Porter Argues That If a Firm Is to Attain Competitive Advantage

door guard argues that if a besotted is to attain agonistical public- assist corporation it must choose between the types of agonistic advantage it seeks, discuss use an industrial example? An industry net be defined as a group of companies offering crossroads that atomic number 18 closely substituting for each(prenominal) other in secern to satisfy guests. Competitive advantage empennage be defined as when a soaked sustains winnings which exceeds the connections average it automatically possesses competitive advantage over rivals. The concern dodging for most companies is to achieve a sustainable competitive advantage.This show aims to discuss why theaters must choose between types of competitive advantages using an industrial example. Michael Porter indentified that there are 2 basic types of competitive advantage, hail advantage and differentiation advantage. A competitive advantage exists when the upstanding is able to deliver the same benefits as competi tors but at a dismay price (Cost Advantage) or deliver benefits that exceed those of the competitors ( distinction). Thus, the firm creates gift value and products for customers whilst it gains overlord profit for the company.A resource based view emphasizes that a firm utilizes its resources and capabilities to create a competitive advantage that allows in creating high-performance value thus the firm must have resources and capabilities that are superior to those of the competitors. Resources are the firm specific assets used for creating both a constitute advantage or differentiation advantage, examples of resources are brand equity, reputation, installed customer base. While, capabilities associate to the firms ability of utilizing its resources, an example is the ability to bring aside a product or market before competitors.Thus, the resources and capabilities together result in distinctive get byncies which allow innovation, efficiency, creativity, quality and custo mer responsiveness which can be leveraged to create cost advantage or differentiation. Essentially, a firms relative short letter within its industry determines whether its profitability stands in a higher place or below industry average. Porter states that there are 2 types of competitive advantage a firm can possess as mentioned above however , there are 3 generic strategies for achieving competitive advantage in an industry cost advantage/leaders, differentiation and focalise.The depression type of competitive advantage is cost advantage / leading, it is when a firm becomes low cost producer in its industry. It minimizes the cost to the organization of delivering products and function. agree to Porter (1985) , there are two ways of achieving cost leadership either by change magnitude profit by reducing cost while charging the average price. Or by increasing market administer through charging lower berth prices while still achieving a reasonable profit on each sale becaus e your cost has been reduced.Furthermore, companies that are successful in achieving cost leadership usually have an access to the capital mandatory to invest in technology which helps reduce the cost. Also, they have very cost-efficient logistics and a low cost base such as labor, materials and facilities (Ibid, 1985). Essentially, if a firm can achieve and maintain cost leadership, it can perplex above average performance whilst the prices are still affordable in that industry. Hence, the cost leader does non try to be the industry innovator, it seeks to set out its products to appeal to the average customer taste.The aimed goal is to increase efficiency and lower its costs in relation to competitors. Some of the advantages of the cost leadership strategies are it is protected by industry competitors by cost advantage, purchases in jumbo quantities which increases bargaining power over supplier. Also, it has the ability to reduce price to postulate with substitute products, little affected by a fall in the price of inputs as it has powerful buyers. Some of the disadvantages are competitors may lower their cost structure, they may imitate the cost leaders method and cost reductions may affect demand.Furthermore, Porter argues that a low cost position acts to a firms benefit against rivalry, and it can act as a defense against powerful suppliers by providing more flexibility to get off with input increases. The car industry has always been one of the most competitive industries because of the huge revenues and profits available at stake. The competition has increased drastically in this industry as there has been a constant conduct to continuously develop untested kinds of car models to satisfy the needs of item groups of buyers.For example, Toyota has used its low cost structure to produce efficient and increasing ranges of vehicles tailored to different segments of the car industry. Its ability to move from the design to toil stage in two to thr ee years gives it the benefit of speech out new models faster than its competitors and capitalize on the ontogeny of new market segments or niches. Also, Toyota has been a leader in positioning its range of vehicles to take advantage of emerging market segments.For example , in the sports utility segment, it offers six models of sports utility vehicles each offering a combination of price, size, performance, styling and highlife that appeals to different sets of buyers. The second type of competitive advantage addressed by Porter is differentiation. As opposed to cost leadership approach, differentiation does non seek to lower prices in order to gain competitive advantage. Porter states that by using differentiation approach, a firm seeks to be singular in its industry alongside some attributes that are greatly precious by buyers.An industry selects few attributes that most buyers in an industry discriminate as vital and aims to remarkablely present and position itself to meet those needs. Differentiation approach is usually rewarded for its uniqueness with a premium price and to accommodate a successful generic strategy, organizations need to have good research, development and innovation. They need to have the ability to deliver high quality products and services and have an effective sales and marketing team in order to understand the market demands.Usually, companies that follow differentiation strategies create a product that is distinct for its competitors in an important way. Therefore, a differentiator strives to differentiate itself in as some(prenominal) dimensions as it can, it seeks to segment the market in many niches , and it thinkes on the organizational functions that provide a source of distinct advantages. agree to Porter, there are several sources of product differentiation that a firm must look at.Firstly, firms should focus on the product and highlight which features they fate to change, how complex they want the product to be, when they would like to introduce the product and the location. Secondly, firms should focus on their relationship with the customer, product customization, and consumer marketing and product reputation. Lastly, firms should focus on linkages within and between firms, linkages among functions within a firm, linkages with other firms, product miscellanea , distribution channel and service and support. Some of the advantages of differentiation strategy are customers develop brand the true.Also, differentiators could pass price increases onto customers, powerful buyers are not a problem because the product is distinct and differentiation and brand loyalty are barriers to entry. Some of the disadvantages of differentiation strategies are difficulties maintaining long term specialisation in consumers eyes, competitors can quickly imitate and difficulty maintaining premium price. For example, American Express carefully differentiated its product using known people to advertise the vir tues, exclusivity, and distinctness of possessing those cards.Amex cards were premium products that allowed the company to criminate both customers and merchants more because it offered quality service and conferred status on the user. By 2002, it offered 9 kinds of charge cards and 14 kinds of credit cards seek to expand the market reach. The third strategy Porter mentions is the focus strategy which concentrates on particular niche markets and tries to understand the dynamics of that particular market. Alongside, the unique needs of customers in those markets, it seeks to develop low cost and well undertake products for the market.Usually, it results in strong brand loyalty amongst customers which makes their market segment less attractive to competitors. Focus strategy usually combines with either cost leadership or differentiation as it is not enough on its own. In addition, the focuser strives to serve the need of a luffed niche market segment where it has either a low cost or differentiated competitive advantage. In cost focus, a firm seeks cost advantage as its target segment. In differentiation focus, firms choose differentiation as their main approach.Some of the advantages of focus strategy is the focuser is protected from rivals by providing a product or service that they cannot offer, the focuser has power over buyers because they cannot get the same service from anywhere else. Also, the curse of new entrants is limited by customer loyalty to the brand and customer loyalty lessens the threat from substitutes. Some of the disadvantages of focus strategies are differentiators will compete for a focusers niche and the focusers niche may mellow out because of technological change or changes in customers tastes.