STRATEGIC POSITIONING
Chapter objectives
1. Explain porter’s generic models.
2. Examine how model achieves strategic
positioning of an organization.
3. Discuss performance measurement in
private sector.
4. Discuss how a balanced scorecard measures
performance.
ACCOUNTING IN RELATION TO STRATEGIC POSITIONING
ACCOUNTING IN RELATION TO STRATEGIC
POSITIONING
Porter’s Generic Models
Porter suggests that competitive advantage arises from
the selection of a generic strategy which best fits the
organisation‘s environment and then organizing value
adding activities to support the chosen strategy.
Cost leadership --basically being the lowest cost
producer in a particular industry.
Differentiation--- this is creation of a customer
perception that the product is superior to that of
competitors so that a premium can be charged
(that is it is different).
Focus ---this involves utilizing either of the above
in a narrow profile of market segments or
“niching”
Porter argues that organisations need to address
two key questions namely:
*should the strategy be one of differentiation or
cost leadership?
*should scope be wide or narrow?
He argues that organisations that can run
trying to satisfy all ,end up being ‘stuck in the
middle”
The implication is that Porter advocates that
organisations need to make a basic competitive
decision early on in the strategic determination
process.
COST LEADERSHIP STRATEGY
This is based on the view that the business be the lowest
cost producer.
Potential Benefits
Business can earn higher profits by charging the same
price or even moving to undercut where demand is
elastic.
Enables Company to build defense against price wars.
Allows price penetration entry strategy into new markets.
It enhances barrier to entry
Allows development of new market
Value Chain analysis
Is central to identifying where cost saving can be
made at various stages in the value chain.
Attainment depends upon arranging value chain
activities so as to:
Reduce cost by copying rather than originating
designs, using cheaper material and other cheaper
resources, producing products with “no frills”,
reducing labour costs and increasing labour
productivity.
Achieving economics of scale by high volume sales
allowing fixed costs to be spread over a wider
production base.
Use high-volume purchasing to obtain
discounts for bulk purchases.
Locating in areas where cost advantage exists
or government aid is possible (growth points,
mining)
Obtaining learning and experience curve
benefits
DIFFERENTIATION STRATEGY
It is based upon the idea of pursuing customers that
a product is superior to that offered by competitors
Differentiation can be based on product features or
creating/altering consumer perception.
It can also be based upon process as well as
product. It is usually used to justify a higher price.
BENEFITS.
Products command a premium price so higher
margins
Demand becomes less price elastic and so avoids costly
competitor price wars.
Life cycle extends as branding becomes possible hence
strengthening the barriers to entry.
Value chain analysis can identify the points at which these can
be achieved by :
Creating products which are superior to competitors by virtue
of design, technology, performance etc. marketing spend
becomes important.
Offering superior after sales service by superior distribution,
perhaps in prime location.
Creating brand strength.
Augmenting the product i.e. adding to it
Packaging the product.
Ensuring an innovative culture exists within the company.
FOCUS STRATEGY
This aimed at a segment of the market rather than the whole market.
A particular group of consumers are identified with similar needs,
possibly based upon age, sex, lifestyle, and income or geographical
and then the company will either differentiate or cost focus in that
area.
Smaller segments and so smaller investments in marketing
operations:
Allow specialization.
Less competition
Entry is cheaper and easier
Requires :
Reliable segment identification
Consumer/customer needs to be reliably
identified- research becomes even more crucial.
Segment to be sufficiently large to enable a return
to be earned in the long run.
Competition analysis- given to small market, the
competition, if any, needs to be fully understood.
Direct focus of product to consumer needs
Niching can be done via specialization by:
Location
Type of end user, quality, price, size of
customs’, product feature.
If done properly can avoid confrontation and
competition yet still be profitable.
The attractiveness of the market niche is
influenced by the following
The niche must be large enough in terms of
potential buyers.
The niche must have growth potential and
predictability.
The niche must be of negligible interest to
major competitors.
The firm must have strategic capability to
enable effective service of the niche.
