Generic Business

Strategies
Given by Michael E. Porter in
1980’s
 Porter’s generic business strategies
Competitive

Broad
Cost leadership Differentiation
target
Scope

Focussed cost Focussed

Narrow leadership differentiation
target

Low-cost
products/services Differentiated
products/services

Competitive Advantage
 Business strategies can be classified
into the following three types:


Ø Cost leadership (lower cost/broad target)

Ø Differentiation (differentiation/broad target)
Ø Focus (lower cost or differentiation/narrow
target)
 1. Cost Leadership Business
Strategy

Ø When the competitive advantage of an

organization lies in its lower cost of products
or services relative to what the competitors
have to offer, it is termed as cost leadership.

 Example:
1. Gujarat Co-operative Milk Marketing Federation
(GCMMF):


Ø It is the country’s largest co-operative, known better by its brand

name Amul, operates in the branded ice cream market on the
lower cost platform.
Ø It has a large co-operative dairy network located across the
country and an efficient supply chain in place for procurement
of high quality milk.
Ø Besides these, it has developed a cold chain of supplying its
refrigerated products through an efficient distribution network.
Ø In this way, Amul ice-cream can be found just about everywhere,
including STD booths, kirana shops, chemists and bakers, who
stock the ice-cream in deep freezers.
 Example:
2. Reliance Communications (R Comm) was the first
mover in 2003, to offer ultra-low cost mobile
phones at a price of Rs. 501.
Ø Its Classic monochrome range of handsets at Rs.
777 was quite successful as the company claims
to have sold 10 lakh sets within a week of its
launch.
Ø These phones are manufactured for the company
by several suppliers and are meant as entry-
level handsets in semi-urban and rural areas,
operating on the CDMA platform.
 Achieving Cost Leadership
Ø Accurate demand forecasting and high capacity utilization is
essential to realize cost advantage.
Ø Attaining economies of scale leads to lower per unit cost of
product/service.
Ø High level of standardization of products and offering uniform
service packages using mass production techniques, yield
lower per unit costs.
Ø Investments in cost saving technologies can help an organization
to squeeze every extra paisa out of the cost, making the
product/service competitive in the market.
Ø Withholding differentiation till it becomes absolutely necessary in
another way to realize cost based competitiveness.
 2. Differentiation Business
Strategy
Ø When the competitive advantage of an
organization lies in special features
incorporated into the product/service
which is demanded by the customers,
who are willing to pay for it, then the
strategy adopted is the differentiation
business strategy.
 Example:
1. Orient Fans:
Ø A company, the Calcutta-based C.K. Birla group,
offers premium ceiling fans based on superior
technology and product innovation and is a major
exporter to many global buyers including Wal-
Mart of the USA.
Ø The product attributes for differentiation are extra-
wide blades, heavy duty motor, high velocity and
maximum area coverage.
 Example:
2. Frooti:


 Packaging became the differentiator for Parle

Agro when, in 1985, it launched Frooti, a non-
aerated natural fruit-based drink, in tetra pack.
 Achieving Differentiation
Ø An organization can incorporate features that offer
utility for the customer and match her tastes and
preferences.
Ø An organization can incorporate features that lower
the overall cost for the buyer in using the product/
service.
Ø An organization can incorporate features that raise
the performance of the product.
Ø An organization can incorporate features that can
offer the promise of a high quality of
product/service.
 3. Focus Business Strategy
Ø Focus business strategies essentially rely on either cost
leadership or differentiation, but cater to a narrow
segment of the total market.
Ø In terms of the market, focus strategies are niche
strategies.
Ø The more commonly used bases for identifying customer
groups are the demographic characteristics (age,
gender, income, occupation, etc.), geographic
segmentation (rural/urban or Northern/Southern India)
or lifestyle (traditional/ modern)
Ø For the identified market segment, a focused
organization uses either the lower cost or
differentiation strategy.
 Example
1. Titan industries :
Ø The Branded jewellary business of titan industries
operates in a highly fragmented industry.
Ø Tanishq, the jewellary brand of titan, adopts a
differentiation strategy offering a range of gold, pearl
and diamond jewellary for women and men treating
jewellary as fashionable items rather than an
investment.
Ø Designs are made on the basis of continual
feedback from its extensive retail network of
showrooms.
Ø New designs are introduced every quarter.



 Example
2. Recorded music
Ø Price is an important consideration in a piracy
ridden industry in India such as recorded music.
Ø Niches in the recorded music market exists in the
segments of Indipop, international and Indian
classical music.
Ø Various companies operate in the recorded music
business like T-Series, HMV, Sony, Magna sound,
times Music and so on.
Ø All these companies operate on the basis of
differentiation niche products and premium prices.
 Example
3. Phillips India Limited
Ø Launch the flat TV with the plasma technology
that enables the distortion free pictures and bright,
accurate colors, fitted with an integrated Dolby pro-
logic sound system.
Ø The Premium priced TV with differentiation on
technology basis was targeted at the niche market of
selective, sophisticated, technology driven audience.
 Achieving Focus
Ø Choosing specific niches by identifying gaps not covered
by cost leaders and differentiator.
Ø Creating superior skills for catering to such niche market.
Ø Creating superior efficiency for serving such niche
markets.
Ø Achieving lower cost/ differentiation as compared to
competitor in serving such niche markets.
 Four stages of industry lifecycle

Ø Embryonic stage
Ø Growth stage
Ø Maturity stage
Ø Declining stage

 Embryonic stage
Ø Investment and capital needs are highest as the industry
has just started.
Ø Returns are low and uncertain.
Ø Companies are first movers and fast followers who have
to generate capital internally or attract outside capital
usually from venture capitalists.
Ø Technology is yet unproven and not standardized.
Ø Demand is being established, customer lack information
and are hesitant to try out new products or services.
Ø Business models are unproven, business uncertainty is
high and managerial decisions involve high risks.

 Growth stage
Ø Investment and capital needs decrease but gradually.
Ø Returns are high.
Ø Technology gains a firm footing and standardization
increases.
Ø Demand is established, customer gain information and
learn to differentiate between the product offerings.
Ø Business models take shape and business is on more
secure footing and managerial decisions involve
moderate risks.
Ø Market share of incumbent company increases, new
basis for market segmentation emerge.



 Maturity stage
Ø Investment and capital decrease significantly.
Ø Returns are lower and stabilize.
Ø Technology developments are few and standardization is
high.
Ø Demand is stable, customers are well aware of the
options available and have learnt to choose and
differentiate.
Ø Business models are well established.
Ø Market shares of companies are steady and jealously
guarded.
Ø Industry gets consolidated and is dominated by a small
number of large companies.



 Decline stage
Ø Investment and capital practically cease.
Ø Returns decline
Ø Technology developments become superfluous.
Ø Demand shrinks and it becomes difficult to attract new
customers.
Ø Products tend to become commodities and lose their
brand power.
Ø Market shares reduce in size as industry demand
shrinks.
Ø Industry faces movement of firms through retrenchment
strategies.



Business strategies for different industry
conditions

Stages Strategies

Embryonic stage Develop competencies and build

market share
Growth stage Low cost or differentiation

Maturity Stage Cost leadership, differentiation and

focus
Decline Stage Low cost