Strategic Management Case Solution
Competitive advantage and Generic Strategies
In 1985, Michael porter proposed the three primary ways through which the company can gain competitive advantage in the markets.These three ways are known as the porter competitive advantage matrix. The three ways are Cost leadership, differentiation and Focus.
The cost-leadership strategy focus on developing or establishing the product on the low cost.The whole strategy revolves around offering the product in the market at cheaper rates than the competitions. Such cost-leadership allows the company to undercut the competitors by offering the similar product at low price in the market.While pursuing the Cost-leadership strategy, the company produces the products in the economies of sales i-em, it produces large number of bulk products and sell in market on low prices and hence reaches the profit by generating more sales at reduced cost. Mainly, under the cost leadership strategy the main focus of the company is to achieve efficiency in tapping the markets while on other hand reducing the continuous operational cost.The companies pursuing the cost-leadership strategies also look for to reduce the operational cost. In doing so, these organizations seek to achieve the maximum capacity utilization, along with effective distribution strategies and supply chain management to receive the maximum value for the company and in turn offer the same to the customers by incorporating the value in the value chain. (Shahmansouri, 2013)
Under the cost-leadership strategy, the company usually produces a no-frill product and distributes it’s to the large target market, doing the mass marketing and pursuing the volume of sales.However, maintaining the cost-leadership strategy requires the company to strategy innovative in finding the better ways of producing and managing the product portfolio so to continue the strategy in the market effectively, along with the maintenance of cost.The integral part of the cost leadership strategy is the reduction of the cost for the company.Since the cost structure ultimately outline the pricing strategy, the companies pursuing the cost leadership strategies try to look for the techniques and method that reduces the operational cost and offers the solution for full capacity utilization.
In addition to this, In order to pursue the cost leadership strategy in the market, the company pursing such strategy should have the access to either to the raw material sources, o should have strong distribution or promotional strategy along with the incorporation of technology.This allows the businesses to develop a firm and sustainable cost leadership strategies in the market.
Critical Analysis of Cost Leadership Strategy
The main idea of cost-leadership strategy is the low cost incur at the operational side which will allow the business to develop the effective pricing strategy in the market.Since cost and price of the company’s product are intercalated, the companies pursing the cost-leadership attempts to minimize the cost structure. In doing so, porter propose the techniques in which achieving the rare technology, scare resource or skilled labor can be potential players in reducing or maximizing the efficiency of the product.Also, attaining the cost leadership requires the businesses to manage the functional cost and operational cost along with tight control over the procedures so to achier the maximum outcome from limited resources. Also, the cheap and skilled labor allows the company to pursue the cost-leadership strategies, since the per-head cost is controlled under such scenario. (porter, 1980)
To understand the cost-leadership strategy, the three determinant of porter competitive advantage Benefit, Target market and competition allows the business to understand the stance and position of the company in market. Since Benefit outlines the value company offers and the demand the customer seeks, it allows the businesses to incorporate such benefits into the products while keeping the cost low.Many times, the main concern of customers is the reduced price, thus allowing the firms to develop the competitive advantage on in.Also, since the company pursuing the cost-leadership strategy pursues the mass marketing and customization strategy, it offers the low frills production the markets that caters the maximum markets and hence allows the business to achieve economies of scale.Also it is noted, that the company pursuing the cost leadership strategy pursue the standardization techniques to develop and product and penetrate into differ market regions. This also saves costs and hence reduces the cost expenditures.
Also, under the cost leadership’s startegy, the company has the prime power to succeed the bargaining power of the buyers.Since the bargaining power of buyers always tends to reduce the prices, the low cost structure allows the company to maintain its power in the market, allowing it to develop market development strategy the uniform product development. Moreover, the low cost structure offers the cow pony strong hold on the supplier ease, since pursuing the cost leadership strategies makes the business to establish the economies of scale, which means more built order which in turn increases the suppliers order size, and hence minimizes the bargaining power on the company.Apart from this, the low cost structure also offers a substantial entry barriers, it is due to the market undercutting strategies pursued by the organizations which allows the new entrants to restrict the entry due to high saturation or market hold of the companies following the cost strategies. (Hana, 2010)……………………..
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