Porter’s Generic Strategies: A Guide for Entrepreneurs

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To make management and organization success-oriented, one can implement many management strategies. Porter Generic Strategies are quite popular in the field of management strategies. 

Every business has competitors. With this said strategy, the company can visualize itself as its competitors. 

The best example is if the competitor captures the market with a low-cost, low-price strategy, then you can also implement a similar strategy to stay in the same line. In brief, the strategy will provide an advantage over the competitors. 

It provides strategic direction to the company that helps enhance its positioning compared to the other players in the marketplace.

Porter’s Generic strategy was first discussed in 1980 when Michael Porter introduced it. There are three strategies in this concept. These include cost leadership strategy, focus strategy, and differentiation strategy. Porter suggested that every company should adopt one of these three strategies. 

Here’s a detailed discussion of all three strategies that form the main concept of Porter Generic Strategies.

Porter’s Generic Strategies Are

  • Cost leadership
  • Differentiation strategy
  • Focus

Porter’s Generic Strategies With Examples

✅Cost leadership

The cost leadership strategy is mainly about the cost and price side of the business. If you want to enhance your revenues, you can either look out for cost-cutting strategies or strategies where you can enhance the market share by offering cheaper products than your competitors.

But while implementing the strategy, the company should evaluate the wastage of resources and how there can be reduced overheads. 

Also, the company is looking towards price reduction of a particular product. In that case, there should be an analysis of customers’ perception, the value of the product and the offers that it can give.

Reducing the cost to bring the product cost to par with the competitors’ price should only be followed when other supporting factors exist. Thus, adopting the cost leadership strategy needs careful evaluation of the company’s costs, product costs, product prices and many other factors.

Example

The best example is if a company wants to develop a low-cost model for a particular product, then there should be suppliers from whom the company is buying bulk and at a low price. There should be cheaper supply models, and there should be cost control in the manufacturing process. 

So this strategy means that when the cost structure is controlled, the pricing will be at par with the competitors, and this can enhance the market share.

✅Differentiation strategy

By adopting a differentiation strategy, the company provides products and services that are better than the other competitors in the market. 

The company should establish a model wherein its products are better than anyone else. The pricing may be a minor factor here. People should perceive the products as better off, and hence they may be okay with paying extra for the features and qualities of the products.

To implement the differentiation strategy, the company may recheck the mission statement and the objectives. 

At the same time, analyzing value propositions will make a difference. If you say your products are different, you should be able to justify the same. To provide a hint about differentiation strategy, you may have to rebrand the products or modify the marketing strategies. 

Taking feedback from the market will be equally crucial to know how the customers perceive the products of the company. When the customers find the differentiation strategy worth it, the company should not delay implementing it. 

Getting feedback from various platforms is truly vital. You, as a company, can check the social media platforms, business review directories and other areas where you can get direct responses about the company’s products and reputation.

You know that following current business strategies will be good if there are positive reviews. If there are negative reviews, then there should be some productive changes in the strategic implementation to make the products and services different and better in a real sense.

Example

A company sells handmade products and is completely free from animal testing or violence. Customers who feel that the company has great values and those who find these different features of the company’s products useful will buy these products. 

The buyers think that the company sells products of high value which are different from the competitors. Here the company is successfully implementing the differentiation strategy.  

✅Focus

The last one of Porter’s Generic Strategies includes the focus strategy. In this strategy, the company’s main focus is on the target customers or a group of customers. The products that the company sell might only be for some. 

It might be for a class of people or a specific group. But, the company is a leader in such products. The company can also use a differentiation strategy or cost leadership to gain leadership in the business model. 

With this strategy, the company has a loyal customer base. Focus can be of two types. The first type is low cost, and the second is best value or differentiation. 

Example

A company makes vegan food products that are high in protein especially targeting the age group from 18-36 years. Here, the customers that the company gets for the products will be limited. But, it uses a differentiation strategy or the best value strategy to gain expertise.

Now that you know the three important strategies of Porter’s Generic Strategy, you must also know how the companies must implement them.

How To Use And Implement Porter’s Generic Strategy?

Suppose the company wishes to implement Porter’s Generic Strategy in its business. In that case, there are a few things that the company should consider.

✅Analyze all three strategies and check which one suits your organization.

The organization should take up a deep analysis of all three strategies. A SWOT analysis test can provide wonderful results. 

It can give direction to the company about what it should do next. With a robust evaluation, the organization will be able to find that what are the company’s goals, strengths and weaknesses. Which strategy of the three is the best of all?

The strategies should be checked in connection with the supplier strength, customer power, competitive threats and employee turnaround issues. The company must use a custom approach to understand which strategy can enhance the company’s growth and development.

✅Revisit the company’s goals and priorities.

It would help if you revisited the company’s goals and priorities to implement Porter’s Generic Strategy for your business model. 

With this action, the company will understand where it should make the alterations and how there should be 

✅Understanding the factors that might affect the strategic implementation

There may be forces that affect the strategy implementation process. These include types of customers, the buyer’s power, the supplier and logistic power, competition and threat that there would be substitutes for the products and so on. 

The company must study all these factors properly, which will provide an idea about how to implement the strategies. Some of the other blocks include the entry barriers, which can create issues for the organization.

✅Stay firm on the strategy and give it time to get established.

It would help if you were sure of one more vital thing while implementing the strategy. Once you adopt and implement it, you must give it some time. The firm must implement the strategy and wait till there are some productive results. When a specific timeline passes, you can evaluate the results that you get.

Like every model, even Porter’s Generic Strategy model has some challenges and critics. The critics feel that the concept needs to be narrower. Hence, while there is an implementation, the companies might forget the flaws that it portrays. 

The strategy might only apply to some businesses and markets with higher competition. Some critics also say that the cost leadership strategy is not a strategy; it is merely one dimension of the strategy.

But, in comparison to many other business strategies, Porter’s Generic Strategy has gained more attention, and many companies are already implementing it.

Porters Strategic Matrix

Porter’s strategic matrix, also known as the competitive advantage matrix, is a framework that helps businesses identify and analyze their competitive position in the marketplace. The matrix was developed by Michael Porter, a renowned management guru, and is based on two dimensions: industry attractiveness and competitive position.

Industry attractiveness refers to the overall attractiveness of the industry or market in which a business operates. This includes factors such as market size, growth rate, profitability, and competition. Competitive position refers to a business’s position within the industry, based on factors such as market share, brand recognition, and cost competitiveness.

The matrix consists of four quadrants, each representing a different combination of industry attractiveness and competitive position:

  1. High industry attractiveness, strong competitive position: Businesses in this quadrant have a strong position in an attractive industry or market. They are well-positioned to take advantage of growth opportunities and generate high profits. Examples of businesses in this quadrant include dominant players in the tech industry, such as Apple and Google.

  2. High industry attractiveness, weak competitive position: Businesses in this quadrant operate in an attractive industry or market but have a weak competitive position. They may be struggling to compete with larger, more established players in the industry. To succeed, businesses in this quadrant need to focus on improving their competitive position through differentiation, cost leadership, or focus strategies.

  3. Low industry attractiveness, strong competitive position: Businesses in this quadrant have a strong competitive position, but operate in an unattractive industry or market. They may be able to generate profits in the short-term, but face long-term challenges due to the limited growth potential of the industry. Businesses in this quadrant may need to consider diversification or strategic partnerships to improve their long-term prospects.

  4. Low industry attractiveness, weak competitive position: Businesses in this quadrant have a weak competitive position in an unattractive industry or market. They may struggle to generate profits and face significant challenges in the marketplace. Businesses in this quadrant may need to consider restructuring or exiting the industry altogether.

The strategic matrix can help businesses identify their strengths and weaknesses, as well as potential growth opportunities and threats. By understanding their competitive position and the industry’s overall attractiveness, businesses can make informed decisions about their strategy and allocate resources effectively to achieve long-term success.

Porter’s Generic Strategy Example

Porter’s generic strategies are a set of three basic strategies that businesses can use to gain competitive advantage: cost leadership, differentiation, and focus. Here are some examples of each strategy:

  1. Cost Leadership Strategy: A company that uses a cost leadership strategy aims to offer the lowest-cost products or services in the market. The company achieves this by producing in high volume, minimizing costs, and offering products or services at a lower price than its competitors. Examples of companies that use the cost leadership strategy include Walmart, McDonald’s, and Southwest Airlines.

  2. Differentiation Strategy: A company that uses a differentiation strategy aims to differentiate itself from its competitors by offering unique products or services that customers perceive as valuable. This can be achieved through product innovation, superior customer service, or branding. Examples of companies that use the differentiation strategy include Apple, Mercedes-Benz, and Nike.

  3. Focus Strategy: A company that uses a focus strategy aims to focus on a specific market segment, either a specific customer group or a specific product category. This allows the company to develop expertise and tailor its products or services to the target market’s needs, creating a competitive advantage. Examples of companies that use the focus strategy include Rolls-Royce (which focuses on luxury cars), Caterpillar Inc. (which focuses on heavy machinery) and Lululemon (which focuses on yoga wear).

Conclusion

Business strategies play a key role in every business. Implementing the right strategies based on the target market and the customers’ perception will make a big difference in the growth and development of the organization. 

Implementing Porter’s Business Strategy will help determine what changes the company should make in strategic implementation. What kind of products should the company come up with? 

How does the company need to rebrand itself to gain a firm position in the market and so on. Creating and implementing strategies will help the business gain an advantage over the competitors, enhance the profit margins, or make a reputable position among the target customers.

If Porter’s Generic Strategies are used in the best possible manner, then it will help in providing the company with profitable insight. When the business strategy works, the company will receive the best results. Also, the company will gain a newer perspective on whether the new strategies are working for the benefit.

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