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Porter's Generic Competitive Strategies

Porter's model of generic strategies outlines three strategies for achieving competitive advantage: cost leadership, differentiation, and focus. Cost leadership involves having the lowest production costs in an industry. Differentiation is being unique along dimensions valued by customers. Focus involves targeting a narrow scope or segment and tailoring the strategy to serve it exclusively using either cost advantages or differentiation.

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Harshita Singh
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154 views1 page

Porter's Generic Competitive Strategies

Porter's model of generic strategies outlines three strategies for achieving competitive advantage: cost leadership, differentiation, and focus. Cost leadership involves having the lowest production costs in an industry. Differentiation is being unique along dimensions valued by customers. Focus involves targeting a narrow scope or segment and tailoring the strategy to serve it exclusively using either cost advantages or differentiation.

Uploaded by

Harshita Singh
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Porter’s Model of Generic Strategies for Competitive Advantage

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. The focus strategy has two variants:
(a) In cost focus a firm seeks a cost advantage in its target segment, while in (b) differentiation focus a
firm seeks differentiation in its target segment. Both variants of the focus strategy rest on differences
between a focuser’s target segment and other segments in the industry. The target segments must either
have buyers with unusual needs or else the production and delivery system that best serves the target
segment must differ from that of other industry segments. Cost focus exploits differences in cost
behaviour in some segments, while differentiation focus exploits the special needs of buyers in certain
segments.

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