Introduction
Porter’s competitive strategies determine the generic strategy implemented by an organization to penetrate the target market. There are mainly three generic strategies under Porter’s theory. These are cost leadership, product differentiation and focus strategy.
Focus strategy can be further divided into focus differentiation and cost differentiation strategies. Cost leadership and product differentiation strategies help companies to target large market segment, whereas focus (differentiation/cost) strategy helps businesses to target small market segment (Daft, Murphy, & Willmott, 2010, p. 58-60). Porter’s competitive strategies can be applied to the automobile industry as there are a number of organizations that are following each of these strategies for excelling and growing their business. This paper will apply porter’s generic strategies to the automobile market and identify automobile companies that are using Porter’s strategies.
Automobile Industry
Cost Leadership Strategy
Cost leadership is a strategy where a business targets the lowest prices in the industry to capture a large market segment of buyers who are looking for affordable cars. This means that the margins are low, but the aims to increase the volume through targeting a broad segment of the market. In the automobile industry, Chevrolet has been following a cost leadership strategy by manufacturing small cars in markets such as India and Vietnam where demand for small cars is significantly high. Chevrolet drives down the cost of its cars by driving down the manufacturing cost and localizing the production. Chevrolet cars such as Spark, Beat, etc. are priced as cheapest cars in the market to capture a significant portion of the market that requires affordable cars (Friedman, 1987, p. 28).
Product Differentiation Strategy
This strategy requires developing a product or service that can provide unique attributes valued by customers. Therefore, the differentiation strategy helps companies to target the broad market with better quality cars. In the automobile industry, product differentiation strategy can be related to BMW. BMW cars are known for technological and design superiority and customers all over the world crave for their cars. BMW is also one of the most popular brands in the world with presence in more than 50 countries. Their product differentiation strategy is exemplified by the value added by the uniqueness of each car. Customers have a positive image of the company and their competitive strategy of differentiation has a major role in it (Hill & Jones, 2013, p. 161).
Focus Strategy
The strategy is used by companies to focus on a narrow customer segment and within selected segment a company aims to achieve either product differentiation or cost advantage. One such example of product differentiation used focus strategy can be of Ferrari, which is known as one of the best sports cars. Ferrari cars are one of the priciest cars in the market and it is due to their product differentiation strategy that provides customers with unique value and services. Their focus is on customers who can afford to pay $200,000-400,000 for a car, which makes its potential customer base significantly narrow (Goldman & Nieuwenhuizen, 2006, p. 78-79).
Conclusion
Porter’s generic strategies explain that companies can use three types of strategies for competing in the market. The three strategies are product differentiation, cost leadership and focus strategy. Product differentiation and cost leadership strategy helps to target the broad market and focus strategy helps to target narrow market. Chevrolet is an automobile manufacturer that is utilizing cost leadership strategy. BMW is an automobile manufacturer that is utilizing product differentiation strategy. Finally, Ferrari is an automobile manufacturer that is utilizing focused differentiation strategy.
References
Daft, R. L., Murphy, J., & Willmott, H. (2010). Organization theory and design. Andover, MA: South-Western Cengage Learning.
Friedman, S. D. (1987). Leadership succession. New Brunswick, NJ: Transaction Books.
Goldman, G., & Nieuwenhuizen, C. (2006). Strategy: Sustaining competitive advantage in a globalised context. Cape Town, South Africa: Juta.
Hill, C. W., & Jones, G. R. (2013). Strategic management: An integrated approach. Mason, OH: South-Western, Cengage Learning.
