The uniqueness of the company — the differentiation — must only be a feature that a customer is willing to pay a premium price for. A company that focuses on differentiation may be disappointed to realize that their market share is continually changing and comes with a set of risks. Focus The company that uses the Focus strategy is selecting a niche market, and then determining the scope of the focus.
Within the Focus strategy is the option to use either cost leadership or differentiation. It may be confusing to keep in mind that the Focus strategy is dealing with a specific, niche market. Focus does not mean a smaller market simply because the company is small — it means that the company has chosen to add value to their products and offer them to a select number of customers. Because the company who chooses a Focus strategy deals exclusively with their client base, they develop a loyal relationship which can generate sales and profits for the future.
Taking into account the strengths of the company may give an indication of the best strategy to choose, but should not be rushed simply to move to the next item. To determine the best strategy for the company, follow a few simple steps : Create a Strengths, Weakness, Opportunities, Threats SWOT chart for each of the three strategies. Once that is completed, it may be clear that a strategy would not be appropriate. If that is the case, eliminate that strategy, and continue to the next step.
Conduct an analysis of the industry the business is in. Finding out specifics about the business industry can lead to an increased understanding of the market and how to best position the company.
Compare the SWOT analysis to the business industry results. Select the most viable options from the SWOT analysis and compare to the business industry analysis. From the comparisons, a company can begin to answer questions such as: How does this strategy help manage supplier power? How does this strategy help reduce the threat of substitution? How does this strategy help reduce customer power? As the company begins to answer the comparison questions, a clear choice should emerge.
To decide on the correct strategy, choose the strategy that provides the company with the best set of options for the future. Order now The emphasis is on lower costs, not on low selling prices. For a cost leader to be effective it is imperative that it needs to exploit all sources of cost to its advantage. If a firm can execute this it will automatically sustain overall cost leadership and therefore outperform in its industry and dominate prices.
In a differentiation strategy a firm intention and desire is to be unique in its industry. However, the focal firm can drop the costs keeping the revenues stable or vice versa so that it would accomplish the competitive advantage.
This is the first choice a company must make, even before deciding an overall strategy. These strategies portray that a company can achieve standard sustainable competitive advantages in any of the three essential ways. Figure : Strategy canvas of main competitors Strategic learning software, For Mass-market strategic group Ford, Honda, Hyundai, Toyota , the two critical success factors are mileage and price as shown in strategy canvas. They invest heavily on manufacture of fuel-efficient cars and low cost in order to attract customers.
Mass-market buyers look for cars those are cheaper to buy but at the same time have good fuel mileage. Customers in this group looks for safety as well as style, these customers have more money to spend and therefore they look for all round package, which means, a company that offers almost everything. For Ultra luxury group, two factors critical for success are style and horsepower.
Competitors attract their customers by offering the most powerful engines. Customers in this group also like to stand out of the crowd and thus they go after the most stylish car. Price is the last factor they are concerned about. According to Kim and Mauborgne , Blue ocean strategy means creating uncontested market place where competition becomes irrelevant instead of competing in existing market place.
It can be noticed from Strategy canvas that competitors within a particular group competes against each other on same factors. However, there are customers who want a powerful and stylish car as offered by Ultra luxury group but at the same time they want to purchase it at a price offered by mass-market group. So, we can see there is a gap in the market where a new space or category can be born by merging style, horsepower and low cost. Figure : Generic strategy Google image Mass Market strategic group follows cost leadership strategy that competes on low cost providing better value to average customers.
This group pursues cost leadership strategy with functional areas such as logistics, manufacturing services and materials Figure 6. For example: Nissan pursuing cost leadership strategy by its alliance with Renault by reducing production cost under Renault Nissan purchasing Organization Nissan Annual report, These firms invest hugely on brand recognition, innovative technologies and quality.
Ultra Luxury group pursues focus strategy, which focuses on a particular or narrow group or special of customers who are ready to pay high prices. Use of advanced technology has made this possible.
With firms pursuing low cost strategy, they can build threat to a new entry and also reduce threat of substitutes low cost used cars. According to Miller , Cost leadership strategy can be best pursued in stable and predictable environment whereas differentiation strategy is best suited to uncertain environments with the use of liaison devices and technocrats.
Differentiation strategy can create further barriers to potential new entrants due to its excellence in innovation, marketing and brand power. In addition, threat of substitute is lowered because of customer loyalty to the luxury brands. Buyers have less negotiating power due to absence of close choices or alternatives. However, differentiation strategy firms can face risk in case of recession because customers can become price sensitive and value price over differentiation unique features.
A firm following Focus strategy has limited segments and thus enjoys more protection from rivalry. High degree of customer loyalty and efficient core competencies poses a threat to new entrants. As it focuses on a specialized segment, it has more degree of protection against substitutes.
As compared to other macro factors, Technological and Economic factors will be the drivers for Automobile industry. Innovation is critical to success of automobile industry in terms of upgraded automobile features, production facilities and competition. Competition is high in automobile industry with the presence of many players. Threat of a new entrant is low to incumbents as it involves huge investment in production and technology. Customer loyalty also plays a vital role in automobile industry.
At present, there are three strategic groups operating in auto Industry following different generic strategies: Mass-market pursues cost leadership; Luxury group follows differentiation and Ultra luxury strategic group pursues focus strategy. Companies in a particular strategic group tend to compete on the basis of same factors such as price, maintenance cost, service, etc.
It can be age, population, buying preference or employment. Harley riders expect a certain standard from their bikes, along with responsive customer service. By focusing on specific traits of a product or service, a portion of the marketplace is automatically disregarded.
Wholly Owned Foreign Subsidiaries Cooperate organization that are willing and able to make very high investment in foregn market usually consider foreign subsidiary Due to managerial efficiency cooperate organizations seek to acquire full ownership of organizations. The strategy canvas Figure 4 done on main competitors of Automobile Industry shows various factors on horizontal axis and vertical left side represent offering level. A region centric orientation occurs when the mother organization attempts to blend its own values with those of the region under consideration, thereby arriving at a regionally delicate compromise. These strategies portray that a company can achieve standard sustainable competitive advantages in any of the three essential ways. Consumer demand is influenced by income and economic growth. The primary benefit using a GCS is to establish a methodology of doing business that will drive the company in a certain direction.
Economic factors can pose a negative impact on automobile industry due to sudden activities such as recession that leads to decrease in vehicles sale. Technology helps in various ways such as reducing production cost, being competitive, providing new solution and creating new segments. The Differentiation strategy, on the other hand, leads to profits but does not lead to a large market share. A correctly implemented strategy will help keep the company on target, while ensuring that they maintain a competitive edge within the industry.