Porter generic strategies
Michael Porter described three types of strategy to achieve/maintain competitive advantage in his 1980 work Competitive strategy: techniques for analysing industries and competitors. (CS:TAIC) These generic strategies are based on two dimensions: market scope + core competency with two competencies being the most important: product differentiation/product cost. [pic]
Porter (1980) stressed that failure to adopt single strategy of differentiation or low cost results in “stuck in the middle” scenario since adopting more than one strategy loses entire focus of organisation/results in lack of clear direction as differentiation incurs costs which contradict basis of low cost strategy whilst standardised, low cost products have no differentiation hence, cost leadership or differentiation strategies are mutually exclusive. cost leadership/differentiation strategy clash – no proper direction. cost leadership/differentiation/market segmentation (or focus). Market segmentation narrow in scope - cost leadership/differentiation broad in market scope. Porter’s explanation of the profitability of firms with either high/low market share was due to cost leadership strategy (HMS) or market segmentation to focus on small/profitable market niche.(LMS) Least profitable firms with moderate market share are said to be “stuck in the middle” because they do not have, or follow, a viable generic strategy strategy combinations hard to implement due to conflict between cost minimization and cost of value-added differentiation. Post-Porter(1980) research indicates companies pursuing differentiation/low-cost strategies may be more successful than companies pursuing only one strategy. (RyanAir/EasyJet/Dell) low cost strategy rarely able to provide a sustainable competitive advantage - firms end up in price wars. best cost strategy is preferred - best value for low price. CLS - winning market share by appealing to cost-conscious/price-sensitive customers by having...
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