In addition, this strategy will become ineffective with an increase in overall cost of a firmРІР‚в„ўs production inputs. It is also supported by the fact that nowadays customers are really critical about the quality of the product that makes more customers choose quality rather than cost conscious. Unfortunately, this strategy has weakness since it concerns cost reduction rather than quality of the product that leads to decline in the popularity.

Thirdly, it works best when organization could have few ways to achieve product differentiation, so that buyers get very sensitive to price differences. Secondly, the strategy is suitable for standardized product or readily available from other sellers in the industry. Firstly, the cost leadership strategy can be applied when the price competition among rival sellers is especially strong. Cost leadership not only helps a firm to take down the competitors but also increase market share along with better profit margins.Р”Р‡urthermore, this strategy is believed to work best in the certain circumstances. However, lowest-cost structure cannot be achieved by cutting the cost alone in one area of business it demands a reduction in costs on all the departments. Normally, economists believed that an increase in accumulated experience of a firm in producing or distributing a product or service could decrease the cost of producing or distributing a product or service.

An efficient business system creates cost efficiencies and economic of scales to allow a firm to become the lowest-cost producer. This can be fulfilled through applying efficient business system in an organization. This type of strategy meant for organizations that has goal to achieve the overall lowest cost structure in an industry. The recommended strategies are cost leadership, differentiation, and focus strategy. Michel Porter (1980) proposes that if firms pursue any of his three recommended generic competitive strategies they will be able to outperform competitors who do not pursue such strategies. Therefore, Three Generic Strategies were implemented to establish a strategic agenda for dealing with these five forces. In order to be competitive enough, a normal company that seeks profitability would have to understand how they work in its industry and how they affect the company in its particular situation. Furthermore, five forces analysis is treated by the organization to measure the level of competition, besides that, it is used as a strong first step in understanding how one industry compares to another and also to determine industry profitability because they influence the prices, costs, and required investment of firm in an industry. These five forces are treat of new entry, rivalry among existing firms, treat from substitute products, bargaining power of buyers, and bargaining power of suppliers. The long development of PorterРІР‚в„ўs Five Forces Analysis has brought to the fact that those forces become the determinants of the industryРІР‚в„ўs competition.

Target threat of new entrants