Porter’s Generic Strategies
Raj wants to buy running shoes. He picks up the brand he’s been wearing for years, a niche but outstanding…
August 20, 2021 | 4 mins read
Raj wants to buy running shoes. He picks up the brand he’s been wearing for years, a niche but outstanding line of shoes with unique features. Raj also has a look at shoes from a different brand that is much cheaper. After a moment’s thought, Raj opts for his trusted brand, even though its price is almost double that of the other option.
Next, Raj looks for some new shirts to buy. Unlike shoes, he has no loyalty to any clothing brand, and the price is a factor for him when picking new clothes. After analyzing his choices, Raj is left with two options: four shirts of a standard look and quality from a mid-range brand or two shirts from a leading brand. Raj decides in favor of the first option.
Why did Raj prioritize quality and niche appeal over price for shoes but went with cost-effectiveness over quality for shirts? Is it all because of the presence or absence of brand loyalty? How is brand loyalty created in the first place?
All these answers can be found by understanding what Porter’s generic strategies are and how they provide an edge to brands and organizations in competitive markets.
American academic Michael Porter introduced four approaches to characterize and explain organizational behavior and competition among organizations in his 1985 book Competitive Advantage: Creating and Sustaining Superior Performance. A generic strategy provides an outline of how an organization should try to grow by framing objectives, selecting processes, and appealing to customers in the most effective ways.
Any kind of generic strategy, especially Michael Porter generic strategies, can be useful in a number of ways:
In addition to the points mentioned above, organizations may find Porter’s generic model useful purely as a source of theoretical guidance even if they don’t practically implement any of the generic competitive strategies suggested by Porter.
The following is an explanation of Michael Porter’s four competitive strategies that make up Porter’s generic model along with Porter’s generic strategies examples:
This strategy focuses on reducing costs while delivering products or services to rapidly increase market share. Generally, such a strategy relies a lot on organizations getting access to the latest technology and developing an extremely efficient processing speed. McDonald’s is an excellent example of how to nail the cost leadership strategy while the initial days of IKEA are also seen as a successful implementation of the most basic Michael Porter generic strategies.
This strategy encourages organizations to differentiate their products and services from competitors even at the risk of far higher expenses. Creativity and lateral thinking are vital for such a strategy, as is reliance on customer feedback and diversification. Porter’s generic strategies examples for this type have two obvious names—Apple and Starbucks.
Porter’s generic strategies are sometimes a combination of two approaches. An extension of the cost leadership strategy, the cost focus strategy has two components for organizations to choose from. The first is to concentrate on aggressive costing so as to increase profits. The second is to target a niche market and focus on a narrow but loyal target audience. A lot of startups, especially in sectors like fintech, are currently embracing the cost focus strategy.
An extension of the differentiation strategy, there are two components to this as well. The first prioritizes providing exclusive products or services, whereas the second is all about tapping niche markets with or without exclusivity in products or services. Once again, the differentiation focus strategy is a favorite for startups.
Michael Porter generic strategies may be the most influential among contemporary organizations in terms of a generic strategy, but it’s certainly not the only one. Organizations rely on different types of generic strategies, some of which are variations of Michael Porter generic strategies.
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