Discuss Which One Of The Five Generic Competitive Strategies Is Virgin Galactic Employing?
Porter’s Generic competitive Strategies are ways of competing with other organisations in the market. According to Ibrahim (2015), this competitive strategy actually determines whether the profitability of a firm is above or below the industry average. It is when the average profitability is above the industry, the organisation can be said to have competitive advantage in the long run. Porter’s showed two basic types of competitive advantages as enjoyed by the organisations. These are low cost and differentiation strategies. These are the basic means that the organisations undertake at times in a combined way to achieve competitiveness in the market where it operates (Becerra, Santaló & Silva, 2013). These two competitive strategies have leaded to three generic strategies that would help an organisation to achieve above average strategies and better performance in the industry. These three generic strategies are cost leadership, differentiation and focus. Again, the focus strategy has two other variants; these are, cost focus and the differentiation focus.
Fig: Porter’s Competitive Generic Model
(Source: Becerra, Santaló & Silva, 2013)
In the case study, it has been found that the Virgin Galactic group has come up with a completely new and innovative approach where the group will start offering spaceflights to the customers. The company wants to design a robust spaceship called Virgin Galactic that would offer customers to travel to space and have an orbital journey and then come back to the only habitable planet. Richard’s Branson vision is to introduce space tourism to the consumers. The idea is to make opportunities for people to become astronauts and visit space in lieu of a huge amount of money. For the same purpose, it has been found that the Virgin Galactic had also taken $25, 000 deposits from people who want to ensure their flight to be booked in advanced, while the actual price of the ticket has been kept as high as $200, 000. The confidence that the Virgin group showed towards their venture showed that the dream can be easily turned into reality. Among the keenly interested passengers, Stephen Hawking, Katy Perry, Brad Pitt and Angelina Jolie are few names worthy to be mentioned. The company has already come up with the physics and chemistry behind the launch of this vehicle that would take people far away from the earth. All it requires is now the accomplishment of the plan to see the reality that has always been a dream for people.
Keeping this particular case study and the business venture into consideration, it can be said that the Virgin group is definitely undertaking the approach of product differentiation strategy as part of the business strategy. The three generic strategies can be explained here:
Cost Leadership: The idea of the cost leadership strategy is to offer the particular product or service in the lowest possible price to the consumers in the market. As commented by Lechner and Gudmundsson, (2014), cost of products is definitely a vital factor when it comes to consumer decision making. Therefore, considering the price or rate of the product is important and in fact a lower priced product has the chances of higher selling in the market. In order to offer the product at a lower rate, the organisation needs to manage the cost required for the manufacturing of the product. This is when the concept of cost leadership comes to play. The idea of cost leadership is when s firm sets out to become the low cost producer in the industry where it operates. The cost leadership strategy include the pursuit of the economies of scale, the proprietary technology and the preferential access to the required raw materials and other things for the manufacturing of the particular goods (Brenes, Montoya & Ciravegna, 2014). It is when the organisation will be able to gain the cost advantage, it would become a low cost producer in the industry and will be an above the average performer.
Aligning this factor with the idea of Virgin group, it is clearly evident that the company is not at all looking for cost leadership strategy because the business idea that has been proposed requires huge investment and there is no scope for reducing the price in terms of its raw materials or products. Therefore, this particular factor can be easily rejected from the given factors of Porter’s Generic Forces.
Differentiation: The second generic factor is the differentiation. The idea is to serve a unique product or service that will be equally acceptable by the consumers because the product will be best from all the dimensions. The differentiation strategy is based on the concept buyers would perceive the product to be important as it will uniquely serve the needs of the people (Herzallah, Gutiérrez-Gutiérrez and Munoz Rosas, 2014). In fact, this product can also be rewarded with a premium price for the uniqueness that it will serve.
The differentiation strategy can be rightly aligned with the case study as the idea is to introduce a completely new venture of taking people from the earth to the outer space. The cost and expenditure on these ventures are not low but it requires lot of money that is easily been appreciated by the interested people because they have been found to make advance payment for the future venture.
Focus: The third strategy is focus when there is a narrow scope of competition within the industry. The particular business head selects a particular area of business and they expand in that direction. Moreover, in this particular strategy, the organisation also selects a particular target group of people for whom the business will be proposed (Riasi, 2015). This is the method of serving exclusive service or product to the particular target group. From the case study, it can be clearly stated that the Virgin group has focused on creating a completely new business venture that would create hype among the target group of people. In this case, the Virgin Group has also selected a particular target group of people as well. The target group is the rich and wealthy people which can easily afford the high price that this venture demands (Cusumano, Kahl & Suarez, 2015). At the same time, the science enthusiasts as well who want to know about the uniqueness of this universe. The Focus generic strategy has also been broadly divided into two segments, these are:
Cost focus: In the cost focus strategy, the particular firm looks into the cost advantage among the target segment in order to achieve more profitability in the business.
Differentiation focus strategy: This is another narrowed down feature of the business strategy where the organisation makes focus on the difference in the product or the service offered by the organisation considering the target group of consumers. It is important to consider the particular target group segment to which the product can be sold (Prajogo, 2016). Therefore, it can be easily said that the business strategy as undertaken by the Virgin group is definitely the differentiation focus strategy.
As commented by Porter and Heppelmann, (2015), the focus strategy delivers certain competitive advantages to a particular organisation in terms of serving the rivals and offering a better product or service to the consumers. In this respect, it can be easily said that the target group of people were selected prior to thinking about the business. The idea of sending people to the space and to create thousands of astronauts cannot be considered as a product idea for the common people but this has been definitely done for the sake of the rich people who can easily afford the price of the ticket required for flying high (Grant, 2016). In fact, from the case study it has also been evident that the organisation has also taken money from the interested candidates who want to visit the outside world. Therefore, there is no doubt that the competitive strategy as undertaken by the organisation is nothing but the focus differentiation strategy.
There are certain points that need to be considered when an organisation undertakes the differentiation strategy. Primarily, the organisation needs to carry out detailed research and analysis of the market where it wants to operate (Teeratansirikool et al., 2013). As mentioned that the focused differentiation strategy aims towards a particular target group, delivering the best suitable product is the most important criteria. The ability of delivering the high quality service to the target group is the only major concern for the business. If these factors are not fulfilled then there remains the chance that the business venture will not be accepted by the target group and the business venture will not be a successful one. In such cases, risks will be inevitable and the organisation might have to suffer a lot (Porter & Heppelmann, 2014). The differentiation strategy is not undertaken by large organisations because there remains the chance of risk. On the other hand, these organisations always prefer to undertake the cost differentiation strategy and look into the expenses behind the cost of manufacturing the product and offer the same to the consumers (Panwar et al., 2016). It cannot be denied that these are on-going strategies that are undertaken by the organisation in order to create a difference in the market and create a better market for itself that would increase the profitability of the organisation.
With the detailed analysis on the Porter’s Generic Strategies, it can be said that the business strategy undertaken by the organisation is Focus Differentiation strategy where the company wanted to offer something new and unique to the people. The target group of people was fixed before proposing the idea and that they were the rich and wealthy people having crave for something unique to experience. The proposed business idea has not turned into reality till now but it has definitely created a stir among the particular group of people who want to gain the experience. The proposed strategy could be successful if the proposed plan is successfully carried on. There was no scope for undertaking other generic strategies as per the recommended business and this was the only suitable strategy for the business. It can be said that the business strategy should always be considered on the basis on the market condition and the target group of people as well and with it the other competitors present in the market
Becerra, M., Santaló, J., & Silva, R. (2013). Being better vs. being different: Differentiation, competition, and pricing strategies in the Spanish hotel industry. Tourism Management, 34, 71-79. Available at: https://www.sciencedirect.com/science/article/pii/S0261517712000593 [Accessed on: 15-8-2017]
Brenes, E. R., Montoya, D., & Ciravegna, L. (2014). Differentiation strategies in emerging markets: The case of Latin American agribusinesses. Journal of Business Research, 67(5), 847-855. Available at: https://www.sciencedirect.com/science/article/pii/S0148296313002683 [Accessed on: 15-8-2017]
Cusumano, M. A., Kahl, S. J., & Suarez, F. F. (2015). Services, industry evolution, and the competitive strategies of product firms. Strategic management journal, 36(4), 559-575. Available at: https://onlinelibrary.wiley.com/doi/10.1002/smj.2235/full [Accessed on: 15-8-2017]
Grant, R. M. (2016). Contemporary strategy analysis: Text and cases edition. John Wiley & Sons. Available at: https://books.google.co.uk/books?hl=en&lr=&id=DTDvCQAAQBAJ&oi=fnd&pg=PP15&dq=Grant,+R.+M.+(2016).+Contemporary+strategy+analysis:+Text+and+cases+edition.+John+Wiley+%26+Sons.&ots=emIKhJh5-A&sig=T5vIzqC-lWz2dwm1PE9pDsGxKpQ#v=onepage&q&f=false [Accessed on: 15-8-2017]
Herzallah, A. M., Gutiérrez-Gutiérrez, L., & Munoz Rosas, J. F. (2014). Total quality management practices, competitive strategies and financial performance: the case of the Palestinian industrial SMEs. Total Quality Management & Business Excellence, 25(5-6), 635-649. Available at: https://www.tandfonline.com/doi/abs/10.1080/14783363.2013.824714 [Accessed on: 15-8-2017]
Ibrahim, A. B. (2015). Strategy types and small firms' performance an empirical investigation. Journal of Small Business Strategy, 4(1), 13-22. Available at: https://libjournals.mtsu.edu/index.php/jsbs/article/view/268 [Accessed on: 15-8-2017]
Lechner, C., & Gudmundsson, S. V. (2014). Entrepreneurial orientation, firm strategy and small firm performance. International Small Business Journal, 32(1), 36-60. Available at: https://journals.sagepub.com/doi/abs/10.1177/0266242612455034 [Accessed on: 15-8-2017]
Panwar, R., Nybakk, E., Hansen, E., & Pinkse, J. (2016). The effect of small firms' competitive strategies on their community and environmental engagement. Journal of Cleaner Production, 129, 578-585. Available at: https://www.sciencedirect.com/science/article/pii/S0959652616302141 [Accessed on: 15-8-2017]
Porter, M. E., & Heppelmann, J. E. (2014). How smart, connected products are transforming competition. Harvard Business Review, 92(11), 64-88. Available at: https://www.gospi.fr/IMG/pdf/porter-2014-hbr_how-smart-connected-products-are-transforming-competitionhbr-2014.pdf [Accessed on: 15-8-2017]
Porter, M. E., & Heppelmann, J. E. (2015). How smart, connected products are transforming companies. Harvard Business Review, 93(10), 96-114. Available at: https://lp.servicemax.com/rs/020-PCR-876/images/HBR-Connected-Products-Summary.pdf [Accessed on: 15-8-2017]
Prajogo, D. I. (2016). The strategic fit between innovation strategies and business environment in delivering business performance. International Journal of Production Economics, 171, 241-249. Available at: https://www.sciencedirect.com/science/article/pii/S0925527315003114 [Accessed on: 15-8-2017]
Riasi, A. (2015). Competitive advantages of shadow banking industry: An analysis using Porter diamond model. Business Management and Strategy, 6(2), 15-27. Available at: https://www.macrothink.org/journal/index.php/bms/article/view/8334 [Accessed on: 15-8-2017]
Teeratansirikool, L., Siengthai, S., Badir, Y., & Charoenngam, C. (2013). Competitive strategies and firm performance: the mediating role of performance measurement. International Journal of Productivity and Performance Management, 62(2), 168-184. Available at: https://www.emeraldinsight.com/doi/abs/10.1108/17410401311295722 [Accessed on: 15-8-2017]
Yunna, W., & Yisheng, Y. (2014). The competition situation analysis of shale gas industry in China: Applying Porter’s five forces and scenario model. Renewable and Sustainable Energy Reviews, 40, 798-805. Available at: https://www.sciencedirect.com/science/article/pii/S1364032114006911 [Accessed on: 15-8-2017]