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Porter's generic strategies detail the interaction between cost minimization strategies, product differentiation strategies, and market focus strategies of firms. [1] Michael Porter described an industry as having multiple segments that can be targeted by a firm.
A differentiation advantage is gained when a business's products or services are different from its competitors. In his book, Michael Porter recommended making those goods or services attractive to stand out from their competitors. [15] The business will need strong research, development, and design thinking to create innovative ideas.
Michael Porter defined the two ways in which an organization can achieve competitive advantage over its rivals: cost advantage and differentiation advantage. Cost advantage is when a business provides the same products and services as its competitors, albeit at a lesser cost.
A graphical representation of Porter's five forces. Porter's Five Forces Framework is a method of analysing the competitive environment of a business. It draws from industrial organization (IO) economics to derive five forces that determine the competitive intensity and, therefore, the attractiveness (or lack thereof) of an industry in terms of its profitability.
Michael Porter's Three Generic Strategies. Porter wrote in 1980 that strategy target either cost leadership, differentiation, or focus. [17] These are known as Porter's three generic strategies and can be applied to any size or form of business.
However, a generic strategy of differentiation popularized by Michael Porter (1980) proposed that differentiation is any product (tangible or intangible) perceived as “being unique” by at least one set of customers. Hence, it depends on customers' perception of the extent of product differentiation.
Porter's Three Generic Strategies. In 1980, Michael Porter developed an approach to strategy formulation that proved to be extremely popular with both scholars and practitioners. The approach became known as the positioning school because of its emphasis on locating a defensible competitive position within an industry or sector.
In his book Competitive Strategy, Michael Porter stated that there are only two basic competitive advantages, and thus only two main generic strategies: cost leadership and differentiation, and further, that attempts to achieve both at once will result in doing neither well. [10] Porter assumes a tradeoff between quality and price. [11]