1、Porters Generic StrategiesIf the primary determinant of a firms profitability is the attractiveness of the industry in which it operates, an important secondary determinant is its position within that industry. Even though an industry may have below-average profitability, a firm that is optimally po
2、sitioned can generate superior returns.A firm positions itself by leveraging its strengths. Michael Porter has argued that a firms strengths ultimately fall into one of two headings: cost advantage and differentiation. By applying these strengths in either a broad or narrow scope, three generic stra
3、tegies result: cost leadership, differentiation, and focus. These strategies are applied at the business unit level. They are called generic strategies because they are not firm or industry dependent. The following table illustrates Porters generic strategies: Porters Generic StrategiesAdvantageTarg
4、et ScopeLow Cost Product UniquenessBroad(Industry Wide)Cost LeadershipStrategyDifferentiationStrategyNarrow(Market Segment)FocusStrategy(low cost)FocusStrategy(differentiation)Cost Leadership Strategy This generic strategy calls for being the low cost producer in an industry for a given level of qua
5、lity. The firm sells its products either at average industry prices to earn a profit higher than that of rivals, or below the average industry prices to gain market share. In the event of a price war, the firm can maintain some profitability while the competition suffers losses. Even without a price
6、 war, as the industry matures and prices decline, the firms that can produce more cheaply will remain profitable for a longer period of time. The cost leadership strategy usually targets a broad market.Some of the ways that firms acquire cost advantages are by improving process efficiencies, gaining
7、 unique access to a large source of lower cost materials, making optimal outsourcing and vertical integration decisions, or avoiding some costs altogether. If competing firms are unable to lower their costs by a similar amount, the firm may be able to sustain a competitive advantage based on cost le
8、adership.Firms that succeed in cost leadership often have the following internal strengths: Access to the capital required to make a significant investment in production assets; this investment represents a barrier to entry that many firms may not overcome. Skill in designing products for efficient
9、manufacturing, for example, having a small component count to shorten the assembly process. High level of expertise in manufacturing process engineering. Efficient distribution channels.Each generic strategy has its risks, including the low-cost strategy. For example, other firms may be able to lowe
10、r their costs as well. As technology improves, the competition may be able to leapfrog the production capabilities, thus eliminating the competitive advantage. Additionally, several firms following a focus strategy and targeting various narrow markets may be able to achieve an even lower cost within
11、 their segments and as a group gain significant market share. Differentiation Strategy A differentiation strategy calls for the development of a product or service that offers unique attributes that are valued by customers and that customers perceive to be better than or different from the products
12、of the competition. The value added by the uniqueness of the product may allow the firm to charge a premium price for it. The firm hopes that the higher price will more than cover the extra costs incurred in offering the unique product. Because of the products unique attributes, if suppliers increas
13、e their prices the firm may be able to pass along the costs to its customers who cannot find substitute products easily. Firms that succeed in a differentiation strategy often have the following internal strengths: Access to leading scientific research. Highly skilled and creative product developmen
14、t team. Strong sales team with the ability to successfully communicate the perceived strengths of the product. Corporate reputation for quality and innovation.The risks associated with a differentiation strategy include imitation by competitors and changes in customer tastes. Additionally, various f
15、irms pursuing focus strategies may be able to achieve even greater differentiation in their market segments. Focus Strategy The focus strategy concentrates on a narrow segment and within that segment attempts to achieve either a cost advantage or differentiation. The premise is that the needs of the
16、 group can be better serviced by focusing entirely on it. A firm using a focus strategy often enjoys a high degree of customer loyalty, and this entrenched loyalty discourages other firms from competing directly. Because of their narrow market focus, firms pursuing a focus strategy have lower volume
17、s and therefore less bargaining power with their suppliers. However, firms pursuing a differentiation-focused strategy may be able to pass higher costs on to customers since close substitute products do not exist. Firms that succeed in a focus strategy are able to tailor a broad range of product dev
18、elopment strengths to a relatively narrow market segment that they know very well. Some risks of focus strategies include imitation and changes in the target segments. Furthermore, it may be fairly easy for a broad-market cost leader to adapt its product in order to compete directly. Finally, other
19、focusers may be able to carve out sub-segments that they can serve even better. A Combination of Generic Strategies - Stuck in the Middle? These generic strategies are not necessarily compatible with one another. If a firm attempts to achieve an advantage on all fronts, in this attempt it may achiev
20、e no advantage at all. For example, if a firm differentiates itself by supplying very high quality products, it risks undermining that quality if it seeks to become a cost leader. Even if the quality did not suffer, the firm would risk projecting a confusing image. For this reason, Michael Porter ar
21、gued that to be successful over the long-term, a firm must select only one of these three generic strategies. Otherwise, with more than one single generic strategy the firm will be “stuck in the middle“ and will not achieve a competitive advantage. Porter argued that firms that are able to succeed a
22、t multiple strategies often do so by creating separate business units for each strategy. By separating the strategies into different units having different policies and even different cultures, a corporation is less likely to become “stuck in the middle.“ However, there exists a viewpoint that a sin
23、gle generic strategy is not always best because within the same product customers often seek multi-dimensional satisfactions such as a combination of quality, style, convenience, and price. There have been cases in which high quality producers faithfully followed a single strategy and then suffered
24、greatly when another firm entered the market with a lower-quality product that better met the overall needs of the customers. Generic Strategies and Industry Forces These generic strategies each have attributes that can serve to defend against competitive forces. The following table compares some ch
25、aracteristics of the generic strategies in the context of the Porters five forces. Generic Strategies and Industry ForcesGeneric StrategiesIndustryForce Cost Leadership Differentiation FocusEntryBarriersAbility to cut price in retaliation deters potential entrants.Customer loyalty can discourage pot
26、ential entrants.Focusing develops core competencies that can act as an entry barrier.BuyerPowerAbility to offer lower price to powerful buyers.Large buyers have less power to negotiate because of few close alternatives.Large buyers have less power to negotiate because of few alternatives.SupplierPow
27、erBetter insulated from powerful suppliers.Better able to pass on supplier price increases to customers.Suppliers have power because of low volumes, but a differentiation-focused firm is better able to pass on supplier price increases.Threat ofSubstitutesCan use low price to defend against substitut
28、es.Customers become attached to differentiating attributes, reducing threat of substitutes.Specialized products & core competency protect against substitutes.Rivalry Better able to compete on price. Brand loyalty to keep customers from rivals. Rivals cannot meet differentiation-focused customer needs.
