Porters Generic Strategies

Introduction

Porter identified three generic competitive strategies:

  1. Cost leadership
  2. Differentiation
  3. Focus

Cost Leadership

  • Business sets out to become a low cost producer in its industry.
  • Business strategy is to control cost through pursuing things such as economies of scale.
Differentiation
  • A strategy that focuses on the business being unique in it’s industry.
  • Price premium > Costs of differentiation.

Focus

  • There must be a difference between the focus target market segment and the market.
  • The segment must be structurally attractive.
  • Three main strategies:

i. Focus on short runs by investing in technology or methods that give cheaper or quicker turnaround.
ii. Cost advantage in its target segment.
iii. Differentiate focus because the broadly targeted competitors may not be meeting the needs of the segment.

Risks of Generic Strategy

Cost  Differentiation Focus
Sales Growth Differentiation is lost; competitor, bases of differentiation unimportant.
Competitors imitate, segments

becomes unattractive.

Proximity in differentiation is lost. Cost proximity is lost.
Broadly targeted competitors

take over.

Cost proximity is lost. Differentiation Focus achieves even more differentiation in segment.
New focusers sub-segment

the industry.