Porter’s Generic Strategies

Porter's Generic Strategies - ToolsHero

This article explains the Porter’s Generic Strategies by Michael Porter in a practical way. After reading it, you understand the core of this strategy theory.

What are Porter’s Generic Strategies?

The Generic Strategies can be used to determine the direction (strategy) of your organisation. Michael Porter uses 4 strategies that an organisation can choose from. He believes that a company must choose a clear course in order to be able to beat the competition.

The four strategies to choose from are:

  1. Cost Leadership
  2. Differentiation
  3. Cost Focus
  4. Differentiation Focus

Michael Porter described the theory in his 1985 book ‘Competitive Advantage: Creating and Sustaining Superior Performance’. The basis was formed by three strategies, namely cost leadership, differentiation and focus. He divided the latter into cost focus and differentiation focus.

Porter's Generic Strategies model - ToolsHero

How to apply the Porter’s Generic Strategies?

According to Michael Porter there are four Generic strategies:

1. Cost Leadership

You target a broad market (large demand) and offer the lowest possible price. There are 2 options within this course. You can opt to keep costs as low as possible; or ensure that you have a larger market share with average prices. In both cases, the point is to keep the company costs as low as possible. The consumer price is a different story.
Organisations that apply this strategy successfully usually have substantial investment capital at their disposal, efficient logistics and low costs when it comes to materials and labour. The organisation is generally focused on internal processes.

2. Differentiation

You target a broad market (high demand), but your product or service has unique features. With this strategy, you make your product as exclusive as possible, making it more attractive than comparable products offered by the competition. Succeeding using this strategy requires good research & development, innovation and the ability to deliver high quality. Effective marketing is important, so that the market understands the benefits of your unique product. It’s important to be flexible and to be able to adapt quickly in a changing market, or you risk the competition beating you at it. Such an organisation is focused on the outside world and has a creative approach.

3. Cost Focus

You target a niche market (little competition, ‘focused market’) and offer the lowest possible price. In this strategy, you choose to target a clear niche market and through understanding the dynamics of the market and the wishes of the consumers, you can ensure that the costs remain low.

4. Differentiation Focus

You target a niche market (little competition, ‘focused market’) and your product or service has unique features. This strategy often involves strong brand loyalty among consumers. It’s very important to ensure that your product remains unique, in order to stay ahead of possible competition.

In order to choose the right strategy for your organisation, it’s important be aware of the competencies and strengths of your company.

Choose the right strategy

You can follow these steps to choose the right strategy:
Step 1: Do a SWOT analysis for your business. This will clarify your strengths and weaknesses as well as the highlight opportunities and threats.

Step 2: Try to truly grasp the market of your industry. This can be done, for example, through the Five Forces Analysis – a model also developed by Porter – designed to determine profit potential. The 5 forces that influence this are:

  • the (power of) suppliers;
  • the (power of) the customers;
  • the availability of comparable products;
  • the threat of new entrants;
  • and internal competition.

Step 3: Compare your SWOT analysis with the outcomes of step 2. For each of Porter’s strategies, ask yourself how you might use that strategy to influence the previously mentioned five forces. On that basis, determine which strategy offers you the best starting point (and profit potential).

Critical comments

Porter’s Generic Strategies model in which you opt for one single strategy certainly also raises criticism. For example, the model isn’t particularly flexible. There are plenty of companies that opt for a more ‘hybrid’ strategy, i.e. making use of different (components) of Porter’s 4 general strategies. In a rapidly changing market, this flexibility, the ability to switch quickly and respond to the market and the demand, seems to be an important element to running a successful business.

To summarise

Porter’s Generic strategies can be used to determine the direction (strategy) of your organisation. There are four strategies an organisation can choose from.

The four strategies to choose from are:

  1. Cost Leadership
  2. Differentiation
  3. Cost Focus
  4. Differentiation Focus

An understanding of the market, your industry and your own organisation are paramount in choosing the right strategy.

Now it’s your turn

Could Porter’s Generic Strategies benefit your business? Or are you more into the ‘hybrid’ style? Share your knowledge and experience via the comment field at the bottom of this article.

Share your experience and knowledge in the comments box below.

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More information

  1. Jennings, D. F., & Lumpkin, J. R. (1992). Insights between environmental scanning activities and Porter’s generic strategies: An empirical analysis. Journal of Management, 18(4), 791-803.
  2. Kim, E., Nam, D. I., & Stimpert, J. L. (2004). Testing the applicability of Porter’s generic strategies in the digital age: A study of Korean cyber malls. Journal of Business Strategies, 21(1), 19.
  3. Murray, A. I. (1988). A contingency view of Porter’s “generic strategies”. Academy of management review, 13(3), 390-400.
  4. Porter, M. (2007). Porter’s generic strategies. Retrieved June, 14, 2009.

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1 COMMENT

  1. Very useful post. This is my first time i visit here. I found so many interesting stuff in your blog especially its discussion. Really its great article. Keep it up.

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