Porter’s generic strategies is a tool to help businesses become competitive over similar businesses.

Mass market strategies: low cost leadership, broad differentiation.

Niche market strategies: focused low cost, focused differentiation.

Cost leadership is a type of strategy when a company strives be the low-cost producer in the industry. With similar or lower pricing compared to rivals, same or higher profit is still made. No link to quality of product, price is the focus.

→ Walmart, McDonalds, Amazon

<aside> 📌 Remember that cost leadership, as a generic strategy, is about minimizing the cost to the business that is supplying goods or services. This is not the same as the price of the product that is charged to customers.

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Limitations of cost leadership

• Rivals could perform the same price-cutting strategy
• Established and rich businesses can lower prices to berid of competition.
• Reputation for low quality may be developed.
• Reliant on a high volume of sales to generate profit, due to the relatively low profit margins.

How it is done by companies

1. Economies of scale.
2. Improved supply chains. Efficient distribution methods to reduce production costs. E.g. Owning their own supply chains.
3. Relocation. Reduction in transportation and distribution costs by locating near suppliers/customers.
4. Insourcing production. Manufacture independently rather than outsourcing external providers.

Differentiation is a type of strategy when a company tries to distinguish its products or services from its competitors: there is a unique goal. Emphasis on USP. Thus, also high price as there is a strong brand loyalty, whom are convinced by USP. These businesses might choose to use copyrights and patents to protect their competitive advantage.

→ Apple, Nike, Starbucks, Harley Davidson.

Limitations of differentiation (Porter’s generic strategies)

• Expensive to implement as extensive R&D is required.

How it is done by companies

• Unique packaing or branding.
• Focus on quality rather than price.

Focus is a strategy of businesses to focus on niche market segments with a strong understanding of market to either offer low cost or differentiated products. Committing to both simultaneously will not work as they are two different areas.

How focus (Porter’s generic strategies) is done by companies

• Cost focus: Identifies an unpopular market and reducing costs to reduce prices for meeting customer needs as only a small market is focused on.

  → Monster (Cheaper than Red Bull). Redbox renting games for $1.

• Differentiated focus: Offers unique products or services. Taken to the next level in some way. Though market size may be limited.

  → Breeze’s Resort (Resorts with no children). Build a Bear shops.

Stuck in the middle means the business is neither a cost leader or differentiator and that is not focused either. Confusion is created for both internal and external stakeholders of the business.

• Lack competitive advantage and inability to gain customer lotyalty.

  → Not feasible or sustainable to maintain high quality by using a cost leadership strategy.