Porter’s Generic Strategies are the standard basic strategies that a Business can follow, suggested by Michael Porter. The strategies proposed depend on:
Depending on these 2 parameters, Porter suggests 4 main strategies:
Porter’s Four Generic Strategies. The Porter’s 4 Generic Strategies are:
Let’s see them in more detail:
A Company should follow a Cost Leadership Strategy when:
Cost Leadership strategy ExampleBiC is the perfect example of a Cost Leadership Strategy.
All their products (shavers, lighters, pens, etc) follow the same philosophy:
Their Cost Leadership Strategy aims entire Markets. Mainly:
A Company should follow a Differentiation Strategy when:
Differentiation strategy ExampleWhy people buy luxury products?
Hence, what is the main target of most luxury companies?
Louis Vuitton is a good example of a company that has followed a Differentiation Strategy:
There is no mistake when it comes to differentiating a Louis Vuitton bag from a normal bag.
A Company should follow a Cost Focus Strategy when:
Cost Focus strategy ExampleToday, the energy drink Market has become a big attractive Market.
Then, “Monster” appeared and…
While Red Bull was selling 250 ml cans for $2.5, Monster was offering 500 ml cans for $2.
Monster focused on their Costs and Pricing, and this Strategy made them the great profitable company it is today.
A Company should follow a Differentiation Focus Strategy when:
Differentiation Focus strategy ExampleFollowing with the energy drink Market, once Monster succeeded with its low prices, many other companies tried to replicate its success.
All their products that were copies of Monster.
Then, in 2012, a new energy drink appeared: G-Fuel. They offered a new concept: They sell you the powders and you mix them with water. In this way, the manufacturing process is much simpler and they can offer dozens of different flavors.
G-Fuel is now an increasingly popular energy drink thanks to its Differentiation.
In addition, they have also focused on selling mainly online.
Some professionals claim that these strategies are very general and vague.
This method makes you think about your Competitive Advantages and how you can design a Strategy based on them. However, it is true that this framework is not perfect. Now, before looking at more examples, let’s discuss the pros and cons of Porter’s Generic Strategies:
Pros
Cons
This method is not intended to offer a final solution to all Companies. That is impossible.
We recommend using it in conjunction with other strategic tools.
We have chosen 4 real examples that perfectly show how these Strategies are used in successful companies. Let’s begin:
How has IKEA become so successful? Because they have focused on reducing their Costs to the extent that it is the customer who assembles the furniture. In addition, they have done so in all their products:
There are entire “Markets” (in plural) where the cheapest option is an IKEA product.
They have not tried to launch a premium product line, or something similar…
In case you do not know Natuzzi, we will summarize it for you:
It is a small Premium furniture Company.
They focus only on High-Quality products.
And, they have succeeded by Differentiating themselves from other companies, which tried to reduce Prices or Costs.
It seems that Apple has always been the almighty company that it is today.
Some years ago (decades in fact) Apple was a minor player in the technology industry.
What did they do?
Their computers had minimalist designs, and little by little they began to explore “new things”.
Not everyone remembers the beginnings of Apple and how they followed a Differentiation Strategy.
After talking about Apple, we wanted to give you an example of another technology company that had followed a different Strategy.
To this day, it seems that all technology companies must be involved in our day to day, or have certain values, etc. SanDisk is a “discrete” company, that didn’t intended to “change the world”, and succeeded by doing one simple thing:
Unlike Apple (which was much larger) they didn’t try to develop computers or other technological devices.
They followed a Cost Focus Strategy. * If you think all companies follow this Strategy, think about Apple’s iPhone prices.
All Companies try to reduce Costs, but not all see it as a Central Pillar of their Strategy.
Porter’s Generic Strategies are the standard basic strategies that a Business can follow. The strategies proposed depend on:
Depending on these parameters, the strategies proposed are:
This method makes you think about your Competitive Advantages and how you can design a Strategy based on them.
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