Why porter generic strategies

Furthermore, it may be fairly easy for a broad-market cost leader to adapt its product in order to compete directly. Finally, other focusers may be able to carve out sub-segments that they can serve even better. These generic strategies are not necessarily compatible with one another. If a firm attempts to achieve an advantage on all fronts, in this attempt it may achieve no advantage at all. For example, if a firm differentiates itself by supplying very high quality products, it risks undermining that quality if it seeks to become a cost leader.

Even if the quality did not suffer, the firm would risk projecting a confusing image. For this reason, Michael Porter argued that to be successful over the long-term, a firm must select only one of these three generic strategies. Otherwise, with more than one single generic strategy the firm will be "stuck in the middle" and will not achieve a competitive advantage.

Porter argued that firms that are able to succeed at multiple strategies often do so by creating separate business units for each strategy. By separating the strategies into different units having different policies and even different cultures, a corporation is less likely to become "stuck in the middle. There have been cases in which high quality producers faithfully followed a single strategy and then suffered greatly when another firm entered the market with a lower-quality product that better met the overall needs of the customers.

Generic Strategies and Industry Forces These generic strategies each have attributes that can serve to defend against competitive forces. The following table compares some characteristics of the generic strategies in the context of the Porter's five forces. Customer loyalty can discourage potential entrants. Focusing develops core competencies that can act as an entry barrier. Buyer Power Ability to offer lower price to powerful buyers.

Large buyers have less power to negotiate because of few close alternatives. Large buyers have less power to negotiate because of few alternatives. Supplier Power Better insulated from powerful suppliers. Better able to pass on supplier price increases to customers. Suppliers have power because of low volumes, but a differentiation-focused firm is better able to pass on supplier price increases.

When looking at the Cost Leadership Strategy you should review: Your current suppliers and their costs Technology and innovations that can reduce your processes Process speed and efficiency Your people cost and their progression Your management team skills — detail, process driven, analytical and financial are required attributes of the team When done well the Cost Leadership Strategy opens up several options to companies: Increasing your profit margins by maintaining your current cost Resisting price increases when competitors are forced to do so Reducing the price to become more competitive Investing the profits into diversifying your business, automation for further cost reduction, or shareholder value Examples: Aldi market entry IKEA at least initially McDonalds Remember: Cost Leadership is a long term strategy — if you stop focusing on it, cost will start to creep back into the business in ways that were not required.

What is the Differentiation Strategy? What is the history of competitor innovation? What does your customer feedback suggest? Is your company setup to take advantage of new features with strong marketing? Why do you currently win or lose sales deals?

How do you currently research the market and requirements? What is the Cost Focus Strategy? Can you provide the product or service at a cheaper cost than the competition?

Can you maintain the quality required to be leader in the niche market? What is the level of cost per customer to become the leader within this market? What is the Differentiation Focus Strategy? The costs associated with the products will already be low which still allows the company to make a decent profit and underbid competitors.

Try to understand the consumer perception of your product or service. Find the happy medium between pricing your product or service as valuable and yet still, attainable. Also, consider using promotions and discounts to better consumer perception. You may price the product higher but offer incentives for purchase via a short-long term discount code, coupon or sale. The consumer still sees the product as valuable but may get excited about the cost savings.

Example: Big Box Retailer implements this strategy regularly. You could do this by re-branding or developing new specialized products to offer customers under your existing brand and marketing strategy.

To determine your differentiation, you may need to create—or revisit—your mission and values statements. What is your value proposition to the market? How is your product different from the competition?

They can be similar but it is up to you to distinguish how yours is different and better. A key to learning how to differentiate your offering to your target audience is to fully understand how they perceive your brand. You can start gaining insight into their perception by analyzing the user-generated content on your social media channels. What are people really saying about you—both positively and negatively? All feedback is helpful and can help you modify your strategies moving forward.

You may also want to implement a social media listening tool if you do not already have one, which can alert you to mentions of your company name, brand or specific products.

Focus strategy provides the option to use cost leadership or differentiation within the niche market. However, if the firm is capable and executes a strategy sufficiently, then it can achieve a competitive advantage in the market. Cost leadership means being an industry leader in low-cost production. Remember, this does not concern the cost for the consumer. It concerns the cost of production for the business. The strategic position serves one of two purposes at any stage of execution:.

It produces higher profit margins for the business at a given price, or. It allows for an overall lower price to consumers, which can be used to increase market share. In order to employ this strategic approach, you must be able to establish and maintain a lower cost structure than any competitor.

This includes the cost structure of competitors producing similar and sometimes, substitute goods.