Using Porter's Generic Strategies

Margretta, J. 2012. Understanding Michael Porter: The Essential Guide to Competition and Strategy. Harvard Business Press.

Our team decided to choose the “Broad Differentiation” strategy as the basic strategy for our company. We will attempt to differentiate our product line in several distinct dimensions. By providing products that are vastly superior and unique from our competitors and pricing the products with an affordable price, we can gain something that is beneficial for the company in the future, which is customers’ loyalty and awareness. We may change or modify our strategy for the next round depending how it performs against our competitors.

Thompson, Peteraf, Gamble, and Strickland (2012) found that competitive strategy depend on whether a company’s target market is narrow or broad, and whether a company is seeking competitive advantage through low-cost or product differentiation. These two factors reveal five generic competitive strategies. The five strategies are Overall Low-Cost Provider Strategy, Focused Low-Cost Strategy, Broad Differentiation Strategy, Focused Differentiation Strategy, and Best Cost

The differentiation strategy aims at creating a service that is unique. The key is to be viewed as valuable by the customer. According to Porter corporations should not focus their corporate energy into being better than their competitors, instead, try to be different. Benchmarking the competitor can result in what Porter describes as the competitive convergence, where, to the customer, everyone looks like everyone else. For”Broadway’s Café” to stay competitive in 21st century their strategy should be about performing different activities from rivals or similar activities differently.

Porter’s 3 generic strategies in the book have a few similarities to that of the 3 value disciplines from the paper “Customer Intimacy and Other Value Disciplines”. The generic strategies are overall cost leadership, differentiation, and focus. The value disciplines include operational excellence, customer intimacy, and product leadership.

In 1985 Michael Porter surmised that a market can be subjected into different strategies, thus, three variations of competitive advantage were born. The differentiation strategy is the focus for the purpose of this paper. Furthermore, the differentiation strategy in its most exposed form is a strategy that places prominence toward the brand name and advantage is the prestige that follows. This type of angle draws in a specific high-end consumers which in turn sets its corner of the market apart from its competition. Additionally, in this advantage there is a uniqueness perceived by the consumer, industry wide. The differentiation strategy is distinct in attributes indescribable by price but all the same customers are more than willing to pay a premium for the product or service. Firms that are successful in this advantage are fully equipped with a product development team high in creativity and innovation. Additionally, this strategy is only able to be an advantage if a firm is able to access an unlimited amount of research.

In this part, this report focuses on Porter’s Generic Strategies to analysis the strategic positioning of the major play in toys and games industry. According to Dess, Lumpkin and Eisner 2010, Porter’s Generic Strategies include three strategies which are Differentiation, Focus and Cost leadership which a company can use for achieve competitive advantage and overcome five force.

There are two schools of thought pertaining to how firms should choose the competitive strategy that best suits them. One is of the opinion that firms should choose one of the generic strategies and commit all resources to making it work. Porter belongs to this category. They believe that the value chain necessary for cost leadership is quite different from that of differentiation strategy and that while differentiation deals with better quality, cost leadership deals with lowering costs wherever possible.(DESS and DAVIES 1984) What porter articulated here is that there is need for strategic clarity.

Porter (1980) created a model which considers five important forces (Porters five forces) which aims to establish a profitable and sustainable position against the forces that determine industry competition, therefore position themselves within it and differentiating themselves where necessary in order to strategically gain a competitive advantage - this model gives vision of: Threat of new entrants, Threat of substitute products or services, Bargaining power of customers , Bargaining power of suppliers and Intensity of competitive rivalry (Porter 1980). Using models and academic theory like this allows strategy to be formed through a rational and an analytical process. Chandlers (1962) cited in (Lomash 2003) suggests the analytical process is about the determination of long-term clear goals, adopting actions to achieve these goals and then building the resources within the organization around this strategy in order to ensure it succeeds. Johnson (2005), likewise, simply suggested a three step approach to strategy - analysis, choice and implementation which goes hand-in-hand with intended strategy.

In the text, the author mentions the similarity between Miles & Snow and Porter’s generic typology where the “prospector model in Miles and Snow emphasizes differentiation and the defender business typically emphasizes low cost” (Parnell, 2014, p. 197). Porter’s generic typology has both differentiation and low cost considerations in the model with the focus being based on economic conditions and economic influence. In light of the similarities, the difference between these two business strategies are set in their core beliefs and concepts. Miles and Snow present their four models from a “philosophical” approach to business strategy and display the models benefits through real time explanation. Considering the four conceptual strategies “prospectors, defenders, analyzers, and reactors” the first described as “prospectors” follow “a dynamic uncertain environment and maintain flexibility”, additionally prospectors are known to lead and thrive as a “first mover” (Parnell, 2014). Prospectors tend to not like their environment to change but channel their creativity to design new products for their business. The Porter’s generic typology that is similar is the aspect of product uniqueness or unusual products known as “differentiation strategies” (Parnell, 2014, p.184), and based on the aspect of specificity. In the article, “Strategy Choices of Potential Entrepreneurs” the author explains the benefits of Porter’s three generic models and states that many entrepreneurs employ

To attain competitive gain, organisations can differentiate their merchandise and services from their competitors they can also choose to lower their costs in order to compete with other contenders. By aiming their produces to a wide-ranging target, they are essentially covering most of the marketplace or if they choose, they can decide to concentrate on a narrower target within the market (Lynch 2003). While doing so may reduce their market range it essentially reduces their other competitors. Porter stated that there are three generic strategies that an organisation can follow to achieve competitive gain over other organisations. These are:

Alfred Chandler(1963) defines strategy as ‘ the determination of the long-run goals and objectives of an enterprise and the adoption of courses of action of an enterprise and the adoption of courses of action and the allocation of resources necessary for carrying out these goals’. And Michael porter(1996) sees it as ‘Competitive strategy is about being different. It means deliberately choosing different set of activities to deliver a unique mix of value’.

Competitive strategy is the moves and methods that the firm has taken and is taking to appeal buyers, improve its market position, and to endure competitive pressures. The strategy is about what a firm’s capability to try to knock off competitors and attain competitive advantage, which can be offensive or defensive. There are three approaches to competitive strategy, which are low-cost leadership strategy where struggling to be the overall low-cost manufacturer in the in industry. Moreover, pursuing to distinguish one’s product offering from competitors (differentiation strategy), and the last one is focus or niche strategy where aiming on thin portion of the market rather than the whole market (Porter, 1998).

According to Porter, strategies allow organizations to gain competitive advantage from three different bases: cost leadership, differentiation and focus. Porter calls these bases as generic strategies.

Porter’s generic strategies describe how a company attains competitive advantage across its chosen market scope. There are three generic strategies-cost leadership, differentiation and