Porter’s Generic Competitive Strategies for Startups
In 1980, business scholar Michael Porter wrote about the concept of three “generic strategies” when it comes to the competitive landscape:cost leadership,differentiation, andfocus. Porter stated that an organization should choose one of three ways of doing business. They can offer the lowest price, create the most unique and highly desirable product, or focus on a highly specific need and create a niche market.
His philosophy became known as Porter’s Generic Competitive Strategies, and it’s still being utilized by many companies today. In this post, we’ll take a look at the three generic strategies and how modern-day startups are putting this advice into practice in order to achieve competitive advantage.
Competitive Strategy #1: Cost Leadership
There are two basic ways to succeed with Porter’s cost leadership strategy. An organization can improve its profit margin by reducing costs while still charging standard industry prices, or it can simply reduce pricing to the lowest point that will maintain a profit and attract more of its competitors’ customers.
Consider the genius of Henry Ford. He may not have invented the automobile, but he certainly revolutionized the auto industry. He developed the most cost-effective way to produce cars by focusing on new technology and best business practices. Ford was able to offer great cars at an affordable price and gain a competitive advantage.
Another great example is Amazon. The online retailer is annihilating its competition by making it easier, quicker and more efficient for people to shop for practically everything they need. Amazon offers such low prices that it’s even giving Walmart a run for it’s money - literally. If video killed the radio star, you better believe that Amazon is about to kill the shopping mall.
Competitive Strategy #2: Differentiation
The differentiation strategy is realized when an entrepreneur creates a “cool” product or service that is trendy and perceived as a status symbol. For some consumers, money is no object when it comes to owning the “latest and greatest” gadget or the “next-big-thing.”
You can’t mention differentiation when it comes to business and not immediately think of Apple. The company created a cult-like following of consumers that are willing to pay more, not only because of the technology, but also because Apple makes beautiful products.
Differentiation would be the precursor word for innovation. To succeed with this method, a company has to be laser-focused on the user experience and everything that goes along with it.
Competitive Strategy #3: Focus
The focus strategy is all about creating niche markets and the products and services that will exist in these markets. By creating an entirely new market, you limit your competition, at least for a certain period of time.
Uber, Airbnb, and even Salesforce are all results of a focused competitive strategy. Each created their own niche markets within the transportation, hospitality, and technology industries.
And while they all have growing competition, they were considered as pioneers in the beginning, which led to a higher level of consumer trust and confidence, and - eventually - market share.
Any entrepreneur or startup organization would be wise to study and learn from Porter’s Generic Competitive Strategies when it comes to their overall business plans.
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We’d love to help you do this. Contact us today and let us help you decide which strategy will work best for your organization.