Strategic Planning in Business Using Porter’s Generic Strategies
Strategic planning is a basic business process, which ensures an organization is able to maintain a competitive lead over its competitors though the design of strategies that ensure it captures market leadership. The most common models of strategic planning use the popular Porter’s strategic models of cost leadership, differentiation and focus or niche marketing (Eldring, 2009). Each of the three approaches uses a different area of focus so as to outdo its competitors. For example, cost leadership focuses on offering the lowest products and service prices to its consumers so as to attract consumers that would wish to save by buying at lower prices. The differentiation approach relies on developing uniqueness in services and products offered so that clients that require such unique provisions can be greatly attracted and retained to an extent of developing a unique clientele base. Finally, the focus approach uses a developmental emphasis of producing products and offering services that are directly offered to a specific niche of the market (Eldring, 2009). A number of firms have used different strategies and this will exemplified below by a selection of three firms that have implemented either one of these strategic approaches. The companies under highlight include Wal-Mart Retailers, McDonalds and PepsiCo-these companies have implemented cost leadership, differentiation, and focus strategic approaches respectively.
Wal-Mart Retailers-Cost Leadership Approach
Cost leadership simply entails targeting to become the lowest cost retailer, and the aim is to always drive down products costs so as to attract consumers. This approach is especially essential in a market where consumers are price sensitive such as the retail market (Smith, 2012). Wall-mart has demonstrated cost leadership through its EDLP “everyday low prices” approach, which has gained great popularity and success. Markets estimates show that Wal-Mart shoppers save at least 15% on a cart of groceries when compared to other retail outlets. The firm has rolled out its EDLP program to most of its international markets. The EDLP plan involves working with Wall-mart suppliers to make sure prices are always kept low and any changes are very minimal (DiPali, 2012).
Wal-Mart uses different strategies to attain low pricing, and these include the use of capital to acquire production assets, which lower production costs as well as the enhancement of manufacturing efficiency. This is enabled through the use of better process engineering and manufacturing expertise. Wall-mart also uses efficient channels of distribution so as to cut down on distribution, which may be passed on to the client. These efforts that finally lead to low pricing on Wal-Mart’s retail products has made the store a favourite shopping choice for most consumers and actually led to the success of the chain store.
The success of Wal-Mart’s initiative can be proven by its widespread expansion across the United States as well as other foreign nations. The rapid expansion seen the retailer open 8970 stores across the globe and this is indeed an indicator that the chain retail store is popular and profitable (DiPali, 2012). This approach is however challenging because it could lead to price wars or the competitive edge could easily be overcome as new and efficient technologies of production get discovered.
McDonalds Corporations-Differentiation Approach
A strategy pursuing differentiation seeks to develop unique products and services, which have value which can endear them to the consumers. In essence the products should be made better and different from those of competitors. The value addition allows the firms that offer these services or products to charge a slightly higher fee, but still be able to attract buyers. Enhancement is attained through various ways such as through the inclusion of additional features, offering better after sales services, better quality or greater durability. This value addition processes require having a strong research and marketing capability.
McDonald’s clients are from different classes in society, but they mainly consist of middle class and working individuals. The fast aspect of differentiation has been the provision of fast paced service delivery, which is prompt enough for consumers with very short breaks to have a quick snack or meal. McDonald has given consumers a chance of convenience, speed and value of service. The firm ensures that customers do not wait in line for more than a minute and a maximum of 30 seconds at the counter. This is indeed a distinct feature because very few restaurants can offer such a fast-paced service delivery (DiPali, 2012). Additionally, other approaches have been pursued such as the attachment of presents within certain meal packages. For example, in one offer McDonald’s combined a $50 dollar toy with a hamburger, french-fries and coke (DiPali, 2012). This was named the happy meal specifically designed for children. Such offers take pricing out of view and consumers are left to consider and appreciate the quality of services and products, and therefore their purchases are based on this rather than price.
The most important feature in this form of strategy is investing in research and product development. Similarly, there should be a strong marketing plan to communicate the product’s enhanced value. This strategy faces challenges of duplication by competitors or customers may finally cease to require the differentiation factor. Additionally, it leads to higher costs of production and possible price sensitivity development over time. In spite of these potential challenges to differentiation, McDonald has been able to succeed through the use of this strategy, and this can be evidenced by its high profitability and numerous branches. The firm owns an estimated 32000 locations globally and presence in numerous continents-this indeed attests to its success and in essence the success and effectiveness of differentiation (DiPali, 2012).
PepsiCo-Focus Approach
The focus strategy aims at developing narrowed production that fits a specific segment of society. After choosing the focus segment, the firm also tries to achieve differentiation and cost advantages. Narrower focus allows better service provision for specific groups and therefore enhancing better quality, responsible for loyalty development. The loyalty in turn drives away competitors. Prices in this segment may soar and clients at times may be disadvantaged due to a lack of substitutes. PepsiCo has been able to adopt segmentation since 1997, and it has emerged as the second largest firm that in consumer food packaging (DiPali, 2012). The company’s popularity especially in the beverage industry is significant. The company has benefited greatly from specialization. The specialization and wider command of the segment has offered it experience that has made its entry into new markets easier. The loyalty developed has also endeared the company to consumers. The success of PepsiCo and in essence that of focus strategy; can be evidenced by the company’s profitability and acquisition of other firms within the same segment. For example, PepsiCo acquired Quaker Oats in 2000, South Beach Beverage Company in 2000 and Tropicana products in 1998 (DiPali, 2012). These are indeed examples of the success of the strategy. Just like the rest of the strategies, focus also has challenges. For example, there is limited room for growth because any growth is restricted to the segment. Changes in the segment may also adversely affect the firm because it solely depends on one segment.
In conclusion competitive strategy may adopt any of the above strategies in developing a competitive edge within the market. However, there can be no single ever successful strategies (Eldring, 2009). Therefore, the chose strategy depends on the market and product or service type. As time changes strategies may change and at times it may be necessary to apply different styles at the same time (Ireland, Hitt, & Hoskisson, 2008).
References
DiPali (2012). Porter’s Generic Strategies with examples- Presentation Transcript: Porter’s generic strategies. Retrieved on May 16th 2012 from http://www.slideshare.net/dipalij07/porters-generic-strategies-with-examples
Eldring, J. (2009). Porter ́s (1980) Generic Strategies, Performance and Risk: An Empirical Investigation with German Data, Diplomica Verlag Publishers
Ireland, D. R. Hitt, A. M. & Hoskisson, E. R. (2008).Competing for Advantage, 2nd edition, Cengage Learning Publishers
Smith, M. (2012). Examples of Cost Leadership & Strategy Marketing, retrieved on May 16th 2012 from http://smallbusiness.chron.com/examples-cost-leadership-strategy-marketing-12259.html
