Porter's Generic (Competitive) Strategies

 Porter's Generic (Competitive) Strategies

Michael Porter's Generic Strategies are a useful framework for organizations to identify a potential niche in which they can gain a competitive advantage in any industry. 

The Generic Strategies

Each of these is an example of a Generic Strategy, as coined by Porter. They are referred to as generic as they can be applied to products, services across all industries, and in organizations of a variety of sizes. 

These initial strategies as described by Porter were: Cost Leadership (cheap, no expenses), Differentiation (unique or premium products) and Focus (a specialized service or market). He later sub-divided Focus into two different strategies: Differentiation Focus (unique strategy differentiation in a focused market) and Cost Focus (lower costs in a focused market). 

1. Cost Leadership

This strategy generally consists of an organization attempting to gain a market share by appealing to cost-conscious or cost-restricted customers or consumers. Therefore, it is the aim of the organization to become the lowest-cost producer in their chosen industry. Although any organization will aim to remove any unnecessary costs, those employing this strategy prioritize lowering all overheads.

Organizations exhibiting cost-leadership often exhibit a number of traits and attributes which make them suited for this approach:

1.   1. Access to capital or technology required to drive costs down.

2.    2. High levels of productivity.

3.    3. High efficiency and capacity utilization.

4.    4. low-cost base (e.g. labor, materials, facilities) and a method of maintaining this.

5.    5. Use of bargaining power to negotiate low production costs.

6.   6. Access to effective distribution channels. 

2. Differentiation

The general focus of differentiation-led organizations is to make their products different or more attractive than any other within the industry to achieve a competitive advantage. These organizations generally target larger markets and focus on differentiation on a much wider scale within the industry then would a cost-led company.

1.    Strong research, development, and innovation

2.    Superior product quality

3.    Recognizable branding, effective branding, and marketing

4.    Industry-wide distribution within all major channels (stocked by most retailers). 

3. Cost Focus

Cost-focus refers to organizations who seek to develop a lower-cost advantage, but only within a small market segment. These products will generally be basic, vaguely similar to the average market-leading products (though more popular products can be charged at a higher price) and will be acceptable to a sufficient number of customers in order to make a profit.

4. Differentiation Focus

In a differentiation-focus strategy, the organization will look to develop product differentiation, but only within one or a smaller number of market segments. As these organizations have identified a smaller consumer group to focus on, they can more specifically appeal to the needs and wants of this group than could an organization which is attempting to differentiate for a wider population.