technology advances, rival firms could be able to surpass their present production abilities, thus eliminating the competitive advantage. In addition, several rival firms could combine their efforts, following a focus strategy and target various narrow markets could be able to achieve an even lower cost within their segments and as a collective group, certainly gain considerable market advantage. Consequently, low-cost leadership, when combined with low prices can bring about a disadvantage which is less customer loyalty (Vokurka & Davis, 2004). Relatively low prices can also result in creating a lasting negative attitude towards the quality of the product in the mindset of the customers.

Cost leadership implies that an organization or business tries to have low costs so that they can sell their products and services at low costs. This type of leadership strategy allows them to make profits even with low costs than their competitors. It places the business at a position where it can effectively compete on the basis of price with both the new entrants in the industry and existing competitors. It also creates a potential for profits; charging prices that are almost average to the industry while earning profits above industry standards. The following process is used to achieve cost leadership: advertising and promoting the product to achieve sales in large volumes (Buchner, Ellerman & Carraro, 2007). Invest in the latest production technology to lower production costs. Achieve high levels of productivity to reduce labor costs, one can copy designs rather than producing originals and cheaper raw materials can be used. Reducing localization and distribution costs will reduce distribution costs. Exploitation of organizational experience and knowledge will also be helpful. Finally, secure government assistance will be important.

The Cost Leadership strategy appears to be broad/industry wide and their advantage is having low cost, which is important for a given level of quality. What makes this stategy so effective is the fact that they sell their products for average inventory prices to gain higher profits than their competitors or they will sell below average prices to gain a market share. The lessons that can be learned from the use of the Cost Leadership Strategy include: required access to the capital necessary to make a significant production asset investment, the required skills needed to design products for efficient manufacturing purposes, high levels of experience in the manufacturing process, and the most efficient distribution channels available.