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Porter's generic strategies
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==Concept== Porter wrote in 1980 that strategy targets either [[cost leadership]], [[differentiation (economics)|differentiation]], or focus.<ref name="Porter1980"/> These are known as his three generic strategies, which can be applied to any size or form of business. Porter claimed that a company must only choose one of the three or risk that the business would waste precious resources. Porter's generic strategies detail the interaction between cost minimization strategies, product differentiation strategies, and market focus strategies of firms.<ref name="Porter1980">{{cite book | last = Porter | first = Michael E. | year = 1980 | title = [[Competitive Strategy]] | publisher = Free Press | isbn = 0-684-84148-7}}</ref> Michael Porter described an industry as having multiple ''segments'' that can be targeted by a firm. The breadth of its targeting refers to the ''competitive scope'' of the business. Porter defined two types of ''competitive advantage'': lower cost or differentiation relative to its rivals. Achieving competitive advantage results from a firm's ability to cope with the five forces better than its rivals. Porter wrote: "Achieving competitive advantage requires a firm to make a choice ... about the type of competitive advantage it seeks to attain and the scope within which it will attain it." He also wrote: "The two basic types of competitive advantage [differentiation and lower cost] combined with the scope of activities for which a firm seeks to achieve them lead to three ''generic strategies'' for achieving above average performance in an industry: cost leadership, differentiation and focus. The focus strategy has two variants, cost focus and differentiation focus."<ref name="Porter1985"/> In general: *If a firm is targeting customers in most or all segments of an industry based on offering the lowest price, it is following a cost leadership strategy; *If it targets customers in most or all segments based on attributes other than price (e.g., via higher product quality or service) to command a higher price, it is pursuing a differentiation strategy. It is attempting to differentiate itself along these dimensions favorably relative to its competition. It seeks to minimize costs in areas that do not differentiate it, to remain cost competitive; or *If it is focusing on one or a few segments, it is following a focus strategy. A firm may be attempting to offer a lower cost in that scope (cost focus) or differentiate itself in that scope (differentiation focus).<ref name="Porter1985">{{cite book | last = Porter | first = Michael E. | year = 1985 | title = [[Competitive Advantage]] | publisher = Free Press | isbn = 0-684-84146-0}}</ref> [[Image:Michael Porter's Three Generic Strategies.svg|thumb|542x542px|Michael Porter's three generic strategies|center]]The concept of choice was a different perspective on strategy, as the 1970s [[paradigm]] was the pursuit of market share (size and scale) influenced by the [[experience curve]]. Companies that pursued the highest market share position to achieve cost advantages fit under Porter's cost leadership generic strategy, but the concept of choice regarding differentiation and focus represented a new perspective.<ref name="LOS2010">{{cite book | last = Kiechel | first = Walter | year = 2010 | title = [[The Lords of Strategy]] | publisher = Harvard Business Press | isbn = 978-1-59139-782-3}}</ref> Porter stressed the idea that only one strategy should be adopted by a firm and failure to do so will result in the "stuck in the middle" scenario shown above.<ref name="Porter, M.E. 1980">Porter, M.E., "Competitive Strategy: Techniques for analyzing industries and competitors" New York: The Free Press (1980)</ref> He discussed the idea that practising more than one strategy will lose the entire focus of the organization: hence clear direction of the future trajectory could not be established. The argument is based on the fundamental that differentiation will incur costs to the firm which clearly contradicts with the basis of low cost strategy and on the other hand relatively standardised products with features acceptable to many customers will not carry any differentiation<ref>Panayides, "Unknown" (2003)</ref> hence, cost leadership and differentiation strategy will be mutually exclusive.<ref name="Porter, M.E. 1980"/> Two focal objectives of low cost leadership and differentiation clash with each other resulting in no proper direction for a firm.
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