Porter’s generic strategy of Low-Cost Leadership
Porter’s generic strategy of Low-Cost Leadership stipulates that organizational managements strive to minimize all forms of costs to the point of incurring the lowest average cost per unit as compared to the industry’s standards as well as the competitors.This strategy requires that policies are put in place to help in mitigating losses, phase out non value addition costs and focus on the per unit returns from an investment.For example, a firm may be registering the lowest levels of unit costs as compared with other industry players, resulting into not low profits which though are higher the competitors’, (SOB, 2008).
Another example of cost leadership is exhibited where an organization strives to protect its market share from new entrants and have ability to defend its self from powerful suppliers through tight inventory control, research and development, process innovations and sustained fight to maintain market share even to the pint of selling below industry’s price, (AUEB,2008) .
The generic strategy of differentiation implies innovative product development and offering for sale distinct products which is easily identifiable with an organization by the potential consumers and the general public.
For example a firm may strive to innovatively develop unique products for a market by having a unique brand, product packaging and performance capabilities. Similarly, to insulate itself against competition, enhance customer loyalty, create barrier and reduce need for a low cost advantage, (SOB, 2008), the coca cola company launched Novida drink with varied tastes and a brand name to deal with competition in the drink’s market. Highly competitive environment best suits the strategy of Low-Cost Leadership.
This is because the strategy advocates for having the lowest per unit cost in the industry as compared to the competitors, (SOB, 2008). The strategy suits this environment since pricing can be the major determent of the level of costs which a firm is wiling to absorb, help in proper management of selling and purchasing costs and also help in implementation of strategies aimed at lowering chances of new entrants through economies of scale.
Read also Focused Low Cost Strategy