Although a company may have millions of strengths and weaknesses compared to its competitors, there are two basic types of competitive advantages a company can possess: low cost or differentiation.
The two basic types of competitive advantage combined with the panorama of activities for which a company tries to achieve them, leads to three generic strategies for achieving above average performance in an industry: cost leadership, differentiation and focus.
Each of these generic strategies involves a different route to competitive advantage at a time which depends on the scenario of strategic targets. The strategies of cost leadership and differentiation seeking competitive advantage in a wide range of industrial sectors, while strategies try to achieve focus on a narrow segment.
The idea behind the concept of generic strategies is that competitive advantage is at the heart of any strategy, and achieving competitive advantage requires a company to make a choice about the kind of advantage that seeks to achieve and the landscape within which do it. Being “all for all” is a recipe for strategic mediocrity and the below average performance, because in reality means that there is no competitive advantage at all.
COST LEADERSHIP
Involves proposed to be the producer or provider of a service more cheaply in the sector. Understood cost to the monetary value of all goods and efforts incurred to provide a service or obtain a finished product. The company aims to costs has a broad overview and serves many segments and can even operate in fields related to yours.
The sources of cost advantage are varied and depend on the industry structure. May include preferential access to raw materials, proprietary technology, the pursuit of economies of scale and others.
Companies that work with low cost typically sell a standard, or product / service without ornaments and placed considerable emphasis on the scale of maturity. If a company manages and maintains the overall cost leadership will be an above average performer in a sector as long as their prices are at or near the average for that sector. At equivalent or lower prices of rivals this position translates into higher returns, but this leadership can not ignore the bases of differentiation. If a product is not perceived as comparable or acceptable to buyers, a cost leader will be forced to discount prices well below their competitors to make sales.
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