Describe Porter's Framework and the Four Resulting Generic Business Strategies

question 178

Essay

Describe Porter's framework and the four resulting generic business strategies.
E. Porter developed a framework in which he identifies four basic, or "generic," strategies. A generic business strategy is one that can be adopted by any firm, regardless of the product or industry involved, to achieve a competitive advantage. In Porter's framework, the columns identify the two fundamental alternatives firms can use in seeking competitive advantage: (1) becoming the low-cost producer within the markets in which it competes or (2) differentiating itself from competitors by developing points of difference in its product offerings or marketing programs. The rows identify the competitive scope: (1) a broad target by competing in many market segments or (2) a narrow target by competing in only a few segments or even a single segment. These columns and rows result in four generic business strategies.: (1) Cost leadership strategy focuses on reducing expenses and, in turn, lowers product prices while targeting a broad array of market segments. (2) Differentiation strategy requires products to have significant points of difference in product offerings, brand image, higher quality, advanced technology, or superior service to charge a higher price while targeting a broad array of market segments. (3) Cost focus strategy involves controlling expenses and, in turn, lowering product prices targeted at a narrow range of market segments. (4) Differentiation focus strategy requires products to have significant points of difference to target one or only a few market segments.

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Definitions:

Sale

The act of selling a product or service in exchange for money or other compensation.

Equity Securities

Financial instruments that represent ownership interest in a company, such as stocks.

Significant Influence

The power to participate in the financial and operating policy decisions of an investment but is not control or joint control of those policies.

Voting Stock

Shares that grant the holder the right to vote on company matters, such as electing the board of directors.