Porter identified 4 generic strategies that can be used to both classify firm behavior and control firm behavior. Differentiation is the strategic tactic of separating your products or services from other products in the industry. Unlike cost leaders, the differentiation strategy focuses on the customer value proposition. That is, the product or service has a unique character or characteristic that distinguishes it from other competitors where the value proposition is greater for some customers. Examples of differentiation sub-strategies include: SWOT and Five Forces analyses help identify which of these generic business strategies is best for your business. In cost management strategy, a company focuses on reducing the cost of providing products or services to a customer to ensure that you are more profitable and can thus increase shareholder value or invest in other parts of the business strategy. The study of business strategy was heavily influenced by Harvard professor and author Michael Porter. In 1985, he wrote the seminal text Competitive Advantage: Creating and Sustaining Superior Performance on corporate strategy. In his text, he proposes 3 (or 4) categories of generic strategies to address a product market. Every company needs to find a strategy that allows them to gain a competitive advantage in the market.
This choice of strategy is based on the strengths and weaknesses of the company`s products and the position it wants to have in the minds of its customers. The best strategy is one that leverages the company`s strengths for the biggest profits and the best return on investment. Competitive strategies such as those mentioned below can be developed based on the experience curve; You will immediately see that strategies have common qualities. Read each definition, because it`s not always clear – for example, focusing on costs doesn`t mean focusing on cost benefits to the market. According to Porter, each of these strategies is capable of creating a competitive advantage for a company in a particular market. It is important to note that not all strategies are possible for a single company. However, if the company is able and executes a strategy sufficiently, it can gain a competitive advantage in the market. While originally designed for use by businesses, there`s no reason why a nonprofit can`t take advantage of generic strategies. For more information on charitable strategy, check out our guide to creating a charitable fundraising strategy. A successful cost leadership strategy requires optimizing all aspects of a company`s operations. To become the most profitable producer, a company can continue: Porter, M.E. 1980.
Competitive strategy: techniques for analyzing industries and competitors. New York, NY: Free Press; Williamson, P. J. and Zeng, M. 2009. Preis-Leistungs-Strategien für Rezessionszeiten. Harvard Business Review, 87(3), 66-74. Learn how to apply Porter`s generic strategies to your business to gain a competitive advantage. Companies that succeed with a differentiated generic marketing strategy need talented and creative people in product development. These people need to be able to study the market and penetrate the minds of potential buyers to identify the characteristics that attract consumers and entice them to pay more for products. The video accompanying this lesson explains the five generic strategies and why some work better than others in certain industries or conditions. The disadvantage of the cost leadership strategy is that competitors enter the market (new entrants) when old cost structures are replaced by more efficient ones (e.g.
Southwest Airlines). The existing business may get stuck at old cost rates (e.g. fuel), where new entrants benefit from lower rates. Companies compete in two general dimensions: the source of competitive advantage (cost or differentiation) and the scope of activity (broad or narrow). From these decisions, four possible generic strategies emerge at the enterprise level. An example of each generic retail store-level strategy is shown below. In the differentiation strategy, a company focuses on differentiating its products or services from its competitors. This targeted strategy covers a broad spectrum from complete product diversity to the unique characteristics of a core product. This level of customer focus allows a company to manufacture a particular product in a lower cost structure or to produce a product or service with unique features or features that meet the needs or desires of the target market. The business strategy deals with how a firm will compete in a particular sector (Table 6.1).
This seems like a simple question on the surface, but it`s actually quite complex. The reason for this is that there are many possible answers to the question. Take, for example, restaurants in your city. Chances are you`re living pretty close to a combination of McDonald`s, Subway, Chili`s, Applebee`s, Panera Bread Company, dozens of other national brands, and a variety of local restaurants that only have one location. Each of these restaurants competes with a business model that is at least somewhat unique. When a hospitality manager analyzes his company and its competitors, he must avoid being distracted by all the nuances of the business strategies of different companies and losing sight of the big picture. As explained above, a company will likely need to pursue one or another subcategory of targeted strategy. Trying to achieve both can lead to a lack of focus or effectiveness in both strategies. Williamson, P. J., & Zeng, M.
(2009). Price-performance strategies for recessions. Harvard Business Review, 87(3), 66-74 hbr.org/2009/03/value-for-money-strategies-for-recessionary-times. According to Porter, two dimensions of competition are critical to company-level strategy. The first dimension is the source of a company`s competitive advantage. This dimension includes whether a company is trying to gain an advantage over its competitors by reducing costs or offering something unique in the market. The second dimension is the field of activity of a company. This dimension includes whether a company is trying to attract customers in general or if it simply wants to attract a narrow customer segment.
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