Porter’s generic strategies describe how a company pursues competitive crafting and executing strategy pdf download across its chosen market scope. A company chooses to pursue one of two types of competitive advantage, either via lower costs than its competition or by differentiating itself along dimensions valued by customers to command a higher price.
The generic strategy reflects the choices made regarding both the type of competitive advantage and the scope. The concept was described by Michael Porter in 1980. Porter wrote in 1980 that strategy targets either cost leadership, differentiation, or focus. These are known as Porter’s three generic strategies and can be applied to any size or form of business.
Porter claimed that a company must only choose one of the three or risk that the business would waste precious resources. Porter’s generic strategies detail the interaction between cost minimization strategies, product differentiation strategies, and market focus strategies of porters.
Porter described an industry as having multiple segments that can be targeted by a firm. The breadth of its targeting refers to the competitive scope of the business.
Porter defined two types of competitive advantage: lower cost or differentiation relative to its rivals. Achieving competitive advantage results from a firm’s ability to cope with the five forces better than its rivals. Porter wrote: “Achieving competitive advantage requires a firm to make a choiceabout the type of competitive advantage it seeks to attain and the scope within which it will attain it. The focus strategy has two variants, cost focus and differentiation focus.
It is attempting to differentiate itself along these dimensions favorably relative to its competition. If it is focusing on one or a few segments, it is following a focus strategy. Companies that pursued the highest market share position to achieve cost advantages fit under Porter’s cost leadership generic strategy, but the concept of choice regarding differentiation and focus represented a new perspective.
Empirical research on the profit impact of marketing strategy indicated that firms with a high market share were often quite profitable, but so were many firms with low market share. The least profitable firms were those with moderate market share. This was sometimes referred to as the hole in the middle problem.