PORTER’S GENERIC COMPETITIVE STRATEGIES

PORTER’S GENERIC COMPETITIVE STRATEGIES

Introduction: The rationale behind studying competition

Today, companies face their toughest competition ever.

Companies use their understanding

Companies must also understand their competitors

Porter’s Generic Strategy Framework

Michael Porter has suggested three general types of  positioning strategies to achieve competitive advantage.

These three generic strategies are defined along two dimensions: strategic scope and strategic strength. 

Strategic scope  

Strategic strength 

Porter’s Generic Strategy FrameworkMichael Porter has suggested three general types of 

positioning strategies to achieve competitive advantage.

These three generic strategies are defined along two dimensions: strategic scope and strategic strength. 

Strategic scope looks at the size and composition of the market you intend to target. 

Strategic strength is a supply-side dimension and looks at the strength or core competency of the firm.

Porter’s Generic Strategy Framework

Target ScopeAdvantage

(Low Cost)

Advantage

(Product Uniqueness)

Broad(Industry wide)

Cost Leadership Differentiation

Narrow(Market wide)

Focus Strategy(low cost)

Focus Strategy(differentiation)

Cost LeadershipAiming to become Lowest Cost ProducerThe firm can compete on the price with every other

industries and earn higher unit profits.Cost reduction provides the focus of the organisation’s

strategy.Targets a broad market. Competitive advantage is achieved by driving down costs.A successful cost leadership strategy requires that the firm

is the cost leader and is unchallenged in this position.

Examples of Companies That Use Cost Leadership Strategies

Wal-MartDell ComputersTata Steel

Differentiation strategy• About differentiation strategy.• Helps To “stand out from the crowd”• Also called as “Broad Scope Strategy”• Risks involved with the adoption of

differentiation strategy.• Few ways to succeed while using

differentiation strategy.

Few Examples

• Mc Donalds

• Kamat Hotels ( India) Limited

• Emami Fair and Handsome

• Kinetic Honda by launching two Wheelers with electric ignition

• Dominos pizza- 30 minutes home delivery or free

Market Segmentation / Focus

• About Focus Strategy.• Focus on one particular segment of Market.• Also Know as Niche Strategy.• Competitive Advantage.• Cost focus Strategy.• Differentiation focus Strategy.• Helps in implementing premium price.• Also knows as narrow scope strategy.• Successful in attaining high degree of Customer

Loyalty.

Example of Focus StrategyFerrari and Rolls Royce.

Taj Hotels

ITDC-The Ashok Group of Hotels

Southwest Airlines.

PEPSICO

Stuck in the middleA company’s failure to make a choice between cost

leadership and differentiation essentially implies that the company is stuck in the middle.

There is no competitive advantage for a company that is stuck in the middle and the result is often poor financial performance .

However, companies like Toyota and Benetton have adopted more than one generic strategy. Both these companies used the generic strategies of differentiation and low cost simultaneously, which led to the success of the companies.

Criticisms of Porter’s Generic Strategy Framework

A business can employ a hybrid strategy without being struck in the middle. Nissan, for instance.

Cost leadership does not sell products itself.

Differentiation can be used to increase sales volume rather than charging a premium price.

Price can sometimes be used to differentiate.

Criticisms of Porter’s Generic Strategy Framework

The competence based strategy framework supersede the generic strategy framework.

Despite these criticisms, porter’s model can constitute the basis of a useful framework for categorizing and understanding sources of competitive advantage.