Michael Porter’s Competitive Advantage model sets out a strategy that creates a positioning in your market place based on sustainable advantages that you can build up in your industry.
Porter states there are basically two types of competitive advantage that results in a third viable competitive strategy and gives you your USP.
The two types are differentiation and cost leadership, i.e. the low cost producer.
The differentiation model determines those companies who look at their uniqueness in the marketplace, based on the viewpoints of their customers. These could be the product itself, service, brand image, marketing, service back up, etc.
But this doesn’t mean the company can ignore its pricing position. In areas that don’t affect its differentiation, costs should be kept to a minimum, says Porter. Only in the unique differentiation areas should the price premium paid by customers be seen as valuable to them.
The other competitive advantage is being the cost leader in the industry. This is often achieved by economies of scale, and the differentiators should still be considered important, even if you are attempting to offer lowest price. If price is your only differential, someone, somewhere will beat you short or long-term. And then what happens to your advantage?
Porter then states that the result of your first two competitive advantages is your focus. That is, you set out to be the best in a segment or niche market. This explains why some companies set out to differentiate themselves in the market, then lose their focus and fall behind the competition. You must look for other niches that will attract customers rather than become outdated by focusing in areas that don’t attract current customers.
Porter’s Competitive Advantage model offers an effective and important addition to your management portfolio by focusing on what your company should do best. That focus is better than trying to appeal to all sectors with some differentiation and average pricing. Customers will be unable to determine what you actually stand for unless you offer some kind of advantage to them.
It’s an interesting model that creates a firm strategic model for progress in your industry.