Porter's generic strategies

Differentiation

Differentiation involves making your products or services different from and more attractive than those of your competitors. It involves features, functionality, durability, support, and also brand image that your customers value.

STEPS

1. SWOT analysis 2. Use Five Forces Analysis to understand the nature of the industry you are in 3. Compare the SWOT Analyses of the viable strategic options with the results of your Five Forces analysis 4. Select the generic strategy that gives you the strongest set of options

Focus

A successful implementation means the company selects niche markets in which to sell their goods. It requires intense understanding of the marketplace, its sellers, buyers and competitors.

Porter's generic strategies

Once your analysis is complete, it is time to implement a strategy to expand your competitive advantage. To that end, Porter identified three generic strategies that can be implemented in any industry, and in companies of any size.

Generic strategies

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."

The terms "Cost Focus" vs "Differentiation Focus"

Remember that Cost Focus means emphasizing cost-minimization within a focused market, and Differentiation Focus means pursuing strategic differentiation within a focused market.

Cost leadership

Your goal is to increase profits by reducing costs while charging industry-standard prices, or to increase market share by reducing the sales price while retaining profits. It involves being the leader in terms of cost in your industry or market.

The greatest risk in pursuing a Cost Leadership strategy

is that these sources of cost reduction are not unique to you, and that other competitors copy your cost reduction strategies. This is why it's important to continuously find ways of reducing every cost. One successful way of doing this is by adopting the Japanese Kaizen philosophy of "continuous improvement."

To make a success of a Differentiation strategy, organizations need:

o Good research, development and innovation o The ability to deliver high-quality products or services. o Effective sales and marketing, so that the market understands the benefits offered by the differentiated offerings.

Cost leadership companies

usually have: o Access to the capital needed to invest in technology that will bring costs down. o Very efficient logistics. o A low-cost base (labor, materials, facilities), and a way of sustainably cutting costs below those of other competitors.