Mastering the 7 Powers: A Comprehensive Summary of Business Strategy Foundations
If you’re a business owner, a manager, or a strategist aiming for success, then knowing how to wield business strategy in your favor is essential. Fortunately, Michael E. Porter, a Harvard Business School professor, designed the 7 Powers framework, an acclaimed business strategy method, to help professionals craft winning business strategies.
Power 1: Scale Economies
Scale economies refer to cost advantages inherent in big businesses versus small ones. For example, a large-scale business may acquire materials cheaper than a small business due to bulk purchase. To benefit from scale economies, businesses must also know how to price fairly, or risk mistakenly pricing themselves out of the market.
Power 2: Network Economies
Network economies are a kind of scale economy that occurs when businesses benefit from other businesses or products in their network. For example, Facebook benefits more from a larger userbase because it can sell more targeted advertising. To optimize your network economies, analyze how your business can interact with others in complementary or symbiotic ways.
Power 3: Counter-Positioning
Counter-positioning means using an existing product in a new way to make it more valuable for customers. For example, Dyson’s vacuums only became popular when they repositioned themselves as a premium product. Counter-positioning hinges on creativity and understanding your customer’s problems, so be sure to keep up-to-date with customer reviews and product feedback.
Power 4: Switching Costs
Switching costs refer to the amount of time, money, and effort needed to switch from one product to another. For example, switching phone service providers after years of using the same provider can be a hassle due to contractual obligations. To take advantage of switching costs, provide high-quality service and products that incentivize customers to stay.
Power 5: Branding
A brand reflects what a company stands for and the values it upholds. Businesses with strong brand identity, such as Apple or Coca-Cola, can maintain market dominance. To optimize your branding, consider what values your business stands for, how can they be incorporated into your branding, and what unique selling points your business can offer based on these values.
Power 6: Cornered Resource
A cornered resource is a unique asset that a business has that competitors cannot easily replicate. For example, Amazon’s fulfillment centers and algorithms have put other retailers at a disadvantage. When applying cornered resources, make sure to use them in ways that do not harm the industry, to avoid anti-trust allegations.
Power 7: Price Discrimination
Price discrimination is the act of selling the same product to different customers at different prices. Pricing strategies such as dynamic pricing and seasonal pricing are ways to effectively capitalize on this power. When implementing price discrimination, make sure that the pricing policy is not seen as exploitative.
Conclusion
The 7 Powers framework is a powerful tool that businesses can use to develop and execute their strategies. By analyzing which powers are most relevant to their business and using them effectively, businesses can maintain a competitive edge. When developing your business strategy, make sure to keep Porter’s 7 Powers in mind, and find creative ways to apply them to gain the edge over your competitors.
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