Understanding what is Porters generic strategies
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In this section we will discuss what is Porter’s generic strategies.
Michael Porter suggested that companies want to win in the marketplace they have to adopt either a cost leadership strategy or a differentiation strategy. A cost leadership strategy is where you are selling products at a lower price than on your competitors in the Marketplace and therefore customers prefer doing business with you. A differentiation strategy is where you offer something unique and of higher quality which others cannot match and hence customers do choose your products and services over others.
The third strategy he suggests is the Focus strategy
In the focus strategy the business can focus on a niche and then offer their services by following a cost leadership or differentiation strategy in the same niche. For example if I am in the business of building residential apartments, instead of focusing on anyone who is in the market to buy an apartment, I can focus only on senior citizens. In this niche, I could follow a cost leadership strategy (sell the cheapest apartments) or a differentiation strategy (sell higher quality apartments with more facilities but at a higher cost).
Porter cautions business from attempting to apply both cost leadership and differentiation strategies simultaneously as they will not be successful. This is the fourth strategy which is called ‘stuck in the middle’. This is not a workable strategy (as the name suggests), according to Porter.
There are critics to this model as some believe that both cost leadership and differentiation is possible. Newer theories such as Miles and Snow included this as a workable strategy too.
Examples of Porter’s Generic strategies
The Walmart Business strategy something out of the play book of Michael porter’s generic strategies.The cost leadership strategy applies well to Walmart. Walmart has the ability to source products in huge volumes from anywhere in the world and get its stores shelves at the cheapest possible costs because of the highly efficient supply chain and logistics systems. In fact this is the key reason why Walmart is able to sustain and thrive while other retail chains are floundering and closing up stores.
Typically a company having a differentiation strategy will have higher pricing than the competitors. An example is Apple. In the highly competitive market of smartphones will find that the iPhone has carved out a niche for itself. It is perceived as being higher in quality and customers are willing to pay more. Similarly Mac-book ,iPad etc. are seen as having better quality and better features than others in the Marketplace and hence the customers are willing to shell out more money to purchase these products due to the higher perceived value.
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