PORTERS GENERIC

COMPETITIVE STRATEGIES
Porters Generic Competitive Strategies
Today, companies face their toughest competition ever.
Companies use their understanding to design market
offers to deliver more value than the offers of competitors
seeking to win the same customers.
Companies must also understand their competitors,
identify and analyze their strategies to position themselves
in such a way as to gain the greatest possible
competitive advantage against competitors in the
marketplace.
Strategies that strongly position the company against
competitor and give the company strongest possible
strategic advantage.
Competitive Strategies helps in:
Building profitable customer relationships
Gaining competitive advantage
Analyzing their competitors
Continued.
No company can follow only one strategy.

For example, Johnson & Johnson uses one

marketing strategy for its common product
such as BAND-AID & Johnsons baby
products; and different marketing strategy
for its High Tech healthcare products such
as Vicryl Plus, antibacterial surgical sutures
or NeuFlex finger joint implants.
Porters Generic Strategy Framework
Michael Porter has suggested three general types of

positioning strategies to achieve competitive advantage.

These three generic strategies are defined along two

dimensions: strategic scope and strategic strength.

Strategic scope looks at the size and composition of the

market you intend to target.

Strategic strength is a looks at the strength or core

competency of the firm.

 Porters Generic Strategy Framework

The three strategies

are: 1.Cost leadership,
2.Differentiation, and
3.Market
Segmentation (or
focus)
Market segmentation is
narrow in scope while
both cost leadership
and differentiation are
relatively broad in
market scope.
Cost Leadership
Companies try to achieve the lowest
production and distribution cost.
Low costs let its price lower than its
competitors and win a large market share.
3 ways to achieve this:
Economies of scale
low direct and indirect operating costs
control over the supply chain
Example:- Big bazaar
 Examples of Companies That
Use Cost Leadership Strategies
Wal-Mart is famous for EDLP, achieved by developing
close relationships with its suppliers and vendors to
achieve cost savings through large volume purchases
and pass these savings to the consumers.
Dell Computers :achieved market share by keeping
low inventories and only building computers to order,
procurement advantages from preferential access to
raw materials, or backward integration.
Low-cost budget Irish based airlines Ryanair who
despite having fewer planes than the major airlines,
were able to achieve market share growth by offering
cheap, no-frills services at prices much cheaper than
those of the larger competitors.
 Examples of Companies That Use Cost Leadership Strategies

Indias largest steel company Tata Steel, the

cost leader in the steel manufacturing sector
owns raw material assets such as coaland
limestone mines through joint ventures or
completely, with the assets spread across
countries such as Australia, Oman and
Mozambique. Tata Steel has largely been able
to withstand raw material price uctuations
due to captive iron ore mines.
Reliance Industries has become a global
leader in various business activities based on
innovation and cost by achieving more
effecient production arising from experience
and economies of scale, innovation in
 Requirements for Low cost Leadership
Generic Commonly Required Common Organizational
Strategy Skills and Resources Requirements
Overall Cost Secured supply of raw Tight cost control
Leadership material Frequent, detailed
Dominant market share control reports
position Structured
Sustained capital organization and
investment and access to
responsibilities
capital
Incentives based on
Process engineering skills
Intense supervision of meeting strict
labor Products designed quantitative targets
for ease in manufacture
Low-cost distribution
system
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 Differentiation
A company concentrates on differentiating the
products in some way in order to compete successfully.
appropriate where the target customer segment is not
price-sensitive, the market is competitive , customers
have very specific under-served needs and the firm has
unique resources to satisfy these needs in ways that
are difficult to copy.
Includes patents or other Intellectual Property (IP),
unique technical expertise, talented personnel or
innovative processes. Successful brand management
also results in perceived uniqueness even when the
physical product is the same as competitors. Fashion
brands rely heavily on this form of image
differentiation.
 Examples of
differentiation
Differentiation through Multiple
sources: L&T, the engineering firm ,
recruits engineers with excellent
qualification and claims superiority in
executing projects.
Coke and Pepsi differentiated through
brand power.
Reva through an electric car
Product Differentiation based on
ingredients: HUL Close Up used
glycerin instead of calcium carbonate
and secured differentiation and Colgate
 Examples of
differentiation
ProductDifferentiation through
Additional features: Aristocrat
suitcases with wheels , a unique
convenience to user
Product Differentiation by
Packaging
Harpic Toilet cleaner with an application
friendly nozzle
Hit for cockroach with sleek nozzle for
hidden areas
Product Differentiation by
Design:Kinetic Honda with electronic
Requirements for Differentiation & Focus Strategies
Generic Commonly Required Skills and
Strategy resources
Differentiation Product engineering
Strong capability in basic
research
Corporate reputation for
quality or technological
leadership
Unique combination of skills
Strong cooperation from
channels
Strong marketing abilities
Focus Combination of above policies
directed at the particular strategic
target
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Common Organizational
Requirements
Strong coordination among
functions in R&D, product
development, and marketing
Subjective measurement and
incentives instead of quantitative
measures
Amenities to attract highly
skilled labor, scientists, or
creative people
Combination of above policies
directed at the particular strategic
target
 Market
Segmentation /
Focus
Company focuses its efforts on serving a few market
segments well rather than going after the whole market.
The firm focuses its marketing effort on serving a defined,
focused market segments with a narrow scope by tailoring
its marketing mixto these specialized markets, it can
better meet the needs of that target market.
The firm typically looks to gain a competitive advantage
through product innovation and/or brand marketing rather
than efficiency.
It is most suitable for relatively small firms but can be
used by any company.
A focused strategy should target market segments that
are less vulnerable to substitutes or where a competition is
weakest to earn above-average return on investment.
 Market
Segmentation /
Focus
The focus strategy has two variants:
(a)In cost focus, a firm seeks a cost advantage in its
target segment, It exploits differences in cost behavior in
some segments . For instance, Southwest Airlines,
famous for its low cost focus follows basically a linear
route structure. It only ies one type of airplane and it
wants to stay in high-density markets and has been
highly efficient.
(b)Differentiation focus a firm seeks differentiation in its
target segment. It exploits the special needs of buyers in
certain segments. Ferrari , targets high performance
sports car segment and due to differentiation based
on design, high performance and grand prix records
which allows it to charge a premium price.
 Stuck in the middle
A companys failure to make a choice between
cost leadership and differentiation essentially
implies that the company is stuck in the middle.
There is no competitive advantage for a
company that is stuck in the middle and the
result is often poor financial performance .
However, companies like Toyota and Benetton
have adopted more than one generic strategy.
Both these companies used the generic
strategies of differentiation and low cost
simultaneously, which led to the success of the
companies.
 Criticisms of Porters Generic
Strategy Framework

A business can employ a hybrid strategy

without being struck in the middle. Nissan, for
instance.

Cost leadership does not sell products itself.

Differentiation can be used to increase sales

volume rather than charging a premium price.

Price can sometimes be used to differentiate.

 Companies can pursue any of the
three strategies called value
disciplines for delivering superior
customer value.

Operational excellence
Customer intimacy
Product leadership
 First value disciplines
1. Operational Excellence :
.To be a leader in operational excellence, a
company must provide reliable products or
services that can be purchased at competitive
prices and with minimal difficulty or
inconvenience.
.Organizations that have adopted a strategy of
operational excellence boast highly efficient
delivery processes built around sophisticated
information systems.
Wal-Mart is recognized over the world for
its cost efficiencies. If a price war were to
break out tomorrow, the giant retailer could
outlast all its competitors. It can therefore
maintain the lowest prices and attract
those customers who base their buying
decision primarily on price.
Likewise, Dell Computer competes
successfully with its higher-profile
counterparts, because it has a substantially
lower cost structure
 Second value disciplines
2. Customer Intimacy :
While companies that excel at operational
excellence run their businesses as lean, and those
pursuing a strategy of customer intimacy provide
superior value by tailoring and shaping products
and services to unique customer needs.
Value-added services, focused marketing, and
exible processes are the hallmarks
of this value discipline.
Ritz Carlton Hotels was identified as a
customer intimacy leader.
The Ritz Carlton has built a database on its
customers. Every time a customer stays at
the hotel, that information is accessed to
establish the needs of that customer.
The hotel responds accordingly, whether it
is by leaving fruit instead of chocolates in
the room, or placing the telephone on the
other side of the bed for left-handed
guests. It is attentive to customer needs.
 Third value discipline
3. Product Leadership :
Aproduct leadercontinually develops new and
unique products and services that have an
emotional and rational surplus value for clients.
Product leaders do not have to have the lowest-
cost operations because their customers are not
price-sensitive their priority is getting the
hottest new product, whatever it might cost.
3M has a policy stating that 25 per cent of
its corporate revenues must come from
products that have been created in the last
three years.
Another product leader, Intel, is constantly
reinventing the computer chip, often
displacing its own products in the
market.
Conclusion
Classifying competitive strategies as value
disciplines defines marketing strategy in
terms of single minded pursuit of delivering
superior value to customers.
Each value discipline defines a specific way
to build lasting customer relationship.
It helps the firms to analyze their
competitors and design effective
competitive marketing strategies to gain
competitive advantage.
 Looking forward: The
road ahead
The popular post-Porter model was presented by
W. Chan Kim and Rene Mauborgne in their
1999Harvard Business Reviewarticle "Creating
New Market Space, described a "value
innovation" model in which companies must look
outside their present paradigms to find new value
propositions.
Their approach fundamentally goes against
Porter's concept that a firm must focus either on
cost leadership or on differentiation. The concept
is popularly known as Blue Ocean Strategy.
 Risks of the Generic Strategies
Risks of Cost Risks of Risks of Focus
Leadership Differentiation
Cost leadership is not Differentiation is not Focus strategy is imitated
sustained sustained Target segment becomes
Competitors imitate Competitors imitate unattractive
Technology changes Bases for differentiation Structure erodes
Other bases for cost become less important to Demand disappears
leadership erode buyers Segments differences
Cost focusers achieve Cost proximity is lost from others narrow
even lower cost in Differentiation focusers
segments achieve greater
differentiation in
segments

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