Porter Competitive Advantage Strategy

1. 1

2. § Competitive advantage
§ Competitive advantage implies gaining the edge on others – using
resources & capabilities
§ competitive strategy
• Consists of business approaches to
– Attract customers by fulfilling their expectations
– Withstand competitive pressures
– Strengthen market position

3. §Competitive advantage come from one of two
sources:
§ Having the lowest cost in the industry
§ Possessing a product or offering a service that is
perceived as unique in the industry
§Another important factor is the scope of the
product-market (broad or narrow)
§Mix of these factors provide basis for
§ Cost leadership strategy (low-cost strategy)
§ Differentiation strategy
§ Focus strategy

4. 4

5. 5
Differentiation
Low-cost
leadership
Focus

6. Market
Scope
Competitive Advantage
Low Cost Differentiation
Broad
Narrow
Cost Leadership Differentiation
Focus
(Low Cost)
Focus
(Differentiation)

7. • Objective:
– Gain sustainable competitive advantage over competitors, using low-cost (not
price)
– Produce for broad customer base
§ Low cost implies OVERALL LOW COST
§ Not just low manufacturing or production cost
§ Product quality cannot be ignored

8. § Strict attention to production controls
§ Rigorous use of budgets
§ Little product differentiation
§ Limited market segmentation
§ Emphasis on productivity improvements

9. • Objective
– Offering products/services perceived as unique over
the brands of rivals in an industry
• Keys to Success
– Offer products/services that create value to customers
– Offer products/services not easily matched or easily
copied by rivals
– Not spending more to differentiate the firm’s products
or service than the price premium that can be
charged

10. • A product / service with unique and appealing attributes
allows a firm to
– Command a premium price and/or
– Increase unit sales and/or
– Build brand loyalty
= Competitive Advantage

11. § Firm pursues either a cost leadership or differentiation strategy but in
a narrow customer group of segment
§ Concentrates on serving specific market niche
§ Geographical area
§ Type of customer -- specific group of customers
§ Specific & specialized product line

12. § Objective
§ Serve the niche customers better than competitors
§ Keys to Success
§ Choose a market niche where buyers have distinctive preferences, special
requirements, or unique needs
§ Develop unique capabilities to serve needs of target buyer segment

13. § Approach 1: Cost Advantage
§ Achieve lower cost than rivals in serving the specific or narrow segment
§ Approach 2: Differentiation Advantage
§ Offer customers in niche market something unique in that market
§ Product features
§ Product innovations
§ Product quality
§ Customer responsiveness

14. – Rolex: Serve highest end of wristwatch market (premium
pricing & image)
§ Rolls-Royce: Serving luxurious end of automobile
market (premium pricing & image)

15. §Barriers to imitation
§ Speed of imitation by competitors in reducing
advantage
§ Imitation by acquiring similar resources
§ Imitation of capabilities (more difficult)
§Limits on competitors
§ Prior strategic commitments
§ Absorptive capacity for change
§Industry dynamism
§ The rapid innovation
shortens product life cycles.
© Ram Mudambi,
Temple University,
2007
3-15

16. §What went wrong?
§Inertia
§ Companies find it difficult to change their strategies
and structures
§Prior strategic commitments
§ Limit a company’s ability to imitate and cause
competitive disadvantage
§The Icarus paradox
3-16

17. 3-17
Avoiding failure and sustaining
competitive advantage
vFocus on the building blocks of competitive
advantage.
vInstitute continuous improvement and
learning.
vTrack best industrial practice and use
benchmarking.
vOvercome inertia.