In , in his book Competitive Advantage: Creating and Sustaining Superior Performance, Michael Porter, outlined a set of generic strategies that could be applied to all products or services. Differentiation , on the other hand, corresponds to the luxury providers, like Rolls Royce or Ferrari or Gucci, Armani or Prada.

These companies provide uniquely desirable products or services to their customers. Focus is about market segmentation by offering a specialized product or service in a niche market.

Porter later refined his model further subdividing the Focus strategy into two components: In this revised model, Cost Focus relates to emphasizing cost-minimization in a narrow market scope niche market. Differentiation, similarly, is about increasing differentiation in a niche market. The key success factor in a cost leadership strategy is to out-manage the competition.

There are two key approaches of achieving this within a Cost Leadership strategy:. Pricing is a key issue if your company wants to pursue a Cost Leadership strategy as the target market scope is extremely price sensitive.

A downside of the low-cost provider strategy is product price erosion, eventually leading to the product having to be retired from the market. Pursuing a low-cost strategy might leave a company vulnerable to the attack of other lower-cost providers, who can prevent you from increasing market share by undercutting your prices. This can be done using the following approaches:. If there is little product differentiation and supplies are readily available from several suppliers, companies can buy in bulk e.

This is a common strategy for large food retailers that are supplied by local producers with small to medium productions. The greatest risk of pursuing a cost strategy is that it is fairly easy for direct competitors to follow suit as the ways outlined above to achieve cost reduction are not unique and are readily available given the same level of investment in driving down costs.

One way to stay ahead of the competition in a relatively leveled playing field is to introduce continuous optimization of the production and value chain by introducing lean manufacturing techniques like Six-Sigma or Kaizen.

Differentiation means making your products or services different from those of your competitors or more appealing to your customer base. This is highly dependent on your several factors, like industry, market, customer base, and the nature of the actual products or services. Whatever it is it has got to be something that makes your products or services stand out. The key success factor in a differentiation strategy is to make it either very difficult or very expensive for rivals to replicate your product or service.

Porter’s Generic Strategies | Thousand Insights

To achieve this, companies need to invest in:. Examples of the successful use of a differentiation strategy are Nike athletic shoes, Apple Computer, and Mercedes-Benz automobiles.

Companies can look at their value chain to determine where they can find opportunities introduce differentiation:.

Focus strategies concentrate on niche markets. They can therefore develop unique lower cost or differentiated products or services for that specific market. These companies usually have a very strong brand loyalty amongst their customers and tend to monopolize that segment particularly in smaller markets , making it less attractive to competitors thus mitigating the risk of attack from other niche players, new entrants or broad market competitors looking to enlarge their customer base through product or service specialization.

Narrow market strategies are similar to their broad market scope namesakes. What is key is that companies focusing on niche markets need to bring something new into the mix — something that adds value to customers in that particular market.

Wendy Kirkland

Here are some examples of the type of actions companies might want to look at when pursuing a Cost Focus Strategy:. A company has to spend time and effort to choose the right Generic Strategy, as this will support all other strategic options. The company needs to make a decision on which strategy to use and stay on it for the long term. It is simply not feasible to try out a particular strategy option.

Differentiation Strategy requires very outward-facing, communicative and creative approaches, while Cost Strategy requires a deep focus on internal processes and optimization in a profoundly analytical approach.

Trying to employ multiple strategies, will typically render a company without any clear strategic advantage and in a poor strategic position.

Such companies are bound to become low-profitable, second-rate companies due to ambiguous corporate culture, conflicting organizational structures and contradictory and ineffective incentive schemes. Differentiation The Transformational Leadership Strategist. You are commenting using your WordPress. You are commenting using your Twitter account.

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