Strategic Management

4- Porter Generic Strategies

and Value proposition

By: Ahmed El-Tagy

a_tagy@hotmail.com
www.eltagy.com

© Ahmed El-Tagy, RITI-Cairo 2011

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 Porter Generic Strategies
• Michael Porter describes how businesses can build a sustainable
competitive advantage.
• Competitive advantage:
• An advantage over competitors gained by offering greater
customer value, either through lower prices or by providing more
benefits that justify higher prices.

• He identified three primary strategies for achieving competitive

advantage:
• Cost leadership – lowest-cost producer.
• Differentiation – product is unique.
• Focus – limited scope.

Copyright 2006 John Wiley & Sons, Inc. 2

 Porter Generic Strategies
1- Cost leadership: The ability of the company to design,
produce and market a comparable product more
efficiently than its competitors.

2- Differentiation: The ability of the company to provide

unique and superior value to the buyer in terms of
product quality, special features or after sales services.

3-Focus: The ability of the company to provide a superior

value to a particular buyer group, segment, or geographic
market.

© Ahmed El-Tagy, RITI-Cairo 2011

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Porter's Generic Strategies

Cost Differentiation
Leadership

Focus
Three strategies for achieving competitive advantage.
© Ahmed El-Tagy, RITI-Cairo 2011
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Porter's Generic Strategies Application
Example to the clothes industry
Cost
Leadership Differentiation

Focus
© Ahmed El-Tagy, RITI-Cairo 2011
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 Porter’s Competitive Advantage
• Remember that a company’s overall business strategy will
drive all other strategies.
• Porter defined these competitive advantages to represent
various business strategies found in the marketplace.
1. Cost leadership strategy firms include Walmart and
Suzuki
2. Differentiation strategy firms include Caterpillar , Rolex
and Starbucks
3. Focus strategy firms include Pourche, Apple desk top
publisher, Motel 6 for price conscious travelers .

Copyright 2006 John Wiley & Sons, Inc. 6

Generic Strategy Picture
Competitive Advantage
Target Scope
Low Cost Product Uniqueness
Porter's Generic Strategies

Broad
(Industry Wide) Cost Leadership Differentiation
Strategy Strategy

Narrow Focus Focus

(Market Segment)
Strategy Strategy
(low cost) (differentiation)
Cost Leadership
• This generic strategy calls for being the low cost
producer in an industry for a given level of quality.
• The firm sells its products either at average industry
prices to earn a profit higher than the rivals, or below
the average industry prices to gain market share.
• The cost leadership strategy usually targets a broad
market.

© Ahmed El-Tagy, RITI-Cairo 2011

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 Cost Leadership Strategy
• Firms that succeed in cost leadership often have the following internal strengths:
• Access to the capital required to make a significant investment in production
assets; this investment represents a barrier to entry that many firms may
not overcome.
• Skill in designing products for efficient manufacturing, for example, having a
small component count to shorten the assembly process.
• High level of expertise in manufacturing process engineering.
• Efficient distribution channels.
• Risks
• For example, other firms may be able to lower their costs as well. As
technology improves, the competition may be able to leapfrog the
production capabilities, thus eliminating the competitive advantage.
Additionally, several firms following a focus strategy and targeting various
narrow markets may be able to achieve an even lower cost within their
segments and as a group gain significant market share.
Differentiation Strategy
• A differentiation strategy calls for the development of a
product or service that offers unique attributes that are
valued by customers and that customers perceive to be
better than or different from the products of the
competition.

• The value added by the uniqueness of the product may

allow the firm to charge a premium price for it.

© Ahmed El-Tagy, RITI-Cairo 2011

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 Differentiation Strategy
• Firms that succeed in a differentiation strategy often have
the following internal strengths:
• Access to leading scientific research.
• Highly skilled and creative product development team.
• Strong marketing and sales teams with the ability to successfully
communicate the perceived strengths of the product.
• Corporate reputation for quality and innovation.
• Risks
• include imitation by competitors and changes in customer tastes.
Additionally, various firms pursuing focus strategies may be able to
achieve even greater differentiation in their market segments.
•  under a differentiated strategy, the organization focuses on
creating a point of difference in its service offering to an
homogeneous niche market(s). Because customers perceive
value in exchange, they are prepared to pay a slight price
premium.

© Ahmed El-Tagy, RITI-Cairo 2011

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• Under a cost leadership strategy, maximizing capacity and throughput
delivers efficiencies and  drives costs down. The player that follows
this strategy will service mass markets that are price sensitive. A
combination of high volumes and low prices maximizes revenue,
profits and provides a high return on investment

© Ahmed El-Tagy, RITI-Cairo 2011

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Stuck in the middle
Differentiation Cost Leader

© Ahmed El-Tagy, RITI-Cairo 2011

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Local example: Ideal Standard
Focus Strategy
• The focus strategy concentrates on a narrow segment and within that
segment attempts to achieve either a cost advantage or
differentiation.
• The premise is that the needs of the group can be better serviced by
focusing entirely on it.
• A firm using a focus strategy often enjoys a high degree of customer
loyalty, and this entrenched loyalty discourages other firms from
competing directly.

© Ahmed El-Tagy, RITI-Cairo 2011

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 Focus Strategy
• Because of their narrow market focus, firms pursuing a focus
strategy have lower volumes and therefore less bargaining
power with their suppliers. However, firms pursuing a
differentiation-focused strategy may be able to pass higher
costs on to customers since close substitute products do not
exist.
• Firms that succeed in a focus strategy are able to tailor a
broad range of product development strengths to a
relatively narrow market segment that they know very well.
• Risks
• include imitation and changes in the target segments.
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.
International virtual example GM
• Cost Leadership
• Having the lowest cost in the whole industry or in a certain segment
- In all industry All GM vehicles are the cheapest.
- In a particular segment GM trucks are the cheapest.
• Differentiation:
• Making your product or service better , to be unique in the market
• In all the market All GM vehicles are fuel efficient.
• In a particular segment GM cars are the most fuel efficient.
• Focus
© Ahmed El-Tagy, RITI-Cairo 2011
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 Differentiation in Marketing strategy
• the company must decide on a value proposition—on
how it will create differentiated value for targeted
segments and what positions it wants to occupy in those
segments.

• “Products are created in the factory, but brands are

created in the mind”

© Ahmed El-Tagy, RITI-Cairo 2011

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Choosing a Differentiation and Positioning
Strategy
• The differentiation and positioning task consists of three
steps:
1. identifying a set of possible customer value differences
that provide competitive advantages upon which to build
a position.
2. choosing the right competitive advantages.
3. selecting an overall positioning strategy.

© Ahmed El-Tagy, RITI-Cairo 2011

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1.Identifying Possible Value Differences
and Competitive Advantages

• To find points of differentiation, marketers must think

through the customer’s entire experience with the
company’s product or service.
• An alert company can find ways to differentiate itself at
every customer contact points.
• It can differentiate along the lines of product, services,
channels, people, or image.

© Ahmed El-Tagy, RITI-Cairo 2011

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 Differentiating Markets
• offers can be differentiated along the:
• Product : (Volvo provides new and better safety
features, while Lufthansa offers wider seats to
business-class flyers.
• Services: (Some companies gain competitive
advantage through speedy, reliable or careful
delivery)
• Personnel: (hiring and training better people than
their competitors do, Singapore Airlines have
better flight attendants.)
• Image : (brand image, cannot implant overnight using
only a few advertisements, Symbols: Mercedes star)

© Ahmed El-Tagy, RITI-Cairo 2011

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2.Choosing the Right Competitive Advantages
• HOW MANY DIFFERENCES TO PROMOTE?
• Many marketers think that companies should aggressively
promote only one benefit to the target market.
• unique selling proposition (USP) for each brand and stick to
it.
• Other marketers think that companies should position
themselves on more than one differentiator.
• This may be necessary if two or more firms are claiming to
be best on the same attribute.

© Ahmed El-Tagy, RITI-Cairo 2011

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WHICH DIFFERENCES TO PROMOTE
Important: The difference delivers a highly valued benefit to target buyers.

Distinctive: Competitors do not offer the difference, or the company can offer it

in a more distinctive way.

Superior: The difference is superior to other ways that customers might obtain

the same benefit.

Communicable: The difference is communicable and visible to buyers.

Preemptive: Competitors cannot easily copy the difference.

Affordable: Buyers can afford to pay for the difference.

Profitable: The company can introduce the difference profitably

© Ahmed El-Tagy, RITI-Cairo 2011
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3.Selecting an Overall Positioning Strategy
• The full positioning of a brand is called the brand’s value
proposition - the full mix of benefits upon which the brand is
differentiated and positioned.

• answer to the customer’s question “Why should I buy your

brand?”

© Ahmed El-Tagy, RITI-Cairo 2011

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 Possible value propositions:
• The five green cells on the top and right are winning value propositions
• Differentiation and positioning that gives the company a competitive advantage
• The red cells represent loosing value propositions
• The middle cell represent at best a marginal position
More for more: more quality, luxury, service for higher price

More for the same: introducing a brand offering

comparable quality at lower price

The same for less: Every one like a good deal, discount
stores

Less for much less: not everybody wants the best quality
performance and service.

More for less: is a winning value, can be used short term,

but in long term it is very difficult to sustain both positions.

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 Developing a Positioning Statement
• The statement should follow the form: To (target segment
and need) our (brand) is (concept) that (point of difference)
• To busy, mobile professionals who need to always be in the
loop, BlackBerry is a wireless connectivity solution that
allows you to stay connected to data, people, and resources
while on the go, easily and reliably—more so than
competing technologies.”

© Ahmed El-Tagy, RITI-Cairo 2011

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Thank You

© Ahmed El-Tagy, RITI-Cairo 2011

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