This revision presentation explains how Michael Porter suggested four "generic" business strategies that could be followed in order to gain competitive advantage. The differentiation and cost leadership strategies seek competitive advantage in a broad range of market or industry segments. By contrast, the differentiation focus and cost focus strategies are best used in a narrow market or industry

1. Porter: Generic
Strategies

2. The marketing strategy challenge
To find a way of achieving a
To find a way of achieving a
sustainable competitive
sustainable competitive
advantage over the other
advantage over the other
competing products and
competing products and
firms in a market
firms in a market

3. What is a competitive advantage?
An advantage over competitors
An advantage over competitors
gained by offering consumers
gained by offering consumers
greater value, either by means of
greater value, either by means of
lower prices or by providing
lower prices or by providing
greater benefits and service that
greater benefits and service that
justifies higher prices
justifies higher prices

4. Porter’s Generic Strategies

5. Introducing Porter’s approach
• Porter suggested four "generic" business
strategies that could be followed in order
to gain competitive advantage
• The differentiation and cost leadership
strategies seek competitive advantage in a
broad range of market or industry
segments
• By contrast, the differentiation focus and
cost focus strategies are best used in a
narrow market or industry

6. Cost leadership (1)
With this strategy, the objective is
With this strategy, the objective is
to become the lowest-cost
to become the lowest-cost
producer in the industry. This
producer in the industry. This
typically involves production on a
typically involves production on a
large scale which enables the
large scale which enables the
business to exploit economies of
business to exploit economies of
scale.
scale.

7. Cost leadership (2)
• Why is cost leadership important?
– If selling prices are broadly similar, the
lowest-cost producer will enjoy the highest
profits
• Suitable markets for this strategy?
– Standard product
– Little product differentiation
– Branding relatively unimportant

8. Likely attributes of a cost leader
• High levels of productivity
• High capacity utilisation
• Use of bargaining power to negotiate the lowest
prices for production inputs
• Lean production methods (e.g. JIT)
• Effective use of technology in the production
process
• Access to the most effective distribution channels

9. Cost focus
• Here a business seeks a lower-cost
advantage in just one or a small number
of market segments
• The product will be basic - perhaps a
similar product to the higher-priced and
featured market leader, but acceptable
to sufficient consumers
• Such products are often called "me-
too's"

10. Differentiation focus
Differentiation focus is the classic
Differentiation focus is the classic
niche marketing strategy
niche marketing strategy
A business aims to differentiate
A business aims to differentiate
within just one or a small number
within just one or a small number
of target market segments
of target market segments

11. For differentiation focus to work…
• Market segmentation
– Clearly identifiable customer needs and wants
– A valid basis for differentiation
– Business able to meet the needs of the
segment
• Some possible approaches
– Higher / highest quality
– Specialist expertise / experience
– Exclusiveness (e.g. through distribution)

12. Differentiation leadership
With differentiation
With differentiation
leadership, the business
leadership, the business
targets much larger markets
targets much larger markets
and aims to achieve
and aims to achieve
competitive advantage across
competitive advantage across
the whole of an industry
the whole of an industry

13. Differentiation leadership (2)
• Involves selecting one or more criteria used by buyers
in a market - and then positioning the business
uniquely to meet those criteria
• Usually associated with charging a premium price for
the product - often to reflect the higher production
costs and extra value-added features provided for the
consumer
• Differentiation is about giving customers clear
reasons to prefer the product over other, less
differentiated products
• The strategy is not easy and it requires substantial
and sustained marketing investment.

14. Ways to achieve differentiated leadership
• Superior product quality (features,
benefits, durability, reliability)
• Branding (strong customer recognition &
desire; brand loyalty)
• Industry-wide distribution across all major
channels (i.e. the product or brand is an
essential item to be stocked by retailers)
• Consistent promotional support – often
dominated by advertising, sponsorship etc

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