Porter's Generic Strategies

Porter's Generic Strategies - Porter's Generic Strategies...

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Porter's Generic Strategies http://www.quickmba.com/strategy/generic.shtml[9/14/2010 8:27:37 PM] QuickMBA / Strategy / Porter's Generic Strategies Porter's Generic Strategies If the primary determinant of a firm's profitability is the attractiveness of the industry in which it operates, an important secondary determinant is its position within that industry. Even though an industry may have below-average profitability, a firm that is optimally positioned can generate superior returns. A firm positions itself by leveraging its strengths. Michael Porter has argued that a firm's strengths ultimately fall into one of two headings: cost advantage and differentiation. By applying these strengths in either a broad or narrow scope, three generic strategies result: cost leadership , differentiation , and focus . These strategies are applied at the business unit level. They are called generic strategies because they are not firm or industry dependent. The following table illustrates Porter's generic strategies: Porter's Generic Strategies Target Scope Advantage Low Cost Product Uniqueness Broad (Industry Wide) Cost Leadership Strategy Differentiation Strategy Narrow (Market Segment) Focus Strategy (low cost) Focus Strategy (differentiation) Cost Leadership Strategy This generic strategy calls for being the low cost producer in an industry for a given level of quality. 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. Search QuickMBA Easy SWOT Diagrams Made Easy See Examples. Free Download! www.SmartDraw.com Accounting | Business Law | Economics | Entrepreneurship | Finance | Management | Marketing | Operations | Statistics | Strategy
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Porter's Generic Strategies http://www.quickmba.com/strategy/generic.shtml[9/14/2010 8:27:37 PM] 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
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This note was uploaded on 09/30/2011 for the course EMGT 5130 taught by Professor Jeong during the Fall '11 term at UH Clear Lake.

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Porter's Generic Strategies - Porter's Generic Strategies...

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