Michael Porter:
Model and Niche and Generic Strategies of Competitive and Competitive Entrepreneurial Management
Michael Porter, professor of business strategy at Harvard University, offers different ways in which a company can have a competitive advantage in its market.
According to Porter, a competitive advantage is sustainable if it cannot be copied, substituted or eroded by the action of competitors and if the evolution of the economic environment does not render it obsolete.
According to Porter, a company, for each of its Strategic Business Areas (DAS), can choose one of the following 3 strategies.
1 Cost leadership
The cost leadership strategy consists in offering an offer of the same value as that of the competitors, but at a lower price (this is the reason why it is also called a price strategy). It requires reducing costs, which is obtained for example by optimizing the various stages of production, but more broadly by relying on the effect of experience (fall in marginal unit cost with the increase in the cumulative volume of production, obtained in particular by economies of scale or the learning effect).
When relying on the experience effect, the cost leadership strategy is called the volume strategy.
2 Differentiations
It is a question here of proposing an offer having characteristics different from those of the competition.
Two types of differentiation:
Upward differentiation or sophistication,
It consists of proposing a more elaborate offer than the reference offer, but selling it at a higher price. The ideal is to increase the price more than the cost, in order to generate a higher profit.
This is the positioning adopted in particular by Apple, BMW…
Downward differentiation or purification
On the contrary, it consists in proposing an offer that is less elaborate than the reference offer, but in selling it at a lower price. The ideal is then to reduce the cost more than the price, in order to generate a higher profit.
This is the positioning adopted in particular by Bic, Ikea or Ryanair.
Downward differentiation should not be confused with cost strategy. Indeed, the first results in a decrease in the value of the offer and its price, while the second only leads to a decrease in the price (but a maintenance of the value).
Three Concentration (or “Focus”)
This strategy consists of focusing most of its efforts on a market segment. This is also referred to as a “niche strategy”. This leads to also choosing a strategy of cost domination or differentiation in this niche, to ensure price and/or quantity leadership in this segment.
Such clear-cut strategies are criticized for the lack of consideration of specific cases, a certain rigidity, and various limitations. But these three generic strategies remain in force to this day.
According to Porter, the company must choose one (and only one) of the three generic strategies (for each of its Strategic Business Areas) and make sure to optimize its mastery to develop a real competitive advantage. Otherwise, it risks being in a “Stuck in the Middle” position, stuck between volume and differentiation.
However, Michael Porter believes it is possible for a company to be “Stuck in the Middle”: to be between two strategies is livable in some cases, but amounts to being in a rut, limiting the prospects for profits and growth for the company.
Furthermore, the different Strategic Business Areas of the same company may very well adopt distinct generic strategies. This is the case, for example, of the Volkswagen group, which practices a strategy of upward differentiation with Audi, price with Skoda and niche with Bentley.
Intercultural and Inter-managerial Leadership
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saidcherkaoui@triconsultingkyoto.com – 11/6/2023
Competitive Management, Entrepreneurial Strategy, Leadership
Tags: Competitive Strategy, Entrepreneurial Management, Niche Strategy» Edit This
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