PORTERS GENERIC

COMPETITIVE STRATEGIES

Introduction: The
rationale behind studying
competition
Today, companies face their toughest

competition ever.
Companies use their understanding to design
market offers to deliver more value than the
offers of competitors seeking to win the same
customers.
Companies must also understand their
competitors, identify and analyze their
strategies to position themselves in such a way
as to gain the greatest possible competitive
advantage against competitors in the
marketplace.

Porters Generic Strategy

Framework
Michael Porterhas suggested three general

types of positioning strategiesto

achievecompetitive 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 totarget.
Strategic strengthis a supply-side dimension
and looks at the strength orcore competencyof
the firm.

Porters Generic Strategy Framework

The three strategies

are: 1.Cost leadership,

2.Differentiation, and
3.Market
Segmentation (or
focus)
Market segmentation is
narrow in scope while
both cost leadership
and differentiation are
relatively broad in
market scope.

Examples of Companies That

Use Cost Leadership Strategies
Wal-Mart is famous for EDLP, achieved by developing

close relationships with its suppliers and vendors to

achieve cost savings through large volume purchases
and pass these savings to the consumers.
Dell Computers :achieved market share by keeping
low inventories and only building computers to order,
procurement advantages from preferential access to
raw materials, or backward integration.
Low-cost budget Irish based airlines Ryanair who
despite having fewer planes than the major airlines,
were able to achieve market share growth by offering
cheap, no-frills services at prices much cheaper than
those of the larger competitors.

Cost Leadership
A firm tries to reduce its overall production and

distribution costs.
It wins market share by appealing to costconscious customers.
It sets the lowest prices in the target market
segment, or at least the lowest price to value
ratio.
3 ways to achieve this:
Economies of scale
low direct and indirect operating costs
control over the supply chain

Examples of Companies That Use Cost Leadership Strategies

Indias largest steel company Tata Steel, the

cost leader in the steel manufacturing sector

owns raw material assets such as coaland
limestone mines through joint ventures or
completely, with the assets spread across
countries such as Australia, Oman and
Mozambique. Tata Steel has largely been able
to withstand raw material price uctuations
due to captive iron ore mines.
Reliance Industries has become a global
leader in various business activities based on
innovation and cost by achieving more
effecient production arising from experience
and economies of scale, innovation in

Differentiation
A company concentrates on differentiating the products

in some way in order to compete successfully.

appropriate where the target customer segment is not
price-sensitive, the market is competitive , customers
have very specific under-served needs and the firm has
unique resources to satisfy these needs in ways that are
difficult to copy.
Includes patents or other Intellectual Property (IP),
unique technical expertise, talented personnel or
innovative processes. Successful brand management
also results in perceived uniqueness even when the
physical product is the same as competitors. Fashion
brands rely heavily on this form of image differentiation.

Examples of
differentiation
Differentiation through Multiple

sources: L&T, the engineering firm ,

recruits engineers with excellent
qualification and claims superiority in
executing projects.
Coke and Pepsi differentiated through
brand power.
Reva through an electric car
Product Differentiation based on
ingredients: HUL Close Up used
glycerin instead of calcium carbonate
and secured differentiation and Colgate

Examples of
differentiation
ProductDifferentiation through

Additional features: Aristocrat

suitcases with wheels , a unique
convenience to user
Product Differentiation by
Packaging
Harpic Toilet cleaner with an application
friendly nozzle
Hit for cockroach with sleek nozzle for
hidden areas
Product Differentiation by
Design:Kinetic Honda with electronic

Market Segmentation /
Focus
The firm focuses its marketing effort on serving a

defined, focused market segments with a narrow scope

by tailoring its marketing mixto these specialized
markets, it can better meet the needs of that target
market.
The firm typically looks to gain a competitive advantage
through product innovation and/or brand marketing
rather than efficiency.
It is most suitable for relatively small firms but can be
used by any company.
A focused strategy should target market segments that
are less vulnerable to substitutes or where a competition
is weakest to earn above-average return on investment.

Market
Segmentation /
Focus
The focus strategy has two variants:

(a)In cost focus, a firm seeks a cost advantage in its

target segment, It exploits differences in cost behavior in
some segments . For instance, Southwest Airlines,
famous for its low cost focus follows basically a linear
route structure. It only ies one type of airplane and it
wants to stay in high-density markets and has been
highly efficient.
(b)Differentiation focus a firm seeks differentiation in its
target segment. It exploits the special needs of buyers in
certain segments. Ferrari , targets high performance
sports car segment and due to differentiation based
on design, high performance and grand prix records
which allows it to charge a premium price.

Stuck in the middle

A companys 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 Porters 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 Porters Generic

Strategy Framework
The competence based strategy framework

supersede the generic strategy framework.

Despite these criticisms, porters model can

constitute the basis of a useful framework
for categorizing and understanding sources
of competitive advantage.

Looking forward: The

road ahead
The popular post-Porter model was presented by

W. Chan Kim and Rene Mauborgne in their

1999Harvard Business Reviewarticle "Creating
New Market Space, described a "value
innovation" model in which companies must look
outside their present paradigms to find new value
propositions.
Their approach fundamentally goes against
Porter's concept that a firm must focus either on
cost leadership or on differentiation. The concept
is popularly known as Blue Ocean Strategy.

Thank You.