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Example research essay topic: Cost Leadership Strategy Generic Strategies - 1,820 words

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... his have opted to stick with their much recognized DMC tournament to promote their product and Vestax have followed suit with their ITF championships. From the 4 Ps we can see that the main problems hindering the competitive edge of Technics is innovation of new features and price. Competitors have only succeed by offering a product which either exceeds the capabilities of a Technics turntable or is offered at a cheaper price. Application of Porters Generic Strategies The following table illustrates Porters Generic Strategies Porter's Generic Strategies Target Scope Advantage Low Cost Product Uniqueness Broad (Industry Wide) Cost Leadership Strategy Differentiation Strategy Narrow (Market Segment) Focus Strategy (low cost) Focus Strategy (differentiation) By looking at the different strategies as identified by Porter (1980) we can assess the benefits and risks involved in Technics deciding to implement one of them. Cost Leadership Strategy This generic strategy calls for being the low cost producer in an industry for a given level of quality.

It suggests that Technics could either sell its products at average industry prices to earn a profit higher than rivals could, or below the average industry prices to gain market. In the event of a price war, Technics would be able to maintain some profitability while the competition suffers losses. Even without a price was, as the industry naturally matures and prices decline, the firms that can produce more cheaply will remain profitable for a longer period of time. The cost leadership usually targets a broad market. Some of the ways in which Technics could acquire cost advantages are by improving process efficiencies, gaining unique access to a large source of lower cost materials, making optimal outsourcing and vertical integration decisions, or avoiding some costs altogether. If competing firms are unable to lower their cost bases by similar amount, the firm may be able to sustain a competitive advantage based on cost leadership.

Firms that succeed in cost leadership often have the following internal strengths: Access to the capital required to make a significant investment in production assets; this investment represents a barrier to entry that many firms may not overcome Skill in designing products for efficient manufacturing, for example, having a small component count to shorten assembly process High level of expertise in manufacturing process engineering Efficient distribution channels Porter (1980) explains that the adoption of each generic strategy adds its own risk, including the low cost strategy. For example, other firms may be able to lower their costs as well. As technology improves, the competition may be able to leapfrog the production capabilities, thus eliminating the competitive edge. Additionally, several firms following a focus strategy and targeting various narrow markets may be able to achieve an even lower cost within their segments and as a group gain significant market share. Differentiation Strategy Adopting Porters differentiation strategy would call for the further development of the product or service (turntable or the way it is sold) that offers some unique attributes that are valued by customers and that customers perceive to be better than or different from the products of the competition. The value added by the uniqueness of the product may allow the firm to charge a premium price for it.

This higher price will aim to cover the extra costs incurred in the offering of the new product. Because of the products unique attributes, if suppliers increase their prices the firm may be able to pass along the costs to its customers who cannot find a substitute product or equally attractive product (turntable) easily. Firms that succeed in differentiation strategy often have the following internal strengths: Access to leading scientific research Highly skilled and creative product development (this is shown to be true in other areas of Technic and Panasonic's business e. g. Home entertainment systems where they are often pioneers of new technology) Strong sales team with the ability to successfully communicate the perceived strengths of the product Corporate reputation for quality and innovation The risks associated with a differentiation strategy include imitation by competitors and changes in customer tastes. Additionally, various firms pursuing focus strategies may be able to achieve greater differentiation in their market segments.

The Focus Strategy The focus strategy concentrates on a narrow segment and within that segment attempts to achieve either a cost advantage or differentiation. The premise is that the needs of the group can be better serviced by focusing entirely on it. A firm using a focus strategy often enjoys a high degree of customer loyalty, and this entrenched loyalty discourages other firms from competing directly. Because of the narrow market focus, firms pursuing a focus strategy have lower volumes and therefore less bargaining power with their suppliers.

However, firms pursuing a differentiation- focused strategy may be able to pass higher costs on to customers since close substitute products do not exist. Firms that succeed in a focus strategy are able to tailor a broad range of product development strengths to a relatively narrow market segment that they know very well. Some risks of focus strategy include imitation and changes in the target segments. Furthermore, it may be fairly easy for a broad market cost leader to adapt its product in order to compete directly. Finally, other focuser's may be able to carve out sub segments that they can serve better. These generic strategies are not necessarily compatible with one another.

If a firm attempts to achieve an advantage on all fronts, in this attempt it may achieve no advantage at all. For example, if a firm differentiates itself by supplying very high quality products, it risks undermining that quality if it sees to become a cost leader. Even if the quality did not suffer, the firm would risk projecting a confusing image. For this reason, Michael Porter (1980) argued that to be successful over the long term, a firm must select only one of these 3 generic strategies. Otherwise, with more than one single generic strategy the firm will be stuck in the middle and will not achieve a competitive advantage. Porter argues that firms that are able to succeed at multiple strategies often do so by creating separate business units for each strategy.

By separating the strategies into different units having different polices and even different cultures, a corporations less likely to be stuck in the middle. However, my viewpoint suggests that a single generic strategy is not always best because within the same product customers often seek multi-dimensional satisfactions such as a combination of quality, style, convenience and price. There have been cases in which high quality producers faithfully followed a single strategy and then suffered greatly when another firm entered the market with a lower quality product that better met the overall needs of the customers. Generic Strategies and Industry Forces These generic strategies each have attributes that can serve to defend against competitive forces. The following table compares some characteristics of the generic strategies in the context of Porters five forces Industry Force Generic Strategies Cost Leadership Differentiation Focus Entry Barriers Ability to cut price in retaliation discourages potential entrants. Customer loyalty can discourage potential entrants.

Focusing develops core competencies that can act as an entry barrier. Buyer Power Ability to offer lower price to powerful buyers. Large buyers have less power to negotiate because of few close alternatives. Large buyers have less power to negotiate because of few alternatives. Supplier Power Better insulated from powerful suppliers. Better able to pass on supplier price increases to customers.

Suppliers have power because of low volumes, but a differentiation-focused firm is better able to pass on supplier price increases. Threat of Substitutes Can use low price to defend against substitutes. Customer's become attached to differentiating attributes, reducing threat of substitutes. Specialized products & core competency protect against substitutes. Rivalry Better able to compete on price. Brand loyalty to keep customers from rivals.

Rivals cannot meet differentiation-focused customer needs. This table allows us to see how, by entering into any of the generic strategies, Technics may be presented with further obstacles to decrease their competitive edge. These must be considered before the final decision is made. Recommendations From analysing the main competitors under the 4 P framework we can see that the main competitor strengths lie in: Vestax; being able to offer innovative functions that Technics offer at a premium price.

Gemini and Numark; being able to offer a wide range of low priced turntables with innovative functions. However, from the market share graphs we can see that Vestax hold the greatest market share next to Technics. Therefore, we can assume that there is more demand for a premium priced turntable, which offers innovative functions and added benefits. It must be said however, that on the basis of Porters Generics, Technics have the ability to enter into any of the strategies identified due to the size of the company, substantial capital they have and also the already, well- established distribution channels.

I would suggest that Technics have two main options. Firstly, they could adopt a Cost leadership strategy in the premium end of the turntable market. Due to the fact that Technics are still seen as a premium product they should try and lower cost bases and slightly and reduce the retail price to around 275 - 300. This would raise the customer value of their turntable and hinder competitors marketing edge. Alternatively they could opt to change their product and add such functions as; a replaceable pitch control, and reverse play mode. By adding these two functions I feel that Technics would not have lost their stylish image that they strive to hang on to.

However, it would be more beneficial to Technics, if they opted for a differentiation strategy, that they should try to create a functions that has not been implemented into competitors designs already. However, the two functions named above are very important to DJs currently as they implement their use in their style of mixing. References: Texts Marketing Strategies for Competitive Advantage; Dennis Adcock 2001 Principles of Marketing; Kotler, Saunders, Armstrong, Wong 1996 Competitive Strategy; Michael Porter 1980 Websites web web web web web web web Journals DJ magazine (issues dated between December 2000 and March 2002) What Hi-Fi? (issues dated between December 2000 and March 2002) Appendix 1: Above the Technics SL 1200 turntable in silver Above the Technics SL 1210 turntable in black Appendix 2: Reverse Play Mode; this enables the turntable to play backwards as well as forwards giving a different sound to the record. Replacable display pitch; this enables the home user to replace the pitch control at ease and his/ her own convenience 78 rpm option; this gives the user the option of playing records at 78 revolution per minute instead of the just the usual 33 and 45 rpms Detachable Power leads; this allows the user to disconnect the power leads from the back of the turntable as most turntables come with fixed power leads.


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Research essay sample on Cost Leadership Strategy Generic Strategies

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