Michael Eugene Porter is an American academic known for his theories on economics, business strategy, and social causes (1). One of the theories he proposed is the “Competitive Strategy”(2). Competitive strategy includes four major strategy- Cost Leadership, Differentiation and Focus (Focus Cost and Focus Differentiation) Strategy. These strategies are widely used by successful big corporations and new small business enterprise alike.
Cost Leadership Strategy- McDonaldsThis strategy also involves the firm winning market share by appealing to cost-conscious or price-sensitive customers.(3) McDonald’s has successfully implemented the cost-leadership strategy and has proved to be one of the most successful fast food chains in the world. Their cost leadership is attained in two main ways:a- Achieving a high asset utilization- Economies of ScaleMcDonalds has set “the way” and means to do things. Since their focus is on food services industry, they have standardized the time taken to complete an order, huge quantity production and a standardized -quality production process. This forces the fixed costs of the enterprise to spread, hence their would be a low cost of production.
b- Low indirect or direct expenseMcDonalds has kept direct expense low by paying low salaries, choosing premises with low rent and by offering high volumes of standardized products. Thus the total cost of production would be considerably low.They have also maintained the quality of their products- Big Mac’s taste is almost the same in every country that McDonald is present in.Differentiation Strategy- StarbucksDifferentiation means making an organization or brand stand out by providing unique features, benefits, services or other elements of one’s solution.(4)Starbucks is one of the most successful and known brand in the world.
They skillfully use the differentiation strategy(5) to capture large market share- a- QualityThe most important factor which led to their success is quality. They use only the best quality Arabica coffee bean to produce their coffee. They also have different methods to make the beans more flavored (like grounding the coffee bean and roasting them etc).
They also have trained, skillful people working as their baristas.b- Product innovationStarbucks has the most creative seasonal product collection. For example, Pumpkin Spice Latte for Halloween season and so on.
They create new products which keeps the customers curious for more products. They capitalize on ever changing consumer preferences, the study the market to know exactly what their customers want from them.