KENYATTA UNIVERSITY
NAME: Ruth Nyaserema Monyoncho
REG.NUMBER: D53/OL/NKU/26345/2019
SCHOOL: School of Business
DEGREE: MBA
UNIT TITLE: Management Information Systems
UNIT CODE: BMS 841
YEAR OF STUDY: 1ST Year 2nd Sem.
DATE OF SUBMISSION: 27/03/2020
Discuss competitive strategies that can be applied by organizational
management (20 marks)
It is difficult for a business to survive without competitive strategies in place. This is particularly
the case if the company is contending in markets overflowing with alternatives for consumers.
This therefore means that the organizational management should understand the definition of
competitive strategies and apply the most appropriate competitive strategies in their organization.
Definition of a competitive strategy.
A competitive strategy may be defined as a long-term plan of action that an organization devises
towards achieving a competitive advantage over its competitors after examining the strengths
and weaknesses of its competitors and comparing them to its own. The strategy can incorporate
actions to withstand the market’s competitive pressures, attract customers and assist in
cementing the organization’s market position. This is aimed at creating defensive position in an
industry and generating a superior ROI (Return on Investment). Such type of strategies play a
very important role when the industry is very competitive and consumers are provided with
almost similar products.
According to Michael Porter, who is considered a top authority on competitive strategy and the economic
development and competitiveness of regions, states, and nations; before devising a competitive strategy,
one needs to evaluate all strengths, weaknesses, opportunities, threats in the industry and then go ahead
which would give one a competitive advantage. Understanding competition, studying customer needs,
evaluating their strengths & weakness etc are all an important aspect of marketing strategy.
Organizational management can study & evaluate on the basis of their market share, SWOT analysis etc,
which would eventually help them decide on the competitive strategy to apply so as to drive business &
sales revenue.
Competitive strategies that can be applied by organizational management are:
1.
Cost Leadership.
2.
Differentiation leadership.
3.
Cost focus.
4.
Differentiation focus.
An organization can either apply a focus or a leadership competitive strategy to achieve its
objectives. In a focus strategy, the organization aims to have an advantage over a couple of the
other businesses, e.g. one or two. In a leadership, however, the business aims to have a complete
advantage over all other businesses – generally through some form of differentiation.
Differentiation is what distinctly makes a business stand out, i.e a different aspect intended to
make the business be distinctive from others.
1. Cost Leadership
In a cost leadership approach, the organization management will generally mass produce to
drive prices really low, gaining an advantage in pricing. Here, the objective of the organization is to
become the lowest cost producer in the industry and is achieved by producing in large scale which
enables the organization to attain economies of scale. High capacity utilization, good bargaining power,
high technology implementation are some of factors necessary to achieve cost leadership. For example,
Micromax smart phones are giving good quality products at an affordable price which contain all
the features which a premium phone like Apple or Samsung offers.
The intention behind a cost leadership strategy is to be a lower cost producer in comparison to
the organization’s competitors. There are two traditional options for businesses to increase
profits – decreasing costs or increasing sales. In a cost leadership strategy, the concentration is
on acquiring quality raw materials at the lowest price. Business owners additionally need to use
the best labor to convert these raw materials into valuable goods for the consumer. Thus, this
strategy is especially beneficial if the market is one where price is an important factor.
2. Differentiation leadership.
In a differentiation leadership, generally the organizational management will create a distinct
and attractive differentiation aspect, then use it to drive prices higher. Under this strategy, the
organization maintains unique features of its products in the market thus creating a differentiating factor.
With this differentiation leadership, organization management target to achieve market leadership and
organizations charge a premium price for the products (due to high value added features). Superior brand
and quality, major distribution channels, consistent promotional support etc. are the attributes of such
products. For example, BMW offers cars which are different from other car brands. BMW cars are
more technologically advanced, have better features and have got personalized services.
The differentiation strategy involves positioning the organization’s products in a way that
differentiates them from others in the marketplace. The organizations products need to have a
special feature that is different from others available. A good example of an organization that
uses a strategy of product differentiation is Apple. Apple differentiates itself by having userfriendly computers and electronics. This gives them an advantage over similar products in the
marketplace.
It also contributes to profitability because this differentiating factor allows them to ask higher
prices than competitors with similar products. This strategy is popular because it provides a
unique selling advantage and it creates higher price points.
3. Cost focus.
In a cost focus, the organization management will focus on a specific thing to lower costs and
gain customer popularity. Under this strategy, the organization concentrates on specific market
segments and keeps its products low priced in those segments. Such strategy helps organization
to satisfy sufficient consumers and gain popularity. For example, Sonata watches are focused
towards giving wrist watches at a low cost as compared to competitors like Rolex, Titan, Omega
etc.
In cost focus, the aim of the organization management would be to ensure that the organization
has an advantage over its competitors with respect to cost in its target segment. For example, an
electronics store may have the aim of being the cheapest electronic store in a particular town but
not essentially the cheapest overall.
Using a cost-based strategy involves attempting to keep your production costs as low as possible.
Ways of reducing costs can include bulk buying power (buying wholesale lots at a discount) and
economies of scale (production becomes cheaper per unit with a greater overall production
quantity). For instance, in recent years, manufacturers have moved production into low-wage
countries in order to further reduce production costs. If an organization can keep its production
costs low enough, it will be able to offer its products at a price that is below its competitors'
production costs. This makes it impossible for competitors to compete with it.
4. Differentiation focus
Lastly, in a differentiation focus, the organization management targets customers who refrain
from buying products from competitors due to a small missing feature. The organization will
adopt this feature as a niche and therefore win over those customers.
Under this strategy, the organization aims to differentiate itself from one or two competitors,
again in specific segments only. This type of differentiation is made to meet demands of border
customers who refrain from purchasing competitors’ products only due to missing of small
features. It is a clear niche marketing strategy. For example, Titan watches concentrates on
premium segment which includes jewels in its watches.
This strategy involves focusing on a small customer base that is willing to pay premium prices.
An example of this is niche marketing, where a specialty product is developed for a small niche
market. Production costs will typically be higher for a smaller, niche market, but selling prices
will also be higher. A differentiation focus strategy takes advantage of the special needs of
consumers in specific segments and seeks differentiation by way of marketing its product as
unique in certain respects. For example, an organization may bring out a product specifically
designed for left-handers.
Another example of the differentiation focus strategy is customization, where customers can buy
a product that is customized to their particular wants and needs. This is common in the
automotive industry, where you can buy a basic model car and have it customized with features
that you choose.
According to Michael Treacy and Fred Wiersma who are the authors of The Discipline of Market
Leaders, a book published in 1995, an organizational management can apply the following
competitive strategies.

Operational excellence

Product leadership

Customer intimacy
They say that the objective of operational excellence strategy is to achieve cost leadership. The
strategy focuses on automating work procedures and manufacturing processes so as to streamline
operations and bring down costs.
The intention behind product leadership strategy is to develop a culture that continuously
introduces superior goods to the market. Product leaders are aware that brilliance in creativity,
teamwork, and problem-solving is crucial to their success.
They also say that customer intimacy is about precision in segmenting and targeting markets
and customizing offerings to perfectly match the demands of those markets. Companies
practicing successful customer intimacy blend comprehensive customer knowledge with
operational flexibility to quickly respond to practically any need, from product personalization to
meeting special customer requests. So essentially, administrative focus and manufacturing
should all be aligned around the requirements of the individual customer.
In conclusion, all these strategies are in agreement with Michael Porter’s competitive strategies
that have been discussed above. Therefore, an organization’s management should apply each of
these competitive strategies to achieve their ultimate objective.
Reference
1. https://www.mbaskool.com/business-concepts/marketing-and-strategy-terms/7394-competitivestrategy.html
2. https://bizfluent.com/list-6756285-product-strategy-options.html
3. Michael Treacy and Fred Wiersma are the authors of The Discipline of Market Leaders, a book
published in 1995