Question

discuss the pros and cons of the scope of competition

Answer 1

Scope of Competition.

Competitive scope is a concept given by Michael Porter. A function of the number of value chains in which the organization is engaged defines the scope of competition. The scope of competition can be classified into two categories; broad scope and narrow scope.

The broad scope involves two strategies namely cost leadership and differentiation strategy. The narrow scope involves two strategies namely focused cost leadership and focused differentiation strategy.

The cost leadership strategy focuses on providing goods and services at lower cost than competitors. The differentiation strategy focuses on features of the product which are different and better than competitors. The focused strategies focuses on niche market.

Advantages of Competitive scope.

- Benefits of charging high price can be enjoyed by firms having focused strategies.

- The companies using focused strategies often develop a good expertise about the product or service being sold. Thus, attracting customers to take advantage of the specialities.

- Firms with focused strategies can easily target the demand of the niche market and can serve them better which will bring them customer loyalty.

- Cost leadership strategy brings more customers due to low cost.

Disadvantages of Competitive scope.

- Cost leadership strategies are suitable only to large firms which has the opportunity to benefit from economies of scale. Small businesses may not be beneficial.

- Cost leadership strategy may have low customer loyalty, as customers pertaining to low price may easily switch to someone who offers still more lower price.

- Differentiation strategy is also not suitable to small businesses.

- In focus strategies, due to limited demand for specialized goods and services, every potential sale becomes important and crucial.

- Even the focused area of product can be taken over by competitors, and so losing the benefits of focused strategies.

- Other companies may also provide even narrower focus.

-Companies with cost leadership strategies may also have a lower reputation with the low quality factor in mind.