M E Porter suggests that there are mainly three generic strategies for creating and sustain superior performance in the target market over the rivals.
⦁ Cost Leadership Strategy
⦁ Differentiation Strategy
⦁ Focus Strategy
Porter's Generic Business Strategies
Cost Leadership Strategy
It is a strategy for wining market share by attracting cost conscious and price sensitive customers. This strategy offers lower cost than competitors as a basis for competitive advantage. This strategy is achieved by;
⦁ Low cost provider- lowest price of the product in the target market.
⦁ Best cost provider- lowest price to value ratio.
Offering the lowest price not compromising with profitability and high ROI, is achieved in following ways;
⦁ Accurate demand forecasting and high capacity utilization.
⦁ High volume of standardized product attaining low direct cost and indirect operating cost.
⦁ Investment in cost saving technologies.
⦁ Control over supply chain and procurement.
Risk under cost leadership strategy
Cost leadership strategies are suitable for large companies with the opportunity to enjoy economies of scale and large production volume. However, following risks happen in such strategy.
⦁ No sustainable-Competitors can imitate the cost reduction techniques easily.
⦁ Not a market friendly approach- difficulty to provide standardized product in low cost, reputation for low quality.
⦁ Easy switching to customer.
⦁ Technological shift.
Differentiation Strategy
In differentiation strategy a firm attempts to make the product unique in terms of attributes which are desirable to the customer, including customer service. The firm dominates the competitors by offering excellent attributes of the product/service.
It is a strategy for wining market share by attracting quality conscious customers .Special features of the product are highly promoted to attract those customers who are willing to pay for such product. The value addition by the unique attributes of the product may allow the company to charge a premium price for it.
Following conditions are helpful for applying differentiation strategy.
⦁ Access to leading scientific research.
⦁ Highly skilled and creative product development team.
⦁ Strong marketing mechanism.
⦁ Corporate reputation for product quality and innovation.
⦁ Ample scope for increasing sales for the product on the basis of differentiated features and premium pricing.
⦁ Large population of brand loyal customer.
Following may be the risk under differentiation strategy
⦁ Duplication by competitors,
⦁ Frequently changing customer taste,
⦁ Communication failure,
⦁ Diversity of customer,
Focus Strategy
This strategy is based on segmenting the market and targeting particular segments instead of trying to serve the entire market with a single product. A company tries to cater to limited number of customers, particular market niche, defined by type of customers, geographic location of the market or type of product offering.
In focus strategy, the company chooses to compete in narrow customer segments by focusing either,
⦁ Cost focus- where a firm seeks cost advantage in its target segment, or
⦁ Differentiation focus- where a firm seeks uniqueness in its target segment.