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    Porter Generic Strategies

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    Porter's generic strategies include cost leadership, differentiation, and focus. Cost leadership involves having efficient operations to offer lower prices than competitors. Differentiation involves creating unique product attributes that are valued by customers. Focus involves targeting a narrow market segment and achieving either cost advantages or differentiation within that segment. While each strategy provides defenses against competitive forces, attempting multiple strategies risks being "stuck in the middle" without a clear advantage. Later critics argued generic strategies lack flexibility and specificity, and that there are viable strategies between the three defined by Porter.

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    Porter Generic Strategies

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    ebustosf
    82 views11 pages
    Porter's generic strategies include cost leadership, differentiation, and focus. Cost leadership involves having efficient operations to offer lower prices than competitors. Differentiation involves creating unique product attributes that are valued by customers. Focus involves targeting a narrow market segment and achieving either cost advantages or differentiation within that segment. While each strategy provides defenses against competitive forces, attempting multiple strategies risks being "stuck in the middle" without a clear advantage. Later critics argued generic strategies lack flexibility and specificity, and that there are viable strategies between the three defined by Porter.

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    Porter Generic Strategies

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    Porter's generic strategies include cost leadership, differentiation, and focus. Cost leadership involves having efficient operations to offer lower prices than competitors. Differentiation involves creating unique product attributes that are valued by customers. Focus involves targeting a narrow market segment and achieving either cost advantages or differentiation within that segment. While each strategy provides defenses against competitive forces, attempting multiple strategies risks being "stuck in the middle" without a clear advantage. Later critics argued generic strategies lack flexibility and specificity, and that there are viable strategies between the three defined by Porter.

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    Download as ppt, pdf, or txt
    82 views11 pages

    Porter Generic Strategies

    Uploaded by

    ebustosf
    Porter's generic strategies include cost leadership, differentiation, and focus. Cost leadership involves having efficient operations to offer lower prices than competitors. Differentiation involves creating unique product attributes that are valued by customers. Focus involves targeting a narrow market segment and achieving either cost advantages or differentiation within that segment. While each strategy provides defenses against competitive forces, attempting multiple strategies risks being "stuck in the middle" without a clear advantage. Later critics argued generic strategies lack flexibility and specificity, and that there are viable strategies between the three defined by Porter.

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    Porter’s Generic Strategies

    MGT 400
    Bruce C Hartman
    Et. Al.
    The Five-Forces Model of Competition
    (Porter)
    Potential development
    of substitute products

    Bargaining power Rivalry among Bargaining power


    of suppliers competing firms of consumers

    Potential entry of new


    competitors
    Generic Strategy Picture
    Porter's Generic Strategies

    Advantage

    Target Scope

    Low Cost Product Uniqueness

    Broad
    (Industry Wide) Cost Leadership Differentiation
    Strategy Strategy

    Narrow
    (Market Segment) Focus Focus
    Strategy Strategy
    (low cost) (differentiation)
    Cost Leadership Strategy
    • Firms that succeed in cost leadership often have the following
    internal strengths:
    – Access to the capital required to make a significant investment in
    production assets; this investment represents a barrier to entry that
    many firms may not overcome.
    – Skill in designing products for efficient manufacturing, for example,
    having a small component count to shorten the assembly process.
    – High level of expertise in manufacturing process engineering.
    – Efficient distribution channels.
    • Risks
    – For example, other firms may be able to lower their costs as well. As
    technology improves, the competition may be able to leapfrog the
    production capabilities, thus eliminating the competitive advantage.
    Additionally, several firms following a focus strategy and targeting
    various narrow markets may be able to achieve an even lower cost
    within their segments and as a group gain significant market share.
    Differentiation Strategy
    • Firms that succeed in a differentiation strategy
    often have the following internal strengths:
    – Access to leading scientific research.
    – Highly skilled and creative product development
    team.
    – Strong sales team with the ability to successfully
    communicate the perceived strengths of the product.
    – Corporate reputation for quality and innovation.
    • Risks
    – include imitation by competitors and changes in
    customer tastes. Additionally, various firms pursuing
    focus strategies may be able to achieve even greater
    differentiation in their market segments.
    Focus Strategy
    • Concentrates on a narrow segment and within that segment attempts to
    achieve either a cost advantage or differentiation.
    – The premise is that the needs of the group can be better serviced by focusing
    entirely on it.
    – A firm using a focus strategy often enjoys a high degree of customer loyalty, and
    this entrenched loyalty discourages other firms from competing directly.
    • Because of their narrow market focus, firms pursuing a focus strategy have
    lower volumes and therefore less bargaining power with their suppliers.
    However, firms pursuing a differentiation-focused strategy may be able to
    pass higher costs on to customers since close substitute products do not
    exist.
    • Firms that succeed in a focus strategy are able to tailor a broad range of
    product development strengths to a relatively narrow market segment that
    they know very well.
    • Risks
    – include imitation and changes in the target segments. Furthermore, it may be
    fairly easy for a broad-market cost leader to adapt its product in order to compete
    directly. Finally, other focusers may be able to carve out sub-segments that they
    can serve even better.
    Stuck in the Middle?
    • These generic strategies are not necessarily compatible with one another. If a firm
    attempts to achieve an advantage on all fronts, in this attempt it may achieve no
    advantage at all.
    – For example, if a firm differentiates itself by supplying very high quality products, it risks
    undermining that quality if it seeks to become a cost leader. Even if the quality did not suffer,
    the firm would risk projecting a confusing image.
    • For this reason, Michael Porter argued that to be successful over the long-term, a
    firm must select only one of these three generic strategies. Otherwise, with more than
    one single generic strategy the firm will be "stuck in the middle" and will not achieve a
    competitive advantage.
    • Porter argued that firms that are able to succeed at multiple strategies often do so by
    creating separate business units for each strategy. By separating the strategies into
    different units having different policies and even different cultures, a corporation is
    less likely to become "stuck in the middle."
    • However, there exists a viewpoint that a single generic strategy is not always best
    because within the same product customers often seek multi-dimensional
    satisfactions such as a combination of quality, style, convenience, and price.
    – There have been cases in which high quality producers faithfully followed a single strategy
    and then suffered greatly when another firm entered the market with a lower-quality product
    that better met the overall needs of the customers.
    Generic Strategies/Industry Forces
    These generic strategies each have attributes that can serve to defend against competitive forces.
    Generic Strategies

    Industry
    Force Cost
    Differentiation Focus
    Leadership

    Entry Ability to cut price in Customer loyalty can Focusing develops core
    retaliation deters discourage potential competencies that can
    Barriers potential entrants. entrants. act as an entry barrier.

    Large buyers have less


    Buyer Large buyers have less
    Ability to offer lower power to negotiate
    power to negotiate --
    Power price to powerful buyers. because of few
    few close alternatives.
    alternatives.
    Suppliers have power
    because of low volumes,
    Supplier Better able to pass on
    Better insulated from but a differentiation-
    supplier price increases
    Power powerful suppliers. focused firm is better
    to customers.
    able to pass on supplier
    price increases.
    Customers become
    Specialized products &
    Threat of attached to
    Use low price to defend core competency
    differentiating attributes,
    Substitutes against substitutes. protect against
    reducing threat of
    substitutes.
    substitutes.
    Rivals cannot meet
    Better able to compete Brand loyalty to keep
    Rivalry on price. customers from rivals.
    differentiation-focused
    customer needs.
    Criticisms of generic strategies
    Michael Treacy and Fred Wiersema (1993) modified Porter's three
    strategies to describe three basic "value disciplines" that can create
    customer value and provide a competitive advantage. They are
    operational excellence, product innovation, and customer intimacy.
    • Several commentators questioned the use of generic strategies
    claiming they lack specificity, lack flexibility, and are limiting. Trying
    to apply generic strategies is like trying to fit a round peg into one of
    three square holes: You might get the peg into one of the holes, but
    it will not be a good fit.
    • In particular, Millar (1992) 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".
    • From Wikipedia, the free encyclopedia.
    References
    • Michael E Porter, Competitive Strategy, Free Press, 1980
    • Philip Kotler, Marketing Management, Analysis, Planning, and
    Control, Prentice Hall, 1975(3rd edition) - This was a textbook that
    went through 6 editions and was used in MBA courses for 20 years.
    It talks about all three of these strategies.
    • Treacy, M. and Wiesema, F. (1993) "Customer intimacy and other
    Value Disciplines", Harvard Business Review Jan/Feb 1993.
    • Wendell R Smith, Product Differentiation and Market Segmentation
    as Alternative Marketing Strategies. Journal of Marketing, July 1966
    - This is probably the first in depth description of these two
    strategies.
    • Millar, D. (1992) "The Generic Strategy Trap", Journal of Business
    Strategy vol 13, no 1, Jan-Feb, 1992.
    • Baden-Fullen, C. and Stopford, J. (1992) Rejuvenating the Mature
    Business, Harvard Business School Press, Boston, 1992.

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