Briefly describe the three generic strategies—cost leadership, differentiation, and focus—and discuss the pitfalls associated with each of the three generic strategies.
Porter’s (1980) put forward three generic strategies i.e. cost leadership, differentiation and focus which he suggested to be useful in securing a sustainable competitive advantage. Following is a brief of these generic strategies.
The main aim of this type of strategy is to be a leader in the market with respect to low cost for both production and/or distribution in relation to other organizations in the same industry. The reduction of costs is carried out at almost all levels like labor costs, raw material costs, and operational costs and so on. The disadvantage of this strategy is that it may get the costs even below the sustainable levels.
This strategy is aimed at making a business completely different from competitors. This may involve strategies like new packaging, new kind of unique products that have never touched a market and so on. Differentiation strategies may fire back if the response from the customers is very low.
This strategy involves a focus on only one segment of the market and spending most of the energies on this specific segment to get a competitive edge. This strategy may make an organization well known for a specific product or among a specific market segment. This is one of the this strategy as the product or the company may become specific to this specific market segment and lose the trust and loyalty of other segments of the consumer market.