Porter's Generic Strategy Analysis

887 Words 4 Pages
Michael Porter, an economic researcher, examined the competitive behaviors that comprise successful businesses. In the early 1980s, he set out to uncover the ways companies maintain long-term advantages over their competitors. Through this work he created Porter’s Generic Strategies, three interconnected concepts that most organizations use to develop key operating procedures and outmaneuver competitors. This paper will seek to to discuss generic strategies, their meaning and how they apply in the context of strategic marketing. Understanding the ins and outs of Porter’s techniques will offer burgeoning entrepreneurs insight into the mechanisms that create and dictate most business models.

Porter's generic strategies describe how a company
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The firm sells its products either at average industry prices to earn a profit higher than that of rivals, or below the average industry prices to gain market share. In the event of a price war, the firm can maintain some profitability while the competition suffers losses. Even without a price war, as the industry matures and prices decline, the firms that can produce more cheaply will remain profitable for a longer period of time. The cost leadership strategy usually targets a broad market. Some of the ways that firms acquire cost advantages are by improving process efficiencies, gaining unique access to a large source of lower cost materials, making optimal outsourcing and vertical integration decisions, or avoiding some costs altogether. If competing firms are unable to lower their costs by a similar amount, the firm may be able to sustain a competitive advantage based on cost leadership.
Firms that succeed in cost leadership often have the following internal strengths:
Access to the capital required to make a significant investment in production assets; this investment represents a barrier to entry that many firms may not overcome. Skill in designing products for efficient manufacturing, for example, having a small component count to shorten the assembly process. High level of expertise in manufacturing process engineering. Efficient distribution
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The premise is that the needs of the group can be better serviced by focusing entirely on it. A firm using a focus strategy often enjoys a high degree of customer loyalty, and this entrenched loyalty discourages other firms from competing directly. Because of their narrow market focus, firms pursuing a focus strategy have lower volumes and therefore less bargaining power with their suppliers. However, firms pursuing a differentiation­ focused strategy may be able to pass higher costs on to customers since close substitute products do not exist. Firms that succeed in a focus strategy are able to tailor a broad range of product development strengths to a relatively narrow market segment that they know very

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