What are Porter's Generic Strategies?Porter's Generic Strategies is a group of four categories of competitive strategy: Differentiation, Cost Leadership, Focus (Cost), Focus (Differentiation). Show
How was Porter's Generic Strategies Developed?The study of business strategy was strongly influenced by Michael Porter, Harvard Professor, and author. In 1985, he wrote the seminal text, Competitive Advantage: Creating and Sustaining Superior Performance, concerning business strategy. In his text, he proposed 3 (or 4) categories of generic strategies for approaching a product market. What is the Effect of a Competitive Strategy?Per Porter, any one of these strategies is capable of producing a competitive advantage for a business in a given market. It is important to note that, every strategy is not possible for a single firm. However, if the firm is capable and executes a strategy sufficiently, then it can achieve a competitive advantage in the market. Back to: STRATEGY & PLANNING Back to: Entrepreneurship What are the Generic Strategies?In summary, the strategies were as follows:
Let's take a deeper look at each of Porters Generic Strategies. Back to: Entrepreneurship What is the Cost Leadership StrategyCost leadership means being an industry leader in low-cost production. Remember, this does not concern the cost for the consumer. It concerns the cost of production for the business. The strategic position serves one of two purposes at any stage of execution:
In order to employ this strategic approach, you must be able to establish and maintain a lower cost structure than any competitor. This includes the cost structure of competitors producing similar (and sometimes, substitute) goods. Note: This strategic approach is the genesis of out-sourced production of products to countries where the cost of manufacturing and shipping is lower than the costs within the United States. Techniques for effectuating this strategy vary. As noted above, outsourcing is a common way of lowering production costs of products and services. Companies often employ new technologies in hopes of bringing down traditional cost structure (e.g., Wal- Mart). Operations managers study efficiency theories, such a Lean Sigma in order to determine ways of cutting waste (i.e., costs) in the production process. The downside of cost leadership strategy is that competitors will enter the market (new entrants) when old cost structures are replaced by more efficient structures (ex. Southwest Airlines). The existing business may be stuck at old cost rates (such as fuel) where new entrants have the benefit of lower rates. What is the Differentiation Strategy?Differentiation is the strategic tactic of separating your produce or service from others in the industry. Unlike cost leaders, differentiation strategy focuses on the value proposition to customers. That is, the product or service has some unique character or feature that differentiates it from other competitors where the value proposition is greater to certain customers. Examples of differentiation sub-strategies include:
What is the Focus Strategy?The focus strategy is a third category that is split into 2 categories that modify the cost leadership and differentiation strategy. In either case, the focus strategy involves concentrating efforts on customers who have unique needs or wants, commonly referred to as a niche market. This level of customer focus allows a business to either produce a given product in a lower cost structure or to produce a product or service with unique features or characteristics that meet the needs or wants of the focus market. Either subcategory of the focus strategy allows for distinct advantage: Example: A cost focus strategy may uncover ways of producing a generally accepted product at a lower cost that allows for creating a cost advantage for the customer in the niche market.
As in the above explanations, a business will likely have to pursue one or the other subcategory of focus strategy. Trying to accomplish both can lead to a lack of focus or effectiveness with either strategy. Related Topics
What is a focused cost leadership strategy?A focused cost leadership strategy requires competing based on price to target a narrow market. A firm that follows this strategy does not necessarily charge the lowest prices in the industry. Instead, it charges low prices relative to other firms that compete within the target market.
What is cost leadership and cost focus?Cost Leadership - Minimizing the costs incurred in providing value (product or service) to a customer or client. Differentiation - This means making ones product unique or special, compared to other competitors or substitute products in the market. Focus: Cost Focus - This does not mean a focus on cost.
What are the four focused strategies of leadership?The four strategies are called:. Cost Leadership Strategy.. Differentiation Strategy.. Cost Focus Strategy.. Differentiation Focus Strategy.. What does cost leadership focus most on quizlet?A cost leadership strategy is one that focuses on minimizing the costs as much as possible.
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