Narrow market scope or Broad market scope

By | June 23, 2013

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1.        Narrow market scope or Broad market scope


1.1    Theoretical support


1.1.1            Michael E. Porter (1985)’s Generic Competitive Strategies


Figure 1 Michael E. Porter (1985, p. 11)’s Generic Competitive Strategies

Source: Recreated by (2009) and adapted from Porter (1985)


When talking about the choice between Narrow market scope or Broad market scope, one theory that we must mention is Michael E. Porter (1985)’s Generic Competitive Strategies. According to Porter (1985, p. 11)’s Generic Competitive Strategies, positioning determines whether a company’s profitability is above or below the industry average which is one of the two central questions relating to the company’s competitive strategy which is one of the focuses of Porter’s studies and researches. Based on his view, there are two main types of competitive advantage as cost advantage and differentiation. In developing and maintaining their competitive advantage, companies have the option to adopt one of the three generic strategies: cost leadership, differentiation or focus. A company pursuing a cost leadership business model chooses strategies that do everything possible to lower its cost structure so that the company can make and sell goods or services at a lower cost than its competitors. These strategies include functional strategies designed to improve its operating performances, and competitive strategies intended to influence industry competition in its favor. Using the cost leadership model, a company will seek to achieve a competitive advantage and above-average profitability by developing a model that positions it on the value creation frontiers as close as possible to the lower costs/lower prices axis (Hill & Jone 2010, p. 168). The differentiation strategy refers to the provision of exceptional outputs at higher prices to broadly based buyers. The outputs of the differentiation strategy are meant to be distinguishable from the outputs of the competitors. Both the low cost strategy and the differentiation strategy have a broad approach to the market (Wright, Nazemzadeh, Parnell & Lado 1991). In comparison, focus strategy means concentrating on a particular group of customers, geographic markets or on particular product-line segments in order to serve a well-defined but narrow market better than competitors who serve a broader market ( 2010).


The horizontal axis across the top of the graph shows the type of competitive advantage the company has, whilst the vertical axis relates to the scope of the competition, either broad and company-wide or narrow and limited to a market segment ( 2009). In his famous book, Competitive Advantage, the author Michael E. Porter (1985, p. 12) each of the generic strategies involves a fundamentally different route to competitive advantage combining a choice about the type of competitive advantage sought with the scope of the strategic target in which competitive advantage is to be achieved. The cost leadership and differentiation strategies seek competitive advantage in a broad range of industry segments while focus strategies aim at cost advantage (cost focus) or differentiation (differentiation focus). With the assumption that competitive advantage is the core of any strategy, a company must make a choice among these three generic strategies and covering all fields would mean no competitive advantage at all.


1.1.2            Criticism over the Porter’s Generic Competitive Strategies


Despite the widespread enthusiasm for Porter’s generic strategies, some critics have voiced opinions that may point towards important deficiencies and limitations in the paradigm. Firstly, it is a primary focus of criticism that Porter is too concerned with the narrow context of established big businesses. Mature and saturated industries are prioritized over niche and fragmented ones, and this obviously imposes certain limitations upon the supposedly universally applicable generic strategy framework. While it is clear that Porter’s research is very much founded on hard data, which is naturally easier to obtain in mature industries, there have been some critics holding that Porter’s Generic Competitive Strategies framework cannot be applied reliably to the more dynamic and evolving industries (Andersen & Poulfel 2009). Also, secondly some argued that some business environments such as national macro business environmental conditions had not been taken into consideration in this model and these conditions could have significant impacts over the profitability of the chosen generic strategies and hence the Porter’s generic strategies may not be appropriately used universally. Thirdly, while Porter’s Generic Competitive Strategies mainly talk about company’s competitive position and based on which a company should make decision making, as a matter of fact there are many situations in which a company will not make decisions merely based only on the competition considerations. For example, a company which may already enjoy a market leadership position by adopting a differentiation strategy in the industry could still use a low pricing strategy in order keep off the potential entry of the new competitors or for other strategic intensions.




1.1.3            Evolution of the generic strategies


Figure 2 The four plus three generic strategies

Source: adapted from Porter (1996)


The generic strategies remain useful to characterize strategic positions at the simplest and broadest level. In his later work, Porter (1996) introduces the three basics of positioning – varieties, needs and access in order to enhance the understanding of generic strategies to a greater level of specificity. Based on his view, Ikea and Southwest are both focused on cost, but Ikea’s focus is based on all the home furnishing needs of its targets consumer group (price sensitive young family) while Southwest’s is based on offering a particular service variety (Moon 2009, p. 10).


Variety-based positioning refers to the produce a subset of an industry’s products or services. It is based on the choice of product or service varieties rather than customer segments. It is economically feasible only when a company can best produce particular products or services using distinctive sets of activities. And needs-based positioning involves serving most or all the needs of a particular group of customers. It is based on targeting a segment of customers. It arises when there are a group of customers with differing needs, and when a tailored set of activities can serve those needs best ( 2002). Access-based positioning focus on customers that is accessible in different ways, which can be based on geography, Internet or other similar conditions ( 2007). is an example of access-based positioning, accessing customers exclusively through the Internet. The addition of these three generic strategies had made the original model more mature and practical though there are still difference voices and ideas.


1.2    Whirlpool’s competitive strategy


Whirlpool produces and markets three well-established pan-European brands: Bauknecht, a premium upscale product; Whirpool, for the broad middle segment of the white-goods market; and Ignis, its low-price “value” brand aimed at price-sensitive consumers. This comprehensive product strategy allows Whirlpool to fully utilize its European production facility and distribution system and markets its goods to Europeans at all income levels. It will be recommended that the company should not abandon any of these well established brands, it could actually adopt a variety based positioning strategy which refers to the produce of a subset of an industry’s products or services and it is based on the choice of product or service varieties rather than customer segments as mentioned above. There are two major reasons for these choices: first of all, the abandon of any of these three brands could be a great loss for the company; secondly, the above theoretical reviews actually support a variety based strategy rather than “must choose among the three generic strategies”, therefore the company could provide a variety of choices to the customers. And when the EU consumers think about buying any white goods, the majority of them could think of Whirlpool because of its variety of offerings.

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