Explain the four generic strategies according to Porter (1985)

Answer:

According to Porter (1985), there are four generic strategies. 

They are:
· Cost leadership
· Focused cost leadership
· Differentiation
· Focused differentiation

Market Coverage		Basis of Product performance
	Cost Leadership	Superior Performance
Mass Market	Cost Leadership	Differentiation
Niche Market	Focussed Cost Leadership	Focused Differentiation

Figure: Porter’s Four Strategy Options Matrix

 
Cost leadership strategy is based on exploiting some aspects of the production process, which can be executed at a cost significantly lower than that of competitors. There can be various sources of this cost advantage:

· Lower input costs (e.g., the price paid by New Zealand timber mills for the logs produced by the country’s highly efficient forestry industry or cheap source of high quality bauxite for National Aluminium Company (NALCO) in India from its mines)

 
· In-plant production cost s, (e.g., lower labour costs enjoyed by Japanese companies locating their video assembly operations in Thailand).

 
· Lower delivery cost because of proximity of key markets, (e.g., the practice of major beer producers in Europe to locate micro-breweries in or around major metropolitan cities).

Focused cost leadership exploits the same advantages as in cost leadership strategy, but the company occupies a specific niche or niches serving only a part of the total market.

 
For example horticulture enterprise, which operates an onsite farm shop, offers low-priced fresh vegetables to the inhabitants in the immediate neighbourhood area.

Differentiation strategy is based on offering superior performance, and Porter argues that this is a ‘high scale advantage’ because, first, the producer can usually command a premium price for its product and, second, competitors are less of a threat, because to be successful, they must be able to offer an even higher performance product.

Focused differentiation, which is typically a strategy of smaller and most specialist companies, is also based on superior performance. 

The only difference is that in this strategy, a company specializes in serving the needs of a specific market or markets. For e.g. the Cray Corporation supplies ‘super computers’ to the aerospace and defence industries.