Michael Porter’s generic strategies state that strategies for broad market scope fall into two categories:
- Cost leadership – having the lowest cost base e.g. Ryanair
- Differentiation – having a unique or different product e.g. Dyson
Porter assumes that consumers are either motivated by value or quality which implies they are rational. If he is right then companies following a differentiation strategy should spend all of their money on research and development and ignore marketing.
I would consider myself a highly rational person but I know from my own shopping experiences that I can be influenced by brands, shop layouts, sales incentives and time pressures, so my buying decision is rarely purely rational.
So the question is can Porter’s broad theories explain market share in different industries? I have very quickly thought about my own personal views on some industries to see how this stacks up:
|Industry||Industry Leader||Industry Best Quality|
|Airlines||Delta Airlines||Virgin Atlantic|
|Coffee Shops||Starbucks||Cafe Nero|
This was just a very quick analysis but it does show the perception vs. reality gap and that the best quality does not automatically guarantee the number one spot in an industry.
So what is the missing link in the puzzle, I am sure there are lots of reasons but one thing that stands out is marketing. Getting to the number one spot requires that you have a high quality product but your customers need to know your brand and can include you in their initial consideration set. It is no good having the best product if nobody knows about it.
I guess the point that I am trying to make is that business is a multi discipline exercise you need to take the best parts from strategy, finance, marketing and economics etc and build a unified model to take your business successful.