In order to create the competitive advantage necessary to achieve growth, porter suggests that firms should adopt one of the following three generic competitive strategies. Cost leadership strategy, focus strategy and differentiation strategy.
First, we talk about Cost Leadership Strategy * This strategy requires the firm establish a lower cost base than its local or international competitors. The firm can win market share by appealing to cost-conscious or price-sensitive customers. * There are three main ways to achieve this.
The first is achieving a high asset turnover. In service industries, this may mean for example a restaurant that turns tables around very quickly, or an airline that turns around flights very fast.
The second dimension is achieving low direct and indirect operating costs. This requires a continuous search for cost reductions in all aspects of the business. This will include outsourcing, controlling production costs, increasing asset capacity utilization, and minimizing other costs including distribution and advertising.
The third dimension is control over the supply chain to ensure low costs. This could be achieved by bulk buying to enjoy quantity discounts, squeezing suppliers on price, instituting competitive bidding for contracts, working with vendors to keep inventories low using methods. * Some commentators have made a distinction between cost leadership, that is, low cost strategies, and best cost strategies. They claim that a low cost strategy is rarely able to provide a sustainable competitive advantage. In most cases firms end up in price wars. Instead, they claim a best-cost strategy is preferred. This involves providing the best value for a relatively low price. * Because of their limited financial resources, they spend little on marketing activity and are vulnerable to either local firms or larger