Competition matrix

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Competition matrix

The competitive matrix is a concept introduced by Michael E. Porter in 1980 , which is also known as generic strategies . It is used to develop strategies to determine the product policy in marketing for individual business areas of a company . Porter tries to systematize the possible strategies that a company can pursue in order to gain a competitive advantage in the relevant market . Porter arranges the competitive strategies according to the possible strategic goal ("What the company wants to do") and according to the strategic advantage to be used by the company ("How the company wants to achieve this goal") and receives three basic strategy types (see figure) that im Will be explained below.

Cost leadership

Cost leadership ( English cost leadership ) describes by lower the strategy of a company, costs a competitive advantage to gain. Porter justifies this with the observation that such a company can still generate profit after a price war even if all other competitors have fallen into the red. Note: Cost leadership does not mean price leadership , but is often a prerequisite for it.

Porter mentions various methods for achieving this goal. Robert M. Grant provides a more complete list of these . He distinguishes 9 methods for cost leadership strategies:

Under the residual effects of operational effectiveness , Grant summarizes the effects that are less controllable, e.g. B. natural monopolies , location advantages and all competitive advantages that cannot be explained by the aforementioned effects.

Differentiation strategy

Under the differentiation strategy ( english differentiation ) refers to the strategy of a company, in the eye of the consumer by other competitors take off. Henry Mintzberg et al. (1995) list six methods of differentiation:

They describe the possibility of companies to differentiate themselves from competitors through price leadership (not to be confused with cost leadership, see above), brand name etc. A monopolistic price-response function is thus created for a certain price range . In this range, the provider can virtually determine the price himself and customers only migrate when there is a significant price difference to the competition.

According to Porter, a differentiation strategy can potentially exclude a large market share, e.g. B. because the perception of exclusivity cannot be reconciled with high market shares. An actual difference is less important than the perceived difference. He describes differentiation strategies as a trade-off between the cost and the expensive activities to achieve differentiation.

Niche strategy (focus)

Niche strategies (Eng. Focus ) - also "strategy of concentrating on focal points" - are strategic concentration on certain customer groups, segments or geographic markets. As with differentiation, niche strategies can take many forms. They are based on the assumption that a company, due to its narrowly defined goal, is better able to supply this goal with products or services than its broader competitors. As a result, the company either achieves a high level of differentiation in that the needs of a target group are better served or a more favorable cost situation or both.

Risks of competitive strategies

Porter describes two ways the strategies can fail:

  1. The targeted strategy is not achieved or maintained
  2. Developments within the industry can make the value of the strategic advantage unsustainable.

Risks of cost leadership

Cost leadership requires investments in modern production equipment while ruthlessly eliminating superfluous items, avoiding line expansion and constant attention to technical developments. Cost reductions with high production volumes ( learning curve ) are by no means a matter of course, nor can all available economies of scale be achieved without permanent attention. Cost leadership is permanently threatened by the following factors:

  • technological innovation that nullifies previous experience or learning
  • “Cheap” learning through newcomers or imitators through imitation or investment in the latest production technology
  • Inability to recognize product changes because one focuses on costs
  • Cost increases that reduce the company's ability to compensate for the differentiating advantage of its competitors.

Risks of Differentiation

Differentiation strategies are also subject to risks:

  • The cost difference between companies with cost leadership strategies and differentiation strategies becomes so great that customer loyalty suffers. If a differentiation strategy neglects costs too much, the cost advantage will eventually get out of hand.
  • The customer's need for the differentiation advantage falls, e.g. B. because the customer's experience increases.
  • Imitation can reduce the perceived difference - a common process as industries mature.

Niche strategy risks

Niche strategies also harbor risks:

  • The cost differential between broad providers and the niche provider can expand and neutralize the advantage of the niche provider.
  • The difference between the products in the broad market and the niche markets is decreasing.
  • Competitors find sub-niches within the niche served and hollow out the niche.

Inferences

Porter describes the competition matrix following his industry structure analysis ( five forces ) as a means of influencing the five factors.

  Cost leadership differentiation focus
Industry-internal competition Lower costs mean that the company will still make a profit even if the competition falls into the red. Differentiation creates customer loyalty and therefore a reduced price sensitivity. Niche strategies achieve either a favorable cost position or differentiation or both and thus secure advantages within the framework of structural forces.
Bargaining power of suppliers The favorable cost position enables more options to deal with increases in procurement costs. The higher yields that are possible due to the unique situation allow scope for increasing procurement costs.
Bargaining power of buyers A buyer can only drive prices down to the level of the closest efficient competitor. The customers lack comparable alternatives and are therefore less price sensitive.
Newcomers Usually, the factors that confer cost leadership confer considerable protection against new additions. The achieved customer loyalty forces competitors to overcome the perceived uniqueness and thus protects against penetration into the market.
Replacement products like intra-industry competition Loyalty should better protect the company from replacement products than competitors in the same industry.

According to Porter, the three competitive strategies are ways of dealing with structural forces. The reverse conclusion is that a company that does not succeed in developing its strategy along at least one of these strategies takes an untenable position. Porter calls this position stuck in the middle - an extremely weak strategic position because such companies lack the market share or investment to be able to win in the cost game and, on the other hand, he lacks the differentiation to avoid the low cost game.

The firm stuck in the middle is almost guaranteed low profitability ...

"The company caught in the middle is almost guaranteed low profitability ..."

- Michael E. Porter

Porter assumes such companies have a distorted corporate culture as well as organizational rules and motivational systems that are in conflict. He claims that leaving this position takes considerable time and effort and it can be empirically observed that companies sway into and out of such positions.

Bridge to resource theory

Canadian economist Danny Miller looked at the resource base on which competitive advantage is built. In his view, cost leadership and differentiation differ in the way in which the means of production ( assets ) are used. In order to achieve cost leadership, means of production are selected and used in such a way that efficiency is maximized. He calls this position asset intensity . In contrast, he sees differentiation as a strategy where means of production generate maximum diversity from a minimum of means of production. He calls this position asset parsimony . With this, Miller shows that the investment base of an organization influences the strategy and, conversely, the strategy influences the investment base.

Classification of the model

With its competitive matrix, Porter offers a simple and immediately accessible view. The model is not undisputed. The main points of criticism are:

  • the strong simplification,
  • the perspective from the industry, without considering interdependencies with other industries,
  • Statements on the (non-) combinability of differentiation and cost leadership,
  • the poor elaboration of niche strategies.

Examples of strategies

Typical cost leader strategies can be found in markets with highly standardized goods, e.g. B. steel , chemical industry , cement etc. The need to cut costs led to a concentration of companies and promoted the emergence of oligopolies .

An example of a cost leadership strategy in the consumer goods sector is Aldi in the use of economies of scale and the renunciation of branded products (differentiation). The example is not without controversy, as the name "Aldi" as a trademark (Engl. Brand ) is understood and well is to differentiate themselves from competitors.

Differentiation strategies are used especially in the consumer goods sector. For example, Coca-Cola , Hugo Boss and C&A are brand names that target very broad market segments. The non-need for a high absolute market share mentioned by Porter can be illustrated well with brands such as Louis Vuitton and Porsche , which are positioned in the premium segment. In addition, there are brands such. B. eyewear manufacturers, where the customer base is limited by the specific product properties from the outset.

Grant cites two companies with niche strategies as examples , Devro International plc , a manufacturer of sausage casings with a market share of 56% and UST Inc , a manufacturer of chewing tobacco (market share 78%, ROE 1996 approx. 165%, ROE 1995 approx. 145%). Both companies are in market niches and achieve cost or differentiation advantages through this niche position.

See also

literature

  • Michael E. Porter: Competitive Strategy. Methods for analyzing industries and competitors . Campus-Verlag, Frankfurt 2008, ISBN 978-3-593-38710-9

swell

  1. ↑ a b c d e Michael E. Porter 1980; Competitive Strategy: Techniques for analyzing industries and competitors: with a new introduction / Michael E. Porter; The Free Press, New York; ISBN 0-684-84148-7
  2. ^ A b Robert M. Grant (2002) Contemporary Strategy Analysis , Concepts, Techniques, Applications; 4th ed. Blackwell Publishers Inc, Oxford. ISBN 0-631-23135-8
  3. ↑ Mintzberg et al. 1995; (Henry Mintzberg, BJ Quinn, S. Ghoshal) The Strategy process , Prentice-Hall, Hemel Hempstead
  4. ↑ D. Miller (1986) Configurations of strategy and structure: towards a synthesis , in Asch, D. and Bowmann, C. (eds) Readings in Strategic Management , Macmillan, Basingstoke - cited in Course Team (2002) Choosing Strategies, Open University , Milton Keynes ISBN 0-749-29273-3 ; Page 22