While there are numerous frameworks for corporate strategy planning the following basic descriptions are mentioned. Corporate strategy defines the businesses in which a company will compete, preferably in a way that focuses to convert distinctive competence into competitive advantage. Thus, a clear definition of what constitutes the core business serves to focus a firm’s unique position in the competitive marketplace. Firms must develop a process that results in a strategy to gain differential advantage in a significant segment of the market. The elements of a strategic management process are described in this article.
Strategic Alternatives: Michael Porter has articulated three basic strategies a form may follow the develop industry position and generate superior profitability: cost leadership, differentiation and focus. Each broad strategy places different requirements upon marketing performance and necessitates differences in channel structure. Each generic strategy is discussed in terms of channel requirements.
Cost leadership: A cost leadership strategy involves producing and distributing products at the very lowest per-unit cost possible for price sensitive customer segments. The primary competitive advantage achieved by cost leadership is a per unit cost structure that yields high market share and above average profitability. The strategy is to insulate the firm from competition by having it achieve higher profits margins that current or potential competitors.
Cost leadership strategy is frequently associated with low cost production, technological improvements in processes, and continued capital investment. However, when distribution costs in an industry are high, creative channel strategies can also lead to a low cost position within an industry. In the computer industry, for example mail order forms have thrived. These firms appeal to customers who have little need for the extra services offered by computer retailers or who chose to fulfill their need for these services in an alternative manner. The low cost structure of non store retailing offers significant cost advantage over full service retailers.
Differentiation: A differentiation strategy emphasizes product or service uniqueness in manner that is meaningful to non price sensitive customers. The uniqueness can be achieved through design, performance, quality or meaningfully differentiated distribution networks and service offerings. A firm attempts to protect itself from competition by developing high brand or customer loyalty through differentiation.
The classic example of differentiation achieved trough distribution occurred when Hanes introduced the L’eggs brand of hosiery. At a time when competitors utilized conventional channels such as department stores and women’s clothing stores. L’eggs were being positioned in supermarkets and drugstore thanks to a new, unique pack age sign that facilitated distribution. Within a few years, the brand commanded leading market share in the industry.
Focus: A focus strategy involves concentration on a particular market segment in an industry. Whereas cost leadership and differentiation are typically aimed at an entire industry, focused strategies are designed to appeal to unique market segments. The focused competitor attempts to insulate itself from competition by serving a narrow market more efficiently or effectively than firms are competing for the bulk of the market.
A firm employing a focus strategy may also seek advantage through differentiation or cost leadership or a combination of the two strategies. The key to the focus strategy is presenting the product the product service offering in a manner that is very appealing to a unique segment of buyers. Snap-on Tools successfully on a narrow market of professional mechanics. Snap on offers a line of very high quality tools that are distributed directly to mechanics by a nationwide network of delivery vans. Although snap-on products are higher priced than accepting tools, the company has developed a successful position by concentrating on the needs of its market for quality and rapid service.