Leading in costs means offering the best price for products. Today's globalized markets make price an important factor when selling to customers. Large stores use generic models to set prices, keeping costs lower than most. Digital marketplaces don't require the large retail expenses that physical stores require.
The cost leadership strategy considers the cost of manufacturing the products, transporting them and delivering them to customers. The price is further affected by the fact that supplies are easily available and by the cost of your company having to change suppliers or suppliers if your prices rise too high. A company that tries to participate in each generic strategy but fails to achieve any of them is considered to be “stuck in the middle”. A company of this type has no competitive advantage regardless of the industry it is in.
In fact, such a company will compete at a disadvantage because the industry's “cost leader”, “differentiators” and “centrators” will be better positioned to compete. However, it may be the case that a company that is caught in the middle continues to make interesting profits simply because it operates in a very attractive industry or because its competitors are also caught in the middle. Without one of the two exceptions, it will be very difficult for companies to dedicate themselves to both differentiation and cost leadership, Porter says, because differentiation is often expensive. Each generic strategy is a fundamentally different approach to creating and maintaining superior performance and requires a different operating model.
A low-cost position also means that a company can reduce competitive prices by, for example, penetrating pricing and continuing to offer comparable quality with reasonable profits. With the ultimate goal of meeting customer needs with your product or service, use business-level strategies to find your competitive advantage. . In addition, Chan Kim and Mauborgne (200) abandon the “quality-price ratio” balance, which means that a company must choose between certain strategies.
Porter's generic strategies are the answer to one of the two central questions that underlie the decisions that companies make regarding competitive strategy. The first question is about the attractiveness of industries for long-term profitability and how to choose which industry to enter as a company. Treacy and Wiersema (199), for example, are based on Porter's idea and modified Porter's Generic Strategies to convert them into Value Disciplines. This type of focused differentiation helps a company define a niche in which it is profitable and does not compete solely on price.
According to Porter, any of these strategies is capable of generating a competitive advantage for a company in a given market. These two strategies only differ from differentiation and cost leadership in terms of their competitive reach. A company can use creative advertising, distinctive product features, higher quality, better performance, exceptional service or new technology to make a product perceived as unique. He states that there is a viable middle ground between strategies and uses the example of Caterpillar Inc., which differentiated itself by producing the highest quality earthmoving equipment in the world while paying attention to cost-effectiveness.
However, if the company is capable and executes a strategy sufficiently, it can achieve a competitive advantage in the market. .