IntroductionIn the era of globalization, companies from

various industries are surrounded with many competitors where using a

different management strategies become essential to success and sustain in

the competition. The purpose of this report is to identify Michael Porter's generic

strategies and critically analysis them using a contemporary examples.

Work byHimanshu Shrivastava

 

Porter’s Generic Strategies:• Michael Porter’s Introduced Generic Strategy

in his book Competitive Advantage: Creating and Sustaining Superior Performance in 1985.

• He Suggested that every Company‘s backbone falls either in Cost Advantage or Differentiation.

• By taking the prospect of Narrow or Broad Market Scope it is further distinguished into Three heading: Cost Leadership, Differentiation and Focus Strategies.

Cost Leadership• Plan of action that to do everything

conceivable to bring down its cost structure, to make and offer goods and services at lower price (Porter, 2004).

• A successful strategy usually requires a large market share advantage or cheap raw materials, labour, or some other important input (Dess & Davis, 1984).

Advantages of Cost Leadership• Builds up an aggressive edge of competition,

by offering low prices to potential customers because of low cost (Jones & Hill, 2012).

• Cost leader gets an advantage of reducing its price in case the substitute product enters into the market (Lynch, 2003).

Southwest

• Offers the fare 25% or more below than those of it rivals.

• Uses various strategies like using Boeing 737, using cheap landing stations etc. to keep there costs low.

Limitations of Cost Leadership• Competitor can discover the approaches to

deliver products/services at low cost and can beat cost leader (Walters and Samiee, 2002).

• Demand of cost leader goods or services can be affected by the existing competitors with high brand image and brand loyalty (Manrai et al., 2001).

Bic’s vs Gillette• Bic’s covered the huge market when they

introduced a low cost disposable razor.• Gillette followed their low cost strategies and

shorter their market share.• Gillette’s brand image helped them and

affected the demand of Bic’s Razor.

DifferentiationA competitive strategy used by the

company in offering a service or product which has a different

features or unique brand than the other competitors so they could

create an innovative brand image of their company (Lewis, 2007).

Advantages of Differentiation• The strategy enables the company to charge

a premium price to customers ( Wit & Meyer, 2007).

• Help the company to have a dominant brand image in the market so could create a customer loyalty ( Hill & Jones, 2008).

A company’s breakthrough of improving customer satisfaction by creating new services (Johnson &

Scholes, 2001) .

Limitations of Differentiation

• The sustainability of the brand uniqueness is in doubt since competitors might imitate it (Google Books, 2015).

• Take a lot of sources in developing brand core competencies (Google Books, 2015).

In 2004 they lost a market interest and over

expanded where people that time concern

about having a healthy and low-carb food. The

company fails on dealing with external factors

(Ireland, Hoskisson & Hitt, 2008). .

Focus cost leadershipDefinition :

1. In focus cost generic strategy a firm focus on very specific, frequently slender, section of the business.

2. Focus strategy concern at growing at growing market share and they operate in niche market more successfully than competitor(Akan, Allen, Helms & Spralls, 2006).

Advantages of Focus Cost Strategy

1. Focus cost strategy earns profit above average as the firm operates on value creation and protection from five forces because new entrants have to overcome customer loyalty(Jones & Hill, 2012).

2. Firms can increase its market segment and at a same time compete with the market leaders(Jones & Hill, 2012).

3. Focus cost strategy help in gaining market share and useful while entering new market(Partridge & Perren, 1994).

ExampleFirst Global Xpress (FGX) success in logistics by

focusing on very specific cities of U.S.A and implementing low cost(Partridge & Perren, 1994)

Limitations of Focus Cost Strategy

1. Low quality of product due to low investment as only focus is on cost reduction(Partridge & Perren, 1994).

2. The supplier power is more as input is small volume(Hill & Jones, 2008).

3. Brand perception of quality of products decreases and hence result in decrease of market share(Shafiulla, 2004).

ExampleTATA Motor’s Nano looses market share due to

poor perception regarding quality of world’s cheapest car.

(Bursa, 2010) (Shafiulla, 2014) (tatamotors.com, 2015) (Philip, 2013)

Focus Differentiation • It constrained about creating a distinctive

product/services that fulfil the needs and desires of limited market segment.

• The product/service should be on higher levels of quality comparing to rivals , to gain the customer’s trust and apperception .

(Pitt & Koufopoulos, 2012)

Focus Differentiation Advantages:

• Companies get profit than average because they could charge premium prices for their special product/services (Whitehead, 2011).

• Focus in one segment help to be an expertise in one field(Kreitner & Cassidy, 2011).

• Limited competition (Whitehead, 2011).• Brand loyalty(Kreitner & Cassidy, 2011)

Louis Vuitton• Targeted the rich people .

• Offer a high quality clothing and accessories .

• Charge a premium prices .

(Ireland, Hoskisson & Hitt, 2009)

Focus Differentiation Limitations

• Difficulties growth in the same market(Jones & Hill, 2010)

• The segmented customers could be disappear because of different circumstances(Morden, 1999).

• Companies need more effort and creativity to stay distinctive(Jones & Hill, 2010)

Groupon

• Targeted customer who are interested in offers and discounts .

• Start to lose market share because Google and amazon started to offer services with same benefits .

(Hill and Jones, 2013)

Main Arguments about Generic Strategies.

• Stuck in the middle one of main issues that could face companies as Porte's clarified (Peng, 2009).

• Many companies shows it success by using more than one strategy(Nandakumar, Ghobadian and O'Regan, 2011).

• Situational analysis and five forces analysis should be used before taking decision about choosing the strategy(Partridge & Perren, 1994).

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