GENERIC COMPETITIVE

STRATEGIES
Porters Five Forces Model
Three Generic Strategies




Overall cost
leadership
Differentiation
Focus
Overall Cost Leadership
Achieving overall
cost leadership
(In an Industry)
Functional
policies
Basic Objective
Through
Aimed at
Cost leadership requires
Construction of efficient-scale facilities
Cost reductions
Cost & overhead control
Cost minimization in areas like : R&D,
Service, Sales Force, Advertising
What does Low Cost do -
It yields the firm above average returns in its
industry despite strong competition

It defends the firm against powerful buyers

It defends against powerful suppliers by more
flexibility to cope with input cost increases

It provides substantial entry barriers in terms of
scale economies or cost advantages

It places the firm in a favorable position

Achieving low overall cost position
requires -
High relative market share

Favorable access to raw materials

Designing products for ease in manufacturing

Maintaining a wide line of related products to
spread costs

Serving major customer groups in order to build
volume
Differentiation
(differentiating of a product or a service offering of the firm, creating
something which is perceived industry wide as being Unique)
Approaches to differentiating

Design or Brand image
Rolls Royce motors, louis vuitton
Technology
Mahindra reva, toyota- prius

Features
Macintosh think different
Customer service
Fed Ex & Dominos
Dealer network
Amway
Differentiation provides
Insulation against competition because of brand
loyalty and lower sensitivity to prices

Increase in the margins- avoiding need for a low
cost position

Focus
Focusing on a particular buyer group, segment of the product
line, or geographic market.

Build around serving a particular target very well.

Strategy rests on premise that firm will serve its narrow target
more effectively and efficiently than competitors.

Achieve one or both the positions in its narrow market target. (
fig )

Focus may be used to select targets least vulnerable to
substitutes or where competitors are the weakest.

Implies some limitation on the overall market share achievable.






Differentiation





Overall cost
leadership





Particular
segment only
Industry
wise
S
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Unique perceived
by the customer
Low cost position
Strategic advantage
Generic strategy Commonly required skills and resources
1) Overall cost leadership
Substained capital investment and access
to capital.
Process engineering skills
Intense supervision on labor
Products designed for ease in manufacture
Low-cost distribution system

2) Differentiation
Strong marketing abilities
Product engineering
Creative flair
Strong capability in basic research
Corporate reputation for quality or technological
leadership
Strong cooperation from channels
3) Focus
Combination of the above policies directed at the
particular strategic target
Generic strategy
Common organizational
requirements
1) Overall cost leadership
Tight cost control
Frequent , detailed control reports
Structured organization and
responsibilities
Incentives based on meeting strict
quantitative targets
2) Differentiation
Strong co-ordination among functions in
R& D, product development and marketing.
Subjective measurement and incentives
instead of quantitative measures.
Amenities to attract high skilled labor,
scientists, or creative people
3) Focus
Combination of the above policies
directed at the particular strategic target.
STUCK IN THE MIDDLE
Failure to develop any of the 3 strategies

Need to make aggressive investments to
modernize and buy market share or achieve
some uniqueness over its competitors or orient
itself to a particular target
Return on
investment
Market share
Relationship between Market share and
Return on Investment
Risks of overall cost leadership
Technological changes.

Low cost learning by industry newcomers or
followers.

Inability to see required product or marketing
changes.

Inflation in cost.
RISKS OF GENERIC STRATEGIES
Risks of differentiation
Cost differential between low-cost competitors
and the differentiated firm becomes too great to
hold brand loyalty

Buyers need for differentiating factor falls.

Imitation narrows perceived differentiation
Risks of focus
The cost differentiation between broad-range
competitors and the focused firm.

The differences in desired product or services
between the strategic target and the market as a
whole narrows .

Competitors find submarket within the strategic
target and outfocus the focuser