Three Generic Strategies

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After understanding the five forces model, it becomes extremely important for you to understand three strategies propounded by Michael E Porter in 1979 and are generally used by companies to defend their market position in the long run and outperform the competitors in the industry.   
Cost leadership strategy
Differentiation strategy
Focus strategy

Cost Leadership Strategy
First generic strategy i.e. Cost leadership comes from aggressive construction of efficient scale facilities, vigorous pursuit of cost reductions from experience, cost control, good inventory management and cost minimization in few areas such as advertisement, service and R&D activities (if any). It provides a good defense mechanism against both powerful buyers and suppliers resulting in control over bargaining powers. Powerful buyers start pressurizing the next competitor to reduce down the prices to the level of cost leader in the market which sometimes proves to be dangerous for next competitor and very few firms survive this in long run due to operational inefficiencies which further lead to the exit of competitors from the industry. It thus serves as a entry barrier to the industry.
Examples are GE, GM, Emerson Electric, Tata Motors, Du Pont, Wal-Mart, Air Asia, Indigo airlines and many more (just think of it and share for other readers, you will get many)

Risk: This is very important strategy but not easy to be followed. In order to remain cost efficient, companies need to invest heavily in modern equipment / machineries. Technological change generally nullifies past investment or learning. Cost leader are very much affected during higher rate of inflation and profit margin gets pressurized.

Differentiation Strategy
This strategy is all about differentiating your product or service from other manufacturers by providing some uniqueness to product (feature wise, design wise, durability etc) and placing it in mind of the end users differently.  In order to get success in this strategy, firms are required to put special focus on R&D, marketing efforts and maintenance of high quality products / services.

Examples are Apple, Unilever, Aldi, Johnson & Johnson and many more (start thinking for more examples and post on discussion board). 

Risk: There is constant pressure of Innovation and continuous improvement in order to maintain the uniqueness of product or services as the unique features can be copied by competitors and customers might switch to other manufacturers.

Focus Strategy
This strategy is generally adopted by market players who are catering to Niche market. Niche product could be created for particular buyer group or geographic market. The focus is to serve very special group of customers who value for your goods or services and are willing to pay extraordinary prices for the same.

Examples are Rolls Royce (Luxury car), Ferrari (Sports car), Rolex and many more.

Risk: There is always a possibility that the Niche market created by company may disappear in long run and few cost leaders in the industry can start developing & delivering products which were earlier part of Niche market.

Conclusion: Generally any one of the strategy is implemented for gaining competitive advantage by market players for long run success otherwise trying for all may end up in gaining nothing and you (company) may get stuck in middle. Hence, it is very important for a firm to choose & implement the strategy by doing all sort of “SWOT analysis” (Strengths, Weakness, Opportunities & Threats) for business segment and further use “Five forces model” to understand the nature of industry. A firm can base his decision by comparing the results of SWOT analysis & Five forces analysis. 

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