Generic Startegy

The cost leadership strategy advocates gaining competitive advantage

due to the lowest cost of production of a product or service. Lowest cost
need not mean lowest price. Costs are removed from every link of the
value chain- including production, marketing, and wastages and so on.
The product could still be priced at competitive parity (same prices as
others), but because of the lower cost of production, the company would
be able to sustain itself even through lean times and invest more into the
business all throughout.
Examples are the TPS system developed by the Toyota Motor Company.
The TPS system aims to cut costs throughout the company, but Toyota
cars are still priced at almost the same levels as American or other
Japanese cars.
The 'differentiation' strategy involves creation of differentiated products
for different segments. A variety of products, each branded and
promoted differently with levels of function, allows a company to
'desensitize' prices, and on the basis of being different, charge premium
or higher prices. This strategy also provides a hedge against different
markets and product life cycles, allowing cash flow to come in even if a
few products decline, while others grow or mature.

A prime example of this strategy is Hindustan Lever, which, while

focused on FMCG, has a range of products even within the soaps
category for different segments. Such a strategy needs strong
segmentation, marketing and branding skills.

The 'focus' strategy involves focusing on a narrow, defined segment of

the market, also called a 'niche' segment. For example, Porche markets
to the particular segment that likes fast and expensive cars and can
afford it. A company in a niche market has customers who understand,
appreciate and can pay a premium for their indulgence.
Competitive advantage - either by cost or differentiation- is created
specially for the niche. But the risks are that the niche may not grow, or
it may disappear with time and change.

Porter's Generic Competitive

Strategies (ways of competing)

A firm's relative position within its industry determines whether

a firm's profitability is above or below the industry average. The
fundamental basis of above average profitability in the long run
is sustainable competitive advantage. There are two basic types
of competitive advantage a firm can possess: low cost or
differentiation. The two basic types of competitive advantage
combined with the scope of activities for which a firm seeks to
achieve them, lead to three generic strategies for achieving
above average performance in an industry: cost leadership,
differentiation, and focus. The focus strategy has two variants,
cost focus and differentiation focus.
1. Cost Leadership
In cost leadership, a firm sets out to become the low cost
producer in its industry. The sources of cost advantage are
varied and depend on the structure of the industry. They may
include the pursuit of economies of scale, proprietary
technology, preferential access to raw materials and other
factors. A low cost producer must find and exploit all sources of
cost advantage. if a firm can achieve and sustain overall cost
leadership, then it will be an above average performer in its
industry, provided it can command prices at or near the industry
average.

2. Differentiation
In a differentiation strategy a firm seeks to be unique in its
industry along some dimensions that are widely valued by
buyers. It selects one or more attributes that many buyers in an
industry perceive as important, and uniquely positions itself to
meet those needs. It is rewarded for its uniqueness with a
premium price.

3. Focus
The generic strategy of focus rests on the choice of a narrow
competitive scope within an industry. The focuser selects a
segment or group of segments in the industry and tailors its
strategy to serving them to the exclusion of others.

Strategic Choice Approach

The Strategic Choice Approach is used in face to face
workshops of a decision making group.
Strategic choice is viewed as an ongoing process in which the
planned management of uncertainty plays a crucial role.

The Strategic Choice Approach:

1. Focuses on decisions to be made in a particular planning

situation, whatever their timescale and whatever their
substance.
 2. Highlights the subtle judgements involved in agreeing how
to handle the uncertainties which surround the decision to
be addressed - whether these be technical, political or
procedural.
3. The approach is an incremental one, rather than one which
looks towards an end product of a comprehensive strategy
at some future point in time. This principle is expressed
through a framework known as a `commitment package'. In
this, an explicit balance is agreed between decisions to be
made now and those to be left open until specified time
horizons in the future.
4. The approach is interactive, in the sense that it is designed
not for use by experts in a backroom setting, but as a
framework for communication and collaboration between
people with different backgrounds and skills.

Stability Strategy
A stability strategy refers to a strategy by a company where the
company stops the expenditure on expansion, in other words it
refers to situation where company do not venture into new
markets or introduce new products. Stability strategy is adopted
by company due to following reasons –

1. When the company plans to consolidate its position in the

industry in which company is operating.

2. When the economy is in recession or there is a slowdown in

the economy than companies want to have more cash in their
 balance sheet rather than investing that cash for expansion or
other such expenses.

3. When company has too much debt in the balance sheet than
also company stops or postpones their expansion plans
because if company takes more debt for expansion than it
would not able to pay interest rate on such debt and it may
create liquidity crunch for the company.

4. When the company is operating in an industry which has

reached maturity phase and there is no further scope for
growth than also company adopts stability strategy.