Question Tag: Generic Strategies

Michael Porter’s Three Generic Strategies:

1. Cost Leadership Strategy:
   This strategy seeks to achieve the position of the lowest-cost producer in the industry. By producing at the lowest cost, the firm can compete on price with every other entity in the industry and earn the highest unit profits. This strategy is best pursued when the manufacturer uses high technology and enjoys economies of scale through mass production.
   (3.33 marks)
2. Differentiation Strategy:
   This strategy involves raising the quality of the product, and in doing so, raising the product’s cost and sales price. The manufacturer endeavors to improve the quality of the product so that the customer perceives it as more valuable and is prepared to pay more for superior quality. The firm attempts to achieve an optimal balance for the customer between quality and price.
   (3.33 marks)
3. Focus Strategy:
   The focus strategy is based on segmenting the market and concentrating on a particular market segment. The firm does not sell its products industry-wide but focuses its marketing efforts on a particular type of buyer or geographical area, serving a narrow strategic target more effectively and efficiently than its competitors. This strategy may be cost-focused, where the firm specializes in a particular product, or quality-focused, where the entity competes in a market segment on the basis of product quality.
   (3.33 marks)