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PORTER’S GENERIC COMPETITIVE STRATEGIES
PORTER’S GENERIC
COMPETITIVE STRATEGIES
rationale behind studying competition  Today, companies face their toughest competition ever.  Companies use their
rationale behind studying
competition
 Today, companies face their toughest
competition ever.
 Companies use their understanding to design
market offers to deliver more value than the
offers of competitors seeking to win the same
customers.
 Companies must also understand their
competitors, identify and analyze their
strategies to position themselves in such a way
as to gain the greatest possible competitive
advantage against competitors in the
marketplace.

Porter’s Generic Strategy Framework

Michael Porter has suggested three general types of positioning strategies to achieve competitive advantage.

These three generic strategies are defined along two dimensions: strategic scope and strategic strength.

Strategic scope looks at the size and composition of the market you intend to target.

Strategic strength is a supply-side dimension and looks at the strength or core competency of the firm.

Porter’s Generic Strategy Framework  The three strategies are: 1.Cost leadership, 2.Differentiation, and 3.Market Segmentation (or
Porter’s Generic Strategy Framework
 The three strategies
are: 1.Cost leadership,
2.Differentiation, and
3.Market
Segmentation (or
focus)
 Market segmentation is
narrow in scope while
both cost leadership
and differentiation are
relatively broad in
market scope.
Examples of Companies That Use Cost Leadership Strategies  Wal-Mart is famous for EDLP, achieved by
Examples of Companies That
Use Cost Leadership Strategies
 Wal-Mart is famous for EDLP, achieved by developing
close relationships with its suppliers and vendors to
achieve cost savings through large volume purchases
and pass these savings to the consumers.
 Dell Computers :achieved market share by keeping
low inventories and only building computers to order,
procurement advantages from preferential access to
raw materials, or backward integration.
 Low-cost budget Irish based airlines Ryanair who
despite having fewer planes than the major airlines,
were able to achieve market share growth by offering
cheap, no-frills services at prices much cheaper than
those of the larger competitors.
Cost Leadership  A firm tries to reduce its overall production and distribution costs.  It
Cost Leadership
 A firm tries to reduce its overall production and
distribution costs.
 It wins market share by appealing to cost-
conscious customers.
 It sets the lowest prices in the target market
segment, or at least the lowest price to value
ratio.
 3 ways to achieve this:
 Economies of scale
 low direct and indirect operating costs
 control over the supply chain
Examples of Companies That Use Cost Leadership Strategies  India’s largest steel company Tata Steel, the
Examples of Companies That Use Cost Leadership Strategies
 India’s largest steel company Tata Steel, the
cost leader in the steel manufacturing sector
owns raw material assets such as coaland
limestone mines through joint ventures or
completely, with the assets spread across
countries such as Australia, Oman and
Mozambique. Tata Steel has largely been able
to withstand raw material price fluctuations
due to captive iron ore mines.
 Reliance Industries has become a global
leader in various business activities based on
innovation and cost by achieving more
effecient production arising from experience
and economies of scale, innovation in
Differentiation  A company concentrates on differentiating the products in some way in order to compete
Differentiation
 A company concentrates on differentiating the products
in some way in order to compete successfully.
 appropriate where the target customer segment is not
price-sensitive, the market is competitive , customers
have very specific under-served needs and the firm has
unique resources to satisfy these needs in ways that are
difficult to copy.
 Includes patents or other Intellectual Property (IP),
unique technical expertise, talented personnel or
innovative processes. Successful brand management
also results in perceived uniqueness even when the
physical product is the same as competitors. Fashion
brands rely heavily on this form of image differentiation.
Examples of differentiation  Differentiation through Multiple sources: L&T, the engineering firm , recruits engineers with
Examples of
differentiation
 Differentiation through Multiple
sources: L&T, the engineering firm ,
recruits engineers with excellent
qualification and claims superiority in
executing projects.
 Coke and Pepsi differentiated through
brand power.
 Reva through an electric car
 Product Differentiation based on
ingredients: HUL Close Up used
glycerin instead of calcium carbonate
and secured differentiation and Colgate
Examples of differentiation  Product Differentiation through Additional features: Aristocrat suitcases with wheels , a unique
Examples of
differentiation
 Product Differentiation through
Additional features: Aristocrat
suitcases with wheels , a unique
convenience to user
 Product Differentiation by
Packaging
 Harpic Toilet cleaner with an application
friendly nozzle
 Hit for cockroach with sleek nozzle for
hidden areas

Product Differentiation by Design:Kinetic Honda with electronic

Market Segmentation / Focus  The firm focuses its marketing effort on serving a defined, focused
Market Segmentation /
Focus
 The firm focuses its marketing effort on serving a
defined, focused market segments with a narrow scope
by tailoring its marketing mix to these specialized
markets, it can better meet the needs of that target
market.
 The firm typically looks to gain a competitive advantage
through product innovation and/or brand marketing
rather than efficiency.
 It is most suitable for relatively small firms but can be
used by any company.
 A focused strategy should target market segments that
are less vulnerable to substitutes or where a competition
is weakest to earn above-average return on investment.
Segmentation / Focus  The focus strategy has two variants: (a) In cost focus, a firm
Segmentation /
Focus
 The focus strategy has two variants:
(a) In cost focus, a firm seeks a cost advantage in its
target segment, It exploits differences in cost behavior in
some segments . For instance, Southwest Airlines,
famous for its low cost focus follows basically a linear
route structure. It only flies one type of airplane and it
wants to stay in high-density markets and has been
highly efficient.
(b) Differentiation focus a firm seeks differentiation in its
target segment. It exploits the special needs of buyers in
certain segments. Ferrari , targets high performance
sports car segment and due to differentiation based
on design, high performance and grand prix records
which allows it to charge a premium price.
Stuck in the middle  A company’s failure to make a choice between cost leadership and
Stuck in the middle
 A company’s failure to make a choice between
cost leadership and differentiation essentially
implies that the company is stuck in the middle.
 There is no competitive advantage for a
company that is stuck in the middle and the
result is often poor financial performance .
 However, companies like Toyota and Benetton
have adopted more than one generic strategy.
Both these companies used the generic
strategies of differentiation and low cost
simultaneously, which led to the success of the
companies.
Criticisms of Porter’s Generic Strategy Framework  A business can employ a hybrid strategy without being
Criticisms of Porter’s Generic
Strategy Framework
 A business can employ a hybrid strategy
without being struck in the middle. Nissan, for
instance.
 Cost leadership does not sell products itself.
 Differentiation can be used to increase sales
volume rather than charging a premium price.
 Price can sometimes be used to differentiate.

Criticisms of Porter’s Generic Strategy Framework

The competence based strategy framework supersede the generic strategy framework.

Despite these criticisms, porter’s model can constitute the basis of a useful framework for categorizing and understanding sources of competitive advantage.

Looking forward: The road ahead  The popular post-Porter model was presented by W. Chan Kim
Looking forward: The
road ahead
 The popular post-Porter model was presented by
W. Chan Kim and Renée Mauborgne in their
1999 Harvard Business Review article "Creating
New Market Space“, described a "value
innovation" model in which companies must look
outside their present paradigms to find new value
propositions.
 Their approach fundamentally goes against
Porter's concept that a firm must focus either on
cost leadership or on differentiation. The concept
is popularly known as Blue Ocean Strategy.

Thank You.