Micheal Porter’s Generic strategies state that Irrespective of Industry attractiveness, a firm in any industry may want to gain high market share and position itself higher than its competitors. This can be done mainly in two ways –
- Either by providing the product at a lower cost than its competitors
- or by offering a differentiated product
Famous author Micheal Porter in 1985, in his book Competitive Strategy: creating and sustaining superior performance, discussed three types of generic strategies which can be applied across industries.
1. Cost Leadership Strategy: To defeat its competitors in a market a firm may provide a low-cost product with minimum acceptable attributes. To achieve this, a firm needs to produce goods efficiently, arrange raw materials at the cheapest cost and achieve economies of scale. It is possible only when a firm is serving a huge market. example- Acer laptops are very economical to have and provides all satisfactory features at a lower cost than its rivals.
2. Product Differentiation Strategy: A firm may produce a high quality differentiated product which customer consider unique. For such a product, customers are willing to pay extra because of the features and uniqueness of the product. Example: People go crazy to have an Apple i-phone even though it charges relatively higher than competitors.
3. Focus Strategy: When the above two strategies are applied to a narrow segment (niche market) the strategy is known as Focus Strategy. A niche market is a market which has not been served properly although having sufficient potential to get served.
a firm following focus strategy may:
- Reduce cost over value chain.
- Adopt Just-in-time production technique.
- Evaluate need for the niche market deeply.
- Make sure strategies are not easy to copy.
Stuck in the Middle: When a firm is unable to form its strategy, fails to decide between cost leadership, product differentiation or focus strategy it is stuck in the middle. They fail to offer a distinctive product and also fails to offer the product at lower prices than a cost leader is providing. A firm should always try to avoid stuck in the middle situation.