Porters Generic Strategies

This model was proposed by Michael E. Porter(an Engineer turned

Economist and then a strategist) in 1980s.
Porter proposed three generic strategiesStrategic scope and strategic strength
Product differentiation
Product cost
Originally he, ranked these strategies as relative product cost
and market scope are low, medium or high.
and got a 3x3x3 matrix.
But all combinations are not viable.
He then simplified this to three generic strategies ;
Cost leadership
Differentiation strategy
Segmentation strategy or focus
This is placed in a 2-D matrix.

ch say that Industry with either high market share or low

et share are able to make their profit quite well.
e one with moderate market share often face less profit.
ustries with high market share make their profit because of their
eadership strategy.
e one with low focused on low but profitable market niche.
s the one with moderate share failed to strategies in any of the gener
gies and had less profit.

Cost Leadership Strategy

They can make their product cheapest in the market , gaining large market share.
But maintaining a standard quality.
Or they go for an average price and earn a better profit than others .
The firm with more cheap products often go for cost leadership in the market
for long term.
And this cost leader do earn them a large market share.
Cost leadership do possess threat to the market competition, and eliminate rivals.

Strength that help cost leadership

Availability of assets i.e. investments, raw materials etc at lower price

Efficient distribution channel
Highly developed and optimized manufacturing .
Good skills in product design.

Risks involved in low cost

Often other may be able to go more cheaper than you.
Like before Walmart Kmart was low cost .But when Walmart came it
cheaper than Kmart.
Technological improvements, may lead great leapfrog in production and elimination
your competitive advantage.
Many firms focusing on narrow market may be able to achieve a even lower cost in their
segment and gain a good market share.

Product Differentiation
Its a firms unique product or service which makes customers experience much better
than other firms.
This can be done by increasing quality, ar some technological advancement.
Sometimes services offered by company on its products .
Or even being socially responsible to environment .
This creates a positive image of the company among customers.
This actually creating your brand.
The unique product by a company allow them to set a premium price for their product.
The willingness to pay.

Strength reqd. for Product differentiation

Access to leading scientific research and technolog.
Well skilled and creative team.
Good investment on research .
Good marketing team , to communicate with market making
their product available to customers before someone else copies it.
A good reputation in market for the innovation and quality.

Market segmentation

o This strategy is to focus on a narrow/ specific segment of market.

o Such company gain a good loyalty of customers , which strongly discourage other firm
to compete in that market.
o The premise is that a groups needs are well serviced by focusing on it
o The narrow market strategy often reduce the bargaining power of the suppliers

Factors helping market segmentation

Firm knows the customer of that very segment very well.
The firm must be having good communication with customers of that segment.
Firm is able to procure most of the needs of that segment.

Risks involved

Stuck in the middle

Some businesses will attempt to adopt all three strategies; cost leadership,
differentiation and niche (focus). A business adopting all three strategies is
known as "stuck in the middle". They have no clear business strategy and are
attempting to be everything to everyone. This is likely to increase running
costs and cause confusion, as it is difficult to please all sectors of the market.
Middle of the road businesses usually do the worst in their industry because they
are not concentrating on one business strength.

Rivalry