Focus strategies[ edit ] This dimension is not a separate strategy for big companies due to small market conditions. A firm may be attempting to offer a lower cost in that scope cost focus or differentiate itself in that scope differentiation focus.
The premise is that the needs of the group can be better serviced by focusing entirely on it. It is rewarded for its uniqueness with a premium price.
The choice is up to you, of course. The Cost Leadership strategy is exactly that — it involves being the leader in terms of cost in your industry or market. Many companies, for example, have entered a Porter generic stratey as a niche player and gradually expanded.
The luxury airlines, on the other hand, focus their efforts on making their service as wonderful as possible, and the higher prices they can command as a result make up for their higher costs.
A differentiation strategy is appropriate where the target customer segment is not price-sensitive, the market is competitive or saturated, customers have very specific needs which are possibly under-served, and the firm has unique resources and capabilities which enable it to satisfy these needs in ways that are difficult to copy.
According to Baden-Fuller and Stopford the most successful companies are the ones that can resolve what they call Porter generic stratey dilemma of opposites". The cost leadership strategy usually targets a broad market.
The greatest risk in pursuing a Cost Leadership strategy is that these sources of cost reduction are not unique to you, and that other competitors copy your cost reduction strategies. A focused strategy should target market segments that are less vulnerable to substitutes or where a competition is weakest to earn above-average return on investment.
The focus strategy has two variants. Some of the ways that firms acquire cost advantages are by improving process efficiencies, gaining unique access to a large source of lower cost materials, making optimal outsourcing and vertical integration decisions, or avoiding some costs altogether.
In particular, Miller  questions the notion of being "caught in the middle". Otherwise, they risk attack on several fronts by competitors pursuing Focus Differentiation strategies in different market segments. Cost leadership strategies are only viable for large firms with the opportunity to enjoy economies of scale and large production volumes and big market share.
The least profitable firms were those with moderate market share. This helps them grab market share and ensure their planes are as full as possible, further driving down cost.
In the event of a price war, the firm can maintain some profitability while the competition suffers losses. Porter suggested combining multiple strategies is successful in only one case.
Why is this so? To apply differentiation with attributes throughout predominant intensity in any one or several of the functional groups finance, purchase, marketing, inventory etc. It seeks to minimize costs in areas that do not differentiate it, to remain cost competitive; or If it is focusing on one or a few segments, it is following a focus strategy.
One successful way of doing this is by adopting the Japanese Kaizen philosophy of "continuous improvement. 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.
This provides a short-term advantage only. A not-for-profit can use a Cost Leadership strategy to minimize the cost of getting donations and achieving more for its income, while one pursuing a Differentiation strategy will be committed to the very best outcomes, even if the volume of work it does as a result is smaller.
Variants on the Differentiation Strategy[ edit ] The shareholder value model holds that the timing of the use of specialized knowledge can create a differentiation advantage as long as the knowledge remains unique.
Large organizations pursuing a differentiation strategy need to stay agile with their new product development processes. Cost Leadership requires a very detailed internal focus on processes.
Differentiation strategy is not suitable for small companies. You therefore need to be confident that you can achieve and maintain the number one position before choosing the Cost Leadership route. Wal-Mart is famous for squeezing its suppliers to ensure low prices for its goods.
Furthermore, it may be fairly easy for a broad-market cost leader to adapt its product in order to compete directly. Overheads are kept low by paying low wages, locating premises in low rent areas, establishing a cost-conscious culture, etc. After eleven years Porter revised his thinking and accepted the fact that hybrid business strategy could exist Porter cited by Prajogop.Porter's Generic Competitive Strategies (ways of competing) 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. Beat the competition, no matter what industry you're in, with Michael Porter's Generic Strategies.
Includes tips on how to apply each strategy. Porter's Generic Strategies with examples 1.
PORTER’S GENERIC STRATEGIES 2. Introduction Michael Porter is a professor at Harward Business School. A firm’s success in strategy rests upon how it positions itself in respect to its environment. Michael Porter has argued that a firms strengths ultimately fall into one of two headings: cost.
Porter's Generic Strategies If the primary determinant of a firm's profitability is the attractiveness of the industry in which it operates, an important secondary determinant is its position within that industry.
Porter suggested four "generic" business strategies that could be adopted in order to gain competitive advantage. The strategies relate to the extent to which the scope of a business' activities are narrow versus broad and the extent to which a business seeks to differentiate its products.
The. This revision presentation explains how Michael Porter suggested four "generic" business strategies that could be followed in order to gain competitive advantage. The differentiation and cost leadership strategies seek competitive advantage in a broad range of market or industry segments.
Porters Generic Strategies (Revision Presentation.Download