5.1 Porter's Generic Strategies
Key Takeaways
Porter's Generic Strategies is a group of four categories of competitive strategy: Differentiation, Cost Leadership, Focus (Cost), Focus (Differentiation).
How was Porter's Generic Strategies Developed?
The study of business strategy was strongly influenced by Michael Porter, Harvard Professor, and author. In 1985, he wrote the seminal text, Competitive Advantage: Creating and Sustaining Superior Performance, concerning business strategy. In his text, he proposed 3 (or 4) categories of generic strategies for approaching a product market.
Cost-leadership Strategy
Cost leadership means being an industry leader in low-cost production. Remember, this does not concern the cost for the consumer. It concerns the cost of production for the business. The strategic position serves one of two purposes at any stage of execution:
It produces higher profit margins for the business at a given price, or
It allows for an overall lower price to consumers, which can be used to increase market share.
Differentiation Strategy
Differentiation is the strategic tactic of separating your produce or service from others in the industry. Unlike cost leaders, differentiation strategy focuses on the value proposition to customers. That is, the product or service has some unique character or feature that differentiates it from other competitors where the value proposition is greater to certain customers. Examples of differentiation sub-strategies include:
Product performance (Speed, strength, etc.)
Quality of how the product is made.
Durability of product
Appearance
Functionality (e.g., ease of use, features, etc.)
Brand Image (e.g., luxury goods Rolex)
Novelty of Innovation
Operational Efficiency
Support for Customer (Warranty, Guarantee, Customer Service)
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FOOD for thought
On what two dimensions are all business strategies based?
What are the three dimensions of corporate strategy and how are they different?
What are the three ways in which geographic diversification can positively affect financial performance?
