STRATEGY CHOICE MICHAEL PORTER ’s competitive strategies

competitive strategies; According to Mike Porter a firm has 3 competitive strategies; Focus strategy Differentiation Overall cost leadership

Porter’s Competitive Strategies A) Low-cost leadership 1. Manufacturing function: adoption of the most efficient production methods, computer-controlled flexible manufacturing systems. 2. Human resource function: design of appropriate control and reward systems to increase employee motivation and reduce absenteeism and turnover.

Porter’s Competitive Strategies 3. Materials management: Just in time inventory systems and computerised warehousing reduce the cost of shipping and carrying inventory, development of long-term relationships with suppliers and customers. 4.Sales and marketing: allow to quickly discover and respond to customer needs. 5. Research and development: development of cheaper ways to making a product.

Porter’s Competitive Strategies B) Strategies to differentiate products: 1.Manufacturing function: increase in product quality and reliability 2. Human resource function: selection and hiring of high quality employees and managers, running innovative training programs. 3. Materials management: use of company reputation and long-term relationships with suppliers and customers to provide high quality inputs. 4 Sales and marketing: targeting customer groups, promoting brand names. 5. Research and development: creation of new products.

Porter’s Competitive Strategies C) Focus strategy 1. The organization concentrates on a specific regional market or buyer groups. 2. The company tries to achieve either a low cost advantage or differentiation advantage within a narrowly defined market.

Ansoff Matrix To portray alternative corporate growth strategies, Igor Ansoff presented a matrix that focused on the firm’s present and potential products and markets(customers)

ExistingNew Existing PRODUCTS New ExistingNew Existing PRODUCTS New Market Share Market Development Product Development DiversificationDiversification Marketing Strategies - Ansoff Matrix MARKETSMARKETS

What box do you put your resources into? Existing markets with existing products - going for market share and have to do this at expense of competition - competing on price? - price wars or some other means such as differentiating your products New markets with existing products - coming up against new competitors - going into another country in Europe or USA - higher risk

Marketing Strategies - Ansoff Matrix Existing markets with new products - should know your market well New markets with new products - very high risk - a lot of large companies invest in small companies that are moderately successful - with some potential - to reduce risk

Ansoff Matrix Ansoff’s matrix provides four different growth strategies: 1.Market share; the firm seeks to achieve growth with existing products in their current market segments aiming to increase its market share. 2.Market Development; the firm seeks growth by targeting its existing products to new market segments. 3.Product Development; the firm develops new products targeted to its existing market segments. 4.Diversification; the firm grows by diversifying into new businesses by developing new products for new markets.

Selecting a product-Market Growth Strategy The Market Penetration ; is the Least risky since it leverages the firms existing resources and capabilities. In a growing market, maintaining market share will result in growth. There may exist opportunities to increase market share if competitors reach capacity limits.

Market penetration has limits; – Once the market approaches saturation another strategy must be persued if the firm is to continue to grow.

Selecting a product-Market Growth Strategy Market Development; option include; – Pursue additional market segments ( new users) or geographical regions, with the existing product. – Introduce new uses of a product – Create a new market by increasing usage. e.g apply 4 times a day. – Because a firm is expanding into a new market this strategy is has more risk than a market penetration strategy.

Selecting a product-Market Growth Strategy A product development strategy; Develop a new product for the existing market Change or a slight modification, e.g. color, packing Similar to the case of new market development, new product development carries more risk than simply attempting to increase market share.

Selecting a product-Market Growth Strategy Diversification; Come up with new product in the new market. this is the most risky of the four strategies. It is very expensive( a lot of costs, a lot of resources)

GLUECK’s APPROACH He believes in 4 generic strategies Stability strategy Retrenchment strategy Expansion strategy Combination strategy

GLUECK’s APPROACH 1.Stability strategy: An organisation continues to operate without changing the status quo. Look at market and functions, if there is any change it has to be slight. This strategy is easy and cheap, no risks, they have already consolidated their position in the market.

GLUECK’s APPROACH Reasons to stabilize; – Monopoly firms – Fear of costs involved in expansion – Fear of risks of change – Firms stabilize when they have reached maturity stage

GLUECK’s APPROACH 2. Retrenchment strategy; A firm decides to go out of product or market; Reasons; Market is no longer profitable. When costs of operating are very high than the cost of closing/disposing off. The firm with SBU can close one of them. Law of governmenti.e operating against the law. (illegal business) Retrench when they have better opportunities else where.

GLUECK’s APPROACH 3. Expansion; Add on your scope of activities; e.g. promotion, recruitement, product manager,branch manager Reasons; – Firms expand because they want to enjoy economies of scale – Expansion motivates employees, it is a sign of good performance/doing well as in profits.

GLUECK’s APPROACH Combination strategy; This is where the firm undertakes one or more strategies or several of them. E.g stability and expansion. This is fit for firms that have more SBUs

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