Strategic management by Porter’s Generic Strategies (1985)

Two Generic Strategies

- Cost Advantage
- Differentiation Advantage

Cost Advantage

A competitive advantage gained through reducing the costs of the business, allowing it to operate with larger profit compared to rivals

Differentiation Advantage

Businesses gain a competitive advantage through differentiating their good or service from others in the market

Lower Cost Strategy

A business gaining a competitive advantage by having the lowest costs/prices in it's industry

Strategies to achieve lower cost (5)

- Reducing costs of supplies
- Reducing other expenses
- Improving efficiency
- Implement waste management strategies
- Implement materials management strategies

Advantages of a Lower Cost Strategy (3)

- Increased profit for owners
- Increase and prevent competitors from increasing market share
- Reduced costs can be used to expand operations

Disadvantages of a Lower Cost Strategy

- Sales may fall as customers believe product is of a poorer quality
- Can lead to poorer quality due to cheaper employees, rent and suppliers
- Potential to be socially iresponsible

Differentiation Strategy

The use of factors such as brand names, delivery methods and advertising to establish differences between substitutable products

Strategies to differentiate products (3)

- Quality management strategies
- Marketing and Branding
- Innovation

Advantages of a differentiation strategy

- Increased customer loyalty
- More revenue as they can charge a premium
- Increased market share due to loyal customers

Disadvantage of a differentiation strategy

- Competitors can copy differentiated approaches
- Differentiation may have initial costs
- Differentiation is time consuming

How many strategies should a business focus on

It is best to focus on just one strategy, using both strategies is not recommended by Porter

When to use a Low Cost Strategy

- When the product is generic
- When the business is big and producing a lot
- When the consumers are price sensitive
- When the business is on a tight budget

When to use a Differentiation Strategy

- Product is unique
- Small businesses with low volumes
- Business has financial strength
- Customer relations are important

Similarities of Generic Strategies (3)

- Both used to gain a competitive advantage
- Both aimed at increasing profits
- Both require consideration of competition

Differences of Generic Strategies

- Diff: innovative, Cost: Generic
- Diff: High prices & less volumes, Cost: Low prices & more volumes
- Diff: Niche market, Cost: Generic market