Implementing Porter's Generic Strategies
Michael Porter described three strategic options available to firms at the business level: overall cost leadership, differentiation, and focus strategies.
Pure cost leadership strategies focus on those variables that will allow the firm to achieve and maintain a low cost position. An organization implements an overall cost leadership strategy when it attempts to gain a competitive advantage by reducing its costs below the costs of competing firms.
The tasks associated with the cost strategy variables focus mostly upon the internal operations of the business, emphasizing the productive employment of capital and human resources. A cost strategy requires attention to operational details.
For example, it focuses on simple products attributes and how these product meet customers needs in a low-cost and effective manner. In general, an organization that chosen a cost leadership strategy sells a mass-produced product to large members of customers and provide strong incentives to its salespeople to increase the volume of sales.
Conversely, a business with a pure differentiation strategy attempts to enhance the price component of the profit quation by offering customer something they perceive as unique and for which they are willing to pay a higher price. An organization implements a differentiation strategy when it seeks to distinguish itself from competitors through the high quality of its products or services.
This strategy incorporates variables dealing principally with the business' environment. The products and services must be designed to meet unique customer needs. Quality, product performance, perceived quality, and new technical features added are more important components of the marketing effort that is a concern for low price.
An organization implements a focus strategy when it uses either a differentiation strategy or an overall cost leadership focus strategy in a particular market segment or geographic area. The organization functions that support a differentiation focus strategy or a cost leadership focus strategy are the same as those summarized in Table 1-2.