Analyzing generic strategies enhances the understanding of how firms compete at the business level.

Analyzing generic strategies enhances the understanding of how firms compete at the business level.

Limitations of Generic Strategies

Examining business-level strategy in terms of generic strategies has limitations. Firms that follow a particular generic strategy tend to share certain features. For example, one way that cost leaders generally keep costs low is by not spending much on advertising. Not every cost leader, however, follows this path. While cost leaders such as Waffle House spend very little on advertising, Walmart spends considerable money on print and television advertising despite following a cost leadership strategy. Thus a firm may not match every characteristic that its generic strategy entails. Indeed, depending on the nature of a firm’s industry, tweaking the recipe of a generic strategy may be essential to cooking up success.

Key Takeaway

• Business-level strategies examine how firms compete in a given industry. Firms derive such strategies by executives making decisions about whether their source of competitive advantage is based on price or differentiation and whether their scope of operations targets a broad or narrow market.

5.2 Understanding Business-Level Strategy through “Generic Strategies” 146

Exercises

1. What are examples of each generic business-level strategy in the apparel industry?

2. What are the limitations of examining firms in terms of generic strategies?

3. Create a new framework to examine generic strategies using different dimensions than the two offered by Porter’s framework. What does your approach offer that Porter’s does not?

References

Porter, M. E. 1980. Competitive strategy: Techniques for analyzing industries and competitors. New York, NY: Free Press; Williamson, P. J., &amp.

Zeng, M. 2009. Value-for-money strategies for recessionary times. Harvard Business Review, 87(3), 66–74.

147 Mastering Strategic Management

5.3 Cost Leadership

Learning Objectives

1. Describe the nature of cost leadership.

2. Understand how economies of scale help contribute to a cost leadership strategy.

3. Know the advantages and disadvantages of a cost leadership strategy.

Table 5.2 Cost Leadership Firms that compete based on price and target a broad target market are following a cost leadership strategy.

Several examples of firms pursuing a cost leadership strategy are illustrated below.

Despite its name, Dunkin’ Donuts makes more money selling inexpensive coffee than it does from selling donuts. The coffee is often advertised as costing under a dollar, making Dunkin’ Donuts a low-priced alternative to Starbucks.

Payless ShoeSource is a discount retailer tha sells inexpensive shoes for men, women, and children. Their advertising slogans such as “Why pay more when you can Payless?” and “You could pay more, buy why?” consistently preach a low-price message.

Supercuts’ website makes clear their longstanding cost leadership strategy by noting, “A Supercut is a haircut that has kept people looking their best, while keeping money in their pockets, since 1975.”

Little Debbie snack cakes began when O.D. McKee started selling treats for five cents each in the early 1930s. Little Debbie cakes cost a lot more than five cents today, but they remain cheaper than similar offerings from Entenmann’s, Tastykake, and other snack cake rivals.

 

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