Cost leadership requires resolutely establishing efficient production facilities, making every effort to reduce costs on the basis of experience, grasping the control of costs and management expenses, and minimizing the costs of research and development, service, promotion and advertising.
In order to achieve these goals, we should attach great importance to cost in management. Although quality and service can not be ignored, the whole strategy is to make the cost lower than the competitors. The company's low cost means that when other companies have lost profits in the competition, this company can still make profits.
Winning a favorable position at the lowest total cost usually requires a higher relative market share or other advantages, such as a good connection with raw material supply. It may also be required that the product design should be convenient for manufacturing and production, easy to maintain a wide range of related product lines to share fixed costs, and serve all major customer groups in order to establish a batch.
The leading position of total cost is very attractive. Once the company wins this position, the higher marginal profit can be reinvested in new equipment and modern facilities to maintain the leading position in cost, and this reinvestment is often a prerequisite for maintaining a low cost state.
2. Differentiation strategy
The differentiation strategy is to differentiate the products or services provided by the company and establish something unique in the whole industry. There are many ways to realize the differentiation strategy: designing famous brand image, technical uniqueness, performance characteristics, customer service, commercial network and other uniqueness. Ideally, the company has its differentiated characteristics in several aspects. For example, Caterpillar is famous not only for its commercial network and excellent spare parts supply service, but also for its high quality and durable product quality.
If the differentiation strategy is successfully implemented, it will become an active strategy for an industry to win high-level income, because it has established a defensive position to deal with five competitive forces, although its defensive form is different from cost leadership. Porter believes that the implementation of differentiation strategy sometimes conflicts with the activities of striving for greater market share. The implementation of differentiation strategy often requires enterprises to be psychologically prepared for the exclusiveness of this strategy. This strategy cannot be balanced with the growing market share. The activity of establishing company differentiation strategy is always accompanied by high cost. Sometimes, even if customers in the whole industry know the unique advantages of the company, not all customers will be willing or able to pay the high price required by the company.
3. Specialization strategy
Specialization strategy is to focus on a special customer base, a subdivided product line or a regional market. Just like differentiation strategy, specialization strategy can take many forms. Although both low-cost strategy and differentiation strategy are aimed at achieving their own goals in the whole industry, the whole specialization strategy is centered on serving a special goal well, and every functional policy it formulates and implements should consider this central idea. The premise of this strategy is that the specialization of the company's business can serve a narrower strategic target with higher efficiency and better effect, thus surpassing competitors competing in a wider range. Porter believes that the result of this is that the company has achieved differentiation by meeting the needs of special objects, or achieved low cost in serving this object, or both. Such a company can make its profit potential exceed the general level of the industry. These advantages protect the company from the threat of various competitive forces.
But specialization strategy often means limiting the overall market share that can be obtained. Specialization strategy inevitably includes the relationship between profit rate and sales volume at the expense of each other.
In Competitive Strategy, Porter also made a detailed analysis of the implementation requirements of the three general strategies and listed them one by one.
Porter believes that every company must be clear about these three strategies, because companies hovering between them are in an extremely bad strategic position. Such companies lack market share and capital investment, thus weakening the capital of "playing low-priced cards". The necessary condition for the differentiation of the whole industry is to give up efforts on low cost. However, if the specialization strategy is adopted to establish differentiation or low-cost advantages in a more limited scope, the same problem will occur. The company that lingers in it is almost doomed to be meager profit, so it must make fundamental strategic decisions and move closer to the three general strategies. Once the company is in a wandering state, it often takes time and continuous efforts to get rid of this unpleasant state; However, after adopting three strategies one after another, Porter thinks that this is doomed to fail because the conditions they require are inconsistent.
Porter's competitive strategy research has created a new field of enterprise management strategy and made important contributions to the development of global enterprises and the progress of management theory research.