Generic Strategies Porter\'s Generic Strategies Began Life

Generic Strategies

Porter's generic strategies began life as a matrix grid featuring low cost and differentiation strategies, which could either be mass market or niche in nature (QuickMBA, 2010). A fifth strategy, hybrid, has been hypothesized by some, noting that there are instances where a firm could be argued to practice some combination of differentiation and low cost.

The Swatch Watch has a differentiated strategy. While not a high end watch, it does have a strong brand, with a unique brand proposition.

The McDonalds Value Meal is essentially a hybrid. All McDonalds product is low cost by the definition of its industry, and the value meal accents the low cost element. However, McDonalds has a high level of differentiation within its industry. It has a healthy 20% net margin, which indicates that it does not follow a true cost leadership strategy -- it could cut prices quite a bit more than it does. Still, the company emphasizes efficiency and cost control, and does have products like the Value Meal that compete heavily on cost leadership.

Starbucks operates with a differentiation strategy, pricing above its competitors and positioning its products are premium within that framework.

Subaru is a differentiated provider. The company's cars are positioned in the middle range, not the cheapest in the industry, but of fair quality. Brand and quality differentiation are weak -- it is not executing well -- but this is their strategy. Branding tends to be focused on lifestyle, which is another hallmark of many differentiated producers (Nudd, 2013).

University of Phoenix online degrees offer a differentiated product. The school markets itself on a number of bases, including its convenience and customer service. These are traits normally associated with a differentiated product. UofPhoenix uses non-traditional approaches because it seeks a non-traditional student body. The school would be niche in that respect but it has one of the highest enrollments of any university, so that moves it out of the niche strategy.

Dick's Sporting Goods has a differentiated strategy. The company has a large number of stores, and it maintains healthy margins, which indicates that it is not competing on price. Location and selection appear to be hallmarks of Dick's brand proposition.

Lenscrafter is also competing as a differentiated player. They have a large number of stores, and market their brand on the basis of consistent product/service offering. They are similar to Dicks in their strategy.

Wal-Mart is a classic hybrid competitor. The company has a broad target market, but it competes both as a cost leader and as a differentiated product. The company touts its low prices, and emphasizes supply chain excellence as a means of delivering low prices. But like with McDonalds, Wal-Mart also places significant emphasis on its brand, including service, a vast selection and online options. This pulls it away from a classic cost leader and more into the hybrid strategy.

Tide is a differentiated player, using its branding to convey superior product quality and charge a premium price.

Lost here is the niche player. True niche companies are not household names -- your local microbrewery is a niche player, for example, and your local roaster is the niche counterpart to Starbucks. By the time a company is a household name, it has too big a market to truly be considered a niche player.

Discussion 5. The multidomestic strategy is really the only logical one for beer. There are two factors at work here. The first is that beer is heavy -- it is mostly water, so it costs a lot to ship. There are a couple of brands that ship beer all over the world (Corona in particular) but most of the rest rely on local production. The second factor is that local sells, and every part of the world has a local beer brand. A global strategy could be adopted, but the problem is that it requires a high level of investment, in addition to coordination, and there is still no guarantee of success. For every Corona or Heineken that has succeeded with a global strategy, there are dozens of brands that have failed to take hold because of the immense cost and challenges of marketing a beer across dozens of cultures. Most of the world's global brewers have utilized a multidomestic strategy - take a look at the "Brands" page of the SAB Miller website to see it in action (SABMiller, 2014).

DF 6. It's not really diversification when you are getting tied up with a competitor. There were cultural clashes between the leadership of these two companies, and ultimately their product lines were not complementary. There was simply no synergistic value to the deal in the first place (No author, 2014). When there's no market upside, the costs of the merger in terms of bringing together two very different organizations is enough to scuttle the deal.

DF 7. Marriott is an example of strategic diversification. There are two reasons why this is. The first is that many of these businesses are quite similar operationally. Institutional food services, airline catering and running hotels all have the same core food skills; those hotel skills are then used across many types of hotels. The second is customer synergy. When you run hotels, you deal with travelers a lot, therefore you understand that market well enough to sell them things like travel operations, credit cards and time shares. Both the food and travel businesses are related to the core hotel business that Marriott started with, so this is strategic diversification. The big difference is that while the food side is mostly operational in its synergies, the travel side is mostly the same types of customers, so there are different value chain strengths being leveraged in these two strategic directions.