2. Introduction
A firm’s success in strategy rests upon how it
positions itself in respect to its environment.
Michael Porter has argued that a firm's
strengths ultimately fall into one of two
headings: cost advantage and differentiation.
By applying these strengths in either a broad or
narrow scope, three generic strategies result:,
cost leadership differentiation, and focus
3. Cost
Leadership
• Superior profits
through lower
costs.
• E.g. : Wal-Mart.
Differentiation
• Creating a
product or service
that is perceived
as being unique
“throughout the
industry”
• E.g. : McDonald.
Focus
• Concentrating on
a limited part of
the market.
• E.g. : PepsiCo
Generic Strategies
4. Cost Leadership Strategy
An integrated set of actions designed to produce or deliver
goods or services at the
lowest cost relative to competitors
with features that are acceptable to customers
This involves
relatively standardized products
features acceptable to many customers
lowest competitive price
5. How to Obtain a Cost Advantage
Cost Drivers
Value Chain
Determine and
control
Reconfigure, if
needed
Alter production process
Change in automation
New distribution channel
New advertising media
Direct sales in place of
indirect sales
New raw material
Forward integration
Backward integration
Change location relative to
suppliers or buyers
6. Major Risks of Cost Leadership
Strategy
Expensive
Easy to imitate of strategy.
Temporary strategy.
Technological changes.
7. Differentiation Strategy
An integrated set of actions designed by a firm to produce or deliver
goods or services (at an acceptable cost) that customers perceive as
being different in ways that are important to them
price for product can exceed what the firm‟s target customers are
willing to pay
nonstandardized products
customers value differentiated features more than they value low
cost
8. Factors That Drive Differentiation
Unique product features
Unique product performance
Exceptional services
New technologies
Quality of inputs
Detailed information
9. Major Risks of Differentiation
Strategy
Experience may narrow customer‟s perceptions of the value of
differentiated features of the firm‟s products
Makers of counterfeit goods may attempt to replicate differentiated
features of the firm‟s products
10. Focused Business-Level Strategies
A focus strategy must exploit a narrow target‟s differences from the
balance of the industry by:
isolating a particular buyer group
isolating a unique segment of a product line
concentrating on a particular geographic market
finding their “niche”
11. Factors That May Drive Focused
Strategies
Firm may lack resources to compete in the broader market
May be able to serve a narrow market segment more effectively than
can larger industry-wide competitors
Focus may allow the firm to direct resources to certain value chain
activities to build competitive advantage.
12. Major Risks of Focused Strategies
A large competitor may set its sights on your niche market.
Preferences of niche market may change to match those of broad
market.
Its short term strategy.
13. Conclusion
Pursuing singular generic strategies is considered to
be no longer sufficient in today‟s competitive
environment. Increased competition and cost
pressures as side effects of globalization as well as
changing customer expectations require companies
to adopt a multidimensional strategic approach.
These days, most customers expect to get
everything at once: differentiated, high-quality
products combined with excellent service at a low
price. Hybrid strategies that integrate cost and
differentiation advantages represent a way for
companies to respond to these changes in the
competitive environment more flexibly and effectively
and stay competitive.
