Porter's Generic Strategy Analysis

Good Essays
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
…show more content…
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
…show more content…
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

Related Documents

  • Decent Essays

    Price skimming is a pricing strategy in which the company sets a relatively high price for a product at first, and lowers the price over time. (Gitman, Lawrence J., and Carl D. McDaniel 2010, 393) The objective of price skimming is to maximize short-term profit. One of the advantages of using this strategy is so that the company is able to gauge how much a customer is willing to pay for that certain product. If sales of that product are good even though the product is set at a relatively high price, it means that the pricing can be kept constant. If the sales are not good, the company can then make the decision to decrease the price slowly.…

    • 1973 Words
    • 8 Pages
    Decent Essays
  • Decent Essays

    Market Saturation

    • 1070 Words
    • 4 Pages

    Temporary sales and discounts with no clear end date are a good way to generate some quick revenue. Companies can compete on lower prices with their competitors but can still revert back to the “real” pricing whenever they wish, keeping the company firmly in control of its prices. The discounts usually mean more volume, so cash flow stays relatively the same, although the company may have to work harder for it. (Davoren,…

    • 1070 Words
    • 4 Pages
    Decent Essays
  • Decent Essays

    For instance, if we use an effective marketing strategy that will increase product awareness in certain areas it'll result in higher product consumption that will also increase market penetration. Advantages and Disadvantages of Market Penetration Strategy/Pricing Market penetration strategy takes advantage of low prices to increase product demand and increase market share. While the demand is increasing, the organization saves money on product creation costs due to the greater volume of production. Though, market penetration strategy doesn't work for all products and businesses, so some companies use different marketing strategies that seem to be more beneficial. Advantages of Market Penetration Strategy Fast Growth - If your business and marketing objective is to enlarge your consumer base, then market penetration is the most effective way to act.…

    • 1241 Words
    • 5 Pages
    Decent Essays
  • Decent Essays

    Obtaining money by ensuring the organization makes a higher profit and therefore pay larger bonuses can be achieved in several ways. Competing unfairly to obtain a greater advantage and therefore gain a bigger market share than competitors is one method that managers use to increase sales and in so doing profits. Other unethical approaches relate to reducing expenses by engaging employees on short term contracts instead of employing them permanently; buying cheap supplies from suppliers who illegally use children to produce their products; or applying pressure to suppliers to provide supplies at a cheaper…

    • 1176 Words
    • 5 Pages
    Decent Essays
  • Decent Essays

    This type of top-down method where the leaders make decisions based on their own ideas and judgements can work well if implemented properly. Middle managers felt communication with Lincoln’s top two executives was generally open and direct; however, some employees found that these executives had too much on their plate. Being responsible for an excessive amount of tasks, without the necessary delegation, can lead to reduced productivity. Ultimately, allowing for bottlenecks within the firm’s production. This type of management style could expedite issues with implementing future change effectively.…

    • 1904 Words
    • 8 Pages
    Decent Essays
  • Decent Essays

    Cited by Dent, 2014). The Scientific Management theory involves the business goal to grow in efficiency and effectiveness through the division of labour and job specialisation in a corporate hierarchy and incentives to encourage productivity. The Behavioural Management theory encourages new ways of thinking and reviews the way managers behave toward employees to motivate, encourage and influence high levels of performance and commitment to the organisation. Both historic Scientific and Behavioural management theories are reputable in today’s business structure and have made a significant influence on the improvement of management…

    • 994 Words
    • 4 Pages
    Decent Essays
  • Decent Essays

    Variety-based positioning usually only satisfies certain needs of customers, and this is economically efficient when the firm can reduce cost and provide distinctive activities. As oppose to variety-based positioning, needs-based positioning targets on customers rather than the choice of varieties of product or service. This type of positioning strives to meet all needs of customers. However, it is unwise to simply meet the different needs but neglects the significance of meeting those needs in different or unique ways. The last type of basis is access-based positioning which means access customers from different geographic locations or different customer scale.…

    • 1621 Words
    • 6 Pages
    Decent Essays
  • Decent Essays

    This is because the practice of cultivating loyalty helps to lower customer defection rates. Customers may decide to leave the firm for many reasons, one of which could be due to unsatisfactory level of service provided by the firm to the customer. Through the implementation of RM, firms will be able to understand the needs and wants of customers better, thus, enabling them to provide customised services to suit the customers’ requirements. Berry, Parasuraman and Zeithaml (1996) have highlighted that lowering customer defection rates by building loyalty has indeed been proven to be a more profitable strategy as compared to a cost reduction…

    • 1149 Words
    • 5 Pages
    Decent Essays
  • Decent Essays

    Introduction Over all Cost Leadership is employed when a firm sets out to become the low cost producer in its industry for a given level of quality and entails a great attention to cost control. Above average returns are attainable because cost leaders can match their prices of their most efficient competitors, while fending off both powerful customers and suppliers. A company that focuses on there cost leadership strategy does not indicate that they will offer low prices than its rival but on the contrary profit can be made by selling the same products as others and earning bigger margin per unit or by undercutting rival’s pricing for a lower margin on a larger volume. In addition a cost leadership strategy is effectively implemented when a business designs, produces and markets comparable product more efficiently than its competitors. The firm may have access to raw materials or superior proprietary technology to lower costs.…

    • 2867 Words
    • 12 Pages
    Decent Essays
  • Decent Essays

    It can compensate for the negative aspects of large companies such as structural inertia, weak innovation, rigidity, or risk aversion. It improves the speed of making decisions and responding to market demands and it enhances both effectiveness and efficiency. In addition to the advantages of Spin-Out, there are some important disadvantages to consider. This type of expansion is often expensive and can come with risks and internal conflicts. According to Jagersma (1997), Spin-Outs initiated as internal start-ups will only profit from cost advantages in the long term.…

    • 1382 Words
    • 6 Pages
    Decent Essays