Business Policy and Strategy

Business Policy and Strategy

If an organization intends to gain a sustainable advantage over the rest of the competition, Michael Porter suggested that one of the three generic strategies should be followed. These are cost leadership, differentiation and niche strategies.

Cost Leadership

This is when an organization aims at the lowest cost producer of a particular commodity of the same amount in a given industry. This includes reducing the labor costs, outsource if it is the cheaper way, increment of capital (working machinery to replace human labor), amongst others (Eldring, 2009). In most cases, when a business reduces its costs, it does not reduce its pricing. For this reason, there will be a shoot up in profits. For smaller organizations, they might sell their products at lower price than that prevailing in the market and still increase on the profits by attracting more customers. A business that has used this strategy is the EasyJet Airline, which is experiencing tremendous profits (Business School Netherlands, 2011).

Differentiation

In this strategy, an organization will strive at producing a unique product different from other products of the same nature (Eldring, 2009). Although this calls for creativeness, customers are really attracted by unique products since most products are of a similar nature. Many organizations get away with selling their products at high prices simply because they are unique. For example, the compact design in Brompton folding cycles differentiates the bikes from other bikes therefore putting the business at an advantage (BSN, 2011).

Niche strategies

In this strategy, the business focuses on majoring in specific segment and becomes known for providing goods and services in that particular product. This strategy is used hand in hand with differentiation and cost leadership in order to become top (Eldring, 2009). A company that has taken this strategy is Johnsons and Johnsons. It is known world wide for specializing in baby products.

Reference

Eldring, J. (2009). Porter ́s (1980) Generic Strategies, Performance and Risk: An Empirical Investigation with German Data. Hamburg: Druck Diplomica Verlag.

Business School Netherlands (2011). Michael Potters Generic Strategies. Learn Marketing. Net. Retrieved from  http://www.learnmarketing.net/generic.htm