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. The recommended strategies are cost leadership, differentiation, and focus strategy. 1. Cost Leadership Strategy
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Porter called the generic strategies "Cost Leadership" (no frills), "Differentiation" (creating uniquely desirable products and services) and "Focus" (offering a specialized service in a niche market).
Porter suggest there are three generic strategies: cost leadership, differentiation and focus.
1. Choose a strategyCreate a Strengths, Weakness, Opportunities, Threats (SWOT) analysis for each of the three strategies. ... Analyze businesses within your industry to determine how to position your own strategy. ... Compare your SWOT to the results from your analysis of the industry.
Porter's Generic Strategies is a group of four categories of competitive strategy: Differentiation, Cost Leadership, Focus (Cost), Focus (Differentiation).
A cost leadership strategy hinges on a company's ability to lower costs of production to offer quality products at low prices. It's an effective strategy for large companies with lots of buying power, but it's less effective for small businesses.
1. Research your customers and competition. Use market research to analyze your customers and competitors on multiple levels. This will help you evaluate whether the demand for a product/service is real, and whether expanding into a potential new market is worthwhile for your company.
According to Porter's three generic strategies for entering a market, if you have a focused strategy you should target a narrow market, niche market, or a unique market.
Four generic business-level strategies emerge from these decisions: (1) broad cost leadership , (2) broad differentiation , (3) focused cost leadership , and (4) focused differentiation . In rare cases, firms are able to offer both low prices and unique features that customers find desirable.
The answer is 5) A market share dominator strategy. The strategy to dominate market share is not one of Porter's generic strategies for competition. The key generic types of competitive strategy are the best-cost provider, low-cost provider, differentiation, and focused low-cost.
A firm's relative position within its industry determines whether a firm's profitability is above or below the industry average. The fundamental basis of above average profitability in the long run is sustainable competitive advantage.
Four generic business-level strategies emerge from these decisions: (1) cost leadership, (2) differentiation, (3) focused cost leadership, and (4) focused differentiation. In rare cases, firms are able to offer both low prices and unique features that customers find desirable.
What are five generic business strategies for achieving a profitable business? The five generic business strategies are differentiation, cost competition, scope, focus ormarket niche, and customer intimacy.
Porter called the generic strategies "Cost Leadership" (no frills), "Differentiation" (creating uniquely desirable products and services) and "Focus" (offering a specialized service in a niche market).
Porter: Competitive Strategy (Definition) Competitive strategy is concerned with creating and maintaining a competitive advantage in each and every area of business. (
According to this strategy, a business competes by applying cost-cutting measures to all levels of its value chains. A low-cost producer will be hitting the highest profits in a market that is selling standardized goods at relatively standardized rates.
This strategy implies that a business is offering a unique addition to the product that is being sold in the market and in such a way that it adds value to the product from the customer’s perspective.
The focus strategy involves identifying various market segments and then choosing a narrow segment and modifying the product to suit that particular segment. This strategy might work for smaller businesses that are struggling to compete with larger businesses in terms of efficiency or even variety.
Porter’s Generic Strategies are the standard basic strategies that a Business can follow , suggested by Michael Porter.
Its Competitive Advantage is, or can be, its Cost-efficiency . If it has a competitive Manufacturing process, or Cheap raw materials, for example. It targets an entire Market . If its Competitive Advantage can, and will be applied to all its products on the Market.
Louis Vuitton is a good example of a company that has followed a Differentiation Strategy:
Monster focused on their Costs and Pricing, and this Strategy made them the great profitable company it is today. Remember: Monster was a relatively small company that was targeting a small segment of a niche market (at the time).
Then, in 2012, a new energy drink appeared: G-Fuel.
It seems that Apple has always been the almighty company that it is today.
G-Fuel is now an increasingly popular energy drink thanks to its Differentiation. They have Focused on the energy drink Market, nothing more. In addition, they have also focused on selling mainly online. Some professionals claim that these strategies are very general and vague.
The terms "Cost Focus" and "Differentiation Focus" can be a little confusing, as they could be interpreted as meaning "a focus on cost" or "a focus on differentiation." Remember that Cost Focus means emphasizing cost-minimization within a focused market, and Differentiation Focus means pursuing strategic differentiation within a focused market.
Porter called the generic strategies "Cost Leadership" (no frills), "Differentiation" (creating uniquely desirable products and services) and "Focus" (offering a specialized service in a niche market). He then subdivided the Focus strategy into two parts: "Cost Focus" and "Differentiation Focus." These are shown in figure 1 below.
Remember that Cost Leadership is about minimizing the cost to the organization of delivering products and services. The cost or price paid by the customer is a separate issue! The Cost Leadership strategy is exactly that – it involves being the leader in terms of cost in your industry or market.
Organizations that achieve Cost Leadership can benefit either by gaining market share through lowering prices (whilst maintaining profitability) or by maintaining average prices and therefore increasing profits. All of this is achieved by reducing costs to a level below those of the organization's competitors.
One of the most important reasons why this is wise advice is that the things you need to do to make each type of strategy work appeal to different types of people.
Because they serve customers in their market uniquely well, they tend to build strong brand loyalty amongst their customers. This makes their particular market segment less attractive to competitors.
There are two main ways of achieving this within a Cost Leadership strategy: Increasing profits by reducing costs, while charging industry-average prices. Increasing market share by charging lower prices, while still making a reasonable profit on each sale because you've reduced costs.
Porter's generic strategies describe how a company pursues competitive advantage across its chosen market scope. There are three/four generic strategies, either lower cost, differentiated, or focus. A company chooses to pursue one of two types of competitive advantage, either via lower costs than its competition or by differentiating itself along ...
They are operational excellence, product leadership, and customer intimacy.
Examples of the successful use of a differentiation strategy are Hero, Asian Paints, HUL, Nike athletic shoes (image and brand mark), BMW Group Automobiles, Perstorp BioProducts, Apple Computer (product's design), Mercedes-Benz automobiles.
The breadth of its targeting refers to the competitive scope of the business. Porter defined two types of competitive advantage: lower cost or differentiation relative to its rivals. Achieving competitive advantage results from a firm's ability to cope with the five forces better than its rivals. Porter wrote: "Achieving competitive advantage requires a firm to make a choice...about the type of competitive advantage it seeks to attain and the scope within which it will attain it." He also wrote: "The two basic types of competitive advantage [differentiation and lower cost] combined with the scope of activities for which a firm seeks to achieve them lead to three generic strategies for achieving above average performance in an industry: cost leadership, differentiation and focus. The focus strategy has two variants, cost focus and differentiation focus." In general:
The unlimited resources model utili competitors by practicing a differentiation strategy. An organization with greater resources can manage risk and sustain profits more easily than one with fewer resources. This provides a short-term advantage only. If a firm lacks the capacity for continual innovation, it will not sustain its competitive position over time.
Porter stressed the idea that only one strategy should be adopted by a firm and failure to do so will result in “stuck in the middle” scenario . He discussed the idea that practising more than one strategy will lose the entire focus of the organization hence clear direction of the future trajectory could not be established. The argument is based on the fundamental that differentiation will incur costs to the firm which clearly contradicts with the basis of low cost strategy and on the other hand relatively standardised products with features acceptable to many customers will not carry any differentiation hence, cost leadership and differentiation strategy will be mutually exclusive. Two focal objectives of low cost leadership and differentiation clash with each other resulting in no proper direction for a firm. In particular, Miller questions the notion of being "caught in the middle". He claims that there is a viable middle ground between strategies. Many companies, for example, have entered a market as a niche player and gradually expanded. According to Baden-Fuller and Stopford (1992) the most successful companies are the ones that can resolve what they call "the dilemma of opposites". Furthermore, Reeves and Routledge's (2013) study of entrepreneurial spirit demonstrated this is a key factor in organisation success, differentiation and cost leadership were the least important factors.
The third dimension is control over the value chain encompassing all functional groups (finance, supply/procurement, marketing, inventory, information technology etc..) to ensure low costs. For supply/procurement chain, this could be achieved by bulk buying to enjoy quantity discounts, squeezing suppliers on price, instituting competitive bidding for contracts, working with vendors to keep inventories low using methods such as Just-in-Time purchasing or Vendor-Managed Inventory. Wal-Mart is famous for squeezing its suppliers to ensure low prices for its goods. Other procurement advantages could come from preferential access to raw materials, or backward integration. Keep in mind that if you are in control of all functional groups this is suitable for cost leadership; if you are only in control of one functional group this is differentiation. For example, Dell Computer initially achieved market share by keeping inventories low and only building computers to order via applying Differentiation strategies in supply/procurement chain. This will be clarified in other sections.