Michael Porter proposes two “generic”
competitive strategies. These strategies are called generic because they can be
pursued by any type or size of business firm, even by non-profit organizations:
Lower cost
strategy
is the ability of a company or a
business unit to design, produce, and market a comparable product more
efficiently than its competitors.
Differentiation strategy
is the ability of a company to provide
unique and superior value to the buyer in terms of product quality, special
features, or after-sale service.
Combining two types of target
markets(broad and narrow) with the two competitive strategies results in the
four variations of generic strategies.
When the lower-cost and
differentiation strategies have a broad mass-market target, they are simply
called cost leadership and differentiation.
When they are focused on a market
niche (narrow target), however, they are called cost focus and differentiation
focus
(a)Cost
leadership
Cost leadership is a
lower-cost competitive strategy that aims at the broad mass market. Cost
reduction provides the focus of the organisation’s strategy. Competitive
advantage is achieved by driving down costs.
Example- This strategy is followed by Wal-mart, McDonalds
(b)Differentiation
Differentiation is aimed
at the broad mass market and involves the creation of a product or service that
is perceived throughout its industry as unique. Differentiation can be based on
product image or durability, after-sales, quality, additional features.
Example- This strategy is followed
by BMW, Nike
(c)Cost
focus
Cost focus is a
low-cost competitive strategy that focuses on a particular buyer group or
geographic market and attempts to serve only this niche.
Example- This strategy is followed
by Potlach corporation, Cosco soap
(d)Differentiation
focus
Differentiation focus like cost
focus, concentrates on a particular buyer group, product line segment, or
geographic market.
Example- This strategy is followed by Nickelodeon, Orphagenix
