Michael Porter has described a category scheme consisting of three general types of strategies that are commonly used by businesses. These three generic strategies are defined along two dimensions: strategic scope and strategic strength. Strategic scope is a demand-side dimension (Porter was originally an engineer, then an economist before he specialized in strategy) and looks at the size and composition of the market you intend to target. Strategic strength is a supply-side dimension and looks at the strength or core competency of the firm. In particular he identified two competencies that he felt were most important: product differentiation and product cost (efficiency). ... Strategic planning is an organizations process SCREW YOU, RILEY of defining its strategy, or direction, and making decisions on allocating its resources to pursue this strategy, including its capital and people. ... Target market may be defined as a market which an organisation sets its views on, either because it is witnessing an increasing demand for the product produced by the organisation, either because it represents a blue ocean for the organisation to exploit before its competitors get there, so as to... It is a shit that comes from the mouth of a big black asshole, some comes from a bitch, others are from the mother fuckin whore. ... In marketing, product differentiation is the modification of a product to make it more attractive to the target market. ... In economics, x-efficiency is the effectiveness with which a given set of inputs are used to produce outputs. ...

He originally ranked each of the three dimensions (level of differentiation, relative product cost, and scope of target market) as either low, medium, or high, and juxtaposed them in a three dimensional matrix. That is, the category scheme was displayed as a 3 by 3 by 3 cube. But most of the 27 combinations were not viable.

Porter's Generic Strategies

page1 Image File history File links PorterGenericStrategies. ... Image File history File links PorterGenericStrategies. ...

In his 1980 classic Competitive Strategy: Techniques for Analysing Industries and Competitors, Porter simplifies the scheme by reducing it down to the three best strategies. They are cost leadership, differentiation, and market segmentation (or focus). Market segmentation is narrow in scope while both cost leadership and differentiation are relatively broad in market scope.

Empirical research on the profit impact of marketing strategy indicated that firms with a high market share were often quite profitable, but so were many firms with low market share. The least profitable firms were those with moderate market share. This was sometimes referred to as the hole in the middle problem. Porter’s explanation of this is that firms with high market share were successful because they pursued a cost leadership strategy and firms with low market share were successful because they used market segmentation to focus on a small but profitable market niche. Firms in the middle were less profitable because they did not have a viable generic strategy. Profit Impact of Marketing Strategy (PIMS) is a database of the market profiles and business results of major American and European companies. ...

Combining multiple strategies is successful in only one case. Combining a market segmentation strategy with a product differentiation strategy is an effective way of matching your firm’s product strategy (supply side) to the characteristics of your target market segments (demand side). But combinations like cost leadership with product differentiation are hard (but not impossible) to implement due to the potential for conflict between cost minimization and the additional cost of value-added differentiation.

Since that time, some commentators have made a distinction between cost leadership, that is, low cost strategies, and best cost strategies. They claim that a low cost strategy is rarely able to provide a sustainable competitive advantage. In most cases firms end up in price wars. Instead, they claim a best cost strategy is preferred. This involves providing the best value for a relatively low price. Companies that compete by selling similar products (or even substitutes) to the same group of customers constitute an industry. ... Price war is a term used in business to indicate a state of intense competitive rivalry accompanied by a multi-lateral series of price reductions. ...

Cost Leadership Strategy

This strategy emphasizes efficiency. By producing high volumes of standardized products, the firm hopes to take advantage of economies of scale and experience curve effects. The product is often a basic no-frills product that is produced at a relatively low cost and made available to a very large customer base. Maintaining this strategy requires a continuous search for cost reductions in all aspects of the business. The associated distribution strategy is to obtain the most extensive distribution possible. Promotional strategy often involves trying to make a virtue out of low cost product features. The increase in output from Q to Q2 causes a decrease in the average cost of each unit from C to C1. ... The learning curve effect and the closely related experience curve effect express the relationship between experience and efficiency. ...

To be successful, this strategy usually requires a considerable market share advantage or preferential access to raw materials, components, labour, or some other important input. Without one or more of these advantages, the strategy can easily be mimicked by competitors. Successful implementation also benefits from:

• process engineering skills
• products designed for ease of manufacture
• sustained access to inexpensive capital
• close supervision of labour
• tight cost control
• incentives based on quantitative targets.

always ensure that the costs are kept at the minimum possible level.

Examples include low-cost airlines such as EasyJet and Southwest Airlines, and supermarkets such as KwikSave.

Differentiation Strategy

Differentiation involves creating a product that is perceived as unique. The unique features or benefits should provide superior value for the customer if this strategy is to be successful. Because customers see the product as unrivaled and unequaled, the price elasticity of demand tends to be reduced and customers tend to be more brand loyal. This can provide considerable insulation from competition. However there are usually additional costs associated with the differentiating product features and this could require a premium pricing strategy. In economics and business studies, the price elasticity of demand (PED) is an elasticity that measures the nature and degree of the relationship between changes in quantity demanded of a good and changes in its price. ... For other uses, see Brand (disambiguation). ...

To maintain this strategy the firm should have:

• strong research and development skills
• strong product engineering skills
• strong creativity skills
• good cooperation with distribution channels
• strong marketing skills
• incentives based on subjective measures
• be able to communicate the importance of the differentiating product characteristics
• stress continuous improvement and innovation
• attract highly skilled, creative people

Segmentation Strategy

In this strategy the firm concentrates on a select few target markets. It is also called a focus strategy or niche strategy. It is hoped that by focusing your marketing efforts on one or two narrow market segments and tailoring your marketing mix to these specialized markets, you can better meet the needs of that target market. The firm typically looks to gain a competitive advantage through effectiveness rather than efficiency. It is most suitable for relatively small firms but can be used by any company. As a focus strategy it may be used to select targets that are less vulnerable to substitutes or where a competition is weakest to earn above-average return on investments.thats right!! Target market may be defined as a market which an organisation sets its views on, either because it is witnessing an increasing demand for the product produced by the organisation, either because it represents a blue ocean for the organisation to exploit before its competitors get there, so as to... The marketing mix is generally accepted as the use and specification of the 4 Ps describing the strategic position of a product in the marketplace. ...

Recent developments

Michael Treacy and Fred Wiersema (1993) have modified Porter's three strategies to describe three basic "value disciplines" that can create customer value and provide a competitive advantage. They are operational excellence, product leadership, and customer intimacy.

Criticisms of generic strategies

Several commentators have questioned the use of generic strategies claiming they lack specificity, lack flexibility, and are limiting. In many cases trying to apply generic strategies is like trying to fit a round peg into one of three square holes: You might get the peg into one of the holes, but it will not be a good fit.

In particular, Miller (1992) questions the notion of being "caught in the middle". He claims that there is a viable middle ground between strategies. Many companies, for example, have entered a market as a niche player and gradually expanded. According to Baden-Fuller and Stopford (1992) the most successful companies are the ones that can resolve what they call "the dilemma of opposites".

References

• Baden-Fuller, C. and Stopford, J. (1992), "The firm matters, not the industry", in de Wit, B. and Meyer, R. (1998), "Strategy: process, content, context", pp. 610-617.
• Miller, D. (1992), "The Generic Strategy Trap", Journal of Business Strategy, No. 13, pp 37-41.
• Porter, M. E. (1980), "Competitive Strategy: Techniques for Analyzing Industries and Competitors". New York, Free Press.
• Treacy, M., and Wiersema, F. (1993), "Customer intimacy and other value disciplines". Harvard Business Review, Jan/Feb.
• Treacy, M., and Wiersema, F. (1994), The Discipline of Market Leaders.

External links