A Critique of Porter’s Cost Leadership and Differentiation Strategies

A CRITIQUE OF PORTER’S COST LEADERSHIP AND DIFFERENTIATION STRATEGIES

Y. Datta

Ph.D., State University of New York at Buffalo

Professor Emeritus
College of Business
Northern Kentucky University
Highland Heights, KY 41099 (USA)

7539, Tiki Av.
Cincinnati, OH   45243
USA

Tel: (513) 984-1032 [Home]
Fax: (513) 984-1032

E-Mail: datta@nku.edu

A paper accepted for presentation at the 9th Oxford Business & Economics Conference to be held in Oxford, England, June 22-24.

Table of Contents

A Critique of Porter’s Cost Leadership and Differentiation Strategies 4
ABSTRACT 4
Key Words 4
INTRODUCTION 5
COST LEADERSHIP STRATEGY 5
Major Reliance on Modern Capital Equipment 7
Relying on the Experience Curve to Underprice Competition Risky 7
A Cost Leader Cannot Ignore Differentiation 8
No Such Thing as a "Commodity": Everything Can Be Differentiated 9
High Market Share a Prior Condition for Cost Leadership? 10
Porter Identifies High Market Share with Cost Leadership Strategy 10
Differentiation--Not Cost Leadership Alone--Behind GM’s and Whirlpool’s Success 11
“Low-Cost” or “Low-Price” Strategy? 12
Thompson and Strickland’s Low-cost Provider Strategy 14
Internal Orientation of Cost Leadership Strategy 14
DIFFERENTIATION STRATEGY 15
Superiority of Differentiation over Cost Leadership Strategy 16
Porter: Differentiation and High Market Share Incompatible 17
Differentiation Compatible with High Market Share--and Low Cost 18
Even higher quality may lead to lower cost 18
High Market Share Contributes to Long-term Competitive Advantage 20
Market Share Leadership Enhances Differentiation 20
“PURE” COST LEADERSHIP STRATEGY VS. COST LEADERSHIP AS A RESULT OF DIFFERENTIATION STRATEGY 20
Porter: “Pure” Cost Leadership Strategy Incompatible with Differentiation Strategy 21
The Importance of Organizational Culture 21
Need to Redefine Porter’s Narrow View of Differentiation 22
A PROPOSED FRAMEWORK OF COMPETITION 23
Differentiation the... [continues]

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