One of the most famous examples of generic strategies is Porter’s Generic Strategy theory. For those of you who have never seen it; here you go:
One of the reasons why I brought it up today is to discuss pricing. If you see the above; generally you can see that there are 2 major options – either a cost or a differentiation strategy. Within cost strategies, you can try be cost leader in the general market (everything to everyone ala Wal-Mart) or you can focus on a smaller market and be the cost leader in that area (e.g. Future Shop in its attempt to corner the electronics market).
The Game Industry
At a glance, you’d think Starlit Citadel was taking a cost leader or cost focus strategy. Actually, we attempt to focus on differentiation as much as possible. A lower price than MSRP is to keep us competitive, but the free shipping offers, rewards program, video reviews and our borad selection are all ways for us to differentiate ourselves.
Not every business can or will want to pick a cost-focused strategy. As a cost leader, you need to always be driving cost down. To do that, you need:
- Capital to get better technology
- Highly efficient logistics
- Low cost base
We have like one of the three (efficient logistics). A low cost base requires would require us to move to a small city, preferably in Alberta or Saskatchewan (lower minimum wage). Neither of which we are interested in doing. And as for capital… well, we just aren’t at the size to make most of the capital / tech purchases cost-efficient.
At the end of the day, even those companies that compete on price (e.g. Wal-Mart & Target) end up differentiating themselves in other ways because customers do not just buy on price. There are always other considerations, whether it’s brand, selection or other benefits.
It’s why Porter’s diagram is just ‘general strategies’; as you dig deeper in and it’s all differentiation strategies. You have to be different, and price just isn’t enough.