Porter’s Generic Strategies

Porter’s Generic Strategies - Harappa

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.

What Are Michael Porter’s Competitive Strategies Or Generic Strategies?

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.

Importance Of A Generic Strategy

Any kind of generic strategy, especially Michael Porter generic strategies, can be useful in a number of ways:

A generic strategy builds a solid foundation for an organization’s short-term and long-term success
Michael Porter’s competitive strategies have a multi-dimensional focus and can work in sync with a variety of other approaches like Bowman’s Strategy Clock, USP Analysis or Core Competence Analysis
Generic competitive strategies allow organizations to make precise and well-researched decisions that take into account the constantly evolving nature of markets
Generic competitive strategies aren’t only useful for competing in an industry but also for innovating and improvising within specific departments of an organization
Porter’s generic strategies are not mutually exclusive and can be used simultaneously and in tandem with each other

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.

Porter’s Generic Model

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:

1. Cost Leadership Strategy

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.

2. Differentiation Strategy

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.

3. Cost Focus Strategy

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.

4. Differentiation 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.

Mastering Generic Strategies

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.

Harappa’s First Time Manager Program will familiarize your employees with all such generic strategies so that they become experts at designing short-term and long-term plans for your organization. As part of our program, your employees will get a chance to make a leap from individual contributors to people and project managers, learn persuasion techniques to influence stakeholders and build and inspire cohesive teams. Through frameworks like the Bruce Tuckman Model, the Eisenhower Matrix and the Trust Equation, your employees will nurture must-have Thrive skills such as dealing with conflicts, investing in the growth of team members and zooming out to see the big picture. Sign up your employees for the First Time Manager Program and allow them to master all varieties of generic competitive strategies.

Explore Harappa Diaries to learn more about topics such as Strategic Management, Corporate Strategy, Functional Strategy and Bargaining Power Of Customers that will help organizations tap into employee potential.