Strategy entails two things: making a decision about where
you want your business to go, and deciding on how to get there. An organization’s comparative position within
an industry is determined by its selection of competitive advantage, that is,
cost leadership versus differentiation, and its option of competitive
scope. Competitive scope separates organizations
aiming for extensive industry segments and organizations focusing on a narrow
segment. Generic strategies are important
because they typify strategic positions at the simplest and highest level. Michael
Porter claims that in order to achieve competitive advantage, an organization
is required to decide about the type and scope of its competitive advantage (Porter, 1996).
According
to Michael Porter, an organization hoping to obtain a sustainable competitive
advantage should follow either one of three generic strategies namely cost
leadership, differentiation or niche strategies. Cost Leadership
involves the business striving to be the lowest cost producer within their
industry. Sourcing and labor costs are some of the elements of production of
the product that the organization uses to drive cost down. Since the cost
leader generally aims at an extensive market, adequate sales can cover costs. Wal
mart is among these low cost producers. Sometimes however, some organizations
aim to reduce costs but do not extend these cost savings to their customers.
They do so aiming for higher returns simply because their brand can command a
premium rate (Porter, 1985).
The next strategy,
differentiation, is about being unique. Every organization
strives to be different. A competitive advantage which allows a company and its
products ranges to be unique is vital for their success. An organization
utilizing a differentiation strategy focuses its efforts on particular segments
and charge for the added differentiated value. Original ideas which enable
differentiation might be secured. But, patents cover a specific period of time
and organizations constantly face the risk that their idea that gives them the
competitive advantage will be copied in one form or another. In niche strategies, the
organization directs all its efforts on one specific segment and becomes popular
for providing products or services within that segment. The organization creates
a competitive advantage for this niche market. They then succeed by either
being a low cost producer or differentiator within that particular segment. An
organization can also utilize two of these strategies at the same time. This is
by offering particular segments a differentiated product or service or a low
cost product or service. The main thing is that the product or service is
focused on a particular segment (Porter, 1985).
Wal Mart is an example of these
organizations. They have employed both strategies, that is, cost leadership and
differentiation. In the cost leadership strategy, Wal-Mart commits to provide
quality products with the lowest price. Their prices are up to fifteen percent
lower than other stores. Wal-Mart’s store managers are left to manipulate the
prices of their stores and have authority to lower prices based on the local
competition. Their stores are built in the border of big cities and communities
with a warehouse look that gives them the competition advantages in low leasing
and maintenance costs. Finally, they offer superior quality at low prices for
customers.
Wal-mart’s differentiation strategy
is based on their excellent inventory system. This system focuses mainly on finishing
less profitable products and lowering the range of products in a given
category. It has a long term impact on sales for some consumer goods suppliers
if the products of a given supplier are targeted for elimination which results
in greater sales volume. This system restructures the movement of goods from the
manufacturer to the store shelf. That higher and quick turnover ends up in increased
turns and therefore fewer inventories. This is part of what enables them to
offer high quality at better price for clients (Levitt,
1975 ).
Market
segmentation is the splitting
up of a market into various groups of consumers with specifically comparable
needs in terms of product or service requirements. Else, market segmentation is
the partitioning of a large market into particular and dissimilar groups or
segments. Each of these segments has certain characteristics and needs and exhibits
similar responses to marketing actions. The aim of market segmentation is to control
limited resources. Put in another way, it is to make sure that the rudiments of
the marketing mix, price, distribution, products and promotion, are created to
meet specific requirements of various consumer groups. It is impossible to manufacture
all possible goods for all the people, all of the time, since companies have
finite resources. The best that can be hoped for is to provide chosen contributions
for certain groups of people, most of the time. This process gives
organizations a chance to deal with specific customers’ requirements, in the
most competent and successful method (Mullins,
Walker, & Boyd, 2010).
The market segmentation theory is connected
to product differentiation. If an organization aims at various market segments,
they might adapt different variations of their products to satisfy those
segments. Equally, adapting various versions of a product may appeal to various
market segments. For example, Wal-mart has come up with a plan to adapt its
various stores to specific locations around the world like china, India and
Mexico. They have also unveiled a racially-oriented segmentation. As part of
the segmentation, they diversified into food and grocery, private labels and an
online store. Wal-Mart online is an e-commerce website and has started selling
online Music and Movies.
References
Levitt,
T. (1975 ). Marketing myopia. Harvard Business Review , 26-40.
Mullins,
J. W., Walker, J. O., & Boyd, H. W. (2010).Marketing management: A
strategic decision making approach. Boston: A McGraw-Hill Irwin.
Porter,
M. (1985). Competitive Advantage. New York: The Free Press.
Porter,
M. (1996). What is strategy? Harvard Business Review , 61-79.
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