PORTER’S GENERIC STRATEGIES MODEL

About Michael PorterProfessor of Harvard business school.He is a leading authority on competitive

strategy & the competitiveness and economic development of nations, states & regions.

He is the author of 18 books & numerous articles including Competitive Strategy, Competitive Advantage, Competitive Advantage of Nation & On Competition.

A sixth-time winner of the McKinsey award for the best harvard business review article of the year.

The 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 1.Cost leadership, 2.Differentiation 3. Focus Organization chooses to pursue one of two type

of competitive advantage, either via lower cost or differentiation. Also it chooses one of two types of scope, either broad target or narrow target.

Cost LeadershipA 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

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.

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.

Thank You.