Answer to Question #313971 in Management for Khaled

Question

How does the blue and red ocean framework relate to Porter's differentiation and low-cost strategy?

Answer 1

Pursuing differentiation strategy provides higher firm performance compared to two other Porter’s generic strategies (low-cost strategy or focus strategy) that have a positive impact as well. Porter’s generic strategies that present the characteristics of low-cost strategy, differentiation strategy, and focus strategy, as well as their way of relation with firm performance. 

The manager’s focus is on creating a competitive advantage by creating a new way of strategic development, which is appropriate for them and enables a successful adaption to that technological and industrial changes. Porter has analysed carefully the industry environment, competitive forces, and competitive strategies that should be built by firms to achieve competitive advantages, it lacks on presenting strategies by quantitative results, identifying how much “separately” each of the three generic strategies impacts on firm performance.

Low-cost strategy emphasizes producing standardized products at a very low per-unit cost for consumers who are price sensitive [28]. According to Griffin, low-cost strategy is a strategy in which an organization attempts to gain a competitive advantage by reducing its costs below the costs of competing firms. Low-cost strategy puts importance in an increment in organizational performance. It includes the process by which the company is capable of producing or distributing goods and services with a lower cost than the competitors. Porter defines a low-cost strategy as trading of standard products 30 combined with aggressive prices. Pursuing low-cost strategy should be considered not as a product/service offered which is an inferior product, but as a product/service that has same comparative qualities with competitors and an appropriate price.