1.

Cost leadership
2. Differentiation
3. Focus.
•Generic strategies were used initially in the early
1980s, and seem to be even more popular today.
•They outline the three main strategic options open
to organization that wish to achieve a sustainable
competitive advantage.
 Strategic Orientation—
Porter’s Three Generic Strategies

Low Cost
Uniqueness Position

ad Overall
Br o Differentiati
Business Scope

Cost
on
Leadership

Focus
Focus
ow
r r Differentia Focus Low
Na
tion Cost
Strategic Advantages
Cost Leadership.
The low cost leader in any market gains
competitive advantage from being able to
produce at the lowest cost. Products tend to
be 'no frills.'
Cost is driven down through all the elements
of the value chain.
 Cost Leadership.
 However, low cost does not always lead to low price.
Producers could price at competitive parity,
exploiting the benefits of a bigger margin than
competitors.
 Toyota, is very good not only at producing high
quality autos at a low price, but have the brand and
marketing skills to use a premium pricing policy.
Wal-Mart is another example of low-cost strategy.
The Sources of Cost Advantages

Economies of Scale
 Experience or learning-curve
 Capacity Utilization
 Product Design
 Location
 Vertical Integration/Outsourcing
 Value chain configuration
 Differentiation

“Differentiation means providing something

unique that is valuable to the buyer beyond
simply offering a low price.” (M. Porter)

Differentiated goods and services satisfy the

needs of customers through a sustainable
competitive advantage. This allows companies
to desensitize prices and focus on value that
generates a comparatively higher price and a
better margin.
 Differentiatio
n
Incurs additional costs in creating their
competitive advantage. These costs must be
offset by the increase in revenue generated by
sales. Costs must be recovered.
There is also the chance that any differentiation
could be copied by competitors. Therefore there is
always an incentive to innovate and continuously
improve.
Keys
Keys to
to Successful
Successful
Differentiation
Differentiation

•Understanding customer needs and

preferences
• Commitment to customers

• Knowledge of company's capabilities

• Innovation
 The
The Nature
Nature of
of
Differentiation
Differentiation
THE KEY IS CREATING VALUE FOR THE CUSTOMER

TANGIBLE INTANGIBLE
Observable characteristics:
 size, color, materials, Unobservable and
etc. subjective
 performance characteristics relating
 packaging to image status,
 complementary services exclusively, identity.

TOTAL CUSTOMER RESPONSIVENESS: Differentiation not just

about the product, it embraces the whole relationship between the
supplier and the customer.
Pitfalls of Differentiation Strategies
Uniqueness that is not valuable
Too much differentiation
Too high a price premium
Differentiation that is easily imitated
Dilution of brand identification through
product-line extensions
Perceptions of differentiation may vary
between buyers and sellers
Niche/ Focus
strategies
Here the organisation focuses its effort on
one particular segment and becomes well
known for providing products/services within
the segment.
They form a competitive advantage for this
niche market and either succeed by being a
low cost producer or differentiator within
that particular segment. Examples include
Roll Royce, Bentley or Organic food.
Niche
Focus is based on the choice of a narrow
competitive scope within an industry
 Firm selects a segment or group of segments
(niche) and tailors its strategy to serve them
 Firm achieves competitive advantages by dedicating
itself to these segments exclusively
Two variants
 Cost focus
 Differentiation focus
Where competitors are weakest
Pitfalls of Focus Strategies

Erosion of cost advantages within the narrow

segment
Focused products and services still subject to
competition from new entrants and from
imitation
Focusers can become too focused to satisfy
buyer needs. E.g.,Restaurant menu.
Stuck In The Middle
The danger some organisation face is that
they try to do all three and become what is
known as stuck in the middle.
They have no clear business strategy, be all
to all consumers, which adds to their running
costs causing a fall in sales and market share.
It is argued that if you select one or more
approaches, and then fail to achieve them,
your organization gets stuck in the middle
without a competitive advantage. Good take-
over targets.
 Market
Market Share-Profitability
Share-Profitability
Relationship:
Relationship:
“Porter’s
“Porter’s Bucket”
Bucket”
High

Differentiation- Low Cost

based Strategies Leadership
Strategies
Profitability

Stuck-in-the-Middle

Low

Low High

Market Share (Quantity)

Ikea's success in the retail industry can be
attributed to its vast experience in the retail
market, product differentiation, and cost
leadership.
One of the World's most successful
multinational retailing firms operating as a
global organization based on its unique
concept that the furniture is sold in kits that
are assembled by the
customer at home.
Ikea's mission is to offer a wide range of home
furnishing items of good design and function,
excellent quality and durability, at prices so low
that the majority of people can afford to buy
them.
The company targets the customer who is
looking for value and is willing to do a little bit
of work serving themselves, transporting the
items home and assembling the furniture for a
better price.
The typical Ikea customer is young low to
middle income family.