Porter's Generic Strategies (DP IB Business Management)
Revision Note
Written by: Lisa Eades
Reviewed by: Steve Vorster
Porter's Generic Strategies
Porter’s Generic Matrix identifies a range of strategies a business can utilise to increase their success
The matrix considers two factors
Its source of competitive advantage (cost or differentiation)
The scope of the market in which it operates (mass or niche)
Porter's generic strategies provide a clear framework for businesses to determine the most appropriate strategy to succeed in the mass market or within a smaller niche market
It emphasises the importance of developing distinctive capabilities and avoid being 'stuck in the middle'
Diagram: porters generic matrix
The model encourages businesses to make strategic choices that are difficult for competitors to copy
Pursuing one strategy forces the business to make explicit choices about its direction and concentrate on it
The model does not offer guidance to businesses on specific tactics or implementation
The model often overlooks external factors such as technological change, economic conditions and changes in laws which could impact competitive position
Stuck in the middle
Porter argued that failing to adopt one of the strategies risks a business being ‘stuck in the middle'
This means it is unable to compete successfully with rivals in the market because each strategy is different
A business should select its strategy and concentrate its resources on pursuing it rather than simply responding to its competitors actions
Pursuing a mixture of strategies is also not feasible in the long term
For example, cost leadership and differentiation are unlikely to be financially compatible
Low prices combined with high quality can negatively affect consumer perceptions of the product
Mass Market Strategies
Cost leadership
Most suitable for businesses that have a significant cost advantage over rivals
Cost leadership with parity is where a business has lower costs than rivals but charges the same price
Examples include hotel chains such as Premier Inn and Ibis Styles
Cost leadership with proximity is where a business has lower costs and charges a lower price than rivals
Examples include budget airlines such as Southwestern and Ryanair
Evaluating the Cost Leadership Strategy
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Differentiation
Businesses that cannot be the most competitive on cost should make its products distinct from those of rivals
Successful differentiation allows a business to charge a premium price and achieve a high profit margin
Examples of businesses that adopt a mass market differentiation strategy include Coca Cola, Samsung and Volvo
Coca Cola's trusted and well-known branding includes its logo, brand colours and characters such as the Coca Cola truck
Samsung's cutting-edge mobile phones have the most advanced package of technical features in the mass market
Volvo's focus on safety and build quality allows it to charge premium prices in the mass market
Diagram: ways to achieve differentiation
Evaluating a Differentiation Strategy
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Niche Market Strategies
Businesses that operate in niche markets should adopt one of two focus strategies that closely meet the needs of its specific group of customers
Cost focus strategy
A cost focus involves being the lowest cost competitor within the market niche
Examples of businesses that adopt a cost focus strategy include Carnival Cruise Line and Glasses Direct
Carnival Cruises sells cruises to locations including the Caribbean and Europe and is well-known for it's eye-catching low fares that can be offered due to its fleet of smaller vessels that operate at full capacity
Glasses Direct is an online retailer of spectacles that sells popular styles of lesser-known brands at very low prices as a result of its low overhead costs
Differentiation focus strategy
A differentiation focus involves offering specialised products within the niche market
Examples of businesses that adopt a differentiation focus strategy include Hotel Chocolat and Brompton Bicycle Retail Ltd
Hotel Chocolat sells a range of premium, fair-trade celebration confectionary in its chain of beautifully-designed retail outlets
Brompton Bicycle Retail sells innovative products such as the folding bicycle that closely meet the needs of its wealthy commuter target market
An Evaluation of Niche Market Strategies
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