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Porter'sGenericStrategiesIftheprimarydeterminantofafirm'sprofitabilityistheattractivenessoftheindustryinwhichitoperates,animportantsecondarydeterminantisitspositionwithinthatindustry.Eventhoughanindustrymayhavebelow-averageprofitability,afirmthatisoptimallypositionedcangeneratesuperiorreturns.Afirmpositionsitselfbyleveragingitsstrengths.MichaelPorterhasarguedthatafirm'sstrengthsultimatelyfallintooneoftwoheadings:costadvantageanddifferentiation.Byapplyingthesestrengthsineitherabroadornarrowscope,threegenericstrategiesresult:costleadership,differentiation,andfocus.Thesestrategiesareappliedatthebusinessunitlevel.Theyarecalledgenericstrategiesbecausetheyarenotfirmorindustrydependent.ThefollowingtableillustratesPorter'sgenericstrategies:Porter'sGenericStrategiesTargetScopeAdvantageLowCostProductUniquenessBroad(IndustryWide)CostLeadershipStrategyDifferentiationStrategyNarrow(MarketSegment)FocusStrategy(lowcost)FocusStrategy(differentiation)CostLeadershipStrategyThisgenericstrategycallsforbeingthelowcostproducerinanindustryforagivenlevelofquality.Thefirmsellsitsproductseitherataverageindustrypricestoearnaprofithigherthanthatofrivals,orbelowtheaverageindustrypricestogainmarketshare.Intheeventofapricewar,thefirmcanmaintainsomeprofitabilitywhilethecompetitionsufferslosses.Evenwithoutapricewar,astheindustrymaturesandpricesdecline,thefirmsthatcanproducemorecheaplywillremainprofitableforalongerperiodoftime.Thecostleadershipstrategyusuallytargetsabroadmarket.Someofthewaysthatfirmsacquirecostadvantagesarebyimprovingprocessefficiencies,gaininguniqueaccesstoalargesourceoflowercostmaterials,makingoptimaloutsourcingandverticalintegrationdecisions,oravoidingsomecostsaltogether.Ifcompetingfirmsareunabletolowertheircostsbyasimilaramount,thefirmmaybeabletosustainacompetitiveadvantagebasedoncostleadership.Firmsthatsucceedincostleadershipoftenhavethefollowinginternalstrengths:Accesstothecapitalrequiredtomakeasignificantinvestmentinproductionassets;thisinvestmentrepresentsabarriertoentrythatmanyfirmsmaynotovercome.Skillindesigningproductsforefficientmanufacturing,forexample,havingasmallcomponentcounttoshortentheassemblyprocess.Highlevelofexpertiseinmanufacturingprocessengineering.Efficientdistributionchannels.Eachgenericstrategyhasitsrisks,includingthelow-coststrategy.Forexample,otherfirmsmaybeabletolowertheircostsaswell.Astechnologyimproves,thecompetitionmaybeabletoleapfrogtheproductioncapabilities,thuseliminatingthecompetitiveadvantage.Additionally,severalfirmsfollowingafocusstrategyandtargetingvariousnarrowmarketsmaybeabletoachieveanevenlowercostwithintheirsegmentsandasagroupgainsignificantmarketshare.DifferentiationStrategyAdifferentiationstrategycallsforthedevelopmentofaproductorservicethatoffersuniqueattributesthatarevaluedbycustomersandthatcustomersperceivetobebetterthanordifferentfromtheproductsofthecompetition.Thevalueaddedbytheuniquenessoftheproductmayallowthefirmtochargeapremiumpriceforit.Thefirmhopesthatthehigherpricewillmorethancovertheextracostsincurredinofferingtheuniqueproduct.Becauseoftheproduct'suniqueattributes,ifsuppliersincreasetheirpricesthefirmmaybeabletopassalongthecoststoitscustomerswhocannotfindsubstituteproductseasily.Firmsthatsucceedinadifferentiationstrategyoftenhavethefollowinginternalstrengths:Accesstoleadingscientificresearch.Highlyskilledandcreativeproductdevelopmentteam.Strongsalesteamwiththeabilitytosuccessfullycommunicatetheperceivedstrengthsoftheproduct.Corporatereputationforqualityandinnovation.Therisksassociatedwithadifferentiationstrategyincludeimitationbycompetitorsandchangesincustomertastes.Additionally,variousfirmspursuingfocusstrategiesmaybeabletoachieveevengreaterdifferentiationintheirmarketsegments.FocusStrategyThefocusstrategyconcentratesonanarrowsegmentandwithinthatsegmentattemptstoachieveeitheracostadvantageordifferentiation.Thepremiseisthattheneedsofthegroupcanbebetterservicedbyfocusingentirelyonit.Afirmusingafocusstrategyoftenenjoysahighdegreeofcustomerloyalty,andthisentrenchedloyaltydiscouragesotherfirmsfromcompetingdirectly.Becauseoftheirnarrowmarketfocus,firmspursuingafocusstrategyhavelowervolumesandthereforelessbargainingpowerwiththeirsuppliers.However,firmspursuingadifferentiation-focusedstrategymaybeabletopasshighercostsontocustomerssinceclosesubstituteproductsdonotexist.Firmsthatsucceedinafocusstrategyareabletotailorabroadrangeofproductdevelopmentstrengthstoarelativelynarrowmarketsegmentthattheyknowverywell.Somerisksoffocusstrategiesincludeimitationandchangesinthetargetsegments.Furthermore,itmaybefairlyeasyforabroad-marketcostleadertoadaptitsproductinordertocompetedirectly.Finally,otherfocusersmaybeabletocarveoutsub-segmentsthattheycanserveevenbetter.ACombinationofGenericStrategies-StuckintheMiddle?Thesegenericstrategiesarenotnecessarilycompatiblewithoneanother.Ifafirmattemptstoachieveanadvantageonallfronts,inthisattemptitmayachievenoadvantageatall.Forexample,ifafirmdifferentiatesitselfbysupplyingveryhighqualityproducts,itrisksunderminingthatqualityifitseekstobecomeac