Porter contends that there are two competitive strategies that dictate how a firm has decided to cope with the five competitive conditions that define an industry's environment. The two competitive strategies are known as ________ and ________.
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A. B. C. D. E.Explanation
Within each industry, the strategies available and the ways of implementing them differ.
The correct answer to the question is A. low-cost strategy, differentiation strategy.
In his seminal work on competitive strategy, Michael Porter identified two fundamental competitive strategies that firms can adopt to cope with the five competitive conditions that define an industry's environment. These strategies are known as the low-cost strategy and the differentiation strategy.
Low-cost strategy: This strategy aims to achieve a competitive advantage by becoming the lowest-cost producer in the industry while maintaining an acceptable level of quality. Firms pursuing a low-cost strategy focus on minimizing costs throughout their value chain, including areas such as production, distribution, marketing, and customer service. By being cost-efficient, these firms can offer their products or services at lower prices than their competitors, thereby attracting price-sensitive customers. The low-cost strategy is particularly effective in price-sensitive industries or segments where customers are primarily concerned with obtaining products or services at the lowest possible cost.
Differentiation strategy: This strategy focuses on creating a unique and distinctive product or service that is perceived as superior in the industry. Firms pursuing a differentiation strategy strive to provide customers with something that sets them apart from their competitors, such as innovative features, exceptional quality, superior customer service, or brand image. By offering unique value propositions, these firms can charge premium prices for their products or services and attract customers who value the differentiated attributes. The differentiation strategy is effective in industries or segments where customers are willing to pay a premium for the unique features or benefits provided by a particular firm.
It is important to note that the low-cost strategy and differentiation strategy are not mutually exclusive, and firms can choose to pursue either strategy or a combination of both, depending on their industry, market conditions, and competitive dynamics. These strategies represent different approaches to achieving a competitive advantage and coping with the five competitive forces identified by Porter: industry rivalry, bargaining power of buyers, bargaining power of suppliers, threat of new entrants, and threat of substitute products or services.
In summary, Porter's two competitive strategies are the low-cost strategy, which focuses on cost leadership, and the differentiation strategy, which focuses on creating unique and superior products or services. These strategies provide firms with alternative paths to achieve a sustainable competitive advantage in their respective industries.