Porter’s four generic sources of gaining competitive advantage
A company operating in a free market will have to deal with numerous challenges from its competitors to hold on to its market share if not increasing it. In a time of globalization almost all the countries across the globe barring few exceptions provide a free market to business organizations. The characteristics of a free market allows business organizations to make their own business strategies to deal with the challenges thrown at them by their competitors in the market. Business organizations in order to outdo each other try to come up with effective strategic plans. There have been numerous theories and concepts that have been provided by experts for achieving competitive advantage in the market place. Porter’s four sources of competitive advantage is one of the most popular theories amongst business organizations (Ibrahim, 2015). Over the years companies from all over the world have followed the concept provided in Porter’s four generic strategies to achieve competitive advantage over their competitors in the market place. The focus of our attention in this document is on the use of an effective strategy by Coca Cola Limited to gain competitive advantage in the market. Keeping in mind the practical situation under which the company works let us see which of the element / elements of Porter’s generic sources of competitive advantage will be useful for the company to achieve competitive advantage over its competitors in the market (Bonnet and Réquillart, 2013).
It can be said that prior to getting into specific discussion in respect of Coca Cola Company’s use of an effective strategy to gain competitive advantage in the market. It is important analyze the four generic sources mentioned in Porter’s theory of competitive advantage to properly understand which of these sources or combination sources would be effective for the Coca Cola company to achieve competitive advantage over its competitors (Dubé, 2005).
As can be seen in the picturesque depiction below, showing the four generic sources of gaining competitive advantage, Porter has talked about cost leadership, differentiation in products, cost focus and differentiation focus as sources of competitive advantage. Thus, an organization if able to concentrate properly on cost leadership, product differentiation, cost and differentiation focus then according to Porter the organization would be able to get competitive advantage over its competitors in the market (Nagle et al., 2016).
Figure 1: competitive Advantage
Source: Created by Author
According to Porter, the management of an organization should have a broad perspective when it comes to achieving cost leadership and product differentiation and should have narrower perspective for cost focus and differentiation focus.
Cost leadership in an industry is always an added advantage to an organization. Cost leadership allows an organization to price its products at relatively lower costs compare to its competitors in the market. This is possible only if an organization achieves cost leadership as cost leadership allows an organization to produce its products at much lower costs by using proper technology and latest production processes by using up-to-date machineries and equipment. Thus, an organization in order to achieve cost leadership needs to be futuristic in its view and should have broad perspective. Investments of huge amount are essential at the beginning on information and technological progress of an organization to enable an organization to make optimum use of new and latest technologies in the production process. Thus, the management of an organization should have broad perspective in terms of using improved technology and production processes to achieve cost leadership in the industry (Hoberg and Phillips, 2016).
Cost leadership
Coca Cola operates in a highly competitive industry of beverages and soft drinks. There are more than dozens of companies which are operating in the same industry with substantial market turnover around the globe. However, despite the competition Coca Cola Limited has held on to its market share across the globe. The company is considered as a market leader in the industry if the shares across the globe is aggregated (Ibrahim, 2015). Thus, achieving cost leadership for the company is not impossible. However, other competitors in the market are trying equally hard to achieve cost reduction in production process and pricing their products at relatively lower costs to increase their sales. There is nothing wrong in trying to reduce the cost of production and operation in general however, there shall be no compromise with the quality of product at any costs. Thus, the company should continue on its endeavor to achieve further cost reduction but it should not be seen as the x-factor that will help the company to achieve competitive advantage at this stage of its business life cycle (Fleisher and Bensoussan, 2015).
The company is in the business for more than 25 years and over the years it has achieve huge amount of sales in the market. Cost leadership is an objective that the company has achieved way back and thus, it is not an issue for the company and hence, the company cannot rely on the same for achieving further market share in the industry (Rothaermel, 2015). There is no doubt that cost leadership has helped the company to achieve competitive advantage in the market but however, the management cannot compromise with quality of products for further cost reduction in production process and overall cost reduction in operation. Thus, at this stage the company should look for another element to stay ahead of competition out of the four elements described by Porter in his four generic strategies to achieve competitive advantage in the industry (Tukker, 2015).
Porter has talked about the importance of product differentiation in enabling an organization to gain competitive advantage in the market. Product differentiation is process that allows an organization to use necessary means and measures to make the product different from its competitors by adding something unique to it. In an industry where competitors are offering similar products it would be a huge advantage for a firm that has a unique characteristic to its products. Thus, management should try to achieve product differentiation by giving due importance to this aspect of business. Product differentiation makes a product different from all the other in some aspect of the other and this attracts customers to such products. Achieving product differentiation is not easy especially in a competitive industry where everyone is looking for the same thus; broader perspective has to be given to this aspect of the business (Hovenkamp, 2015).
Coca Cola is in the business of soft drinks and beverages for years now and so are its competitors in the market. There is certainly a product tiredness to the customers for certain offerings of these companies. Coca Cola should broadly concentrate on product differentiation by introducing new product lines or adding some twist to the existing product lines. A freshness in the menu of a restaurant could often be a turning point for such restaurant; similarly fresh beverages and soft drinks would help Coca Cola to bring freshness into the market. The company should be the first one to take initiate and introduce new products in the market and show its competitors how to achieve product differentiation. This will help the company to gain competitive advantage in the market (Eckel et al., 2015). Considering the ever-increasing awareness about fitness and health related issues with the consumption of soft drinks and beverages introduction of a new product line that will help the customers to stay fit and healthy will be a great boost for the business of the company. Hence, Coca Cola Limited should introduce a new product line in soft drinks and beverage business by introducing beverages with positive impact of health and fitness of the consumers.
Product differentiation
Also the new generation is very much like to stay in shape thus, going to the gym and fitness centers have become normal. By introduction of energy drink Coca Cola Company can tap into the market of energy drinks before its competitors. Thus, it is clear that since the company has taken numerous steps to attain cost reduction and cost leadership in the process the effective way to achieve competitive advantage in the market is by concentrating on product differentiation. Introduction of new product lines and twist in the existing products would be very helpful for the company to achieve competitive advantage in the market (Cusumano et al., 2015).
Cost focus:
Porter has mentioned of narrow perspective in cost focus would help an organization to achieve competitive advantage in the market place. Since the company, i.e. Coca Cola Limited, has decided to concentrate broadly on achieving product differentiation to gain competitive advantage over its competitors there bound to be additional spending on production of new drinks and adding twist to the existing drinks. The management of the company should take necessary measures to ensure that the costs of production of new drinks is as low as possible keeping in mind the quality of these drinks. Apart from the cost production the company also requires substantial amount of expenditures to market and promote the new drinks. Since the company is producing new soft drinks and beverages for the consumers the management has decided to use aggressive marketing strategy by promoting the products at all possible levels to attar customers. However, the management should keep in mind the associated costs of advertisement and promotional strategies as the objective of the company is to achieve competitive advantage over its competitors in the market (Lechner and Gudmundsson, 2014).
The reason porter has talked about narrow scope for cost focus is to ensure that the management of an organization should not spend unnecessarily to increase the overall operational costs. Less spending would help an organization to earn substantial amount of profit from its operations which can be used on research and development activities for better products in the future (West et al. 2015). Accordingly, keeping in mind the importance of cost focus the management of Coca Cola Limited should have a narrow scope on cost focus to achieve the goal of competitive advantage over its competitors in the market. The management should focus on quality advertisement and promotional strategies instead of quantity of advertisement and promotional activities to ensure that the advertisement and promotional costs remain within the budget of the company to achieve the objective of competitive advantage in the market (Grant, 2016).
A firm seeks differentiation in its target segments in differentiation focus. According to Porter, an organization should focus specifically on achieving cost advantage and differentiation in target segments to gain competitive advantage over its competitors. As already said in case of Coca Cola the company is in business for number of years now thus, unlike other small and medium sized companies the management has a standard procedure which it has followed over the years and continues to use even in the present to achieve cost advantage and target segment differentiation over its competitors and these are to continue even in the future. Thus, there is no need of any tweaking in the management strategies in these regards (Christopher, 2016).
Considering the gist of the above discussion it is clear that out of the four elements mentioned in the Porter’s generic strategies model product differentiation is the most likely element that will help the company in its endeavor of gaining competitive advantage over its competitors in the market. However, it is not like that the other elements such as cost leadership, cost focus and differentiation focus are not important for the business of the company but these are already established and need further improvement. Product differentiation will help the company to offer the customers different and unique products as opposed to the similar products that are being offered by its competitors. This would help the company to get rid of the product tiredness factor that could have set in the behavior of customers. However, it is important to understand that product differentiation should be achieved by offering quality products to the customers as there should not be any compromise with quality of products and the health of the customers (Fu et al., 2015).
References:
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Christopher, M., (2016). Logistics & supply chain management. Pearson UK.
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