Porter's generic strategies are a popular tool businesses use to gain a competitive advantage in their respective markets. Developed by Harvard Business School professor Michael Porter, the model outlines four primary strategies companies can use to remain competitive and succeed: cost leadership, cost focus, differentiation, and differentiation focus. Each of these strategies is designed to help organizations identify their strengths and weaknesses and capitalize on them while minimizing any potential weaknesses.
Cost leadership involves providing a product or service at the lowest price compared to competitors; cost focus involves developing a niche market in which the organization can provide superior value at a lower price than competitors; differentiation entails offering products or services that are unique and stands out from those of other companies; and differentiation focus involves creating a specialized market in which an organization provides superior value through its offerings.
Companies must select the strategy that best fits their business model to remain competitive. Each of the four strategies has its own benefits and drawbacks, so it is important to consider the strengths and weaknesses of each before committing to a particular one.
Cost leadership strategy may be attractive to companies looking to cut costs and maximize profits; however, it can also lead to the reduced quality or customer service if the company is not able to maintain its low price.
Cost focus strategy may be attractive for companies that are looking to target a specialized market, but it can also lead to increased competition as other organizations attempt to enter the same niche.
Differentiation strategy involves offering unique products and services that set an organization apart from competitors, but it can lead to higher costs if the organization is unable to capitalize on its uniqueness.
Finally, differentiation focus strategy involves offering specialized services at a premium price and can be attractive to companies looking to target a niche market; however, it can also lead to increased competition if other organizations attempt to enter the same market.