PORTERS GENERIC STRATEGIES

Introduction

Michael Porter is a professor at Harward Business

School.

A firms success in strategy rests upon how it positions

itself in respect to its environment.

Michael Porter has argued that a firm's strengths

ultimately fall into one of two headings: Cost advantage
and differentiation.

By applying these strengths in either a broad or narrow

scope, three generic strategies result:, cost leadership
differentiation, and focus

Generic Strategies

Cost
Leadership
Superior profits
through lower
costs.
E.g. : WalMart,
Tesco

Differentiation
Creating a
product or service
that is perceived
as being unique
throughout the
industry
E.g. : Mcdonald,
FedEx

Focus
Concentrating on
a limited part of
the market.
E.g. : PepsiCo

Porters Generic Strategy

Advantage

Advantage

(Low Cost)

(Product
Uniqueness)

Broad
(Industry wide)

Cost Leadership

Differentiation

Narrow
(Market wide)

Focus Strategy
(low cost)

Focus Strategy
(differentiation)

Target Scope

Cost Leadership Strategy

Aiming to become Lowest Cost Producer

The firm can compete on the price with every other

industries and earn higher unit profits.

Cost reduction provides the focus of the organisations

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.

Especially beneficial : where customers are price sensitive

(Walmart logo, used from June 30, 2008-present.)

Type

Public

Industry

Retailing

Founded
Founder(s)

1962
:

Sam Walton

Headquarters

Bentonville, Arkansas,US

Number of locations

8,970(2011)

Area served

Key people

Worldwide
Mike Duke(CEO)
H. Lee Scott(Chairman)
S. Robson Walton(Chairman)

Employees

Subsidiaries

Approx. 2.1 million(2011)

Walmex
Asda
Sam's Club
Seiyu Group

The central goal of Wal-Mart is to keep retail prices low -- and the
company has been very successful at this.

Experts estimate that Wal-Mart saves shoppers at least 15 % on

a typical cart of groceries.

Wal-Mart Stores Inc. is rolling out its "everyday low prices"

(EDLP) retail strategy to more international markets to replace
the more usual high-low pricing in emerging markets.

Wal-Mart also employs a good structure that works with the

systems to empower the low price strategy.

Wal-Mart has in place a set of systems that helps it achieve its

strategy of low prices everyday.

Risks Involved..

Other firms may be able to lower their costs as well.

As technology improves, the competition may be able to

leapfrog the production capabilities, thus eliminating
the competitive advantage.

It could lead to a damaging price wars.

There might be difficulty in sustaining cost leadership

in the long run.

A firm following a focus strategy might be able to

achieve even lower cost within their segment.

Differentiation Strategy

Development of a product or service that offers unique

attributes that are valued by customers.

The value added by the uniqueness of the product may

allow the firm to charge a premium price for it.

Differentiation can be based on product image or

durability,after-sales,quality,additional features.

It requires flair,research capability and strong

marketing.

Type

Public

Industry

Restaurants

Founded

McDonalds Corporation
~ May 15, 1940 in San
Bernardino, California
~ April 15, 1955 in Des
Plaines, Illinois
Founder(s)
:
Richard and Maurice
McDonald,( McDonalds
concept )
Ray Kroc,( McDonalds
Corporation founder )
Headquarters

Area served

Key people

Oak Brook,Illinois,US
Worldwide

James A. Skinner
(Chairman & CEO)

restaurant

Number of locations
Employees

: 32,000
4,00,000 ( 2010)

Products

:
Fast Food
( hamburgers , chicken ,
french fries , soft drinks ,
salads,
desserts , breakfast )

coffee , milkshakes ,

McDonald's customers are of all classes, but largely

working and middle classes, and people of all ages.

McDonalds strove to meet a customer wait time at no

more than one minute in line and 30 seconds at the
counter.

McDonald's understood that the parent was making

the purchasing decision. What McDonald's marketing
executives did was ingenious. They put a $.50 toy in
with the hamburger, french fries, and Coke called it a
Happy Meal. Then they marketed it to the kids.

They've taken competing on price right out of the

picture.

McDonald's knows that some customers go to its stores

to take a quick break from their day's activities and not
because McDonald's was able to make their food ten
seconds faster than a competitor. So McDonald's
marketing executives then put together the phrase,
Have you had your break today?

Success Mantra

Access to leading scientific research.

Highly skilled and creative product development team.

Strong sales team with the ability to successfully

communicate the perceived strengths of the product.

Corporate reputation for quality and innovation.

Risks Involved

Involves higher costs.

Customers might become price sensitive and choose on

price rather than uniqueness.

Customers may no longer need the differentiation

factor.

Imitation by competitors and changes in customer

tastes.

Rivals pursuing a focus strategy may be able to achieve

even greater differentiation in their market segments.

Focus Strategy

The focus strategy concentrates on a narrow segment

and within that segment attempts to achieve either a
cost advantage or differentiation.

The premise is that the needs of the group can be

better serviced by focusing entirely on it.

A firm using a focus strategy often enjoys a high degree

of customer loyalty, and this entrenched loyalty
discourages other firms from competing directly.

Because of their narrow market focus, firms pursuing a

focus strategy have lower volumes and therefore less
bargaining power with their suppliers .

However, firms pursuing a differentiation-focused

strategy may be able to pass higher costs on to
customers since close substitute products do not exist.

Type

Public

Industry

Food and Beverages

Founded
Founder(s)

North Carolina,U.S.(1986)
:

Headquarters

Donald Kendall,Herman Lay

:

Purchase,New York,US

Area served

Worldwide

Key people

Indra Nooyi
(Chairman & CEO)

Employees

Divisions

Subsidiaries

2,94,000(2010)

PepsiCo Americas Foods;

PepsiCo Americas Beverages;
PepsiCo Europe; PepsiCo
Asia, Middle East & Africa
Products,
Trademarks
~ Frito-Lay
~ Quaker Oats
~ Tropicana

By successfully adopting the 'focus' strategy since 1997,

PepsiCo has emerged as the second largest consumer
packaged goods company.

The company has significantly strengthened its

competitive position in the beverages segment.

By acquiring leading beverages' company like Tropicana

products (July 1998), South Beach Beverage Company
(October 2000) and Quaker Oats (December 2000)

Success Mantra

Lower investment in resources.

The firm benefits from specialisation.

Provides scope for greater knowledge of a segment of

the market.

Makes entry to new markets easier and less costly.

Firms using a focus strategy often enjoy a high degree

of customer loyalty.

Risk Involved

Limited opportunities for growth.

The firm could outgrow the market.

Danger of decline in the chosen segment or niche.

Risk of imitation.

Risk of changes in the target segment.

A reputation for specialisation inhibits move into new

sector.

Learning Outcome

Cost Leadership
- Being the lowest cost producer in the industry as
whole

Differentiation
- The exploitation of a product or service which is
believed to be unique

Focus
- Restricting activities to only part of the market through:
- Providing goods or services at lower cost to that
segment (cost focus)
- Providing a differentiated product or service to that
segment (differentiation focus)

Prepared By:
Sahil Agrawal
Sakshi Sharma
Sakshi Gaur
Anshul Sharma