Long term survival for the organization in the industry is difficult in today complex environment where national boundaries are transparent, competition is complex and external environment can change at any time. The word change always remain same for the organizations, not updating products and services soon means that you will be soon out of the industry.
Porter suggested three strategies for the organization to retain the long term sustainable competitive advantage. The strategies are called as cost leadership, differentiation and focus, company can adapt one or more than strategies depends upon the resources and the level of competition.
Cost leadership strategy best fit in the industry where the customers are price sensitive and change in price impact on demand. Utilization of assets, refine processes can reduce the cost. If the organization have the ability to control over production cost of product and service and easily quote low prices for their offering in the market by maintaining good quality. The organization can also survive in the situation when the country economic conditions are at low level and inflation increases with speed.
Dell computer provide personal computer and laptops at lower cost to their customers without sacrificing the quality because they have well defined processes and procedures. Southwest Airlines offer low cost traveling with comfort, elimination of cost is possible for southwest by route selection and not providing extra luxuries services which increase the cost. Wal-Mart proper inventory management allows them to cut the cost result in variety of products at lower price.
Why customer prefer your offering over your competitor if there is no price difference in this case cost leadership strategies never works. In Oil industry price are decided by authorities not by the organization, differentiation is created by providing services and relax environment. Companies add new feature and value added feature in their offering which competition is missing out in their product. Disney is the organization totally based upon differentiation; they provide the new experience to their customer. The organization where people are skillful and more involve in R & D can create differentiation with ease.
Organization focuses on the segment to which they can provide better offering. These organizations are specialized on their domain and continuously bring improvement for customer satisfaction. BMW produce adopt focus strategy, high pay executives are the niche for the organization. BMW is the expensive brand has limited market of potential customer that’s why they are enjoying better financial status.
Combination of Strategies
As I make this point clear that it’s not important to follow one strategy, combination of these three strategies can create better competitive advantage.