Porter's Generic Strategies (B) the Strategy Clock Case Study

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Porter's Generic Strategies (b) the Strategy Clock

The question that both models address is the aspect of competition: how one company can gain competitive advantage over another given the finite number of unique products and services out there and the need for different companies to sell similar or common products to a limited sample of people.

In "Competitive Strategy: Techniques for Analyzing Industries and Competitors" (1980), Porter reduced competition to three strategies: 1. Cost leadership; 2. Product differentiation, and; 3. Market segmentation.

In other words, companies compete either on cost (the price of their products); on perceived value (the differentiation in value of their product from that of another company); or / and on by focusing on a particularized customer (i.e. offering a niche / segmented market).

In 1996, Cliff Bowman and David Faulkner created Bowman's Strategy Clock, which extended Porter's model to eight strategies and included identifying the likelihood of success of each strategy as well as explaining the cost and perceived value combinations that many firms use.

Bowman's eight positions are: 1. Low Price / Low value (products are inferior but prices are attractive thus maybe wooing customers). 2. Low Price (companies drive prices down to their minimum, and they balance low margin with high volume (Wal-Mart being an example). With large enough volume and strong strategic position, company can succeed; otherwise, price wars can be triggered that benefit only consumers); 3. Hybrid (moderate price/moderate differentiation) (companies offer fair prices for reasonable goods -- for instance discount department stores. This approach cements customer loyalty); 4. Differentiation (companies offer clients high perceived value achieved through either increasing their price (as with Nike) or through keeping prices low but attracting greater market share (as with Reebok)); 5. Focused differentiation (designer products.

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High perceived value accompanied by high price. These companies survive through highly targeted markets and high margins); 6. Increased Price/Standard Product (increased price unaccompanied by justified value increase. This may work in the short-term but is highly risky); 7. High Price / Low Value (a classic strategy in a market where one company has the monopoly over the product); 8. Low Value/Standard Price (company pursuing this strategy is bound to fail).

Bowman's Strategy Clock differs from Porter's model in that it stretches out competition into different positions, explaining them and illustrating the advantages and disadvantages of the different positions. Whilst Porter may be described as providing a comprehensive model of corporate competitions, Bowman stretches out the possible positions that a company may take.

2. With reference to the Strategy Clock, what strategy is IKEA pursuing and what

Evidence is there in the case to support your conclusion?

IKEA is pursuing a hybrid strategy (moderate price/moderate differentiation) where the company offers fair prices for reasonable goods. 'If it wasn't for Ikea," writes British design magazine Icon. 'Most people would have no access to affordable contemporary design" (p.708); or, as someone from Germany observing on the web commented, 'Every time, it's trendy for less money' (709). The company works long and hard to identify functional and quality style materials and least costly suppliers. Whilst it sets the price in middle class tastes, focusing on quality, it also accentuates reasonable price tags, consciously showing its tendency to slit prices. IKEA, in fact, aims to lower prices across its whole store by an average of 2% or 3% per year increasing it percentage drop when competing against rivals. Josephine Rydberg-Dumont, president of Ikea

of Sweden, describes IKEA's objective as producing beautiful.....

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