GENERIC STRATEGIES

Presented By
R.Antlin Jenifer
MBA 905.
GENERIC SRATEGIES
Michael Porter has suggested that the firm’s strength
ultimately falls into any of the two headings: cost
advantage and differentiation.
Three generic strategies
Cost Leadership
Differentiation and
Focus
Three generic strategies are applied at the business unit
level.
Porter’s Generic Strategies
TARGET SCOPE LOW COST DIFFERENTIATIO
N

BROAD Cost Leadership Differentiation

Strategy Strategy

NARROW Focus Strategy Focus Strategy

(Low Cost) (Differentiation)
Cost Leadership Strategy
The competitive advantage of the organisation lies in
the lower cost of products or services relative to what
the competitors have to offer.
The Organisation outperforms its competitors.
The cost leader organisation earns higher profits.
Cost leadership offers a margin of flexibility to the
organisation to lower the price.
Advantages
Low cost serves as a barrier to the new entrant in the
industry.
Arrival of substitute products can be managed with
price reduction.
Intense rivalry is avoided.
Powerful buyers and powerful suppliers will have less
influence on the cost leader.
Disadvantages
Competitors may imitate the cost leader’s methods in
course of time.
Arrival of new lost cost technology pursued by close
rivals.
Technological changes make economies of scale
complete obsolete.
Differentiation Strategy
The competitive advantage of an organisation lies in special
features incorporated into the product or services which is
demanded by the customer and who are willing to pay.
Organisation outperforms the competitors.
A differentiated product or service is distinguishable by the
customers for its features and attributes.
A differentiator organisation can change a premium price for
its product or services.
Profits for the differentiator organisation may come from the
difference in the premium price charged and the additional
cost incurred in providing the differentiation.
Advantages
Differentiation develops brand loyalty in the minds of
the customers.
Brand loyal customers are less sensitive to price
increases.
Powerful buyers usually do not negotiate price
decrease.
Differentiation is an extensive proposition.
Disadvantages
Threat from the competitors who can imitate the
differentiation strategy.
Differentiation fails to work if its basis is something
that is not valued by the customer.
Price premiums also have a limit.
Focus Strategy
Focus business strategy essentially rely on either cost
leadership or differentiation, but cater to a narrow
segment of the total market.
The more commonly used bases for identifying
customer groups are the demographic characteristics,
geographic segmentation or life-style.
For the identified market segment, a focused
organisation uses either the lower cost or
differentiation strategy.
Advantages
A focused company is safeguarded from the
competitors till the rivals copy the product.
Customer loyalty is developed in the niche market.
It allows the company to stay close to the customer.
Focused strategy protects the buyers loyalty.
Disadvantages
Production cost exceeds that of low cost producer.
Powerful suppliers are threat to a focused company.
Niches are often transient.
Niche may sometimes become attractive enough for
the bigger players to shift attention towards them.
Thank You