According Porter’s Generic Strategies there are several strategies organizations can employ to create added value and distinctiveness from their competitors. Porter’s competitive strategy is useful in formulating a company’s competitive strategy.
Do I need Porter’s Generic Strategies?
Choosing the right competition strategy plays an important role in a marketing plan. The model helps to select the right competition strategy.
It also provides insight into making choices for the company. Competition strategy is very valuable in the choice of strategic goals.
Which variables do I need for the generic strategies?
According to Porter’s competitive strategy, there are several competitive strategies that organizations can employ to create added value and distinctiveness from their competitors. The Porter Generic Strategies distinguishes the following strategies:
- Cost leadership
- Focus strategy
- Cost focus
- Differentiation focus
How can I apply the analysis?
Cost leadership Competitive strategy
This competitive strategy focuses on optimizing business processes. This reduces the costs compared to the competition. Because the costs remain limited, more margin remains for the organization.
This offers the opportunity to display the products at a lower price than the competition. The company thus creates competitive advantage through cost leadership . The low cost can be achieved by several variables:
- economies of scale;
- lower labor costs;
- Technological development;
- standardization and simplification (products and processes);
- vertical integration;
- outsourcing processes;
- control at fixed costs;
- automation processes;
- removing unnecessary extras from products;
- simplify design and composition.
When other companies in the same market use the same competition strategy, this is in most cases at the expense of quality.
In this case, there is fierce competition in the market, causing many companies to “fall.” Companies that remain standing are also directly better equipped for the Porter Five Forces.
Differentiation & | Competitive strategy
The goal is to create a unique image. The products become important if one or more of the properties of the products are unique. So it is based on the characteristics of the products as well as the image of the brand. The buyers want to pay a higher price for this unique product. In exchange, the organization provides better service and quality.
This model is used in conjunction with Porter ‘s Value Chain and determines which activities create value for now and in the future. Differentiation on product, service or image is difficult to copy.
Differentiation can be based on:
- production quality;
- product innovations;
- product design and properties;
- brand name;
- selection of distribution channels.
Focus strategy | Competitive strategy
The focus strategy is aimed at competing in a niche market instead of the total market. This gives the producer knowledge of the target segments, making it possible to better respond to consumer needs. Therefore, there are two different focus strategies:
- Cost focus
- Differentiation focus
These are based on the above cost leadership and differentiation targeting only a niche.
Combination between the focus strategy and cost leadership.
Combination between the focus strategy and differentiation
Stuck-in-the-middle | Competitive strategy
Porter’s competitive strategy applies to a company if no clear strategy choice has been made. The company will not stand out from the crowd and there will be no added value to the consumer. Some characteristics of a similar company:
- the company is too general to be distinctive;
- the company is too broad to gain a strong position with any specific groups;
- low profitability
What can I get from Porter’s Generic Strategies?
It is possible to determine from the Porter Strategy which competition strategy the organization is or will adopt.