Michael Porter’s Generic Strategies
Michael Porter’s Generic Strategies
According to Porter, strategies allow organizations to gain competitive advantage from three different bases: cost leadership, differentiation and focus. Porter calls these bases as generic strategies.
Cost leadership emphasizes producing standardized products at a very low per unit cost for consumers who are price sensitive. Differentiation is a strategy aimed at producing products and services considered unique industry wide and directed at customers who are relatively price insensitive. Focus means producing products and services that fulfill the needs of small groups of customers (niche market).
When we consider competitiveness, the following questions are raised:
1. Should we compete on the basis of low cost (and thus price), or should we differentiate our products or services on some basis other than cost, such as quality and service?
2. Should we compete head to head with our major competitors for the biggest but most sought after share of the market, or should we focus on niche in which we can satisfy a less sought after but also profitable segment of the market?
Michael Porter proposes 2 “generic” competitive strategies for outperforming other firms in a particular industry: lower cost and differentiation. His strategies imply different organizational arrangements, control procedures, and incentive systems. Larger firms with greater access to resources typically compete on a cost leadership and /or differentiation basis, whereas smaller firms often compete on a focus approach. Hence, he calls these strategies as “generic” as these can be pursued by any business firms irrespective of their size and type.
Porter further proposes that a firm’s competitive advantage in an industry is determined by its competitive scope, that is, the breadth of the company’s or business unit’s target market. Before using these strategies, the firm or business must choose the range of product varieties it will produce, the distribution
According to Porter, strategies allow organizations to gain competitive advantage from three different bases: cost leadership, differentiation and focus. Porter calls these bases as generic strategies.
Cost leadership emphasizes producing standardized products at a very low per unit cost for consumers who are price sensitive. Differentiation is a strategy aimed at producing products and services considered unique industry wide and directed at customers who are relatively price insensitive. Focus means producing products and services that fulfill the needs of small groups of customers (niche market).
When we consider competitiveness, the following questions are raised:
1. Should we compete on the basis of low cost (and thus price), or should we differentiate our products or services on some basis other than cost, such as quality and service?
2. Should we compete head to head with our major competitors for the biggest but most sought after share of the market, or should we focus on niche in which we can satisfy a less sought after but also profitable segment of the market?
Michael Porter proposes 2 “generic” competitive strategies for outperforming other firms in a particular industry: lower cost and differentiation. His strategies imply different organizational arrangements, control procedures, and incentive systems. Larger firms with greater access to resources typically compete on a cost leadership and /or differentiation basis, whereas smaller firms often compete on a focus approach. Hence, he calls these strategies as “generic” as these can be pursued by any business firms irrespective of their size and type.
Porter further proposes that a firm’s competitive advantage in an industry is determined by its competitive scope, that is, the breadth of the company’s or business unit’s target market. Before using these strategies, the firm or business must choose the range of product varieties it will produce, the distribution