In his book, “Competitive Advantage,” in 1985, Porter conceptualized the concept of competitive advantage, by looking at two key aspects. Industry attractiveness, and the company’s strategic positioning. The latter, according to Porter, can be achieved either via cost leadership, differentiation, or focus.
Quick intro do generic strategies
As Porter was trying to conceptualize and break down what determined a competitive advantage for companies within specific industries, Porter created a framework that would stick for decades.
This framework moved along two core sub-frameworks.
One is to determine industry attractiveness (Porter’s five forces).
And another one, also based on the industry attractiveness, determined the strategic positioning (Porter’s generic strategies to gain a competitive advantage).
As he explained in the book, “competition is at the core of the success or failure of firms.”
The whole point for Porter was, through competitive strategy, “to establish a profitable and sustainable position against the forces that determine industry competition.”
Industry attractiveness could be analyzed through five core forces:
Once a company had clear in mind the context and industry, it needed to make a strategic choice, which for Porter, was summarized in three core moves.
Be a cost leader, differentiator, focuser, or die…
Within cost leadership, a company that, for several factors (spanning from economies of scale to operational efficiency) managed to sell a product at a lower price and still make good profit margins, would sustain its long-term competitive advantage, is in a good strategic position.
On the other side, based on a different context, a company could still reach a competitive advantage in a broad market through differentiation.
A third generic strategy that targeted a narrow scope within an industry could also be reached through cost focus or differentiation focus.
There is one scenario that Porter emphasized avoiding: being stuck in the middle.
Getting stuck in the middle
In all the cases in which a company wouldn’t be able to execute one of the generic strategies highlighted by Porter in competitive advantage, this would result in a stuck-in-the-middle scenario where no competitive advantage is created.
Case Studies
Automobile Industry
Porter’s Generic Strategies Application:
- Cost Leadership: Companies like Hyundai and Kia focus on producing vehicles at a lower cost while maintaining acceptable quality standards.
- Differentiation: Luxury brands like Mercedes-Benz or BMW differentiate with high-end features, advanced technology, and brand prestige.
- Focus: Tesla initially employed a focus strategy, targeting the niche electric vehicle market with high-end models like the Roadster, before broadening its range.
Stuck-in-the-Middle Scenario: A car manufacturer attempting to produce luxury vehicles at a low cost might compromise on quality, failing to attract either the luxury or budget market segments.
Fast-food Industry
Porter’s Generic Strategies Application:
- Cost Leadership: Brands like McDonald’s and Burger King emphasize quick service, large volumes, and competitive pricing.
- Differentiation: Chipotle differentiates with a focus on fresh, organic, and locally-sourced ingredients.
- Focus: A vegan fast-food joint might cater specifically to the vegan market with specialized offerings.
Stuck-in-the-Middle Scenario: A fast-food chain attempting to offer gourmet meals at rock-bottom prices might struggle with operational inefficiencies and fail to appeal to either gourmet diners or budget-conscious customers.
Technology Industry
Porter’s Generic Strategies Application:
- Cost Leadership: Companies like Acer or Lenovo offer affordable computing solutions with competitive specs.
- Differentiation: Apple stands out with its unique design, user-friendly interface, and brand appeal.
- Focus: Razer focuses specifically on gamers, offering specialized laptops, peripherals, and software.
Stuck-in-the-Middle Scenario: A tech company producing high-end, luxury smartphones without unique features or brand recognition might struggle to compete against established brands like Apple or Samsung.
Airline Industry
Porter’s Generic Strategies Application:
- Cost Leadership: Budget airlines like Ryanair or EasyJet focus on basic service at low prices.
- Differentiation: Carriers like Emirates or Singapore Airlines offer premium services, luxurious in-flight experiences, and extensive in-flight entertainment.
- Focus: Regional airlines may focus on serving specific geographic areas or niche markets.
Stuck-in-the-Middle Scenario: An airline offering low-cost tickets but with premium services might struggle to maintain profitability or identify its target audience.
Fashion Retail Industry
Porter’s Generic Strategies Application:
- Cost Leadership: Brands like Primark or Walmart’s clothing line focus on producing trendy clothing at affordable prices.
- Differentiation: Gucci or Louis Vuitton emphasize exclusivity, high-quality materials, and brand prestige.
- Focus: A brand might focus specifically on sustainable, eco-friendly fashion, catering to an environmentally-conscious audience.
Stuck-in-the-Middle Scenario: A clothing retailer attempting to sell luxury items in bulk quantities at low prices might struggle to maintain brand prestige or appeal to the luxury market segment.
Beverage Industry
Porter’s Generic Strategies Application:
- Cost Leadership: Generic store brands of sodas or bottled water offer basic beverages at competitive prices.
- Differentiation: Coca-Cola differentiates with its secret formula, global brand recognition, and extensive marketing.
- Focus: A brand like LaCroix targets a niche market with flavored sparkling water without sweeteners or artificial ingredients.
Stuck-in-the-Middle Scenario: A beverage company introducing a high-priced cola without a unique flavor or brand differentiation might struggle to compete against established giants like Coca-Cola or Pepsi.
Publishing Industry
Porter’s Generic Strategies Application:
- Cost Leadership: Companies like Amazon Kindle Direct Publishing allow authors to self-publish at low costs, making e-books available at competitive prices.
- Differentiation: Penguin Random House emphasizes its legacy, the quality of authors it publishes, and its global reach.
- Focus: Hay House Publishers specializes in self-help and transformational books, catering to readers interested in personal development.
Cosmetics Industry
Porter’s Generic Strategies Application:
- Cost Leadership: Brands like e.l.f. Cosmetics offer quality makeup products at affordable price points.
- Differentiation: Sephora differentiates itself by offering a wide variety of high-end brands, exclusive collections, and a unique in-store experience.
- Focus: Fenty Beauty, launched by Rihanna, initially focused on providing a diverse range of foundation shades catering to all skin tones, addressing a gap in the market.
Online Streaming Industry
Porter’s Generic Strategies Application:
- Cost Leadership: Platforms like Tubi or Crackle provide free streaming services, monetized through ads.
- Differentiation: Netflix differentiates with its original content, user-friendly interface, and absence of commercials.
- Focus: Crunchyroll focuses specifically on anime and manga content, catering to a niche audience of anime enthusiasts.
Fitness and Gym Industry
Porter’s Generic Strategies Application:
- Cost Leadership: Planet Fitness markets itself as a low-cost gym with a judgment-free environment.
- Differentiation: Gold’s Gym emphasizes its legacy, high-quality equipment, and commitment to serious fitness.
- Focus: OrangeTheory Fitness provides heart rate-based training focusing on high-intensity interval training (HIIT) workouts, targeting fitness enthusiasts looking for structured, intense workouts.
Coffee Shop Industry
Porter’s Generic Strategies Application:
- Cost Leadership: Dunkin’ emphasizes quick service and competitive prices for its range of coffees and donuts.
- Differentiation: Starbucks differentiates with its unique coffee blends, in-store ambiance, and customer loyalty programs.
- Focus: Blue Bottle Coffee focuses on offering high-quality, freshly roasted coffee, targeting coffee connoisseurs and enthusiasts.
Music Industry
Porter’s Generic Strategies Application:
- Cost Leadership: Platforms like SoundCloud allow emerging artists to upload and share their music for free or at low costs.
- Differentiation: Spotify offers a vast music library, curated playlists, and a personalized music experience with its “Discover Weekly” feature.
- Focus: Tidal, co-owned by Jay-Z and other artists, focuses on providing lossless audio quality and exclusive content, targeting audiophiles and fans seeking exclusive releases.
Key Highlights
- Competitive Advantage Concept: Michael Porter introduced the concept of competitive advantage in his book “Competitive Advantage” in 1985. He emphasized two key aspects: industry attractiveness and strategic positioning.
- Porter’s Generic Strategies: Porter’s generic strategies outline three core moves to achieve competitive advantage: cost leadership, differentiation, and focus. A company can either be a cost leader, offering products at a lower price, or differentiate its products to stand out in the market. Alternatively, it can focus on a narrow market segment with cost focus or differentiation focus.
- Stuck-in-the-Middle Scenario: Porter warns against getting stuck in the middle, where a company fails to execute any of the generic strategies, resulting in no competitive advantage.
- Porter’s Other Strategic Frameworks:
- Porter’s Five Forces: Analyzes industry attractiveness by examining five forces—bargaining power of buyers and suppliers, threat of substitutes, threat of new entrants, and competitive rivalry.
- Porter’s Diamond Model: Explains why certain industries in a nation become internationally competitive, considering factors like strategy, structure, rivalry, factor conditions, demand conditions, and related and supporting industries.
- Porter’s Four Corners Analysis: Helps a business understand its competitive landscape by assessing competitors’ drivers, current strategy, management assumptions, and capabilities.
- Porter’s Value Chain Model: Analyzes a company’s collection of processes to create value for consumers, directly linked to competitive advantage.
Other strategic frameworks by Porter
Porter’s Diamond Model
Porter’s Four Corners Analysis
Porter’s Value Chain Model
Connected Strategy Frameworks
Related Strategy Concepts: Go-To-Market Strategy, Marketing Strategy, Business Models, Tech Business Models, Jobs-To-Be Done, Design Thinking, Lean Startup Canvas, Value Chain, Value Proposition Canvas, Balanced Scorecard, Business Model Canvas, SWOT Analysis, Growth Hacking, Bundling, Unbundling, Bootstrapping, Venture Capital, Porter’s Five Forces, Porter’s Generic Strategies, Porter’s Five Forces, PESTEL Analysis, SWOT, Porter’s Diamond Model, Ansoff, Technology Adoption Curve, TOWS, SOAR, Balanced Scorecard, OKR, Agile Methodology, Value Proposition, VTDF
Main Free Guides: