PORTER’S GENERIC STRATEGIES

Top 10 FMCG Companies in

World (2013)
Rank Company Market Value
($ in Billions)
1 Nestle 233.5
2 Procter and Gamble 208.5
3 Coco-Cola 173.1
163.2
4 Anheuser-Busch InBev 153.5

5 Philips Morris International 150.6

6 Unilever 122.3
7 Pepsico 118.9
8 British American Tobacco 102
9 Reckitt Benckiser Group 51.2
10 General Mill 29.9
 Top 10 FMCG companies in
INDIA (2013)
Rank Company Market Value
($ in Crores)
1 ITC Ltd. 256,769
2 HUL 127,144
3 Nestle India 49,768
4 Godrej Consumer Products India 28,107

5 Dabur India Ltd 26,272

GlaxoSmithKline Consumer
6 Healthcare 23,435
7 Colgate Palmolive 18,329
8 Marico Ltd 13,137
9 Emami 10,788
10 Procter and Gamble 9,555
Introduction…
 Michael Porter is a professor at Harward Business
School.

 A firm’s success in strategy rests upon how it positions

itself in respect to its environment.

 Michael Porter has argued that a firm's strengths

ultimately fall into one of two headings: cost advantage
and differentiation.

 By applying these strengths in either a broad or narrow

scope, generic strategies result:, Cost leadership
Differentiation, and Focus (Cost Focus and
Differentiation Focus)
 Generic Strategies

Cost
Leadership Differentiation Focu s
• Superior profits
through lower • Creating a • Concentrating on
costs. product or service a limited part of
that is perceived the market.
• E . g . : Wal-Mart, as being unique • Cost Focus
Micromax phone “throughout the • D ifferentiation
industry” Focus
• E . g . : Mcdonald, • E . g . : PepsiCo,
Nokia, Samsung Apple I-phone,
Vertu
Porter’s Generic Strategy…

Advantage Advantage
Target Scope
(Low Cost) (Product
Uniqueness)

Broad Cost Leadership Differentiation

Narrow Focus Strategy Focus Strategy

(Cost Focus) (Differentiation)
Porter Generic Strategy
 Cost Leadership Strategy
 Aiming to become Lowest Cost Producer
 The firm can compete on the price with every other
industries and earn higher unit profits.
 Cost reduction provides the focus of the organisation’s
strategy.
 Targets a broad market.
 Competitive advantage is achieved by driving down
costs.
 A successful cost leadership strategy requires that the
firm is the cost leader and is unchallenged in this
position.
 Especially beneficial : where customers are price
sensitive
Type : Public
Industry : B everage
Founded : 1886
Founder(s) : Asa Griggs Candler

Headquarters : Coca-Cola headquarters,

Atlanta, Georgia, U . S .

Number of locations : +200

Area served : Worldwide

Employees : Approx. 2.1 million (2011)

Fla : Cola, Cola Cherry, Cola Vanilla,
Cola Green Tea, Cola Lemon,
Cola Lemon Lime, Cola Lime,
Cola Orange and Cola Raspberry.
Brand
 Focusing on cost leadership through disciplined working capital
management and tight operating expenses control.

 Optimization of the production and distribution infrastructure

 Personal cost ownership throughout the organization

 Logistic excellence

 Daily Average serving from 9 peoples (1886) to 1.8 million people

now.

 Ensure the strongest and most efficient production, distribution,

and marketing systems possible

 The established Coca-Cola H B C Business Services Organization

(BSO) that standardizes, centralizes, coordinates and simplifies
certain Finance and Hu m a n Resources processes to improve
productivity and provide important transactional services at a
lower cost
Success Mantra…
 Access to the capital required to make a significant
investment in production assets.

 Design skills for efficient manufacturing

 High level of expertise in manufacturing process

engineering.

 Efficient distribution channels.

Risks Involved..
 Other firms may be able to lower their costs as well.

 As technology improves, the competition may be able to

leapfrog the production capabilities, thus eliminating
the competitive advantage.

 It could lead to a damaging price wars.

 There might be difficulty in sustaining cost leadership

in the long run.

 A firm following a focus strategy might be able to

achieve even lower cost within their segment.
 Differentiation Strategy
 A differentiation strategy calls for the development of a
product or service that offers unique attributes that are
valued by customers.

 Customers perceive the product to be different and

better than that of rivals.

 The value added by the uniqueness of the product may

allow the firm to charge a premium price for it.

 Differentiation can be based on product image or

durability,after-sales,quality,additional features.

 It requires flair,research capability and strong

marketing.
Uniqueness Differentiation Buyers’Value
McDonald’s
Type : Public
Industry : Restaurants
Founded : McDonald’s Corporation

Founder(s) : Richard and Maurice

McDonald,( McDonald’s
restaurant concept )
Ray Kroc,( McDonald’s
Corporation founder )
JV in India : Vikram Bakshi &
Amit J a t i a
Headquarters : O a k Brook,Illinois,US
Area served : Worldwide
Key people : J a m e s A. Skinner
(Chairman & CEO)
 Number of Restaurants : +33,000 in 118 countries
Customers : appr. 67 million / day
Products : Fast Food
( hamburgers , chicken ,
french fries , soft drinks ,
coffee , milkshakes , salads,
desserts , breakfast )

 McDonald's customers are of all classes, but largely

working, and people of all ages.

 McDonald’s strove to meet a customer wait time at no

more than one minute in line and 30 seconds at the
counter.
 McDonald's understood that the parent was making the
purchasing decision, most likely based solely on price.
What McDonald's marketing executives did was
ingenious. They put a toy in with the hamburger, french
fries, and Coke. Then they gave it a special name,
calling it a Happy Meal. Then they marketed it to the
kids.

 McDonald's knows that some customers go to its stores

to take a quick break from their day's activities and not
because McDonald's was able to make their food ten
seconds faster than a competitor. So McDonald's
marketing executives then put together the phrase,
“Have you had your break today?”

 They've taken competing on price right out of the

picture,” says Greshes. “They bring you quality,
convenience, service, and value — and they make you
feel like you are getting a break in your hectic day.
Success Mantra…
 Access to leading scientific research.

 Highly skilled and creative product development team.

 Strong sales team with the ability to successfully

communicate the perceived strengths of the product.

 Corporate reputation for quality and innovation.

Risks Involved…
 Involves higher costs.

 Customers might become price sensitive and choose on

price rather than uniqueness.

 Customers may no longer need the differentiation

factor.

 Imitation by competitors and changes in customer

tastes.

 Rivals pursuing a focus strategy may be able to achieve

even greater differentiation in their market segments.
 Focus Strategy
 The focus strategy concentrates on a narrow segment
and within that segment attempts to achieve either a
cost advantage or differentiation.

 The premise is that the needs of the group can be

better serviced by focusing entirely on it.

 A firm using a focus strategy often enjoys a high degree

of customer loyalty, and this entrenched loyalty
discourages other firms from competing directly.

 Because of their narrow market focus, firms pursuing a

focus strategy have lower volumes and therefore less
bargaining power with their suppliers

 However, firms pursuing a differentiation-focused

strategy may be able to pass higher costs on to
customers since close substitute products do not exist.
 Type : Private
Industry : Animal food manufacturing
Founded : North Carolina,U.S.(1986)
Founder(s) : Frank C. Mars
Headquarters : 6885 Elm Street, McLean,
Virginia, US
Area served : Worldwide
Key people : Steven Badger(Chairman)
Paul S. Michaels
(President and CEO)

Employees :
Divisions :
Subsidiaries : Wrigley J r. Company
Reckitt Benckiser
 The company makes the market leaders Pedigree (dog food) and Whiskas
(cat food), as well as kitekat (cat food) and Pal (dog food).

 By successfully adopting the 'focus' strategy since 1950, Mars Inc. has
emerged as the largest consumer animal food company.

 The leading exporters of pet food for 2004 were France ($993 million),
United States ($786 million) and the Netherlands ($511 million),[6] while
the leading importers were J a p a n ($718 million), Germany ($617 million)
and the U K ($563 million)..

 Top Brand are Cesar, Greenies, Nutro, Pedigree, Royal Canin, Sheba,
Whiskas, KiteKat, Chappi, Catsan
Success Mantra…
 Lower investment in resources.

 The firm benefits from specialisation.

 Provides scope for greater knowledge of a segment of

the market.

 Makes entry to new markets easier and less costly.

 Firms using a focus strategy often enjoy a high degree

of customer loyalty.
Risk Involved…
 Limited opportunities for growth.

 The firm could outgrow the market.

 Danger of decline in the chosen segment or niche.

 Risk of imitation.

 Risk of changes in the target segment.

 A reputation for specialisation inhibits move into new

sector.
We have Learnt…
 Cost Leadership
- Being the lowest cost producer in the industry as
a whole

 Differentiation
- The exploitation of a product or service which is
believed to be unique

 Focus
- Restricting activities to only part of the market through:
- Providing goods or services at lower cost to that
segment (cost focus)
- Providing a differentiated product or service to that
segment (differentiation focus)