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Porter’s Generic Strategies:

Differentiation, Cost Leadership and
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 April 14, 2021  Lars de Bruin  1 Comment  Business Strategy, Cost Leadership,
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Differentiation, Focus, Porter, Porter's Generic Strategies, Strategy, Value Disciplines

Porter’s Generic Strategies is an answer to one of two central questions

underlying the choices companies have with regard to competitive strategy. Recent Posts
The first question is about the attractiveness of industries for long-term
profitability and how to choose which industry to enter as a company. We are Porter’s Generic Strategies:
all familiar with the framework that Porter came up with to determine this: the Differentiation, Cost Leadership
and Focus
Five Forces Model. The second question is about the determinants of a
company’s relative competitive position in an industry after a certain industry is GE McKinsey Matrix: A
chosen to enter. Because, in order to be a successful company, being active in Multifactorial Portfolio Analysis in
Corporate Strategy
an attractive industry alone is not enough: you will need to acquire a dominant
competitive position by choosing among three generic strategies: Product Life Cycle: The
Differentiation, Cost Leadership and Focus. Failing to choose between one of Introduction, Growth, Maturity
and Decline of a Product Category
these strategies will result in strategic mediocrity and below-average
performance, or as Porter describes it: ‘being stuck in the middle’. This article Three Levels of Strategy:
will go into Porter’s Generic Strategies with the aid of examples. Corporate Strategy, Business
Strategy and Functional Strategy
Fiedler’s Contingency Model of
Leadership: Matching the Leader
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Figure 1: Porter’s Generic Strategies: Cost Leadership, Differentiation and Focus

Differentiation Explore Case Studies, Books, Too

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Differentiation is a type of competitive strategy with which a company seeks to
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distinguish its products or services from that of competitors: the goal is to be
unique. A company may use creative advertising, distinctive product features,
higher quality, better performance, exceptional service or new technology to
Top Frameworks
achieve a product being perceived as unique. A differentiation strategy can
reduce rivalry with competitors if buyers are loyal to a company’s brand.
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Companies with a differentiation strategy therefore rely largely on customer
Business?
loyalty. Because of the uniqueness, companies with this type of strategy usually
price their products higher than competitors. Examples of companies with Porter’s Five Forces
differentiated products and services are: Apple, Harley-Davidson, Nespresso, Scanning the Environment: PESTEL
LEGO, Nike and Starbucks. Analysis
BCG Matrix: Portfolio Analysis in
Cost Leadership Corporate Strategy
SWOT Analysis: Bringing Internal
Cost Leadership is a type of competitive strategy with which a company and External Factors Together
aggressively seeks efficient large-scale production facilities, cuts costs, uses VRIO: From Firm Resources to
economies of scale, gains production experience and employs tight cost Competitive Advantage
controls to be more efficient in the production of products or the offering of
services than competitors: the goal is to be the low-cost producer in the
industry. A low-cost position also means that a company can undercut
competitors’ prices through for example penetration pricing and can still offer
comparable quality against reasonable profits. Low-cost producers typically sell
standard no-frills products or services. Examples of companies with cost
leadership positions are: Southwest Airlines, Wal-Mart, McDonald’s, EasyJet,
Costco and Amazon.

Focus Explore Case Studies, Books, Too

from Today's Leading Minds In B
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Focus is a type of competitive strategy that emphasizes concentration on a
specific regional market or buyer group: a niche. The company will either use a
differentiation or cost leadership strategy, but only for a narrow target market
rather than offering it industry-wide. The company first selects a segment or
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4/28/22, 6:02 PM Porter's Generic Strategies EXPLAINED with EXAMPLES | B2U

group of segments in anAds industry and then tailors its strategy to serve those
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segments best to the exclusion of others. Like mentioned, the focus strategy
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has two variants:
ExploreDifferentiation Focus and Books,
Case Studies, Cost Focus.Tools
These two
& Mostrategies from Today's Leading
differ onlyfrom
from Today's
Differentiation and Cost
Leading Leadership
Minds in terms of their
In Business.
competitive scope. Examples of companies with a differentiation focus strategy
are: Rolls Royce, Omega, Prada and Razer. Examples of companies with a cost
focus strategy are: Claire’s, Home Depot and Smart.

Stuck in the Middle

Open

A company that tries to engage in each generic strategy but fails to achieve any
of them, is considered ‘stuck in the middle’. Such a company has no
competitive advantage regardless of the industry it is in. As a matter of fact,
such a company will compete at a disadvantage because the ‘cost leader’, the
‘differentiators’ and the ‘focusers’ in the industry will be better positioned to
compete. It may be the case, however, that a company that is stuck in the
middle still earns interesting profits simply because it is operating in a highly
attractive industry or because its competitors are stuck in the middle as well. If Explore Case Studies, Books, Tools &
More from Today's Leading Minds In

one of the two exceptions are not present it will be very hard for companies to Business.
engage in both differentiation and cost leadership, Porter argues, because store.hbr.org

differentiation is usually costly. Each generic strategy is a fundamentally

different approach to creating and sustaining superior performance and
requires a different operating model.   

Other interpretations of Porter’s

Generic Strategies
Explore Case Studies, Books, Too
Like many business frameworks, Porter’s Generic Strategies Model has both from Today's Leading Minds In B
proponents and opponents. Among others, Miller (1992) has questioned
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Porter’s notion of having to pursue one single strategy or else being caught
‘stuck in the middle’. He claims that there is a viable middle-ground between
strategies and uses the example of Caterpillar Inc, which differentiated itself by
producing the highest quality earth-moving equipment in the world while
paying attention to cost-efficiency. Miller argues that strategic specialization, as
Porter suggests, has the danger of becoming inflexible and blind to customer
needs. Also Chan Kim and Mauborgne (2005) abandon the ‘value-cost’ trade-off
that a company needs to choose between certain strategies. With their Blue
Ocean Strategy they advice companies to  pursue differentiation and low cost
simultaneously: it is about driving costs down while simultaneously driving
value up for buyers. However, there are also popular authors who do believe in
Porter’s idea of competitive choice. Treacy and Wiersema (1995) for example
build further on Porter’s idea and modified Porter’s Generic Strategies into the
Value Disciplines. They advice companies to choose between Operational
Excellence, Product Leadership and Customer Intimacy.

Further Reading:
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One thought on “Porter’s Generic Strategies:

Differentiation, Cost Leadership and Focus”
 Imran
 December 27, 2021 at 22:53
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Please do a video on it!

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Porter’s Generic Strategies:

Differentiation, Cost Leadership
and Focus
GE McKinsey Matrix: A
Multifactorial Portfolio Analysis in
Corporate Strategy
Product Life Cycle: The
Introduction, Growth, Maturity
and Decline of a Product Category
Three Levels of Strategy:
Corporate Strategy, Business
Strategy and Functional Strategy
Fiedler’s Contingency Model of
Leadership: Matching the Leader
to the Situation

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Strategy: Corporate Strategy,
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