Michael Porter’s Generic Competitive Strategies (Grow your Business)
“The essence of strategy is choosing what not to do. ~ Michael Porter
To Understand Michael Porter’s Generic Strategies.
Firstly let me tell you Who is Michael Porter?
He is one of the most influential management Persona of this century.
Michael Porter, who is widely considered as the Father of Corporate Strategy and management.
We have two things in common.
One is our love for marketing and second, we are birthday twins ( May 23).
He is known for his theories on business strategy, economics, and social causes.
Currently Serving as Management Professor in the field of competitive strategy at Harvard Business School.
According to an article published in the Times of India, Michael Porter’s three generic principles, for competitive marketing fit perfectly in the wheels of growing Indian MNCs, as well as medium-sized enterprises, including start-ups.
A strategy is about setting yourself apart from the competition. It’s not a matter of being better at what you do – it’s a matter of being different at what you do, He says.
The author of Book ‘Competitive Advantage’, believes that strategies that change with trends are not strategies at all.
His Book Competitive Advantage became the bible of Business thinkers in the late 1980s.
In India, Every person wants to own an Apple iPhone but looking at their strategy, it is very clear that they not only provided quality but also their customer service keeps them on the top charts. It seems apparent that they used Porter’s Generic Strategies.
Every firm in the business world has a competitive strategy. What makes a brand successful is their strategies.
What kind of market they are targeting? What makes them different? What’s their positioning?.
What kind of actions are competitors likely to take and how are they responding ?. Certain strategies matter in bringing a company to the top.
You win either by being cheaper or by being unique (which means being considered by the customer as better or more relevant). There are no other ways to do that.
Watch this video to understand it in a better way. (English Subtitles Included)
INFLUENCE OF MICHAEL PORTER ON INDIA :
According to the news of Financial Express, PM Narendra Modi had a very insightful meeting with the father of Competitive strategy for NITI AYOG TRANSFORMATION in May 2017.
Prime Minister Narendra Modi today met eminent economist Michael E Porter. (Image courtesy- Twitter).
This meeting was held on May 2017 for the NITI AYOG Transforming India series. The schema of Michael Porter’s lecture is the Competitiveness of Nations and States: New Insights. Also, Porter’s study on strategy for the past 30 years has revolved around what actually works for business leaders, governments, healthcare practitioners and social organizations.
According to an official statement, the third lecture in the series of ‘NITI Lectures: Transforming India’ was successfully delivered by renowned Professor at Harvard Business School, Dr. Michael E Porter on May 25, 2017.
On Comparing with other countries India is underperforming on social progress, according to Michael E. Porter, the Father of corporate strategy and management.
India posses all the ingredients to win, says Michael Porter.
India is at a very good scenario in terms of prosperity performance. We’re seeing lots of signs of progress here,” the prominent economist said.
Initiatives like Jan Dhan-Aadhaar-Mobile (JAM) model in India are found to be breaking new ground in economic policy and the process of development.”
Also watch :
Michael Porter: Why business can be good at solving social problems | TED TALKS
Michael Porter on what he makes of Donald Trump and Narendra Modi :
Michael Porter: Why business can good at solving social problems.
Porter’s Generic Strategies.
What are the Porter Generic Strategies?
There are basically three effective generic approaches to success to outperforming other firms in an industry.
Porter’s Generic strategies were listed by Michael Porter in 1980.
Michael Porter developed three generic strategies, that can be used by a company for competitive advantage, back in 1980. These three are:
- Cost leadership
- Focus Strategy
“ Strategy is about making choices, trade-offs; it’s about deliberately choosing to be different “ – Michael Porter
- COST LEADERSHIP
Strategy 101 is about choices, You can’t be all things to all the people.
Many global companies are now more focused on keeping the price cheaper, restructuring business and tapping emerging markets, but Porter, Bishop William Lawrence Professor at Harvard Business School, says this can not be a competitive advantage.
Cost leadership allows a competitive advantage by manipulating the production cost.
Examples of Cost leadership :
Watch this video for more information:
Walmart Business Model | Intellectual Indies
Charging lower prices to increase the market sale as compared to other companies. This is done by casting the company as a low-cost alternative which increases both i.e company profit and the company profile.
One real example of Cost Leadership is Walmart. It has built its community at such lower rates than its competitors. It’s all because of Walmart strong supply chain connection.
“None of these tactics are creating unique products and needs”, he says.
You need to understand what is that makes you unique from your competitors in the market.
“The better you understand what this is and how you do it, the better you’ll be at responding to new trends and meeting customer needs .”
This thinking that “ I am good at marketing so let’s focus on that” takes away from creating a unique position you occupy and how you can leverage that as your strategy.
He says, “ The two types of competitive approach combined with the scope of activities for which a firm seeks to achieve lead to three generic strategies: cost leadership, differentiation, and focus.
“Just Because You are American doesn’t mean that you’re guaranteed a high wage”. You have to be more productive and create a very low-cost, efficient products to do business, and we’ve let all that slip in America” – Michael Porter.
Michael Porter on Cost Leadership
“If all you’re trying to do is doing the same thing as your rivals, then it’s possible that you’ll be very successful.” – Michael Porter
The ‘differentiation’ strategy involves creation of uniques products for different parts of audience.
Example of Differentiation:
Netflix-Hotstar-Amazon Prime Business Model | Intellectual Indies
Urban Clap Business Model | Intellectual Indies
A variety of products, when promoted differently allows a company to adjust the prices as they wish and on the basis of being different, charge higher prices.
If it targets customers in all parts based on attributes other than price to command a higher price, it is a differentiation strategy. It means unique offerings from your competition.
Either you can charge a high price for a unique product or you can operate on a less margin, He says.
Focus Strategy :
The Firms achieving focus may also potentially earn above-average returns for their industry. Means Firms either has a low-cost position with its strategic target, High Differentiation or Both. – Michael Porter
Focus Strategy is the strategy which concentrates on a very small segment defined in terms of customer segment.
It means carefully choosing the specific arena to compete in and narrowing the competitive scope.
It chooses the focus strategy approach by concentrating on a small segment of the market to satisfy the segment’s unique needs, which is called niche marketing.
A focus strategy can be applied using either differentiation or a low-cost approach.
- If a company adopts a low-cost approach, it competes against the market cost leader only in those parts where there’s no cost disadvantage, such as small niches or complex products that do not lend themselves to economies of scale.
- If a company adopts a focused differentiation approach, it competes against the differentiator by their knowledge of a small customer segment or of a particular specialization within a specific range of products. Focused differentiators may also be more innovative than larger firms because the focuser is concentrating on the needs of just one type of customer which makes things easier for the company.
Focusers can concentrate on a niche that is unfilled by the large industries, and then develop a unique product to fill that specific need.
- Focusers are protected against its competitors because it has the capability to present a product or service at a price or quality competitors cannot offer.
Risk with the focus strategy is that the target market may shrink or disappear over time for some reasons.
A new player in the market may ‘outshine’ the firm.
When the focuser’s niche suddenly disappears because of some changes in technology or consumer likes, it is quite challenging to switch to a new niche quickly.
Also, large firms differentiators may compete for the focuser’s niche if it becomes very profitable, as it happened in IBM’s fight with Apple.
In 1984, Professional computers from IBM and Compaq were expensive for the retail market, and the Macintosh was new in the market and little software was available. Apple and IBM decided to fight it out in the low-end consumer market. (Focused Cost Leadership ).
No doubt, Apple beat IBM in 1984. ( In Steve Jobs’ first retail war) .
Stuck in the Middle?
Michael Porter stated that stuck in the middle is not a deliberate strategy, rather it is the conclusion of not being able to successfully pursue any of the three generic strategies.
A firm is considered to be stuck in the middle when it doesn’t include in one of these generic strategies. Some firms fail to effectively pursue one of the generic strategies due to their myopic approach.
Watch this video on Marketing Myopia : ( with English subtitles )
When an industry does not offer features unique enough to satisfy consumers to buy its offerings, or its product prices are high compared to its competitors’, or when it does not target a specific niche market, the industry is said to be stuck in the middle—such industries generally perform poorly because they lack a clear vision.
Watch this video on Niche Marketing : ( with English subtitles )
Watch this video on Value Creation: ( with English subtitles )
Watch this video on Consumer Adoption Process:
( with English subtitles )
Organizations that have successfully used generic strategies to their advantage:
Positioning of offerings better than the competitors – Sahil Khanna
Sahil Khanna, founder Of Lapaas – Best Digital Marketing Institute in Delhi.
It all started after getting a huge success On Our YouTube Channel Intellectual Indies- Mr. Sahil Khanna (Founder) has started an Offline Digitial Marketing Course For better Practical knowledge and Implementation Exposure. – Lapaas
Lapaas achieved their success in large part due to their Low Price Approach.
Kept the cost pretty much lower than the market.
Offering a unique product that may ‘out focus’ the other market segment.
In terms of Differentiation, what LAPAAS is providing no one else in the market can do.
Includes some extra modules like video production, Infographics resume and the founder of LAPAAS is providing more than they promised for.
Porter’s Generic Strategies of ZARA :
Zara is one of the leading brands in the Fashion Industry. The brand has grown fast in terms of Revenue, market size and sales. It is now in 93 countries with almost 22,000 stores. The Lavish Brand is known for turning ideas into products and in a short span which shows the strong supply chain management.
It is of no doubt how ZARA has used one of Porter’s Generic strategies i.e Cost Leadership.
The Generic strategy that ZARA has used is Cost differentiation.
Any Brand can be become a cost leader by providing high-quality products at low price than the competitor.
The same has been used by ZARA, they provide high-quality products with innovative ideas. The designs and styles it sells are similar to those provided by other designer brands.The Brand provides high-end fashion at lower prices. ZARA has used differentiation to a very small extent.
Also, It has also used Innovative technology and supply chain management.
It takes only two weeks for ZARA to go from a certain idea to the table of the final product which shows a strong supply chain management team. While for other brands it takes around 6 months to launch new products but ZARA wins the heart of the middle class and millethe nnial generation.
New products are launched within weeks which makes the consumer reach their nearby stores.
Porter’s Generic Strategies of Xiaomi :
Michael E Porter has outlined three generic strategies that can be used by a business brand to acquire a source of competitive advantage.
Xiaomi can boast of some remarkable milestones in just its third full year as a gadget maker. The Chinese startup is on course to sell 60 million smartphones this year, as made some sure-footed (if rather slow) steps into a number of markets in Asia, such as Indonesia and India.
The company’s growth is more remarkable when you see how it does so many things differently from more established phone brands. But the case may be that those tactics are Xiaomi’s secrets to success.
Mi phones have shown a boom in the smartphone industry.
It is India’s one of the most affordable brands in the category of smartphones.
Han explains to Tech in Asia:
Xiaomi first kept its low price prior to diving in-depth into its flagship product’s high level of integrated technology and hardware performance. This combination of low cost and high value is a big message to Chinese consumers.
Inspired by Apple, Xiaomi also educates consumers on its design philosophy, emphasizing a focus on simplicity and specialization in its products.
In India, if anyone wants a Smartphone with a low budget and latest features, Mi is the consumer’s first choice
They kept the price so low and with the latest features, it made them the most affordable brand.
In terms of differentiation, they provided high features with low prices, basically, their offerings were better than the competition.
Example of Ikea: Focused Cost leadership.
Ikea is one of the prominent house furniture and household goods retailer, a private company It was established by Mr. Ingvar Kamarad Sweden and in the year 2008 the company owned 244 Ikea stores in 24 nations and is still in the process of opening 23 new stores.
Watch this video for more information :
IKEA Business Model | Case Study | How IKEA earns? | Complete Story | Sahil Khanna
In the Beginning, the company was based on providing well-designed home furnishing goods at an affordable cost to attract more customers. This concept of the Ikea is a part of their business operations including product designing, manufacturing, transportation, retailing, and assembling.
IKEA applies the focused cost leadership approach. Young buyers in search of stylish furniture and household accessories at a low cost are IKEA’s targeted market audience.
The strategy that helps keep IKEA’s costs low is expecting customers to transport their own products rather than providing a delivery service.
Porter’s Generic Strategy of Apple :
Through its Macintosh computers and operating system, the iPad, iPhone, and other products, Apple has achieved massive success as a company despite going through a number of up and down cycles since its founding in 1976.
With no doubt, Apple is one of the most famous brands in the smartphone industry.
What makes them different?
Apple stays at least two years ahead of its competitors.
Though their prices are high but-but the differentiation they provided and great customer service makes them out of the box.
According to Apple, competing on price can actually hurt your business – and knowing this apple has never wavered on its pricing strategy.
Dropping product prices and competing on price leads to a “rat race” For example, if you’ve ever looked at job boards for freelancers, you might see some strange things. For some sites, the going rate for a blog post is $10, or even less!
Focus Cost Leadership Strategy :
Considering never-ending competition in the technology industry, there is every need for Apple Inc to redefine its strategies so as to maintain its stability.
The stability strategies are nothing but rather a continuation of the existing strategies.
Some of the key activities to undertake in executing these strategies include restructuring the management and organizational model.
Focus Differentiation Strategy
Apple CEO Tim Cook said, “Apple has the ability … to innovate like crazy and cause magic”. Apple owns chip manufacturers, controls manufacturing and operates in an ecosystem of proprietary retail stores; this vertical integration approach has helped apple own competitive advantage.
( Vertical integration is an approach used by a company to gain full control over its suppliers or distributors in order to increase the industry’s power in the marketplace. )
***********************************The list is endless*******************************************
Michael Porter: The case for letting business solve social problems | TED TALKS
Now You tell me Are you Stuck in the middle?
Tell me in the comments below how you used Generic Strategies in your business?
And if you don’t have a business, How about you tell me examples of cost leadership, differentiation and focus?
Source: TED BLOG
“The best CEOs I know are teachers, and at the core of what they teach is the strategy” – Michael Porter