Strategies, generic
DESCRIPTION
Logical frameworks endorsed by firms which are definable according to dimensions of strategic scope and strategic strength.
Logical frameworks endorsed by firms which are definable according to dimensions of strategic scope and strategic strength.
KEY INSIGHTS
Put forth by Porter (1980), strategic scope looks at the size and composition of the market the firm intends to target from a demand-side perspective, whereas strategic strength looks at the strengths or core competencies of the firm from a supply-side perspective. Types of generic strategies in marketing can be said to include a product differentiation strategy, a cost leadership strategy, and a focus/market segmentation strategy, where the first two are broad in market scope and where the focus strategy has a narrow target market focus. Each strategy has its own direction, conditions, and implications for an organization’s objectives. For example, a product differentiation strategy would focus on producing a product that is unique and providing superior value to customers. As customers perceive its uniqueness and value, it is unrivaled by competitors and creates brand loyalty, unaffected by the price. A cost leadership strategy would focus on large-volume production of a standardized product, relying on economies of scale to achieve efficiency. The product is usually basic, addressing a large customer base, and the firm’s reduced cost results in a lower price that differentiates it in the market. It requires heavy investments to produce large volume and good relationships with suppliers. A market segmentation strategy, also called a focus or niche strategy, would require the firm to focus on only a few selected target markets. It seeks to identify and meet the specific needs of one or two market segments, tailoring appropriate marketing mix plans for each, focusing on effectiveness rather than efficiency.
Put forth by Porter (1980), strategic scope looks at the size and composition of the market the firm intends to target from a demand-side perspective, whereas strategic strength looks at the strengths or core competencies of the firm from a supply-side perspective. Types of generic strategies in marketing can be said to include a product differentiation strategy, a cost leadership strategy, and a focus/market segmentation strategy, where the first two are broad in market scope and where the focus strategy has a narrow target market focus. Each strategy has its own direction, conditions, and implications for an organization’s objectives. For example, a product differentiation strategy would focus on producing a product that is unique and providing superior value to customers. As customers perceive its uniqueness and value, it is unrivaled by competitors and creates brand loyalty, unaffected by the price. A cost leadership strategy would focus on large-volume production of a standardized product, relying on economies of scale to achieve efficiency. The product is usually basic, addressing a large customer base, and the firm’s reduced cost results in a lower price that differentiates it in the market. It requires heavy investments to produce large volume and good relationships with suppliers. A market segmentation strategy, also called a focus or niche strategy, would require the firm to focus on only a few selected target markets. It seeks to identify and meet the specific needs of one or two market segments, tailoring appropriate marketing mix plans for each, focusing on effectiveness rather than efficiency.
KEYWORDS Strategic frameworks, cost leadership, focus, product differentiation
IMPLICATIONS
Each of the generic strategies entails different costs, skills, and resources. Differentiation strategy may dictate a premium pricing approach due to the high R&D costs involved, and it requires skills, creativity and a strong R&D department in the firm. To maintain cost leadership strategy, the firm has to seek all possible cost reductions in all business aspects, with a considerable market share advantage and preferential access to resources, such as material, labour, and other process inputs. Losing on such advantages can subject it to being copied by competitors. Market segmentation strategy entails finding target segments least approached by competitors and, as such, is often suitable for smaller firms, although it can be used by any firm. Generic strategies have received criticism on the basis of their lack of specificity, flexibility, and having a limiting approach. Some firms move between strategies along their growth and development.
Each of the generic strategies entails different costs, skills, and resources. Differentiation strategy may dictate a premium pricing approach due to the high R&D costs involved, and it requires skills, creativity and a strong R&D department in the firm. To maintain cost leadership strategy, the firm has to seek all possible cost reductions in all business aspects, with a considerable market share advantage and preferential access to resources, such as material, labour, and other process inputs. Losing on such advantages can subject it to being copied by competitors. Market segmentation strategy entails finding target segments least approached by competitors and, as such, is often suitable for smaller firms, although it can be used by any firm. Generic strategies have received criticism on the basis of their lack of specificity, flexibility, and having a limiting approach. Some firms move between strategies along their growth and development.
APPLICATION AREAS AND FURTHER READINGS
Marketing Strategy
Zajac, E., and Shortell, S. M. (1989). ‘Changing Generic Strategies: Likelihood, Direction, and Performance,’ Strategic Management Journal, 10, 413–430.
Zajac, E., and Shortell, S. M. (1989). ‘Changing Generic Strategies: Likelihood, Direction, and Performance,’ Strategic Management Journal, 10, 413–430.
Murray, A. (1988). ‘A Contingency View of Porter’s “Generic strategies,” ’ Academy of Management Review, 13(3), 390–400.
Karnani, A. (1984). ‘Generic Competitive Strategies: An Analytical Approach,’ Strategic Management Journal, 5, 367–380.
Dess, Gregory G., and Davis, Peter S. (1980). ‘Porter’s (1980) Generic Strategies as Determinants of Strategic Group Membership and Organizational Performance,’ Academy of Management Journal, 27(3), September, 467–488.
Glazer, Rashi (1991). ‘Marketing in an Information-Intensive Environment: Strategic Implications of Knowledge as an Asset,’ Journal of Marketing, 55(4), October, 1–19.
International Marketing
Kim, Linsu, and Lim, Y. (1988). ‘Environment, Generic Strategies, and Performance in a Rapidly Developing Country,’ Academy of Management Journal, 31, 802–827.
Kim, Linsu, and Lim, Y. (1988). ‘Environment, Generic Strategies, and Performance in a Rapidly Developing Country,’ Academy of Management Journal, 31, 802–827.
Szymanski, David M., Bharadwaj, Sundar G., and Varadarajan, P. Rajan (1993). ‘Standardization versus Adaptation of International Marketing Strategy: An Empirical Investigation,’ Journal of Marketing, 57(4), October, 1–17.
Marketing Research
Wind, Yoram, and Robertson, Thomas S. (1983). ‘Marketing Strategy: New Directions for Theory and Research,’ Journal of Marketing, 47(2), Spring, 12–25.
Wind, Yoram, and Robertson, Thomas S. (1983). ‘Marketing Strategy: New Directions for Theory and Research,’ Journal of Marketing, 47(2), Spring, 12–25.
Small Businesses
Lee, K. S., Lim, G. H., and Tan, S. J. (1999). ‘Dealing with Resource Disadvantage: Generic Strategies for SMEs,’ Small Business Economics, 12(4), 299–311.
Lee, K. S., Lim, G. H., and Tan, S. J. (1999). ‘Dealing with Resource Disadvantage: Generic Strategies for SMEs,’ Small Business Economics, 12(4), 299–311.
BIBLIOGRAPHY
Porter, M. E. (1980). Competitive Strategy. New York: Free Press.
Porter, M. E. (1980). Competitive Strategy. New York: Free Press.