As you know, I am a postgraduate majoring in Business Administration. I am interested in the all kinds of theories, because they are interesting and can be used to explain the business. Tonight, I'd like to share with you a basic theory: Three Generic Strategies.
Three Generic Strategies was put forward by Michael E.Porter in his book Competitive Strategy in 1990. Michael is a professor of Harvard Business School and one of the greatest management thinker. He has present other theories, like five forces model, value chain and so on.People call him the father of Competitive Strategy, the living legend, Yes, he is still alive and he is only 71 years old.
Three Generic Strategies includes overall cost leadership, differentiation and focus, three kinds of strategies.
First, overall cost leadership strategy, in Chinese 成本领先战略.
It means that a company has to try it’s best to reduce the cost, so it can provide the customer with lower price products. A great deal of managerial attention to cost control is necessary to achieve these aims. For example, the cost minimization in areas like Research and Development, service, sales force, advertising and so on.Achieving a low overall cost position often requires a high relative market share or other advantages, such as favorable access to raw material.
One thing is very important: maintain the quality of your products. Low cost doesn’t mean that the quality of your products is low too. The cost position gives the firm a defense against rivalry from competitors, because its lower cost mean that it can still earn returns after its competitors have competed away their profits through rivalry.
RT-Mart is a typical company who use this strategy. The slogan of it is everyday-low-price. How dose RT-Mart control the cost? One of the reason is that RT-Mart maintain good cooperating relationship with supplies. So they can lower their price.
Second, differentiation strategy, in Chinese 差异化战略.
The second generic strategy is one of differentiating the product or service offering of the firm, creating something that is perceived industrywide as being unique.It means that the firm differentiates the product or service offering of the firm, so it can leave the customer with special impression. Approaches to differentiating can take many forms: design or brand image, technology, features, customer service, dealer network, or other dimensions.
If a company can successfully implement this strategy it can earn more profits because it creates a defensible position from companies. Other company can’t produce the same product. It creates customer loyalty, customers like to buy this kind of products although the price is higher than other products.
Apple. People all over the world like to buy apple. Why?（互动）
for many reasons, such as the the elegant design, Mac system and IOS system, good user experience, or just the logo.Apple has many great engineers and put a lot effort into R&D, so the products of Apple is different from other companies. When you look at it, you know it is Apple’s products, so people are willing to pay their products with high prices.
Third, focus strategy, in Chinese 聚焦战略.
This generic strategy is focusing on a particular buyer group, segment of the product line, or geographic market. For example, clothes only for babies. BalabalaFor example, focus on geographic market. Pulisi is a drinking Water company and it is Jinan’s local company, their products only sell in Jinan.
The entire focus strategy is built around serving a particular target very well, and each functional policy is developed with this in mind. Companies can do better in meeting the needs of particular target. Like the other XDF, the original goal is to help people pass the exam and go broad.If a company want to carry out focus strategy, it has to put the resource, employee and money in this market and abandon other market. So they can be professional in this particular market.
Like Laoganma, produces chilli sauce for many years. The focus of Laoganma is to produce and sale chilli sauce, a very small market in food. Laoganma meets the need for some people like to eat something spicy. So they also can earn big money.
A company has to figure out take what kind of strategy. To analyze the mission and vision of the company, the resource, employee, competitives and so on. So it can find a strategy that it suitable for itself.
Do you still remember the Three Generic Strategies, let’s have a review.
