PORTER’S GENERIC STRATEGIES

COST LEADERSHIP, DIFFERENTIATION & FOCUS STRATEGY

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PORTER’S GENERIC STRATEGIES
• Porter’s generic strategies were first set out by Michael Porter in 1985 in his book, "Competitive Advantage:
Creating and Sustaining Superior Performance.”

• Porter’s generic strategies are ways to gain competitive advantage over the competitors.

• A competitive advantage is an upper edge over competitors exercised by offering consumers greater value,
either by serving with lower prices or by providing greater benefits and service that justifies provided prices.

• These strategies can be applied to products or services in all industries and to all organizations of all sizes.

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B
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O COST LEADERSHIP DIFFERENTIATION
A
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N
A
R COST FOCUS DIFFERENTIATION FOCUS
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COST DIFFERENTIATION

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COST LEADERSHIP

Aiming to become the lowest cost provider.

There are two main ways of achieving this within a Cost Leadership strategy:

● Increasing profits by reducing costs, while charging industry-average prices.

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SUCCESS MANTRA: COST LEADERSHIP

Access to the capital needed to invest in technology that will

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RISK INVOLVED: COST
LEADERSHIP
❏ 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.
❏ This is why it's important to continuously find ways of reducing every
cost. One successful way of doing this is by "continuous improvement."
❏ It could lead to a damaging price wars
❏ There might be difficulty in sustaining cost leadership in the long run
❏ A firm following a focus strategies might be able to achieve even lower
cost within their segment.

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COST LEADERSHIP

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DIFFERENTIATION STRATEGY

❏ The strategy calls for the development of products or services that offers unique attributes
that are valued by the customers
❏ Differentiation is about charging a premium price that more than covers the additional
production costs, and about giving customers clear reasons to prefer the product over
other, less differentiated products.
❏ This strategies focuses on development of a product or service, that is unique for the
customers, in terms of product design features, brand, image, quality or customer service.

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DIFFERENTIATION STRATEGY

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SUCCESS MANTRA:
DIFFERENTIATION STRATEGY
To make a success of a Differentiation strategy,
organizations need:
Good research, development and innovation.
The ability to deliver high-quality products or services.
Effective sales and marketing, so that the market
understands the benefits offered by the differentiated
offerings.
Corporate reputation for quality and innovation

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RISK INVOLVED:
DIFFERENTIATION STRATEGY
Involves Higher Costs
Imitation by competitors and changes in customer
preferences
Rivals Pursuing a focus strategy may be able to
achieve even greater differentiation in the market
segments

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FOCUS STRATEGY
❏ Companies that use Focus strategies concentrate on particular niche markets and, by understanding
the dynamics of that market and the unique needs of customers within it, develop uniquely low-cost
or well-specified products for the market.
❏ Because they serve customers in their market uniquely well, they tend to build strong brand loyalty
amongst their customers.
❏ Firms pursuing focus strategies have lower volume and therefore less bargaining power with their
suppliers

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FOCUS STRATEGIES

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SUCCESS MANTRA: FOCUS
STRATEGY
Lower investment in resources
Firm benefits from specialization
Provides scope for greater knowledge of the market
Makes entry to new market easier and less costly
High degree of customer loyalty

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RISK INVOLVED: FOCUS
STRATEGY
Limited opportunities for growth
Danger in decline of the target segment
Risk of imitation
A reputation for specialization inhibits move into new
sector

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 THANK
YOU!

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