Generic Strategy

The Broad Cost Leadership Strategy

Porter's generic strategies are ways of gaining competitive advantage – in other words, developing the "edge" that gets you the sale and takes it away from your competitors. There are two main ways of achieving this within a Cost Leadership strategy:

-Increasing profits by reducing costs, while charging industry-average prices.

-Increasing market share through charging lower prices, while still making a reasonable profit on each sale because you've reduced costs.

Remember that Cost Leadership is about minimizing the cost to the organization of delivering products and services. The cost or price paid by the customer is a separate issue!The Cost Leadership strategy is exactly that – it involves being the leader in terms of cost in your industry or market. Simply being amongst the lowest-cost producers is not good enough, as you leave yourself wide open to attack by other low cost producers who may undercut your prices and therefore block your attempts to increase market share.

You therefore need to be confident that you can achieve and maintain the number one position before choosing the Cost Leadership route. Companies that are successful in achieving Cost Leadership usually have:

• Access to the capital needed to invest in technology that will bring costs down.
• Very efficient logistics.
• A low cost base (labor, materials, facilities), and a way of sustainability cutting costs below those of other competitors.

The greatest risk in pursuing a Cost Leadership strategy is that these sources of cost reduction are not unique to you, and that other competitors copy your cost reduction strategies. This is why it's important to continuously find ways of reducing every cost. One successful way of doing this is by adopting the Japanese Kaizen philosophy of "continuous improvement".

Thus, a firm following a cost leadership strategy offers products or services with acceptable quality and features to a broad set of customers at a low price.

-Air Asia

-Tesco

-Mydin

-Giant

-McDonald

-Google

-Coca Cola

-Proton

Common features in these product :

*Many kinds of products and/or services

*Focus on Market Share, Profits, and Stock Price

*More likely to re-position products than introduce new ones to the market

*Offering the lowest price to compete with rivals

*Attract a broad spectrum of buyers

Focused cost-leadership and Focus differentiation

Companies that use Focus strategies concentrate on particular niche markets and, by understanding the dynamics of that market and the unique needs of customers within it, develop uniquely low cost or well-specified products for the market. Because they serve customers in their market uniquely well, they tend to build strong brand loyalty amongst their customers. This makes their particular market segment less attractive to competitors.

As with broad market strategies, it is still essential to decide whether you will pursue Cost Leadership or Differentiation once you have selected a Focus strategy as your main approach: Focus is not normally enough on its own.

But whether you use Cost Focus or Differentiation Focus, the key to making a success of a generic Focus strategy is to ensure that you are adding something extra as a result of serving only that market niche. It's simply not enough to focus on only one market segment because your organization is too small to serve a broader market (if you do, you risk competing against better-resourced broad market companies' offerings.)

The "something extra" that you add can contribute to reducing costs (perhaps through your knowledge of specialist suppliers) or to increasing differentiation (though your deep understanding of customers' needs).

Generic strategies apply to not-for-profit organizations too. A not-for-profit can use a Cost Leadership strategy to minimize the cost of getting donations and achieving more for their income, while one with pursing a Differentiation strategy will be committed to the very best outcomes, even if the volume of work they do as a result is lower. Local charities are great examples of organizations using Focus strategies to get donations and contribute to their communities. For focused cost leadership, instead, it charges low prices relative to other firms that compete within the target market.
-Perodua
-Digi
-Kamdar
-KFC
-Subway

Common features in these product :
#Focusing on their own product or service.
#Multiple product lines in the low-tech segments (Low End & Traditional)
#Invests heavily in automation
#Spends moderately on advertising to cost sensitive customers (sales people have more than one product to pitch to prospects)
#Investments financed with debt and/or stock issues
#Focus on ROS, ROE, and Profits
#Available to a specific group of people

For focus differentiation, thus the unique features provided by firms following a focused differentiation strategy are often specialized.
>Bonia
>JW Marriot
>Louis Vuitton
>Porsche

Common features in these product :
-Luxury product offer
-Focusing on a narrow target market
-Exclusiveness styles
-High price

Broad Differentiation

Differentiation involves making your products or services different from and more attractive those of your competitors. How you do this depends on the exact nature of your industry and of the products and services themselves, but will typically involve features, functionality, durability, support and also brand image that your customers value.

To make a success of a Differentiation strategy, organizations need:
-Good research, development and innovation.
-The ability to deliver high-quality products or services.
-Effective sales and marketing, so that the market understands the benefits offered by the differentiated offerings.

Large organizations pursuing a differentiation strategy need to stay agile with their new product development processes. Otherwise, they risk attack on several fronts by competitors pursuing Focus Differentiation strategies in different market segments.

The firm hopes that the higher price will more than cover the extra costs incurred in offering the unique product and desirable features.

• Malaysia Airlines;
• Honda
• IKEA
• Kia Motor
• Avon
• Old-Town Kopitiam
• Toyota
• Rolls Royce
• Al-Ikhsan

Common features in these product :
^Many kind of products
^High R&D spending to keep products fresh
^Maintains a presence in all market segments
^Spends heavily on advertising and sales to create maximum awareness and accessibility
^Prices tend to be higher
^Focus on Market Share, Profits, and Stock Price
^Different types of products and services.
^Targeting a broad market target.