They were first set out by Michael Porter in 1985 in his book, “Competitive Advantage: Creating and sustaining superior performance.”
Porter called the generic strategies “Cost leadership (no frills), “Differentiation” (creating uniquely desirable products and services) and “Focus” (offering a specialized service in a niche market). He then subdivided the focus strategy into two parts: “Cost Focus” and “Differentiation Focus”.
- Cost Leadership Strategy:
There are two main ways of achieving this cost leadership strategy:
- Increasing profits by reducing costs, while charging industry-average prices.
- Increasing market share by charging lower prices, while still making a reasonable profit on each sale because you’ve reduced costs.
- The Differentiation Strategy:
Differentiation involves making your products or services different from and more attractive than those of your competitors. To make a success of a Differentiation strategy, organizations need: Good research, development and innovation and the ability to deliver high-quality products or services.
- The Focus Strategy:
Companies that use Focus strategies concentrate on particular niche markets and, by understanding the dynamics of that market and the unique needs of customers within it, develop uniquely low-cost or well-specified products for the market.
The focus strategy has two variants:
- 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 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.
Your choice of which generic strategy to pursue underpins every other strategic decision you make, so it’s worth spending time to get it done right.
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