How would you examine the five competitive strategy options? Which strategy does Steven Madden use? What are at least three decisions Steven Madden uses that explain your strategy selection...

How would you examine the five competitive strategy options? Which strategy does Steven Madden use? What are at least three decisions Steven Madden uses that explain your strategy selection choice? What are three key decisions that would be needed to move Steven Madden to two different strategies? If they currently use a low cost strategy, what specifically should Steven Madden implement to move to a best cost and/ or focused differentiation strategy?

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Karen P.L. Hardison eNotes educator| Certified Educator

Examination of the five competitive strategies discloses that they are developed for the purpose of gaining competitive advantage, which is gaining a favorable or an advantaged market position attained by providing products of high value or products at low costs (or these factors combined). Attributed to the strategic thinking of Michael Porter, the five competitive strategy options are predicated upon the two considerations of (a) providing high value by differentiating a unique product and (b) providing low price by controlling costs such as resource costs.

Examination further discloses that Porter's system of competitive advantage strategy options are founded upon a five-point analysis evaluating a firm's position in its external environment as compared to its competitors in the same marketplace environment. These are the five points to be analyzed:

  1. barriers to entry in the market (if there are few barriers, then there are many new entrants and competition is fierce)
  2. the power of buyers in the market (if buyers have power, there are many substitute products and buyers command the resulting soft market)
  3. the power of resource suppliers in the market (if suppliers have power, then they control the cost and resultant price)
  4. the prevalence of substitutes for a product (if there are many substitutes, as in an easy-entry market, the availability of substitutes governs consumer behavior in response to price changes as seen in market elasticity)
  5. the presence of competitor rivalry in the market (when rivalry is present, price, brand loyalty, and product differentiation determine consumer behavior in the market)

Analysis of these five points determines which competitive strategy a firm employs to gain competitive advantage. The five strategies come from combining product cost, product differentiation and market focus. Market focus refers to whether a firm targets a broad market (an industry-wide market) or a narrow market (an isolated market segment niche based upon pertinent demographics). Differentiation refers to unique differentiation of a product so it is attractive to a specialized target market. Cost refers to the cost of production of a good or service. Low cost is more favorable than high cost in a broad marketplace, while a narrow marketplace comprised of a segmented target population, having specific wants and needs in common, will support higher cost because of the higher value delivered by the product. 

Low cost in a broad market: Low cost in a broad market employs cost leadership strategy to establish competitive advantage through low prices gaining high market share or through high prices delivering high quality.

Broad differentiation: Broad differentiation in a broad market employs differentiation strategy to develop a unique, differentiated product in an industry-wide broad market to provide value-added quality that appeals to the consumer who perceives it to be better than substitutes and who accepts paying a premium price.

Focused low cost: Focused low cost in a narrow market employs focus strategy (low cost subset) to gain competitive advantage through cost advantage. Focus strategy focuses attention on the consumer by providing detailed product to meet specific niche consumer needs. Product volume is smaller so prices reflect relatively inflexible resource costs. This results in less bargaining power with suppliers and passed-on resource costs in product price.

Focused differentiation: Focused differentiation in a narrow market employs focus strategy (differentiation subset) to gain competitive advantage through product differentiation. Interestingly, the movie Kinky Boots is an illustration of this competitive strategy whereby consumer needs are met by focusing on product detail in a highly defined niche market in order to build customer loyalty. Inflexible supplier costs can be passed on in price, which the niche market will bear due to the absence of substitutes.

Best cost: Best cost employs best-cost provider strategy to gain competitive advantage through low cost in combination with high quality. This strategy is implemented by cutting production, supplier, and marketing costs while maintaining quality. An example relates to Whole Foods grocery stores, which provide differentiated product in a (growing) narrow market segment: those who pay more for organic and natural foods. Whole Foods opened its first low-cost grocery store, called 365, in Southern California. 365 offers organic and natural foods under the cost-effective Whole Foods generic brand name, 365 (the store carries the same name as their generic organic brand).

"Porter's Generic Competitive Strategies (ways of competing)," University of Cambridge.

Ivan Misner, Ph.D., "The Five Key Competitive Strategies."