RELEVANCE OF PORTER’S GENERIC

COMPETITIVE STRATEGIES

Presented by:
Martin Otundo Richard
Phd student-jkuat (kenya)
 Introduction: The rationale behind
studying competition
 Today, companies face their toughest competition ever.
 Companies use their understanding to design market offers
to deliver more value than the offers of competitors seeking
to win the same customers.
 Companies must also understand their competitors, identify
and analyze their strategies to position themselves in such a
way as to gain the greatest possible competitive
advantage against competitors in the marketplace.
 Porter’s Generic Strategy Framework
 Michael Porter has suggested three general types
of positioning strategies to achieve competitive
advantage.
 These three generic strategies are defined along two
dimensions: strategic scope and strategic strength,
where:
 Strategic scope 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.
Porter’s Generic Strategy Framework
 The three strategies are:
1.Cost leadership,
2.Differentiation, and
3.Market Segmentation
(or focus)
 Market segmentation is
narrow in scope while both
cost leadership and
differentiation are
relatively broad in market
scope.
 Examples of Companies That Use Cost
Leadership Strategies
 Wal-Mart is famous for EDLP, achieved by developing close
relationships with its suppliers and vendors to achieve cost savings
through large volume purchases and pass these savings to the
consumers.
 Dell Computers :achieved market share by keeping low
inventories and only building computers to order, procurement
advantages from preferential access to raw materials, or backward
integration.
 Low-cost budget Irish based airlines Ryanair who despite having
fewer planes than the major airlines, were able to achieve market
share growth by offering cheap, no-frills services at prices much
cheaper than those of the larger competitors.
 Cost Leadership
 A firm tries to reduce its overall production and distribution
costs.
 It wins market share by appealing to cost-conscious
customers.
 It sets the lowest prices in the target market segment, or at
least the lowest price to value ratio.
 3 ways to achieve this:
 Economies of scale
 low direct and indirect operating costs
 control over the supply chain
 Examples of Companies That Use Cost
Leadership Strategies
 India’s largest steel company Tata Steel, the cost leader in the
steel manufacturing sector owns raw material assets such as
coaland limestone mines through joint ventures or completely,
with the assets spread across countries such as Australia, Oman
and Mozambique. Tata Steel has largely been able to withstand raw
material price fluctuations due to captive iron ore mines.
 Reliance Industries has become a global leader in various
business activities based on innovation and cost by achieving more
effecient production arising from experience and economies of
scale, innovation in production methods, and differential Low-
Cost Access to Productive Inputs.
 Disadvantage : lower customer loyalty, a reputation for low
quality, ends up in price wars, non sustainable
 Differentiation
 A company concentrates on differentiating the products in some
way in order to compete successfully.
 appropriate where the target customer segment is not price-
sensitive, the market is competitive , customers have very specific
under-served needs and the firm has unique resources to satisfy
these needs in ways that are difficult to copy.
 Includes patents or other Intellectual Property (IP), unique
technical expertise, talented personnel or innovative processes.
Successful brand management also results in perceived uniqueness
even when the physical product is the same as competitors.
Fashion brands rely heavily on this form of image differentiation.
 Examples of differentiation
 Differentiation through Multiple sources: L&T,
the engineering firm , recruits engineers with excellent
qualification and claims superiority in executing
projects.
 Coke and Pepsi differentiated through brand power.
 Reva through an electric car
 Product Differentiation based on ingredients:
HUL Close Up used glycerin instead of calcium
carbonate and secured differentiation and Colgate
compelled to copy the same
 Examples of differentiation
 Product Differentiation through Additional
features: Aristocrat suitcases with wheels , a unique
convenience to user
 Product Differentiation by Packaging
 Harpic Toilet cleaner with an application friendly
nozzle
 Hit for cockroach with sleek nozzle for hidden areas
 Product Differentiation by Design:Kinetic
Honda with electronic ignition and do away with kick
start routine , automatic gear shifting especially for
women.
 Market Segmentation / Focus
 The firm focuses its marketing effort on serving a defined,
focused market segments with a narrow scope by tailoring its
marketing mix to these specialized markets, it can better meet the
needs of that target market.
 The firm typically looks to gain a competitive advantage through
product innovation and/or brand marketing rather than efficiency.
 It is most suitable for relatively small firms but can be used by any
company.
 A focused strategy should target market segments that are less
vulnerable to substitutes or where a competition is weakest to
earn above-average return on investment.
 Market Segmentation / Focus
 The focus strategy has two variants:
(a) In cost focus, a firm seeks a cost advantage in its target segment,
It exploits differences in cost behavior in some segments . For
instance, Southwest Airlines, famous for its low cost focus
follows basically a linear route structure. It only flies one type of
airplane and it wants to stay in high-density markets and has been
highly efficient.
(b) Differentiation focus a firm seeks differentiation in its target
segment. It exploits the special needs of buyers in certain
segments. Ferrari , targets high performance sports car
segment and due to differentiation based on design, high
performance and grand prix records which allows it to charge a
premium price.
 Stuck in the middle
 A company’s failure to make a choice between cost
leadership and differentiation essentially implies that the
company is stuck in the middle.
 There is no competitive advantage for a company that is stuck
in the middle and the result is often poor financial
performance .
 However, companies like Toyota and Benetton have adopted
more than one generic strategy. Both these companies used
the generic strategies of differentiation and low cost
simultaneously, which led to the success of the companies.
 Criticisms of Porter’s Generic Strategy
Framework

 A business can employ a hybrid strategy without being struck

in the middle. Nissan, for instance.

 Cost leadership does not sell products itself.

 Differentiation can be used to increase sales volume rather

than charging a premium price.

 Price can sometimes be used to differentiate.

 Criticisms of Porter’s Generic Strategy
Framework
 The competence based strategy framework supersede the
generic strategy framework.

Despite these criticisms, porter’s model can constitute the basis

of a useful framework for categorizing and understanding
sources of competitive advantage.
 Looking forward: The road ahead
 The popular post-Porter model was presented by W. Chan
Kim and Renée Mauborgne in their 1999 Harvard
Business Review article "Creating New Market Space“,
described a "value innovation" model in which companies
must look outside their present paradigms to find new value
propositions.
 Their approach fundamentally goes against Porter's concept
that a firm must focus either on cost leadership or on
differentiation. The concept is popularly known as Blue
Ocean Strategy.
Martin Otundo Richard
PhD Student- JKUAT
martinotundo@gmail.com
Thank You.