3 generic strategy
Michael porter developed 3 generic strategies: cost leadership, differentiation and focus. They are developed to create a defendable position in the long-run, outperforming competition and establish a competitive advantage. However does the generic strategy lead to sustainable competitive strategy? This analysis will explain in detail.
Cost leadership means setting out to become the low-cost producer of its industry. Each industry is different and provides with diverse problems. Cost leadership can come from many different forms such as: pursuit of economies of scale, proprietary technology, preferential access to raw materials and other factors. The emphasis is on lower costs, not on low selling prices. For a cost leader to be effective it is imperative that it needs to exploit all sources of cost to its advantage. If a firm can execute this it will automatically sustain overall cost leadership and therefore outperform in its industry and dominate prices. In a differentiation strategy a firm intention and desire is to be unique in its industry. “It selects one or more attributes that many buyers in an industry perceive as important, and uniquely positions itself to meet those needs” (Michael E Porter). This distinctive uniqueness is rewarded by a premium price that the firm can set. Been differentiation doesn’t have to be substantial. It can be as simple as having the best customer service. Differentiation may lead to profitability but doesn’t always guarantee the lead in the market share. Focus strategy emphases on a selected segment or group of segments within the industry and adapts its strategy to serving them to the exclusion of others. This focus strategy has two variants; cost focus and differentiation focus. Cost focus deals when a firm wants a cost advantage in its market. Differentiation focus deals with seeking differentiation within its target segment.
A generic strategy does not lead to sustainable competitive advantage. This is because the
Cost leadership means setting out to become the low-cost producer of its industry. Each industry is different and provides with diverse problems. Cost leadership can come from many different forms such as: pursuit of economies of scale, proprietary technology, preferential access to raw materials and other factors. The emphasis is on lower costs, not on low selling prices. For a cost leader to be effective it is imperative that it needs to exploit all sources of cost to its advantage. If a firm can execute this it will automatically sustain overall cost leadership and therefore outperform in its industry and dominate prices. In a differentiation strategy a firm intention and desire is to be unique in its industry. “It selects one or more attributes that many buyers in an industry perceive as important, and uniquely positions itself to meet those needs” (Michael E Porter). This distinctive uniqueness is rewarded by a premium price that the firm can set. Been differentiation doesn’t have to be substantial. It can be as simple as having the best customer service. Differentiation may lead to profitability but doesn’t always guarantee the lead in the market share. Focus strategy emphases on a selected segment or group of segments within the industry and adapts its strategy to serving them to the exclusion of others. This focus strategy has two variants; cost focus and differentiation focus. Cost focus deals when a firm wants a cost advantage in its market. Differentiation focus deals with seeking differentiation within its target segment.
A generic strategy does not lead to sustainable competitive advantage. This is because the