By Oluwole Dada.
Tonight, I saw on Twitter the usual argument that Dangote is not a successful businessman as he thrives only on government’s connection and as usual I laughed. Let me respond as a marketing professional. There are three major ways by which you gain competitive advantage.
These strategies were defined by Michael Porter. The three strategies are:
- Cost Leadership
Follow me as you will find this thread useful either for your organization or your personal business enterprise.
Cost Leadership is the reduction of your cost of production better than your competitors such that you will be able to sell lower than them and still be able to make more margin than they do. This can be achieved through economies of scale with larger, better and faster equipment.
The use of cost leadership is prevalent when you are selling commodities. A commodity is something that can’t be differentiated with a specific feature. Examples of commodities are water, steel, wood, cement, oil, cotton, food stuff, sugar, salt, wheat, etc.
With the list of commodities listed above, you will realize that Dangote specializes in commodities. His terrain of strength is in that sector and he understands that a cost leadership strategy is the most striking strategy to win in such a sector. He’s found a way to reduce cost.
Today, Dangote Cement is the cheapest in the market. He is playing in the same market with international players such as Lafarge Holcim who were the market leaders at a time but Dangote came in with his cost leadership strategy and out witted them. Today, they’re market followers.
BUA Cement is another player in the cement industry and I wonder why people will say Dangote is playing in a monopolistic market. When I asked Lafarge workers why Dangote Cement is cheaper than theirs, their response has always been Dangote’s machines are the most recent.
He has found a way to get cheaper power in his industrial estates through an arrangement he made with General Electric. Power is one of the major cost inputs in the production of cement and he found a way to get cheaper power supply for his cement factory.
When Dangote stepped into the building of a refinery, there was nothing stopping other people from doing so but he took a bold step. Some got licenses but didn’t make any move to start operations. Is that government connection? For the records, the refinery was to be at Olokola.
Olokola is in Ondo state. The same government that people claim supports him did not provide a good environment for him which made him to move to Lagos state. As much as he is the only one in that area now, BUA is building his own refinery in Akwa-Ibom and it will aid competition.
When that time comes, I know Dangote will embark on his cost leadership strategy and find a way to reduce his cost of production and he will likely begin to sell lower than his competitors which will be for the benefit of Nigerians. This is how the cost leadership strategy works.
On return to the competitive advantage strategy, the second way to gain advantage is differentiation. This is used when you sell a product whose feature can be used to differentiate it from another product of the competitors. Examples of these are electronics such as TV, computers, phones, ACs, etc. A phone can be differentiated from another through the memory size, sleekness, speed, RAM, etc. Another thing that can be used to differentiate is a brand name. An example of this is iPhone. iPhone differentiates itself with the brand name.
iPhone uses the sleekness of its product to differentiate itself. You’ll realize that phones are more expensive than one another based on the factors I have listed above which are the features that helps differentiates one from another. Similar things happen to other electronics.
These features can help a company sell a product at a premium. Watch out for products that you buy at more expensive prices than its competitors and you will realize that it is because something has been used to differentiate one from the other.
Lastly, the one other strategy is focus. Focus is a strategy where you take a segment of the market & focus on it for sales. You create a product specifically for that segment of the market. There’s what is called market segmentation. You can segment your market in different ways
Market can be segmented demographically, geographically, psychographically and behaviorally.
Details of this will be discussed on another day. With this which you have read, whenever you are asked a question about Dangote’s success, you will be able to explain it better…