Page 184 - (DK) The Business Book

182 PORTER’S GENERIC STRATEGIES

good research and development, an Whichever focus a company
innovative culture, and the ability to chooses, it must do so on the basis
deliver consistently high-quality that it can successfully compete
products or services. This needs to on the strength of a particular
be supported by effective marketing, ability or competence that will
so that the differentiation is help it in its chosen market niche. Every company competing
positioned and communicated to If the company aims for cost in an industry has a
customers. Brand image is integral, leadership in a niche market, for competitive strategy,
and is often strengthened by the example, it has to be based on whether explicit or implicit.
nature of the differentiation. distinctive relationships that have Michael Porter
been developed with specialized
Focus strategy suppliers. If the company goes for
Companies pursuing a focus differentiation in a niche market,
strategy choose a particular niche on the other hand, it has to be on
market. They have to understand the the strength of a deep understanding
dynamics of that market and the of customer needs. However, a
unique needs of customers within it, company that chooses to focus on offers only a few routes. Airlines
and then develop either low-cost or a small market segment because tend to focus on a particular group
well-specified products or services. it is too small to serve the larger of travelers as an effective way of
They also tend to serve their market risks being sidelined by achieving competitive advantage in
customers well, and so build strong bigger companies with distinctive a crowded market, for example by
brand loyalty. This makes their abilities, which enable them to offering discounted travel or a more
particular market segment less better position their offerings. luxurious traveling experience.
attractive to potential new entrants. Low-cost, Ireland-based airline
Ferrari is an example of a Airline strategies Ryanair has championed the idea
company in a niche market that has The airline industry illustrates of cost leadership, and describes
chosen to differentiate itself. The Porter’s idea. Consumers have a itself as “Europe’s only ultralow
company targets the limited high- choice when they book an airline cost carrier.” The notion of a low-
performance sports-car segment, ticket. They can choose between a cost airline was pioneered by
and its cars are differentiated no-frills airline or a more expensive Texas-based Southwest Airlines,
through high-spec design, high- operator offering better service, and Ryanair followed with similar
performance, and the company’s quality, and comfort. There may also principles: use a single plane type
Grand Prix association. be a third option: a small airline that to keep costs down, constantly
review overheads, turn aircraft
around as quickly as possible, and
Porter’s generic do not offer a loyalty plan.
Large markets
business strategies
Ryanair bought 100 Boeing 737-
fall within two basic
800 passenger jets at a significant
categories: lowest
Differentiation
Cost leadership
COMPETITIVE SCOPE Differentiation cost or marked discount in 2002. Starting with
newer, more fuel-efficient planes
differentiation.
than many rivals, Ryanair could
Companies can
choose between
afford to fill its planes with
these approaches
Niche markets
passengers buying low-price tickets.
whether they are
However, Ryanair could make a
small or large, and
profit because passengers would also
whether they are
Cost focus
focus
operating in broad
on-board food and hotel reservations.
target markets, or
niche ones. spend money on areas such as
Ryanair is able to increase profits
Lowest cost Markedly different year after year since it continually
looks for ways to keep costs down
SOURCE OF COMPETITIVE ADVANTAGE and charge customers for extras.