Michael Porters Generic Strategies

For an organization to obtain a sustainable competitive advantage Michael Porter suggested that they should follow either one of three generic strategies.

Strategy one: Cost Leadership.

This strategy involves the organization aiming to be the lowest cost producer within their industry. The organization aims to drive cost down through all the elements of the production of the product from sourcing, to labor costs. The cost leader usually aims at a broad market, so sufficient sales can cover costs. Low cost producers include Easy jet airline, Ryan air, Asda and Wal-Mart. Some organization may aim to drive costs down but will not pass on these cost savings to their customers aiming for increased profits clearly because their brand can command a premium rate.

Strategy 2: Differentiation

To be different, is what organizations strive for. Having a competitive advantage which allows the company and its products ranges to stand out is crucial for their success. With a differentiation strategy the organization aims to focus its effort on particular segments and charge for the added differentiated value. If we look at Brampton folding cycles their compact design differentiates them from other folding bike companies. New concepts which allow for differentiation can be patented; however patents have a certain life span and organization always face the danger that their idea that gives the competitive advantage will be copied in one form or another.

Strategy 3: Niche strategies

Here the organization focuses its effort on one particular segment and becomes well known for providing products/services within the segment. They form a competitive advantage for this niche market and either succeeds by being a low cost producer or differentiator within that particular segment. Examples include Roll Royce and Bentley.

With both of these strategies the organization can also focus by offering particular segments a differentiated product/service or a low cost product/service. The key is that the product or service is focused on a particular segment. (See diagram below)

Are you ‘Stuck in the middle?’

The danger some organization face is that they try to do all three and become what is known as stuck in the middle. They have no clear business strategy, be all to all consumers, which adds to their running costs causing a fall in sales and market share. ‘Stuck in the middle’ companies are usually subject to a takeover or merger.